Medicare penalizes more hospitals for readmissions as the latest fiscal-year data show that 80% of facilities, 2,334 hospitals, will have their Medicare payments reduced, up from 78% (2,304) the year before, according to recent federal reports.
Medicare readmission penalties rise in 2027
The Hospital Readmissions Reduction Program was created under the Affordable Care Act to discourage avoidable returns for conditions such as heart attack and pneumonia, and it forms part of a broader effort to improve quality across the system. Facilities with higher-than-average readmission rates face payment cuts intended to spur better discharge planning.
For the 2027 fiscal year, penalties can be as high as a 3% reduction in Medicare payments, though most affected hospitals see cuts under 1%. Only 10 facilities hit the maximum rate, down from 15 the previous year, while 578 hospitals, about one-fifth of all providers, escape any penalty. These cuts are intended to encourage them to adopt best practices and improve patient outcomes.
The reductions took effect on Oct. 1 and are the first to incorporate data from Medicare Advantage beneficiaries. They are based on outcomes recorded between summer 2023 and summer 2025, reflecting the program’s reliance on recent performance metrics. The timing aligns with the annual update of the program’s methodology.
Research indicates that the program helped lower admission rates after its 2012 rollout, prompting hospitals to invest in patient education and care transitions. Cutting back avoidable readmissions saves Medicare billions of dollars each year, and studies have found no rise in mortality linked to the program’s incentives.
Critics argue that safety-net hospitals, which serve sicker and more disadvantaged populations, bear a disproportionate share of the penalties. Although CMS has introduced measures to mitigate this impact, some analysts suggest the decline in readmissions may stem from changes in reporting practices rather than genuine quality gains. The adjustments aim to protect vulnerable institutions while maintaining accountability.
