By Jordan Rau, KHN Staff Writer

Medicare is fining a record number of hospitals – 2,610 – for having too many patients return within a month for additional treatments, federal records released Oct. 1 show. Even though the nation’s readmission rate is dropping, Medicare’s average fines will be higher, with 39 hospitals receiving the largest penalty allowed, including the nation’s oldest hospital, Pennsylvania Hospital in Philadelphia.

The federal government’s penalties, which begin their third year this month, are intended to jolt hospitals to pay attention to what happens to their patients after they leave. Around the country, many hospitals are replacing perfunctory discharge plans—such as giving patients paper instructions—with more active efforts, such as ensuring that outside doctors monitor their recoveries and giving supplies of medication to patients who may not be able to afford them. Others are still struggling to meet the new expectations. Before the program, some hospitals resisted such efforts because they weren’t paid for the services, and, in fact, benefited financially when a patient returned.

Last year, nearly 18 percent of Medicare patients who had been hospitalized were readmitted within a month. While that is lower than past years, roughly 2 million patients return a year, costing Medicare $26 billion. Officials estimate $17 billion of that comes from potentially avoidable readmissions. 

Under the new fines, three-quarters of hospitals that are subject to the Hospital Readmissions Reduction Program are being penalized. That means that from Oct. 1 through next Sept. 30, they will receive lower payments for every Medicare patient stay —  not just for those patients who are readmitted. Over the course of the year, the fines will total about $428 million, Medicare estimates.

[See also: Bigger readmissions fines hit hospitals.]

More than 1,400 hospitals are exempted from the penalties, including certain cancer hospitals and critical access hospitals, as well as facilities dedicated to specific services such as psychiatry or rehabilitation. Maryland hospitals are also excluded because the state has a unique payment arrangement with Medicare. The fines are based on readmissions from July 2010 through June 2013.

In New Jersey, every hospital but one will lose money this year. So will a majority of hospitals in 28 other states, including California, Florida, Georgia, Illinois, Massachusetts, New York, Ohio, Pennsylvania, Tennessee and Texas, as well as the District of Columbia, according to a Kaiser Health News analysis of the penalties.

While some penalties are as small as a hundredth of a percent, hospitals with the highest readmission rates are losing 3 percent of each payment, an increase from a maximum punishment of 2 percent last year. The increase brings the top penalties to the full force authorized by the federal health law.

[See also: Beth Israel Deaconess cuts readmissions.] and {Predictive analytics lowers readmissions.]

The 39 hospitals where payments will be lowered by 3 percent include a number of specialty surgical hospitals, small community hospitals and the Pennsylvania Hospital, a major teaching facility. The hospital, founded in 1751 by Benjamin Franklin and Dr. Thomas Bond, is part of Penn Medicine. Hospital officials did not immediately respond to a request for comment.

Another 496 hospitals will lose 1 percent or more of their Medicare payments. Those include Northwestern Memorial Hospital and Rush University Medical Center in Chicago, Beth Israel Medical Center in Manhattan, Tufts Medical Center in Boston, and a few satellite hospitals owned by well-respected systems, including the Mayo Clinic and Geisinger Health System.

Medicare levied penalties against 433 more hospitals than it did last year. The average penalty this year is 0.63 percent, up from 0.38 percent last year, according to the KHN analysis.

Two More Conditions Added

One reason for the higher and more widespread fines is that this year Medicare began evaluating readmissions of two new categories of patients—those initially admitted for elective knee or hip replacements, and those suffering lung ailments such as chronic bronchitis. Those patients were assessed along with the heart failure, heart attack and pneumonia patients Medicare has examined since the penalties began in October, 2012.

A hospital was fined if it had higher than expected readmission rates in any category. Thus, a number of specialty hospitals that focus on hip and knee replacements received fines for the first time because readmissions of those patients are now being assessed, the KHN analysis found. Fines increased for each condition where rates were above Medicare’s expectations. "Every time they add conditions, the penalties go up," said Nancy Foster, a quality expert at the American Hospital Association.

Dr. Stephen Jencks, a consultant who was one of the first researchers to document the nation’s high readmission rates, said he was impressed overall by how much the fines have prompted hospitals to concentrate on their patients’ health after discharge. "This really fairly modest step" of penalties has "persuaded a lot of hospitals to talk in ways they simply were not talking 10 years ago," he said.

Dr. Don Goldmann, chief medical and science officer at the Institute for Healthcare Improvement, a Massachusetts nonprofit, cautioned against attributing the drop in readmissions only to the penalties, since the government also has other, less punitive programs underway. "There's so much at play," Goldmann said. "I'd be careful about imputing the reduction to any one intervention."