Hospital Readmission Reduction Program Penalties for Hospitals With High Medicare Advantage Penetration

Area of Science:

• Health Services Research
• Healthcare Policy
• Health Economics

Background:

• The Hospital Readmissions Reduction Program (HRRP) penalizes hospitals for excess readmissions among traditional Medicare (TM) beneficiaries.
• Medicare Advantage (MA) enrollment is rising, with MA beneficiaries often being healthier than TM patients, potentially creating unobservable differences in patient severity.

Purpose of the Study:

• To investigate if unobserved patient selection, indicated by MA penetration, distorts HRRP penalties.
• To assess the impact of peer grouping, introduced in 2019, on these potential distortions.

Main Methods:

• Retrospective cohort study of hospitals from fiscal years 2019-2022, analyzing 6 HRRP-targeted conditions.
• Examined the association between MA penetration and excess readmission ratios (ERRs), controlling for covariates.
• Rescaled ERRs by MA penetration and reestimated HRRP penalties under different grouping paradigms.

Main Results:

• Hospitals with lower MA penetration faced higher penalties, while those with higher MA penetration faced lower penalties after adjustment.
• Estimated annual penalty redistributions range from $284 to $297 million.
• Peer grouping did not mitigate the observed penalty distortions.

Conclusions:

• Unobserved patient selection associated with MA penetration can distort HRRP penalties.
• Explicitly including MA penetration in risk adjustment or peer group definitions may reduce these distortions.