The financial pressures on hospitals are continually increasing due to ever-changing reimbursement structures and a heightened focus on quality and value. However, despite these pressures, the association between patient safety performance and financial outcomes remains unclear. Brad Beauvais, Jason P. Richter, and Forest S. Kim’s research, reported in the journal article entitled “Doing well by doing good: Evaluating the influence of patient safety performance on hospital financial outcomes”, seeks to shed insight into this association. More specifically, the purpose of their study was to investigate if hospitals with higher patient safety performance are associated with higher levels of profitability than those with lower safety performance. (Beauvais, Richter, & Kim, 2019)
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The article begins by laying out the current situation in patient safety within the healthcare industry. Medical errors specifically are a devastating factor affecting patient safety – with 250,000 deaths per year attributable to medical errors (Cross, 2019) (Makary & Daniel, 2016). Some estimate that the cost of medical errors is around $20.8 billion per year (Cross, 2019), with $154 billion annually attributable to patient safety failures in general. (Berwick & Hackbarth, 2012). There is therefore an obvious correlation between patient safety failures and cost in the healthcare industry generally, but there has not been a link established between patient safety performance impacts on individual hospitals. That connection has evolved, however, in the last 10 years. In 2008, the Centers for Medicare & Medicaid Services (CMS) started decreasing hospital payments for the top 10 preventable hospital – acquired conditions (CMS, 2008). The law also created the Center for Medicare & Medicaid Innovation, which develops and tests payment and service delivery models to improve health and reduce cost. A few of these models are the Accountable Care Organizations and Bundled Payment for Care Improvement Initiatives, which reward or penalize health care organizations for production of quality results and reduction of adverse safety events. CMS also implemented the Hospital Readmissions Reduction Program, which causes a direct financial penalty for hospitals with excessive readmission rates (Lu, Huang, & Johnson, 2016). Furthermore, Medicare’s value-based purchasing program rewards hospitals that perform well on quality metrics and penalizes those that produce unplanned or unnecessary readmissions or preventable hospital-acquired conditions (Gilman et al., 2015).
Having established the environment around the issue of patient safety in healthcare, the authors continued to build on the theory behind their research. Conceptually, the connection between quality and hospital profitability has not been well defined. The lack of relevant literature in the post-Patient Protection and Affordable Care Act era provides a confounding challenge in understanding the quality-profitability relationship. (Beauvais et al., 2019) However, despite a lack of data on this specific issue, product and service quality metrics have long been known to be influential determinants of a firm’s performance and sustained financial viability. There are reports that hospitals with broad and intense baseline quality improvement programs showed improved average financial performance – though this area requires more study (Beauvais et al., 2019). Within the services sector, it has been indicated that superior service quality supports profitability, directly reducing costs while concurrently leading to improved perceptions of quality, customer satisfaction, customer retention, positive “word of mouth” advertising, and attraction of new customers (Rust, Zahorik, & Keiningham, 1995). This model provides the clarifying theoretical basis for Beauvais, Richter, and Kim’s research; specifically, the connection between service quality improvement, cost reductions and profitability. It makes sense that organizations who take proactive steps to manage the appropriateness of care and improve patient safety can reduce the costs of inappropriate care, medical errors, and complications. Various government programs provide direct organizational and provider financial incentives that promote improved levels of performance in the provision of health care service quality (Beauvais et al., 2019). After all the aforementioned theoretical support were established, Beauvais, Richter, and Kim then gave their hypothesis: that “Hospitals with higher patient safety performance will have greater odds of attaining higher organizational financial performance.”
Upon setting up the theory behind and stating their hypothesis, the authors proceeded to outline the methods and measures of their research. The dependent variables assessed in the study were net patient revenue, operating income, and operating margin. Data on these variables were obtained from a single cross-section from the American Hospital Association (AHA) database from 2014. The AHA database also provided the control variables needed for the study (including total bed count, debt to asset utilization, case mix index, rural versus urban, government owned, sole community provider status, system affiliation, teaching status, profit versus not-for-profit). For measurements of patient safety, the Leapfrog Hospital Safety Score was used. The Leapfrog Hospital Safety Score is a letter grade rating of a hospital’s performance on safety, specifically its ability to protect patients from accidents, injury, harm, and error (Jha, Orav, Ridgway, Zheng, & Epstein, 2008). The timeline of data used in this study ostensibly spans calendar year 2014.
