Twofer: How Hospitals Can Lower Costs by Improving Patient Safety

Last Updated Dec 6, 2010 7:15 PM EST

A safety improvement collaborative convened by Premier Inc., one of the top group purchasing organizations (GPOs), has shown that safety and efficiency in hospitals are closely interlinked. And, because hospitals will have to become more efficient in the age of healthcare reform, that bodes well for the future of hospital safety.

In the first two years of the collaborative's 3-year project, the 157 participating hospitals had a lower-than-expected mortality rate, saving an estimated 22,164 lives. At the same time, they collectively reduced healthcare spending by $2.13 billion. During a period when national inpatient costs rose 14 percent, those of the collaborating hospitals increased only 2 percent.

Here are some other major findings of the Premier report:
  • In a collaborative that includes various kinds of hospitals in rural, suburban and urban areas in 34 states, performance variations narrowed over time among the participants. This suggests that any hospital can achieve similar results, according to Premier.
  • A 23 percent drop in the average mortality rate, relative to the expected rate, was driven by better care for sepsis, respiratory infections, and cardiac conditions.
  • Higher labor productivity and lower supply costs accounted for much of the savings, with community hospitals saving more than big teaching hospitals.
  • As the percentage of care that followed evidence-based guidelines increased, both mortality and overall spending dropped.
The apparent flaw in this rosy picture is that reduced costs may mean lower revenues for hospitals. But as productivity increased and supply costs dropped, the hospitals were able to deliver diagnosis-related-group (DRG) services and hospital days at a lower cost, which meant higher profits because the payments were fixed in advance. Moreover, Premier notes, the hospitals' labor costs dropped because they paid less overtime and made better use of temporary workers.

In addition, one purpose of the collaborative is to prepare hospitals for the brave new world of healthcare reform. By improving their performance on quality and safety measures, the participating facilities hope to:
  • Earn 1%-2% Medicare incentive payments as part of the government's value-based purchasing program
  • Avoid up to 3% of Medicare payment penalties for high readmission rates
  • Avoid 2% Medicare payment penalties for hospital-acquired conditions
  • Avoid being fined 1% of payments for high rates of hospital-acquired conditions
  • Better manage the $197.2 billion in Medicare reimbursement cuts over the next decade.
As I pointed out in a recent post, the safety problems in hospitals are pretty much the same as they were a decade ago, when the Institute of Medicine raised the alarm with its report, "To Err Is Human." A recent government report showed that medical errors contribute to about 180,000 deaths a year in the U.S. If hospitals could actually improve their financial performance as a byproduct of making inpatient care safer, these dismal statistics might finally begin to move the other way.

Regular readers might wonder why I'm praising an initiative by a group purchasing organization. After all, as I've written before, GPOs may actually drive up hospital costs by buying products from vendors that pay them fat kickbacks. But Premier seems to be cut from a slightly different cloth. Whatever its business arrangements, Premier has promoted quality through a successful hospital pay for performance project, and it has launched collaboratives to help hospitals form accountable care organizations. The company seems to have a customer service vision that goes beyond sales, so I don't discount the value of its safety initiative. In fact, to the extent that the safety collaborative members reduce supply needs, Premier will lose sales.

That said, I hope that this collaborative grows and that more hospitals recognize that doing good and doing well need not be mutually exclusive.

Image supplied courtesy of Flickr.
Related:
  • Ken Terry

    Ken Terry, a former senior editor at Medical Economics Magazine, is the author of the book Rx For Health Care Reform.

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