By Christopher Guadagnino, Ph.D.

Published March 2008

PB: The Department of Public Welfare (DPW) has issued a bulletin that clarifies the definition of medical necessity. The Medicaid program only pays for medically necessary services and this new bulletin clarifies that preventable serious adverse events are not medically necessary and therefore, for inpatient services at acute general hospitals, these events will not be paid for under the Medicaid fee-for-service program. The policy went into effect the first of the year. With Medicaid, you have 90 days to get your claims in, so they won’t start looking retrospectively at claims until the end of March.

PB: The policy defines preventable serious adverse events as those that could have been anticipated and prepared for, but that occurred because of an error or system failure at the hospital. It defines serious as an event resulting in death or loss of body parts, disability or loss of bodily function lasting more than seven days or still present at the time of discharge. This policy says DPW will be using the criteria – an event must be preventable, must have been within control of the hospital, must occur during an inpatient stay, and result in significant harm. The list that’s attached to the policy is a list of events and codes associated with those events for which DPW will be reviewing claims more carefully. The medical director for DPW indicated that they will be more carefully reviewing about 150 to 200 claims per year under the Medicaid fee-for-service system to see if events related to those codes were preventable.

DPW is looking at certain complications on a retrospective basis – some of which are preventable and some of which are not. If a preventable and serious complicating factor was not present on admission and becomes present on discharge, that complication will not result in a higher payment. DPW has chosen to use the National Quality Forum’s list of serious reportable events as an initial screen, and then they’re going to ask for medical records and look at whether the event was preventable, within the control of the hospital and serious enough. They will then deny an additional payment. For instance, if it was a wrong surgery, there would be no payment. But if it was an event that occurred and caused additional length-of-stay, it will be the additional payment that Medicaid will not pay. Surgery performed on the wrong body part or the wrong patient, leaving a foreign object in the patient after surgery, patient death or serious disability because of a medication error or because of improper use of a device – those would be some examples. If a person was having an appendectomy and the surgical procedure was fine, except for an unintended object left in the patient – the initial surgery you might receive payment for, but you would not receive payment for a second surgery or a longer length-of-stay associated with the retention of a foreign object. DPW’s policy clearly states that they’re going to look case-by-case because they have to ascertain what part of the hospital stay was related to the event, and whether the event caused additional cost to the Medicaid program.

PB: Patient Safety Authority requires the reporting of serious events, whether they were preventable or not, and its definition of serious event might not necessarily change the length-of-stay or cost. So, it’s different definitions. Secondly, Act 13 of 2002 provides that reporting to the Patient Safety Authority is confidential. While they receive some patient demographic information, they don’t get payer status, or the actual patient’s name. The Patient Safety Authority’s reporting was never intended to be used to effectuate a reimbursement policy; it is for reporting, learning, evaluating and improving.

PB: We can’t tell, prospectively, because it will require DPW to do some medical record review. After a year they should be able to say that, because of this policy, they did not pay X amount. You simply cannot tell by the use of certain codes that the event was preventable or not, and even whether the event occurred in a hospital or not. So, one of the challenges in Pennsylvania is operationalizing the policy so that we can assess what it saved or what improved as a result of its implementation. Apparently in their claims database, DPW did some preliminary runs using the list of codes that they attached to the policy and suggested that it would identify somewhere between 150 and 200 events per year that they would be more carefully reviewing and that potentially would result in a change in reimbursement.

PB: As part of Prescription for Pennsylvania last year, the governor called for such a policy. The Department of Public Welfare drafted a bulletin and, over a period of several months, our guiding principle was that it needed to be a reasonable policy, it needed to be clinically sound and it needed to be applied fairly. After we reached general parameters on that, operationalizing it for both the state and the hospitals took a little bit of time because, even though it is a small number of events, we did not want the administration of the policy either on the department’s part or the hospital’s part to cost more than it was potentially going to save. DPW is committed to evaluating it and, after a year, they also want to look at how they might apply the preventable serious adverse event policy to other types of providers, such as psychiatric and rehab hospitals, physicians and ambulatory surgical centers.

PB: That is hard to assess. We think that, if they use the algorithms for the claims, ask for the medical records in a reasonable time period, and conduct their reviews in a reasonable time period, that it should be minimal. As it is implemented this year, obviously we are going to be looking at whether there are unpredicted costs or whether the process is too cumbersome, and then we’ll talk again with the department about that.

PB: Obviously, Medicare has taken one approach to this issue, our state Medicaid program is taking an approach, and we know Blue Cross plans in our state and other states are interested in taking an approach. I don’t think the concern is as much about addition of events as having an efficacious policy that all payers would move to in a similar kind of way. But since we’re very early in the learning curve, we’re not there yet to know which might be the best way, or if the different ways are actually the best ways for those payers.

PND: Do you think DPW’s new policy is likely to change what hospitals do to prevent serious adverse events?
PB: I don’t think this policy will change the commitment of hospitals to provide the most cost-effective, quality and safe care. I think it’s just another part of the process that may cause you to look a little differently at certain types of care or systems of care. Hospitals are using data internally to constantly look at where they need to focus on improvement, and how they maintain high standards of safety. Obviously, if a preventable serious adverse event occurs and there are costs associated with it, that’s an incentive to try and improve your care because you will be providing some services for which you will not be reimbursed. It’s a small number, but when you get reimbursement pressures from Medicare, Medicaid and commercial insurers, being as cost-effective as you can is going to be important.

The Medicaid program has improvement incentives for its managed care organizations, and also there have been quality reimbursement incentives for hospitals receiving inpatient disproportionate share payments – which are typically larger hospitals that serve Medicaid or smaller hospitals that have high percentages of Medicaid – for meeting certain benchmarks around conditions such as asthma or congestive heart failure. So, the Department of Public Welfare started with incentives two or three years ago and now is taking this next logical step of rewarding achievement by not reimbursing preventable serious adverse events.

PB: Because hospitals are responsible for the quality assurance and patient safety of all patients who enter. Sometimes the occurrence of a complication can result in a higher payment to a hospital, and so if a complication that meets the test of one of these events occurs, DPW could withhold that additional payment from the hospital. While this policy is just about the hospital payment, I think DPW wants to have some additional conversation on how to move the policy beyond hospitals and look at physician fees, which are separate from hospital fees and tend to be flat fees or per-case.

PB: I don’t necessarily have a good answer to that. One would have to talk to specific hospitals about how they have effectively engaged their staff in quality and safety improvement, and how they work both with their employees – such as nursing, pharmacist, respiratory therapist – and how they work with independent physician practitioners. I don’t know that the hospitals will do something specific in terms of incentives vis-a-vis this DWP policy. I think the issue is broader as hospitals are looking to improve surgical care, reduce infection and prevent pressure ulcers in elderly patients, and I think they have a lot of creative incentives for employees and physicians.

PB: I think hospitals have quality assurance and patient safety requirements that are part of their credentialing process and I don’t think this policy by DPW will change those.

PB: I think most hospitals are reviewing and taking steps on their end. DPW is planning to do an educational program to make sure hospitals understand the policy. That may be something hospitals think about but I’m not aware that that’s where any hospitals are starting from.