Association of the New Peer Group–Stratified Method With the Reclassification of Penalty Status in the Hospital Readmission Reduction Program

IMPORTANCE: Since the introduction of the Hospital Readmission Reduction Program (HRRP), readmission penalties have been applied disproportionately to institutions that serve low-income populations. To address this concern, the US Centers for Medicare & Medicaid introduced a new, stratified payment adjustment method in fiscal year (FY; October 1 to September 30) 2019. OBJECTIVE: To determine whether the introduction of a new, stratified payment adjustment method was associated with an alteration in the distribution of penalties among hospitals included in the HRRP. DESIGN, SETTING, AND PARTICIPANTS: In this retrospective cross-sectional study, US hospitals included in the HRRP for FY 2018 and FY 2019 were identified. Penalty status of participating hospitals for FY 2019 was determined based on nonstratified HRRP methods and the new, stratified payment adjustment method. Hospitals caring for the highest proportion of patients enrolled in both Medicare and Medicaid based on quintile were assigned to the low–socioeconomic status (SES) group. EXPOSURES: Nonstratified and stratified Centers for Medicare & Medicaid payment adjustment methods. MAIN OUTCOMES AND MEASURES: Net reclassification of penalties among all hospitals and hospitals in the low-SES group, in states participating in Medicaid expansion, and for 4 targeted medical conditions (acute myocardial infarction, heart failure, chronic obstructive pulmonary disease, and pneumonia). RESULTS: Penalty status by both payment adjustment methods (nonstratified and stratified) was available for 3173 hospitals. For FY 2019, the new, stratified payment method was associated with penalties for 75.04% of hospitals (2381 of 3173), while the old, nonstratified method was associated with penalties for 79.07% (2509 hospitals), resulting in a net down-classification in penalty status for all hospitals by 4.03 percentage points (95% CI, 2.95-5.11; P < .001). For the 634 low-SES hospitals in the sample, the new method was associated with penalties for 77.60% of hospitals (492 of 634), while the old method was associated with penalties for 91.64% (581 hospitals), resulting in a net down-classification in penalty status of 14.04 percentage points (95% CI, 11.18-16.90; P < .001). Among hospitals that were not low SES (quintiles 1-4), the new payment method was associated with a small decrease in penalty status (1928 vs 1889; net down-classification, 1.54 percentage points; 95% CI, 0.38-2.69; P = .01). Among target medical conditions, the greatest reduction in penalties was observed among cardiovascular conditions (net down-classification, 6.18 percentage points; 95% CI, 4.96-7.39; P < .001). CONCLUSIONS AND RELEVANCE: The new, stratified payment adjustment method for the HRRP was associated with a reduction in penalties across hospitals included in the program; the greatest reductions were observed among hospitals in the low-SES group, lessening but not eliminating the previously unbalanced penalty burden carried by these hospitals. Additional public policy research efforts are needed to achieve equitable payment adjustment models for all hospitals.