Iam a practicing hospitalist as well as a consultant to hospitals and health systems. One of my clients has a question: Is it legal to incentivize hospitalists to reduce readmission rates?

Alexander Strachan Jr., MD, MBA, CEO and managing director, CrossWalk Consulting Group LLC, Mission Viejo, Calif.

Dr. Hospitalist responds:

If you recall, a few months ago we discussed gainsharing and its attendant implications for physicians. The other side of that coin would be something like readmission rates. How so? Well, Medicare prohibits gainsharing (when hospitals share with physicians in the savings from improved service utilization), with the exception of two small, ongoing demonstration projects. For readmission rates, there are proposed penalties for hospitals, but not for physicians, so again there is no direct linkage of incentives.

Let’s take a look at our subject again: readmissions. Definitely in the news, as starting Oct. 1, 2012, hospitals can be penalized for exceeding the target readmission rate for the diagnoses of acute myocardial infarction, heart failure, and pneumonia. No surprise, but these are the same diagnoses that are part of the value-based purchasing payment methodology. These are both offshoots from the controversial Affordable Care Act of 2010.

The penalty, which is set at 1% for fiscal-year 2013 and escalates to a maximum of 3% for fiscal-year 2015, is based not just on the diagnosis-related group (DRG) payments for those specific conditions, but also for all DRG payments the hospital receives in that fiscal year. Understandably, hospitals are paying attention to this. Physicians, on the other hand, are not directly connected to the penalty. However, as a hospitalist, I imagine that you are either employed by the hospital or your group has a contract with the hospital—and the hospital is paying part of your salary. We aren’t exactly “independent professionals” these days.

As for the question at hand, then can a hospital incentivize a physician directly to reduce the readmission rate? Sure! Why not? Sounds easy enough.

However, it bears taking a closer look at how this might happen. Remember, Medicare frowns upon the potential denial of care or reduction in services, which is why gainsharing still hasn’t made its way forward. For example, a hospital could not pay a physician to turn away a potential readmission at the door. If the hospital wants to pay a bonus for reducing the readmit rate to 5% from 10%, great. If the hospital wants to pay a physician $500 for each potential readmission that is sent home from the ED, bad idea.

Similarly, the readmission rate is based on inpatient admissions, and patients who are admitted as observation technically are outpatients. So, if the hospital (employer) encouraged the inappropriate use of observation status, it would be a big no-no.

So what are the potential solutions? Well, as above, the hospital could construct a bonus based on the improvement (or maintenance) of a specific readmission rate, but it can’t dictate a process that might be interpreted as a denial of care. Alternately, it could pay for a process that might be expected to have a positive impact on the readmission rate. The hospital could require notification of pending discharges for the three “targeted” diagnoses, which would then allow for more resources to be directed to the patient prior to discharge. From the other end, the hospital could promote seeing those specific patients at risk for readmission earlier in their presentation (in the ED) to engage the hospitalists in management of the disease.

There are many ways to creatively design a solution, but the most important point is to avoid the incentive for the denial of care. Yes, Medicare wants you to improve the hospital’s readmission rate, but the preferred approach is to provide more resources to this population, not fewer.