The quality of a health system is determined by how safe, effective and thorough its patient care is, and higher-quality facilities tend to have better reputations for their ability to deliver top-notch care.
Quality can be measured both internally by a health system looking at its own metrics and externally by agencies like the Centers for Medicare and Medicaid Services or the National Committee for Quality Assurance, which collect data from hospitals on treatment practices, adverse safety events and patient outcomes.
As important as it is, any investment in long-term efforts to improve care quality can be a tough sell as hospital operating margins are razor thin due to pandemic-related stresses.
Here's what you need to know about quality’s relationship with hospital finances.
How can a poor safety grade affect hospital finances?
Aside from the internal expenses health systems accrue from longer patient stays, medication errors and hospital-acquired infections, failures in quality can lead to financial penalties from external agencies.
Facilities that perform poorly as part of the Hospital-Acquired Condition Reduction Program and Hospital Readmissions Reduction Program have the potential to lose millions of dollars in annual funding from CMS. Those programs evaluate hospitals' overall performance on certain quality measures and reduce federal payments if there are lapses.
As a result, many systems choose to invest just enough in their quality infrastructure to avoid a low ranking.
In 2021, the average penalty for hospitals in the readmission program was 0.59% of their Medicare revenue, or around $178,000, according to a report by Definitive Healthcare, a data analytics company.
How can the grades affect a hospital’s reputation?
Because potential patients may look at external benchmarks like CMS’ star ratings or the Leapfrog Group’s safety grades, hospital executives have to consider how publicly reported quality scores affect reputation. Many health systems use high scores as promotional tools in press releases and on websites and billboards.
With market competition increasing, branding has become an important way for hospitals to stand out, said John Chomeau, strategic advisor to the National Association for Healthcare Quality. Bad Google reviews or negative community perception of a hospital’s history with patient harm can affect its brand and turn away patients, he said.
Lower ratings are less likely to affect how consumers view middle-of-the-road facilities.
How can quality save health systems money?
It is easier for hospital executives to justify spending to improve quality measures if data show significant returns on investment, said Dr. Shaheed Koury, chief clinical officer at Adena Health, based in Chillicothe, Ohio.
“When we tackled length of stay, we dropped it by almost three hours hospital-wide,” Koury said. “Now we can put an ROI to that, around $400 a day in savings. Multiply that by 365 days and how many patient days you had, that gives you millions of dollars in savings.”
Also, when Adena Health decreased its adverse safety event rate by 80%, it saw an 80% drop in malpractice claims and workers’ compensation for employee injuries, he said. By putting resources in place to help lower readmission rates, the system was able to reduce its penalty amount by hundreds of thousands of dollars.
In addition to internal cost savings, hospitals can receive incentive payments from CMS’ Hospital Value-Based Purchasing Program, which rewards facilities that demonstrate improvements in patient experience measures, adverse event rates and evidence-based care standards and protocols. The average net payment adjustment for hospitals in the program was 0.16% in fiscal year 2020.
Can safety ratings influence payer contracts?
Measures of patient safety and care quality play a large role in contract arrangements between health plans and provider organizations. More than 90% of insurers use The Healthcare Effectiveness Data and Information Set to gauge health system performance on patient experience, mortality rates and timely care.
Another business perk of being a five-star provider organization under a Medicare Advantage plan is those systems can enroll patients year round, rather than just during the annual enrollment window.
Which safety and quality improvements should be considered?
The upfront investment needed to make quality improvements can range from thousands of dollars spent on training staff, to millions spent hiring more full-time employees and replacing a system’s technological infrastructure.
A hospital may need more infection control preventionists,improved patient monitoring software and alert systems, tools for collecting and analyzing data, or all of the above.
For facilities that have not previously measured quality performance, steps might include setting up a centralized dashboard and applications for data reporting. Other hospitals may need to change the physical layout of the hospital to facilitate higher quality care.
How are hospitals balancing safety and quality expenses with other priorities?
Due to higher supply chain, labor, device and pharmaceutical costs, budget constraints are tight and quality improvement projects face fierce competition for funds.
Mission-critical must-haves vary by hospital, and can include needs like a working MRI scanner, sufficient personal protective equipment, new clinical or administrative staff or lab supplies.
These typically take precedence over longer-term capital projects that can wait and don’t directly impede the hospital’s ability to provide care to patients.
How do hospitals think about safety and quality ratings?
Ultimately, being a five-star hospital doesn't mean a facility will automatically attract more patients or make more money. Many other elements factor into a hospital’s bottom line, such as shrinking payer networks and a loss of referrals, as well as word-of-mouth and individual patient experiences.
Even so, ratings will continue to be an indicator of where hospitals excel and fall short.
Regulators are increasingly looking to hold insurers and health systems accountable for quality outcomes, using payment and penalty programs as ways to encourage sustainable change, Chomeau said.
