Memo to Hospitals: Bad Care Will Cost You

For decades, Medicare has been reimbursing hospitals for their own mistakes. That's coming to an end.

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You're unlikely to be surprised to hear that hospitals are routinely paid for indifferent or bad care, but did you know that it is implicitly built into the Medicare system? Say a Medicare patient is admitted for surgery, develops an infection because of sloppy post-surgical care, and has to stay several days longer than expected. The hospital will be reimbursed for at least some of the expenses due to its own failings.

This is because the infection is considered a complication under current Medicare rules, and hospitals are paid for treating complications. One way is for the complication to be recoded into a higher-reimbursement category. The other is that hospitals get back 80 percent of the amount above a threshold that changes every year (it's $24,485 for 2007). So if the infection generates extra costs of $75,000 (which isn't difficult these days), the hospital eats the first $24,485 but gets back 80 percent of the remaining $50,515, or more than $40,000. That's how it's been for decades. Is that crazy or what?

I'm happy to say that because of a new rule issued earlier this month by the Centers for Medicare and Medicaid Services, which reimburses hospitals, this is one gaping loophole that won't stay open too much longer. This October, hospitals will have to start checking Medicare patients for certain conditions when they're admitted, and in October 2008, CMS won't pay for the cost of treating those conditions—bedsores, to take one example—unless patients come into the hospital with them.

Nor will the feds pay extra if a sponge or other object has to be retrieved from a patient's insides, where it was left accidentally (this is called a "never event" by the quality gurus because it should never happen), or for injuries stemming from a fall (CMS got 2,591 reports of patients falling out of bed in 2006), or a surgical infection, or several other indications of substandard care. And hospitals won't be allowed to pass along the costs of uncompensated care to patients.

All of this makes perfect sense. Why did it take so long?