Medicaid Markets and Pediatric Patient Safety in Hospitals

In 1999, the Institute of Medicine's (IOM), To Err is Human: Building a Safer Health System, estimated that preventable medical errors were responsible for between 44,000 and 98,000 deaths and that the total costs of preventable errors (including lost income, lost household production, disability, and health care costs) were as high as $17 billion, or approximately 2 percent of U.S. health care expenditures (Kohn, Corrigan, and Donaldson 2000). Much of the attention to patient safety in hospitals has largely focused on adult populations, who represent the vast majority of hospitalized patients. However, while children are disproportionately underrepresented as hospitalized patients, approximately 40 percent of all pediatric hospitalizations are charged to public insurance programs, primarily Medicaid, the joint state and federal program that finances health care for low-income families. In contrast, only 17 percent of adult inpatient visits are covered by Medicaid (Owens et al. 2003). Thus, the care and safety of children in hospitals may well be influenced by the policies of state governments through their prominent role as payer of inpatient pediatric services. The awareness of the extent of medical error in hospitals has occurred during a time of tremendous change in the Medicaid program. Since the early 1990s, most states, with increasing flexibility granted by the federal government, have transferred Medicaid-eligible children into managed care programs as a way to improve access to preventive services and to reduce health care expenditures. Between 1991 and 2004, the proportion of Medicaid recipients enrolled in managed care plans increased from under 10 to over 60 percent (Centers for Medicare and Medicaid Services; CMS 2005a, b, c). However, this overall rate underestimates the proportion of children covered by Medicaid managed care plans because low-income disabled and senior enrollees, the other populations covered under Medicaid, have tended to remain in the traditional fee-for-service Medicaid programs (Smith 1998). The organization of managed care potentially may improve care, but financial incentives increase the potential for reduced access and quality. A recent study finds that increased financial pressure on hospitals and reduced profits are associated with an increased likelihood of a preventable medical error (Encinosa and Bernard 2005). One possible source of this financial pressure is the consolidation of commercial health insurance plans. In recent years, mergers and acquisitions in private insurance markets (Robinson 2004), and withdrawal among commercial plans serving Medicaid enrollees (Felt-Lisk, Dodge, and McHugh 2001; Long and Yemane 2005) have reduced the number of competitors in local markets. In this article, we examine whether consolidation in Medicaid-payer markets is associated with preventable medical error for hospitalized children, using a measure of Medicaid-payer market power we have developed for this study. In the wake of the IOM report, the Agency for Healthcare Research and Quality (AHRQ 2005) sponsored the development of quality indicators, and an algorithm using hospital administrative data to identify potentially preventable adverse events during a patient's hospitalization (Miller et al. 2001). In our analysis, we apply the latest release (version 3.0b, May 2006) of pediatric-specific indicators and algorithm that, for the first time, allows for risk adjustment at the patient-discharge level. To date, the most comprehensive analyses of pediatric patient safety in hospitals are in Miller, Elixhauser, and Zhan (2003) and Miller and Zhan (2004). They used earlier versions of the PSI algorithm, which were developed for a more general (not pediatric) population and did not provide the means for patient-level risk adjustment. In these studies, the results were mixed on the relationship of Medicaid payer status, at the patient-discharge level, to the incidence of a patient safety event. While the focus of our study is on the market-level effects of Medicaid, we estimate the model at the patient-discharge level to determine whether the new, risk-adjusting PSI algorithm accounts for any unobserved heterogeneity between Medicaid and non-Medicaid patients that may not have been accounted for in previous studies. We also account for the influence of Medicaid at the hospital level, specifically looking at the association of disproportionate share hospital (DSH) payments, which are supplemental state and federal funds intended to reduce the financial burden of hospitals treating large numbers of Medicaid and uninsured patients, to the incidence of patient safety events. Sedman et al. (2005) applied the AHRQ PSI methodology to the administrative data of children's hospitals and combined this analysis with a clinical review of records to determine, for an event that occurred, whether it was, indeed, preventable. Guided by these findings, we conservatively choose two PSIs to include in our analysis: decubitus ulcer (i.e., severe pressure sore) and accidental puncture or laceration. As Sedman et al. (2005) note, decubitus ulcers are subjects in evidence-based best practices for adult populations and therefore should always be investigated, while accidental puncture or laceration is an event that is fairly unambiguously defined, and therefore should be less subject to miscoding by hospital personnel. In ongoing work, Sedman et al. find that 33 percent of the cases for the 11 PSIs analyzed are preventable, with decubitus ulcer and accidental puncture having the highest preventability scores.1