For each dependent variable (net patient revenue, operating income, and operating margin), the authors chose to categorize each hospital into one of four equal quartiles. Quartile 1 was the 0th to 25th percentile for hospitals, Quartile 2 was the 26th to 50th percentile, Quartile 3 was the 51st to 75th percentile, and Quartile 4 was the 76th to 100th percentile. A hospital in the bottom quartile had profitability in the bottom 25%, whereas a hospital in the top quartile had profitability in the top 25%. The Leapfrog score ranged in value from 1.39 to 3.74 (presented in a continuous manner similar to a GPA) for all the hospitals in the study. The author’s merged the Hospital Safety Score and AHA data sets by Medicare provider numbers using statistical software, resulting in a final sample of 2,278 hospitals that provided both financial and Leapfrog data. They then conducted a retrospective cross-sectional study, analyzing each of the three outcome measures of hospital profitability in sperate multinomial logistic regressions.
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The results of the study were not surprising. Across all three measures of profitability, a higher Hospital Safety score was associated with a higher relative risk of a hospital being in a higher quartile of profitability. These results indicate that a hospital may simultaneously have high levels of patient safety outcomes and financial performance. The implications of such results are that, despite the often-held belief that there will always be a trade-off between quality improvement and financial outcomes, the cost, quality, and access tradeoffs may not be as rigid as previously thought. (Beauvais et al., 2019) This seems to be an interesting way to meet the seemingly impossible demands of IHI’s goals to improve quality and access of care while decreasing the cost (Schmidt, 2019). Given the results of Beauvais, Richter, and Kim’s research, as well as recent changes in health care reimbursement and value-based incentives associated with several of the CMS measures, it is likely that broad support patient safety improvements will continue to increase. (Beauvais et al., 2019)
- American Hospital Association. (2016). American Hospital Association hospital financial database. Retrieved from http://www.ahadataviewer.com/about/Hospital-Financial-Module/
- Beauvais, B., Richter, J. P., & Kim, F. S. (2019). Doing well by doing good: Evaluating the influence of patient safety performance on hospital financial outcomes. Health Care Management Review, 44(1), 2–9. https://doi.org/10.1097/HMR.0000000000000163
- Berwick, D. M., & Hackbarth, A. D. (2012). Eliminating waste in US health care. JAMA, 307(14), 1513Y1516.
- Centers for Medicare & Medicaid Services. (2008). Office of Public Affairs. Retrieved from www.cms.hhs.gov/apps/media/press/release.asp
- Cross, J. (2019, July 16). Guest Lecture.
- Gilman, M., Hockenberry, J. M., Adams, E. K., Milstein, A. S., Wilson, I. B., & Becker, E. R. (2015). The financial effect of value-based purchasing and the hospital readmissions reduction program on safety-net hospitals in 2014: A cohort study. Annals of Internal Medicine, 163, 427-436.
- Jha, A. K., Orav, E. J., Ridgway, A. B., Zheng, J., & Epstein, A. M. (2008). Does the Leapfrog program help identify high-quality hospitals? The Joint Commission Journal on Quality and Patient Safety, 34(6), 318-325.
- Lu, N., Huang, K. C., & Johnson, J. A. (2016). Reducing excess readmissions: promising effect of hospital readmissions reduction program in US hospitals. International Journal for Quality in Health Care, 28(1), 53-58. doi:10.1093/intqhc/mzv090
- Makary, M. A., & Daniel, M. (2016). Medical errorVThe third leading cause of death in the US. BMJ, 353, i2139.
- Rust, R. T., Zahorik, A. J., & Keiningham, T. L. (1995). Return on quality (ROQ): Making service quality financially accountable. The Journal of Marketing, 58-70.
- Schmidt, R. N. (2019, June 11). Class Lecture.
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