Healthcare reforms, as part of the Affordable Care Act, are changing financial incentives for hospitals. æHospitals are increasingly being paid based on quality measures, moving away from traditional fee for service systems. æReadmission rates are one of these important quality measures. æHospitals with poor readmission rates can lose up to 3% of all their Medicare reimbursements by 2015. æAs a result many hospitals are working to reduce readmissions by allocating significant resources to prevention interventions. æFrom a purely financial perspective this is only logical if the financial penalty for not acting exceeds intervention costs. æTo help hospitals better understand better the overall impact, we developed an economic model that determines the excepted savings due to various interventions, accounting for both reduced penalties and lost revenue opportunity resulting from lower bed occupancy. æContrary to intuition, for many hospitals only small cost saving opportunities exist, with most interventions in fact significantly increasing overall costs. æWe therefore compare alternate incentive policies that produce larger cost effective opportunities for a larger number of hospitals, with the overall goal of encouraging more health systems to be able to focus on prevention of unnecessary care.