Safety Nets Will Gain Under New Medicare Reimbursements

Stakeholders back federal rules that factor in social determinants of health to create a more-level playing field for hospitals that provide care for sicker, poorer patients.

New Medicare reimbursement rules that account for socioeconomic factors shift the burden of financial penalties toward hospitals serving wealthier patients, and that helps safety-net hospitals, a new study suggests.

The new rules under the Hospital Readmissions Reduction Program also reduce the penalties on hospitals in states that have more generous Medicaid programs, according to the study, published in JAMA Internal Medicine this month by researchers at Washington University, the Missouri Hospital Association and the Henry Ford Health System in Detroit.

"The new rules recognize the reality that it is harder to prevent readmissions when people don't have stable housing or social support," said study first author Karen Joynt Maddox, MD, a Washington University cardiologist and assistant professor of medicine.

"If you have patients who struggle to put food on the table, it's going to be tougher for them to manage their end-stage heart failure," Joynt Maddox said. "The old system took money away from hospitals that serve the most vulnerable patients. It created a significant disincentive to provide healthcare to poor people, and that’s the last thing we want."

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HRRP can cut a hospital's Medicare reimbursements by up to 3%, and it's been criticized for unfairly penalizing safety-net hospitals that serve a generally, poorer, sicker patient mix, and who are more likely to be admitted for reasons beyond the hospital walls.

Rather than comparing all hospitals directly, the new rules divide hospitals into five groups according to the proportion of their dual eligible Medicare/Medicaid patients.

Hospitals are now compared only with peer institutions that treat similar proportions of disadvantaged patients. Across the five groups of hospitals, the average proportion of dual eligibles ranged from a low of 9.5% to a high of almost 45%.

Under the new rules, penalties for the hospitals serving the fewest poor patients are projected to increase more than $12 million in total, the researchers estimate.

Penalties for the hospitals serving the highest proportion of poor patients are projected to decrease by more than $22 million in total. On an individual hospital level, the changes are projected to range from an increase in penalties of $225,000, to a decrease of $436,000, the study said.

Large hospitals and teaching hospitals are the most likely to see reduced penalties. The researchers also found reduced penalties among hospitals serving patients from the most disadvantaged neighborhoods and those serving the most patients with disabilities.

Maryellen Guinan, senior policy analyst at America's Essential Hospitals, called the new methodology "a step in the right direction," and said the study's findings "add to the growing body of evidence for what essential hospitals and other providers have long known: Patients' sociodemographic and other social risk factors can significantly influence assessments of hospital quality."

“Under the old HRRP, essential hospitals and other providers that serve vulnerable patients were forced to absorb a greater proportion of readmissions penalties, leaving them with even fewer resources to treat disadvantaged people," Guinan said.

Hospitals in states with more generous Medicaid enrollment also fare better than those in states with fewer poor patients enrolled in the Medicaid program.

"States differ widely in the percentage of people living in poverty who are able to enroll in Medicaid," Joynt Maddox said. "Since the new rules, as written by Congress, only give credit to hospitals for treating patients on Medicaid and not poor patients in general, the states with more people enrolled in Medicaid are going to benefit more from the new system."

Maddox said she was surprised at the extent of the state and regional differences in the shift in penalties, with more penalties for hospitals in the South and Midwest and fewer penalties for hospitals in the West and Northeast.

California, which has generous Medicaid enrollment, had the most reduced penalties. South Dakota and Florida, two states with fewer poor patients enrolled in Medicaid, had the greatest increases. Overall, much of the shift in penalties between states could be explained by differences in state Medicaid enrollment.

"This was a positive change for the HRRP," Joynt Maddox said. "Making the program more fair doesn't take away from its goal, which is to use financial incentives to make hospitals think differently about care beyond their walls. Hospitals are increasingly working to provide a soft landing, including discharge planning and communication with outpatient-care providers."

Joynt Maddox said there's work to be done, even if the new rules more fairly consider the socioeconomic reality of hospitals' patient populations.

“There are still marked disparities in readmissions related to social determinants of health,” she said. “We need to find innovative solutions to improve outcomes for our most vulnerable patients after they leave the hospital.”

Guinan agreed.

"Specifically, the peer-grouping methodology uses dual-eligibility as a proxy for poverty, which is less than ideal," she said.“Not accounting for all the differences in patients’ circumstances that might affect readmission rates inevitably will skew readmission measures against hospitals providing essential care to low-income people, including the uninsured," Guinan said.

"CMS must go a step further and incorporate risk adjustment for sociodemographic status, language, post discharge support structure, and other factors that reflect the challenges involved in caring for disadvantaged populations,” she said.