Fix readmission vulnerabilities before they become overpayments

Historically, health plans have viewed readmissions primarily as an indicator for quality and performance, but that idea is shifting. Recent policy changes have expanded how readmissions are measured and evaluated across Medicare populations.

These changes have placed a spotlight on utilization patterns, and health plans are now realizing readmissions can also be a financial and operational concern.

While these changes expand readmissions measurement to Medicare Advantage populations, CMS has not yet incorporated Medicare Advantage payment data into readmission penalty calculations.

As these concerns are surfacing, many health plans are choosing to examine readmissions earlier in the claim lifecycle, where utilization and payment risks can be proactively identified and addressed.  

The Centers for Medicare and Medicaid Services (CMS) included several key policy changes regarding readmissions in its Fiscal Year 2026 Inpatient Prospective Payment System (IPPS) Final Rule:

• The Hospital Readmissions Reduction Program (HRRP) expanded to include Medicare Advantage patient data in its readmission measures beginning Fiscal Year 2027.
• COVID-19 exclusions were removed from all readmission measures.
• Readmission penalty calculations were refined, which may shift hospital’s penalty exposure.

While these changes focus on hospital quality measurement and penalties, they also expanded transparency into readmissions across Medicare Advantage populations. No longer visible only as downstream quality outcomes, readmissions increasingly appear as repeat inpatient utilization events.

Health plans are now looking more closely at the billing, coding and payment dynamics that determine whether those stays are appropriately consolidated or paid separately.  

Health plans should take a more holistic approach that evaluates the entire claim lifecycle to close payment gaps without duplicating clinical oversight. A coordinated approach across care management, utilization management and payment integrity can reduce readmissions-related payment risk.

Care and utilization management focuses on preventing avoidable readmissions and improving quality outcomes. Payment integrity, meanwhile, addresses a different but related risk: verifying inpatient stays are classified, billed and paid accurately.

Post-pay audits still play a critical role in identifying the misclassified readmissions, transfers and continuation-of-care scenarios that can lead to excess payment. During these reviews, health plans gain valuable insight into repeat billing risk. This information can then be applied upstream to close payment gaps and reduce future billing and coding errors.  

Readmissions billing and coding depend on how a health plan defines and applies its readmission policy. When a patient returns to the hospital for the same or a related condition within a defined timeframe — commonly 3, 7 or 30 days — many health plans require that subsequent admission be bundled, denied or otherwise adjusted rather than reimbursed as a separate inpatient event.

Some health plans also incorporate administrative or policy-based preventability criteria, while others rely solely on administrative rules tied to timing, diagnosis and admission sequencing.

Accurate determination requires linking the initial admission to any return stay using key billing and coding elements such as:

• Admission and discharge dates
• Discharge status
• Diagnosis Related Groups (DRGs)
• Facility identifiers
• Policy-specific exclusions
  

Evaluating admissions in isolation can cause health plans to pay multiple times for what is effectively a single episode of care, even when claims are otherwise correctly submitted.

These factors make readmissions evaluation a nuanced and complex task, which further reinforces the importance of utilizing a targeted pre-pay strategy in addition to post-pay audits.

Readmissions, as well as transfers and continuation-of-care scenarios, are also particularly prone to misclassification. Without an episode-level view, these scenarios are often paid as separate inpatient events, increasing excess spend and obscuring true utilization patterns.

Applying readmission policy consistently helps align payment with policy intent. The result is more accurate reimbursement from the start, which helps mitigate the payment risk that traditional audit and recovery approaches can sometimes miss.  

As health plans come to terms with the fact that readmissions have become an upstream utilization and payment integrity risk, they need new strategies to confront that risk. The most effective approach pairs insights from post-pay audits with targeted pre-pay strategies.

When health plans connect care and utilization management with episode-level billing and coding review, they can identify transfer and continuation-of-care scenarios earlier and prevent overpayment. This sets the stage for more inpatient stays to be classified and reimbursed accurately the first time, eliminating critical payment gaps before they emerge.