A Reduction in Readmissions Would Result in Net Savings for Most Hospitals: An Examination of Incentives under Medicare’s Hospital Readmissions Reduction Program

This study estimated the expected financial impact of an incremental improvement in readmission performance for U.S. hospitals subject to readmission penalties under the Medicare’s Hospital Readmission Reduction Program (HRRP), and examined the economic case for investment in readmission reduction efforts. Using data from 2,465 hospitals with excess readmissions in the FY 2016 Medicare Impact File and Hospital Compare, we used intensive margins, analytically derived from the HRRP statutory formula, to predict the financial impact that avoiding one readmission would be expected to have on the hospital’s annual HRRP penalty, net of program implementation costs. The economic case for investing in a readmission reduction intervention was examined over a three-year penalty period following a hypothetical readmission reduction program implementation, using cost-benefit analysis and intervention cost estimates from earlier studies. For an average hospital with excessive readmissions in the 2016 sample, avoiding one readmission had a positive annual financial impact of $10,000 to $58,000. The economic case for investments in readmission reduction efforts was strong overall, with the possible exception of better performing hospitals with low excess readmissions.