Will Hospital Peer Grouping by Patient Socioeconomic Status Fix the Medicare Hospital Readmission Reduction Program or Create New Problems?

Background: In 2016 the U.S. Congress directed the Centers for Medicare & Medicaid Services (CMS) to implement the 21st Century Cures Act to fix a flaw in the Hospital Readmissions Reduction Program (HRRP). One section of the Act is intended to remove bias in calculating penalties for hospitals treating large percentages of low socioeconomic status (SES) patients. A study was conducted to analyze the effect of the introduction of SES hospital peer groups on the number and distribution of the hospitals being penalized.

Methods: The CMS analysis files for the fiscal year 2017 HRRP final rule and Disproportionate Share Hospital adjustments were used to assign hospital peer groups. The median excess readmission ratios for hospital peer groups were calculated, and the resulting pattern of hospital penalties within peer groups was analyzed.

Results: The findings suggest that because CMS assigns individual HRRP penalties on six clinical conditions but proposes to assign hospitals to a single SES peer group based on all admissions, it will ignore substantial differences in the distribution of peer group medians across these conditions. For surgical cases, as expected, hospitals with fewer patients had higher readmission rates, while for medical cases, hospitals with fewer patients had fewer readmissions. These findings may result in distortion of the peer group adjustment intended to correct for SES.

Conclusion: Hospital peer groups may create unintended redistributions of penalties through distortion of peer group medians. An observed relationship between lower-volume hospitals and fewer readmissions for medical conditions requires additional research to establish its basis.