The contract between Botsford and Residential is part of a nationwide trend between hospitals and such post-acute care providers as home health and hospice companies to help lower health care costs and reduce avoidable readmissions.
Data shows hospital readmissions, which average about 20 percent within 30 days, cost U.S. taxpayers more than $17.5 billion a year.
Paul LaCasse, D.O. -- CEO of Botsford Health Care, the hospital's parent organization -- said Residential will help Botsford cut readmission rates and make more effective patient transitions to other health care facilities, including Botsford Commons Senior Community.
"For patients with serious and complex illnesses, transitions in care settings often result in miscommunications, poor coordination of services and a rise in preventable adverse effects," said LaCasse.
Starting last Oct. 1, more than 2,217 hospitals nationally, including most hospitals in Michigan, had their base pay cut an average of 1 percent for avoidable patient readmissions within 30 days of discharge. Those readmissions also exceeded the national average for congestive heart failure, heart attack and pneumonia.
The cost-containment rule is just one of several similar provisions in the Patient Protection and Affordable Care Act of 2010 aimed at lowering costs and improving quality.
In 2013, Botsford will lose $500,000 in base pay reimbursement because its average readmissions are above the national average, said Jim Smith, Botsford's vice president of strategy and business development.
"The penalties will double in 2014 and triple in 2015," he said. "We already have low margins in Southeast Michigan. If we can eliminate the penalty, we can have positive benefits."
A new study shows hospitals that work closely with other health care providers can cut readmission rates by 6 percent for Medicare beneficiaries, said the Jan. 22 issue of the Journal of the American Medical Association.
"When folks come out of the acute-care facility, we need to ensure they get necessary follow-up so they don't bounce back and forth (from home to the hospital)," Smith said. "This relationship will help to avoid unnecessary readmissions."
From 2010 to 2012, Smith said, Residential has cared for 2,500 patients discharged from 330-bed Botsford Hospital to home health settings. The number represents 34 percent of Botsford's patients who required home health or post-acute care, he said.
"Our hope is to increase those numbers going to Residential," said Smith, adding that in most cases the choice of a home health or post-acute care referral is made by the patient and physician.
Smith said Botsford has reduced the number of avoidable readmissions the past three years. In 2012, Botsford had a readmission rate of 26 percent for heart failure, 21 percent for pneumonia and 22 percent for heart attack, with an all-payer rate of 13.5 percent, Smith said.
"We don't have any estimates on how much we will save in readmissions (by working with Residential), but we know what the penalties are (from Medicare)," Smith said.
Over the past three years, as hospitals, physicians and other providers have worked to reduce readmissions, a growing number of home health and hospice companies have signed contracts or agreed to work more closely with hospitals.
Residential has similar arrangements with two other hospitals -- Metro Health Hospital in Wyoming andEdward Hospital in Naperville, Ill. -- and it is discussing other potential deals with other hospitals and accountable care organizations, or ACOs, said David Curtis, president of Residential Home Health.
"We will work with (Botsford) on innovating the delivery of services to their patients and helping to manage post-acute risk for all associated providers," Curtis said.
Other home health and hospice companies also have signed contracts with hospitals. They include Detroit-based Hospice of Michigan and Great Lakes Caring in Jackson.
Bruce Carty, CFO of Ann Arbor-based Arbor Hospice, said the hospice company has talked with ACOs and hospitals about possible contracts.
"Coordination of care is essential when patients are transferred from hospitals to other settings," Carty said. "There is a potential for a breakdown in care when patients are transferred."
As part of the Botsford contract, Smith said Residential nurses will work with Botsford's discharge planners when patients have selected Residential and are ready to leave the hospital.
"Residential nurses will educate the family and help develop a post-hospital plan," said Smith. "Residential will send a nurse to the patient's home or other facility within 24 hours for timely intervention. It is key to make sure they don't get rehospitalized."
Curtis said Residential also will provide home telemedicine technology, when appropriate, to monitor vital signs and make sure patients are doing well between visits.
"We will (share medical information with each other), so if a patient is readmitted to their emergency department or hospital, their physicians have current vitals," Curtis said.
Over the past three years, Residential Home Health has been growing steadily. Curtis declined to provide revenue growth but said Residential cared for 15,700 patients in 2012, a 14 percent increase from 13,500 in 2011. Projected growth is 25 percent, to 19,700 patients under care, he said.
"We have been hiring across the board, not for just Botsford but because we have an increased demand for post-acute care services from hospitals, nursing homes and physicians, our three referral sources," Curtis said.
Earlier this month, Residential purchased the hospice program from Detroit-based Karmanos Cancer Institute. The acquisition is part of a strategy to expand post-acute care and work more closely with hospitals on coordinating care and reducing readmissions, Curtis said.
Last year, Residential acquired Southfield-based CodaCare Hospice and entered the hospice service line with a projected daily census of 80 patients and annual revenue of about $4 million.
Residential and its affiliates offer home health, pharmacy, durable medical equipment and nurse practitioner home services.