The penalties are going up in Medicare's hospital readmission-reduction program. Starting on Oct. 1, hospitals could face up to a 2% cut in Medicare payments if their 30-day readmission rates for acute myocardial infarction, heart failure, and pneumonia are too high. The program started on Oct. 1, 2012, with a 1% cap on penalties. The government's announcement also said that, starting Oct. 1, 2014, the program will include readmissions associated with an acute exacerbation of chronic obstructive pulmonary disease (COPD) and readmissions for elective total hip or knee arthroplasty. The inclusion of COPD for fiscal year 2015 was expected since that condition was highlighted by Congress in the Affordable Care Act (health reform), which created the readmission reduction program. However, lawmakers had also recommended adding coronary artery bypass graft surgery, percutaneous coronary intervention, and other vascular conditions, which are not included in the latest Centers for Medicare & Medicaid Services' proposal. Combined, primary total hip arthroplasty and total knee arthroplasty represent the largest procedure costs in the Medicare budget. At the same time, inpatient admissions for vascular conditions have been declining, according to Medicare officials, as those services are moving over to hospital outpatient departments. The fiscal proposal includes a revised methodology for calculating hospital readmission rates to better account for certain planned readmissions. But the new method still fails to account for socioeconomic and community factors, according to the Premier Healthcare Alliance. “Hospitals that serve high percentages of lower-income patients will be disproportionately penalized for circumstances outside their control,” Blair Childs, senior vice president of public affairs at Premier, said in a statement. The Medicare program is also moving forward on the Hospital-Acquired Condition Reduction Program, which begins on Oct. 1, 2014, and will levy a 1% penalty on hospitals that rank in the lowest-performing quartile for eight hospital-acquired conditions. During the first year, officials plan to use quality measures that are calculated using claims data or are part of the Inpatient Quality Reporting program. The eight measures are divided into two domains for the purpose of scoring hospital performance. The measures in the first domain are pressure ulcer rate, volume of foreign object left in the body, iatrogenic pneumothorax rate, postoperative physiologic and metabolic derangement rate, postoperative pulmonary embolism or deep vein thrombosis rate, and accidental puncture and laceration rate. CMS is also considering the use of a composite patient safety indicator measure set as an alternative to the first domain. The second domain includes just two health care–associated infection measures: central line–associated bloodstream infection and catheter-associated urinary tract infection. CMS plans to account for risk factors such as age, gender, and comorbidities when calculating the measure rates. There are no surprises in the conditions chosen for the new program, said Erik Johnson, senior vice president at Avalere Health. However, the fact that CMS officials chose to include eight measures at the start of the program indicates how serious they are about hospital-acquired conditions, he said. Through the combination of the hospital-acquired condition program, the readmission reduction program, value-based purchasing, and a few other programs, hospitals now have at least 7% of their Medicare payments at risk based on performance on quality measures, he said. “It's already starting to move behaviors,” Mr. Johnson said. “Hospitals are by and large making a good-faith effort to get better at all of those things. But there are going to be winners and losers, and the losers may end up losing big on a lot of this stuff.” CMS will accept public comments on the proposed rule until June 25 at www.regulations.gov. The agency is scheduled to release its final rule by Aug. 1.