Hospitals that treat California’s poorest patients are faring badly under the Affordable Care Act’s drive to improve quality.
Under ACA authority, Medicare is imposing fines on safety-net hospitals at twice the rate paid by other hospitals, according to an analysis by the Center for Health Reporting.
One local safety-net hospital, Emanuel Medical Center in Turlock, was the most highly penalized in the state.
“The safety-net hospitals are dealing with a population that’s sicker by the time they show up at the hospital,” said Alice Chen, a health economist at the University of Southern California. “This stacks the deck” against them.
Medicare – which is typically about 40 percent of a hospital’s income – is fining hospitals nationwide about $2.2 billion this fiscal year for falling short on quality measures. Most California hospitals are paying fines. The California total: close to $150 million, according to the center’s analysis.
California safety-net hospitals, where more than half the patients are on Medi-Cal or uninsured, are paying fines averaging 0.89 percent of their annual Medicare payment. Non-safety-net hospitals are paying an average of 0.41 percent.
Emanuel in Turlock is paying the biggest fine, 3.37 percent.
Although the fines are relatively small given the hundreds of billions of dollars spent on health care, most safety-net hospitals operate on thin profit margins or lose money.
Beth Feldpush, senior vice president of America’s Essential Hospitals, a trade group for safety-net hospitals, said her members’ “average operating margin is negative 0.4 percent. … When you have negative funding, a couple-hundred-thousand-dollar penalty can make a big difference.”
As part of its goal to “bend the cost curve” of American medicine and offer incentives to provide better care, the 2010 Affordable Care Act mandated that Medicare use an array of fines and incentives to discourage readmissions, punish hospitals with high infection rates and reward those that use best practices.
The stakes for hospitals, relatively small now, could grow large.
In January, U.S. Health and Human Services Secretary Sylvia M. Burwell announced that Medicare would link 90 percent of its payments to quality measurements by the end of 2018.
The federal government is betting that fines can improve patient safety and reduce costs. Early signs suggest the strategy may be working. In May 2014, the government reported the incidence of hospital-acquired infections declined between 2010 and 2012 by 9 percent, preventing 15,000 deaths. The number of Medicare patient readmissions fell in 2012 and 2013 by 150,000.
“To some degree, the passage of the (Affordable Care) Act was a wake-up call to the hospitals,” said Cristina Boccuti, a Medicare analyst at the Henry J. Kaiser Family Foundation.
Over the past three years, Medicare has ramped up fines on hospitals that readmit Medicare patients within 30 days of discharging them. Readmissions are thought to be both costly and potentially dangerous to patients.
The fines can now reach 3 percent of a hospital’s annual Medicare payment for readmitting an excessive number of patients for five conditions: heart failure, heart attack, pneumonia, chronic obstructive pulmonary disease, and hip and knee replacements.
Safety-net hospitals in California are paying bigger readmission fines than other hospitals: 0.38 percent of Medicare revenue on average compared with 0.28 percent for other hospitals, according to the center’s analysis.
Among the state’s 25 most heavily fined hospitals, the worst for readmissions was Chinese Hospital, a relatively small non-safety-net hospital in San Francisco. It paid a 2.16 percent readmission fine.
Emanuel is paying a 1.89 percent readmission penalty. Its readmission rate was high in all five conditions that Medicare monitored.
Safety-net hospitals are failing to meet readmission standards, their defenders say, because their patients are poor. Because they’re poor, patients put off going to the doctor until they’re very sick. Because they’re poor, patients often don’t have relatives who can drop everything and care for them after a hospital stay.
This “significantly influences care once you leave the hospital walls,” said Alyssa Keefe, California Hospital Association vice president.
Think about a patient with congestive heart failure, said David Perrot, the hospital association’s chief medical officer. That patient needs careful monitoring after leaving the hospital. Someone must watch his diet and take him to the doctor for follow-up visits.
If the family can’t do it, then it falls to the hospital to create and pay for a program that does.
At the same time, all those readmissions may be saving some lives. Researchers at Emory University reported in the journal Health Affairs in August that California safety-net hospitals were reporting lower death rates 30 days after admission for heart attack, heart failure and pneumonia than their non-safety net peers.
This year, for the first time, hospitals will lose 1 percent of their Medicare reimbursements if they are among the worst quarter of those whose patients acquired infections or other conditions while under treatment.
Emmanuel Medical Center had the fourth-worst ranking in the state.
One widely accepted estimate is that 1 patient in 25 gets a hospital-acquired condition. And that may be low.
“We don’t know for sure how many die from medical error – 200,000 to 400,000,” said Peter Pronovost, an expert on hospital-acquired conditions at Johns Hopkins University. “It could be the third leading cause of death” after heart disease and cancer.
The statistics are vague, Pronovost said, because nothing forces hospitals to be transparent about death investigations.
“We ought to have better measurement systems,” he said.
On that, at least, hospitals agree. In a December report, America’s Essential Hospitals, the safety-net trade group, said the government is relying too heavily on billing records, where coding errors can creep in.
Billing records rely on a cadre of coders to create them. Coders spend their days translating medical records into machine-readable letters and digits for Medicare and private insurance companies.
Pronovost believes that the safety-net hospitals are committing many more coding errors as a result of employing fewer coders than other hospitals, and are disproportionately punished by Medicare. This year, 34 percent of California safety-net hospitals drew fines, compared with 22.5 percent of other hospitals.
Pronovost contended that the variation between safety nets and other hospitals can be attributed to “80 percent coding and 20 percent quality of care.”
That can be solved by “cleaning up the coding,” Pronovost said. “But to fix it, you have to have money, and safety nets don’t have money.”
Another problem: Medicare relies on old data. The fines it is issuing this year, both for readmissions and for hospital-acquired conditions, are based on information collected in 2013 and earlier.
That means that even if a problem has been fixed, the hospital is still being fined. And if the hospital believes the earlier data is faulty, there is really no way to prove it.
“It’s kind of hard to get feedback from a doctor on a case that’s a year and a half old,” Pronovost said.
Affordability of change
The government is betting that a relatively small penalty, a half-percent or so taken from Medicare on average, will persuade hospitals to change the way they practice medicine.
The problem, said USC health economist Chen, is “there’s a cost involved that requires investment, and (it’s) unclear whether that’s more expensive than the penalty.”
For example, the Emory researchers cited evidence that safety-net hospitals are falling behind in the federally encouraged conversion to electronic health records. That means some are not sharing in the billions of dollars in federal bonuses available for the conversion. Starting in 2016, some of them will face penalties.
“Some facilities are living day to day and not really able to pursue those types of programs.” said Dylan Roby, a health policy expert at UCLA.
“It is certainly concerning that lower-resourced, safety-net hospitals are bearing the brunt of the cuts,” he said.
Medicare has also built in “a perverse incentive” by capping the penalties, Chen said.
“There’s no differentiation between bad and really bad,” Chen said. “If the hospital is doing really poorly, then it’s possible that improving your performance scores can cost more than the penalty you’re facing.”
“It is challenging to reinvest,” said Keefe of the California Hospital Association, “when you’re penalized under an unfair program.”
Smaller hospitals have limited resources, said Perrot, the hospital association’s medical director, and “there’s only so much a hospital can focus upon.”
Campbell is a reporter and data analyst at the California HealthCare Foundation Center for Health Reporting at the USC Annenberg School for Communications and Journalism.