PERSPE C T I V E
public space: whether every reli-
gious institution and adherent is
free to act to the point of impos-
ing on others, or whether every
individual is free from being im-
posed upon to the point of sti-
fling some who would act. This
debate deserves more than parti-
san sound bites and slogans. Per-
haps Friess wasn’t too far off,
and the best cure for today’s con-
traceptive headache is for the en-
tire country to take two aspirin
and lay off until after the election.
Medicare’s Readmissions-Reduction Program —
A Positive Alternative
Robert A. Berenson, M.D., Ronald A. Paulus, M.D., M.B.A., and Noah S. Kalman, B.A.
H ospital readmissions are re-
ceiving increasing attention
as a largely correctable source of
poor quality of care and exces-
sive spending. According to a 2009
study, nearly 20% of Medicare
beneficiaries are rehospitalized
within 30 days after discharge,
at an annual cost of $17 billion.1
Causes of avoidable readmissions
include hospital-acquired infec-
tions and other complications;
premature discharge; failure to
coordinate and reconcile medica-
tions; inadequate communication
among hospital personnel, pa-
tients, caregivers, and community-
based clinicians; and poor plan-
ning for care transitions.
Although studies have shown
that specific interventions, par-
ticularly among patients with
multiple medical conditions, can
reduce readmission rates by 25 to
50%,2 the Centers for Medicare
and Medicaid Services (CMS)
found that Medicare’s national
1364
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Copyright © 2012 Massachusetts Medical Society. All rights reserved.
Contraceptive Drugs may cause political headaches
Disclosure forms provided by the author sionalism and conscience. Washington, DC:
are available with the full text of this arti-
cle at NEJM.org.
From the School of Law and the School of
Medicine and Public Health, University of
Wisconsin, Madison.
This article (10.1056/NEJMp1202701) was
published on March 14, 2012, at NEJM.org.
1. Equal Employment Opportunity Commis-
sion. Decision on contraception (http://www
.eeoc.gov/policy/docs/decision-contraception
.html).
2. Charo RA. Health care provider refusals
to treat, prescribe, refer or inform: profes-
30-day readmission rate did not
change appreciably between 2004
and 2009. Unless they are at full
capacity, hospitals have no eco-
nomic incentive to reduce readmis-
sions under Medicare’s di­ag­nosis-
related group (DRG) payment
approach. The Affordable Care
Act (ACA) therefore created a fi-
nancial penalty for “excessive”
readmissions at hospitals that
are paid for DRGs. Unfortunately,
this approach may be too weak
to overcome the substantial coun-
terincentives inherent in DRG-
based payments It also tries to
change hospitals’ behavior with
a stick but no carrot, failing to
reward hospitals that improve.
We propose an alternative ap-
proach — a “warranty” payment
— that provides a stronger busi-
ness case for hospitals to get
with the program.
Under the ACA, CMS calcu-
lates the average risk-adjusted,
30-day hospital-readmission rates
n engl j med 366;15 nejm.org april 12, 2012
The New England Journal of Medicine
American Constitution Society for Law and
Policy, 2007 (http://www.acslaw.org/sites/
default/files/Charo_-_Health_Care_Refusals
.pdf).
3. Bolstad E. Florida’s Rubio pushes back at
contraception rules under health care law.
McClatchy Newspapers Washington Bureau.
February 5, 2012.
4. Uttley L, Pawelko R. No strings attached:
public funding of religiously-sponsored hos-
pitals in the United States. MergerWatch
Project, 2002 (http://www.mergerwatch.org/
mergerwatch-publications).
5. Abelson R. Catholic hospitals expand, re-
ligious strings attached. New York Times.
February 20, 2012:A1.
Copyright © 2012 Massachusetts Medical Society.
for patients with myocardial in-
farction, pneumonia, or heart fail-
ure using claims data. If a hospi-
tal’s risk-adjusted readmission rate
for such patients exceeds that av-
erage, CMS penalizes it in the
following year for all Medicare
admissions in proportion to its
rate of excess rehospitalizations
of patients for the target condi-
tions. Although the maximum
penalty is set at 1% for 2013,
eventually reaching 3% of a hos-
pital’s Medicare payments, the
CMS implementation reduces the
potential penalties in aggregate
to only 0.2% of national Medicare
payments in 2013.3 Payments for
hospitals with below-average re-
hospitalization rates for all three
conditions won’t change. Eventu-
ally, CMS plans to expand this
program to include other com-
mon diagnoses for which read-
missions are theoretically pre-
ventable, boosting the financial
effects.
