Readmissions Cost Employers $80 Billion Annually Yet Are Preventable

About: This is a summary of an actuarial paper published by theSanta Barbara Actuaries (SBA) & Laguna Health: Patient Post-discharge Transitions and Inpatient Readmissions Impose Costly Burdens for Employers and Carriers


Laguna Health CEO, Yoni Shtein, joined forces with actuarial experts Ian Duncan, PhD, FSA, MAAA, Karen Fitzner, PhD, and Elaine Zhao, ASA, MAAA from SBA, to examine the true and total costs of patient recovery and readmission in the commercial population. While numerous studies looked at Medicare readmissions, this study looked at the working age / commercial post-discharge pathways and costs. This study found that 4% of commercially insured members are hospitalized annually and drive 37% of population health care cost. While over 80% of hospital discharges are to the members’ homes, more than a third of them will transition to higher cost settings over the course of a year. We found that the post-discharge site of care transitions has significant implications for the cumulative cost of care. Specifically, the readmitted members in the year following discharge drive 67% of the cost of the admitted population.

The insights discovered are the foundation of the Laguna Health mission to decrease the total cost of care and shorten recovery times. Using data, technology, and evidence-based behavioral health interventions, Laguna directly addresses the impediments to recovery.


Tens of millions of working-age Americans undergo ambulatory surgery or inpatient hospitalization each year; over 80% are discharged home to recover, often alone. Fragmented care management, health literacy, health equity, and behavioral health all adversely impact recovery outcomes. The data show that more than half do not recover well and a third of home-discharged people will transition to higher cost settings such as home health, SNF, and even rehospitalization. According to Bailey et al (2019) [2], re-admissions cost self-insured employers $80 billion annually, of which 50% are preventable.

The study analyzed administrative data extracted from a random sample of the 2015–2016 IBM MarketScan data set, consisting of 3.5 million commercial members nationwide. MarketScan members are representative of the employed working-age-group population with a mean age of 34.

The study found the following significant negative outcomes due to poor recovery:

  • Average PMPM cost was $455 and the average cost of admission (allowed charge) was $20,670.
  • 4% of members are hospitalized annually and drive 37% of population health care cost
  • Of the 4% of members who are admitted per year, 17% undergo readmission within 12 months post discharge.
  • The readmitted patients account for nearly two thirds of the cost of all discharged patients during those 12 months.
  • Conversely, while two thirds of discharged patients remain in the home/self-care setting post discharge, this cohort accounts for less than 20% of the total cost.

Figure 1 illustrates the membership and cost distributions for patients post-discharge.

Illustration of membership and cost distributions for patients post discharge

The study also identified the following proven techniques that improve outcomes and reduce total spend:

  • Care management — such as follow-up phone calls that assist patients to schedule follow-up appointments or order their medication — are shown to decrease readmissions by 50%
  • Patient-centered interventions that augment care management achieve positive health outcomes and reduce costs for employers.
  • Mental health and substance abuse diagnoses add significantly to admission / readmission rates and costs.
  • Patient goal-setting during and after hospitalization is shown to decrease readmission rates.

Modern recovery starts now.

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