CMS will cut Medicare payments to 2,334 hospitals in fiscal 2027 for having more readmissions than expected, according to federal data released Oct. 7.
The Hospital Readmissions Reduction Program scores hospitals on six conditions and procedures: heart attack, COPD, heart failure, pneumonia, coronary artery bypass graft surgery and elective hip or knee replacement.
The penalties, which took effect Oct. 1, lower hospitals’ base payments from traditional Medicare for inpatient stays. The maximum penalty is 3%, and Maryland hospitals are excluded because the state runs under its own Medicare payment model.
For the first time, the program includes Medicare Advantage patients. It also looks at two years of data (July 1, 2023, to June 30, 2025) instead of three. Even with the shorter window, the number of discharges behind the scores rose 53% to 3.88 million, according to Becker’s analysis of the fiscal 2027 and 2026 penalty files. The changes mean some shifts in penalties may reflect the new method rather than hospital performance, so year-over-year comparisons should be made with caution.
Eight findings:
1. Penalties ticked up this year. CMS is penalizing 80.2% of the 2,912 hospitals it evaluated for fiscal 2027, up from 78.2% of 2,945 hospitals in fiscal 2026. Of the 578 hospitals that escaped a penalty for fiscal 2027, 464 had readmission rates at or below their peer group’s median on every condition that counted, down from 493 last year. The other 114 hospitals, down from 148, had too few cases to be penalized: none of their six conditions reached CMS’ minimum of 25 discharges.
2. Despite more hospitals being penalized, penalties were no more severe this year. The average penalty among penalized hospitals held at 0.44%. A total of 244 hospitals face cuts of 1% or more, compared with 240 last year. Ten hospitals received the maximum 3% penalty, down from 15. Five hospitals got the maximum penalty both years.
3. In a handful of states, nearly every hospital evaluated was penalized. Among states with at least 20 evaluated hospitals, the following had the highest share penalized:
- Massachusetts: 96%
- Florida: 95%
- New Jersey: 93%
- Illinois: 92%
- West Virginia: 92%
- New York: 91%
Every evaluated hospital was penalized in three smaller states — Delaware (six hospitals), New Hampshire (13) and Vermont (six) — as well as in Washington, D.C. (six).
4. Texas had the most hospitals facing steep penalties. Texas had 24 hospitals facing cuts of 1% or more, the most of any state and up from 16 the year prior. Still, its share of hospitals penalized (72%) is below the national rate.
5. West Virginia saw the steepest increase in severity. Its average penalty across all hospitals rose to 0.71% from 0.40%, the highest of any state and twice the national average of 0.35%. Seven of its 24 hospitals faced penalties of 1% or more, up from three last year.
6. Pennsylvania, New York and South Carolina also saw sharper penalties. Pennsylvania’s average penalty across all hospitals rose to 0.51% from 0.38%. New York’s rose to 0.48% from 0.36%, and its share of hospitals penalized jumped 9 percentage points. Meanwhile, South Carolina’s rose to 0.51% from 0.32%, and the number of its hospitals at 1% or more tripled to nine.
7. In three states, the share of hospitals penalized was at or below 50%. Idaho had the lowest rate at 29%, followed by Utah at 48%. South Dakota reported a 50% rate, down from 81% the year prior. Oregon (53%), Montana (55%), Colorado (55%) and New Mexico (56%) also ranked well below the national rate of 80%.
8. Hospitals in Massachusetts and California also saw some relief. While nearly every hospital in Massachusetts was penalized, the average penalty across all hospitals fell to 0.53% from 0.84%. The number of Massachusetts hospitals facing penalties of 1% or more dropped to six from 17. In California, that number fell to 15 from 23.
