On October 1, 2,334 hospitals, 80 percent of those Medicare evaluated, began a full year of reduced Medicare payments under the Hospital Readmissions Reduction Program. The penalty was set by patients discharged between July 2023 and June 2025. Next year’s penalty is already determined by discharges that ended this past June, even though CMS has not published it. The patients leaving hospitals this month will shape a penalty that begins in October 2028.
That lag matters to anyone selling to hospitals. Executives know the penalty is a delayed bill for past performance, so a company that promises to cut next year’s penalty signals to the CFO, within minutes, that it has not studied how the program works. The companies that earn executive attention understand the mechanics, the money behind them, and who inside the hospital carries each piece of it.
In more than 30 years on both sides of the hospital table, I have seen few problems that sellers describe so consistently at the level of their product while executives experience them as a financial condition spread across several budgets. Readmissions are one of them, and closing that distance is what earns a company a place in the executive conversation.
What Changed in 2027
More hospitals are paying. Only 578 hospitals avoided a penalty this year, down from 641, and it is the second straight year the results have worsened, according to Healthcare Dive. Ten hospitals received the maximum 3 percent penalty, and the average is 0.44 percent.
• Medicare Advantage patients now count. For the first time, CMS calculated readmission performance using Medicare Advantage and traditional Medicare patients together. The penalty is still taken only from traditional Medicare payments. More than half of Medicare beneficiaries are now in Medicare Advantage, so hospitals are being measured on a much larger population, including patients whose care after discharge is governed by a health plan’s authorization rules.
• The measurement window is shorter. CMS cut the performance period from three years to two, so results now reflect a hospital’s recent performance more quickly, in both directions.
• Some states took much larger hits. West Virginia’s average penalty rose from 0.40 to 0.71 percent. Pennsylvania, New York, and South Carolina also rose sharply, Texas now has 24 hospitals facing cuts of 1 percent or more (up from 16), and 95 percent of evaluated hospitals in Florida were penalized, according to Becker’s.
Why a Small Percentage Carries So Much Weight
The program measures 30-day readmissions for six conditions and procedures (heart attack, heart failure, pneumonia, COPD, coronary artery bypass surgery, and elective hip and knee replacement). CMS compares each hospital’s result on each measure with the median of a peer group, made up of hospitals serving a similar share of patients eligible for both Medicare and Medicaid, and combines the results into one reduction. Three features of that design shape how executives think about it.
• The penalty applies to everything. The reduction is taken from all traditional Medicare base inpatient payments, regardless of condition. Excess heart failure readmissions reduce what the hospital is paid for every traditional Medicare joint replacement, stroke, and sepsis admission for the year. For a hospital with $150 million in Medicare base inpatient payments, a 1 percent penalty is $1.5 million.
• It is relative. Hospitals are measured against their peers, so a hospital can improve and still be penalized if its peer group improves faster. Executives experience it as a competition they have to keep winning every year.
• It is specific. Because the penalty is calculated measure by measure, each hospital’s data shows which conditions pushed it above its peers. A hospital penalized for heart failure and pneumonia has a different problem from one penalized for hip and knee replacement, and different executives own each one.
The Full Cost of a Readmission Sits on Several Ledgers
The penalty is the most visible cost of a readmission, and for some hospitals it may not be the largest. The same readmission can reach a hospital’s finances in at least five ways.
• The Medicare penalty. Quality leaders usually manage it, the board sees it, and the CFO absorbs it.
• Medicare Advantage contracts. Many Medicare Advantage plans apply readmission review policies that can deny or combine payment for a related readmission. The same plans control authorization for post-acute care. A 2024 Senate investigation found that UnitedHealthcare’s denial rate for post-acute care requests rose from 8.7 percent in 2019 to 22.7 percent in 2022. When a skilled nursing placement is denied or delayed, a patient who needed that support may go home without it. If that patient is readmitted, the readmission now counts toward the hospital’s Medicare penalty as well. This ledger usually sits with managed care contracting.
• TEAM episodes. About 740 hospitals in CMS’s mandatory TEAM model are accountable for the total cost of five surgical episodes through 30 days after discharge, and a readmission inside that window counts against the episode target. Beginning January 1, 2027, most TEAM hospitals take on downside financial risk. Coronary bypass and joint replacement appear in both TEAM and the readmission program, so a single readmission can count against the hospital twice. This ledger sits with the CFO and surgical service line leaders.
• Value-based contracts. In accountable care organizations and other shared-savings arrangements, readmissions reduce the savings the hospital and its physicians would otherwise earn. Population health leaders usually track this one.
• Capacity. The average readmission cost $16,300 in 2020, about 12 percent more than the average original admission, according to federal hospital data. In a hospital running near capacity, a readmitted patient also occupies a bed that could have held a scheduled surgical patient or relieved a crowded emergency department. That cost lands with the COO.
Each ledger belongs to a different executive and is reported on a different schedule, and in most hospitals no one adds them together. A company that helps an executive see the combined figure has changed what the executive believes the conversation is about.
