Barring further complications: starting next year, Medicare no longer will cover certain hospital-acquired conditions. Will private plans follow suit?

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In 2005, Henry McCown underwent an emergency appendectomy via minimally invasive laparoscopic surgery.

Everything seemed to go as planned for McCown, a recently retired and physically fit 70-year-old from Austin, Texas. But several days after leaving the hospital, he developed serious pain and swelling on his left side. Two CT scans revealed that the area near one of the laparoscopic insertion points had become infected with necrotizing fasciitis, the so-called flesh-eating bacteria.

After being rushed back into surgery, the infected tissue was removed and McCown was left with a large open wound on his side. He faced another surgical procedure to remove any remaining infected tissue.

Treating the hospital-acquired infection racked up more than $64,000 in additional medical bills for Medicare and his private supplemental insurance plan, McCown said.

The Centers for Disease Control and Prevention estimates that 1.7 million U.S. residents are infected in hospitals each year. The benchmark 1999 Institute of Medicine's To Err Is Human report, and, subsequent research, estimates that medical errors claim the lives of up to 98,000 patients each year, and are a leading cause of accidental death in the United States.

Beginning next year. Medicare, in an effort to reduce avoidable injury and infection rates, will no longer reimburse hospitals for several preventable errors that occur while patients are in their care. The hope is that the quality of care will improve and save millions of dollars and thousands of lives. Some private insurers may follow Medicare's lead.

Saying No

Under the Centers for Medicare and Medicaid Services' new rule, beginning in October 2008 Medicare will no longer pay extra for eight specific conditions that could be avoided if hospitals follow preventive procedures, including:

* Retrieving surgical tools or sponges left in a patient after an initial operation

* Extra care given to patients harmed by incompatible blood or air embolisms (bubbles in the bloodstream)

* Treating bedsores developed in the hospital

* Injuries caused by falls in the hospital

* Infections caused by prolonged use of catheters in the bladder or blood vessels

* A surgical site infection after coronary artery bypass surgery

Medicare typically pays more to hospitals for treating a surgical patient whose illness is complicated by an infection than it would if no infection was present.

There's speculation that state Medicaid programs may adopt the changes. Pennsylvania's Medicaid program has already started to implement pay-for-performance as it starts negotiating its medical assistance contracts.

Crunch Time

The impact of the changes will be widespread. Hospitals will begin applying safety procedures to improve care, said Dr. Paul Gluck, who chairs the board of the independent, not-for-profit National Patient Safety Foundation.

"Hospitals are already taking these issues seriously and most submit to voluntary accreditation requirements through The Joint Commission," said Mark El-Tawil, president of Health Net's senior products division. "The threat of not being paid will escalate the importance of the issue and their effort."

But Nancy Foster, vice president of patient safety and quality for the American Hospital Association, said hospitals are concerned because in theft experience, not every complication is always preventable. The AHA board supports a payment policy that "fosters and supports a provision of better quality and safer care," she said.

To ensure reimbursement, hospitals will be required to conduct more tests to prove that Medicare beneficiaries developed conditions before admission, said Foster. "Most states don't require hospital records to indicate whether patients develop conditions before or after admission," she said.

Consumers will benefit, according to Christy Bell, senior vice president of health care management and president and CEO of Horizon Blue Cross and Blue Shield of New Jersey's HMO, Horizon Healthcare. "It's going to create awareness, transparency and focus, and force attention where it's long overdue," Bell said.

Follow the Leader

Some employer and consumer groups hope private payers follow suit.

"Medicare is such a trendsetter that once this program gets implemented, private insurers are likely to follow to some degree," said Suzanne Delbanco, CEO of the Leapfrog Group, an organization driving quality and safety improvements in health care.

Some carriers' contracts soon may reflect Medicare's new rule. Sierra Health Services plans to evaluate how it can amend its contracts to hold hospitals more accountable for preventable medical errors. "Our contracts generally allow us to follow Medicare guidelines," said Darren Sivertsen, senior vice president of operations.

Aetna also supports Medicare's efforts. "We already publicly support the Leapfrog Group's initiatives," said Dr. Charles Cutler, Aetna's chief medical director for national accounts. "We're considering having the same wording in our hospital contracts, so that would put us in a similar situation with Medicare."

He doesn't view Medicare's new rule as a financial risk to hospitals, but rather a way to get their attention to focus on preventing "never events"--mishaps that should never occur in a hospital.

Cutler said the mechanism for implementing the change is easier for Medicare. "They pay hospitals on (diagnosis-related groups), so they can elect not to pay more complex DRGs ff they're related to 'never events'," he said. "For health plans, many contracts are based on per-diem or discounted fee-for-service, which makes it more complex."

Aetna also plans to reward hospitals through programs such as pay-for-performance if they comply with the changes. "Other health plans will likely do the same," he said.

Many plans already recognize hospitals' quality and safety efforts. This year, Horizon made its first payout of nearly $6 million to New Jersey hospitals to reward progress in a number of quality areas.

Horizon Healthcare's Bell said, "On the positive side, this is a bold program that we want to emulate as much as possible. The challenging side will be to the extent a hospital feels threatened they'll lose revenue because they can't look to Medicare, Medicaid, the uninsured population or charity care."

What's left, he said, are commercial insurers, "and there will be contentious negotiations over making up the shortfall. We have to be careful that we aren't suddenly made the financial backstop by hospitals that haven't developed quality initiatives."

Saving Money and Lives

Medicare claims its new rule will save about $20 million a year in direct payments, according to Lisa McGiffert, director of Consumers Union's Stop Hospital Infections campaign. "But we think that's a serious underestimate on the savings," she said.

