Nonpayment for preventable conditions expected to drive QI in Medicaid

Nonpayment policies for preventable adverse events are valuable to motivate quality improvement efforts, and payment should not be expected for a bad outcome that is unnecessary or avoidable. These are two things about which most providers, payers, and the public can agree.

"Medicaid programs are looking for efficiencies, so it does present an opportunity. At the same time, nonpayment policies are crude instruments that are still in their infancy. The logistics of implementing these policies are complicated," says Jill Rosenthal, program director of the National Academy for State Health Policy (NASHP) in Portland, ME.

First, payers must determine which events or conditions to select for nonpayment and how to define those events or conditions. Other issues include how to handle an event or condition that occurs during a care transition or in an ambulatory or long-term care setting, how and whether to differentiate between events that are "always" or "usually" preventable, how to handle under- or nonreporting of events, and the possibility that such policies could increase nonreporting.

There also is the complex issue of how to pay for treatment or remediation of damage caused by errors, and potential cost shifting to pay for this care. "More generally, there is a need to keep the focus on improving the care delivery system rather than assigning blame to providers," says Ms. Rosenthal.

Since nonpayment by definition affects finances, policy-makers may focus on capturing and reallocating dollars. "As a result, nonpayment policies are erroneously perceived as cost-containment strategies, as opposed to quality or health system performance improvement strategies," says Ms. Rosenthal.

According to a December 2009 NASHP report, "Nonpayment for Preventable Events and Conditions: Aligning State and Federal Policies To Drive Health System Improvement," agencies in 12 states no longer pay for the increased cost of the hospitalization for care that results when the patient is harmed. These are Colorado, Kansas, Maine, Maryland, Massachusetts, Minnesota, Missouri, New Jersey, New York, Oregon, Pennsylvania, and Washington.

"Among these 12 states with nonpayment policies, all but Oregon have established them within their Medicaid program," says Ms. Rosenthal, the report's author. "All of the states have implemented their policies in unique ways to address unique circumstances."

Notably, all of the nonpayment policies have been enacted in the past two years. Pennsylvania's policy was the first to be enacted, in January 2008, prior to the Centers for Medicare & Medicaid Services' Medicare nonpayment policy, which became effective in October of that year. Ms. Rosenthal says she expects to see more states enacting similar policies.

In fact, as evidence of preventability improves, future payment policies may add more events to the list. Future policies may also distinguish between events for which payment is denied, as with "always" preventable events, and those for which payment is adjusted. Health care-associated infections, for example, might fall into a category of "usually" preventable events.

"Because nonpayment policies have been found to be valuable in helping to drive and support systemic improvements, they are likely to be enacted to add momentum. They can spur discussion among stakeholders of concrete ways to align payment with high-quality and safe care," says Ms. Rosenthal.

Lessons from front runners

Massachusetts Medicaid's biggest challenge with its nonpayment policy was to identify the causal link between readmission and the complications that were preventable. "While the occurrences are few, both public reporting of these events and nonpayment provide incentives for all providers to help prevent them from occurring," says Terry Dougherty, Massachusetts' Medicaid director. "We are currently evaluating both potentially preventable readmissions and preventable complications as other areas where we may withhold or modify payment."

Pennsylvania initially developed its policy to conform to the state Department of Public Welfare's responsibility to ensure payment only for medically necessary services. The policy is part of a broader approach to patient safety and health reform.

This came about due to the recognition that the costs associated with patient safety issues and broader quality issues, such as readmissions and errors, avoidable hospitalizations due to inadequate care for people with chronic conditions, and hospital-acquired infections "were impossible to ignore in any attempts to improve access and affordability of care," says Ms. Rosenthal. "Although the policy is first and foremost a quality improvement strategy, Pennsylvania has estimated a cost of $3.5 million each year for hospital-acquired conditions."

Pennsylvania's policy also applies to the greatest number of provider types, with plans to expand from hospitals to health care and nursing facilities.

As of Oct. 1, 2009, the state of Colorado's Medicaid program implemented a nonpayment policy for serious reportable events. The state started with Medicare's list of 12 conditions. Ultimately, though, key stakeholders, including the hospital association, medical society, and client advocates, identified three additional events for nonpayment. These are wrong patient, wrong site, and wrong procedures. This same policy was adopted for Colorado's Children's Health Insurance Program.

"These events are exceedingly rare, so we are not anticipating large financial savings," says Sandeep Wadhwa, MD, state Medicaid director and chief medical officer with the Colorado Department of Health Care Policy and Financing. "However, we do believe that the policy will contribute to improved patient safety. It is in accordance with our hospital association's policy on not billing for serious reportable events."

Looking forward, Dr. Wadhwa says that he hopes to complement this effort by creating a patient safety organization in conjunction with providers and stakeholders. This entity will work to assist providers in exploring systemic issues that led to the serious reportable event.

"The goal is to promote a culture of patient safety and quality of care," says Dr. Wadhwa. "We anticipate expanding nonpayment policies beyond hospitals. This will require a much longer time frame, extensive provider participation, and more time investment in determining acceptable metrics. Serious reportable events do not only occur in hospitals. We believe that our payment policy should not reward serious reportable events when they occur in other settings."

One challenge was to keep the focus on the promotion of safety and better alignment of payment policy with appropriate incentives. "We also wanted to temper expectations with stakeholders to not expect huge savings through this policy," says Dr. Wadhwa. "We want to encourage all participants in health care delivery to learn from systemic causes of adverse outcomes. This requires a solutions-oriented approach, rather than a punitive response, to data-sharing."

Contact Ms. Rosenthal at (207) 874-6524 or and Dr. Wadhwa at