1. Kurtzman, Ellen T. MPH, RN
  2. Buerhaus, Peter I. PhD, RN, FAAN


On October 1 the Centers for Medicare and Medicaid Services (CMS) will eliminate additional Medicare payments for eight preventable hospital-acquired conditions. The new payment rule, known as CMS-1533-FC, is part of a broad effort to refine Medicare's prospective-payment system and improve care quality, and it also gives nurses a tool with which to alter their economic relationship to hospitals. This article describes the new CMS rule, spells out its potential impact, and recommends how nurses can use the rule change to demonstrate their economic value to hospitals.


Article Content

Jeannette Lewis, an 82-year-old Medicare beneficiary, is hospitalized with a primary diagnosis of intracerebral hemorrhage. (This case is a composite based on our experience.) She requires a catheter to relieve acute urinary retention related to neurologic impairment but soon develops a urinary tract infection (UTI). After Ms. Lewis recovers and is discharged, the hospital bills Medicare, coding the UTI as "ICD-9-CM 996.64," signifying that it was a complication of care. Medicare pays the hospital $8,117.05, including $1,089.91-more than 13% extra-for costs incurred in treating Ms. Lewis's UTI.


This has been the Medicare standard for reimbursement, but that's about to change. Mounting economic pressures in recent years, along with consumers' deepening concerns over the quality and cost of health care, have led to a wider application of performance measures in health care.1 One recent example is President George W. Bush's signing of an executive order on August 22, 2006, that directed federal agencies "that administer or sponsor federal health insurance programs" to publicly disclose information on services provided-payments made to providers and the quality of care given-among other mandates. Such federal policies have paved the way for more dictates regarding transparency so that consumers know who's responsible financially and clinically for their care. Another consequence is the trend toward "pay for performance," which offers financial rewards for higher quality care.2 (For more information, see "Pay for Performance," AJN Reports, December 2006.)


The Centers for Medicare and Medicaid Services (CMS), which administers Medicare, the federal insurance program for people ages 65 and older (as well as some younger people with disabilities and all people with kidney failure), recently announced plans to upgrade to pay-for-performance standards for hospitals. Specifically, in a report submitted to Congress in November 2007, the CMS outlined a plan to transition from its current approach, known as the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program, to a fully operational pay-for-performance program. In the meantime, and as a first step toward tying payment to performance, on October 1, the CMS will cease paying the additional costs of treating selected preventable complications, such as pressure ulcers, that arise during a patient's hospitalization.3


Because Medicare is the predominant health insurer in the United States, the impact of this change on hospital policies and clinical practice is expected to be dramatic. More than 39 million Americans are covered by Medicare,4 and patients ages 65 and older account for nearly 14 million discharges from short-stay hospitals annually (although some of these are certainly repeat hospitalizations).5 According to our calculations based on CMS estimates of 2007 prevalence rates of certain hospital-acquired conditions, up to 490,000 claims could be paid at a lower rate under the new rule, known as CMS-1533-FC.6 It's estimated that Medicare will save $20 million annually in direct payments, but the impact on U.S. health care costs and reimbursement is likely to be much greater.7 A study by Zhan and Miller suggests that 18 types of medical error could account for 2.4 million extra hospital days or $9.3 billion in extra charges each year for all payors.8


In addition, because researchers have documented a correlation between high-quality nursing care and lowered rates of complications,9-11 nurses can take this change as an opportunity to document their contribution to hospital revenues and to redefine their economic relationship to hospitals.


Most hospital nurses are salaried; hospitals consider those salaries a cost of doing business. In most hospitals, nurses represent about 40% of the direct-care budget.12, 13 By contrast, physicians are revenue generators because hospitals charge the CMS and other payors for the costs of the resources used to produce the medical care provided by or ordered by physicians. Until now, there hasn't been a mechanism under Medicare payment policies for measuring nurses' specific economic contribution to hospitals. CMS-1533-FC offers a mechanism for doing so; to the degree that nursing care prevents costly complications, hospitals will not lose money. In this way, the new Medicare payment rule has the potential to more clearly demonstrate nurses' economic value to hospitals.


Research has shown that several hospital-acquired complications (such as pressure ulcers, falls with injury, bloodstream infections, and UTIs) are linked to the size and composition of the nursing workforce.9-11, 14 Although the studies have shown an association between staffing and these outcomes, the studies' authors acknowledge the influence of other factors besides the quality of nursing care.


