The Lynx Group

New Calculator Shows Financial Impact of Poor Quality of Care to an Institution, and How to Correct It

September 2012, Vol 3, No 6

Toronto, Canada—A Healthcare Quality Calculator (HQCal) created by researchers at Vanderbilt University School of Medicine, Nashville, TN, allows decision makers to determine which investments are the most cost-efficient for improving quality of care, according to a new study presented at the 2012 International Conference on Head and Neck Cancer.

The HQCal was created to calculate the financial impact of poor quality of care for a specific institution or hospital, which allowed them to highlight issues that would have the most financial benefit by improving their quality and preventing potential complications associated with a poor quality of care. For example, in a hospital with a 3.2% rate of postoperative airway complications, the savings from preventing each such complication are $48,000. Therefore, a quality improvement investment in this area would pay off handsomely, according to the team of researchers.

“Hospital administrators could see that it would be profitable, for example, to hire a nurse practitioner to follow only surgical-airway patients,” noted lead investigator Andrew B. Sewell, MD, of Vanderbilt University School of Medicine. “In fact, they could spend up to $480,000 and still break even if they are able to prevent half of the complications.”

The team used data from billing records at Vanderbilt University Medical Center to create the calculator and also examined patients’ charts for relevant complications.

HQCal can be made specific to each institution by inputting its cost and payment data based on diagnosis-related group payment rates. This allows administrators to see what would happen if certain changes are implemented.

The investigators focused on 2 examples; the first was postoperative surgical airway complications, which are relatively rare events but cause significant morbidity (and hence high cost). They calculated the cost of each case, including legal costs, at $48,000. Hence, preventing a minimum of 1 case by investing $40,000 would be cost-neutral, as would preventing at least 10 cases by investing $480,000.

The second example involved infections after major abdominal surgery, which represent the opposite of the previous example in being “high-frequency and low-impact” events. The investigators calculated 90-day inpatient costs and payment information for 600 patients, which yielded an overall saving of $108,000 from decreasing the infection rate by 20%, but a per-patient saving would occur only if the cost of the product used to reduce infections was less than $182 per patient.

The researchers also highlighted HQCal’s ability to help administrators determine optimal strategies in light of changes in the healthcare environment. They calculated the changes in government reimbursement involving no payment for infection-related readmissions. They found in 1 example that preventing 1 abdominal surgery– related infection increased profit by $8909 compared with $5440 before the reimbursement change. In a second example, reducing the length of stay by 1.5 days for patients readmitted for such an infection increased profit by a total of $107,273.

“The calculator provides a tool to improve transparency regarding both short- and long-term financial consequences of funding, or failing to fund, initiatives to close gaps in quality,” the investigators noted.

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