Hospital readmissions penalties for 2023 lower than expected

CMS is also suppressing the pneumonia readmissions measure from its review and eliminating diagnosis-related group payment policy and excess readmission ratio calculations for hospitals with extraordinary circumstance exceptions.

Because hospitals must have a minimum number of cases to be scored on various readmissions measures, excluding six months of claims could mean some hospitals don’t meet the data threshold, Demehin said. 

“When hospitals can’t get scored on certain measures, it could cause their penalty to go down,” he said.

In fiscal year 2022, 17.81% of hospitals had no readmissions penalty. For the upcoming year, 25.33% of hospitals will not be penalized on their readmissions, and there will be a 57% decrease in the number of hospitals paying penalties exceeding 1%. 

The average penalty for hospitals with the highest proportion of Medicare-Medicaid dual-eligible patients—peer group five—is 0.23%. For hospitals with the lowest number of duals-eligible patients—peer group one—the average penalty is 0.37%. During fiscal year 2022, groups five and one were penalized 0.60% and 0.42%, respectively, on their readmissions.

This year’s higher rate of penalty-free hospitals is not unprecedented, though the industry hasn’t seen similar rates since fiscal years 2014 and 2015, Demehin said. Penalties have been on the rise since CMS began adding more measures to the readmissions program.

Although the lower proportion of penalties could be due in part to hospitals’ progress with reducing readmissions, Demehin said health systems were substantially improving on measures before the pandemic and still saw penalty rates increase. 

“It doesn’t necessarily feel like progress is being rewarded,” he said. “While the number of hospitals getting a penalty for this fiscal year is smaller than it was in prior years, it’s important to note that around three quarters of hospitals are still getting readmissions penalties.”

Aside from stakeholders’ uncertainty about the payment penalty formula and its ability to encourage improvement, it’s evident that many hospitals have been focused throughout the pandemic on managing readmissions and maintaining their quality metrics, said Rick Kes, senior healthcare analyst at RSM. 

“I think we might continue seeing improvements in these areas, despite the headwinds of labor and expenses going up much faster than hospitals’ revenue,” he said.