On August 1, the Centers for Medicare and Medicaid Services
("CMS") released its Inpatient Prospective Payment System
("IPPS") final rule. Included in the rule was the initial
framework for the Hospital Readmission Reduction Program (the
"HRRP") which is set to begin in the 2013 fiscal year.
The HRRP, unlike the inpatient quality reporting program currently
in place, will penalize hospitals with high readmission rates for
In keeping with an effort to reduce costs and improve
coordination of patient care, the Patient Protection and Affordable
Care Act (the "Act") established the HRRP by adding a new
subsection (q) to section 1886 of the Social Security Act.
Beginning October 1, 2012, the HRRP will lower payment rates for
all Medicare discharges if acute care hospitals experience
higher-than-average readmission rates for certain "applicable
conditions." The program will begin with three applicable
conditions: acute myocardial infarction ("AMI"), heart
failure, and pneumonia. In the final rule, CMS explained that of
the 235 diagnostic categories for hospitalization it reviewed,
heart failure and pneumonia were the first and second most frequent
category for both total admissions and readmissions, and AMI ranked
ninth in frequency of admission and eighth in frequency of
For the first two years of the program, AMI, heart failure, and
pneumonia will be the only applicable conditions on which
readmission rates will be calculated. Beginning in 2015, however,
CMS will add additional conditions or procedures it believes
represent high costs and high volumes of readmission. For the
purposes of the rule, "readmission" occurs when a patient
is discharged to a non-acute setting (for example, home health,
skilled nursing, rehabilitation facilities, or the patient's
home) and is subsequently readmitted or admitted to another acute
care hospital within 30 days of discharge.
CMS will calculate baseline readmission rates using data from
July 1, 2008 to June 30, 2011, and underperforming hospitals will
see a reduction in reimbursements. For the first year of the
program, payment reductions will be capped at a maximum of one
percent of inpatient payments. The payment reduction rates will
subsequently increase by one percent each year before being capped
at three percent for fiscal year 2015 and beyond.
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President Obama announced on November 14, 2013 that HHS has adopted an administrative policy to allow insurers to continue to offer certain health insurance policies scheduled to be cancelled effective January 1, 2014 because of more stringent coverage requirements under the ACA.