The Hospital Readmissions Reduction Program and Observation Hospitalizations.

The Centers for Medicare & Medicaid Services (CMS) Hospital Readmissions Reduction Program (HRRP) penalizes hospitals having excess inpatient rehospitalizations within 30 days of index inpatient stays for targeted conditions. Observation hospitalizations are increasing in frequency and may clinically resemble inpatient hospitalizations, yet HRRP excludes observation in index and 30-day rehospitalization counts. Using 100% 2014 Medicare fee-for-service claims and CMS's 30-day rehospitalization methodology, we modeled how observation hospitalizations impact HRRP metrics when counted as index (denominator) and 30-day (numerator) rehospitalizations. Of 3,806,772 index hospitalizations for HRRP conditions, 418,923 (11%) were observation; 18% (155,553/876,033) of rehospitalizations were invisible to HRRP due to observation hospitalization as index (34%; 63,740/188,430), 30-day outcome (53%; 100,343/188,430), or both (13%; 24,347/188,430). By ignoring observation hospitalizations as index and 30-day events, nearly one of five HRRP rehospitalizations is missed. Policymakers might consider this an opportunity to address broad challenges of the two-tiered observation and inpatient hospital billing distinction.