The Effect Of The Hospital Readmissions Reduction Program On Readmission And Observation Stay Rates For Heart Failure

The Hospital Readmissions Reduction Program reduces Medicare prospective payments for hospitals with excess readmissions for selected diagnoses. By comparing data for patients who were readmitted or placed on observation status immediately before and immediately after the thirty-day cutoff for penalties, we sought to determine whether hospitals have responded to the program by shifting readmissions for heart failure to observation status. We used regression discontinuity, taking advantage of the cutoff to generate unbiased estimates of treatment effects. Overall, we found no evidence that the program has affected the use of observation stays. However, for nonpenalized hospitals, the use of observation status was 5.4 percent higher for patients returning to the hospital immediately before the thirty-day cutoff than for patients returning immediately after the cutoff, which suggests that some hospitals may have used observation status to help avoid penalties. Because differences in the cost-sharing rules may lead to higher out-of-pocket expenses for Medicare patients placed on observation status, the program could have an inequitable financial impact.