Medical Economics

The 2017 Medicare Readmission Penalty

We have a readmission problem in the United States. About 1 out of 5 patients admitted to our hospitals are readmitted within 30 days. Those readmissions are costly: the average cost of 1 hospitalization in the U.S. is $15,000 but the cost of 1 hospitalization plus 1 readmission is $33,000, in other words, the readmission is more costly than the initial admission. Medicare has a solution: fine hospitals with higher readmission rates.

Here’s how it works. In 2013, Medicare looked at the readmission rates for 3 diagnoses: heart failure, myocardial infarction, and pneumonia. Hospitals with too high of a rate of readmission within 30 days of hospitalization were fined up to 1% of their total Medicare payments. The worse the hospital’s 30-day readmission rate, the larger the penalty they had to pay. In 2014, the maximum fine went up to 2% and in 2015, it went up to 3%. That is 3% of all of the hospital’s Medicare payments for all patients, not just for the heart failure/pneumonia, MI patients.

In 2015, Medicare added 2 additional diagnoses: COPD and joint replacement. For next year, Medicare is adding coronary artery bypass and graft surgery.

On the surface, the penalty system sounds good – you fine the worst performing hospitals. And in some cases, the hospitals have high readmission rates because they truly aren’t doing a good job and deserve to get fined. But if you look closer, a lot of the factors that affect whether a patient gets readmitted are beyond the control of the hospital. Several studies have found that the risks for readmission include:

  1. Patients who take more than 5 prescription medications
  2. African American race
  3. The elderly
  4. Patients with low health literacy
  5. Patients with Medicaid (a marker for low income patients)
  6. Patients who are socially isolated

So the penalty that a hospital pays may reflect more on the demographics of the patient population that they serve rather than the quality of care delivered while those patients were in the hospital.

Recently, Medicare has announced the penalties that hospitals will be paying next year, in 2017 (each year, the penalty is based on previous years). Overall, 2,597 hospitals will be penalized for a total of $528 million in penalties. Nationwide, 49 hospitals were fined the maximum 3% of the hospitals’ total Medicare payments. The average hospital was penalized 0.73%. About 1,400 of the nation’s hospitals were exempt if they are children’s hospitals, psychiatric hospitals, Veterans Administration hospitals, or critical access hospitals.

Our hospital (Ohio State University Hospital East) is considered part of the larger Ohio State University Wexner Medical Center so we are included in OSU’s data. Here is the 2017 penalties for Central Ohio hospitals:


The good news for Central Ohioans is that all of our area’s hospitals were below the national average meaning that all of our county’s hospitals are doing a good job with readmissions compared to hospitals in other parts of the country. I’m also pleased that OSU had the lowest Medicare penalty.

Commercial insurance companies are also jumping on board and are often looking at readmission rates for all diagnoses and not just the 6 that Medicare is currently looking at. In future posts, I’ll write about some of the things that we are doing at our hospital to reduce readmissions.

September 29, 2016

By James Allen, MD

I am a Professor Emeritus of Internal Medicine at the Ohio State University and former Medical Director of Ohio State University East Hospital

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