State Patient Safety Initiatives and Nonpayment for Preventable Events and Conditions

States' efforts to improve patient safety have grown in number and scope in recent years, prompted by concerns for patients' welfare as well as rising health care budgets and evidence of the excessive costs associated with medical errors. In 1999, the Institute of Medicine (IOM) reported that between 44,000 and 98,000 Americans die annually as a result of medical error. The central concept of the IOM report—that bad systems and not bad people lead to most errors—fueled a national conversation about ways to improve patient safety.

By November 2007, 26 states had enacted legislation, regulation, or executive orders creating reporting systems for preventable "adverse events" (see Table 1 for a definition of adverse events and other terms related to patient safety). Many of these reporting systems focus on "serious reportable events" identified by the National Quality Forum (NQF) that should never occur in a health care setting, often called "never events." In 2006, the NQF expanded its list of never events to include 28 categories, which are now in widespread use (Table 2). As reported in the last issue of States in Action, states are also accelerating the use of health information technology and health information exchange to create more powerful tools for reporting.

In addition, states are leveraging their purchasing power through Medicaid, state employee health programs, and other agencies to enforce reporting requirements and using patient safety data for public reporting and pay-for-performance initiatives. In a trend that is quickly gaining momentum, some states are denying payment for preventable events and conditions.

Building the Case for Nonpayment
In a January report, the National Academy for State Health Policy (NASHP) concludes that nonpayment for preventable adverse events or conditions is a relatively easy, visible, and noncontroversial first step that states can take to promote patient safety. "Nonpayment policies are an opportunity for purchasers to use their leverage to drive health system improvement," says NASHP project director Jill Rosenthal. "States in particular are in a strong position to achieve meaningful improvements in patient safety and health system performance based on the large volume of health services they purchase."

The report includes observations on nonpayment initiatives and issues made by state and national leaders at an October 2009 meeting hosted by NASHP and sponsored by The Commonwealth Fund. According to participants, state and federal policymakers and public and private purchasers are adopting similar nonpayment policies. In general, they say, these policies are driven by a desire to improve patient safety, rather than achieve cost savings—although there will be greater potential for cost savings as the number of adverse events deemed ineligible for payment expands. State leaders who have implemented nonpayment policies say they are valuable because they are less controversial than other payment reforms and can spur discussion among stakeholders about concrete ways to align payment with high-quality, safe care.

CMS: "Payment and Performance Need to Be Linked"
The Deficit Reduction Act of 2005 required the Centers for Medicare and Medicaid Services (CMS) to select at least two hospital-acquired conditions for nonpayment under Medicare. Medicare reimbursement to hospitals is generally determined by grouping patient conditions into diagnosis-related groups (DRGs) based on the average cost of care for patients with similar conditions. Historically, if a Medicare beneficiary experienced harm from an adverse event that resulted in assignment of a more expensive DRG, CMS paid the full claim without any payment reduction—a policy Congress wanted to change.

In response to the Deficit Reduction Act, CMS created a list of DRGs called Medicare severity diagnosis-related groups (MS-DRGs) to determine if a condition is "present on admission" (POA) or acquired in a health care setting. Using the MS-DRG system, CMS denies payment and prohibits hospitals from billing patients for 12 hospital-acquired conditions (effective October 1, 2008) and three preventable surgical errors (effective January 15, 2009). The CMS nonpayment policy applies only to fee-for-service Medicare in general acute-care hospitals, but on January 1, 2010, CMS began collecting data from Medicare managed care plans to determine how they can be held accountable for adverse events.

Medicare's list of hospital-acquired conditions and the National Quality Forum's list of serious reportable events contain many similar or identical conditions (Table 2). In July 2008, CMS issued a letter to state Medicaid directors encouraging them to implement Medicaid payment policies to coordinate with the Medicare nonpayment policy for hospital-acquired conditions. In addition to coordinating Medicare/Medicaid payment interaction for beneficiaries dually eligible for both programs, CMS also encouraged states to consider the entire Medicaid population and all of the NQF "never events" in the creation of state policies. The agency's letter noted that "the guiding principle should be that payment and performance need to be linked."

 Source: Centers for Medicare and Medicaid Services, 2009

State Action on Patient Safety
As large purchasers, regulators, conveners, and providers of health care services, states have considerable influence to improve patient safety and safeguard the public. For example, Medicaid and the Children's Health Insurance Program spend more than $320 billion per year in state and federal funding and account for one-sixth of all health care spending in the U.S.

The NASHP report identified 12 states in which Medicaid and/or other health care purchasers deny payment (or in Maryland's case adjust payments) for certain adverse events or preventable conditions (Table 3). All of the states established their nonpayment policies in their Medicaid programs except Oregon, which established nonpayment policies in its Public Employee Benefits Board and Educators Benefit Board. Nonpayment policies in Maine, Maryland, and New Jersey apply to all payers—not just Medicaid. All but one of these states base their nonpayment policies on either the Medicare list of hospital-acquired conditions (five states) or the NQF list of serious reportable events (six states). The exception, Maryland, uses a list of 50 potentially preventable complications developed through a contract with 3M Health Information Systems.

In general, NASHP found that the states with nonpayment policies are among the nation's leaders in quality improvement and patient safety initiatives. These states are well represented among those developing public/private partnerships for health system improvement, operating adverse event reporting systems, promoting medical homes, ranking in the top or second quartile on the 2009 Commonwealth Fund State Scorecard on Health System Performance, and having hospitals that have voluntarily agreed not to bill for certain preventable conditions. They can serve as models for other states considering nonpayment policies for preventable adverse conditions. The Snapshots in this issue explore nonpayment policies in place in four states.

Table 3. State Policies Prohibiting Payment for Certain Preventable Conditions, as of December 2009