This post was also written by Rachel Golick.

On August 19, 2013, the Centers for Medicare & Medicaid Services (CMS) published the FY 2014 Medicare payment policies and rates under the acute inpatient prospective payment system (IPPS) and the long-term care hospital (LTCH) prospective payment system (PPS) (Final Rule) which, among other changes, updates policies related to the Hospital Readmissions Reduction Program (HRRP or Program). As discussed in greater detail in the May 2012 Reed Smith LLP Client Alert, since October 1, 2012, CMS has utilized the HRRP in an effort to reduce hospital readmissions after discharge of patients with certain conditions. Under the Program, an inpatient admission by a short-term acute care hospital (STACH) of a patient discharged from the same or different STACH within 30 days preceding the readmission may result in a reduction of Medicare payments to the STACH that initially treated the patient. CMS employs a complicated formula to determine the amount of the payment reduction to the original STACH for certain readmissions. Initially, the HRRP only applied to readmissions of patients with a diagnosis upon discharge from a STACH of myocardial infarction, heart failure or pneumonia, though federal statutes permit CMS to expand the list of applicable conditions beginning FY 2015.

CMS made several changes to the Program in the Final Rule. First, CMS adopted its proposal to refine the readmission measures and to adopt a revised “planned readmission algorithm” for the Program, which broadly identifies planned readmissions for procedures and treatments for exclusion from the readmission measures. Along these same lines, CMS finalized its proposal to change the measurement of planned readmissions. Under the Final Rule, if the first readmission is planned, it will not count as a readmission for purposes of the Program, nor will any subsequent unplanned readmission within 30 days of the index readmission. CMS anticipates that this revision will decrease the number of readmissions that “count” toward a hospital’s readmission numbers.

Third, CMS expanded the list of applicable conditions for FY 2015 to include patients admitted for: (1) an acute exacerbation of chronic obstructive pulmonary disease; (2) elective total hip arthroplasty; and (3) elective total knee arthroplasty. CMS declined to include other vascular conditions, as recommended by MedPAC, because many of those procedures are now performed on an outpatient basis.

Finally, CMS finalized certain aspects of the FY 2014 adjustment factor and applicable period for consideration of readmission data. In particular, for FY 2014, CMS increased the maximum payment reduction to 2% as required by the Affordable Care Act and finalized the applicable period for purposes of collecting data to ascertain readmission numbers as the period from July 1, 2009 through June 30, 2012.

Notably, CMS again refused to adjust the Program to account for readmissions unrelated to the patient’s initial hospital stay, despite commenters’ concern that STACHs may be held responsible for readmissions entirely outside of their control (i.e., a patient suffering injuries in a car accident within 30 days of discharge with a diagnosis of PN).

CMS also addressed commenters’ concerns regarding the impact on readmission rates of claims denied by Recovery Audit Contractors (RACs) – an issue of increasing importance to hospitals. CMS declined to omit from the HRRP readmissions associated with these denied claims, emphasizing the importance of utilizing transparent data to calculate readmissions (updates of the MedPAR and SAF files – which are not immediately adjusted for RAC denials) and the fact that inpatient stays denied payment by RACs under Medicare Part A remain classified as inpatient stays and can be billed as Medicare Part B inpatient stays. Because inpatient stays denied payment under Medicare Part A typically continue to count as qualifying inpatient stays for other payment purposes (i.e. qualifying for SNF benefits), CMS believes it is appropriate to include them in the HRRP.