Medicare penalizes hospitals for readmissions. After making initial payments for hospital stays, Medicare will take back from the hospital these payments, plus a penalty of 4 to 18 times the initial payment, if an above-average number of patients from the hospital are readmitted within 30 days. These readmission penalties apply after some of the most common treatments: pneumonia, heart failure, heart attack, COPD, knee replacement, hip replacement. A study conducted by the Agency for Healthcare Research and Quality (AHRQ) of 18 States found that 1.8 million Medicare patients aged 65 and older were readmitted within 30 days of an initial hospital stay in 2011; the conditions with the highest readmission rates were congestive heart failure, septicaemia, pneumonia, and chronic obstructive pulmonary disease and bronchiectasis.

The highest penalties on hospitals are charged after knee or hip replacements, $265,000 per excess readmission. The goals are to encourage better post-hospital care and more referrals to hospice and end-of-life care in lieu of treatment, while the effect is also to reduce coverage in hospitals which treat poor and frail patients. The total penalties for above-average readmissions in 2013 are $280 million, for 7,000 excess readmissions, or $40,000 for each readmission above the US average rate.

Part A also covers brief stays for rehabilitation or convalescence in a skilled nursing facility if certain criteria are met:

A preceding hospital stay must be at least three days as an inpatient, three midnights, not counting the discharge date.

The nursing home stay must be for something diagnosed during the hospital stay or for the main cause of hospital stay.