Michigan Medicine keeps readmission penalties near zero, shows mixed progress on pneumonia and heart surgery

The University of Michigan’s flagship hospital has reduced its Medicare/Medicaid penalties for hospital readmissions over the past two years, reflecting sustained efforts to improve patient outcomes and reduce costly hospital return visits within 30 days. Michigan Medicine’s low penalty rates for 2025 show its ability to provide consistent and long-lasting treatment that keeps patients out of the hospital. 

The Hospital Readmissions Reduction Program, which took effect in October 2012, financially penalizes hospitals for excessive rates in which patients with certain conditions –– heart attacks, chronic obstructive pulmonary disease, heart failure, pneumonia and major surgeries –– return for additional care within 30 days of being discharged. If a hospital’s readmission rate is better than or equal to the federal benchmark based on patient population, it avoids penalties up to 3% of the hospital’s total inpatient Medicare reimbursement. 

Michigan Medicine’s penalties are small compared to the roughly 80% of U.S. hospitals that receive one each year, meaning it keeps more federal reimbursement dollars and has a stronger performance in preventing costly and dangerous readmissions. According to the Centers for Medicare & Medicaid Services data, Michigan Medicine received a modest 0.05% financial penalty in fiscal year 2024, followed by a slightly higher but still minimal 0.08% penalty in fiscal year 2025. Patients are still being readmitted, but at rates lower than the federal government expects for a hospital with Michigan Medicine’s patient population. For readmissions involving heart failure and heart attacks, medically called acute myocardial infarction, Michigan Medicine was penalized in 2024, but improved in 2025 to avoid penalties. For hip and knee replacements and chronic obstructive pulmonary disease, a lung condition, the hospital had fewer readmissions in both years and did not face penalties. 

Pneumonia readmissions remained a problem both years, with rates above expectations, resulting in penalties each year. Meanwhile, readmission rates increased in the past year for coronary artery bypass graft surgery, which did not cause penalties in 2024 but did in 2025.

In an email to The Michigan Daily, Michelle Neely, population health senior project manager for Michigan Medicine, pointed to continuing efforts across the health system to keep readmissions low. 

“Our strategy to reduce hospital readmissions is guided by a systemwide approach led by the Readmission and Transitions of Care Steering Committee, co-chaired by Drs. Vikas Parekh and Amy Thompson,” Neely wrote. “Over the past five years, our organization has greatly expanded its transitions of care programs to not only reduce unplanned readmissions but also deliver more holistic, patient-centered support.”

Neely discussed the programs, including an automated text message system launched in March 2024 to check in with patients after discharge, with non-responders or patients reporting concerns flagged for nurse or primary care physician follow-up. Teams also screen for social drivers of health, such as food insecurity or housing instability. 

“We have seen a general reduction in our risk-adjusted adult readmission rates in the past few years which have also been reflected in our CMS publicly reported data resulting in very low readmission penalties,” Neely wrote. “We continue to work to increase our ability to reach more patients who would benefit from our transitions of care outreach and support services including ongoing work partnering with our school of engineering to develop a model to better identify patients who have high readmission risk and those who would benefit the most from our interventions.”

The hospital’s patient population may also shape its outcome. About 22% of patients were dually eligible for both Medicare and Medicaid in 2024 and 2025 — a group that typically faces more health challenges and socioeconomic barriers, which can affect hospital readmission rates. To account for this, CMS compares Michigan Medicine to hospitals with similar patient populations, placing it in peer group 3 in both years. 

Jordan Rau, senior correspondent at KFF Health News, told The Daily that hospital patient populations make penalties very relative in nature. 

“The penalties don’t compare performance to past performance; they compare a hospital to other hospitals within the same performance period,” Rau said. “The most objective way to assess the severity of a penalty would be to rank it against other hospitals — say, what percentile it puts the hospital (in). For instance, you might write that the hospital’s penalty was smaller than X number of hospitals that were penalized.”

In context, with maximum penalties under HRRP capped at 3% — although the average penalty nationwide is generally much lower — Michigan Medicine’s readmission penalties are considerably lower than the typical maximum. 

In an interview with The Daily, Geoffrey Hoffman, associate professor of nursing, said HRRP penalties can be difficult to interpret in isolation, as only a few patients can change the status. 

“Generally, it can be hard to draw conclusions since penalty status is often a function of a few extra readmissions, which may in turn reflect hospital coding practices that are opaque to the public and researchers,” Hoffman said.

Hoffman added that broader efforts to reduce readmissions may have also affected other aspects of care, as he has found in his own research.

“We do believe reductions in fall-related injuries were an unintended result of efforts to avoid penalties which included transitional care improvements,” Hoffman said. 

David States, former director of the Center for Computational Medicine & Bioinformatics, also expressed skepticism in an interview with The Daily about how readmissions have been targeted as a quality metric. 

“By penalizing hospitals with excess readmission rates in the first 30 days, CMS made 30 day readmission rates a target rather than a measure,” States said. “The drive to reduce readmission during that 30 days window may actually have harmed patients.” 

The ‘harm’ States refers to may stem from hospitals responding to pressure on readmissions by resorting to coding tweaks and care-pathway maneuvers. For example, some hospitals keep patients in the ER or observation units, rather than formally readmitting them. Even as hospitals are penalized, they receive no new funding, staffing or inherent instructions for follow-up procedures to limit readmissions. 

Other hospitals may ‘upcode’ or record extra health problems so their readmission rates look better on paper. Rackham student Jonathan Palisoc, who studies health economics, told The Daily upcoding is a real concern but disagreed that HRRP actively harms patients.

“HRRP (has) very little to no effect on mortality and many of the stated improvements in HRRP by CMS and others studied is likely more so due to hospitals upcoding — hospitals can improve their calculated rates of readmission by increasing their coded level of severity,” Palisoc said. “However, I would disagree with the characterization that HRRP harms patients — I don’t think the literature strongly suggests that.”

Palisoc said he still believes reducing readmissions remains a worthy goal.

“More readmissions is bad for everyone,” Palisoc said. “It costs more money — higher costs for health systems can often increase costs for all consumers — and they need to make the money back elsewhere. I think we all agree health care spending is extremely high in the U.S., but anytime policymakers propose a program to potentially reduce costs and improve outcomes, people often push back as they are used to the status quo.” 

Daily News Editor Emma Spring can be reached at sprinemm@umich.edu. 

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