The cost of hospital readmissions: evidence from the VA

This paper is an examination of hospital 30-day readmission costs using data from 119 acute care hospitals operated by the U.S. Veterans Administration (VA) in fiscal year 2011. We applied a two-part model that linked readmission probability to readmission cost to obtain patient level estimates of expected readmission cost for VA patients overall, and for patients discharged for three prevalent conditions with relatively high readmission rates. Our focus was on the variable component of direct patient cost. Overall, managers could expect to save $2140 for the average 30-day readmission avoided. For heart attack, heart failure, and pneumonia patients, expected readmission cost estimates were $3432, $2488 and $2278. Patient risk of illness was the dominant driver of readmission cost in all cases. The VA experience has implications for private sector hospitals that treat a high proportion of chronically ill and/or low income patients, or that are contemplating adopting bundled payment mechanisms.