Time for Accountability : Are Readmission Responsibility Windows Too Long?

Hospital readmissions are burdensome and costly to healthcare systems. To incentivize the reduction of unnecessary readmissions, penalty programs and payment models have been created. These models typically define a period of time, a.k.a. an episode of care (EOC), within which hospitals are accountable for readmissions (e.g., 30-day readmission penalty and 90-day bundled payment EOC). This paper studies the policy-levels decisions in the design of EOC-based readmission reduction policies, considering three key policy levers: 1) EOC length, 2) readmission penalty, and 3) readmission avoidance subsidy. Our model provides a simple yet powerful condition for policy design, capturing the interplay between policy levers and hospital’s readmission reduction programs. We argue that EOC length may be the long-missing piece to the puzzle - it has a strong impact on the incentives but it has not received much attention in previous works. Specifically, EOC length has an exponential impact on the cost of readmission reduction programs, whereas the other two policy levers have linear effects. Our findings suggest that the 30-day and 90-day EOCs may be too long to incentivize readmission reduction for any but the low-risk patients, even under additional penalty or subsidy. This may explain the stalled readmission reduction after the implementation of the 30-day Medicare readmission penalty program. Though payers want long EOC to ensure hospitals cover more readmissions, long windows lead to smaller programs as hospitals "give up" on risky patients, whereas a shorter EOCs can encourage hospitals to expand readmission programs to include more and riskier patients