Part 1: Understand the Timeline
In a prior posting on this topic, we offered a general introduction to CMS’s Hospital Readmission Reduction Program (HRRP). The HRRP will have a substantial impact from its beginning on all acute care providers – even for those providers who face no immediate negative reimbursement impact during the program’s first few years. The simple fact that the program’s payment penalty is derived by comparing providers and the number of conditions for which the payment penalty is calculated will more than likely double in FFY 2015 means it’s still imperative for all organizations to immediately focus on reducing avoidable hospital readmissions. Static organizational readmit rates combined with the HRRP’s continued downward force on the average national readmit rates is a recipe for financial disaster. The magnitude of the HRRP and the penalties it imposes from its unforgiving formula for ‘excessive readmissions’ is profound.
Worst case, providers with significantly excessive readmit rates will see a 1%, 2%, and 3% reduction in total Medicare DRG payments in the next three years, respectively. The payment reductions continue after these first 3 years (capped at 3%), however, as the HRRP is a permanent change to the Medicare reimbursement system. Such penalties will likely threaten many providers’ ability to serve their communities, given the national average hospital operating margin in 2009 was only 1.98%1 and Medicare represents 18% of total payments2 (and much more for many providers). As such, it pays to understand exactly how these penalties are derived and to proactively estimate your organization’s penalties now to understand their impact to your bottom line. One readmission deemed excess under CMS’s formula will lead to a reduction in your total Medicare reimbursement.
The CMS HRRP Timeline
Your organization’s first year HRRP penalty percentage is already set in stone. The corresponding payment reduction will begin hitting your top-line revenue beginning this October. CMS will use a three-year rolling period (specifically July2008 to June 2011 for Federal Fiscal Year 2013’s penalties) to determine the magnitude of your penalty, defined as a percent reduction in your total DRG reimbursement, and then will apply the penalty in the upcoming fiscal year. CMS’s stated rationale for this general timeline, illustrated below, is to ensure a statistically valid and representative data set for determining penalties.
Many Concerns Have Been Raised
Surely, data from across a three-year period helps to minimize the influences of fleeting abnormalities in results or even individual patients or physicians. However, there are some serious concerns about this timeline (and other aspects of the HRRP) publicly stated by entities such as the Healthcare Financial Management Association (click here to see HFMA’s open letter to CMS). In our efforts to help clients reduce readmissions and HRRP penalties, Santa Rosa adds two major concerns to those expressed by other entities:
1. A three-year rolling period means even significant improvements won’t be felt in the form of reduced penalties for quite some time. Improvements in any given year are tempered by the past results from the prior two years. Such improvements must be sustained, or better yet increased, for at least 2 years to significantly reduce penalties.
2. There is a huge lag between the end of the three-year period and the commencement of the penalties – almost a year and a half (fifteen months) to be exact). While this may sound like good news in terms of “putting off the pain,” it further exacerbates the first concern while adding new wrinkles, if not complexity, to your organization’s fiscal planning and budgeting.
We won’t delve into the many issues raised against the HRRP here. In part, it is what it is, as with all regulatory mandates. However, we will touch on key issues and concerns as we continue to explore the DETAILS OF HOW CMS’ HRRP PENALTIES ARE DERIVED in upcoming blog postings.
Preview of Upcoming Topic
In the next posting, we’ll walk through calculation by calculation how the HRRP penalties are derived using a hypothetical hospital. In doing so, we’ll clarify the scope of the program today (versus future plans) and tell you how to get Santa Rosa’s HRRP Penalty Estimator tool that automates these calculations for your organization.
1 Ingenix, Almanac of Hospital Financial and Operating Indicators, 20112 2009 CMS HCRIS Database
By: William J. Leander
Vice President, Strategic Advisory Services
WilliamLeander@SantaRosaConsulting.com
And: Matt Wimberley
Consultant, Strategic Advisory Services
MattWimberley@SantaRosaConsulting.com