Hospitals game Medicare readmission rules, avoiding fines but penalizing patients: Health Affairs Blog study

Research spotlights how Medicare’s recent patient readmission penalties induce hospitals to cheat and corrupt data on quality

August 27, 2015

Mark Almberg, PNHP communications director, 312-782-6006,

Hospitals’ growing practice of re-labeling Medicare patient readmissions as “observation stays,” or treating returning Medicare patients in the emergency room, has allowed many hospitals to skirt Medicare’s financial penalties for poor-quality performance that were mandated by the Affordable Care Act, researchers say.

However, such practices, while aiding a hospital’s bottom line, constitute a form of gaming that frequently leaves patients worse off financially.

Those are some of the key findings of a study published today by the Health Affairs Blog titled “Quality Improvement: ‘Become Good At Cheating And You Never Need To Become Good At Anything Else’” by Drs. David Himmelstein and Steffie Woolhandler, professors at the City University of New York School of Public Health and lecturers at Harvard Medical School.

The authors write: “In most cases, observation patients receive care in a regular inpatient unit, and get treated just like other inpatients. And in many cases, observation stays stretch out to several days: in 2012, 26 percent lasted two nights and 11 percent at least three. But from Medicare’s point of view, this is outpatient care, which leaves patients responsible for more of the bill, and ineligible for Medicare-paid rehab or skilled nursing care.”

Citing data from the Medicare Payment Advisory Commission’s March 2015 report to Congress, they note that between 2006 and 2013, “observation stays increased by more than half of the total apparent decline in total Medicare admissions during that seven-year period.”

They add that data from the Centers for Medicare and Medicaid Services (CMS) show that “between 2010 and 2013, 36 percent of the claimed decrease in readmissions was actually just a shift to observation stays.”

The authors also note that besides the upsurge in observation stays, an increasing number of recently discharged Medicare patients are being treated in emergency departments (ED) without being admitted.

Citing CMS data, they write: “For patients discharged after heart attacks, the urgent return rate has actually risen slightly; the reported 1.8 percent fall in readmission is more than offset by a 0.7 percent increase in observation stays and a 1.2 percent increase in ED visits.”

The authors note that some hospitals have undoubtedly reduced readmissions by providing better care, while others are clearly engaged in this gaming behavior.

More broadly, however, they assert that Medicare’s readmission penalties are part of a growing number of pay-for-performance measures that show no evidence of having improved outcomes, and which can actually promote cheating, undermine doctors’ and nurses’ intrinsic motivation to do good work, and vitiate quality improvement tracking.

Himmelstein commented: “Medicare and private insurers say they’re paying for quality. But often they’re just rewarding hospitals for stretching the truth and avoiding the most difficult patients. Pay-for-performance schemes are forcing hospitals to spend billions more on new paperwork, and doctors to spend hours each day checking boxes to comply with the new reporting requirements.”

In addition to their academic posts, Himmelstein and Woolhandler practice primary care medicine in New York City. They are also co-founders of Physicians for a National Health Program, an organization of 19,000 doctors who advocate for a single-payer national health insurance program.


“Quality Improvement: ‘Become Good At Cheating And You Never Need To Become Good At Anything Else,’” by David U. Himmelstein, M.D., and Steffie Woolhandler, M.D., M.P.H. Health Affairs Blog, August 27, 2015.

The blog article is available at the links above and at the Health Affairs Blog website:


Physicians for a National Health Program ( is a nonprofit research and education organization of more than 19,000 doctors who support single-payer national health insurance. PNHP had no role in funding or otherwise supporting the study described above.