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Creating a Business Case for Initiatives to Prevent Hospital Readmissions

As more payers move away from fee-for-service payment for healthcare, hospitals find that an increasing percentage of their revenues now depend on providing value and meeting specific quality targets. Readmission rates are among those targets that already have significant impact for both payers and hospitals. According to PricewaterhouseCoopers’ Health Research Institute, the total annual cost of preventable hospital readmissions is $25 billion.1 The Centers for Medicare and Medicaid Services bears $15 billion of that cost.

Reducing readmission rates helps hospitals:

  • Avoid reimbursement penalties. Higher rates result in reduced payments through the CMS Hospital Readmissions Reduction Program. In 2015, Medicare penalized 2,610 hospitals a percentage of their total reimbursements. The penalized amount has risen from a maximum of 1% of Medicare payments in 2013, to up to 2% in 2014, and a maximum of 3% in 2015. For many hospitals, a 3% reduction could significantly impact  these facilities’ profit margin, making lower readmissions rates imperative.2
  • Increase eligibility for incentives. Private payers and Medicaid are increasingly linking payments to hospitals’ performance on readmission metrics.3 Aetna and Wellpoint implemented incentives for reduced rehospitalizations in 2012 and most other major payers have followed suit.
  • Protect reputation. The Hospital Compare website presents readmission rates as a significant measure of overall quality, which may lead patients and payers to choose facilities with lower readmission rates. This perception of quality may result in reduced revenue for those with higher rates, regardless of cause.4
  • Improve care. Programs to reduce preventable readmissions focus on identifying patients at high risk and procedures that can improve care received in the hospital to reduce the likelihood of rehospitalization within 30 days. Electronic surveillance systems can enable hospitals to quickly identify patients at risk for infection or on less optimal treatment.
  • Increase patient satisfaction and improve outcomes. Clear communication of discharge instructions, when to see a doctor and what symptoms represent significant concerns improves patient satisfaction as measured by Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey results. Hospitals with the lowest readmission rates have the highest HCAHPS ratings,indicating that efforts to improve communication makes patients feel that they have received better care and can reduce readmissions.


  1. The price of excess: Identifying waste in healthcare spending. PriceWaterhouse Coopers’ Health Research Institute. 2010.
  2. Rice S. More U.S. hospitals to receive 30-day readmission penalties. Modern Healthcare. October 2, 2014.
  3. Reducing Hospital Readmissions: A Quick Brief for Preferred Provider Organizations. AAPPO. February 2012.
  4. Laudicella M, Donni PL, Smith PC. Hospital readmission rates: Signal of failure or success? Journal of Health Economics. September 2013;32(5):909-921.
  5. The Relationship between HCAHPS Performance and Readmission Penalties. Press Ganey. 2012.

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