The Hospital Readmissions Reduction Program and Observation Hospitalizations

Area of Science:

• Health Services Research
• Health Policy Analysis
• Healthcare Economics

Background:

• The Centers for Medicare & Medicaid Services (CMS) Hospital Readmissions Reduction Program (HRRP) aims to reduce hospital readmissions.
• Observation hospitalizations are increasingly common and clinically similar to inpatient stays.
• Current HRRP methodology excludes observation hospitalizations from both index and rehospitalization counts.

Purpose of the Study:

• To model the impact of including observation hospitalizations on HRRP metrics.
• To quantify the extent to which HRRP undercounts rehospitalizations due to observation status.

Main Methods:

• Utilized 100% of 2014 Medicare fee-for-service claims data.
• Applied CMS's 30-day rehospitalization methodology.
• Modeled the effect of counting observation hospitalizations as both index stays and 30-day rehospitalizations.

Main Results:

• Of over 3.8 million index hospitalizations, 11% were observation stays.
• 18% of rehospitalizations were missed by HRRP due to observation status.
• Observation hospitalizations were excluded as index stays (34%), 30-day outcomes (53%), or both (13% of missed rehospitalizations).

Conclusions:

• Excluding observation hospitalizations leads to a significant underestimation of hospital readmissions under HRRP.
• Policymakers should consider incorporating observation stays into HRRP calculations.
• Addressing the distinction between observation and inpatient billing may enhance the fairness and accuracy of readmission reduction programs.