The Obamacare Tradeoff Game: Hospital Penalties Reduce Readmissions but Hurt Hospitals that Serve the Poor

Earlier today, I
noted that, despite positive spin from the Obama administration
and its supporters, Obamacare continues to struggle to perform in a
variety of ways. And even the supposed good news about the law is
often not quite as good as backers suggest.

Here’s another anecdote illustrating both of those arguments:
One of the law’s more lauded initiatives has been its drive to
reduce hospital readmissions—the return of the same patient, for
the same malady, to the same provider, within 30 days. Researchers
estimated
in 2010 that potentially unnecessary readmissions cost the American
health system about $17.5 billion a year. So beginning in 2012,
Obamacare implemented a payment scheme to penalize hospitals a

small percentage of payments for certain readmission, in hopes
of saving money while improving the quality of care—on the thinking
that readmissions are a sign of problematic treatment.

For the last several years, the penalties have grown, from 1
percent of reimbursements up to 3 percent, for the hospitals with
the highest readmission rates. The good news is that readmissions
are down.

But as always, there are tradeoffs. At the end of last week,
officials announced that Medicare would be fining the largest
number of hospitals ever for
readmissions offenses. More than 2,600 hospitals will be fined
this year, a figure up by more than 400 from last year. The average
penalty is up substantially, from 0.38 percent to 0.63 percent this
year,
according to a Kaiser Health News analysis.

What’s happening is that lots of hospitals are being fined, but
there’s not much evidence that many are figuring out how to how to
improve care—out of 3,370 participating hospitals, only 769 avoided
fines,
according to Modern Healthcare, and of the hospitals
that were fined last year,
just 129 improved enough to see no fines this time around.

Then there’s the question of which hospitals get penalized.
Multiple
studies have
found that hospitals treating the poorest patients end up with
the biggest fines.

So here we have a payment reform that hits the patients and
providers most in need the hardest, and that is probably not
encouraging better care, as it was supposed to, but does create a
mechanism for payment reductions and reduced readmissions. The
hospitals aren’t really doing a better job; they’re just
rearranging their practices, yet again, to comply with a different
set of government metrics and payment schemes. Does that make it a
success? In some sense, yes—saving money and cutting readmissions
is not an accomplishment to wholly dismiss. But if it’s a success,
it’s not without cost or consequence.