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You are here: Twin Peaks Group > * View all Blog Posts > The Apparently Dismal Economics of Reducing Hospital-Acquired Infections

The Apparently Dismal Economics of Reducing Hospital-Acquired Infections

Posted at 1:47 pm on May 09, 2012 by

Several months ago I wrote about the cost of an OR minute.

Hospital-aquired infectionsThis time I’m taking on the cost of a hospital-acquired infection (HAI). More specifically, I’ll be discussing the financial impact of eliminating an HAI on a hospital’s profitability. “What’s the cost of an OR minute got to do with the financial impact of eliminating an HAI?” you might ask. Plenty! It’s all about understanding the real financial consequences of improvement projects.

Let’s say your hospital’s accountants have determined the full cost of a particular HAI to be $20,000 over and above the cost of a normal stay for that condition or surgery. In arriving at the figure, they’ve taken into account the (average) cost of medications and supplies, the time of the nurses and their supervisors, the time of support staff, the utilities, the depreciation on the buildings and equipment, an allowance for the hospital administration, etc. So, if the HAI rate is reduced through the hard work of a group of clinicians, how much will the hospital save per HAI eliminated?

Sadly, the answer is not $20,000. It’s only about 10% to 15% of that figure. Why? Because that’s an estimate of the variable portion of the cost – primarily for the medications and supplies. So let’s assume that the hospital saves 15% or $3,000.

Now let’s look at what the hospital had to give up to reduce the HAI rate. Well, there were all those clinicians I mentioned. Their time is expensive. And they probably purchased some equipment for their project, and created a protocol that increases the hospital’s expenses.

The good news is that the correct way to analyze the situation is to ignore the clinicians’ time unless they were hired specifically to work on the project. However, we do have to take into account any additional expenses resulting from the new protocol. But we don’t expect them to be too big. Let’s say they average out to $200 per HAI averted.

At this point, then, the net savings appears to be $2,800 ($3,000 – $200) per HAI. This is far less than the $20,000 that would result from an incorrect analysis.

But wait! There’s more!

The Impact on Revenue

Suppose the hospital was receiving reimbursement for the excess length of stay associated with the HAI. Let’s assume that it was $5,000 or only 25% of the $20,000 cost. In that case, the hospital would lose $2,200 ($2,800 – $5,000) for each HAI it succeeds in eliminating. And so, the hospital could lose money by doing the right thing. It all depends on the magnitude of the average reimbursement associated with the HAI. In this example, if it’s greater than $2,800 the hospital loses money. Or, more correctly expressed, in the example, the hospital’s cash flow is negative if the average reimbursement associated with the excess length of stay exceeds $2,800.

The example is not a fantasy. It is based on a situation that Dr. Warren Sandberg and I recently addressed in a letter to the editor (PDF) of the American Journal of Medical Quality entitled “The Correct Business Case for the Michigan Keystone Patient Safety Program in ICUs.” In our letter, we consider an analysis that erred in using the full cost of an infection and the full expense associated with the clinicians’ time. However, as we state at the conclusion of our letter:

“[o]ur purpose is to help hospital leaders understand that, in the short term, the benefits of programs such as the one reported in the article, should be measured in terms of lives saved and improved rather than dollars.”

I’ll have more to say about the hospitals’ apparent dilemma associated with projects to improve clinical quality in a future post. Hint: It’s not as grim as it sounds, but it does require thinking out of the box.

IF you need help eliminating your HAIs, please contact us.

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