More than 2,600 hospitals will see cuts to their Medicare payments this fiscal year for excessive patient readmissions. That's 433 more than last year. The inclusion of elective hip and knee replacement procedures under the federal insurer's scrutiny is a key reason for the increase, though a report published this month by Kaiser Health News notes it's not the only one.

For fiscal 2013 and 2014, the conditions that CMS was watching for 30-day readmissions were heart failure, heart attack and pneumonia. For fiscal 2015, however, elective hip and knee replacement patients were included, as were those treated for emphysema, bronchitis and other chronic pulmonary conditions. As a result, a number of orthopedic specialty hospitals found themselves penalized for the first time this year, and several were hit with the maximum 3% reduction.

Since October 2012, the Centers for Medicare and Medicaid Services has reduced payments for all of a hospital's cases throughout the fiscal year if the number of patients who return to the hospital within 30 days of treatment exceed an "appropriate readmissions rate" projected for each hospital. The amount of the reduction is based on how far a hospital's readmissions overrun CMS's projections, with a maximum penalty of 3% in fiscal 2015, up from 2% last year.

Even as the national average readmission rate drops, CMS's national average fine has climbed, Kaiser notes, from a 0.38% reduction last year to a 0.63% reduction this year. In 28 states, the majority of hospitals will see their payments shrink. Nearly 500 hospitals will lose at least 1%, and 39 hospitals, including the Hospital of the University of Pennsylvania in Philadelphia, will suffer the 3% cut.

The intent of the Hospital Readmissions Reduction Program, part of the Affordable Care Act, was to get hospitals to stay aware of their patients' post-discharge recoveries and adjust their care efforts accordingly. Medicare spends $26 billion a year on readmissions, says Kaiser, and estimates that $17 billion of that could be avoided.

But the program's critics point out that CMS's "appropriate readmissions rate" estimates might be based on unequal comparisons of one hospital to another. Facilities with larger low-income patient populations are more likely to be penalized, they also say, given the tendency of patients' financial and logistical hardships to hinder their recoveries. Additionally, it's apparently not easy for hospitals to dig themselves out of a readmission rate hole. Kaiser notes that "only 129 hospitals that were fined last year avoided a fine in this new round."

As part of the healthcare reform legislation, Medicare's leadership alone can't change the readmissions penalty system. But both houses of Congress are currently mulling bills that would require the insurer to take patient demographics into account when levying the fines.

David Bernard