This article examines the impending changes in Medicare's "inpatient prospective payment system" and how they are likely to affect hospital nurses. We conclude by recommending strategies that nurses, nurse managers, and chief nursing officers can use to systematically address clinical complications while documenting the cost benefit to hospitals.



The overall objective of CMS-1533-FC, according to a CMS press release, is "to improve the accuracy of Medicare's payment under the acute care hospital inpatient prospective payment system [horizontal ellipsis] while providing additional incentives for hospitals to engage in quality improvement efforts."15 The rule makes a number of changes to Medicare payment policy (see Important Payment Changes Required Under CMS-1533-FC, at left). But the change most relevant to nurses is the October 1 elimination of additional payments for the treatment of these eight hospital-acquired conditions3 (followed in parentheses by the number of cases and the average cost per hospitalization in fiscal year 20076):


* pressure ulcers (257,412 cases of stage III and IV ulcers, at a cost of $43,180 per hospitalization)


* preventable injuries such as fractures, dislocations, and burns (193,566 cases, $33,894 per hospitalization)


* catheter-associated UTIs (12,185 cases, $44,043 per hospitalization)


* vascular catheter-associated infections (29,536 cases, $103,027 per hospitalization)


* certain surgical-site infections (69 cases, $299,237 per hospitalization)


* objects mistakenly left inside surgical patients (750 cases, $63,631 per hospitalization)


* air emboli (57 cases, $71,636 per hospitalization)


* blood incompatibility reactions (24 cases, $50,455 per hospitalization)



(The items in bold have been endorsed by the National Quality Forum [NQF] as complications associated with nursing care; see The NQF's National Voluntary Consensus Standards for Nursing-Sensitive Care, page 34.)


Nurses know that their care can reduce the incidence of some of these conditions. Reports of nurse-directed interventions that significantly improve the very conditions the new payment rule targets have been cited in the literature; risk assessment, surveillance, early diagnosis, treatment, and education have been shown to be effective in lowering rates of pressure ulcers, falls, and infections.16-19 One such hospital initiative is Transforming Care at the Bedside (TCAB), through the Institute for Healthcare Improvement and the Robert Wood Johnson Foundation, which provides "a framework for change on medical-surgical units." Jack Needleman, who is leading the formal evaluation of TCAB, has told us that under TCAB, nurses working with hospital administrators have helped to redesign work areas, improve communication, and develop care practices to reduce the rates of pressure ulcers, medication errors, and harm from falls. (AJN's editor-in-chief Diana Mason is a member of TCAB's national advisory committee; for more information on TCAB go to


In Medicare's new payment climate, nurses have an opportunity to use this knowledge to change the hospital industry's perception of nursing: by preventing complications and maximizing reimbursement, nurses can make the case for institutional support of nursing services, including needed improvements in staffing.


But this is easier said than done. Among the challenges nurse leaders face is the relative lack of data on the quality of nursing care and inconsistencies among the evaluation tools used to measure care quality. These inconsistencies exist even among data-collection initiatives focused on nursing performance, such as the National Database of Nursing Quality Indicators (NDNQI) and the California Nursing Outcomes Coalition Database (CalNOC) Project. And they persist despite endorsement by the NQF of Voluntary Consensus Standards for Nursing-Sensitive Care. In addition, these initiatives pick and choose from among the quality standards recommended by the NQF. This makes it harder for hospitals to incorporate nursing-sensitive measures in their own data-collection systems. Efforts to align these initiatives with NQF standards are ongoing. The new payment rule also leaves a great deal open to interpretation. For example, it doesn't address patient acuity; nor does it address whether nurses are permitted to document the presence of these secondary conditions at admission.


A follow-up round of rulemaking in April clarified some of these issues, but new concerns will inevitably arise in October. Already, the CMS is proposing to add nine more hospital-acquired conditions to the original list of eight. Nurses must vigilantly follow the evolution of policy initiatives in this area and be ready to submit comments to the CMS during periodic rulemaking cycles. Comments for this cycle will be accepted through June 13. See Act Now!! on this page for more information on how to do so.



