The Definitive Blog

Readmission Prevention Not Always Worth the (Financial) Cost

A recent study that has been covered in several news outlets proposes an interesting conclusion: hospital quality improvement initiatives that successfully reduce preventable readmissions may not always be cost effective. The study, “Economic Evaluation of Quality Improvement Interventions Designed to Prevent Hospital Readmission,” examined previous research on the cost and effectiveness of quality programs at hospitals in the US and over the world. Despite its conclusions, hospital administrators would be wise not to discount the value of their readmissions control programs, due to the study’s limitations and other considerations beyond its scope.

The study focused on heart failure, a common source of readmissions and one of the conditions targeted in CMS’ Readmission Reduction Program, and readmissions for all other patients. Its review of existing literature that ranged in date from 1995 to 2016 reported a combined decrease in readmission rates of 12.1% and 6.3% for heart failure and other conditions, respectively. It also concluded that the average hospital saved $979 for each prevented readmission of a heart failure patient, but lost $169 for all other types of patients.

One of the key issues the study omits is the impact of the Readmission Reduction Program, which can deduct up to three percent of a hospital’s Medicare payments if its readmissions levels are too high. Most of the studies it examines were conducted prior to 2012, the first year the penalty for excess readmissions was introduced. The studies after 2012 do not directly address the costs associated with the CMS program, and usually treat costs and savings in terms of overall healthcare spending rather than an individual hospital’s budget. How a readmission could “cost” a hospital is not immediately clear, either, especially given the fact that the reduction program was introduced primarily because they could prove lucrative to US hospitals in the past. The hospital would use more resources and public health spending would rise, but it would still be paid for the care it provided, presumably at a level that allowed some degree of profit.

The study does estimate the median three-year cost of implementing a quality improvement program designed to reduce readmissions, which could be used to find the value of potentially avoiding penalties under the Readmissions Reduction Program. While not necessarily reflective of all US hospitals, the study estimated the median cost of a quality program to be $270,000 over three years. Based on Definitive Healthcare estimates of hospital revenue loss due to the reduction program from 2015 to 2017 (and during which a hospital was penalized each year), the median hospital’s three-year total was about $292,000. However, the figure also includes hospitals with quality programs, making a value analysis difficult. An alternate scenario in which no hospitals had quality programs and received the maximum penalty of three percent produced a total median three-year loss of $1.8 million, far more than the estimated quality program cost. While these are broad estimates, the study suggests that a hospital could lose money from a readmissions reduction initiative if its costs overshadowed any potential penalties. A small number (161) of hospitals had fewer than $270,000 in penalties under the three percent scenario.

Hospitals Penalized* Median Penalty 2017 Median Penalty 2016 Median Penalty 2015 Median Three-Year Penalty Total
Actual Penalties  2,316 $104,557 $233,405 $89,417 $291,586
Hypothetical Penalties  2,316 $612,600 $618,237 $623,869 $1,835,196

*Hospitals with three years of consecutive data available from 2015-2017 in Definitive Healthcare database

It’s important to remember that not all hospital-borne costs of preventable readmissions result from the current penalty system. The indirect costs can be significant as well, not just to the patient or society, but the hospital itself. Potential patients may avoid facilities with excessively high readmission rates if they have a choice. They could also associate the poorer outcomes with the care of a health system altogether. In addition, a readmitted patient will likely tell others of his potentially unpleasant experience. In the few cases in which a hospital’s quality control program isn’t worth the costs, the best option is adjust it until it is financially viable, whether by adopting best practices from other providers or some other means, rather than writing it off as a lost cause or eliminating it entirely.

Definitive Healthcare has the most up-to-date, comprehensive and integrated data on over 7,700 hospitals, 1.4 million physicians, and numerous other healthcare providers. Our databases include detailed profiles on all types of hospitals, featuring a wide variety of financial, clinical, and quality metrics.

For more information on hospital readmission penalties in 2017, download our featured report.

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