Stratifying Hospital Readmissions Reduction Program Improved Equity

Implementing stratification within the Medicare Hospital Readmissions Reduction Program (HRRP) helped improve health equity by decreasing penalty rates for safety-net hospitals, rural hospitals, and health systems that provide care for racial minorities, according to a Health Affairs study.

The Hospital Readmissions Reduction Program aims to decrease hospital readmissions by reducing Medicaid payments by up to three percent for hospitals with higher-than-expected 30-day readmission rates for specific conditions and procedures.

The program has received criticism about its impact on teaching and safety-net hospitals, as patient social risk factors—such as poverty, poor social support, and low functional status—may be associated with poor health outcomes and increased readmission rates. This can penalize hospitals for something that is out of their control.

In 2016, Congress passed the 21st Century Cures Act, which included a stratification requirement for the HRRP. Starting in fiscal year 2019, CMS stratified hospitals into five groups depending on their number of dual eligible patients. The agency evaluated hospital performances by comparing them to other hospitals in their group instead of on a national level.

“The intent of stratifying the HRRP by a measure of social risk was to compare ‘like with like,’ allowing a fairer evaluation of hospitals by explicitly taking into account the proportion of their patients who live in poverty,” the study stated. “Stratification recognizes the now well-documented association of poverty with issues occurring both pre- and post-discharge that affect readmission rates.”

To understand how stratification impacted HRRP penalty rates at safety-net hospitals, researchers gathered data from the HRRP Supplemental Data Files between fiscal years 2016 and 2021 for 2,665 hospitals.

Three-quarters of the hospitals were urban. Around half of the health systems were non-teaching hospitals, while 40 percent were minor teaching facilities.

Overall, hospitals faced an average annual penalty of 0.56 percent in the pre-stratification years and 0.60 percent in the post-stratification years. However, certain groups experienced different penalty changes following the stratification policy.

For example, hospitals that had the highest proportion of dual eligible enrollees saw a 0.09 percentage point decrease in average annual penalties in the post-stratification period.

Stratification was associated with a decrease of 0.06 percentage points for public hospitals, a 0.02 percentage point decrease for hospitals receiving the most disproportionate share hospital (DSH) payments, and a 0.08 percentage point decrease for urban hospitals.

Major teaching hospitals also saw penalty reductions of 0.02 percentage points, as did hospitals caring for the highest shares of minority patients (0.06 percentage points) and hospitals with a high share of patients eligible for Medicare due to a disability (0.02 percentage points).

Some hospitals saw penalty increases after stratification, including hospitals with high levels of uncompensated care (0.03 percentage points), hospitals with the fewest dual eligibles (0.17 percentage points), and urban hospitals (0.08 percentage points).

The study results revealed that stratification helped reduce HRRP penalties for safety-net hospitals, including hospitals serving dual eligibles and minority populations and hospitals in rural areas.

“Although stratification was designed to provide relief to hospitals based on the proportion of low-income patients to whom they provide care, its additional positive impact on hospitals serving minority patients is important because the HRRP and other value-based payment programs tend to disproportionately penalize such hospitals,” researchers wrote.

Healthcare access, poverty, and structural racism may contribute to this inequity, highlighting how stratification helped improve equity within the HRRP and avoid penalizing hospitals for factors out of their control.

Stratification also helped reduce penalties for rural hospitals, which are closing at high rates due to financial instability from low occupancy rates and Medicare payment reductions, the study noted.

“Even modest reductions in penalties for rural hospitals, which tend to have thinner operating margins than their urban counterparts, could help preserve access to care for rural patients,” the researchers said.