OHD Learn · Hospital Payment Programs

HAC Reduction Program

The only CMS hospital payment program where being in the bottom quartile automatically triggers a 1% penalty — applied to all Medicare inpatient payments, no exceptions.

💰 Payment penalty program Bottom quartile = 1% penalty 2 scoring domains
How the Program Works

A mandatory penalty for the worst 25% — regardless of how close to the line they are.

The Hospital-Acquired Condition Reduction Program was established in October 2014 under the Affordable Care Act. Its mechanism is unusually blunt compared to other CMS payment programs: CMS ranks every eligible hospital by its Total HAC Score, and any hospital whose score falls in the top quartile of the distribution — meaning worst-performing — automatically receives a 1% reduction on all Medicare inpatient payments for that fiscal year.

There is no gradient. A hospital just above the 75th percentile threshold and a hospital at the 99th percentile both receive the same 1% reduction. Similarly, a hospital at the 76th percentile and one at the 50th percentile face no penalty at all. The threshold is binary: above it or below it.

This structure means that relative performance — not absolute performance — determines the penalty. In a year where hospital quality generally improves, the threshold score may rise, and some previously safe hospitals could find themselves penalized even as their actual infection rates declined.

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Automatic Penalty
Any hospital with a Total HAC Score above the 75th percentile of the national distribution faces a 1% reduction on all Medicare inpatient base payments for the fiscal year. The penalty applies to every discharge — cardiac surgery, joint replacement, routine medical admissions. There is no appeal on the basis of performance alone; only data quality issues can trigger a review.
The Two Domains

Surgical complications and healthcare-associated infections — equally weighted.

The Total HAC Score is the equally weighted average of two domain scores. Each domain draws from a different measurement program, with different collection windows and data sources.

Domain 1: PSI-90 Composite
50% of Total HAC Score
The AHRQ Patient Safety Indicators composite score — a weighted average of eleven indicators measuring serious, potentially preventable in-hospital complications. Calculated from Medicare claims data, not hospital-reported data. A lower PSI-90 score is better.
Collection period: 15 months · Refreshed annually
  • PSI-3: Pressure ulcer rate
  • PSI-6: Iatrogenic pneumothorax rate
  • PSI-8: Postoperative hip fracture rate
  • PSI-9: Postoperative hemorrhage or hematoma
  • PSI-10: Postoperative metabolic derangement
  • PSI-11: Postoperative respiratory failure
  • PSI-12: Postoperative PE or DVT
  • PSI-13: Postoperative sepsis
  • PSI-14: Postoperative wound dehiscence
  • PSI-15: Accidental puncture or laceration
Domain 2: HAI Measures
50% of Total HAC Score
Six healthcare-associated infection measures reported to the CDC's National Healthcare Safety Network, expressed as Standardized Infection Ratios (SIRs). The domain score is a weighted average of the six SIR-based measure scores. A lower SIR is better.
Collection period: 24 months · Refreshed annually
  • CLABSI — central line bloodstream infections
  • CAUTI — catheter-associated urinary tract infections
  • SSI — colon surgery surgical site infection
  • SSI — abdominal hysterectomy surgical site infection
  • MRSA — bloodstream infections
  • CDI — Clostridioides difficile infections
The Quartile Threshold

Ranking determines the penalty — not the absolute score.

CMS calculates the Total HAC Score for every eligible hospital, ranks them nationally, and identifies the 75th percentile cutoff. Hospitals above that cutoff receive the penalty. The total collection window for the score is 30 months — the longest of any component in the HACRP calculation.

How the 25% penalty threshold works
Hospitals are ranked by Total HAC Score nationally. The top quartile is penalized regardless of their absolute score.
Best Quartile
1st – 25th percentile
No penalty. Lowest HAC scores nationally — fewest complications and infections relative to patient mix.
Middle Quartiles
26th – 75th percentile
No penalty. The majority of hospitals fall here — performance is average to above average.
Near Threshold
70th – 75th percentile
No penalty — but close. These hospitals are at risk in future years if performance slips or the threshold rises as peers improve.
Worst Quartile
Above 75th percentile
1% penalty on all Medicare inpatient payments. Automatic. No gradient — 76th and 99th percentile hospitals receive identical penalties.
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Overlap with HAI and Star Rating. The HAI measures in HACRP Domain 2 are the same six infection measures that appear in the Safety of Care group of the Overall Hospital Star Rating. A hospital with poor infection control will see that reflected in its star rating, its HACRP score, and — if penalized — its Medicare payments simultaneously.
Sources
  1. CMS Hospital Downloadable Database Data Dictionary, January 2026 — CMS Provider Data Catalog
  2. Hospital-Acquired Condition Reduction Program — CMS.gov
  3. HACRP Overview and Scoring Methodology — QualityNet.cms.gov