Very Few Companies Truly Sell Readmission Reduction
Very few companies can sell readmission reduction effectively, with their solution truly mapped to the measures and dollars behind it. Many more contribute to it, including companies in patient education, remote monitoring, pharmacy and medication reconciliation, care navigation, transportation, nurse staffing, post-acute coordination, analytics, and food and housing support. If what you sell touches what happens to a patient after discharge, you have a reason to be in this conversation. The work is connecting your product to the financial condition the executive is accountable for.
I teach this as a progression. Start with what you sell, move to the larger problem it addresses, then to the financial condition that problem creates, then to its economic consequence, and finally to the executive priority it affects. Here is how that progression looks for a few common solutions.
• Medication reconciliation → adverse drug events in the first weeks at home → heart failure and COPD readmissions → a penalty taken from every traditional Medicare payment → CFO margin and CMO quality standing
• Post-acute coordination → delayed or denied skilled nursing authorization → patients discharged without the support they need → Medicare Advantage readmission exposure and TEAM episode cost → CFO and managed care leadership
• Transportation → missed follow-up appointments → avoidable readmissions → occupied beds and displaced surgical cases → COO capacity and surgical growth
• Nurse staffing → compressed discharge teaching on short-staffed units → readmissions on the measured conditions → penalty and publicly reported quality → CNO and CFO
The executive conversation begins at the end of each chain. The product enters later, as the answer to a problem the executive has already agreed is worth solving.
Questions That Move the Conversation Up
Discovery questions show an executive very quickly which level you are working at. An operational question such as “How do you handle discharge planning?” invites a description of a process, and the executive will usually hand you to the person who runs it. A financial question invites the executive to name a problem and put a number on it. Questions like these keep the conversation at the executive level.
• “Which of the measured conditions is driving your penalty, and is your current readmission work focused on those conditions?”
• “How are Medicare Advantage authorization delays affecting where your patients go after discharge?”
• “When a TEAM patient is readmitted, who sees that cost, and how soon?”
• “If you combined the penalty, denied readmission payments, TEAM episode costs, and the beds those patients occupy, what would the figure be?”
• “Who owns that figure today?”
The last question is often the most valuable. It tells you who really owns the problem, and the answer is frequently someone other than the person you have been calling on. It also speaks directly to the first question in what I call the Three-Question Screen, the moment an executive decides whether a subject is theirs.
What a Hospital’s Objections Tell You
An objection usually reveals what the executive believes they are being offered. When a hospital pushes back, ask what the objection says about how the opportunity was framed earlier.
• “Our penalty is under 1 percent.” The executive believes the conversation is about the penalty alone. The other four ledgers have not entered the discussion.
• “Quality handles readmissions.” The opportunity was framed as a quality initiative, so it was routed to the quality department. The financial condition behind it belongs to the CFO, the COO, and managed care.
• “We already have a transitional care program.” The executive thinks you are selling a program. The more useful discussion is which conditions, payers, or patient groups the current program does not reach, and what that costs.
• “There is no budget this year.” The problem has often not been sized. A figure that spans several ledgers can change which budget the solution comes from and who approves it.
Start With the Hospitals You Already Serve
The strongest opportunities are usually inside hospitals that already buy from you. You have trust built through an established relationship. You know how the organization works and where friction sits. You have relationships with clinical, operational, and financial leaders who can sponsor you, and you have credibility from what you have already delivered. Look at the readmission results for each of those hospitals and ask what larger financial problem you can now help it solve. That question often leads to an executive your original sale never reached.
Readmissions Arrive Alongside Everything Else
The penalty landed on executives who are managing more financial pressure at once than at any point I can remember. Understanding that full picture is what allows a company to explain why its conversation deserves time now, and where it fits among everything else competing for the same capital.
• Margins are diverging. Kaufman Hall data shows national hospital operating margins fell 5 percent year over year from January through May 2026, as reported by Becker’s. Hospitals with 500 or more beds were the only size group to improve.
• Fewer patients are insured. The enhanced ACA premium subsidies expired at the end of 2025, and marketplace enrollment fell from 22.1 million to 19.2 million by February 2026, according to KFF. Hospitals are preparing for more uncompensated care and more emergency department visits.
• Medicaid changes begin December 31, 2026. Under the 2025 federal budget law, Medicaid work requirements and eligibility checks every six months begin for expansion adults, although states can seek more time on work requirements. Reductions in provider taxes and state-directed payments follow beginning in 2028.
• TEAM downside risk begins January 1, 2027, for most participating hospitals.
• The next readmission penalty is already set. Under the two-year window, discharges through June 2026 determine the penalty that begins in October 2027.
Every one of these lands on the same small group of executives and draws on the same capital budget. Executives rank problems by size, timing, and ownership. A company that understands where its solution sits among them, and can describe the financial condition it addresses, is the one an executive makes time for.
Building This Into Your Sales Team
Most sales teams are trained to present their product well. Far fewer are trained to find the larger financial problem, identify who owns it, size the consequence, and lead a conversation at that level with a CFO, COO, or CNO.
My C-Suite Selling Workshop is built around your company, your products, your hospital buyers, and the opportunities already in your pipeline.
For more on how executive meetings are earned, read Selling to C-Level Executives Starts With Access on my website.