Redesigning the Medicare Inpatient PPS to Reduce Payments to Hospitals with High Readmission Rates

A redesign of the Medicare inpatient prospective payment system (IPPS) that reduces payments to hospitals that have high-risk adjusted readmission rates is proposed. The redesigned IPPS uses a readmission performance standard from best practice hospitals to determine the risk-adjusted number of excess readmissions in a hospital and determines the payment reduction for a hospital based on its excess number of readmissions. Extrapolating from Florida Medicare 2004-2005 discharge data, the redesigned IPPS is estimated to reduce overall annual Medicare inpatient expenditures nationally by $1.25, 1.92, and 2.58 billion for readmission windows of 7, 15, and 30 days, respectively.