A DOSE OF REALITY: UNINTENDED CONSEQUENCES OF PENALIZING HOSPITAL READMISSIONS IN THE PPACA Joel D. Swider* I. INTRODUCTION ....................................................................................... 361 II. ROADMAP ........................................................... ; .................................. 362 III. OVERVIEW OF PROBLEM ...................................................................... 362 A. Decrease in Care Quality ....................................................... 363 B. Decrease in Minority Access to Care ... : ................................ ;.363 C. Increased Hospital Financial Distress ............................ ; ..•.... 364 N. BACKGROUND ................................................ :: .. : ................................. 366 v. STATUTE ................................................................ ; ............................ ~.368 VI. INTENDED CONSEQUENCES .......................................... ;; ..................... 373 VII. UNINTENDED CONSEQUENCES ........................................................... 375 · VIII. PROPOSED SOLUTIONS TO READMISSIONs-WHAT IS A PROVIDER TO Do? ........................................................................................ 377 IX. POLICY IMPLICATIONS OF READMISSIONS REDUCTION ...................... 381 X. PROPOSED SOLUTIONS .......................................................................... 385 XI. CONCLUSION ....................................................................................... 388 I. INTRODUCTION Empirical evidence indicates that the hospital readmissions reduction provision of the Patient Protection and Affordable Care Act of 20101 ("PPACA" or "Affordable Care Act'} will likely reduce Medicare costs over the long term.2 However, this provision also will likely lead to unin­ tended increases in hospital bankruptcies, decreases in quality of care, and decreases in access to care for minority populations. *J.D. Candidate, 2012, Indiana University Robert H. McKinney School of Law; B.A., 2008, University of Virginia. The author wishes to thank his wife Victoria for her patience and support; Bruce Jones, J.D., for his insightful tutelage and meticulous revisions; and John Clark. M.D., J.D., for sharing his wealth ofknowledge and practical expertise. I. Patient Protection and Affordable Care Act of 2010, Pub. L. No. ll1-148, 124 Stat. 119 (2010). 2. Letter from Douglas W. Ell)lendorf, Dir., Congressional Budget Office, to Nancy Pelosi, Speaker, U.S. House of Representatives, providing a final cost estimate of the direct spending and revenue effects of the Patient Protection and Affordable Care Act 26 (Mar. 20, 20 l 0), available at http://www.cbo.gov/ftpdocs/113xx/docll379/ AmendReconProp.pdf. 362 INDIANA HEALTH LAW REVIEW [Vol. 9:1 II. ROADMAP This Note will first provide a definition for what constitutes hospital "readmissions" under the Affordable Care Act. Next, it will highlight the economic harm readmissions pose to federal spending and reining in the budget deficit. Third, this Note will explain Congress' proposed solution to this problem-namely, the Hospital Readmissions Reduction Program­ and its intended outcome of reducing Medicare costs. The majority of this Note will then consist in analyzing the unintended consequences on hospi­ tals and patients, both directly and indirectly, using interviews with Indiana hospital administrators and published data regarding the successful read­ missions reduction efforts of various states and hospitals.3 The Note will conclude by offering possible improvements on the current state of the Hospital Readmissions Reduction Program. III. OVERVIEW OF PROBLEM The phenomenon of hospital readmissions is a prevalent and costly one. According to a 2009 study in the New England Journal of Medicine, almost one-fifth (19.6%) ofhospitalized Medicare patients are readmitted to a hospital within 30 days of their initial stay.4 In 2004, unplanned rehospi­ talizations cost taxpayers roughly $17.4 billion of the total $102.6 billion the government disbursed for Medicare. 5 All told, nearly seventeen percent of the Medicare budget was spent on unplanned readmissions.6 Congress attempted to address this problem as part of the recently passed Affordable Care Act.7 The particular provision, the so-called "Hos­ pital Readmissions Reduction Program'.s ("HRRP" or "Program") goes into effect October 1, 2012, and stipulates that the government will begin tore­ duce the amount it pays to hospitals with "excess readmissions"9 of pa­ tients. The Congressional Budget Office ("CBO") predicts that this program 3. See State Health Watch, Colorado Medicaid Set to Save Millions on Readmis­ sions, PHARMACY CHOICE (July 1, 2010), http://www.pharmacychoice.com/news/article. cfm? Article_ 10=605072. 4. Stephen F. Jencks et al., Rehospitalizations Among Patients in the Medicare Fee­ for-Service Program, 360 NEW ENG. J. MED. 1418, 1426 (2009). 