Employers can steer patients to best facilities, pressure local hospitals to improve, healthcare purchaser coalition asserts.

Ken Terry, Contributor

August 5, 2013

4 Min Read

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The Leapfrog Group, a healthcare purchaser coalition, has released a computerized "hidden surcharge calculator" that enables employers to figure out how much they're paying hospitals for medical errors that harm their workers and drive up their health costs. The purpose of the calculator is to encourage companies to put pressure on their local hospitals to improve their safety performance.

"It's counterintuitive and outrageous, but you will pay a lot more for hospitals that have more errors, accidents and infections," said Leah Binder, president and CEO of Leapfrog, in a news release. "Errors aren't typically marked as a line item on a bill -- but purchasers and consumers are paying millions of dollars for them, and we've substantiated it with our research."

Since 2012, Leapfrog has published the Hospital Safety Score, a national ranking of hospitals that gives 2,500 acute-care facilities scores of A,B,C,D or F. In a white paper on its latest research, the organization estimates that on average, employers and other purchasers pay a hidden surcharge of $7,780 for each patient admitted to a hospital with a grade of C or lower. If the same patient was admitted to a hospital with a grade of A, the surcharge would be $5,935. So by diverting employees to A-grade hospitals, the paper says, companies can save $1,845 per admission.

The paper noted that this is a very conservative estimate. For one thing, it doesn't fully account for the cost shift in healthcare. "Medical cost data in the literature often reflect reimbursements paid by Medicare," the researchers said. "However, private health insurance purchasers typically reimburse at much higher rates than Medicare."

[ Private hospitals could learn a lot about telehealth from the VA. Read Why The Private Sector Lags VA In Telehealth. ]

Leapfrog assumed that private purchasers pay hospitals twice as much as Medicare does, but in some cases they pay as much as 12 times more, the report said. In an interview with InformationWeek Healthcare, Binder cited a recent study showing that for treating a surgical site infection in one southern hospital, Medicaid paid $900, Medicaid paid $3,000, and private purchasers paid $39,000.

Also, the estimates for average surcharges don't count worker productivity losses, although the calculator allows employers to factor that in by using a national standard amount. Binder believes that it should be included. "If someone gets a central line infection, they're going to be in the hospital on average 10 days, if they don't die, and that's a lot of productivity loss."

Finally, the amount that medication errors cost payers is not included, because there's no good data on it. The best that Leapfrog has been able to do, Binder said, has been to factor the use of computerized physician order entry -- a proxy measure for lower medication error rates -- into its hospital quality scores.

Two types of data are used in the calculator. The first is national data that has been disclosed by the Centers for Medicare and Medicaid Services (CMS) on 26 measures of patient safety in individual hospitals. A great deal of other hospital-specific data is undisclosed on a national level but is available from some states and hospitals.

To measure the impact of this "undisclosed" data, Leapfrog looked at information on healthcare-acquired infections that has been published in California. (Some other states publish this kind of data, but it's not as broad or as detailed as California's.) Leapfrog discovered a strong correlation between its hospital safety scores and the incidence of these infections in California facilities. Based on that relationship, Binder said, "We looked at the national data on the prevalence of these errors and arrayed them according to A, B or C status to give an estimate of undisclosed errors."

She emphasized that users of the hidden surcharge calculator can disregard this data if they feel the undisclosed errors are irrelevant or they don't trust Leapfrog's methodology. But if they do, she noted, the surcharge estimates will be lower.

What jumps out of Leapfrog's data is that the surcharge in the best hospitals is roughly 75% of that in the worst institutions. "The fact that safety is a problem in all American hospitals is a fact that employers need to address aggressively," Binder said. "Even if your own hospital is an 'A,' you still have work to do. Because the safer hospitals are, the less they cost you and the healthier your employees are."

Employers have more clout in this regard than many of them suppose, she said. Sometimes even if just one employer speaks up, a hospital will make safety a priority. Companies usually have more power to affect safety than health plans do, she added, because they often are involved with hospitals in terms of fund-raising, board membership and other local ties.

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About the Author(s)

Ken Terry


Ken Terry is a freelance healthcare writer, specializing in health IT. A former technology editor of Medical Economics Magazine, he is also the author of the book Rx For Healthcare Reform.

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