Incidence of adverse events and negligence in hospitalized patients: results of the Harvard Medical Practice Study I. 1991.

BACKGROUND: As part of an interdisciplinary study of medical injury and malpractice litigation, we estimated the incidence of adverse events, defined as injuries caused by medical management, and of the subgroup of such injuries that resulted from negligent or substandard care. METHODS: We reviewed 30121 randomly selected records from 51 randomly selected acute care, non-psychiatric hospitals in New York State in 1984. We then developed population estimates of injuries and computed rates according to the age and sex of the patients as well as the specialties of the physicians. RESULTS: Adverse events occurred in 3.7% of the hospitalizations (95% confidence interval 3.2 to 4.2), and 27.6% of the adverse events were due to negligence (95% confidence interval 22.5 to 32.6). Although 70.5% of the adverse events gave rise to disability lasting less than 6 months, 2.6% caused permanently disabling injuries and 13.6% led to death. The percentage of adverse events attributable to negligence increased in the categories of more severe injuries (Wald test chi(2) = 21.04, p<0.0001). Using weighted totals we estimated that among the 2671863 patients discharged from New York hospitals in 1984 there were 98609 adverse events and 27179 adverse events involving negligence. Rates of adverse events rose with age (p<0.0001). The percentage of adverse events due to negligence was markedly higher among the elderly (p<0.01). There were significant differences in rates of adverse events among categories of clinical specialties (p<0.0001), but no differences in the percentage due to negligence. CONCLUSIONS: There is a substantial amount of injury to patients from medical management, and many injuries are the result of substandard care.

Paying for graduate medical education: the debate goes on.

The debate over Medicare payments for graduate medical education has been conducted under the premise that such payments cover the added costs of training. Standard economic theory suggests that residents bear the costs of their training, implying that the additional costs of teaching hospitals are not attributable to training per se but to some combination of a different patient care product, unmeasured case-mix differences, and the costs of clinical research. As a result, payment for the additional patient care costs at teaching hospitals should come from the Medicare trust fund; any subsidies for training should come from general revenues.

The prevalence of formal risk adjustment in health plan purchasing.

This paper describes the prevalence of formal risk adjustment of payments made to health plans by Medicare, Medicaid, state governments, and private payers. In this paper, 'formal risk adjustment" is defined as the adjustment of premiums paid to health plans based on individual-level diagnostic or demographic information. We find that formal risk adjustment is used for about one-fifth of all enrollees in capitated health plans. While the Medicare and Medicaid programs rely on formal risk adjustment for virtually all their health plan enrollees, the practice is used for only about 1% of privately insured health plan enrollees. Ourfindings raise the question of why regulators have adopted formal risk adjustment, but private purchasers for the most part have not.

Does managed care mean more hassle for physicians?

Using the results of a 1995 nationally representative survey of physicians, this paper examines the relationship between exposure to managed care and resources expended by physicians on administrative and insurance matters. Our measures of managed care exposure are the degree to which a physician experiences a variety of managed care techniques (i.e., utilization review, capitation payment, restricted panels, gatekeepers, discounted fees, compensation links to utilization measures, profiling, protocols, and salary payment). Physicians report expending, on average, three hours per week on insurance-related matters and 4.8 hours per week on administration. Although managed care techniques affect administrative and insurance-related burdens, the direction of that effect varies according to the form that managed care exposure takes. With the exception of being salaried, none of our variables has an economically significant effect on physicians' administrative/insurance burdens, even at the outer-most edge of the 95% confidence interval. Overall, our findings contradict the widely held notion that managed care dramatically raises the administrative and insurance burden of physicians.

The Medicare prescription drug benefit: how will the game be played?