5. Ann Carms, Health Reform Takes Aim at Hospital Readmission Rates, US NEWS & WoRW REPORT (July 21, 2010), http://health.usnews.com/health-newslbest-hospitals/ articles/201 0/07/21/health-reform-takes-aim-at-hospital-readmission-rates.html. 6. 17.4 + 102.6 = 16.96%. 7. Patient Protection and Affordable Care Act of2010, Pub. L. No. 111-148, 124 Stat. 119 (2010). 8. Patient Protection and Affordable Care Act of2010, Pub. L. No. 111-148, § 3025, 124 Stat. 119, 408 (2010) amended by § 10309, 124 Stat. 119, 942 (2010) (codified as amended at 42 U.S.C. § 1395ww(q) (2010)). 9. Seegenerally42 U.S.C. § 1395ww(q)(4)(C)(2010). 2012] CONSEQUENCES OF PENALIZING HOSPITAL READMISSIONS 363 alone will save Medicare an aggregate $7.1 billion by fiscal year 2019.10 However, the measure may have at least three unintended consequences: (A) a decrease in quality of care; (B) a decrease in access to care for minori­ ties; and (C) an increase in hospital financial distress, including increased prevalence of bankruptcy. A. Decrease in Care Quality Cash-strapped hospitals will need to conserve as much federal money as they can, which may create a conflict of interest between quality of care delivered and hospital bottom lines. In an interview with the National Law Journal, Anna Grizzle, a partner at Bass, Berry, and Sims in Nashville, Tennessee, who represents health care providers, explained that cost-cutting will be "crucial" to the survival of publicly funded hospitals in the era of the Affordable Care Act. u She anticipates that hospitals will be faced with more difficult dilemmas as to who should receive care and under what con­ ditions: "[F]or example, a patient who comes in with a heart attack, is that person readmitted for care?"12 The humanitarian in us hopes so; however, under the Affordable Care Act, the hospital will be penalized for this read­ mission. Therefore, hospitals will "need to look for ways to ensure those patients are not readmitted.''13 This may create a kind of race to the bottom in which hospitals are forced to cut back on services in order to remain via­ ble. Indeed, a New England Journal of Medicine study published in De­ cember 2011 found, somewhat paradoxically, that there was "a substantial association" between "overall [hospital] admission rates" and "rates of re­ hospitalization."14 The study indicated that "lower utilization of hospital services might be more successful in reducing readmissions"15 than other methods tried to date. B. Decrease in Minority Access to Care Beyond the problem of care quality lies the troubling fact that read­ missions tend to be higher in hospitals that treat a greater proportion of Af- 10. Letter from Douglas W. Elmendorf, Dir., Congressional Budget Office, to Nancy Pelosi, Speaker, U.S. House of Representatives, providing a final cost estimate of the direct spending and revenue effects of the Patient Protection and Affordable Care Act 26 (Mar. 20, 2010), available at http://www.cbo.gov/ftpdocs/ll3xx/docl1379/AmendReconProp.pdf. 11. Amanda Bronstad, Suit over Hospital's Closure Could be a Harbinger, NAT'L L.J. (Aug. 23, 2010), http://www.law.com/jsp/nlj/PubArticleNU.jsp?id=1202470936728& sire­ turn= 1&hbxlogin'"' 1 #. 12. /d. 13. /d. 14. Arnold M. Epstein et al., The Relationship Between Hospital Admission Rates and Rehospitalizations, 365 NEW ENG. J. MED. 2287,2287 (2011). 15. /d. 364 INDIANA HEALTH LAW REVIEW [Vol. 9:1 rican-Americans and needy patients.16 This situation makes sense consider­ ing the direct correlation between inferior socio-economic conditions and poor population health.17 In addition, patients who are beneficiaries ofboth Medicare and Medicaid-a status known as dual-eligibility-are monitored on a yearly basis, rather than a simple thirty-day cycle.18 Thus, hospitals treating dual-eligible patients have an entire yearlong period during which to worry about preventing readmissions. Dual-eligible patients also tend to be sicker than the average Medicare enrollee.19 Add to this the fact that more than half of public hospital patients are racial and ethnic minorities, 20 and it becomes· readily apparent that the hospitals that have the most to lose are those with higher minority and poor patient populations. If a communi­ ty hospital is experiencing increased pressure to cut patient services, then the entire community suffers. Thus, the Program may stand to dispropor­ tionately penalize public hospitals that are the most tasked with treating mi­ norities and the poor. C. IncreasedHospital Financial Distress · Finally, in recent years, an increasing number of hospitals throughout the country have filed for bankmptcy.21 According to Anna Grizzle and 16. Karen E. Joynt et al., Thirty-Day Readmission Rates for Medicare Beneficiaries by Race and Site pf Care, 305 JAMA 675, 675 (2011 ); Richard Cooper, Hospital Readmis­ sion Policy Flawed, ACTION FOR BETTER HEALrncARE BLOO (Aug. 13,. 