The Basics of Medicare Hospital Readmission Reduction

By: Saparja Nag  Oct. 20, 2017

A hospital readmission is defined as a patient being admitted to a hospital within a certain time period of being discharged from an earlier hospitalization. Various governmental programs have different qualifying factors. Medicare readmissions by definition, must occur within 30 days of the initial hospitalization, include readmissions to any hospital not just the site of the initial hospital stay, and utilizes an “all-cause” definition meaning that all readmissions are included regardless of the reason. There are also exceptions to Medicare’s readmissions definition such as planned hospitalizations such as for a scheduled procedure and certain types of hospitals are exempt. These hospitals include psychiatric, rehabilitation, long term care, children’s, cancer, critical access, and those located in Maryland.1

Since the introduction of the Affordable Care Act (ACA) in 2010, the government has tasked hospitals with reducing their all-cause 30 day readmission rates. Through programs like the Hospital Readmission Reduction Program (HRRP), hospitals with readmission rates higher than the national average are financially penalized. If readmission rates are higher than the national average, Medicare will reduce their payments for all admissions to that particular hospital. Penalty rates are then determined in part by rate of excess readmissions, but can not exceed 3% of the hospital’s base Medicare inpatient payments. HRRP is specifically focused on reducing readmissions for certain conditions including heart attack, heart failure, pneumonia, chronic obstructive pulmonary disease (COPD), elective hip or knee replacement, and coronary artery bypass graft (CABG).1

HRRP became a permanent fixture of the inpatient hospital payment system of Medicare in 2013 and has provided key information as to where there is room for improvement with regard to readmissions. Throughout the 5 years that HRRP has been in full effect, particular categories of hospitals were more likely to be subject to penalties including those with higher shares of low-income beneficiaries and major teaching hospitals. They have also found certain measures that healthcare providers can engage in to reduce readmission rates. These include clarifying discharge instructions with patients, coordination between primary care physicians and post-acute care providers, and reducing medical complications during the initial hospital stay.1

In general, there are significant financial implications of readmission reduction programs. Most of the costs associated with readmissions are fixed, so in order to effectively reduce readmission rates, the fixed-cost structures must be redesigned. This restructuring can lead to long term improvement in the quality of healthcare. The reimbursements for readmissions are greater than the direct costs and more readmissions will reduce hospital volume in the immediate future. When these hospitals are not operating at capacity, readmissions can still generate revenue.2

Dexur primarily uses two measures to assess 30 day all-cause readmissions in hospitals: 30 day readmission percentage contribution to revenue and 30 day admission percentage contribution to length of stay. The contribution to revenue is the amount of revenue that a hospital generates solely due to patients during their readmission stay. The contribution to length of stay is the proportion of days all patients spend in a hospital that are readmission visits out of the total number of days all patients spend in a hospital. Both of these values are percentages that can be calculated for any region or hospital.


  1. Boccuti, Cristina, and Casillas, Giselle. “Aiming For Fewer Hospitals U-Turns: The Medicare Hospital Readmission Reduction Program.” Kaiser Family Foundation. March 10, 2017.
  2. Boutwell, Amy, and Balik, Barbara. “The Financial Impact of Readmissions.” Institute for Healthcare Improvement. May 12, 2010.


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Saparja Nag

Saparja is a healthcare journalist with a particular interest in how medicine can and should affect health policy. She has extensive experience as a health educator and research scientist in biochemistry. She also enjoys running, cooking elaborate meals, and then eating elaborate meals. Saparja received a Bachelors of Arts in Biochemistry from Vassar College.