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Cost of Hospital Readmissions: What the Statistics Tell Us

Hospital readmissions are a heavy financial burden for hospitals and health systems, patients, and the U.S. healthcare system at large. Unsurprisingly, minimizing post-discharge adverse events that contribute to readmissions has become a priority for hospital management and administrators.

To better understand the significant impact of hospital readmissions, let's look at some key statistics. We'll begin with a retrospective on this increasingly critical issue.

Why Hospital Readmissions Took on Greater Importance 

Before the Affordable Care Act (ACA), hospitals had little incentive to reduce their readmissions. Thanks to the fee-for-service payment model, the more often a patient came in for care, the more money hospitals stood to make. But in 2012, the ACA established the Hospital Readmission Reduction Program (HRRP). HRRP's objective is "to support the national goal of improving health care for Americans by linking payment to the quality of hospital care." This Medicare value-based purchasing program encouraged hospitals to improve communication and care coordination to reduce potentially preventable readmissions (PPR). CMS defines a PPR as "a readmission in which the principal diagnosis coded on the claim is included on CMS's list of PPR diagnoses."  

Earlier reports estimated that the cost of hospital readmissions within 30 days of discharge was roughly $41 billion, with Medicare beneficiaries being the largest contributors at $26 billion. Of that, $17 billion was spent on PPR, according to data from the Center for Health Information and Analysis, clearly leaving a significant opportunity for improvement.

How Has the HRRP Affected Hospital Readmission Costs?

HRRP penalizes general acute care hospitals with higher than expected 30-day readmissions. Kaiser Health News reports that between October 2021 and September 2022: 

  • Medicare reduced its payments to nearly 2,500 hospitals or 47% of all facilities. 
  • Thirty-nine hospitals lost the maximum of 3% of reimbursements. 
  • The average penalty for each Medicare patient stay was 0.64%.  
  • The average penalty was $217,000. 

Furthermore, the Kaiser Family Foundation (KFF) reports that "over the lifetime of the program, 2,920 hospitals have been penalized at least once. That's 93% of the 3,139 general acute hospitals subject to HRRP evaluation and 55% of all hospitals. Moreover, 1,288 have been punished in all 10 years." KFF's analysis also shows that hospital readmissions are becoming less frequent now since the ACA was enacted, and many experts attribute that partly to the financial threat of the penalties.  

Data suggests that the penalties have indeed discouraged readmissions, from 2008 to 2017:  

  • Readmission rates for heart failure patients dropped from 24.8% to 20.5%.  
  • Heart attack readmissions dropped from 19.7% to 15.5%.  
  • Pneumonia readmission rates dropped from 20% to 15.8%.  

Although HRRP has contributed to lower readmissions, the program isn't without criticism. For example, hospitals serving disadvantaged patients often receive larger penalties, despite typically having fewer resources. This creates a vicious cycle in which these hospitals lose the ability to invest in as many resources to help address quality of care issues contributing to readmissions.

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COVID-19 Prompts Hospital Readmissions Reporting Adjustments

CMS typically reviews three years of data to calculate HRRP penalties, but recent years have brought unexpected challenges. The COVID-19 pandemic has had a profound impact on the healthcare industry that will be felt for years, including its effect on readmissions and how costs are calculated.  

When CMS evaluated hospitals' previous three years of readmissions, as it does annually, the government decided to exclude the first half of 2020 because of the chaos caused by the pandemic. CMS also excluded from its calculations Medicare patients who were readmitted with pneumonia across all three years because of the difficulty in distinguishing them from patients with COVID-19.  

Modern Healthcare reported that the hospital readmissions performance period for the fiscal year 2023 — which would normally roll over three years from 2018 to 2021 — excludes claims from the first half of 2020 and instead looks at data from July 2018 to December 2019 and July 2020 to June 2021. 

Hospitals that did not meet Medicare standards have lower reimbursement cuts than in previous years to account for the pandemic. Average penalties fell from 0.57% in 2021 to 0.32% in 2023. With hospitals facing their worst financial year in decades, these reductions offer a bit of relief. However, it will take years for hospitals to bounce back from the effects of the pandemic.

Which Hospital Readmissions Are Most Costly?

There are several factors that can influence the cost of hospital readmissions, including payer and condition.

Readmissions by Payer

In 2021, the Agency for Healthcare Research and Quality (AHRQ) issued its most recent analysis of clinical conditions with frequent and costly hospital readmissions, broken down by payer. The report cited 2018 data, which showed nearly 3.8 million 30-day all-cause adult hospital readmissions for all payers, and the average readmission cost was $15,200.  

The report detailed several interesting statistics: 

  • Medicare readmissions totaled 2.3 million, with an average cost of $15,500 per readmission. This categorization also includes patients who are dually eligible for Medicare and Medicaid.  
  • Medicaid accounted for 721,300 readmissions, with an average cost of $14,100. Private insurance totaled 569,800 readmissions, with an average readmission cost of $16,400. Self-pay had the least readmissions (136,500) and the lowest cost ($10,900).  
  • Medicare accounted for 60% percent of readmissions in 2018. 

Why did Medicare account for so many readmissions? Medicare insures people 65 and older, as well as some younger people with certain disabilities or permanent kidney failure. Older patients have an increased risk of chronic health conditions and often have multiple, simultaneous chronic conditions. Without proper care coordination, Medicare beneficiaries are at an increased risk of rehospitalization.   

Self-pay patients, however, may avoid seeking care because of the steep cost. When the uninsured become insured, they may have more admissions and readmissions to address previously neglected medical issues.

Readmissions by Condition

The AHRQ report also provides statistics highlighting hospital readmission by condition. According to its analysis, among the top 20 principal diagnoses with the highest average cost of 30-day all-cause adult hospital readmissions were:  

  • Complications of transplanted organs or tissue, initial encounter: $27,000 
  • Arterial dissections: $26,500 
  • Scoliosis and other postural dorsopathic deformities: $26,200 
  • Chronic rheumatic heart disease: $25,700 
  • Endocarditis and endocardial disease: $24,900 

Medicare beneficiaries with a principal diagnosis of chronic rheumatic heart disease had the greatest average cost for 30-day readmissions ($25,800). The top five conditions for Medicare also included: 

  • Complication of transplanted organs or tissue, initial encounter: $24,200  
  • Nonrheumatic and unspecified valve disorders: $22,500  
  • Diseases of white blood cells: $21,800  
  • Aortic, peripheral, or visceral artery aneurysms: $21,300 

Reducing the Cost of Hospital Readmissions

With so much at stake, it's easy to see why hospital administrators continue to prioritize finding effective ways to curb unnecessary hospital readmissions and avoid or at least reduce readmission penalties under the Hospital Readmission Reduction Program. Additionally, the value-based care reimbursement model provides financial incentives based on patient health outcomes.  

To keep more funding in-house, hospitals and healthcare systems are incentivized to improve care quality. A key component of any readmission reduction program is ensuring proper transitions of care that include effective medication management. Cureatr works with providers and health plans nationwide to strengthen critical medication management processes, including medication reviews and reconciliation. Learn more about what Cureatr can do for you.

 Medication Adherence


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