How Much Does Medicare Pay Hospitals for Adverse Events?How Much Does Medicare Pay Hospitals for Adverse Events?Building the Business Case Building the Business Case

for Investing in Patient Safety Improvementfor Investing in Patient Safety Improvement

Chunliu Zhan, MD, PhD, Bernard Friedman, PhD, AHRQAndrew Mosso, MS, SSSPeter Pronovost, MD, PhD, Johns Hopkins University

June 6, 2005

BackgroundBackground

Cost of Adverse events (AEs)Cost of Adverse events (AEs)– preventable AEs cost $159 million in Utah and preventable AEs cost $159 million in Utah and

Colorado, and $17 billion in the United States Colorado, and $17 billion in the United States annually (annually (Thomas et al, Injury, 1999)Thomas et al, Injury, 1999)

– Preventable adverse drug events increased hospital Preventable adverse drug events increased hospital costs from $2,262 to $4,700 per admission, costs from $2,262 to $4,700 per admission, amounting to $2.8 million annually for a 700-bed amounting to $2.8 million annually for a 700-bed teaching hospital and about $2 billion for the nation teaching hospital and about $2 billion for the nation (Bates et al, JAMA, 1997)(Bates et al, JAMA, 1997)

Who pay the costs?Who pay the costs?– Hospital charges more when AEs occur Hospital charges more when AEs occur (Zhan & (Zhan &

Miller, JAMA, 2003)Miller, JAMA, 2003)– Payment based on services or patient types, not Payment based on services or patient types, not

quality or safetyquality or safety– Everyone pays: government payers, health plans, Everyone pays: government payers, health plans,

employers, patientsemployers, patients

BackgroundBackground

Who is paying what? Who is paying what? – Marginal AE cost unknownMarginal AE cost unknown– Marginal AE payment differs by different payersMarginal AE payment differs by different payers

Medicare Prospective Payment System (PPS) Medicare Prospective Payment System (PPS) - a venue for calculating marginal payment for - a venue for calculating marginal payment for AEsAEs– Pays inpatients services by Diagnosis-Related-Pays inpatients services by Diagnosis-Related-

Group (DRG), which is “supposedly” determined Group (DRG), which is “supposedly” determined by the diagnoses at admissionby the diagnoses at admission

– Payment can be calculated based on claims using Payment can be calculated based on claims using published Medicare payment formulaspublished Medicare payment formulas

ObjectivesObjectives

Establishing business cases for Medicare in patient Establishing business cases for Medicare in patient safetysafety– How much Medicare pays for AEs under PPS?How much Medicare pays for AEs under PPS?

Inferring business cases for hospitals in patient safetyInferring business cases for hospitals in patient safety– How much hospitals absorb the AE costs uncompensated How much hospitals absorb the AE costs uncompensated

by Medicare under PPS?by Medicare under PPS?

Inform Medicare pay-for-performance (P4P) decisionsInform Medicare pay-for-performance (P4P) decisions– Medicare started P4P demo in 2003, quality measures onlyMedicare started P4P demo in 2003, quality measures only

– MedPAC 2005 recommend 1% Medicare expenditure set-MedPAC 2005 recommend 1% Medicare expenditure set-aside for P4P and a number of quality measuresaside for P4P and a number of quality measures

– Medicare P4P for include safety measures? the amount of Medicare P4P for include safety measures? the amount of set-aside? set-aside?

DataData

HCUP NIS 2002HCUP NIS 2002– 7.8 million discharges from 995 hospitals across 7.8 million discharges from 995 hospitals across

35 states, approximating 20% sample of acute 35 states, approximating 20% sample of acute hospitalshospitals

– 2.5 million Medicare claims for patients aged 65+2.5 million Medicare claims for patients aged 65+

Medicare payment calculation data from CMS Medicare payment calculation data from CMS website (details available from authors)website (details available from authors)– DRG relative weightsDRG relative weights

– Area wage index, etc.Area wage index, etc.

