CMS Penalizes 2,334 US Hospitals for Avoidable Readmissions

Eighty percent of U.S. hospitals will face reduced Medicare payments for the 2027 fiscal year under a federal program aimed at preventing avoidable readmissions, Healthcare Dive reported. The Centers for Medicare & Medicaid Services released data showing that 2,334 facilities will receive penalties, up from 78% encompassing 2,304 facilities in the 2026 fiscal year.

Medicare Penalties Expand for Fiscal Year 2027

The Hospital Readmissions Reduction Program penalizes hospitals with higher-than-average patient returns for conditions such as heart attack and pneumonia. These financial reductions took effect on Oct. 1. Penalties can reach up to a 3% loss of payment, though the vast majority of impacted facilities face a reduction of less than 1%. Only 10 hospitals are subject to the maximum 3% penalty for 2027, down from 15 in the prior fiscal year. Meanwhile, 578 hospitals—about 20% of facilities—will avoid penalties entirely. That figure marks a decline from 2026, when 22% of facilities escaped payment reductions.

Medicare Advantage Data Enters Fiscal 2027 Penalty Calculations

The fiscal 2027 penalties are calculated using Medicare data gathered from the summer of 2023 through the summer of 2025. This cycle marks the first time the program incorporates data that includes Medicare Advantage beneficiaries. It is the second year of worsening results for hospitals, following an increase in penalties between the 2025 and 2026 fiscal years. Research suggests that the program, established by the Affordable Care Act in 2012, initially led to a substantial drop in post-discharge admissions as hospitals invested in better discharge planning, patient education, and care transitions. Research also indicates that curbing readmissions has saved Medicare billions of dollars annually without negatively impacting patient mortality.

Critics Argue Penalties Unfairly Target Safety-Net Hospitals

Despite its financial savings, the readmission program remains controversial. Stakeholders have raised concerns that the penalties unfairly target safety-net hospitals that manage sicker and more disadvantaged patient populations. While the Centers for Medicare & Medicaid Services has taken steps to address those disparities, critics and researchers argue that the observed drop in readmissions stems from hospitals altering how they track patients rather than achieving genuine improvements in care quality.