Sepsis A Proposed Addition to the Hospital Readmission Program

The Centers for Medicare & Medicaid Services (CMS) continues to expand its focus on hospital readmissions in the FY 2027 IPPS (Inpatient Prospective Payment System) Proposed Rule, introducing sepsis as a new condition within the Hospital Readmissions Reduction Program (HRRP). This proposed addition demonstrates CMS’s continued emphasis on outcome metrics, by including one of the most common diagnoses for hospital readmission. According to sources listed in the ruling, such as AHRQ Report to Congress (September 2024) and Pub-Med meta-analysis by Shanker-Hari et. al (January 2020), sepsis remains one of the most frequent principal diagnoses among adult inpatients, with more than 2.2 million hospitalizations annually and an estimated 30-day readmission rate approaching 21 percent. These rates place sepsis alongside other HRRP conditions such as heart failure and chronic obstructive pulmonary disease (COPD), reinforcing CMS’s rationale to address both high-volume and high-cost conditions with targeted oversight.

If finalized, this measure would be implemented beginning with the 2029 HRRP program fiscal year (FY), using a performance period from July 1, 2025 through June 30, 2027. Notably, the measure will include both traditional Medicare and Medicare Advantage (MA) beneficiaries, continuing CMS’s effort to standardize quality measurement for all Medicare beneficiaries. As CMS advances its Meaningful Measures 2.0 Seamless Care Coordination, with a focus on patients receiving timely and coordinated care, there is also an emphasis on reducing the risk of errors and improving overall patient outcomes. The inclusion of sepsis in HRRP would further emphasize the importance of longitudinal care models that extend beyond the inpatient setting.

The addition of sepsis to HRRP also introduces several immediate implications for case management, utilization review, and physician advisor teams. Sepsis must now be approached not only as an acute clinical event, but as a condition requiring ongoing management across the care continuum. Discharge planning expectations will shift further upstream, requiring earlier identification of high-risk patients and more proactive coordination of post-acute services. Hospitals will need to ensure that follow-up care is not only arranged, but accessible and timely, particularly within the first week after discharge, where evidence suggests that meaningful reductions in readmissions can occur.

Additionally, CMS’s own analysis demonstrates variation in performance across hospital types, with higher readmission rates observed in teaching hospitals, safety-net hospitals, and those with higher Disproportionate Share Hospital (DSH) percentages. This variation highlights the influence of social complexity, resource availability, and care coordination infrastructure on outcomes. As a result, organizations will need to evaluate not only their clinical pathways, but also their ability to address the broader factors that influence recovery following sepsis.

A critical component of this proposed rule, which carries significant implications for clinical documentation integrity (CDI) and coding teams, is the methodology for risk adjustment. CMS proposes adjusting for a broad set of patient-level factors, including age, comorbid conditions, frailty indicators, transplant status, and clinical markers of severe sepsis, as well as the aggressiveness of infectious organisms. These variables are derived not only from the index hospitalization, but from claims spanning up to 12 months prior, including inpatient, outpatient, and physician encounters, as well as diagnoses documented as present-on-admission. CMS also called out that they will be excluding complications that arise during hospitalization from risk adjustment, as CMS considers these to reflect the quality of care delivered, rather than the patient’s underlying risk profile. This distinction places increased scrutiny on hospital performance and reinforces the importance of accurate, complete, and timely documentation at the point of admission.

The accuracy of risk adjustment, and ultimately the hospital’s performance under HRRP, will depend heavily on the capture of comorbidities, severity indicators, and present-on-admission conditions. Incomplete documentation or missed secondary diagnoses in the proposed ruling would not only impact case mix index or reimbursement; they may directly influence readmission performance metrics and associated financial penalties. This is particularly relevant given the use of hierarchical logistic regression modeling, which compares a hospital’s predicted readmissions based on its case mix to the expected readmissions at a national average. Hospitals with higher-than-expected readmissions will generate an excess readmission ratio greater than one, resulting in potential payment reductions.

Operationally, this means that CDI programs must expand beyond DRG optimization, if they have not already done so, as CMS doubles down with a focus on quality. This will require accurate representation of severity, organ dysfunction, and underlying risk factors. Coding teams must also ensure alignment with clinical definitions and documentation, particularly as sepsis continues to be an area of scrutiny across payers.

In conclusion, the proposed change reinforces the need for hospitals to shift from reactive, inpatient-focused workflows to proactive, coordinated care models that integrate clinical decision-making, quality documentation, discharge planning, and post-discharge follow-up. Organizations that continue to rely on fragmented, inpatient-focused processes will likely struggle to meet performance expectations, while those that invest in comprehensive, data-driven care coordination strategies will be better-positioned to succeed under CMS’s current objectives.