IPPS Another "CMS Lied, Patients Died" Policy

Sent to CMS June 17, 2008

Kerry Weems
Acting Administrator
Centers for Medicare and Medicaid Services
7500 Security Boulevard
Baltimore, Maryland 21244-1850

Re: Inpatient Prospective Payment System Failed Strategy

Dear Mr. Weems:

The Inpatient Prospective Payment System (IPPS) is just another restricting revenue policy on a familiar path to failure. Hospitals are in organized chaos because they have become virtual bureaucratic subsidiaries of the Center for Medicare and Medicaid Services (CMS). The overwhelming influence of CMS policies drives hospital leadership to focus on responding to what CMS values; restricting hospital revenue. Consequently, hospitals have to recoup revenue by being patient revenue centered, new revenue stream focused and revenue-driven just like an inefficient government bureaucracy is tax revenue driven while quality of services deteriorate and costs rise. In other words, it’s the culture stupid that has been perverted by CMS policies which pay billions for medical errors rather than less for their prevention while underpaying excellence and rewarding inefficiencies.

IPPS has four major deficiencies:
1. Lacks national report card on every hospital’s historical preventable medical error count before implementation.
2. Lacks projected savings from not paying for failure.
3. Lacks prevention funds gained from projected savings.
4. Under its present design, IPPS will increase not decrease medical errors.

The following is my analysis of how restricting revenue policies created a culture of failure, and an overview of a factual, fair, fast and forward thinking strategy to give healthcare leadership the inspiration and resources to achieve the most efficient delivery of quality, universal, integrated care. This starts by paying for excellence, prevention and never failure.

Efficient Spending Trumps Patient Outcomes
CMS from inception in the words of ex-administrator Mark B. McClellan, MD has been “committed to improving the quality of patient care and to increasing the efficiency of Medicare spending.” Unfortunately, CMS focused only on efficient Medicare spending for four decades; first using cost reimbursement and then diagnosis related groups (DRGs) to restrict hospital revenue with no meaningful measurement of the policy’s impact on operational efficiencies or patient outcomes respectively.

Cost reimbursement policies lacked meaningful measurements to determine whether a cost was due to inefficiency or was an investment to improve patient and financial outcomes. Consequently hospital leadership became receptive to blaming the lack of personnel and old facilities on patient care and financial problems, rather than face the painful analysis of failing operational and clinical processes. Leaders with operational management skills have been labeled non-team players, cultural misfits, malcontents, etc. and today have a rare presence in the average hospital. Why upset the status quo’s comfort zone with the growth pains of process improvement when CMS reimbursement methodologies reward overstaffing and new construction? More staff was hired, new facilities built, the process became more chaotic, inefficiencies grew and Medicare and the rest of health care costs went higher.

With CMS policies a barrier to achieving operational efficiencies, the rails by which quality travels to achieve excellence in patient and financial outcomes, Medicare payments to hospitals reached double digit annual inflation rates. CMS theorized that if hospital revenue was restricted through price controls (DRGs), they could be coerced into adopting operations management principles to achieve a profit. But two decades of CMS policies rewarding operational inefficiencies exterminated any value hospital leadership would have for operations management, instead hospitals focused on what CMS did value, revenue restrictions.

Revenue restrictions led to cuts in nursing payrolls creating higher patient to nurse ratios increasing the probability of preventable medical errors. CMS responded to medical errors by increasing DRG payments making the lack of patient safety a new revenue stream! What Medicare was saving from price controls it was reinvesting in the growth of preventable medical errors!

Financial Survival Trumps Patient Safety
Abraham Maslow’s Hierarchy of Needs identified five basic motivational levels in human behavior. Since institutions are defined by human behavior and values, we can apply the Hierarchy of Needs to the professional behavior of hospital leadership.

The first level is financial survival which once satisfied allows leadership to focus on the safety needs of patients. CMS revenue restricting policies force hospital leadership to be in constant financial survival mode diluting leadership’s focus and resources on patient safety creating a quality chasm in our nation’s hospitals. The coercive power of restricting revenue did not inspire a behavioral renaissance in pursuing efficiencies nor will it inspire a universal effort to lower preventable medical errors. If CMS proceeds with IPPS in its present form, it will prove to be the second “CMS lied and patients died” policy. The first was implementing DRG’s with no meaningful measurement of the devastating impact on human beings which is the same pending danger of IPPS. And DRGs never inspired efficiency in operations.

I state the above because if CMS compares the 1.049 million troop deployments to 1,612 Iraq/Afghanistan war casualties from invasion through January 2005 to the IOM and HealthGrades projected preventable hospital deaths during the same period, a preventable death in the nation’s hospital zones was 1.88 to 3.7 times more probable than an expected death in the Iraq war zone. In other words, military killing zones are safer than hospital healing zones thanks to the U.S. Congress and CMS restricting revenue policies which have rewarded failure for decades creating a culture of failure in our nation’s hospitals.

