Reducing Hospital Readmission Costs

When people talk about the healthcare system being broken, they often refer to rising healthcare costs and the government programs and agencies that oversee and regulate the industry. At the end of the day it all comes down to “how much am I going to have to pay?”

The Centers for Medicare & Medicaid Services (CMS) – previously known as the Health Care Financing Administration (HCFA) – is the federal agency within the United States Department of Health and Human Services (HHS) that administers the Medicare program and works in partnership with state governments to administer Medicaid, the Children's Health Insurance Program (CHIP), and health insurance portability standards.

Medicare Fee-for-Service (FFS) is a program that provides hospital insurance (Part A) and supplementary medical insurance (Part B) to eligible citizens. In general, Part A (hospital insurance) covers inpatient hospital care, skilled nursing facility, hospice, lab tests, surgery, and home health care. Part B (medical insurance) covers services including physician and other health care providers' services, outpatient care, durable medical equipment, and some preventive services.

Considering Medicare processes over one billion FFS claims per year, it's no wonder why costs are going up.

Still, all too often members of the general public find themselves confused by all the terminology that is used in the medical field. Let's face it, unless you are a medical professional, and even then, the processes and procedures put in place by these agencies, especially on the administrative side, can be seen as convoluted and confusing, especially when we consider dealing with government red tape and the sea of acronyms that accompany the systems that are supposed to assist us.

One of the biggest challenges has been reducing the cost of hospital readmissions.

The Hospital Readmissions Reduction Program (HRRP) is a Medicare value-based purchasing program that reduces payments to hospitals with excess readmissions. The program supports the national goal of improving healthcare for Americans by linking payment to the quality of hospital care.

Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. This payment system is referred to as the inpatient prospective payment system (IPPS). Under the IPPS, each case is categorized into a diagnosis-related group (DRG). Each DRG has a payment weight assigned to it, based on the average resources used to treat Medicare patients in that DRG.

The base payment rate is divided into a labor-related and nonlabor share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located, and if the hospital is located in Alaska or Hawaii, the non-labor share is adjusted by a cost of living adjustment factor. This base payment rate is multiplied by the DRG relative weight.

If the hospital treats a high-percentage of low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate.

Section 3025 of the Affordable Care Act requires the Secretary of the Department of Health and Human Services (HHS) to establish HRRP and reduce payments to Inpatient Prospective Payment System (IPPS) hospitals for excess readmissions beginning October 1, 2012 (i.e., Federal Fiscal Year [FY] 2013). Additionally, the 21st Century Cures Act requires CMS to assess penalties based on a hospital’s performance relative to other hospitals with a similar proportion of patients who are dually eligible for Medicare and full-benefit Medicaid beginning in FY 2019. The legislation requires estimated payments under the stratified methodology to equal payments under the non-stratified methodology (i.e., the methodology from FY 2013 to FY 2018) to maintain budget neutrality. The payment reduction is capped at 3% (i.e., payment adjustment factor of 0.97). Payment reductions are applied to all Medicare FFS base operating DRG payments between October 1, 2018 and September 30, 2019.

CMS uses excess readmission ratios (ERR) to measure performance for each of the six conditions/procedures in the program:

  • Acute Myocardial Infarction (AMI)
  • Chronic Obstructive Pulmonary Disease (COPD)
  • Heart Failure (HF)
  • Pneumonia
  • Coronary Artery Bypass Graft (CABG) Surgery
  • Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty (THA/TKA)


This past January, CMS calculated ERRs, dual proportions, and hospitals’ payments for each condition/procedure and overall using discharges that occurred during a 3-year performance period from July 1, 2014 to June 30, 2017. The ERRs were calculated using data for Medicare FFS patients. A hospital’s dual proportion was the proportion of Medicare FFS and managed care stays where the patient was dually eligible for Medicare and full-benefit Medicaid. CMS stratified hospitals into five peer groups, or quintiles, based on the dual proportion. The median ERR of hospitals within a peer group was the threshold CMS used to assess excess readmissions in the program.

CMS sends confidential Hospital-Specific Reports (HSRs) to hospitals annually. CMS gives hospitals 30 days to review their HRRP data, submit questions about the calculation of their results, and request calculation corrections.

Taking all of this into consideration, this is where a tool like Centipede can help the healthcare industry as a whole.

Consider this...

Because Centipede makes a patient’s complete medical record, including data across all disciplines, easy to access and understand – supports all formats of medical information, taking a multifunctional approach to patient evaluation by compiling all medical, pharmaceutical and clinical patient historical information in one place – this enables medical personnel to better evaluate and diagnose patient illnesses as the tool also provides them with critical information and treatment options to help them in their decision making process. Better diagnoses lead to better treatment. Better treatment leads to reduced hospital readmissions.

Reduced hospital readmissions lead to lower government expenditures, which lead to less bureaucratic red tape, which eventually leads to lower insurance premiums for the patients.

While some systems are part of the problem, Centipede can be part of the solution.

See What Centipede Can Do For You

Centipede Advantage Software is a new data-scrubbing and algorithm engine that aims to revolutionize the healthcare industry by making holistic patient data easy. Easy to use and implement, Centipede supports all formats of medical information in addition to satisfying medical exchange policies and is considered by its MD-founders to be the first major step in solving healthcare’s inefficiencies.

Centipede Advantage Software's objective is to reduce redundancy. Preventative healthcare is the priority.

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