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The cost of hospital readmissions: evidence from the VA


This paper is an examination of hospital 30-day readmission costs using data from 119 acute care hospitals operated by the U.S. Veterans Administration (VA) in fiscal year 2011. We applied a two-part model that linked readmission probability to readmission cost to obtain patient level estimates of expected readmission cost for VA patients overall, and for patients discharged for three prevalent conditions with relatively high readmission rates. Our focus was on the variable component of direct patient cost. Overall, managers could expect to save $2140 for the average 30-day readmission avoided. For heart attack, heart failure, and pneumonia patients, expected readmission cost estimates were $3432, $2488 and $2278. Patient risk of illness was the dominant driver of readmission cost in all cases. The VA experience has implications for private sector hospitals that treat a high proportion of chronically ill and/or low income patients, or that are contemplating adopting bundled payment mechanisms.

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  1. Both of these models are drawn from the GLM class. The logistic distribution has heavier tails than the normal distribution on which the probit model is based; however, the two models produce very similar results in practice over a very wide range of values.

  2. Retransformation from the log scale to the natural scale requires exponentiating the log scale error term. This usually does not exponentiate to one, so that the exponentiated predicted values are misleading [21]. Suitable retransformation techniques have been developed [22]; however, serious bias results in subsequent inference unless heteroscedasticity is properly characterized and applied to the retransformation process [3, 21, 23]. This process is generally not practical when there are continuous variables or there is heteroscedasticity across multiple factors.

  3. In order to account for hospital-level clustering, we used the generalized estimating equation (GEE) technique [24] to estimate the GLM parameters for both parts of the 2PM. GEE focuses on estimating the average response over the population rather than predictions for individual patients.

  4. Hospitalizations with length of stay longer than 25 days generally are considered to be long-term stays. In particular, Medicare classifies acute care hospitals with average length of stay of more than 25 days as long-term care hospitals [25, 26].

  5. The DCG approach maps 15,000 ICD-9-CM codes to clinically homogeneous diagnostic groups which are further aggregated into 184 clinically and expenditure-similar categories. It then places the groups into body system/clinical condition specific hierarchies called Hierarchical Condition Categories (HCCs). Patients are classified into multiple HCCs based on their respective ICD-9 codes. Each HCC is weighted and aggregated into a patient specific risk score.

  6. The number of chronic conditions is limited to one per category as defined by the AHRQ Clinical Classifications Software (CCS), a tool for clustering ICD-9-CM diagnosis and procedure codes into a manageable number of clinically meaningful categories.

  7. We conducted exploratory analysis to examine the extent of collinearity in our data. The Belsley Kuh Welsch diagnostics [27] indicated a very weak collinear relationship between DCG risk and high severity.

  8. We dropped outpatient visits and weekend discharge based on unstable coefficient signs on these variables, a classic symptom of multicollinearity.

  9. The GEE method is not a likelihood based method, hence the AIC (Akaike’s Information Criterion) statistic is not supported. Rather, we used the QIC (Quasi-likelihood under the Independence model Criterion) statistic [28] to compare models using different working correlation structures. Our results are based on the exchangeability structure, which implies that all distinct members of a cluster are equally correlated with each other.


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Funding for this study was provided by the VA Office of Quality, Safety and Value. The authors also acknowledge Eileen Moran, Peter Almenoff, and the efforts of the VA Office of Productivity, Efficiency and Staffing in support of this work. The opinions are solely those of the authors, and do not necessarily reflect those of the U.S. Department of Veterans Affairs or Boston University.

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Correspondence to Kathleen Carey.

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Carey, K., Stefos, T. The cost of hospital readmissions: evidence from the VA. Health Care Manag Sci 19, 241–248 (2016).

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  • Hospital
  • Readmission
  • Cost
  • VA