Nearly Half of All U.S. Hospitals Will Lose Some Medicare Funding Due to High Patient Readmission Rates

Almost half of U.S. hospitals will reductions in Medicare payments in 2021 because of their readmission rates. These financial penalties come during an already hard time for hospitals reeling from the coronavirus (COVID-19) pandemic.

Published November 3, 2020

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Many hospitals in the U.S. will get reduced Medicare funding in fiscal year 2021. 

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Federal records released as part of the 9th annual Hospital Readmissions Reduction Program audit show that nearly half of all hospitals will be penalized because of their high patient readmission rates.

A total of 2,545 hospitals will receive lower Medicare payments for one full year due to their poor performance. The average payment reduction is 0.69% per hospital, and 613 hospitals will receive a penalty of 1% or more. 39 hospitals will receive the maximum penalty of a 3% reduction in Medicare payments. 

2,176 hospitals were exempt from the program’s penalties because of critical access status or because they specialize in children, veterans, psychiatric care, long-term care or rehabilitation. That means 83% of the hospitals that were eligible for a penalty (not exempt for the reasons listed above) will be penalized in 2021. 

The total dollar amounts of those penalties will not be known until the end of the fiscal year on July 30, 2021.

What is the Hospital Readmissions Reduction Program?

The program was created as part of the Affordable Care Act (often called Obamacare) to improve hospital care quality and to lower federal costs. The goal is to neutralize any economic benefits that a hospital might get from a patient readmission under the Medicare fee-for-service payment model. 

The 2020 surge of COVID-19 patients had no bearing on the results, as the period measured was from July 2016 to June 2019.  

Penalties are based on the readmission rates of Medicare patients with:

  • Congestive heart failure
  • Heart attack
  • Pneumonia
  • Chronic obstructive pulmonary disease
  • Hip or knee replacement
  • Coronary artery bypass graft surgery

Any such patient who is readmitted within 30 days of discharge (except those who have a planned return to the hospital) are counted as a readmission. Penalties are assessed if a hospital’s readmission rate is higher than expected according to national trends. 

Beneficiaries can use this tool to see if their local hospitals are being penalized.


About the author

Christian Worstell is a licensed insurance agent and a Senior Staff Writer for He is passionate about helping people navigate the complexities of Medicare and understand their coverage options.

His work has been featured in outlets such as Vox, MSN, and The Washington Post, and he is a frequent contributor to health care and finance blogs.

Christian is a graduate of Shippensburg University with a bachelor’s degree in journalism. He currently lives in Raleigh, NC.

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