Hospital Readmission Reduction Program Penalties for Hospitals With High Medicare Advantage Penetration

Is unobserved selection associated with distortion in Hospital Readmissions Reduction Program (HRRP) penalties?This cohort study of 3203 hospitals found that after adjusting for unobserved selection as proxied by Medicare Advantage (MA) penetration, hospitals in the first quintile of MA penetration would be penalized $30 736 more while hospitals in the fifth quintile would be penalized $26 915 less. These distortions were observed with and without peer grouping; across hospitals, penalty redistributions would amount to $284 million to $297 million annually.These findings suggest that hospitals with higher MA penetration have inflated HRRP penalties because risk-adjustment cannot account for unobservable differences between MA and non-MA beneficiaries; accounting for MA penetration explicitly may dampen distortions from unobservable patient severity in HRRP penalty calculations.

Corresponding Author: Geoffrey J. Hoffman, PhD, Systems, Populations, and Leadership, University of Michigan School of Nursing, 400 N Ingalls Building, Ann Arbor, MI 48109-5482 (gjh@umich.edu).

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