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Hospital CFOs contemplate 'play or pay' with readmission rates

November 14th, 2012

by Kevin L. Shrake

As presented in a blog post last month, hospital executives know the Centers for Medicare & Medicaid Services is targeting readmission rates to reduce costs.

The subject of readmission rates is definitely a hot topic and has led to some interesting approaches from CFOs as they calculate the impact of potential penalties on their organizations.

Make a play or pay decision: Some CFOs are making actual calculations regarding how much the hospital would get reimbursed on specific readmissions versus simply paying the penalty for not meeting readmission standards.


This is an interesting mathematical approach but misses the underlying point of the program, which is to improve quality of care. High-quality care always costs less and hospitals should focus on early detection of high-risk patients, appropriate intervention and close follow-up after discharge to manage patients across the entire continuum of care.

Don't be penny wise and pound foolish: Strategies to address readmission rates should top priority lists of all hospitals. Early reports using CMS data revealed that a whopping 2,211 hospitals out of 3,357 reviewed (66 percent) will receive penalties this year. Those executives contemplating just accepting the penalties may be taking a shortsighted view of what is a developing program. Remember that the program is designed to ratchet up penalties from 1 percent to 3 percent over the next three years. There also is a provision to expand the number of diagnoses under this program that could present a much greater financial risk to hospitals.

Let quality guide decisions: Having an organizational culture that continuously strives to improve quality is still a great guide to addressing financial challenges, as well as promoting the "healthy community concept." Shouldn't our mission as healthcare providers be to act in the interest of the common good to improve the health and therefore the quality of life of those we serve? With that in mind, please revisit the best practice checklist presented below when developing your readmission rate strategies.

Readmission Management "Best Practice" Checklist

  • Seamless integration with current hospital operations
  • Provision of critical information to patient care coordinators
  • Identification of at risk population and enrolls them into a specific plan of intervention
  • Advanced analytics that calculate the likelihood of readmission allowing for early intervention in the high risk population
  • Web-based dashboard reporting system that provides a monitor for the effectiveness of clinical interventions
  • "Real-time" access to all data, interventions and communications
  • Available technology to stay connected with discharged patients
  • Improvement of the patient's quality of life and the hospital's bottom line

Kevin L. Shrake ( is a 35 year veteran of healthcare, a Fellow in the American College of Healthcare Executives and a former hospital CEO. He currently serves as the Executive Vice President/Chief Operating Officer of MDR™, based in Fresno, Calif.


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