Payment policies that create incentives for reducing avoidable readmissions can deliver substantial cost savings, while at the same time providing the administrative capacity to measure and regulate the quality of care delivered to highly-vulnerable patients in acute and post-acute care (PAC) settings.

While readmission policies linking payment to outcomes are common in Medicaid programs nationwide, there remains substantial variation in the scope and structure of these policies. Generally, the most effective policies include:

• Well-defined methodologies for identifying and incentivizing reductions in potentially preventable readmissions, as opposed to planned or unrelated readmissions.
• Risk adjustment and benchmarking of hospital performance against standardized performance measures, such that the policy does not inequitably impact providers treating higher proportions of patients more prone to readmissions due to clinical acuity, co-morbidities, or socio-economic status.
• Use of analytic engines and algorithms to reduce the operational burden associated with administering the policy.
• Consideration for the role of managed care organizations and post-acute providers in reducing readmissions.

This Issue Brief provides a brief history of Medicare and Medicaid readmission policies, an analysis of current Medicaid program policies, and insights for designing highly effective readmission policies.