2010), http://actionforbetterhealthcare.com/?p=l067; see also Roxana Guilford-Blake, Medicaid Status, Race Linked with Hospital Readmissions, HEALrnLEADERS MEDIA, Oct. 15, 2010, http://V.WW.liealthleadersmedia.com/content!LED-257766/Medicaid-Status-Race-Linked­ with-Hospital-Readmissions (finding that, after adjustments for other variables, being Afri­ can-American raises risk of readmission by forty-three percent and being a Medicaid benefi­ ciary raises risk of readmission by fifteen percent); but see Lena M. Chen et al., Hospital Cost of Care, Quality of Care, and Readmission Rates: Penny-Wise and Pound-Foolish?, 170 ARCHIVES INTERNAL MED. 340, 340 (2010) (finding limited evidence to support the "penny-wise and pound-foolish" hypothesis: that low-cost hospitals discharge patients earli­ er but have higher readmission rates and greater downstream inpatient costs). 17. For an analysis of the relationship between poverty and ill-health, see Adam Wagstaff, Poverty and Health Sector Inequalities, 80(2) BULL. WORlD HEALrn ORG. 97, 97- 100 (2002), available at http://www.who.int/docstore/bulletin/pdf/2002/bul-2-E-2002/80% 282o/o2997-1 05.pdf. 18. Telephone interview with John Clark, Medical Director of Clinical Informatics, Indiana University Health (Feb. 2, 2011 ). 19. MEDICARE PAYMENT ADVISORY CoMM'N, REPoRT TO 1HE CONGRESS: MEDICARE AND 1HE HEALrn CARE DELIVERY SYSTEM 123 (2011), available at http://www.medpac.gov/ documents/jun11_entirereport.pdf, telephone interview with John Clark, Medical Director of Clinical Informatics, Indiana University Health (Feb. 2, 2011). 20. MARSHA REGENSTEIN & DoNNA SICKLER, NAT'L Ass'N OF PuB. HOSP. & HEAL1H SYS., RACE, BTHNICITY, AND LANGUAGE OF PATIENTS: HOSPITAL PRACTICES REGARDING COLLECTION OF INFORMATION TO ADDRESS DISPARITlES IN HEALrn CARE ix (2006), available at http://www.naph.org/Main-Menu-Category/Our-Work/Health-Care-Disparities/race eth­ nicityandlanguageofpatients.aspx?FT=.pdf. 21. Bronstad, supra note 11. 2012] CONSEQUENCES OF PENALIZING HOSPITAL READMISSIONS 365 others, this is due to mounting and unsustainable pressures on hospitals to cut costs.22 These pressures include growing costs, decreasing revenues, and unsustainable debt loads.23 A New York City hospital executive was quoted as saying, If you've accumulated any reserve over time, the first thing you do is eat it up.· Then you cut costs on staff­ ing and support services, sometimes below levels you know are safe. Then you stop spending money to keep your physical plant and equipment up to date ... . Then, when there's nothing else you can do, you de­ clare bankruptcy?~ The danger then becomes that "[r]emaining hospitals, struggling to cope with the costs imposed by an influx of new, mostly poor patients left behind by the places that shut down, will increasingly be overcrowded and understaffed. Services will be curtailed. Facilities will be degraded. Long waits and uneven care could become the norm. "25 Grizzle likewise predicts that pressures such as these are set to intensify with the implementation of the HRRP?6 Although lawmakers may have been unaware of these unintended consequences at the time the Affordable Care Act was passed,27 many of these same criticisms were brought before the Centers for Medicare and Medicaid Services ("CMS") during the notice-and-comment period28 prior to publishing its final rule29 regarding the HRRP. Since CMS changed al­ most nothing about the Program between issuing the proposed rule and the 22. !d. 23. Mark Levine, St. Vincent's is the Lehman Brothers of Hospitals, N.Y. MAG., Oct. 17, 2010, available at http://nymag.com/news/features/68991!. 24. Jd 25. ld 26. Bronstad, supra note 11. 27. See, e.g., Jordan Fabian, Key Senate Democrat Suggests that He Didn't Read En­ tire Healthcare Reform Bill, 1HE HILL'S BLOG BRIEFING RooM (Aug. 25, 2010, 09:40AM), http://thehill.com/blogs/blog-brieting-roornlnews/115749-sen-baucus-suggests-he-did-not­ read-entire-health-bill; David Freddoso, Pelosi on Health Care: 'We Have to Pass the Bill so You Can Find out What Is in It ... ', WASH. EXAM'R (Mar. 9, 2010, 4:00 AM), http://washingtonexaminer.com/blogslbeltway-confidentiallpelosi-health-care-039we-have­ pass-bill-so-you-can-find-out-what-it039. 28. See Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Fiscal Year 2012 Rates, 76 Fed. Reg. 25,788 (proposed May 5, 2011) (to be codified at42 C.F.R. pts. 412,413, 476). 29. Medicare Program; Hospital Inpatient Prospective Payment Systems fo.- Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and FY 2012 Rates; Hospitals' FTE Resident Caps for Graduate Medical Education Payment, 76 Fed. Reg. 51,476 (Aug. 18, 2011) [hereinafter CMS Final Rule] (to be codified at 42 C.F.R. pts. 412, 413, 476). 