Hospitals slap the government with lawsuits over 'two-midnight' policy to reduce observation stays

The Centers for Medicare & Medicaid Services has proposed changing the way hospital readmission penalties are calculated as part of its 2014 Medicare rate update. Potential readmissions penalties for long-term care providers — such as those recently floated by the White House — would likely be based on the established CMS formula for hospitals.

In an effort to increase acute and post-acute care coordination and improve health outcomes, the Affordable Care Act established penalties for hospitals that have high readmission rates for heart attack, heart failure and pneumonia patients. Readmissions related to chronic obstructive pulmonary disorder and knee and hip implants would be added under the proposed CMS rule. The maximum readmissions penalty is set to rise to 2% next year, on the way to a maximum of 3% in 2015, per the ACA. Hospitals’ Medicare reimbursements were docked up to 1% for 2013.

Providing some relief for hospitals, CMS also has proposed changing the algorithm for calculating readmissions. If the proposed algorithm had been in place in fiscal year 2013, hospitals’ 30-day readmission rates would have been 1 percentage point lower for heart attack, 1.5 percentage points lower for heart failure and 0.7 percentage point lower for pneumonia, according to the rule.

The proposed rule is set to appear in the May 10 Federal Register. Click here to access the full document. CMS’ 2014 Medicare rate update first came out Friday.