Is 'non-pay for non-performance' a wave of the future of health care?

The flipside of P4P takes root as nine California hospitals are fined

Just when hospital leadership was getting used to the pay-for-performance (P4P) concept, it seems that they will now have to adapt to another new reality that might well be called "non-pay for non-performance."

The first inkling the industry had of such a trend came in the form of an announcement several months ago from the Centers for Medicare & Medicaid Services (CMS) that it would cease reimbursement for certain preventable hospital-acquired infections Now, the California Department of Public Health (CDPH) has taken this approach a step further by fining nine hospitals $25,000 each for patient safety violations.

Here is a summary of the hospitals and their violations:

  • Enloe Medical Center, Chico: Failure to develop and implement policies and procedures for the safe and effective administration of medications known to cause cardiac arrhythmias.
  • Feather River Hospital, Paradise: Failure to develop and implement policies and procedures to ensure safe food handling practices and failure to develop policies to ensure medication is safely used.
  • Garden Grove Hospital & Medical Center, Garden Grove: Failure to develop and implement written policies and procedures to ensure the safe and effective use of medications with black box warnings.
  • Glendale Memorial Hospital and Health Center, Glendale: Failure to ensure that medications dispensed for patient care were administered as ordered and in accordance with facility-approved protocols.
  • Hanford Community Hospital, Hanford: Failure to have written policies and procedures for the establishment of a safe and effective system for the distribution, dispensing, and use for patient care of biologicals.
  • Kaiser Foundation Hospital, Santa Clara: Failure to provide patient safety by ensuring that written policies and procedures for the distribution of all drugs were developed and implemented to ensure the safe use of medications.
  • Martin Luther King-Harbor Hospital, Los Angeles: Failure to ensure specialty consultation by a physician, ongoing medical evaluation, medically stabilizing treatment, and physician intervention to ensure prompt transfer to a higher level of care for a patient who presented to the emergency department. Also, failure to ensure prompt nursing assessments and medical care for a patient who presented to the emergency room, and failure to ensure the availability of competent and appropriate nurse staffing resources so that patients could receive prompt treatment.
  • Saint Agnes Medical Center, Fresno: Failure to have the proper policies and procedures for the administration of medications, and failure to ensure that registered nurses were appropriately trained.
  • Universal Health Services of Rancho Springs: Failure to provide adequate on-call physician coverage to meet the needs of patients receiving emergency care in the emergency department.

(Additional information about each of the violations can be found at the CDPH web site:

The "administrative penalties" are the first to be issued by CDPH under new authority granted by Health and Safety Code section 1280.1 (Senate Bill 1312, Statutes of 2006, Chapter 895), which was signed by Gov. Arnold Schwarzenegger last year and took effect Jan. 1, 2007. The law allows CDPH to impose administrative penalties with a maximum fine of $25,000 per violation that constitutes "immediate jeopardy to a patient's health and safety."

"We believe this is just one of many enforcement tools and other tools we can use to improve the quality of care that is delivered to patients every day in the state of California," says Kathleen Billingsley, deputy director of the Center for Healthcare Quality at the California Department of Public Health, which oversees licensing and certification. "We believe it will help motivate and stimulate improvement."

There are several ways such violations can come to the attention of the department, Billingsley explains. "We have 500 health facility evaluator nurses out in the field investigating; we oversee 6,000 facilities," she notes. "Half our budget is funded by CMS, and we conduct certification surveys on their behalf. The other half of our budget is for state licensing; we actually do state surveys as well, using our own state requirements."

Violations, she continues, can be found in either of these types of investigations — or, her department can receive complaints, which in turn would be investigated.

Hospital reaction mixed

While a number of the fined facilities quietly took their "medicine," a few are reportedly appealing the levies. For example, the San Francisco Chronicle recently reported that Kaiser Permanente had appealed its fine. The case involved the death of an infant with a rare metabolic disorder that was allegedly due to the incorrect weight on a packaged mixture of nutritional supplements. The hospital was cited and fined for a situation that put patients "in immediate jeopardy, although its plan for correction had been approved by the federal government," according to the paper.

On the other hand, Garden Grove said that it had immediately developed a plan of corrective action that was approved by the state the following day. Glendale, in a prepared statement, said: "In collaboration with the California Department of Public Health, we have conducted a thorough investigation of this incident and taken appropriate action to protect all patients' safety while in our facility. We are working closely with our medical staff, nurses, pharmacists, and hospital leadership, as well as with the appropriate agencies to ensure that all requirements of licensure are continuously met."

"I believe my discussions with the hospitals with respect to the issuance of administrative penalties have been very cordial and positive, although some will be filing appeals," says Billingsley. "I do know that in cases of immediate jeopardy, all hospitals have resolved the situations, and we have found them incredibly responsive and they have done the right thing."

CHA supports law

In fact, the California Hospital Association (CHA) came out in favor of the new legislation. "We knew the department needed to have some basis to cite hospitals that was more than just a slap on the wrist, and by the time the legislation got through all the committees, we were supportive of the bill," says Dorel Harms, RN, senior vice president of clinical services. "There were concerns on the part of a lot of people, including some hospitals, that we needed to improve quality, and there had been safety issues, but all the department could do was write out a form and come back and see if the policies had been instituted. This new law more or less gets the attention of everyone."

That's not to say that the CHA is in total agreement with all of the fines. "Some of the language had to do with immediate jeopardy or the possibility of jeopardy," says Harms. "We understand that in some cases there was harm, but in others there was no harm anyone could detect — and some errors did not seem to warrant a $25,000 fine."

Harms says she knows the department is looking carefully at each case and is trying to be fair to the hospitals, but says that "it does seem a little bit over the edge in some instances." Still, she says, she is "not opposed in principle" to the fines.

Right or wrong, are such financial penalties for poor safety and quality the wave of the future? "I think it will be interesting to see how that unfolds in the next year or so," offers Billingsley.

Harms is a bit more certain. "Yes, I do believe it will be a growing trend," she predicts. "It all has to do with pay for performance. I know that legislatures statewide and nationally are supportive of not paying for inadequate service." (In another recent development, The Leapfrog Group reports that more than half the hospitals participating in its survey have agreed not to charge for "Never Events.")

[For more information contact:

Kathleen Billingsley, Deputy Director, Center for Healthcare Quality, California Department of Public Health, Sacramento, CA. Phone: (916) 558-1784.

Dorel Harms, RN, Senior Vice President of Clinical Services, California Hospital Association, 1215 K Street, Suite 800, Sacramento, CA 95814. Phone: (916) 443-7401.]