366 INDIANA HEALTH LAW REVIEW [Vol. 9:1 final rule, lawmakers should amend the Affordable Care Act to address the­ se issues in light of new research and other critical analyses. N. BACKGROUND The concept of hospital readmission (also called rehospitalization) is relatively simple and also relatively broad-a patient, upon discharge from a hospital, is soon thereafter readmitted to the same or a different hospital for the same or a different condition.30 The main problem with readmitting patients is that this "sometimes indicate[s] poor care or missed opportuni­ ties to better coordinate ca:re,.u1 especially if a readmission is unplanned and is related to the patient's original condition. Research has indicated that excessive readmissions can be avoided through better communication between caregivers. and patients and better coordination of care following discharge.32 In its June 2007 report to Congress, the Medicare Payment Advisory Commission (''MedP AC") noted that Medicare has not previously rewarded hospitals' efforts to reduce readmissions.33 To the contrary, Medicare "pays for all admissions based on the patient's diagnosis regardless of whether it is an initial stay or a readmission for the same or a related condition.'.34 As a result, there is no incentive for hospitals to cut down on readmission rates. In fact, with its system of "case-based payments that reward hospitals for shorter lengths of stay,"35 hospitals are perhaps even "more likely to dis­ charge patients earlier," regardless of any increased risk of readmission. 36 This is a prevalent problem. In 2005, 6.2% of hospitalizations among Medicare beneficiaries resulted in readmission within seven days, and 17.6% of hospitaliiations resulted. in readmission within thirty days. 37 A study in the New England Journal of Medicine pegged the rate of Medicare beneficiaries requiring readmission· within thirty days of initial discharge even higher, at 19.6%, or almost one-fifth of patients.38 Furthermore, 67.1% of patients discharged following a hospitalization related to a medi­ cal condition and 51.5% of those discharged after surgical procedures were 30. Hospital Readmissions Meanlres, U.S. DEP'T OF HBALm & HUMAN SER.vs., http://www.hospitalcompare.hhs.gov/staticpages/for-consumerslooc/readmission­ measures.aspx (last visited Jan. 27, 2012). 31. MEDICARE PAYMENT ADVISORY CoMM'N, REPoRT TO mE CoNGRESS: PROMOTING GREATER EFFICIENCY IN MEDICARE 105 (2007), available at http://www.medpac.gov /documents/Jun07 _ EntireReport.pdf. 32. Id 33. Id 34. /d. 35. Id. 36. Id. at 105-6. 37. Id at 107. 38 .. Stephen F. Jencks et al., Rehospitalizations Among Patients in the Medicare Fee­ for-Service Program, 360 NEW ENG. J. MEn. 1418, 1420 (2009). 2012] CONSEQUENCES OF PENALIZING HOSPITAL READMISSIONS 367 rehospitalized or died within a year. 39 This is also a very costly problem. In 2005, the average Medicare payment for a ''potentially preventable readmission" was $7,200.40 Re­ searchers have estimated that the aggregate Medicare cost of unplanned rehospitalizations in 2004 was $17.4 billion.41 Nonetheless, as evidenced by hospitals with comparatively lower rates of readmission, this problem is potentially a solvable one. For example, 2005 data shows that the fifteen-day readmission rate ranges from six per­ cent for hospitals in the top tenth percentile to double that, or twelve per­ cent, for hospitals in the ninetieth percentile.42 It should also be noted that readmission rates are affected in large part by the mix of cases a particular hospital sees.43 In light of this problem and its lack of a clear market-based solution, MedP AC provided the framework for a two-step policy meant to address the problem of excessive readmissions through financial incentives that re­ ward hospitals for reducing their readmission numbers.44 The first prong of the suggested strategy is to collect and publicize data regarding hospital­ specific readmission rates for certain medical conditions.45 ''This will en­ sure that hospitals know their rates and how they compare with those of their peers and will allow beneficiaries and other providers to use this in­ formation when they make health care decisions or admit patients.'.46 As the second prong, MedP AC recommends that, "[ a]fter a year or two, public disclosure could be complemented by a change in payment rates, so that hospitals with high risk-adjusted rates of readmission receive lower average per case payments.'o47 MedPAC declined to give any guidance as to how or at what rate these lower average case payments were to be meted out.48 MedP AC also pointed out that holding each provider along the continuum49 accountable would be an "important parallel policy" to encourage decreas­ ing readmissions, since ultimate success in reducing readmission rates and attendant costs depends upon efficiency and coordination among all mem­ bers of the provider chain. 50 Finally, MedPAC advocated payment incen- 39. /d. at 1421. 40. MEDICARE PAYMENT ADVISORY CoMM'N, supra note 31, at 108. 41. Jencks et al., supra note 38, at 1426. 42. MEDICARE PAYMENT ADVISORY CoMM'N, supra note 31, at 108-9. 