CMS curbs penalties for some hospitals

In another example of how a good system of incentives can be hard to craft, Kaiser Health News reported on Congress mandating that CMS ease its penalties for hospitals serving low-income patients whose readmission rates are too high. Originally, the policy was to penalize all hospitals whose readmission rates are too high (with the rationale that if a hospital does a sloppy job on a procedure, causing patients to return to the hospital within 30 days, then those hospitals should be paid less). Parts of the medical community argue that low-income patients can easily land back in the hospital for reasons outside of the hospitals' control (such as patient inability to afford medication), thus unfairly penalizing hospitals. Understandably, putting additional financial strain on hospitals that serve low-income patients raises the question of whether those communities will face reduced access (e.g. if some of those hospitals close).

The question in this discussion is one of risk-adjustment (with low-income patients having worse health outcomes on average than higher-income patients). The new policy evaluates each hospital in the context of one of five peer groups. It will be interesting to see how long this framework of five peer groups holds. Perhaps some providers will argue for a rural vs. urban distinction, or ask for some other type of risk-adjustment.