HRRP: Hospital Readmissions Reduction Program
The Hospital Readmissions Reduction Program (HRRP) is a CMS value-based purchasing programme that reduces Medicare payments to hospitals with excess readmissions for six specified conditions, with penalties up to 3% of all Medicare base operating payments.
What is HRRP?
The Hospital Readmissions Reduction Programme (HRRP) was established by Section 3025 of the Affordable Care Act and took effect October 1, 2012. It requires CMS to reduce Medicare payments to Inpatient Prospective Payment System (IPPS) hospitals that have excess readmission rates for specified conditions compared to expected rates. HRRP penalties are applied to a hospital's base operating DRG payments for all Medicare discharges — not just for the penalised conditions — for the entire fiscal year.
The Six HRRP Conditions
- Acute Myocardial Infarction (AMI): Heart attack readmissions within 30 days
- Heart Failure (HF): Congestive heart failure readmissions within 30 days
- Pneumonia: Pneumonia readmissions within 30 days
- Chronic Obstructive Pulmonary Disease (COPD): Added FY2015
- Elective Total Hip Arthroplasty/Total Knee Arthroplasty (THA/TKA): Added FY2015
- Coronary Artery Bypass Graft Surgery (CABG): Added FY2017
Excess Readmission Ratio Calculation
For each condition, CMS calculates an Excess Readmission Ratio (ERR): ERR = Predicted readmissions ÷ Expected readmissions. "Predicted" readmissions are based on the hospital's actual patient population characteristics. "Expected" readmissions are what the national average hospital would achieve with the same patient mix. An ERR > 1.0 indicates worse-than-expected performance. The ERR is calculated over a 3-year rolling window.
Penalty Structure and Scale
Maximum penalty is 3% of all Medicare base operating DRG payments. For a hospital receiving $50M annually in Medicare inpatient payments, the maximum HRRP penalty is $1.5M/year. In FY2024, approximately 2,583 hospitals received HRRP penalties totalling approximately $521 million. The average penalty is small per hospital (~$200,000) but represents pure revenue loss with no services delivered in return. Starting FY2019, hospitals are stratified into 5 peer groups based on the proportion of dual-eligible (Medicare-Medicaid) patients, acknowledging that socioeconomic factors drive readmission rates independent of care quality.