The most recent Medpac Report To Congress came out this month.  They reported hospital Medicare performance (both financial and quality) and proposed reimbursement changes for 2006 (you know, the recommendations the AHA's been so exercised about). 

The report identifies key strategies hospital use to cope with tight Medicare reimbursement.  They are: reducing LOS, reduced staffing levels, providing smaller increases in compensation (which peaked in early 2002), and substituting less skilled workers (typically aides for RNs). 

Medpac suggests two principle factors responsible for hospitals negative Medicare margins. These two key operating variables are thought to be under management control, they are occupancy and length of stay.  They are the very factors that poor performing hospitals fall down in when compared to better performing peers. Lower occupancy translates into higher unit costs, while LOS impacts variable costs (not to mention top line revenue). Other factors like aging infrastructure, competition and payer mix are shown to have little impact on Medicare profitability. Poor performing hospitals even had slightly younger plants. And the problem is not competition, the typical positive performing hospital had 3 competitors within 15 miles (one within 4 miles), while the typical poor performer only has one competitor (an average of 12 miles away).

In the golden decade of the 1990s, Medicare LOS fell more than 30 percent. Between 1993 and 1996 annual declines exceeded 5 percent. Times have changed; in 2003 Medicare LOS declines slowed to an anemic 1.3 percent.  The decline in LOS for all hospital payers slowed to zero in 2003.  The comparison between hospitals that are profitable and unprofitable with Medicare is 57 percent vs. 46 percent. The current building boom can't be good for occupancy rates. 

No health care report is complete without a major focus on quality. Medpac makes a qualified assessment that Medicare patients are getting adequate quality.  The current report does not publish detailed quality data, but the report from 2004 does. Overall, mortality dropped and clinical effectiveness and appropriateness have improved. But, the rate of adverse events increased for 9 of 13 measures. Decubitus ulcers (bed sores) make up the most frequent adverse event, failure to rescue is second (128,774 events vs. 57,491). The risk adjusted rate per 10,000 discharges eligible is much higher for failure to rescue than bed sores (1,511 per 10,000 vs. 319 per 10,000).  Could the hospital strategies above for coping with marginal Medicare reimbursement have an impact on adverse events?

Data shows that failure to rescue is one of the most common adverse events and, because it results in death, most severe. This paper by Zahn and Miller, demonstrates the impact on patient outcomes in terms of increased LOS, increased likelihood of in-hospital death, and increased charges for patients experiencing adverse events compared to patients that do not. Bottom line: adverse events are expensive, racking up more chages and depriving the hospital of admissions due to increasing LOS.  From a research point of view, failure to rescue is different from failure to prevent.  Failure to rescue means failure to bring patients with complications back from the brink of death.  It does not encompass situations where caregivers are unable to prevent patients from experiencing complications. Increased surveillance has a direct impact on both failures to prevent and rescue.

Hospitals are in a bind.  Financial pressures from all payers continue, and most coping strategies seem to have limited use -- you can only reduce staffing or pay raises so much.  While there's probably not a single hospital in the U.S. that has not "studied" their patient flow, almost all hospitals could realize significant improvements in patient velocity with a comprehensive multi dimensional plan.

Another bind comes from pressure to increase therapeutic intensity in all hospital patient care areas.  For example, hospitals found to provide inadequate pain management. This is high on JCAHO's agenda, and when hospitals more aggressively treat pain they increase therapeutic intensity.  Therapy goes hand in hand with surveillance, either caregiver observation or monitoring.  Increased pain treatment without increased surveillance compromises patient safety, resulting in more adverse events. The band-aid is to apply some SpO2 monitors, but it's really more complex than that.  All of this inexorably leads to implementation of a new care model, universal units.

The take away here seems to be that if you're losing money on Medicare or just squeaking by, you need to focus on reducing LOS and increasing occupancy. If you're Medicare profitable, you need to wring continued improvements in both LOS and occupancy to keep ahead of the game. Improving patient flow can reduce LOS and increase occupancy (and admissions) by more efficiently utilizing existing physical plant.  An additional benefit is reducing demands on the ICU by eliminating all those inappropriate admissions and readmissions (the typical hospital has over 20 percent inappropriate ICU admissions).  Nothing is more expensive than ICU patient days, and over building ICU beds is a huge capital expenditure that is difficult to recover from.

UPDATE: For now it seems hospitals can breath a bit easier, as the Senate voted last night against cuts to Medicare.