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The Hospital Readmissions Reduction Program, announced in 2010 to penalize excess readmissions for patients with selected medical diagnoses, was expanded in 2013 to include targeted surgical diagnoses, beginning with hip and knee replacements. Whether these surgical penalties reduced procedure-specific readmissions is not well understood. Using Medicare claims, we evaluated the penalty announcements’ effects on risk-adjusted readmission rates, episode payments, lengths-of-stay, and observation status use. Risk-adjusted readmission rates declined for both procedures from 7.6 percent in 2008 to 5.5 percent in 2016. These rates were decreasing before the program was announced, but the rate of reductions doubled after the announcement of medical penalties in March 2010 (from −0.05 percentage points to −0.10 percentage points per quarter). After targeted surgical penalties were announced in …