Most recent proposals to add a prescription drug benefit to the Medicare program suggest using pharmacy benefit managers (PBMs) to control costs and promote quality. However, the proposals give little detail on the institutional arrangements that would govern PBM operations and drug procurement. The recent Congressional Budget Office cost estimate of the Clinton administration's proposal reflects this lack of detail on how PBMs would function. We sketch an approach for structuring PBM operations that focuses on competition among PBMs, manufacturers, and distributors; incentive pricing; and risk sharing with PBMs.

How does managed care do it?

Integrating the health services and insurance industries, as health maintenance organizations (HMOs) do, could lower expenditure by reducing either the quantity of services or unit price or both. We compare the treatment of heart disease in HMOs and traditional insurance plans using two datasets from Massachusetts. The nature of these health problems should minimize selection. HMOs have 30% to 40% lower expenditures than traditional plans. Both actual treatments and health outcomes differ little; virtually all the difference in spending comes from lower unit prices. Managed care may yield substantial increases in measured productivity relative to traditional insurance.

Costs of medical injuries in Utah and Colorado.

Patient injuries are thought to have a substantial financial impact on the health care system, but recent studies have been limited to estimating the costs of adverse drug events in teaching hospitals. This analysis estimated the costs of all types of patient injuries from a representative sample of hospitals in Utah and Colorado. We detected 459 adverse events (of which 265 were preventable) by reviewing the medical records of 14,732 randomly selected 1992 discharges from 28 hospitals. The total costs (all results are discounted 1996 dollars) were $661,889,000 for adverse events, and $308,382,000 for preventable adverse events. Health care costs totaled $348,081,000 for all adverse events and $159,245,000 for the preventable adverse events. Fifty-seven percent of the adverse event health care costs, and 46% of the preventable adverse event costs were attributed to outpatient medical care. Surgical complications, adverse drug events, and delayed or incorrect diagnoses and therapies were the most expensive types of adverse events. The costs of adverse events were similar to the national costs of caring for people with HIV/AIDS, and totaled 4.8% of per capita health care expenditures in these states.

Medicare: what's right? What's wrong? What's next?

Although future Medicare costs are highly uncertain, reasonable projections of those costs suggest a major financing problem. The Balanced Budget Act of 1997 will provide temporary relief, although it introduced some new problems, including its geographic adjustment of Medicare+Choice rates. For the future we propose a premium-support system and an expanded benefits package. Such a system would provide a more flexible means to adjust the division of the financing burden between the elderly and the nonelderly, potentially gain some efficiencies from greater price competition and less reliance on administered pricing, and partly address the issue of uninsured early retirees.

Future directions for the national health accounts.

Over the past 15 years, the Health Care Financing Administration (HCFA) has engaged in ongoing efforts to improve the methodology and data collection processes used to develop the national health accounts (NHA) estimates of national health expenditures (NHE). In March 1998, HCFA initiated a third conference to explore possible improvements or useful extensions to the current NHA projects. This article summarizes the issues discussed at the conference, provides an overview of three commissioned papers on future directions for the NHA that were presented, and summarizes suggestions made by participants regarding future directions for the accounts.

US and UK health economics: two disciplines separated by a common language?

Victor Fuchs recently conducted two survey questionnaires of American health economists, showing substantial consensus among them on positive questions and much less consensus on policy questions. I attempted to replicate Fuch's surveys for members of the HESG. I dropped some items that were specific to an American context and added some new questions. Overall there was less agreement on positive questions and more on policy questions than among the US economists. Alan Williams' 1985 article 'Economics of Coronary Artery Bypass Grafting' was deemed the most influential by a British author on health economics as a discipline and British health policy.

Risk adjustment: where are we now?

Risk adjustment is intended to minimize selection of patients or enrollees in health plans. Current efforts generally are recognized as inadequate, but improvement is difficult. The greatest short-term gain will come from introducing diagnostic information, though outpatient diagnosis data are unreliable. Initial efforts may use inpatient data, but this creates incentives to hospitalize people. Even exploiting diagnosis information leaves substantial imperfections. Partial capitation, common in behavioral health, reduces incentives to select patients and stent on services, but current policy resists it, perhaps because policymakers misinterpret the lesson of the Prospective Payment System. Theoretically, not paying plans more for providing additional services is optimal only if consumers are well informed.

