Medicare Reimbursement and Hospital-Acquired Infections: The Costly Connection

by Erica Mitchell | September 8 2021 | Hospitals, HAIs, Patient Safety, Medicare | 1 Comment


Although COVID-19 is taking the most attention, Medicare continues to penalize hospitals with the highest patient safety incidents. In today's post we explore the whole issue of Medicare reimbursements, penalties, and safety programs.

First, let’s look at how Medicare and hospitals interact. Medicare is a government-subsidized health insurance program. Medicare covers individuals over the age of 65 (54 million people in 2020), individuals with disabilities, and/or those with certain health conditions (8 million people in 2020). Through a number of private insurance companies, the federal government pays hospitals for about half of the healthcare costs of enrolled Medicare recipients, the remainder being paid for by the patients themselves. Prior to 1982, Medicare would reimburse hospitals on a per-case basis. With sharp increases in the cost of medical care, Medicare adopted the “Inpatient Prospective Payment System,” a program that set allowable fees (adjusted for market and geography) for every conceivable treatment, and reimbursing at those set rates. This helped controlled costs while also slowing the rapid increase in medical costs.

Now let’s look at the penalties. The Patient Protection and Affordable Care Act (ACA), known colloquially as “Obamacare,” brought in new measures to control costs and improve patient outcomes. There are two programs that intersect with patient safety:

The Hospital Readmissions Reduction Program: Hospitals are penalized for patients who have to be readmitted within 30 days of receiving treatment for certain conditions. This program hopes to ensure that patients receive the proper care and education before discharge. The penalty is up to 3% of total reimbursement. 

The Hospital-Acquired Condition (HAC) Reduction Program: Data on hospital-acquired conditions is collected by Medicare and each hospital receives a score based on their performance. These measures include preventable conditions that are related exclusively to being in a hospital, not the underlying condition. This includes bed sores, medical errors, and infection. Hospitals in the lowest quartile (lowest 25%) will receive 1% less in their Medicare reimbursement. 

Exempt from both these programs are children's hospitals, veteran's hospitals, and "critical access" hospitals (hospitals which are the sole medical providers in one geographic area).

How are these programs working? The latest report from the Agency for Healthcare Research and Quality (AHRQ) indicates preliminary reductions in infections and improvements in patient safety. The report estimates that based on the 2014 rates, these policy interventions adverted 20,500 HAC-related inpatient deaths from 2015 -2017 or $7.7 billion in costs. 

Why are these penalties necessary? The thought behind these penalties is as follows: First, to hold hospitals accountable for patient safety and quality service. So much of preventable patient harm could be eliminated with improved human processes, including clear protocols, training, monitoring, and communication. Second, the very real financial burden of preventable patient harm affects not only the patient’s bottom line, but also Medicare’s. In 2018, subsidized health insurance for 60 million people accounted for 15% of the entire federal budget, or $731 Billion. It makes sense for Medicare to try to lower costs by making sure hospitals are doing their utmost to prevent unnecessary (and often costly) treatments for conditions they themselves cause (bed sores, infections from catheters, etc.). And remember, individuals on Medicare are paying for half their medical bills, so eliminating costly complications benefits them financially as well.

There is certainly controversy related to the Medicare reimbursement penalties. While the scores hospitals receive are adjusted to level the playing field – called risk-adjustment – some believe the scores don’t accurately represent a hospital’s performance or improvement. The overall Medicare reimbursement model, some experts say, even encourages hospitals to emphasize number and complexity of procedures in order to garner higher reimbursements.  In addition, others add, medication errors are not tracked in this program and yet they are the leading cause of preventable patient injury. Another article suggests a couple improvements to the current program and cites findings from a study representing 93% of penalized hospitals in 2015. 

Regardless of the controversy, the Medicare reimbursement penalties are something hospitals have to contend with as they measure their own performance and design strategies for improvement. In a future post, we’ll explore the kinds of strategies hospitals are using to avoid these penalties.

Hospital Score Data Sources

Editor's Note: This post was originally published in December 2015 and has been updated for freshness, accuracy and comprehensiveness.