Hospital Readmissions Reduction Program

Section 3025 of the 2010 Affordable Care Act (Public Law 111-148) requires the Secretary of the Department of Health and Human Services (HHS) to establish the Hospital Readmissions Reduction Program and reduce payments to Inpatient Prospective Payment System (IPPS) hospitals for excess readmissions beginning October 1, 2012 (i.e., Federal Fiscal Year [FY] 2013).

The Hospital Readmissions Reduction Program supports CMS’ national goal of improving healthcare for Americans by linking payment to the quality of hospital care. CMS measures conditions and procedures that significantly affect the lives of large numbers of patients. Research shows that hospital readmission rates for these patients vary across the nation, which highlights an opportunity to improve the quality of care and save taxpayer dollars by incentivizing providers to reduce excess readmissions.

The 21st Century Cures Act requires CMS assess payment reductions based on a hospital’s performance relative to other hospitals with a similar proportion of patients that are dually eligible for Medicare and full-benefit Medicaid. The legislation requires estimated payments under the new stratified methodology equal payments under the non-stratified methodology to maintain budget neutrality.

CMS will implement the stratified methodology in the FY 2019 program. Starting October 1, 2018, CMS will adjust all Medicare fee-for-service (FFS) base operating diagnosis-related group (DRG) payments to eligible subsection (d) hospitals based on their performance during the July 1, 2014 through June 30, 2017 discharge period.

Fiscal Year 2019 Hospital Readmissions Reduction Program

The FY 2019 Hospital Readmissions Reduction Program calculates hospitals’ Excess Readmission Ratio (ERR) for six conditions/procedures (i.e., AMI, HF, Pneumonia, COPD, CABG, and THA/TKA) to determine payment adjustment factors (PAFs). Hospital performance is assessed separately for each of the measures. Hospitals can review their data and ensure CMS calculated the PAFs and component results correctly. Refer to the Review and Corrections page for more information on this process.

CMS releases hospitals’ PAFs in the IPPS/Long-Term Care Hospital Prospective Payment System (LTCH PPS) Final Rule after the Review and Corrections Period. CMS will report hospitals’ ERRs for the risk-standardized readmission measures for the Hospital Readmissions Reduction Program on Hospital Compare later this year.

For information on the PAF calculations, refer to the Payment Adjustment Factor page on QualityNet.

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