Hospitals brace for 'errors' rule: Financial impact of new Medicare policy still uncertain

October 20, 2008

Medicare's new rule to refuse to pay hospitals for "preventable errors" hasn't caused hospital administrators to lose sleep about lost revenue.

But they do worry that the new rule, which went into effect Oct. 1, could increase the number of costly malpractice lawsuits filed against their hospitals.

It's not clear yet what the financial impact of Medicare's new "no-pay" rule will be. But companies that make their money supplying hospitals with equipment and services have wasted no time using the new Medicare rule in their sales pitches. And at least one company, Batesville-based Hill-Rom Holdings, says it's having success doing so.

The federal Medicare program no longer will pay for hospitals to correct 11 different preventable errors, which are also called "never events." Medicare's list includes surgeries on the wrong body part, sponges left inside surgery patients, patient falls, and severe bedsores patients develop during hospital stays.

Medicare announced the rule a year before it took effect. And since then, most major health insurers, such as Indianapolis-based WellPoint Inc., have followed suit. Some have even pushed to exclude payment for as many as 28 "preventable errors."

Patient safety

Both insurers and hospitals say the policy promotes patient safety. The potential cost savings is small. Medicare expects its new policy will shave just 0.02 percent off its annual spending for medical services, or $21 million.

The numbers are low because hospitals weren't typically billing for these mistakes, anyway, said Ed Abel, director of health care at Blue & Co., an accounting firm in Indianapolis.

That's the case at St. Vincent Health in Indianapolis, according to its executives. The Catholic hospital system has not knowingly billed patients for any obvious mistake, as surgery on the wrong body part would be, said Kyle De Fur, president of St. Vincent's Indianapolis hospital on West 86th Street.

But other conditions on Medicare's list are not so obvious. For example, a patient could develop a severe bedsore, or pressure ulcer, while lying in a hospital bed. But the patient could also develop a bedsore while lying in bed at home, then come to the hospital for treatment.

Under its new policy, Medicare won't pay for treatment of the bedsore acquired in the hospital, but will pay to treat a bedsore the patient had before checking in to the hospital.

Because of that distinction, De Fur said, St. Vincent's medical staff is trying to be even more diligent about recording notes about any bedsores a patient has when he or she checks in.

"We're working very hard on the front end to make sure we're documenting when they come in," De Fur said.

St. Vincent has already been focusing on reducing severe bedsores in patients and has eliminated them in many of its 17 hospitals, said Dr. Jon Rahman, St. Vincent's chief medical officer.

In 2007, St. Vincent hospitals reported five preventable errors, according to data collected by the Indiana State Department of Health, which tracks 27 kinds of events. Hospital officials said they have not estimated how much money they will lose under Medicare's new rule.

In all, Indiana's hospitals reported 101 preventable errors in 2007.

What's disconcerting about the Medicare rule is that, if the federal agency that runs the program-the Centers for Medicare and Medicaid Services-determines a hospital committed a preventable error, it's prime evidence in a malpractice lawsuit, said Kevin Woodhouse, chairman of the health care practice at the Ice Miller law firm in Indianapolis.

"If CMS takes the position that it's a 'never event,' then it increases the likelihood" of a lawsuit, Woodhouse said. "That raises the stakes for hospitals."

A September study by the insurer Aon Corp. found that one out of every six malpractice claims against health care facilities stemmed from just four of the "never events" on Medicare's list: hospitalacquired infections, patient injuries, pressure ulcers and foreign objects left in a patient after surgery.

The most expensive of those claims were for pressure ulcers, averaging $145,000 each, Aon concluded. The company said it would monitor if liability costs from "never events" rise now that Medicare's new rule has taken effect.

Cost potential gains attention

Melissa Fitzpatrick said the potential cost of never events has raised their status from being a nursing issue to a corporatesuite issue.

"When you start to cost out the financial implications of that pressure ulcer, you get people's attention like maybe you didn't before," said Fitzpatrick, the chief clinical officer at hospital-bed maker Hill-Rom Inc. She formerly was the chief nurse at Duke University Hospital.

"Now, [hospital administrators] really have to pay attention because it's a huge hit to their bottom line if we don't deal with this problem," she said.

Fitzpatrick never passes up a chance to make the case that Hill-Rom's people, products and services are tailored to help hospitals reduce severe bedsores, patient falls and ventilator-associated infection.

That last item isn't on Medicare's list that took effect Oct. 1. But it is on a proposed list of more "never events" for which Medicare is considering refusing payment. That list could go into effect next October.

Hill-Rom makes beds with special surfaces designed to cut down on severe bedsores, and with mechanisms that automatically turn over patients on a pre-set schedule or that alert nurses when a patient at risk of falling tries to get out of bed.

Hill-Rom also offers consulting and data management services that it says can better track and document patients' conditions when they arrive, and whether the hospital's staff gave the proper care, such as turning patients over frequently enough to prevent severe bedsores.

Medicare's rule has already contributed to double-digit growth in Hill-Rom's rentals to North American hospitals, according to Hill-Rom CEO Peter Soderburgh. Rentals grew 20 percent, he said during an Aug. 7 conference call with investors, for Hill-Rom's beds geared toward bariatric patients and those with surfaces designed to reduce severe bedsores.
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