Medicare Readmission Reduction Calculation

I came across a simple explanation of how CMS will calculate readmission reduction payments. Remember that the reduction applies to 3 categories: heart failure, acute myocardial infarction, and pneumonia.

First, CMS
tells us that the reductions are calculated using the excess readmission ratio, which is the actual readmissions (adjusted by risk) divided by the expected readmissions (using data from FY 2008-2011). A separate ratio is calculated for each of the 3 categories explained above. A ratio of less than 1 is excluded. Why? A ratio of less than 1 implies that there are fewer actual readmissions than expected.

Second, the aggregate excess readmission payments is calculated by multiplying each of the base operating DRG payments by the ratio for each category (note that the ratio must be greater than 1.

Third, the excess readmissions payments are divided by the base operating DRG payments for all discharges. This is called the Ratio.

Fourth, the readmission adjustment factor is calculated as the lower of 1% (for FY 2013) or 2% (for FY 2014) or the Ratio.

Fifth, the result in step 4 is used to reduce base operating payments in the current FY.

Additional source: 42 CFR 412.50:

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