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New Tool Shows Hidden Medical Costs Caused by Hospital Errors

Employers can use calculator to steer workers toward more efficient, less expensive healthcare facilities

Jeff Brown, chief of staff at the New Jersey Health Care Quality Institute.
Jeff Brown directs the New Jersey Health Care Quality Institute’s QI Collaborative, a group that focused on redesigning the healthcare delivery system.

A new tool released last week enables employers that self-fund employee health insurance to estimate how much hospital errors cost them.

The premise is that hospitals making fewer mistakes require patients to undergo fewer additional procedures or treatments, which lowers costs.

The hope is that laying out those costs in the context of safety records will help steer employees to those more efficient hospitals.

The Leapfrog Group, an organization funded by employers, released the Hidden Surcharge Calculator on Thursday. The calculator uses the organization’s own hospital safety scores.

The calculator, which is available for download, estimates that an employer whose workers were admitted to the hospitals 1,000 times in a year would spend $6.92 million if it used a mix of hospitals with safety scores at the national average.

Officials with the New Jersey Health Care Quality Institute, a nonprofit affiliate of the Leapfrog Group, said the calculator could become a valuable tool in providing incentives to improve healthcare quality.

The tool will be most useful for employers that have access to their employees’ hospital use data, such as large employers that fund their own health expenses rather than paying an insurance company to cover their workers.

Jeff Brown, chief of staff to NJHCQI President and CEO David Knowlton, said that these employers could push their workers to use safer hospitals.

“We’ve always known that unsafe healthcare costs more money,” Brown said, noting that the traditional healthcare delivery system leads to hospitals being paid more when errors lead to additional procedures. “But now, with this tool, employers can easily estimate the costs” of employees going to less-safe hospitals.

Brown said there are different ways that employers can inform employees about the costs.

“For example, we would hope they would share this information with their employees in the form of just suggesting safer hospitals,” Brown said.

But employers could take a more concrete step, such as designing their healthcare benefits so that employee deductibles – the amount that employees must pay before the employer picks up the costs – would be lower if they choose to use the safer hospitals.

Brown said this could “bend the cost curve,” referring to the national effort to reduce the growth rate of healthcare costs.

Leapfrog Group President and CEO Leah Binder unveiled the calculator at a World Health Congress seminar in Chicago.

Binder said in a statement: “It’s counterintuitive and outrageous, but you will pay a lot more for hospitals that have more errors, accidents and infections. Errors aren’t typically marked as a line item on a bill — but purchasers and consumers are paying millions of dollars for them, and we’ve substantiated it with our research.”

Knowlton said the calculator is a “big deal” for employers and healthcare purchasers.

“For years now we’ve known that hospital errors were costing employers money, now we have a way to accurately estimate just how much money is being wasted on sub-par care,” he said.

Christine Stearns, vice president of health and legal affairs for the New Jersey Business & Industry Association, said the calculator “is certainly in concept an interesting way to illustrate the connection between the cost of healthcare and quality.”

Stearns, who is an NJHCQI board member but wasn’t involved in developing the calculator, said she wasn’t aware of any employer health plans that provide incentives for employees to go to safer hospitals.

"Hospitals and employers have a shared goal of increasing the quality of care and reducing medical errors,” Stearns said. “Now that this information is available to employers, the question becomes what steps might employers take? Can they change their employees' behavior?”

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