The Obamacare Tradeoff Game: Hospital Penalties Reduce Readmissions but Hurt Hospitals that Serve the Poor


Earlier today, I noted that, despite positive spin from the Obama administration and its supporters, Obamacare continues to struggle to perform in a variety of ways. And even the supposed good news about the law is often not quite as good as backers suggest.

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Here's another anecdote illustrating both of those arguments: One of the law's more lauded initiatives has been its drive to reduce hospital readmissions—the return of the same patient, for the same malady, to the same provider, within 30 days. Researchers estimated in 2010 that potentially unnecessary readmissions cost the American health system about $17.5 billion a year. So beginning in 2012, Obamacare implemented a payment scheme to penalize hospitals a small percentage of payments for certain readmission, in hopes of saving money while improving the quality of care—on the thinking that readmissions are a sign of problematic treatment.

For the last several years, the penalties have grown, from 1 percent of reimbursements up to 3 percent, for the hospitals with the highest readmission rates. The good news is that readmissions are down.

But as always, there are tradeoffs. At the end of last week, officials announced that Medicare would be fining the largest number of hospitals ever for readmissions offenses. More than 2,600 hospitals will be fined this year, a figure up by more than 400 from last year. The average penalty is up substantially, from 0.38 percent to 0.63 percent this year, according to a Kaiser Health News analysis.

What's happening is that lots of hospitals are being fined, but there's not much evidence that many are figuring out how to how to improve care—out of 3,370 participating hospitals, only 769 avoided fines, according to Modern Healthcare, and of the hospitals that were fined last year, just 129 improved enough to see no fines this time around.

Then there's the question of which hospitals get penalized. Multiple studies have found that hospitals treating the poorest patients end up with the biggest fines.

So here we have a payment reform that hits the patients and providers most in need the hardest, and that is probably not encouraging better care, as it was supposed to, but does create a mechanism for payment reductions and reduced readmissions. The hospitals aren't really doing a better job; they're just rearranging their practices, yet again, to comply with a different set of government metrics and payment schemes. Does that make it a success? In some sense, yes—saving money and cutting readmissions is not an accomplishment to wholly dismiss. But if it's a success, it's not without cost or consequence.