Potential Unintended Consequences of the New Stratified Methodology by Dual Proportion Under the Hospital Readmissions Reduction Program (HRRP)

The Affordable Care Act (ACA) implemented several value-based payment policies in Medicare, including the Hospital Readmissions Reduction Program (HRRP), which penalizes hospitals with excessive 30-day risk-adjusted readmission rates of certain conditions. Before fiscal year (FY) 2019, the HRRP did not adjust for socioeconomic status (SES); the old methodology was criticized due to concerns that hospitals serving a low-SES population may be inappropriately penalized for patient-level factors they cannot control. Therefore, starting in FY2019, the HRRP will only compare hospitals within the same quintile of dual-eligible (i.e., eligible for Medicaid and Medicare) hospitalization proportions. However, the new methodology has its own potential unintended consequences. Despite some patient factors outside of the hospitals’ control, higher readmission rates among the top-quintile hospitals (i.e., hospitals with the highest dual proportions) may also be due to factors the hospitals can indeed manage, but this new methodology may lessen the incentives to address those factors.

In this paper, we investigate if the old methodology has been effective in eliciting improvement among the top-quintile hospitals, in order to evaluate if the new methodology may bring out the above-mentioned unintended consequences. We use Medicare claims data from 2007 to 2014. We apply the new methodology to hospitals subject to the HRRP in FY 2016 (the most recent FY with available data) and stratify these hospitals based on dual proportions. First, we look at how penalty status would have changed across the quintiles if the new methodology had been implemented in FY 2016. Next, we analyze how 30-day readmission rate changed across the quintiles from 2007 to 2014, including a “pre-HRRP” period (Jan. 2008 to Mar. 2010), an “anticipation” period after the announcement of HRRP (Apr. 2010 to Sep. 2012), and an “implementation” period (Oct. 2012 to Dec. 2013). Last, we look at how other outcomes changed across the quintiles, including community discharge rate and community residence rate on the 90^th day after discharge.

We find that the new stratified methodology would have penalized more hospitals in the lowest quintile of dual proportions and kept more hospitals free from penalty in the highest quintile, as expected. The readmission rate in the highest-quintile hospitals was constantly higher than that of the lowest-quintile ones, controlled for age, gender, comorbidities, and even various SES factors. However, the gap shrank in all HRRP conditions during the HRRP implementation period. We also observed evidence suggesting that for some conditions, the highest-quintile hospitals caught up with the lowest-quintile ones in terms of community discharge rate and community residence rate on the 90^th day after discharge.

Our results indicate that the old HRRP methodology, though not SES-adjusted, may have narrowed the readmission rate gap between the hospitals with a high versus low dual proportion, without other short- and long-term health outcomes getting worsened. The new stratified methodology by dual proportion quintile, despite its inclusion of SES, may actually erase the incentives for the high-dual-proportion hospitals to improve. Thus, more policy attention should be paid to these unintended consequences following the HRRP modifications.