A News Media Analysis of the Economic and Reputational Penalties of the Hospital Readmissions Reduction Program

Section 3025 of the Affordable Care Act of 2010 established the Hospital Readmissions Reduction Program (HRRP), an initiative designed to penalize hospitals with excess 30-day readmissions. Medicare payments to hospitals during Fiscal Year 2013 were subject to a one percent penalty if a hospital had risk-adjusted excess 30-day readmissions for acute myocardial infarction, heart failure and pneumonia during the previous three years. Although the size of the HRRP penalty was relatively small for most hospitals, 30-day readmission rates and the associated penalty for each hospital were widely disseminated in news media outlets. The purpose of this study is to investigate whether readmission penalties also impose significant reputational effects on hospitals. Optimal penalty theory in economics suggests that the expected total penalty (i.e., economic and reputational penalties) should equal the social cost of the activity or behavior being penalized.

We used the LexisNexis Academic database to identify news stories between August 2012 and July 2013 where individual hospitals were identified within the news stories addressing hospital readmission penalties. We used data from 324 hospitals named in 83 news stories to estimate logistic regression models and analyze how the actual size of the economic penalty was related to the perceived size of the penalty, internal factors driving the penalty (the hospital describes its readmission penalty as being related to past behavior from a physician group, the hospital describes the readmission penalty as arising from being an academic medical center, the hospital describes the readmission penalty as arising from having inadequate nursing staff levels), external factors (the hospital describes the penalty as unfair or the HRRP as out of control, the hospital has no control over low income or uninsured patients, the hospital has a low mortality rate), level of being proactive about the problem (hospital is trying to improve transitional care, reducing readmissions is a top priority, the hospital has already reduced readmissions substantially and, thus, future penalty will be lower), and the hospital decided not to issue any comments about the penalty assessed in the news story where they were mentioned. The results from the logistic regression model were adjusted by hospital ownership structure, size and location. The results from the study will inform whether there are reputational penalties associated with hospital readmission economic penalties, which has public policy implications in the assessment of optimal penalties under this key initiative of the Affordable Care Act of 2010.