Association for Public Policy Analysis & Management

In this article, I present results from a nationwide assessment of the Hospital Readmission Reduction Program (HRRP) on inpatient care and mortality. The HRRP required the Centers for Medicare and Medicaid Services to reduce payments to hospitals with excess hospital readmissions. I use a regression kink design to obtain estimates of the effect of the HRRP on readmission rates, inpatient expenditures, patient characteristics, and mortality. Estimates indicate that penalized hospitals increased total spending on HRRP patients by 3% and laboratory tests by 6%. This response was particularly strong among hospitals with a higher Medicare share and hospitals penalized primarily for excess heart attack (AMI) readmissions. I find that this additional care had no impact on mortality, but that it did lead to a reduction in readmission rates. Interestingly, I find evidence that the penalized hospitals increased the quantity of care for patients with diagnoses outside the HRRP conditions. This result is inconsistent with the hypothesis that hospitals substitute resources from diagnosis groups outside the HRRP and into diagnosis groups in the HRRP. I investigate the spillover mechanisms that could have led to increased care outside the HRRP conditions. It long has been recognized that the optimal design of performance pay contracts should reflect the amount of noise or risk associated with outcome measures (readmissions). While prior work on the HRRP was confined to analyzing the effect of the HRRP on just the penalized hospitals, I utilize a novel approach to examine how marginally unpenalized hospitals responded to uncertainty about future reimbursements.