43. /d. at 109. 44. /d. at 103, 114. 45. /d. at 114. 46. /d. 47. /d. 48. Id at 261. 49. The "continuum" of care encompasses the comprehensive array of health service professionals who see a given patient for treatment. This includes physicians, skilled nurs­ ing facilities, home health providers, and other providers. See MEDICARE PAYMENT ADVISORY COMM'N, supra note 31, at 114. 50. MEDICARE PAYMENT ADVISORY CoMM'N, supra note 31, at 114. 368 INDIANA HEALTH LAW REVIEW [Vol. 9:1 tives to reward quality care. 51 Prior to passage of the Affordable Care Act, CMS began implement­ ing the first prong of the MedP AC strategy. Beginning in 2002, in associa­ tion with the Hospital Quality Alliance, CMS began collecting data from hospitals on a voluntary basis for the purpose of making "important infor­ mation about hospital performance accessible to the public and to inform and invigorate efforts to improve quality.'.s2 With passage of the Afforda­ ble Care Act, CMS began requiring hospitals that treat Medicare patients to submit readmissions data, 53 specifically regarding three conditions: acute myocardial infarction (heart attack), congestive heart failure, and pneumo­ nia.54 This data is available on the CMS "Hospital Compare" Internet web­ site. 55 The website also includes a comparison of each hospital's statistics to national averages. While patients and potential patients have undoubted­ ly benefited through greater transparency and a larger volume of data to compare in making hospital decisions, the program lacked any real mecha­ nism to encourage hospitals to reduce readmissions until passage of the Af­ fordable Care Act. V. STATUTE Heeding MedPAC's advice, 56 in 2010, Congress attempted to address some of the problems with the state of hospital readmissions through pas­ sage of the Affordable Care Act. 57 In particular, section 3025,58 as amended by section 1 030959-the "Hospital Readmissions Reduction Program•.60_ provides as follows: (1) In General. [B]eginning on or after October 1, 2012, in order to account for excess readmissions in 51. Id. at 77, 114. 52. Medicare Hospital Compare ,Glossary, U.S. DEP'T OF HEALTII AND HUMAN SERvs., http:/lwww.hospitalcompare.hhs.gov/staticpageslhelplhospital-glossary.aspx?Choice =H (last visited Jan. 21, 2012). 53. 42 u.s.c. § 1395ww(q)(8)(B) (2010). 54. See Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2009 Rates, 73 Fed. Reg. 48,434,48,602 (Aug. 19, 2008). 55. Hospital Compare, U.S. DEP'T OF HEAL Til AND HUMAN SERVS., http://www. hos­ pitalcompare.hhs.gov/ (last updated Jan. 26, 2012). 56. CMS Final Rule, 76 Fed. Reg. 51,476, 51,778 (Aug. 18, 2011) (to be codified at 42 C.F.R. pts. 412, 413, 476); see generally MEDICARE PAYMENT ADVISORY COMM'N, supra note31. 57. Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, 124 Stat. 119 (2010). 58. Patient Protection and Affordable Care Act o£2010, Pub. L. No. 111-148, § 3025, 124 Stat. 119 (2010) (codified as amended at 42 U.S.C. § 1395ww(q) (2010)). 59. Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, § 10309, 124 Stat. 119 (2010)(codified as amended at 42 U.S.C. § 1395ww(q) (2010)). 60. 42 u.s.c. § 1395ww(q) (2010). 2012] CONSEQUENCES OF PENALIZING HOSPITAL READMISSIONS the hospital, the Secretary shall make payments ... in an amount equal to the product of- (A) the base operating DRG payment amount ... for the discharge; and (B) the adjustment factor ... for the hospital for the fiscal year. (2) Base operating DRG ["diagnosis related group"] payment amount defined. (A) In general. [T]he term ''base operating DRG payment amount" means, with respect to a hospital for a fiscal year-- (i) the payment amount that would otherwise be made ... for discharge if this subsection did not apply · (3) Adjustment factor. (B) Ratio. The ratio described in this subpara­ graph for a hospital for an applicable period is equal to 1 minus the ratio of-- (i) the aggregate payments for excess readmis- · sions ... and (ii) the aggregate payments for all discharges .. (4) Aggregate payments, excess readmission ratio de­ fined. For purposes of this subsection: (A) [T]he term "aggregate payments for excess re­ admissions" means, for a hospital for an applicable period, the sum, for applicable conditions ... , of the product, for each applicable condition, of-- (i) the base operating DRG payment amount for such hospital for such applicable period for such con­ dition; (ii) the number of admissions for such condi­ tion for such hospital for such applicable period; and (iii) the excess readmissions ratio . . . for such hospital for such applicable period minus l. (B) [T]he term "aggregate payments for all dis­ charges" means, for a hospital for an applicable peri­ od, the sum of the base operating DRG payment amounts for all discharges for all conditions from such hospital for such applicable period. (C) Excess readmission ratio. (i) [T]he term "excess readmissions