To a large extent, CMS-1533-FC incorporates Medicare payment policies that have already been field tested and adopted by several states (Minnesota, for one), private insurers such as HealthPartners, and employer coalitions such as the Leapfrog Group. As will be the case with Medicare beginning October 1, each of these entities has stopped paying for preventable adverse events; the insurers WellPoint and Aetna have also announced plans to follow suit. California, since July 2007, requires reporting of the NQF's "never 27" list of adverse events; the state investigates such reports, and hospitals deemed in violation may have to pay fines (see "The Price of Committing Error," In the News, August 2007).


Because these are relatively new initiatives, it's hard to generalize about their effects on patient care, nursing practice, and hospital finances. Wachter and colleagues speculate that hospitals will be under pressure to document whether a condition was present on admission, predicting "that virtually all Medicare patients-and ultimately, probably all adults, as other insurers follow Medicare's lead-will have urinalyses and head-to-toe skin exams on admission."20 Some observers expect hospitals to step up vigilance and push evidence-based protocols to prevent hospital-acquired conditions, while others believe the new payment formula could induce hospitals to manipulate Medicare coding systems that document patient conditions for billing purposes.21, 22 For example, several of these hospital-acquired conditions are notoriously difficult to diagnose (such as catheter-associated infections), and coding practices aimed at documenting their presence on admission are likely to require experience. The rule includes some leeway that could be used by hospitals for financial gain. For example, if one condition is acquired in the hospital, there would be no reimbursement for its treatment. But if two or more are acquired, there are provisions for payment under the rule. Furthermore, the policy does not exclude payment for these conditions under a separate system of so-called outlier payments for unusually expensive cases. This is the CMS's way of acknowledging that certain fragile patients can deteriorate during hospitalization despite good care.


The possible downside for nurses. As with any major change in policy, particularly where hospital payment is concerned, this rule change could have a negative impact on nurses. Should hospitals see a significant loss of revenue, some might respond in a punitive way, even blaming nurses. But blaming nurses-or any other type of worker-does little to improve systems quality, researchers have found.23 Whether the employee is assembling automobiles or caring for hospitalized patients, quality is best addressed through a systems approach. Blaming workers has been found to divert resources and attention away from issues of quality and damages morale and satisfaction.24-26 In fact, historically, inadequate organizational support for nurses has resulted in dissatisfaction, burnout, and turnover.27 The nursing profession has had little experience with payment being tied directly to outcomes, and it's difficult to anticipate how hospitals will respond.



The potential benefits of CMS-1533-FC may go well beyond giving hospital nurses more economic clout. By rewarding quality and penalizing error, the new payment formula can help to lower rates of complications, lessen pain, shorten hospitalizations, and reduce the number of days patients lose from work. As error and complication rates decline, hospitals could see lower costs related to managing liability and risk, improved public relations, and greater market share as employers, insurers, and other payors focus more and more on the quality of care. And where possible, nursing's contribution to these improvements should be measured, made visible, and rewarded.


Recommendations. As October 1 approaches, hospitals will be scrambling to determine the prevalence of these eight conditions and develop strategies for protecting profits. Nurses should be a part of this planning; they provide valuable insight into the care at-risk patients need, as well as ideas for preventing complications. Other recommendations include the following:


* Start educating nursing staff now on the new payment formula and the importance of collecting data that show nurses' contribution to reducing rates of errors, accidents, complications-and revenue losses. This is especially important on nursing units such as ICUs where these conditions are likely to develop.


* Get active at the state, regional, and national level, pushing for data sets that can be used to document and quantify nursing's contribution to health care quality.


* Make reducing hospital-acquired conditions part of a comprehensive nursing strategy of risk assessment, quality monitoring, surveillance, and performance improvement.


* Don't leave everything to the accountants. In order to guard against punitive consequences, nurse leaders must be well informed when it comes to coding practices and the new payment formula's effect on hospital bottom lines.


* Work closely with hospital leadership to build a nonpunitive environment for fine-tuning the clinical response to CMS-1533-FC. But also keep an eye out for nurses who resort to protective "work arounds"-for example, by seeking assignments to patients who are least likely to develop these conditions-in order to avoid blame for complications.


* Seek interdisciplinary support. Hospital informatics personnel, for example, can be helpful in designing data-collection systems or decision-support tools to help identify and treat hospital-acquired conditions as early as possible.



CMS-1533-FC offers substantial opportunities for hospital nursing to raise its clinical and economic profile. At the same time, there are risks-chief among them the "culture of blame" that points a finger at individuals rather than reforming systems in responding to medical error. Nurse leaders should hasten to assume guiding roles as hospitals plan for the new payment system.




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