Insight, analysis & opinion from Joe Paduda

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Pay for non-performance

CMS will no longer pay for medical treatment(reg req) for injuries or illnesses resulting from hospitalization. Expect private insurers to follow suit.
Its about time.

Medicine is one of the rare businesses where the people or institutions who make mistakes routinely expect to be paid to correct them. The result of this institutional entitlement likely is one of the reasons there are so many preventable mistakes in medicine.
The US auto industry used to provide each new car owner with a 12 month or 12.000 mile warranty. And cars lasted about 40,000 miles. Nowadays few cars come with less than a three year warranty and the 100,000 mile car is so commonplace as to be unremarkable; back in the seventies it was cause for astonishment. The big three were forced to improve the quality of their products when competitors upped the ante by building more reliable cars, and guaranteeing their reliability.
OK, not a direct analogy, but a telling one. Physicians and health care administrators are not going to improve their ‘quality” until and unless they are forced to pay for their mistakes. Auto makers paid by losing market share, and the medical community will ‘pay’ by fixing their mistakes on their own nickel.
Or more likely, by preventing errors from occurring, a much less expensive way to address the issue.
It will be quite telling to observe the speed and effectiveness of medical quality improvement initiatives after CMS’ policy change. I’m guessing it will also be morally repugnant, as evidence clearly indicates many of these ‘errors’ are quite easily, and cheaply, prevented.
As to the human cost, that’s a subject for another post.

7 thoughts on “Pay for non-performance”

  1. You know, before CMS actually enacted this policy, I thought it was a great idea, for exactly the reasons Joe cites here. If you take your car in for repairs and the mechanic either fixes it wrong, or breaks something else, he doesn’t charge you. In a restaurant, a major problem with a meal will generally result in the manager comping you for the meal, not charging you a second time to cook it again.
    But now that CMS has done the right thing, I have a concern. How will this actually force hospitals to stop doing the things that result in, say, hospital-acquired infections, wrong-limb amputations and the like? Hospitals have already become masters at spreading the downside costs of doing business (i.e. treating non-paying or uninsured patients) around to those who can pay. So if a Medicare patient goes into the hospital, and acquires, say, an infection from a poorly sterilized catheter, and Medicare now does not pay them for the treatment of that infection, won’t those costs just get spread among the paying customers?
    Wouldn’t it be better, if, after a certain number of such events — I think in the profession they actually call them “never-events” because they are never supposed to happen, even though they do with alarming regularity — the facility lost the right to treat Medicare patients at all?
    I mean, isn’t that the way it works, sort of, in my example of the auto repair shop or the restaurant? They make the car right or comp you for the meal so you don’t tell everyone you know about the bad experience and cost them business. Eating the cost of the repair or bad meal is not an end in itself. It’s done to prevent future losses of revenue.

  2. I don’t think you can put such a black and white stance on such a grey area. So if someone falls in the hospital and breaks his arm are you going to stiff the Orthopedic Surgeon for fixing it. He’s just an innocent bystander who happened to be on call. It’s the equivalent of getting into a car accident and expecting the mechanic to fix your fender for free. The surgeon could say it’s not my responsibility either.

  3. Dingo,
    Presumably, the hospital would pay the orthopedic surgeon, and have to eat the cost because they would not get reimbursed by Medicare.
    I think cost-shifting might happen as well, except if all the payers do it, the only way to cost-shift is either to raise their rates or push the costs to the uninsured. The insurers may not fall for it, considering they’d know the source of the new financial pain the hospitals are suffering. And with the uninsured… you can’t get blood from a stone.
    Maybe, just maybe, hospitals will devise more efficient and higher quality processes that eliminate the errors in the first place. I know… dare to dream.

  4. I don’t disagree with the intent, but I believe there will be a negative impact with the availability of providers ultimately, in that the cost will fall to the malpractice carrier to cover the ‘repair’ and then the rates for malpractice will go up – squeezing specialty providers of the worst offenders into a position where they cannot afford to practice.

  5. You assume the hospital would foot the bill to the surgeon, but that’s a stretch. Hospitals don’t and will not pay physicians for anything they don’t have to. What about the hospital that accepts a transfer from a nursing home with a bedsore. Do you stiff the the infectious disease doc consulted for a hospital acquired infection? Do you stiff them for doing the right thing? In a perfect world where every physician and hospital took care of every one of their own complications it might help, but this policy will cause finger pointing of epic proportions. The CMS is all about saving money, not quality, don’t let anyone tell you otherwise. Maybe I don’t see diabetics or people with Rheumatoid Arthritis anymore if I’m a surgeon. Thats the mindset fostered with this policy and pay for performance measures.

  6. I’d be the last to say CMS is about quality. I’d also be among the last to say CMS is about saving money.
    I don’t assume the hospital would be happy to foot the bill for these treatments, but I imagine they would be legally mandated to, or else the initiative would be pointless.

  7. The comments posted thus far are surprising in that no one has applauded CMS and seen this as an opportunity for P&C carriers to enact their own non-pay policies using the same medical bill codes as Medicare. P&C carriers have been accused (rightly) of paying for overtreatment and likely paying for treatments to fix mistakes. Shouldn’t we be cheering this move by CMS and rushing to adjust our medical bill payment systems to find and not pay for these medical errors in Work Comp, liability and auto medical claims? We would actually be doing our customers and injuured parties a favor – or does the industry and its vendors still see this simply as taking away the ability to make money as a percentage of savings off of medical bills? I have yet to see networks and medical bill review companies focus on quality beyond making certain there is a contract!

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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