Broader implications of Aetna’s never event policy

In normal industries when someone makes a mistake it has negative financial consequences. When a factory damages a widget during the manufacturing process, the company can’t sell the final product and has to absorb the labor, material and capital costs of the wasted efforts. To survive in a competitive industry factories focus on increasing first-pass yield, reducing scrap, and pursuing initiatives such as six sigma to virtually eliminate defects. Factories with low yields and high defect rates go out of business. That’s capitalism and it works.

Health care is a lot different. If a hospital or physician makes an error, they can typically bill for the work involved in making that error. Not only that –they can also bill for the work involved in correcting the mistake or mitigating the damage! Unlike sub-par factories, hospitals with low yields and high defects can be just as profitable or more profitable than hospitals that perform much better. And thanks to the complexity of health care and lack of solid measurement and reporting, such performance may be obscured from the general public and even from hospital management itself.

Medicare started trying to change this situation over the last couple of years, announcing it would stop paying for “never events” –big mistakes that everyone agrees should never happen. Examples include wrong-side surgery and wrong-patient surgery. These are quite rare so the financial impact on a hospital wouldn’t be great. However it set the precedent. Private payers such as Aetna followed along and these policies are now fairly common.

I’m glad to see that Aetna is now taking the next step: forcing providers to lose all the revenue associated with caring for the affected patients for the three most egregious kinds of errors. Aetna is also making the providers take a number of reporting steps when such events occur. Those requirements may get more attention but I don’t think they matter that much.

It will be interesting to see where things go from here. How many patients will be affected? Will Aetna expand the policy beyond the most serious events?

The true test of Aetna’s policy and others like it will be whether it causes the financial performance of high and low performing hospitals to diverge. If so that will be a good thing: the introduction of tried and true market forces to health care, driving quality up and costs down.

August 26, 2009

12 thoughts on “Broader implications of Aetna’s never event policy”

  1. While a good policy move, and a good move for PR purposes, does Aetna have enough business in any one hospital to have any real chance of actually finding a SRE and actually influencing care processes?

    Can you separate out the effect of Aetna from Blue Cross or Medicare?

  2. So part of Aetna’s plan is to manage the no-charge care that the person who suffered the “never” mistake is going to get?

    Given the perverse nature of medical billing I can imagine patients who aren’t supposed to be billed for fixing mistakes receiving bills, dunning notices, and getting screwed over on care.

    That would be injury to insult.

  3. The financial impact of Medicare’s no pay for never events rule is miniscule – $21m/yr in savings, per CMS – due to the fact that most never events are coupled with comorbidities that ARE paid for under the MS-DRG system (see my post on 2009 IPPS including this point at http://bit.ly/z8JFO). Unclear whether Aetna’s policy will have a significant impact on providers. Seems to me the policies make for good PR, but tend to have minimal imapct.

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