CMS Penalties for Readmissions Create Additional Momentum Toward ACO Formation and EHR Utilization

Bonuses for successful accountable care organizations (ACO) have created quite a ‘buzz’ in the healthcare community. Two new developments – penalties for hospitals and quality of care data published online by the U.S. Department of Health and Human Services (HHS) – will build on this momentum and increasingly drive Accountable Care Organizations formation.

Earlier this week, Medicare announced that it is assessing fines averaging approximately $125,000 on almost 2,000 hospitals. These fines were assessed pursuant to a provision of the Affordable Care Act that penalizes hospitals if their readmission rates are too high. In particular, hospitals incur penalties if an unacceptably high percentage of their patients are readmitted within 30 days of discharge for related complications.

Readmission rates nationwide are approximately 19%. Moreover, readmissions within 30 days of discharge cost Medicare $17.5 billion a year. Hence, readmissions are a significant factor in driving up Medicare costs and efforts aimed at reducing readmissions, such as penalties and EMR incentives, have the potential of saving taxpayers billions of dollars.

While Medicare’s readmission penalty will increase in future years, this year’s penalty is capped at a maximum of 1% of each hospital’s base Medicare reimbursements. Next year, the cap will increase to 2% and then 3% the following year.

In addition to readmission penalties and momentum created by web based electronic health record MU bonuses, the publication of hospital quality of care data by HHS will drive hospitals and providers to give serious consideration to the formation of Accountable Care Organizations. These data provide details regarding:

  • Patient survey results compared against state and national norms
  • Timeliness and effectiveness of care
  • Readmissions, complications and deaths
  • Over/under utilization of medical imaging
  • Medicare spending ratio

The ACO model is designed to improve quality of care and reduce expenses through coordination of care and accountability. To the same degree that it fulfills these objectives, we can expect providers and health systems to move toward an ACO model as the data regarding these factors becomes widely available to patient-consumers on the Internet and the sting of penalties becomes more pronounced.