Economic incentives – both good and bad – are a proven way to modify behavior.
Reward favorable deeds and more of them are likely to happen. Penalize bad habits and fewer people are likely to engage in them.
But what happens when a penalty is based on a dubious premise? Many hospitals may soon be forced to answer that question. And many skilled care operators may have to live with some very unwelcome fallout.
Come October, hospitals with high readmission rates will face penalties in the form of Medicare payment reductions of up to 1%. This handicap will initially be associated with Medicare patient populations diagnosed with heart failure, heart attacks or pneumonia.
Consider: If a hospital received the maximum penalty of 1% and submitted a claim for $10,000 for a surgical stay, Medicare would deduct $100 and reimburse only $9,900. That might not seem like much of a pay cut, but the numbers can add up pretty quickly. By some estimates, this payment shift will affect more than 2,000 hospitals, reducing Medicare payments by more than $280 million.
By the way, the ceiling for the penalties will triple by 2014. Ouch!
As you might imagine, many hospitals are in no hurry for October to get here. Acute-care operators maintain they have taken pro-active steps to prevent avoidable readmissions. Their efforts include programs with more aggressive follow-ups, better coordination with pharmacists and family physicians, and improved data sharing with skilled care providers.
Hospitals are expressing deep – and in my view, legitimate – concerns that they could easily be unfairly penalized by federal number crunchers.
Many analysts see hospital alliances as a key survival strategy for skilled care operators. But what happens when their new partner might be going broke? We may soon find out.