ratio" means, with respect to an applicable condition for a hospital for an applicable 369 370 INDIANA HEALTH LAW REVIEW period, the ratio (but not less than 1.0) of- (1) the risk adjusted readmissions based on actual readmissions ... for an applicable hospital for such condition with respect to such appli­ cable period; to (II) the risk adjusted expected readmissions . . . for such hospital for such condition with respect to · such applicable period.61 [Vol. 9:1 In other words, starting in fiscal year 2013, the typical, prospective di:­ agnosis related group ("DRG") payment that Medicare makes to a hospital will be reduced based on the number of readmissions at that hospital above the national average readmission rate62 for a particular condition. This payment reduction will apply to all Medicare discharges for that condition, even those that did not result in a readmission.63 Thus, once the threshold is met, the hospital is penalized whether or not it later curtails readmissions for the rest of that year. Presently, DRG payments are issued prospectively based on the phy­ sician's documentation of a patient's diagnosis.64 The U.S. Department of Health and Human Services ("HHS") also takes into account such things as prevailing wage rates in the hospital's geographic region.65 But these base amounts are always multiplied by the DRG ''weight" as an adjustment fac­ tor, which varies depending on the national average standardized cost per case for a specific type of diagnosis. 66 The weights are generalized based on diagnosis because they are· intended to account for cost variations be­ tween different treatments for the same condition; some patients may re~ quire more costly care (for example, a longer-than-average hospital stay) while some patients may respond extremely well to less expensive treat- 61. /d. 62. There is actually nothing in the statute that mentions national averages per se, but DRG payments are currently calculated based on such a scheme, and MedPAC's Jun~ 2007 Report to tlle Congress, from which many of tlle ideas for tlle PP ACA's readmissions reduc­ tion provision came, calculated expected rates as based on ''the average rate of readmission across all hospitals, controlling for all patient refined diagnosis related group and severity class of patients." Presumably, tlle term "risk adjusted expected readmissions" takes into account a national average. See MEDICARE PAYMENT ADVISORY CoMM'N, supra note 31, at 111-12. 63. See 42 U.S.C. § 1395ww(q)(4XA) (2010) for tlle precise calculation. 64. Social Security Act§ 1886(d), 42 U.S.C. § 1395ww(d) (2010); PAUL GoTTLOBBR ET AL., U.S. DEP'T OF HEALTH & HUMAN SBRVS., MEDICARE HOSPITAL PROSPECTIVE PAYMENT SYSTEM: How DRG RATES ARE CALCULATED AND UPDATED 1, 5 (2001), available at http://oig.hhs.gov/oei/reports/oei-09-00-00200.pdt: · 65. PAUL GoTTLOBBR ET AL., U.S. DEP'T OF HEALTH AND HUMAN SBRVS., MEDICARE HOSPITAL PROSPECTIVE PAYMENT SYSTEM: How DRG RATES ARE CALCULATED AND UPDATED 6-7 (2001 ), available at http://oig.hhs.gov/oei/reports/oei-09-00-00200.pdt: 66. /d. at8. 2012] CONSEQUENCES OF PENALIZING HOSPITAL READMISSIONS 371 ment. 67 In the end, these payments should average out to properly reim­ burse the hospital for its costs of care. Thus, the "excess readmissions ratio" limits the base operating DRG payments in an amount equal to the ratio of actual readmissions to "ex­ pected readmissions.'.68 The statute does not give a definition of how ex­ pected readmissions should be calculated, but the CMS final rule states that expected readmissions are the sum of ''the probability of readmission for each patient at an average hospital. ,.69 The probability of readmission is calculated using "[t]he intercept term for the model (the same for all hospi­ tals ... )" and "[t]he increase or decrease in the probability of readmission contributed by each of the patient's risk factors (risk adjustment coefficients multiplied by the patient's risk factors ... ).''70 The statute defines a "re­ admission" as, "in the case of an individual who is discharged from an ap­ plicable hospital, the admission of the individual to the same or another applicable hospital within a time period specified by the Secretary from the date of such discharge.'.n The final rule provided that ''The time period specified ... is 30 days.'m Within the three categories of so-called "endorsed measures,'m Con­ gress carved out "exclusions for readmissions that are unrelated to the prior discharge (such as a planned readmission or transfer to another applicable hospital)."74 However, in 2015, the HHS Secretary shall, to the extent prac­ ticable, expand the applicable conditions beyond the 3 conditions for which measures have been endorsed . . . to the additional 4 conditions that have been identified by the Medicare Payment Advisory Commission in its re­ port to Congress in June 2007 and to other conditions and procedures as determined appropriate by the Secretary. 