Redesigning the Medicare Inpatient PPS to Reduce
Payments to Hospitals with High Readmission Rates

A redesign of the Medicare inpatient
prospective payment system (IPPS) that
reduces payments to hospitals that have
high-risk adjusted readmission rates is proposed.
The redesigned IPPS uses a readmission
performance standard from best
practice hospitals to determine the riskadjusted
number of excess readmissions
in a hospital and determines the payment
reduction for a hospital based on its excess
number of readmissions. Extrapolating
from Florida Medicare 2004-2005 discharge
data, the redesigned IPPS is estimated
to reduce overall annual Medicare
inpatient expenditures nationally by $1.25,
1.92, and 2.58 billion for readmission
windows of 7, 15, and 30 days, respectively