Medicare docks up to 3% from hospitals with too many readmissions.

Medicare paid hospitals for every admission, so a patient readmitted soon after discharge generated a second, full payment, and hospitals had little reason to stop it.

The 2012 HRRP computes a hospital's risk-adjusted 30-day readmission rate for specified conditions and reduces its Medicare inpatient payments by up to 3% when that rate is better than expected.

The penalty shifts money from an outcome to a payment, so hospitals invest in discharge planning, follow-up and coordinated care rather than just filling beds.

Cheapen re-admission by making the hospital pay for it

The readmission penalty makes the payer's money follow the episode, not the bed-day

Up to 3% is large enough to change hospital behaviour

It targets an outcome, not just a process measure

It transfers risk from the payer to the provider

If a payer rewards volume and not an outcome, add a penalty on the bad outcome — a modest price on readmission moves behaviour more than any quality campaign.

Hospitals responded with transitional care and better discharge coordination, and readmission rates for the targeted conditions fell, though critics warned the penalty could penalize safety-net hospitals serving sicker patients and that it shifted care without improving it everywhere.