The Penalty Moved. The Levers Did Not.

Redesigning Transitions of Care With Your Network and Clinical Partners

By RaeAnn, Founder and Chief Executive Officer, HLTHWORKS and, Jared Dumcum

THE SHORT VERSION

Starting in fiscal year 2027, hospital readmission penalties count Medicare Advantage members. The penalty still applies only to traditional Medicare payments, so the hospital absorbs it while the plan holds the levers.
Hospitals have said so on the record. Expect it at your next contracting table, with a number attached.The quality measures reward notification, medication reconciliation, and a follow-up visit. The strongest evidence sits elsewhere, and one of those activities has never been shown to reduce readmissions at all.
Readmission risk does not end at day 30, and early readmissions are far more preventable than late ones. Those two facts should change how a plan deploys its resources.
The answer is the same as it was for musculoskeletal care. Build the baseline, stratify the risk, contract with your network and clinical partners for the work, and measure them inside your own trend.

Something changed in the readmission penalty this year, and most health plans have not priced it yet.

Beginning with fiscal year 2027, the Hospital Readmissions Reduction Program counts Medicare Advantage beneficiaries in its six readmission measures alongside traditional Medicare. The Centers for Medicare and Medicaid Services finalized the change in the fiscal year 2026 inpatient rule. The performance window also shortened from three years to two, now covering July 2023 through June 2025.

Then read the part almost nobody is quoting. CMS declined to finalize the companion proposal that would have applied the penalty to Medicare Advantage payments. So Medicare Advantage discharges count in the measure, and the penalty still lands on the hospital’s traditional Medicare payments.

The hospital is now scored on readmissions of members whose post-discharge care the health plan controls. The plan carries no matching exposure.

What the chief operating officer sees

This is not a theoretical grievance. It is already on the record.

The American Hospital Association wrote to CMS that by counting Medicare Advantage patients in readmission penalties, the agency “effectively would be holding hospitals accountable for excessive and inappropriate coverage delays and denials on the part of MA plans.” The Society of Hospital Medicine was blunter, warning that a hospital “could get penalized twice,” because a plan can also deny payment for the same stay under its readmission payment policy, and noting that prior authorization behavior affects readmissions directly. Research published in JAMA Network Open in January 2026 found that hospitals with higher Medicare Advantage penetration carry inflated penalties, and estimated 284 to 297 million dollars in annual penalty redistribution.

Meanwhile the plan’s own authorization process is being put on a clock. Under the CMS interoperability and prior authorization rule, impacted payers, other than qualified health plan issuers on the federal exchanges, must return expedited decisions within 72 hours and standard decisions within seven calendar days. Every denial has to carry a specific reason, and prior authorization metrics go public on payer websites, with the first set due March 31, 2026.

Put those together and the operating picture is simple. Your network hospitals now carry a federal penalty for outcomes they believe your authorization decisions influence. Your authorization timeliness becomes public in the same window. The next contracting conversation will include both facts.

What the chief financial officer sees

The same problem as musculoskeletal care in Article 18. Nobody can size it.

Transition spend does not live in one place. It is spread across the index admission, the readmission, emergency department visits, skilled nursing and home health, pharmacy, and the professional claims for follow-up that may or may not have happened. No standard report assembles it, so most plans manage the thirty days after discharge without ever knowing what those thirty days cost them.

The handoff itself

Article 19 made this argument in full and there is no reason to repeat it here. The short version is that the thirty days after discharge are the most dangerous stretch in American healthcare and no single party owns them. Hospitals discharge, plans pay, vendors call, and patients go home confused.

One number still carries the point. In the landmark 2009 study of Medicare rehospitalizations, about half of patients readmitted within thirty days after a medical discharge had no bill for a physician office visit between the discharge and the readmission. That data is from 2003 and 2004, so the fair question is whether it improved. It did, somewhat. A 2024 analysis of 79 million Medicare discharges found timely primary care follow-up within fourteen days rose from 31.5 percent in 2010 to 38.8 percent in 2019, and that the gaps for Black and dual eligible beneficiaries widened over the same period. Most beneficiaries still do not get timely follow-up.

The gap between what is measured and what is proven

Here is the part that should change how a plan spends its money.

The quality system rewards four things. The HEDIS transitions of care measure scores notification of admission, receipt of discharge information, patient engagement within thirty days, and medication reconciliation after discharge. In Medicare Star Ratings, Plan All-Cause Readmissions carries a weight of three as an outcome measure, while transitions of care and follow-up after an emergency visit carry a weight of one each as process measures.

