Self-funded employers should adopt a Medicare Policy (MyHealthGuide Newsletter)

MyHealthGuide Source: Todd Leeuwenburgh, Reprinted from the July 2008 newsletter of the Employer's Guide to Self-Insuring Health Benefits, published by Thompson Publishing Group, copyright 2008.

Self-funded employers, TPAs, PPOs and others in the self-funded community should follow Medicare’s policies not to pay for treatment to fix errors by hospitals and health care facilities.

Improving Patient Safety Beyond Not Paying for Errors

As purchasers, payers, and provider contract negotiators, members of the self-funded community have the leverage to establish policies that refuse to pay for medical errors while helping providers develop quality and reporting mechanisms. Insurers and employer groups suggest adding no-pay-for-preventable-errors clauses to contracts and using claims data analysis to uncover unnecessary complications. Non-penalty approaches include garnering provider input on no-pay policies, participating in hospital boards to push a quality agenda, and helping design and even fund hospital quality monitoring and improvement.

Because preventable errors and injuries in health care facilities can cause longer hospital stays, lost productivity and higher health care costs, payers are laying out incentives for quality care and disincentives for wasteful care and harmful events.

One approach is refusing to pay for care that injured a patient and for preventable complications: If a provider is found to have caused a preventable error, the reasoning goes, the payer should not be billed to fix it. Self-funded employers pay health claims, and as fiduciaries, they can tailor their plans to exclude this kind of improper care, Helen Darling, president and CEO of the National Business Group on Health (NBGH), says.

Start No-Pay Policy with 'Never Events'

Such no-pay policies began with egregious "never events" (events that should never occur, such as surgery on the wrong body part, and medication or device mix-ups) and expanded to include hospital-acquired conditions and injuries, such as surgical site infections, bloodstream infections, pressure ulcers and ventilator-associated pneumonia.

Identifying preventable hospital errors can be done using claims analysis, but denying payment for them requires pinning blame on facilities and people. Sources say a few controversial denials might create an adversarial relationship and stifle openness.

Incentives for Quality

Accordingly, payers and employers are pursuing incentives that develop institutional quality based on constructive, influence-building approaches. Examples include:

1.      Employer participation in aggressive institutional quality improvement programs (actively supporting quality management and prevention at hospitals)
2.       Business funding for hospital information technology (such as hospital adverse event reporting systems) and 
3.       A center of excellence approach, under which employers encourage plan members to go to facilities that demonstrate excellence and meet other criteria for high-risk procedures.

If Poor Care Pays More, Why Stop?

The root of the problem, according to Bruce Kelley, a senior health care consultant with Watson Wyatt in Minneapolis, is that "a hospital can create an error — then throw huge resources at it with the expectation that the payer will fix it at its own expense."

Take hospital-acquired infections as an example of one type of medical error. Ironically, eliminating infections and follow-up care for complications can make hospitals less profitable. For example, after instituting a system that eliminated many hospital-acquired infections, executives at Intermountain Health Care (IHC), the Salt Lake City-based health system, noticed that the lost revenue from curing those infections was taking a serious bite out of the bottom line. Reflecting on this experience, Brent James, IHC’s executive director for health care delivery research, told the Health Care Blog:

Clinical quality improvement is a fast way to the poor house if you haven’t figured out a structured way to harvest back some of those savings …

James went on to explain why facilities need employer and insurer incentives to reduce complications and infections.

… So we figured out how we could, at least for commercial purchasers, begin to contract on the basis of our quality improvement efforts and get some of the savings back to make this thing a viable enterprise. (See http://www.thehealthcareblog.com/the_health_care_blog/2007/01/matthew_holt_th.html. )

Realign Incentives in Contracts

In addition to self-funded employers and TPAs, PPOs can be a key to realigning incentives and to making it worth hospitals’ while to improve quality and eliminate medical errors, Andrew Webber, president and CEO of the National Business Coalition on Health, says:

"[Quality improvements will] happen if we get the incentives right. Incentives drive behavior. If we create business imperative for higher quality at every level in health care system we could drive quality," Webber advises employers to direct their TPAs and PPOs to revise contracts with providers to include policies not to pay for "never events."

"An understanding of clinical quality measurements, the ability to read quality scorecards and spot red flags, and an appreciation of quality of care as a corporate governance issue are critical to an effective board," the group says in a new fact sheet.  

Participate in Hospital Governance 

Employers can make two contributions as hospital board members:

1.       Require that the hospital board spend more than 25% of its meeting time on quality and safety issues; and
2.       As a full board, conduct a conversation with at least one patient, or family member of a patient, who sustained serious harm at their institution within the last year.

Deny Everything vs. Self-Disclosure

Employers, TPAs, PPOs should insist on hospital policies that react properly to errors. That includes admitting errors were made, communicating the errors to patients and families, accepting no pay for avoidable hospital-based errors and taking corrective action to prevent such errors going forward.


Employers and payers are fighting an uphill battle against many facilities’ "deny and litigate" paradigms. According to Eve Shapiro, writing for the Robert Wood Johnson Foundation, some hospitals deny even the most egregious blunders, like wrong-site surgery.  In Shapiro’s paper, one hospital executive describes his attempts at instituting transparency on never events. What made this a four-year effort instead of something much shorter was fear, according to Timothy McDonald, M.D., J.D., Associate Professor in the Department of Anesthesiology. "The hospital’s defense bar and claims management lawyers resisted for years," McDonald says, "advising the hospital and its physicians to ‘deny, deny, deny,’ even in such cases as wrong-site surgery."