P4P Trial Outcomes Scream Pay For Excellence and Prevention
We know from hospital pay-for-performance (P4P) trials that hospitals without the financial resources upfront forego quality improvement efforts that would result in P4P rewards at some future date. In October, 2008 these revenue strapped hospitals will still lack the financial resources upfront plus experience revenue cuts from select preventable medical errors. The majority of hospitals will intensify old survival behaviors, Medicare and commercial insurers will expand the no pay for medical error list and patient outcomes will continue to deteriorate costing society more than Medicare and commercial insurers will save.

Dr. McClellan professed that “reducing or eliminating payments for ‘never events’ means more resources can be directed toward preventing these events rather than paying more when they occur.” In other words, paying for prevention and not failure will reduce or eliminated preventable failure. The IPPS strategy of hope in its present design does not direct projected savings from “never events” into prevention funds as stated by Dr. McClellan. The only explanation can be that CMS is ignoring prevention funds because Medicare presently pays less for a “never event” than the cost of preventing one and IPPS is really focused on efficient Medicare spending and letting the consequences to patients be the hospital’s problem. I repeat, this is not health care reform, but it is another “CMS lied and patients died” policy.

If the focus is on patient outcomes and efficient spending then every hospital needs to be paid for prevention upfront to have the resources and incentive to pursue excellence. If a hospital fails, then there are financial consequences. These are free-market principles that do not exist in the health care delivery system because a free-market does not have a dominant competitor like CMS paying less than market prices expecting other competitors to pay the difference on top of market prices while CMS policies cultivate a tolerance for rewarding inefficiencies and preventable medical errors.

P4EPNF
The following pay for excellence and prevention and never failure (P4EPNF) program outlines how CMS can invest in prevention at a cost in the short run but achieve great savings in the long run while cutting commercial insurance costs immediately and relieving commercial insurers from the artificial inflationary impact of cost-shifting as Medicare experiences savings.

Implementing P4EPNF is based on a tangible reward for hospitals in the form of prevention funds that sends the message to hospital leadership; “The community believes you can achieve a culture of excellence if we first pay for it. But in the spirit of free-market principles, you will be penalized if you fail.”

Years 1-3 of the implementation period are full of financial rewards for those hospitals that lead the industry but these rewards dissipate the forth year with hospitals receiving payment for excellence but prevention funds are limited to the quality equilibrium factor (defined below). I anticipate that as hospitals transform from a culture of failure to one of excellence rewards will become more intangible like the sense of unlimited achievement in patient outcomes, adding value to the community’s quality of life, stabilizing Medicare and commercial premium inflation, being a major reason local businesses prosper and international businesses successfully compete in world markets, etc.

A P4EPNF program would start with a Base Year where all hospitals would be instructed to track costs and totals for every preventable medical error. The motivation for accuracy is that the first year of implementing P4EPNF would include prevention funds based on Base Year data. Under report and hospital leadership restricts their own revenue at their own peril. Plus, a hospital can not manage what leadership chooses not to measure and most hospitals are clueless to their preventable error rates. For the sake of patients and staff we need to know the impact of restricting revenue for preventable medical errors on each hospital before CMS starts restricting hospital revenue through an IPPS program. Plus, proactive leadership will want to act on the data before for implementation.

For example: Using cost data from a published article, it cost $1,410 to prevent a decubitus ulcer that Medicare pays $735 to heal even though it cost the hospital $3,539 to heal. The $2,804 difference presently gets shifted to charges paid by commercial premiums. In the Base Year Hospital A reports 1000 Medicare patients acquired a decubitus. The first year of P4EPNF, Hospital A would receive prevention funds for 1000 patients at $1,410 per patient for a total of $1.410 million. The amount would be spread over all projected Medicare admissions based on Base Year admissions data. If Hospital A repeats 1000 preventable acquired decubitus ulcers, it refunds Medicare 1000 times $1,410 per patient plus absorbs the costs for all healing. If Hospital A had a 52 percent success rate, it cost Medicare the same as if it paid $735 for 520 decubitus ulcers because the hospital refunded 48 percent of prevention funds for failing. If Hospital A achieves no preventable decubitus ulcer, Medicare will have paid $675,000 more for prevention than it would have for failure. But this is only true the first year. Plus, successful hospitals become CMS’s champions whose successes shine a light on the path to excellence for a particular or a number of preventable medical errors and will save CMS and commercial insurers billions as other hospitals follow their lead.

What P4EPNF does is change the focus from pursuing new revenue streams to recoup from revenue restricting policies to focusing on the needs of each patient to hold onto existing revenue paid in the form of prevention funds and excellence.

If CMS supports long range P4P, then these temporary rewards should not cost CMS any consternation. Have faith, these champion hospital teams are out there. They will lead their peers out of forty years of being rewarded for preventable errors and inefficiencies. CMS and commercial insurers have to have the courage to facilitate the process.

