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 certain conditions.

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 readmission.

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.