Readmissions, Observation, and the Hospital Readmissions Reduction Program

The Hospital Readmissions Reduction Program, which is included in the Affordable Care Act (ACA), applies financial penalties to hospitals that have higher-than-expected readmission rates for targeted conditions. Some policy analysts worry that reductions in readmissions are being achieved by keeping returning patients in observation units instead of formally readmitting them to the hospital. We examined the changes in readmission rates and stays in observation units over time for targeted and nontargeted conditions and assessed whether hospitals that had greater increases in observation-service use had greater reductions in readmissions.

We compared monthly, hospital-level rates of readmission and observation-service use within 30 days after hospital discharge among Medicare elderly beneficiaries from October 2007 through May 2015. We used an interrupted time-series model to determine when trends changed and whether changes differed between targeted and nontargeted conditions. We assessed the correlation between changes in readmission rates and use of observation services after adoption of the ACA in March 2010.