Medicaid, Hospital Financial Stress, and the Incidence of Adverse Medical Events for Children

National concern about the quality of children's health care, particularly about serious errors occurring in hospital settings, is growing. Recently, payers have begun to refuse reimbursement to providers for the most serious errors in hospitals. The Centers for Medicare and Medicaid Services (CMS) took the lead in October 2008, when it began using its purchasing power to reduce errors and improve quality. Accordingly, CMS started requiring hospitals to report on performance, linked such reporting to hospital payments, and instituted a policy of nonreimbursement for selected adverse events. Several state Medicaid programs and private payers, as well, refuse to reimburse hospitals for serious errors (Gever 2008). In 2010, the Patient Protection and Affordable Care Act incorporated reductions in reimbursement for specific events into both the Medicare and Medicaid programs (Henry J. Kaiser Family Foundation 2010). Clearly, the movement toward such reimbursement policies has taken hold and will likely become a permanent feature of medical payment policies. The underlying premise of these initiatives seems to be that hospital medical staff and management have the ability to prevent the occurrence of most, if not all, of these events. Thus, withholding hospital reimbursement properly holds the hospital accountable and provides an additional incentive to prevent adverse events from occurring in the first place. While such policies seem to be driven by this premise, prior research suggests a more complicated mechanism. One seemingly clear line has been drawn, for instance, between the poor financial status of hospitals and poor health outcomes of patients (Shen 2003; Encinosa and Bernard 2005; Bazzoli et al. 2007). As hospitals experience greater financial pressure from reduced revenues, they may be forced to reduce investment in infrastructure and processes tied to quality and safety. If that is the case, then it is unclear to what extent hospital medical staff or management should be held accountable for the occurrence of adverse events. For hospitalized children, Medicaid is the single largest payer, accounting for approximately 40 percent of pediatric discharges nationally. On average, the level of Medicaid reimbursement is approximately 70–80 percent of Medicare (Zuckerman, Williams, and Stockley 2009), each of which is generally less than private-payer reimbursement. To the extent Medicaid reimbursement may already place financial pressures on hospitals, a policy of nonreimbursement for the occurrence of preventable adverse pediatric events would seemingly only exacerbate the problem, at least for some kinds of adverse events. The main question this study addresses is whether the comparatively low levels of, and reliance on, Medicaid reimbursement contribute to the problem of pediatric adverse events in hospitals. In addressing this question, we attempt to distinguish between events associated with Medicaid reimbursement and those associated with other factors. Because the unit of analysis is the patient-discharge level, we also control for the Medicaid insurance status of the patient. Results of previous studies on the effect of Medicaid payer status on the probability of an adverse pediatric event are mixed (Miller, Elixhauser, and Zhan 2003; Miller and Zhan 2004; Slonim et al. 2007). However, in these studies, it was unclear to what extent Medicaid payer status was capturing the effect of Medicaid's economic impact on the hospital, because the level and reliance on Medicaid reimbursement were not accounted for at the hospital level. In 2006, the Agency for Healthcare Research and Quality (AHRQ) released the Pediatric Quality Indicators (PDIs). These measures can be used to estimate serious safety events for hospitalized children. Prior to the release of the PDIs, studies relied on the adult-oriented Patient Safety Indicators, some of which have been shown to be inappropriate for children (Sedman et al. 2005). This study makes use of this pediatric-specific set of quality indicators. Further, unlike most recent studies of pediatric-patient safety (Slonim et al. 2007; Kronman et al. 2008; Scanlon et al. 2008), we examine adverse events for children from a national sample of pediatric discharges in community hospitals, over 3 years (2005–2007), purposefully excluding stays in pediatric (or children's) hospitals because community hospitals represent a more general, and common, setting of pediatric medical care.