 PERSPECTIVE
The CMS readmissions-penalty
policy has drawn the attention of
hospitals and stimulated similar
approaches among other payers,
with readmission rates emerging
as a quality marker in public re-
porting programs. Nevertheless,
for most hospitals, the financial
case for aggressively reducing re-
hospitalizations may remain elu-
sive, especially given declining
utilization related to the eco-
nomic downturn, advances in
ambulatory care, and growing
pressure on reimbursement rates.
Hospitals with lower-than-average
readmission rates for all three
targeted conditions will face no
financial penalty; for them, the
implementation of readmissions-
reduction programs would only
increase costs and decrease reve-
nues. Furthermore, because the
benchmark readmission rate is
initially based on only three con-
ditions, which account for just
12% of all Medicare admissions,
hospitals that implement transi-
tion programs and improve care
for patients with other conditions
will see only net increases in
costs and reductions in revenues.
Unless they are at maximum
capacity, hospitals face two ma-
jor economic disincentives to re-
ducing readmissions for the spec-
ified diagnoses: the direct costs
of the program itself and de-
creased revenues resulting from
successful interventions. Interven-
tions to create and sustain re-
ductions in readmissions typi-
cally average $100 to $200 per
discharge2 and often have spill-
over effects, decreasing hospital-
izations for nontargeted diagno-
ses and reducing readmissions
from any cause even outside the
30-day window and across pay-
ers. Although these effects are
n engl j med 366;15
The New England Journal of Medicine
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Copyright © 2012 Massachusetts Medical Society. All rights reserved.
Medicare’s Readmissions-Reduction Program
desirable outcomes for patients
and payers, they detrimentally
affect hospitals’ finances.
If a penalty is more than off-
set by program costs and lost
rehospitalization revenue, hospi-
tals would be better off finan-
cially if they maintained the sta-
tus quo. Reductions of as much
as 10% in admissions from any
cause could result if hospitals
aggressively tried to reduce re-
admissions, given the success of
programs offering limited finan-
cial incentives.4 Regardless, fail-
ing to provide a positive econom-
ic incentive for hospitals with
readmissions rates near or below
the national average means miss-
ing an opportunity to increase the
benefit to patients and to Medi-
care. At best, under the ACA
­readmissions provision, the busi-
ness case for mounting a multi-
Unless they are at maximum capacity,
hospitals face two major economic disincentives
to reducing readmissions for the specified
diagnoses: the direct costs of the program itself
and decreased revenues resulting from
successful interventions.
pronged readmissions-reduction
program is a close call; at worst,
it’s overtly negative in Medicare’s
volume-based payment system.
There is a simple alternative
approach. Geisinger Health Sys-
tem’s ProvenCare program creat-
ed a single-episode price for all
services associated with a surgi-
cal procedure, such as coronary-
artery bypass grafting, including
the initial hospitalization and all
nejm.org april 12, 2012
related services for 90 days, in-
cluding any rehospitalizations —
in essence, a warranty. In adapt-
ing this approach to focus on
readmissions, Medicare could
eliminate or reduce payment (per-
haps to the variable cost for the
admission) for many or perhaps
all readmissions within a desig-
nated interval after discharge —
say, 15 or 30 days — thereby re-
moving entirely the perverse
incentives associated with pay-
ments for avoidable readmissions.
In essence, hospitals could re-
ceive an increase in their base
payment for each index admis-
sion, although somewhat less
than projected payments for their
readmissions — perhaps 90 or
95% of that estimate. Medicare
would thus be guaranteed im-
mediate savings (5 or 10%, in this
example) and have the opportu-
nity to garner additional savings
over time as it gradually reduced
the percentage of projected re-
admission payments loaded into
hospitals’ base payments. As hos-
pitals reduced readmissions, Medi-
care could reduce payment bench-
marks in accordance with lower
projected readmission rates —
and probably a lower index-admis-
sion rate, thanks to the spillover
effect described above. All hospi-
1365
PERSPE C T I V E
tals would then have a direct in-
centive to invest in reducing re-
admissions, and Medicare would
benefit from immediate savings
and progressively lower rates.
Our approach would measure
a hospital’s readmissions perfor-
mance against its own historical
record and population, avoiding
the need for complex risk adjust-
ment or adjustments for readmis-
sions to nonindex hospitals, since
they would already be included
in each hospital’s baseline rate.
