11/01/2012 01:01 pm ET Updated Jan 23, 2014

Obamacare Starts Cracking the Whip: Are the Wrong People Paying the Price?

There's a concept in the sciences and philosophy called "correlation without causation." It simply means that when two things tend to happen together, it's a logical fallacy to assume that one causes the other (every sports fan with a ritual before the big game understands this). In statistics, you need things like the Granger causality test or convergent cross mapping to figure this stuff out.

Now that Obamacare is real and functioning, we appear to be seeing a real-life example of the correlation-without-causation problem. The federal government has launched the Hospital Readmissions Reduction Program (HRRP), which withholds payments to hospitals whose Medicare readmission rates exceed national averages. Under the Patient Protection and Affordable Care Act (ACA), the program seeks to improve the continuity of care after patients go home. According to the federal government, unnecessary hospital readmissions cost Medicare nearly $17.5 billion a year. The Centers for Medicare and Medicaid Services (CMS) will collect approximately $280 million in penalties during fiscal 2013.

The problem?

How does CMS establish that the reason a patient was admitted was because of a hospital's negligence? The American Hospital Association (AHA) and the Association of Medical Colleges (AMC) have asked CMS to consider socioeconomic factors such as poor and elderly patients who are non-compliant with doctors' orders because of factors like poor nutrition or even poor memories. Patients often also perform their own cost-benefit analysis to see if it serves them to follow medical advice (buying daily essentials vs. buying expensive prescription drugs). The significance of the problem is indicated in statistics showing that "up to half of all patients fail to follow their prescribed drug regimens, with five percent to 20 percent of prescriptions never even being filled," according to Barbara Worsley, Vice President, Risk Management, The SCPIE Companies.

Unfortunately, CMS’ rules do not specifically address non-compliant patients. According to a CMS official, hospitals can cut the risk of admissions “through the care they deliver and through their leadership in their communities. "Many initiatives have demonstrated that a patient-centered focus on the transition of care from the inpatient to outpatient setting can lead to decreased readmission rates for patients," said Dr. Michael Rapp, director of the quality measurement and health assessment group in CMS’ Office of Clinical Standards and Quality.

The medical community doesn't necessarily see it that way. Jacqueline Voss, an RN at Henry Ford Macomb Hospital in Macomb, Mich., notes that:

I feel the hospitals are at the mercy of the system the government and (insurers) have created. Yes, some readmissions are unnecessary but when the insurance companies dictate how long a patient can stay; when the patient is non-compliant; or the patient can't afford their medications and can't take them correctly, the hospitals will be penalized. They need to look into these cases individually.

The financial effects of a 20 percent pay cut are not small: The HRRP will have a Darwinian effect on the sector as independent, community-based hospitals will struggle to survive, and many may merge with large health care systems to withstand the new penalties. According to Terry Hill, executive director of the National Rural Health Resource Center, when a community hospital joins a larger health care system, it can save money on purchases. The affiliation provides access to specialists and makes it easier to fulfill Obamacare requirements.

On the flip side, when hospitals have little nearby competition, consolidation tends to drive up prices, according to a study from the Robert Wood Johnson Foundation. The report notes that the magnitude of price increases when hospitals merge in concentrated markets is typically quite large, exceeding 20 percent.

Back to the non-compliant patient. While the causal problem remains, clearly the new world of Obamacare requires that doctors play a role that straddles healer with motivator. Judy Z. Segal, Ph.D., an associate professor at the University of British Columbia, Vancouver, puts it this way:

People can be confused about dosing schedules or cannot tolerate side effects. But I think often doctors have failed to persuade patients that complying is in their own best interest. The idea is that people need good reasons, sometimes very specific reasons, for following their doctors' advice.

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