One significant result of the U.S. healthcare system moving towards value-based care is that hospitals now incur penalties for readmissions. This federal regulation took effect three years ago.

It operates on the theory that many readmissions result from poor follow-up care. The regulation is starting to reduce medical recidivism -- that is, return visits to hospitals. 

Part of the Affordable Care Act is a readmission reduction program, which includes penalties for revisits within 30 days for certain hospital procedures. The penalty has deducted from 1% (in 2013) up to 3% (in 2015) of every Medicare payment for a hospital identified to have "excessive readmissions" for heart attacks, heart failure, pneumonia and possibly more kinds of hospitalizations in the future.

Monitoring compliance with these rules, Medicare reported in 2013 that nearly two-thirds of hospitals receiving traditional Medicare payments were expected to pay about $300 million in penalties for that year alone. That is a small percentage of the nearly $586 billion in Medicare spending in 2013. 

Existing data also show that the 30-day hospital readmission rate held steady at around 19% from 2007-2011, while the rate dropped slightly below 18% in 2013. That's progress on what would appear to still be a wildly high readmission rate.

The government has caught on to this systemic problem and the benefit will be that patients will receive the follow-up care they need to ensure their hospital procedures were successful. Other efforts in the goal of minimizing or eliminating repeat admissions include digitizing medical records for easier information flow, mobilizing and coordinating with other providers and community resources, conducting high-risk assessment and implementing procedures for better physician notification and progress reporting.

These medical readmission penalties are worth emulating. For example, a model has emerged to help cut prison recidivism in the U.S., which maintains the highest incarceration rate in the world. There is an economic incentive in prisons for former inmates to relapse into bad behavior and re-enter the institution -- more jobs for guards, more infrastructure, and plumper budgets, to name a few.

What if prisons also faced a readmission penalty?  Brookings senior fellow and author Stuart M. Butler writes that this would force prisons to work harder on rehabilitating inmates. "The prison's budget would be cut and the bonuses and salary increases of senior prison staff trimmed back," Butler writes. "...Prisons would get serious not only about training inmates but also about working with potential employers to help line up jobs... [They] would become more interested in arranging stable housing for their ex-customers."

Readmission penalties will likely lead to the mission of discharging "customers" and ensuring they do not return again -- ever in the case of prisons and for the same illness or procedure in the case of hospitals.

In healthcare, this might even go far outside the medical realm. Hospital personnel could address transportation, food and housing arrangements for patients to keep them stable post release. Attention is no longer just addressing medical factors but also the social aspects of why people re-lapse in their illness.

It is also noteworthy that while readmission penalties are less than the revenues gained when patients are re-hospitalized, hospitals continue to invest in post-acute care transitions and are reducing readmissions. Let's eliminate the guesswork: Hospitals know they will be pushed further in this direction as healthcare moves to bundled payments and other forms of value-based reimbursement that consider whole-person health over time.

The bigger issue, however, is that while hospitals are designed for complex cases that require high-cost infrastructure, the means to drive down readmissions and broadly improve outcomes are entirely different. For instance, a hospital might need to deliver medications to the home of a person without transportation or ensure the patient's home is appropriate for effective healing. That might mean ensuring that there is air conditioning in a hot climate.

Hospital readmission penalties have their share of critics, who question whether readmissions penalties are a strong enough incentive to drive them to improve quality and long-term outcomes. As reported by The New York Times, critics believe that "a hospital's readmission rate is not a clear measure of the quality of care it provides," citing, for example, that those with higher mortality rates may also have fewer returning patients.

However, the results so far are a clear marker that readmission penalties are a step in the right direction. They lead to long-term gains and cost savings. But these penalties are only the first of many changes that will bring value-based care and reimbursement to the forefront.



This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned. Learn more about Kimball by visiting his Blog.