New Study on Hospital Readmissions

Estimates suggest that as much as $700 billion a year in health care services delivered in the United States cannot be linked to improved health outcomes – and one reason is that we have incentives for more care rather than better care. A key objective of health care reform must therefore be to align incentives toward better care. In this spirit, two of the proposals the Administration put forward as part of our health care reserve fund involved better incentives for reducing hospital readmissions. 

A recent article in the New England Journal of Medicine highlights this issue ("Rehospitalizations Among Patients in the Medicare Fee-for Service Program," published April 2, 2009). The study finds that approximately 20 percent of Medicare beneficiaries discharged from a hospital were rehospitalized within 30 days. The authors estimate rehospitalizations accounted for about $17.4 billion of the $102.6 billion in hospital payments from Medicare in 2004.

The NEJM study includes evidence suggesting that many rehospitalizations could be prevented. For example, the study documents an alarming lack of physician follow-up visits after discharge from a hospital. Indeed, about half of the patients who were rehospitalized within 30 days of being discharged had no bill for an outpatient physician visit between the time of discharge and rehospitalization. The lack of follow-up could contribute to unnecessary rehospitalizations. In addition, the study found that rehospitalization rates vary substantially by geographic area; the rehospitalization rate was 45 percent higher in the five states with the highest rates than in the five states with the lowest rates.  (These rates are calculated in a way that controls for the severity of illness across hospitals, so the difference in rates can’t be explained by the fact that some hospitals have sicker patients than others.)

As in many other aspects of health care, we could significantly reduce costs and improve quality by moving towards the medical practices adopted in the more efficient parts of the country. Under the Administration’s proposal, hospitals with high rates of readmission will be paid less if certain patients are re-admitted to the hospital within 30 days, beginning in 2012.  Our proposal would also bundle payments to hospitals to cover not just hospitalization, but also care from certain post-acute providers for the 30 days after hospitalization. This combination of incentives and penalties should lead to better care after a hospital stay and result in fewer readmissions—saving roughly $26 billion over ten years.