Life Sciences

Reducing readmission: Can your products align with payer, hospital financial goals?

Medicare & Reimbursement Advisor Weekly, July 15, 2009

by Bryan Cote

Reducing hospitalizations is one of the top benefits that plan medical directors look for when evaluating products for formulary adoption. And in terms of hospitals, there are indirect financial benefits for adopting products that keep patients from bouncing back after discharge.

For example, four readers from five different pharmaceutical companies recently asked me whether there’s any financial or reimbursement benefit to hospitals that keep patients out of the acute setting after discharge.

Although you don’t gain reimbursement by keeping the discharged patient out of the hospital beyond 30 days, you do avoid losing reimbursement if the patient is readmitted inside a month.


Medicare doesn’t want to pay for hospital readmissions. Under Medicare’s 9th Scope of Work rules, CMS’ fiscal intermediaries currently monitor hospital readmissions, and if a patient is readmitted at the same facility for the same diagnosis within 30 days of discharge, the intermediary flags and sends an electronic note to the state Quality Improvement Organization (QIO).

The QIO then contacts the hospital asking for documentation and background records (e.g., the patient’s discharge plan and care plan).

The QIO reviews the records and has the authority to deny payment for the readmission if it believes there’s enough evidence that the hospital could have avoided the readmission or if the documentation or discharge plan are not of good quality.

Generally, if the QIO determines that there was not a great effort to get the patient the best discharge at the next best level of care (i.e., a skilled nursing facility), the hospital will not be reimbursed for the second readmission.

QIOs may go beyond an electronic/distance

review if there’s a pattern at the same hospital.

If a hospital is not paid for readmissions and a pattern begins, we’re talking about a significant revenue loss.

What causes readmissions?

Hospitals such as St. Joseph’s in Atlanta are now tracking their readmissions and working to reduce their readmission rate and identify the chief causes. See the chart on p. 5 for analysis of St. Joseph’s June readmissions (also see the July 10 MRAW for readmissions data). One-third of the readmissions in June were related to a precipitating surgery, and 25 of those bounced back within five days, says Anne Pedersen, RN, the hospital’s care management director.

HeaRt FailuRe/CHeSt Pain examPle

The DRG for congestive heart failure is 293 (if the patient does not have other major comorbid conditions). Reimbursement under this DRG has a blended payment rate. For example, if a patient enters the hospital within 30 days of discharge for the same DRG, the average blended rate for hospitals concerning this DRG comes to about $4,500. But the cost of the second admission may be higher if you factor in two to three days’ worth of emergency department costs, supplies, and nursing time. The hospital eats these costs if the QIO determines that the discharge plan documentation or plan of care were not adequate.


If your product keeps the coronary artery stable and patients out of the hospital for more than 30 days, the drug indirectly helps hospitals avoid revenue/reimbursement loss. CMS’ goal is to help save $17 billion through these efforts. It wants to reduce so-called bouncebacks and have hospital staff work more in collaboration with the community (doctors, nurses, skilled nursing, etc).