Now set that against the evidence.

WHAT IS MEASURED	WHAT THE EVIDENCE SHOWS
Medication reconciliation after discharge	A meta-analysis of pharmacist led reconciliation in the community found a pooled readmission risk ratio of 0.91, with a confidence interval from 0.66 to 1.25. That is not a reduction. The same review found consistently that reconciliation identifies and resolves medication discrepancies, which is a real patient safety benefit and a reason to keep doing it. It is not a readmission intervention.
A follow-up visit inside the window	Benefit is concentrated in the highest risk patients. Across 65,000 discharges, the absolute reduction in thirty day readmissions ranged from 1.5 percentage points in the lowest risk group to 19.1 points in the highest. Follow-up within three days was not significant in any group but one.
Notification of admission and receipt of discharge information	Necessary conditions for any coordinated response, and worth measuring as process. Neither has been tested independently as a readmission intervention.
Not measured. Home visiting and multidisciplinary clinics	In heart failure, these reduced all cause readmission with risk ratios of 0.75 and 0.70, both rated high strength of evidence, with numbers needed to treat of nine and eight. Measured at three to six months in one condition, not at thirty days across a population.
Not measured. Multicomponent interventions that build self-care capacity	Pooled risk ratio of 0.82 for thirty day readmission across 42 trials, with a larger effect where the intervention supported the patient’s own capacity for self care.

CMS appears to have reached part of the same conclusion. The standalone medication reconciliation post-discharge measure was retired from Star Ratings for 2027.

The measures reward the activities with the weakest evidence. A plan optimizing for the measure is not optimizing for the member.

Two facts about timing that should change your design

First, readmission risk does not stop at day thirty. In the 2009 Medicare data, 19.6 percent of patients were readmitted within thirty days and 34.0 percent within ninety. By arithmetic, roughly 42 percent of the readmissions inside ninety days happened after the thirty day window closed. A plan that measures only to day thirty is managing to the measure rather than to the member.

Second, early and late readmissions are different problems. A prospective study across ten academic medical centers found 36.2 percent of readmissions within seven days were preventable, against 23.0 percent of those in days eight through thirty. More usefully, preventability shifted location. Early readmissions were mostly addressable in the hospital setting, 47.2 percent against 25.5 percent. Late readmissions were comparatively more addressable in the outpatient setting.

That is a design instruction. The first week is a hospital and discharge problem that the plan influences through authorization speed and placement. The rest of the month, and the two months after it, is an ambulatory problem that the plan influences through its network.

The transitional care management question

Someone will raise transitional care management codes, so handle them honestly.

The most cited study examined 18.7 million Medicare discharges and found that episodes with transitional care management billed had lower total Medicare cost in days 31 through 60, roughly 3,033 dollars against 3,358, and lower mortality, 1.0 percent against 1.6 percent. The readmission difference was 9.4 percent against 9.6 percent. That is two tenths of a point. It reached statistical significance only because the sample was 18.7 million.

Lead with cost and mortality, not with readmissions. And carry two caveats. The study was observational, and because the codes can only be billed if the patient survives and is reached inside the window, the mortality comparison favors the intervention structurally. A later federally commissioned analysis of 2018 and 2019 data found the mortality difference disappeared, while a modest rehospitalization difference and roughly 236 dollars in lower spending remained.

The more useful fact is adoption. Transitional care management is billed on something like 11 to 18 percent of eligible discharges depending on the denominator. The work is already reimbursable and it is mostly not being done.

The build

Four phases. Each has an owner and a gate. This is the same discipline as Article 18, applied to a narrower and more time sensitive problem.

PHASE 1. BUILD THE EPISODE

Define the window as ninety days from discharge, not thirty, and assemble the full episode: index admission, readmissions, emergency visits, skilled nursing and home health, pharmacy, and professional follow-up. Flag every discharge with no follow-up visit billed inside fourteen days. Rank by preventable spend rather than by volume.

OWNER Finance and actuarial, with clinical informatics.

TIMING 30 days.

GATE One transitions denominator that finance, actuarial, and clinical services all sign, reported at ninety days with a thirty day cut inside it.

PHASE 2. STRATIFY THE RISK

Stop treating every discharge the same. Build a risk tier at the point of discharge and set the intensity of the response to the tier. The evidence says intensive early follow-up earns its cost in the highest risk group and very little in the lowest. Tier by condition, prior utilization, medication complexity, social support, and post-acute destination.