75 These other ·~appropriate" conditions will be updated by the Secretary of Health and Human Services through regulations/6 but CMS indicated that it initially still "plan[ s] to consider the remaining four conditions'm contemplated by MedPAC.78 These conditions include chronic obstructive 67. See generally id 68. 42 u.s.c. § 1395ww(q)(4)(C)(i)(2010). 69. CMS Final Rule, 76 Fed. Reg. 51.476, 51,675 (Aug. 18, 2011) (to be codified at 42 C.F.R. pts. 412,413, 476). 70. /d. 71. 42 U.S.C. § 1395ww(q)(5)(E) (2010) (emphasis added). 72. CMS Final Rule, 76 Fed. Reg. 51,476, 51,666 (Aug. 18, 2011) (to be codified at 42 C.F.R. pts. 412,413, 476). 73. 42 U.S.C. § 1395ww(q)(5)(A)(ii)(ll) (2010). The three endorsed measures are acute myocardial infarction, congestive hearHaihrre, and pneumonia. U.S. DEP'T OF HEALm & HUMAN SERVS., supra note 55. 74. 42 U.S. C. § 1395ww(q)(5)(A)(ii)(II) (2010). 75. 42 U.S. C. § 1395ww(q)(5)(B) (2010). 76. CMS Final Rule, 76 Fed. Reg. 51,476, 51,664 (Aug. 18, 2011) (to be codified at 42 C.F.R. pts. 412,413, 476). 77. /d. 78. See MEDICARE PAYMENT ADVISORY COMM'N, supra note 31. 372 INDIANA HEALTH LAW REVIEW [Vol. 9:1 pulmonary disease (COPD), coronary artery bypass graft surgery (CABG), percutaneous transluminal coronary angioplasty (PTCA), and "other vascu­ lar" surgery admissions. 79 There are certain limited exemptions to the readmissions payment re­ duction for "sole community hospitals" and for "medicare-dependent, small rural hospitals.'.so Hospitals which treat ''fewer than a minimum number (as determined by the Secretary) of discharges for such applicable condition for the applicable period'.s1 are also exempt from the payment reduction. Ap­ parently Congress thought that the importance of maintaining access to the­ se hospitals outweighed the risk of possible service cutbacks or financial decline as a result of the Program. Finally, the Affordable Care Act's HRRP82 includes a "floor adjust­ ment factor," which cannot be lower than 0.99 for fiscal year 2013, 0.98 for fiscal year 2014, or 0.97 for fiscal years 2015 and later.83 This means that the largest potential payment reduction a hospital could receive would be 1% in fiscal year 2013, 2% in fiscal year 2014, and 3% in fiscal years 2015 and beyond. 84 This "phased-in approach'.s5 allows hospitals some time to ease into the program and make adjustments before the full penalty kicks into effect. Other provisions within the Affordable Care Act require that, by March 2012, the HHS Secretary develop ''reporting requirements" for use by health plans to "implement activities to prevent hospital readmissions through a comprehensive program for hospital discharge that includes pa­ tient-centered education and counseling, comprehensive discharge planning, and F,St discharge reinforcement by an appropriate health care profession­ al."8 Some may say these reporting and concrete program implementation requirements should sugpiant, rather than augment, any requirement for total readmission rates. Nonetheless, Congress apparently saw both as important as it ultimately required both. There still exist some uncertainties regarding the exact details of the HRRP. Although the CMS regulations issued in August 2011 comprise a ''final rule,'.s8 there are a number of decisions the HHS Secretary still must 79. ld at 116. 80. 42 U.S.C. § 1395ww(q)(2)(BXi) (2010). 81. 42 U.S.C. § 1395ww(q)(4XC)(ii) (2010). 82. See 42 U.S.C. § 1395ww(q) (2010). 83. 42 u.s.c. § 1395ww(q)(3)(C)(i)-(iii) (2010). 84. See SHARON BURNETT, Mo. HOSP. Ass'N, HOSPITAL READMISSIONS REDUCTION PROGRAM 1 (2010), available at http://web.mbanet.com/UserDocs/Hospital_Readmissions_ Reduction_ Program. pdf. 85. CMS Final Rule, 76 Fed. Reg. 51,476, 51,662 (Aug. 18, 2011) (to be codified at 42 C.F.R. pts. 412,413, 476). 86. Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, § 2717(a)(1)(B), 124 Stat. 119, 135 (2010). 87. See infra Part X. 88. CMS Final Rule, 76 Fed. Reg. 51,476, 51,664 (Aug. 18, 2011) (to be codified at 2012] CONSEQUENCES OF PENALIZING HOSPITAL READMISSIONS 373 make in order to flesh out the program entirely. Most momentous among these include: precise calculations of the base operating DRG payment amount, including policies for sole community hospitals and Medicare­ dependent, small rural hospitals; both the ratio and floor adjustment factors; calculations of aggregate payments for excess readmissions; and the defini­ tion of an "applicable hospital.'.s9 Although a thirty-day post-discharge pe­ riod was selected as the basis for examining readmission rates, CMS also mentioned its intent to ''revisit the episode length in future rulemaking as we gain more experience."90 Moreover, CMS listed stroke and total hip and total knee arthroplasty (replacement) readmission data as possible future measures for the Inpatient Quality Reporting ("IQR") program.91 Although this does not necessarily indicate that these quality measures would become part of the Program, IQR data are reported on the HHS Hospital Compare website, which currently includes only the three initial measures used in the Program. 