Employers, TPAs, PPOs, others can derive disclosure policies by verifying that each hospital has:

1.       Attorneys who won’t systematically deny verified errors
2.       Full-disclosure policies and a track record of following them
3.       A commitment to learning to improve care from medical errors, and
4.       Executives who are committed to appropriate self-disclosure.  

Potential Policy Language on ‘Never Events’

The Leapfrog Group (which represents major purchasers of health care to drive a quality agenda) developed the following “to-do list” for hospitals if a “never event” occurs within their facility. The group says hospital adherence to the following policy should be rewarded by payers and employers.

• We will apologize to the patient and/or family affected by the never event.
• We will report the event to at least one of the following agencies: Joint Commission on Accreditation of Healthcare Organizations (JCAHO), as part of its Sentinel Events policy; state reporting program for medical errors; or a Patient Safety Organization.
• We agree to perform a root cause analysis, consistent with instructions from the chosen reporting agency.
• We will waive all costs directly related to a serious reportable adverse event.

Also, the National Business Group on Health (NBGH) created a tool kit to help employers include language in contracts with hospitals that would waive fees associated with medical care that harms patients or is necessary because of a medical error. To cement a medical-errors policy in place, NBGH says employers should:

• Communicate to plans and providers the urgent need for a safe, patient-centric care system.
• Insist on transparency to identify highest quality and safest hospitals, then the most efficient.
• Deliver information to employees on highest quality, safest providers and facilities.
• Actively work with executives on hospital boards to promote “board on board” governance initiative to create a permanent culture of safety within hospitals.
• Use contracting requirements and “preferred” and “center of excellence” status to promote patient safety measures and policies.
• Expect hospitals to refrain from billing and hold patients harmless for never events and other costs incurred due to medical errors.

To learn more, go to www.businessgrouphealth.org/benefitstopics/topics/0063.cfm.

Use New Modes of Detection

TPAs and Fraud & Abuse systems should detect error-related care by auditing hospital claims. For example, certain procedure codes in themselves indicate errors, and those cases can be scrutinized, such as a peritoneum rupture in a dialysis patient, which could be an indicator that a catheter punctured the patient.

The claim should be flagged to look into the causes. If it was avoidable, then many plans would not pay for it. Kelley’s list of procedures that are prone to costly complications and errors include

• transplants,
• gastric bypass,
• dialysis;
• hip replacement,
• back, neck and
• joint procedures (particularly spinal fusion);
• implanted devices (such as insulin pumps and heart devices); and
• going against medical advice to over-treat an ailment.

Achieving the Right Reaction by Payers

Transparency is a key to getting rid of such events. But if plan reactions are too strong, then physicians might quit reporting them, Kelley says. "There’s a balance between wanting physicians to keep reporting for continuous improvement and wanting to penalize them for the errors."

Legal liability and malpractice has been an obstacle to greater transparency and better quality management. Because of that, plans have been less aggressive than they could be about calling errors avoidable, he says.

Medicare's Required Reporting on Secondary Conditions

Medicare again is leading the way in pinning the avoidable label on errors. It now requires hospitals to report whether a patient had an infection — or any secondary condition — on admission, which is essential to finding out which infections and conditions were acquired at the hospital. And it proposed expanding by nine the list of "do-not-pay" conditions (see sidebar), to many providers’ chagrin.

Starting with a Non-penalty Approach

Employers can start with a non-penalty approach that consists of feeding errors back to providers, Kelley advises; and when it is a significant problem, sitting down with hospital execs and "doing an honest litany of what happened."  As time progresses, employers can participate with the institution as lessons are learned and changes are made to prevent repeat occurrences.

One big corporation teamed up with a local hospital to implement a Six Sigma (a data-driven approach designed to eliminate defects) process to focus on errors.

For instance, the hospital agreed to put a white board in each surgical room. The board would list every tool, sponge and other item to be used in the procedure. Before patients are closed up, the surgeons would go through the checklist to verify that nothing on the board was left in the patient. The hospital also implemented protocol of putting an "x" on surgery site before the procedure, and verifying with the patient, to prevent wrong-site  surgeries, Kelley says.

Centers of Excellence

Many large employers have said they might put hospitals out of network if they show unacceptable Medicare quality data or do not engage in Leapfrog Group reporting of never events.

It is effective to designate best performers as centers of excellence, then to use a "tiered network" cost-sharing incentive to direct patients to those facilities, Kelly says.

An example of a rating factor could be death rates for transplants and heart surgeries. The plan would offer members lower cost sharing to go to the best performing facilities, and charge higher cost-shares to dissuade patients from going to lower-performing facilities for those procedures.

Unfortunately, so many facilities want to do profitable procedures, that no one facility can do the volume of procedures it takes to become a center of excellence, Kelley says. And tiered networks "aren’t taking off," he adds.

Medicare Proposes to Expand Non-reimbursable List

On April 14, CMS proposed expanding the list of conditions that would not be reimbursed if acquired at the hospital. Further, hospitals would need to report on discharge claims to CMS if the selected conditions were present when a patient was first admitted. The agency is seeking public comment on whether the conditions should be finalized later this year. The list in the proposed rule includes:

• Surgical site infections following certain elective procedures
• Legionnaires’ disease (a type of pneumonia caused by a specific bacterium)
• Extreme blood sugar derangement
• Iatrogenic pneumothorax (collapse of the lung)
• Delirium
• Ventilator-associated pneumonia
• Deep vein thrombosis/pulmonary embolism (formation/movement of a blood clot)
• Staphylococcus aureus septicemia (bloodstream infection)

Clostridium difficile associated disease (a bacterium that causes severe diarrhea and more serious intestinal conditions such as colitis)