The second year prevention funds would be based on a global average (regional, state, national and specific hospital data) for second year prevention funds. For example, if hospitals in the region averaged a 52 percent drop in acquired ulcers, the state 45 percent, the country 40 percent and Hospital A zero percent (for zero improvement), Hospital A would be subject to the global average of 46 percent and preventions funds for 460 patients (46% x 1000 base year data). In the second year a hospital with a success rate less than the global average receives the global average (remember it’s about the patient and the community) as do all hospitals that exceed the global average. This penalizes hospitals that fail to improve and puts pressure on the hospital board and leadership to lead. In contrast, hospitals with successful leadership during the implementation period are rewarded. In year three, the hospital with a success rate less than the global average has its rate averaged with the global average putting further pressure on the hospital board to look for new leadership.

In the forth year, all prevention funds are based on the quality equilibrium factor. The quality equilibrium factor is based on what the most current data indicates is a reasonable amount of prevention funds necessary for a hospital to maintain zero in acquired decubitus ulcers or any other preventable error. Every preventable medical error would eventually have a quality equilibrium factor specific to the hospitals demographics based on a global formulary. The quality equilibrium factor should be evaluated annually or sooner to either lower or increase the factor. We have the technology to develop accurate quality equilibrium factors. We only lack the political will and win/win strategies to get there.

Since commercial insurers pay full price for healing a decubitus ulcer plus a Medicare cost-shifting “tax,” paying for prevention and not failure is an immediate savings for commercial insurers and should stabilize or lower premiums. As Medicare starts to realize a savings which would be defined as cost of prevention declining to less than if Medicare was still rewarding failure. Medicare can then use these savings to evolve towards paying fair market prices which “should” eliminate the need for Medicare cost shifting. This will further drop the cost of commercial premiums hopefully reversing the trend of companies dropping employee medical coverage.

The biggest savings for all insurers, including CMS, will come from the reduction of operational inefficiencies (30-40% of total hospital costs) because no hospital will be able to achieve clinical excellence without first reaching operational excellence. Remember, operational efficiencies are the rails that quality travels to reach excellence in clinical and financial outcomes. This is why investing in quality is cheaper than rewarding failure!!!

Peter Drucker identified hospitals as employing the highest percentage of knowledge workers. How can hospitals be the most quality challenged and inefficient industry with all these knowledge workers? The only other industries more quality and efficiency challenged are K-12 education and government. The common denominator for each industry is each are being rewarded for failure financed by a third party that collects taxes and premiums at will. Should we be surprised that each has tripled in cost adjusted for inflation since the 1960s. It is time for CMS and the U.S. Congress to free the number one knowledge worker industry in the world so it can pursue a culture of excellence.

If the country’s political leadership truly wants the most efficient delivery of quality, universal, integrated care then CMS needs to be the leader in paying for excellence and prevention first and then never paying for preventable failure whether in operations or clinical outcomes. We have the technology and human capital to get to this end. If CMS and the U.S. Congress have the courage and the will to implement win/win strategies; let facts trump feelings, intuition and politics; stop looking for demons in the private sector; and free the nation’s health care and business community to pursue excellence, a major transformation will occur in the cost and quality of hospital care. This can be achieved with innovative reimbursement methodologies that inspire providers to pursue excellence. It can not be achieved with another forty years of rewarding failure and/or implementing revenue restricting policies based on “intuition and feelings” hoping for a renaissance in human behavior. And to add insult to injury, states are now asking health care providers to apology for a medical error cultivated by CMS restricting revenue policies. Common sense clearly is not common inside the Beltway.

Sincerely,


R. Daniel King

War Zones Safer Than Hospital Zones

The U.S. Congress through the Center for Medicare and Medicaid Services (CMS) has been rewarding hospitals for preventable medical errors (“never-events”) since 1983 when Diagnosis Related Groups (DRGs) were introduced to inspire hospitals to become efficient. DRGs increased a hospital's payment if a patient was subjected to a never-event creating a tolerance for preventable medical errors. Two and a half decades of the U.S. Congress rewarding hospitals for never-events has created a culture of failure making hospital zones more dangerous than the war zones in Afghanistan and Iraq.

From October 7, 2001 to January 31, 2005, the U.S. Defense Department deployed 1,048,884 troops to Iraq and Afghanistan. During this period 1612 U.S. troops were killed. This calculates to a .154 percent chance of dying in these two war zones.

During this same period, approximately 113.87 million patients (excluding infants) were discharged from our nation’s hospitals. The Institute of Medicine (IOM) 1999 report estimated that 98,000 patients die annually from a preventable error. Using the IOM data, the total preventable hospital deaths from October 7, 2001 through January 31, 2005 were 325,145 for a .29 percent chance of dying in a hospital from a never-event.

HealthGrades reviewed the same data as the IOM and estimated 195,000 patients die annually from a preventable error. Utilizing HealthGrades data a total of 647,671 patients died during this period for a .57 percent chance of dying in a hospital from a never-event.

At best, a U.S hospital is 1.88 times more dangerous than the Iraq/Afghanistan war zone and at worst, the nation’s hospitals are 3.7 times more dangerous than a war zone.

We go to a hospital with the expectation that it is a healing zone. We go to a war zone knowing it is a killing zone. Yet, the U.S Congress is more outraged by the expected consequences of war and the pain and suffering of prisoners of war than the consequences of their failed health care policies have had on innocent Americans that look to the Congress for leadership not the destruction of the nation’s health care delivery system.