92 Finally, CMS stated that it would consider, in future rulemak­ ing, implementation of an appeals process for hospitals unsatisfied with their calculated expected readmissions ratios93 as well as ''the benefits of publicly reporting the patient mix characteristics and the pre- and post­ patient-mix adjusted HCAHPS [(Hospital Consumer Assessment of Healthcare Providers and Systems)] scores of participating hospitals."94 VI. INTENDED CONSEQUENCES "In the middle of difficulty lies opportunity. " -Albert Einstein95 While decreasing readmissions will not happen overnight, there are several. positive indications that rates may be controllable. Interestingly, thirty-day rehospitalization rates during fiscal year 2004 ranged from 13.3% 42 C.F.R. pts. 412,413, 476). 89. /d. at 51,663. 90. Id. at51,619. Seealsoitifi'aPartX. 91. CMS Final Rule, 76 Fed. Reg. 51,476, 51,637 (Aug. 18, 2011) (to be codified at 42 C.F.R. pts. 412, 413, 476). The IQR program was designed to provide health care con­ sumers with more information regarding acute-care hospital performance in order to increase consumer choice while also giving hospitals a greater incentive to improve outcomes. Hos­ pital participation in the IQR program is optional, but hospitals that do not participate re­ ceive an automatic two-percent deduction in their annual reimbursement rates. Hospital Inpatient Quality Reporting (IQR) Program Overview, QuALITYNET, http://qualitynetorg/ dcs/ContentServer?c=Page&pagename=QnetPublico/o2FPage%2FQnetTier2&cid= 11381159 87129 (last visited Feb. 3, 2012). 92. Hospital Compare, U.S. DEP'T OF HEALTH & HUMAN SERVS., http://www.hospital compare.hhs.gov/ (last updated Jan. 26, 2012) .. 93. CMS Final Rule, 76 Fed. Reg. 51,476, 51,673 (Aug. 18, 2011) (to be codified at 42 C.F.R. pts. 412,413, 476). 94. Id. at 51,660. 95. ALBERT EINSTEIN, THE ULTIMATE QuOTABLE EINSTEIN 480 (Alice Calaprice ed., 2011). 374 INDIANA HEALTH LAW REVIEW [Vol. 9:1 (in Idaho) to 23.2% (in the District of Columbia).96 The rehospitalization rate was wholly 45% higher in the five states that had the highest rates than in the five states that had the lowest rates.97 Generally, the Western states (with the exceptions of California and Arizona) had the lowest readmission rates while the Eastern and Midwestern states had the highest rates.98 While regional differences in physician mentality or patient compliance may ac­ count for some of these differences, it cannot adequately explain, for exam­ ple, why lllinois had a 21.7% readmission rate while just to the north, Wisconsin had only 17.00/o; or why Kentucky had a 21.2% readmission rate while neighboring Indiana had only a 17.7% rate.99 While these differences may be baffling, they tend to point toward an important reality: readmission rates may be, more or less, within a provider's control. Perhaps, then, Tex­ as (19.4% readmissionsi00 could learn something from New Mexico (16.3% readmissions),101 and hospitals nationwide could learn something from Idaho, with its nation-low 13.3% readmission rate.102 MedP AC and CMS have also indicated their conviction that readmis­ sions are a controllable problem.103 In its June 2007 report to Congress/04 MedP AC offered several solutions to help ease the growing readmission problem. These are discussed in Part VITI, above. According to a March 2010 CBO report, the Hospital Readmissions Reduction Program should save $100 million in fiscal year 2013; $300 million in 2014; $1.1 billion in 2015; $1.3 billion in 2016 and 2017; $1.4 billion in 2018; and $1.5 billion in 2019.105 All told, this provision alone could thus save at least $7.1 billion by 2019.106 Since the payment reduction factor is determined as a ratio of excess readmissions compared to overall discharges, it seems that hospitals whose numbers are lagging compared to their peers might remedy this predicament by choosing to see more total patients. This would increase the denomina­ tor and thereby lower excess readmissions as a portion of overall readmis- 96. Jencks et at., supra note 38, at 1424. 97. Id at 1423. 98. ld at 1424. 99. Id 100. Jd 101. Id 102. Id 103. See CMS Final Rule, 76 Fed. Reg. 51,476,51,660 (Aug. 18, 2011) (to be codified at 42 C.P.R. pts. 412, 413, 476) (''Many studies have demonstrated ... that hospitals and their partners have the ability to lower readmission rates."). 104. MEDICARE PAYMENT ADVISORY COMM'N, supra note 31. 105. Letter from Douglas W. Elmendorf: Director, Cong. Budget Office, to Nancy Pelosi, Speaker, U.S. House of Representatives, providing a final cost estimate of the direct spending and revenue effects of the Patient Protection and Affordable Care Act, tbl. 5, at 4 (Mar. 20, 2010), available at http://www.cbo.gov/ftpdocs/113xx/d