OWNER Clinical services, with analytics.

TIMING 60 days.

GATE Every discharge receives a tier within one business day, and the response for each tier is written down.

PHASE 3. CONTRACT WITH YOUR NETWORK AND CLINICAL PARTNERS

Contract for the work, not for a program. The plan is buying a named set of obligations: notification on the day of admission, discharge information inside three days, medication reconciliation, a visit inside the window that matches the risk tier, and the data back in a usable form. A clinical partner inside the network is accountable for patient care and carries the clinical relationship. That is a different thing from a point solution bolted onto the benefit, and it should be contracted differently.

OWNER Network management, with medical management.

TIMING One quarter.

GATE Every obligation in the agreement maps to a measure the plan already produces, and payment is tied to the measure rather than to enrollment.

PHASE 4. MONITOR INSIDE YOUR OWN TREND

Watch the first week and the rest of the window as two different problems. Track the four transitions of care components, follow-up after emergency visits, and the readmission rate by tier and by partner. Measure every partner’s contribution inside the actuary’s paid trend, not inside the partner’s own report.

OWNER The transitions team, with finance.

TIMING Continuous. First partner review at two quarters.

GATE Each partner has a documented contribution to paid trend at ninety days, or a renegotiation date.

The close

The thirty days after discharge were always expensive. What changed this year is that a federal penalty now attaches them to hospitals for members whose care a health plan directs, while the plan’s own authorization timeliness becomes public on a published schedule.

That is leverage for whoever is ready and exposure for whoever is not. Hospitals are going to raise this. The plan that can show what it spends in the window, how it stratifies risk, and what its clinical partners deliver will be negotiating from the front of that conversation.

A health plan cannot manage a window it has never measured. It can only pay for it.

COMPANION RESOURCE
What the Transitions Measures Reward and What the Evidence Supports, a one page map of every component of the transitions of care and emergency follow-up measures against the strength of evidence behind it, with citations. Available on the HLTHWORKS resource page.

WHERE HLTHWORKS WORKS
HLTHWORKS keeps the map between what the transitions measures reward and what the evidence actually supports, and builds the episode baseline and the risk stratification that let a plan act on the difference. The gap between the two is where most transitions budgets are currently spent.

ALSO LISTEN
Redesigning Healthcare: Unfiltered, Episode 9. Redesigning transitions of care after discharge.

ALSO READ
The Standard, Article 19. The 30 Days Nobody Owns, on why health plans should take back transitions of care. And Article 18, Taking Control of MSK, which applies the same measurement discipline to musculoskeletal spend.

Sources

Centers for Medicare and Medicaid Services, FY2026 and FY2027 inpatient prospective payment system final rules and Hospital Readmissions Reduction Program materials; 42 CFR 412.152.
American Hospital Association and Society of Hospital Medicine, comment letters on the FY2026 inpatient proposed rule, June 2025.
Chopra, Ryan and Hoffman, Hospital Readmission Reduction Program Penalties for Hospitals With High Medicare Advantage Penetration, JAMA Network Open, January 2026.
Centers for Medicare and Medicaid Services, Interoperability and Prior Authorization Final Rule, CMS-0057-F, January 2024.
National Committee for Quality Assurance, Transitions of Care and Plan All-Cause Readmissions measure specifications; CMS 2027 Star Ratings measures and weights.
Jencks, Williams and Coleman, Rehospitalizations among Patients in the Medicare Fee-for-Service Program, New England Journal of Medicine, 2009.
Anderson and colleagues, Medicare Transitional Care Management Program and Changes in Timely Postdischarge Follow-Up, JAMA Health Forum, 2024.
McNab and colleagues, pharmacist-led medication reconciliation after hospital discharge, BMJ Quality and Safety, 2018.
Jackson and colleagues, Timeliness of Outpatient Follow-up, Annals of Family Medicine, 2015.
Feltner and colleagues, Transitional Care Interventions to Prevent Readmissions for People with Heart Failure, AHRQ, 2014; Leppin and colleagues, Preventing 30-Day Hospital Readmissions, JAMA Internal Medicine, 2014.
Graham and colleagues, Preventability of Early Versus Late Hospital Readmissions, Annals of Internal Medicine, 2018.
Bindman and Cox, Changes in Health Care Costs and Mortality Associated With Transitional Care Management Services, JAMA Internal Medicine, 2018; NORC for the Department of Health and Human Services, transitional care management findings, 2023.

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