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I just finished a 4hr meeting on potentially preventable events (PPE) in Medicaid. These are things like medical complications, admissions, readmissions, ancillary services (like tests) and emergency room visits. As is there isn’t an incentive for hospitals, managed care organizations or providers to minimize waste because Medicaid pays for the services provided. So if a provider administers an extra test then it is just another service to bill Medicaid for. If a hospital doesn’t provide adequate care and it results in an readmission then they get to bill for the readmission. If you consider that Medicaid makes up about 15-16% of the national health care expenses (according to CMS)  then it becomes obvious that dealing with this could be very important to driving down health care costs overall in this country.

So what can be done about this? Well the proposal I heard today was to adjust Medicaid rates for providers based on the outcomes of their patients. Providers (hospitals, HMOs, physicians, etc) would be measured on potentially preventable events (PPE) like ER visits, readmissions, complications and such. Then those measurements would be normalized based on the types of patients; in this case APR DRGs would be used which are diagnosis related groups. That would group similar patients together so that the severity, types of treatment and overall outcomes are more similar. That allows for normalizing between different mixtures of patient types and diagnoses. Once the data is normalized the proportions of PPEs would be compared between providers and those with the lowest proportions of  would be rewarded with higher pay rates for the services. Whereas those that performed worst would have their pay rates penalized. This would provide direct financial incentives for providers to improve the outcomes of their patients.

Also this method would not involve Medicaid dictating how providers should treat patients. Nobody wants the government telling doctors what tests, procedures and treatments to provide. I think we all would agree our doctors know better than the government how to treat patients. So instead providers are given a financial incentive to improve outcomes while receiving regular reports on their performance. The reports would contain adequate information so that providers can dig deeper into specific cases or types of cases and evaluate their own methods and processes used in treatment. That encourages providers to determine the best manner to improve outcomes rather than having the government tell them what to do. Furthermore since the onus is on providers to figure it out they would be the ones to innovate and change so they own the change which in turn means that they will adhere to those changes to a greater degree.

Now the incentive is double edged. If a provider improves outcomes they get paid at a higher rate but also they have reduced their costs by eliminating unnecessary services like readmissions, ER visits or tests. That doubly impact their bottom line by both reducing costs and increasing revenue. On the other hand poor performers would have lower pay rates while still incurring the extra costs for the unneeded services which doubly impacts their bottom line in a negative fashion.

The final piece to this is that after a few years of allowing providers to get a grip on potentially preventable events the reports would become public. So providers would have a while to get their houses in order. But after that the public would be able to see these reports which can guide the public’s choices in providers. The public then could compare hospitals based on their rates of complications, readmissions and such. That would allow people to determine what providers are best for them personally.

At this point some of you are saying “This sounds all fine and dandy on paper but will it work in the real world?” That is a very legit and necessary question. What I can say is that MD implemented this system just for potentially preventable complications and they were able to reduce complications by 20% over a 2 year period (According to  MD HSCRC). Also the Minnesota Hospital Association RARE program has applied this to readmissions which has prevented 3,128 readmissions through the 2nd quarter of 2012. That puts them right on track to meet or exceed their goal of reducing readmisssions by 20%. According to the info I got at my meeting based on the experiences of States, Commercial Payers and MedPAC these methods potentially preventable readmissions could reduce inpatient hospital expenditures by 2-5%. Potentially preventable complications could reduce inpatient hospital expenditures by 1-2%. Potentially preventable admissions could reduce inpatient hospital expenditures by 4-8%. Potentially preventable ER visits could reduce both inpatient and outpatient expenditures by 1-2%. Potentially preventable ancillary services (diagnostic tests, lab tests, therapies, radiology) could reduce outpatient hospital expenditures by 2-3%. Unfortunately I don’t have a public source to offer for those numbers.

So all together this could make a dent in the growth or medical expenses and maybe even bring them down. It may not be a magic bullet and couldn’t fix everything but it is a step in the right direction. Next time I will write about Medicare’s changes to the procurement of durable medical equipment, orthotic, prosthetic and supplies and how that might save some money.