"Even if you prevent 10 infections in every hospital across the country, you would save a significant amount to the Medicare system," she said. "Medicare's estimates just include direct costs and don't include other savings from preventing infections, such as medications, doctor care, rehab services, home health care and follow-up."

Health plans are trying to determine the potential financial savings for the industry. "Savings will include such things as the number of unnecessary days, and number of 'never events' that will be avoided or won't be paid for. It's a small number--probably 1% or less," said Bell.

But even if cost savings are nominal, said Health Net's El-Tawil, "it's worth undertaking these kinds of initiatives to push the envelope and challenge our hospitals to do an even better job with quality."

Finding a Solution

Consumer advocates such as Consumers Union hail Medicare's new move as a way to help prevent hospitals from shifting costs of preventable errors to patients or health plans.

"Medicare is the biggest payer in the country, and the majority of people who get hospital-acquired infections are Medicare patients," said CU's McGiffert. "It's a powerful use of Medicare's clout to say in these very specific situations when a condition is acquired in the hospital that they won't pay extra for hospitals if they caused the harm."

The change caused concern, McGiffert said. "Consumers were concerned they'd be billed for the amount that Medicare refuses to pay and they wanted to ensure that the rule doesn't discriminate against sicker patients." She said Medicare includes those protections in its rule, and hopes the new rule will cut Medicare's estimated $400 billion annual costs for health care.

But not everyone is as optimistic.

"The current system of reimbursement doesn't always foster or reward the best behaviors for safety and quality," said the patient safety foundation's Gluck. "What's been floated by Congress in the past is pay-for-performance that rewards for exemplary care. This is the flip side of the coin. Instead, we'll penalize behaviors where outcomes result in things that weren't done right. The same issue applies to either approach--are they measuring the things that really make a difference in safety?"

One of the best drivers of change is economic, he said. "So, to reward for good behaviors or punish for bad ones makes sense in moving in the right direction. But picking the specific metrics we're measuring and saying something won't be reimbursed or you get extra money for doing XYZ is a difficult thing to do," Gluck said.

While e-prescribing technology and electronic health records are being touted as ways to help eliminate many preventable medical errors, Medicare's new change also might be part of the answer.

"This initiative is a strong supporter of greater transparency," said Bell. "It will improve outcomes, reduce errors and create accountability around institutions and medical staffs who will have to cooperate to get improved results or maintain good results."

However, "this may become an impediment to move the patient safety process that's now beginning to make traction," said Gluck. "It will depend on how hospitals and providers look at this. Will they just try to make the outcomes for the events being measured look better or will they embrace patient safety and adopt the necessary system changes to improve care across the entire institution?"

McGiffert believes Medicare should include several other prevalent infections that aren't on its no-pay list. Antibiotic-resistant bacteria, such as methicillin-resistant Staphylococcus aureus and Clostridium difficile, are frequently acquired in hospitals, and treating these potentially fatal "superbugs" also hits Medicare budgets particularly hard.

In the short term, Cutler said, Medicare's new rule likely will call more attention to preventing avoidable complications. Over the longer run, he said, "to the degree we can put mechanisms in place to avoid some of these complications, we would have the best of all possible worlds--better outcomes at lower costs."

* The Trend: Beginning in October 2008, Medicare no longer will pay extra for eight specific hospital-acquired conditions that patients develop while in hospitals.

* The Significance: The new rule is designed to spur hospitals to follow preventative procedures, reduce medical errors, improve quality and lower costs.

* What to Watch For: Some private health plans may follow Medicare's lead or even expand their own lists of nonre-imbursable hospital-acquired conditions.

Quality Over Quantity

The Leapfrog Group is making advances in improving hospital quality and patient safety by, well, leaps and bounds.

Its voluntary program mobilizes employer purchasing power to reward American health providers for improved safety, quality and customer value. Last year, Leapfrog developed a highly-used quality measure for hospitals.

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"For too long, the health-care system was paid according to quantity of care provided, as opposed to quality," said CEO Suzanne Delbanco. "Our policy asks hospitals to agree to no longer bill for care in which a serious, reportable adverse event occurs."

Aetna was the first plan to support Leap frog's activities, said Dr. Charles Cutler, chief medical director of national accounts.

"There's been a focus on patient safety since the Institute of Medicine's 1999 report was released," Cutler said. "Leapfrog's measures ask hospitals to report quality and safety data, and plans are asked to engage hospitals in reporting and publicizing the data. We've been supportive of that and publish hospital performance information on our Web site.

"We ask hospitals to voluntarily report on four criteria around 'never events'," he said. Those criteria include reporting events to the appropriate agency, such as the state or The Joint Commission; evaluating whether hospitals perform a root-cause analysis to identify why events occurred and how to prevent them; apologizing to patients and/or families; and not charging for complications.

Patient safety is weighing on consumers' minds. An American Society of Health-System Pharmacists survey showed that 56% of Americans fear complications from a medical procedure.

Learn More

Aetna Health and Life Insurance Co.

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Health Net of California Inc.

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Horizon Healthcare Services Inc.

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Sierra Health & Life Insurance Co.

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Germ Warfare By the Numbers:

100,000

Number of Americans per year whose deaths are attributed to hospital-acquired infections

$30 billion

Annual cost of treating hospital-acquired infections

$37.6 billion

Annual cost of medical errors

$17 billion

Annual costs associated with preventable errors

32

Percent of hospital-acquired ailments attributed to urinary tract infections

87

Percent of U.S. hospitals without recommended policies in place to prevent the most common hospital-acquired infections

19

Number of states currently with laws that require hospitals to disclose their infection rates

Sources: Consumer Union, Institute of Medicine, CDC, Leapfrog Group