CMS’s Hospital Readmissions Reduction Program May Not Be Used to Deny Individual Commercial Claims | King & Spalding

The Hospital Readmissions Reduction Program (HRRP) is a Medicare value-based purchasing program that reduces payments…

The Hospital Readmissions Reduction Program (HRRP) is a Medicare value-based purchasing program that reduces payments to hospitals with excess readmissions. This performance program penalizes hospitals up to three percent of their reimbursement if they report higher than expected 30-day risk-adjusted readmission rates for six conditions. Providers should be cautious, however, that commercial payers may misapply the HRRP, using it to erroneously deny individual claims. This has been exemplified by a correctional facility’s recent denial of payment for subsequent admissions of its prisoners to a contracted hospital. This article will highlight the history of the HRRP and use this case example to show why the HRRP cannot be utilized as justification for the denial of an individual claim.

I. A Commercial Contract Must Detail That Specific Medicare Rules To Adjudicate Claims

Many payers apply Medicare rules (or modified Medicare rules) to adjudicate commercial claims. Payers erroneously argue that they are permitted to do so based upon “industry standards.” Unless a contract expressly provides that a payor can apply specific Medicare rules in adjudicating the claims, however, payers are not permitted to do so. The same rule applies to non-contracted claims. When there is no contract between the parties, then there is no agreement by the provider that its claims will be adjudicated according to Medicare rules.

If a contract specifies which Medicare rules apply, providers should ensure that payers are applying them correctly. For example, a number of health plans are currently misapplying National Correct Coding Initiative (NCCI) edits to commercial claims, including inpatient claims.

Here, providers should ensure that commercial payers are: (1) only applying Medicare rules regarding readmissions to commercial claims when there is an agreement detailing the specific rule; and (2) are applying those rules correctly.

II. MedPAC Addresses High Readmission Rates

Prior to the HRRP, Medicare would pay for all rehospitalizations, except for those that occurred within 24-hours of discharge.[1] In 2007, the Medicare Payment Advisory Commission (“MedPAC”), released a report to Congress, describing the evidence of high readmission rates and associated costs for Medicare beneficiaries.[2] The 2007 MedPAC report indicated that nearly 18 percent of hospital admissions resulted in readmissions within 30 days of discharge, accounting for $15 billion in spending,[3] MedPAC stressed that hospital readmissions could sometimes reflect poor care or missed opportunities to coordinate care,[4] which could adversely affect the beneficiaries’ health.[5] To encourage hospitals to adopt strategies to reduce readmissions, MedPAC recommended that Congress implement a two-part policy,[6] requiring that: (1) hospitals report “hospital-specific readmission rates for a subset of conditions”; and (2) that Congress adjust the underlying payment method to “financially encourage lower readmission rates.[7]

III. Congress Implements The HRRP

Congress first codified the requirement for hospitals to publicly report readmission rates for a subset of conditions.[8] Second, by adding the HRRP to the Affordable Care Act, Congress adjusted the underlying payment method to encourage hospitals to reduce readmissions.[9] The HRRP applies financial penalties to hospitals that have higher readmission rates for six particular conditions or procedures, including: (1) acute myocardial infarctions, (2) heart failure, (3) pneumonia, (4) chronic obstructive pulmonary disease, (5) hip/knee replacement, and (6) coronary artery bypass graft surgery.[10] The statute defines that a readmission occurs when a patient returns to any hospital as an inpatient within 30 days of an initial discharge, however, readmissions “that are unrelated to the prior discharge” are not considered for the purpose of calculating the readmission rate.[11]

Through the HRRP, CMS calculates the payment reduction and component results for each hospital based on the hospital’s readmission rates during a three-year performance period.[12] CMS first calculates the excess readmission ratio (ERR), which is a measure of a hospital’s relative performance regarding readmissions compared to other HRRP hospitals.[13] The ERR is then used in a payment reduction formula to assess a hospital’s readmissions for each of the six conditions or procedures included in the HRRP.[14] CMS converts the payment reduction into a Payment Adjustment Factor (“PAF”) to administer payment reductions.[15] CMS applies the PAF to reduce payments across all Medicare FFS base operating DRG payments during a particular Fiscal Year.

IV. HRRP Does Not Support the Denial of Individual Claims

Nothing in the HRRP permits using rules from the Medicare program to deny a claim for a subsequent admission on the grounds that the patient was readmitted for a similar condition within 30 days of the patient’s discharge. Similarly, nothing in the HRRP permits commercial payers to deny claims on an individual basis. Recently, a correctional facility has attempted to utilize the HRRP to justify its denials of a contracted hospital’s claims for care rendered to prisoners during subsequent admissions. The agreement between the hospital and correctional facility required that the hospital be reimbursement in accordance with CMS payment guidelines. When denying payment, the correctional facility represented that “readmissions to the same hospital for the same or similar conditions may not be allowed.”

The correctional facility misapplied the HRRP in denying these claims. First, many of these patient claims did not even include treatment for one of the six conditions for which the HRRP applies. Second, even if a patient did suffer from one of these six conditions, the HRRP does not support the correctional facility’s denial of an individual claim. Through the HRRP, CMS calculates the payment reduction and component results for each hospital based on the hospital’s readmission rates during a three-year performance period. After calculating the payment adjustment factor, CMS uses this to reduce a hospital’s payments across all Medicare fee-for-service base operating DRG payments during a particular year—not just to a particular claim. Moreover, the HHRP does not permit a full denial of payment, as the payment reductions are capped at 3%.[16] The denial of payment for these claims was not justified by the HRRP.

Finally, hospitals and other providers have no control over the patient’s health after they are discharged. Providers cannot require patients to show up at further appointments with their physicians, to take their medications, or to participate in rehabilitation programs. Many patients who are readmitted often have challenges in maintaining their health as they are often homeless, do not have ready access to transportation, have compromised diets, cannot afford medications, are addicts, or suffer from mental illnesses. In the case of the correctional institute, whether the discharged patient sees physicians, takes medications, and participates in follow-up care, and does not have access to illicit drugs, depends in large part on the correctional institute itself. Hospitals and other providers should not have their claims denied because due to factors over which they have no control, or through misapplication of Medicare readmission rules.

Providers should be on alert for inappropriate denials of their claims on these grounds. The Managed Care Advisor also gratefully acknowledges the contribution of our former colleague Jennifer Siegel to this article.

[1] Stephen F. Jencks, Mark V. Williams & Eric A. Coleman, Rehospitalizations among Patients in the Medicare Fee-for-Service Program, 360 NEW ENG. J. MED. 14, 1419 (2009).


[3] See MEDPAC REPORT at 103.

[4] See MEDPAC REPORT at 105.

[5] See MEDPAC REPORT at 103.

[6] See MEDPAC REPORT at 103.

[7] See MEDPAC REPORT at xiii.

[8] 42 U.S.C. § 1395ww(q)(6).

[9] 42 U.S.C. §§ 1395ww(q).

[10] CMS, Hospital Readmissions Reduction Program, (Aug.24, 2020, 8:09 a.m.).

[11] 42 U.S.C. §§ 1395ww(q)(5)(E);1395ww(q)(5)(A)(ii)(II).

[12] CMS, Hospital Readmissions Reduction Program, (Aug.24, 2020, 8:09 a.m.).

[13] 42 USC §1395ww(q)(4).

[14] 42 CFR 412.154.

[15] 42 USC §1395ww(q)(3)(C)(i)-(iii).

[16] 42 USC §1395ww(q)(3)(C)(iii).