Medicare would provide extra pay-
ment in accordance with a hos-
pital’s historical (perhaps 3-year
rolling average) readmission rate,
for either all cases or a large
subgroup of diagnoses in which
readmissions are potentially avoid-
able. Britain, Germany, and Mary-
land, which runs its own all-payer
hospital rate-setting program,
have all adapted the DRG pay-
ment approach in this way, so
they pay nothing for many or all
Thirty-Day Readmissions — Truth and Consequences
Karen E. Joynt, M.D., M.P.H., and Ashish K. Jha, M.D., M.P.H.
R educing hospital readmission
rates has captured the imag-
ination of U.S. policymakers be-
cause readmissions are common
and costly and their rates vary —
and at least in theory, a reason-
able fraction of readmissions
should be preventable. Policymak-
ers therefore believe that reduc-
ing readmission rates represents
a unique opportunity to simulta-
neously improve care and reduce
costs. As part of the Affordable
Care Act (ACA), Congress direct-
ed the Centers for Medicare and
1366
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Copyright © 2012 Massachusetts Medical Society. All rights reserved.
Medicare’s Readmissions-Reduction Program
readmissions within a specified
period.
We acknowledge that this ap-
proach has the perverse effect of
further rewarding all admissions
other than readmissions that fall
within the 15- or 30-day window;
a recent study showed a strong
association between rehospitaliza-
tion rates and overall admission
rates.5 Only fundamentally dif-
ferent payment methods, such
as population-based, global pay-
ments, would avoid the volume-
generating incentives of episode-
based approaches. We doubt that
the marginally higher payment
rates would substantially alter the
already strong incentive for hospi-
tals to fill beds. Increasing pen-
alties for readmissions, but not
all admissions, provides a clearer
incentive for hospitals to pursue
readmissions-reduction programs
and enhance quality and efficien-
cy, while more fundamental pay-
ment reform is being explored.
Medicaid Services (CMS) to penal-
ize hospitals with “worse than
expected” 30-day readmission
rates. This part of the law has
stimulated hospitals, professional
societies, and independent orga-
nizations to invest substantial re-
sources in finding and implement-
ing solutions for the “readmissions
problem.”
Although a focus on readmis-
sions may have good face validi-
ty, we believe that policymakers’
emphasis on 30-day readmissions
is misguided, for three reasons.
n engl j med 366;15 nejm.org april 12, 2012
The New England Journal of Medicine
Disclosure forms provided by the authors
are available with the full text of this article
at NEJM.org.
From the Urban Institute, Washington, DC
(R.A.B.); and Mission Health System, Ashe-
ville (R.A.P.), and the Fuqua School of Busi-
ness, Duke University, Durham (N.S.K.) —
both in North Carolina.
This article (10.1056/NEJMp1201268) was
published on March 28, 2012, at NEJM.org.
1. Jencks SF, Williams MV, Coleman EA. Re-
hospitalizations among patients in the Medi-
care fee-for-service program. N Engl J Med
2009;360:1418-28. [Erratum, N Engl J Med
2011;364:1582.]
2. Chollet D, Barrett A, Lake T. Reducing
hospital readmissions in New York State:
a simulation analysis of alternative payment
incentives. Princeton, NJ: Mathematica Policy
Research, September 2011.
3. Medicare Payment Advisory Commission.
Public meeting. December 15, 2011 (http://
www.medpac.gov/transcripts/1215162011
.pdf).
4. Hansen LO, Young RS, Hinami K, Leung A,
Williams MV. Interventions to reduce 30-day
rehospitalizations: a systematic review. Ann
Intern Med 2011;155:520-8.
5. Epstein AM, Jha AK, Orav EJ. The relation-
ship between hospital admission rates and
rehospitalizations. N Engl J Med 2011;365:
2287-95.
Copyright © 2012 Massachusetts Medical Society.
First, the metric itself is problem-
atic: only a small proportion of
readmissions at 30 days after ini-
tial discharge are probably pre-
ventable, and much of what drives
hospital readmission rates are
patient- and community-level fac-
tors that are well outside the hos-
pital’s control. Furthermore, it is
unclear whether readmissions al-
ways reflect poor quality: high re-
admission rates can be the result
of low mortality rates or good
access to hospital care. Second,
although improving discharge