Risk adjustment of mental health and substance abuse payments.

This study used 1992 and 1993 data from private employers to compare the performance of various risk adjustment methods in predicting the mental health and substance abuse expenditures of a nonelderly insured population. The methods considered included a basic demographic model, Ambulatory Care Groups, modified Ambulatory Diagnostic Groups and Hierarchical Coexisting Conditions (a modification of Diagnostic Cost Groups), as well as a model developed in this paper to tailor risk adjustment to the unique characteristics of psychiatric disorders (the "comorbidity" model). Our primary concern was the amount of unexplained systematic risk and its relationship to the likelihood of a health plan experiencing extraordinary profits or losses stemming from enrollee selection. We used a two-part model to estimate mental health and substance abuse spending. We examined the R2 and mean absolute prediction error associated with each risk adjustment system. We also examined the profits and losses that would be incurred by the health plans serving two of the employers in our database, based on the naturally occurring selection of enrollees into these plans. The modified Ambulatory Diagnostic Groups and comorbidity model performed somewhat better than the others, but none of the models achieved R2 values above .10. Furthermore, simulations based on actual plan choices suggested that none of the risk adjustment methods reallocated payments across plans sufficiently to compensate for systematic selection.

Econometrics in outcomes research: the use of instrumental variables.

We describe an econometric technique, instrumental variables, that can be useful in estimating the effectiveness of clinical treatments in situations when a controlled trial has not or cannot be done. This technique relies upon the existence of one or more variables that induce substantial variation in the treatment variable but have no direct effect on the outcome variable of interest. We illustrate the use of the technique with an application to aggressive treatment of acute myocardial infarction in the elderly.

A model of the impact of reimbursement schemes on health plan choice.

Flat capitation (uniform prospective payments) makes enrolling healthy enrollees profitable to health plans. Plans with relatively generous benefits may attract the sick and fail through a premium spiral. We simulate a model of idealized managed competition to explore the effect on market performance of alternatives to flat capitation such as severity-adjusted capitation and reduced supply-side cost-sharing. In our model flat capitation causes severe market problems. Severity adjustment and to a lesser extent reduced supply-side cost-sharing improve market performance, but outcomes are efficient only in cases in which people bear the marginal costs of their choices.

What do managed care plans do to affect care? Results from a survey of physicians.

Little is known about physicians' exposure to managed care techniques that affect clinical practice. In 1995, we conducted a survey of 2,003 U.S. physicians asking them about their share of patients subject to a variety of managed care techniques. Nationally, 24% of physicians received some form of capitation payment for their patients. The two most widely used techniques were utilization review (UR), applied to an average of 59% of patients, and discounted fees, applied to an average of 38% of patients. Although UR was common, ultimate denial rates of coverage were very low: at most 3% for the types of care studied. Use of managed care techniques varied more within states than between states. Conventional measures of HMO market penetration revealed little about how managed care affects physicians.

Risk adjustment and Medicare: taking a closer look.

Medicare's method for reimbursing at-risk managed care plans causes potential problems with selection (when beneficiaries with higher-than-expected costs stay in traditional plans) and stinting (the tendency to underprovide health services). Adjusting payment by diagnosis offers substantial improvement. We favor large-scale demonstrations of diagnosis-based reimbursement. Reducing payment, a Clinton administration proposal, would recoup excess payments in the short run but not address the selection problem, which could reemerge. Selection makes current payments vulnerable to upward spirals. We propose not using traditional Medicare to update reimbursement. Basing some payment on enrollees' actual use addresses selection and stinting. Rather than reinsurance, we propose blending traditional Medicare and risk-adjusted capitation. Ceding some cases to traditional Medicare in advance appears to be useful for terminally ill patients.