– Medicare IMPACT file for payment adjustmentMedicare IMPACT file for payment adjustment

MethodMethod

Identify selected AEs using AHRQ Patient Identify selected AEs using AHRQ Patient Safety Indicators (PSIs)Safety Indicators (PSIs)– Decubitus ulcer Decubitus ulcer

– Iatrogenic pneumothorax Iatrogenic pneumothorax

– Postoperative hematoma or hemorrhage Postoperative hematoma or hemorrhage

– Postoperative pulmonary embolism or deep vein Postoperative pulmonary embolism or deep vein thrombosis thrombosis

– Postoperative sepsis Postoperative sepsis

Face validity, relative larger number of caseFace validity, relative larger number of case

MethodMethod

Calculating Medicare PPS payment Calculating Medicare PPS payment for for claimsclaims1.1. Basic operating paymentBasic operating payment

2.2. Basic capital paymentBasic capital payment

3.3. Indirect medical education paymentIndirect medical education payment

4.4. Allowance for treating disproportionate share of Allowance for treating disproportionate share of low income beneficiarieslow income beneficiaries

5.5. Payment adjustment for cases with unusually Payment adjustment for cases with unusually high costshigh costs

6.6. Other adjustments at hospital level – not included Other adjustments at hospital level – not included

MethodMethod

A separate document detailing payment calculation A separate document detailing payment calculation available from authors>available from authors>

Example: Basic operating payment:Example: Basic operating payment:

4157 for large MSAs BASE_O = x DRG_RW x (.29*So + .71*AWI) 4091 for other MSA and rural DRG_RW: relative weight for the DRG designated for the claim Large MSAs: as designated in the CMS Area Wage Index file So: 1.0 except higher amounts in Alaska or Hawaii, in IMPACT file AWI: Area Wage Index

MethodMethod

Calculating Medicare PPS payment Calculating Medicare PPS payment for AEsfor AEs::– Step 1: Step 1:

Use 3M DRG Grouper to assign DRGUse 3M DRG Grouper to assign DRG Calculate paymentCalculate payment

– Step 2:Step 2: Remove ICD-9-CM codes indicating AEsRemove ICD-9-CM codes indicating AEs

– Step 3:Step 3: Re-assign DRGRe-assign DRG Re-calculate paymentRe-calculate payment

– Step 4: Step 4: Changes in DRGsChanges in DRGs Changes in payment & payment componentsChanges in payment & payment components

ResultResult

Table 1. Adverse Events During Hospitalization in Medicare Beneficiaries Aged 65 or Over

Type of Events

Number of events in Sample

National Estimates (SE)

Incidence per 1,000

discharges* (what is in ( )

Decubitus Ulcer 34,028 165,124(5980) 33.95(0.94) Iatrogenic Pneumothorax 2,462 11,879(474) 1.09(0.03)

Postoperative Hemorrhage and Hemotoma 1,595 7,657(366) 2.43(0.08)

Postoperative Pulmonary Embolism and Deep Vein Thrombosis 7,705 37,234(1884) 11.88(0.43) Postoperative Sepsis 1,397 6,682(376) 13.56(0.62)

* The denominators vary depending on inclusion and exclusion criteria.

ResultResult

Table 2. Changes in DRGs After Removing ICD-9-CM codes indicating Adverse Events Number of Comorbidities Mortality (%)

Type of Events

Cases changed DRG (%)

DRG Changed

DRG Unchanged

DRG Changed

DRG Unchanged

Decubitus Ulcer 2.38 1.75 2.89 0.03 0.13 Iatrogenic Pneumothorax 2.11 1.04 1.45 0.02 0.20

Postoperative Hemorrhage and Hemotoma 10.56 1.25 2.13 0.02 0.09

Postoperative Pulmonary Embolism and Deep Vein Thrombosis 3.71 1.38 2.27 0.02 0.13 Postoperative Sepsis 0.79 1.18 2.29 0.00 0.30

ResultResult

Table 3. Medicare Payment for Adverse Events: Average per Case and National Total

Type of Events

Average payment including event ($)

Average payment excluding event ($)

Average extra payment for event ($)

Cases changed payment on removing event (%)

National total Extra Medicare payment for event ($ in million)*

Decubitus Ulcer 15,958(148) 15,223(144) 735(9) 20 125.0(9.4) Iatrogenic Pneumothorax 20,629(625) 19,260(597) 1,369(57) 24 16.4(1.2)

Postoperative Hemorrhage and Hemotoma 22,682(712) 20,412(665) 2,292(96) 37 17.5(1.3) Postoperative Pulmonary Embolism and Deep Vein Thrombosis 27,420(383) 24,899(362) 2,520(45) 35 95.0(6.6) Postoperative Sepsis 44,884(1,300) 36,003(1,142) 8,881(295) 52 59.2(4.7)

ResultResult

Table 4. Components of Medicare Payment for Adverse Events

Type of Event

Basic Operating payment (% extra)

Basic capital payment (% extra)

Indirect Medical Education Allowance (% extra)

Allowance for Having Disproportionate share of Low-Income Patients (% extra)

