HCA Implements Potentially Preventable Readmission (PPR) Adjustments

January 13, 2016

Date: January 13, 2016

To: CFOs and Quality Leaders of PPS and CPE Hospitals and WSHA Readmissions Task Force

From: Carol Wagner, Senior Vice President, Patient Safety
Andrew Busz, Policy Director, Finance
Claudia Sanders, Senior Vice President, Policy Development
Tom Evert, Chief Financial Officer

Staff Contact: Andrew Busz, andrewb@wsha.org or (206) 216-2533

The purpose of this bulletin is to inform Prospective Payment System (PPS) hospitals of changes to their Medicaid inpatient hospital payment rates effective January 1, 2016 due to changes to the Health Care Authority’s policy on paying for readmissions. HCA is replacing its existing policy of reviewing and denying individual readmission claims with a policy that uses a software program to compare each hospital’s rate of potentially preventable readmissions (PPR) rate with an expected rate based on the state’s general experience and the hospital’s mix of cases. Hospitals with higher than expected potentially preventable readmissions are subject to a penalty reduction applied to their inpatient payment rate.

The new HCA readmission payment provisions apply to all PPS and Certified Public Expenditure (CPE) hospitals paid by HCA under the HCA’s APR-DRG payment methodology.

HCA’s new payment policy for readmissions is based on an inpatient payment rate penalty for hospitals that appear to have an excessive number of potentially preventable readmissions (PPRs). HCA recently sent PPS hospitals summary reports comparing their facility’s potentially preventable readmissions to an expected number based on their mix of inpatient cases. The summary report included the calculation of the rate reduction for facilities where the number of potentially preventable readmissions was determined to exceed the expected rate threshold determined by HCA. In addition, HCA will provide each hospital, via secure file transfer, a report detailing the inpatient cases that were used for the calculation.

We recommend hospital staff review both the summary report and the detail report, when available, to confirm the calculations used for the rate adjustment are correct. Hospital quality staff should review the detail report to identify opportunities for care improvements to reduce potentially preventable readmissions and future rate reductions. We also recommend hospital staff review the new inpatient hospital provider guide to ensure correct billing of transfers, planned readmissions, homeless patients, and other cases potentially affected by the new policy.

Next Steps
WSHA will continue to work with HCA as the program enfolds. WSHA has expressed its concerns about the process, including our belief that savings should occur through care improvements that reduce readmissions rather than through payment rate penalties. The provision of the quarterly detail reports is critical to care improvement, and we will work with HCA to ensure they are available and in a helpful format. HCA agreed to continue to monitor readmission rates and continually evaluate the continuing need and structure of the PPR program as it goes forward.

HCA recently finalized its plans to implement a new policy on payment for readmissions for PPS hospitals. Under the new policy, HCA is using a 3M Corporation software program to identify Potentially Preventable Readmissions (PPR) and is applying a payment rate penalty to hospitals that experience a higher number of potentially preventable readmissions than expected by the software given their mix of inpatient cases. For hospitals participating in the Certified Public Expenditure (CPE) program, the reductions will be applied as part of the “hold harmless” rate calculation. An overview of the PPR methodology is linked here and in a PowerPoint presentation prepared by the HCA.

Certain services and circumstances of admission are excluded from the PPR analysis, including admissions related to cancer treatment, transfers to other hospitals, planned readmissions, mental health admissions paid by the Division of Behavioral Health and Recovery, neonatal and newborn jaundice cases, trauma cases, and transplants. See WAC 182-550-3840 for the full set of admission types excluded from the analysis.

While not specifically mentioned in the WAC, HCA is also applying adjustment factors to inpatient medical admissions that include a secondary mental health diagnosis to adjust for higher readmission rates for these services.

HCA and Navigant staff met twice with a group of clinical and finance staff from WSHA-member hospitals to receive input on the proposed policy. WSHA continues to have concerns regarding the new policy, particularly that the methodology penalizes hospitals for readmissions due to factors beyond their control and that the timing of the measurement and penalty periods do not allow advance opportunity for hospitals to reduce readmissions to minimize penalties. We appreciate the HCA’s willingness to meet with the task force and receive input. While HCA did not change their planned general structure or timing of the new policy, it did agree to adjustments requested by the group, including adjustments for cases where a medical admission has a secondary mental health diagnosis, and the separate calculation of pediatric versus adult services. HCA also agreed to the group’s request that the penalty would not exceed 1.0 percent for any specific hospital and that the aggregate reductions would not exceed what the projected savings would have been through claim denials under the previous payment policy. HCA also agreed to consider the addition of a future adjustment for socioeconomic status factors and is implementing billing changes to gather information regarding socioeconomic status.

Payment Rate Adjustments
Under the new policy, hospitals that were determined by the software to have rates of potentially preventable readmissions greater than the threshold of expected rates for their mix of cases received a reduction to their inpatient Medicaid rate, effectiveJanuary 1, 2016. The January 1, 2016 rate adjustment is based on claims and managed care plan encounter data for the time period July 1, 2013 through June 30, 2014. The current HCA target expected rate formula assumes a 15 percent reduction to potentially preventable readmissions. HCA plans to make additional adjustments to the rates annually, with the next adjustment effective January 1, 2017, based on claims and encounters incurred from July 1, 2015 through June 30, 2016. Since the new policy replaces the prior policy of reviewing and denying individual claims, HCA has implemented contract language prohibiting Medicaid managed care plans that base their hospital payment on the posted Medicaid rates from applying additional, separate denials of readmission claims.

A few weeks ago, HCA sent CEOs and administrative contacts at each hospital a summary statement comparing their actual PPR rate to the PPR rates estimated by the software and the calculations for any prospective rate reduction. A sample of the summary form is linked here.

HCA committed to providing hospitals with quarterly detail reports of cases that have been identified as potentially preventable readmissions to better enable hospitals to identify types of cases where readmissions could be reduced. We understand HCA will have these available in the next few weeks and will make them available to hospitals via secure file transfer.

Rulemaking and Billing Guide
Rulemaking was recently completed regarding the program. WSHA and other hospitals commented and testified at the rulemaking hearing.

WSHA testified that the methodology penalizes hospitals for readmissions that are due to external factors beyond the control of the hospital, and encouraged HCA to provide mechanisms for managed care plans to share in the responsibility for access and coordination for needed post-acute services.

Since the rulemaking, HCA announced plans to delay the effective date of the second PPR rate adjustment by six months, to January 1, 2017, and has initiated rulemaking to that effect. The recently updated Inpatient billing guide provides special billing instructions to exclude transfers and planned readmissions from the PPR calculations. The section related to PPR begins on page 27 of the guide and also includes instructions for coding of cases where the patient is homeless. While adjustment for homelessness and other socioeconomic status factors is not currently built into the PPR methodology, the task force requested HCA consider such an adjustor for the future. In response to the request, HCA has included billing instructions to identify homeless patients in the most recent provider billing guide.


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