Outlier Payment for Cases with Unusually High Cost (% extra)

Extra payment as percentage of total payment (%)

Extra payment due to outlier payment adjustment (%)

Decubitus Ulcer 8,894(0.60) 852(0.59) 720(0.43) 1,111(0.54) 4,382(15.26) 4.61 90.02

Iatrogenic Pneumothorax 1,1977(0.71)

1,147(0.70) 943(0.64) 1,116(0.54) 5,445(23.20) 6.64 92.26

Postoperative Hemorrhage and Hemotoma 12,939(2.50)

1,240(2.50) 1,057(1.99) 1,039(2.31) 6,407(29.20) 10.01 82.38

Postoperative Pulmonary Embolism and Deep Vein Thrombosis 14,647(1.11)

1,405(1.13) 15,00(0.87) 1,321(0.91) 8,547(27.11) 9.19 91.95

Postoperative Sepsis 20,972(0.19)

2,016(0.20) 2,059(0.15) 1,724(0.12) 18,114(48.35) 19.62 99.44 Component payment in dollars; % extra refers to extra payment as percentage of total payment.

LimitationLimitation

Flaws of administrative data in patient safety Flaws of administrative data in patient safety assessmentassessment– IncompletenessIncompleteness

– Coding errors – intentional omission, DRG creepingCoding errors – intentional omission, DRG creeping

– clinical validity, reliabilityclinical validity, reliability

– Payment calculation not meant to be exact!Payment calculation not meant to be exact!

Conclusion & ImplicationConclusion & Implication

Clear business case for Clear business case for MedicareMedicare to improve to improve patient safety:patient safety:– Annual Medicare payment for the 5 types of AEs Annual Medicare payment for the 5 types of AEs

totals $314 million, accounting for totals $314 million, accounting for 0.27%0.27% of total of total Medicare hospital spending of $117 billion in 2002Medicare hospital spending of $117 billion in 2002

– Caveat: this estimates assume all Medicare 65+ Caveat: this estimates assume all Medicare 65+ patients were under PPS. Actually 15% were in patients were under PPS. Actually 15% were in Medicare managed care.Medicare managed care.

Conclusion & ImplicationConclusion & Implication

Clear business case for Clear business case for hospitalshospitals to improve to improve patient safety:patient safety:– Hospitals get no additional payment under PPS in Hospitals get no additional payment under PPS in

48% (postoperative sepsis) to 80% (decubitus ulcer) 48% (postoperative sepsis) to 80% (decubitus ulcer) of the cases when adverse events occurof the cases when adverse events occur

– Based on the payment estimates, excess charges Based on the payment estimates, excess charges estimated by Zhan and Miller estimated by Zhan and Miller (JAMA, 2003),(JAMA, 2003), and and average cost-to-charge ratio (0.45 in 2002), average cost-to-charge ratio (0.45 in 2002), hospitals absorb 85%, 82%, 76%, 74%, and 66% hospitals absorb 85%, 82%, 76%, 74%, and 66% respectively of the extra costsrespectively of the extra costs for the five types of for the five types of AEs. AEs.

Conclusion & ImplicationConclusion & Implication

Clear business case for Clear business case for hospitalshospitals to improve to improve patient safety:patient safety:– for an average hospital with for an average hospital with 40% of discharges of 40% of discharges of

MedicareMedicare patients aged 65 or over in 2002 patients aged 65 or over in 2002

– If the hospital reduces its number of decubitus ulcer If the hospital reduces its number of decubitus ulcer from the from the 75th percentile75th percentile of 46 cases of 46 cases to the to the 25th 25th percentilepercentile of 4 cases of 4 cases, it would , it would save $205,800 a year save $205,800 a year in uncompensated costsin uncompensated costs in treating decubitus ulcer in treating decubitus ulcer and also and also save Medicare $30,870save Medicare $30,870 in payment in payment

Conclusion & ImplicationConclusion & Implication

Inform Medicare payment policies:Inform Medicare payment policies:– Support MedPAC recommendation to Support MedPAC recommendation to require require

identifying whether a diagnosis present at admissionidentifying whether a diagnosis present at admission

– Current P4P include selected quality measures. Current P4P include selected quality measures. How about safety measures too?How about safety measures too?

– MedPAC suggest 1% set-aside. How about $59 MedPAC suggest 1% set-aside. How about $59 million or portion of it set-aside for reducing post-million or portion of it set-aside for reducing post-operative sepsis, for example?operative sepsis, for example?