Back to Patient Safety Organizations Home
[Continued from previous section]
Affected Entities
To date, AHRQ has no hard information on the exact number of interested parties that may wish to become a PSO. AHRQ estimates, however, that 50 to 100 entities may request to become a listed PSO by the Secretary during the first three years after publication of the final rule. AHRQ anticipates a gradual increase in the number of entities seeking listing as a PSO and estimates that roughly 50 entities will seek PSO certification during Year 1, 25 entities during Year 2, and an additional 25 entities during Year 3, totaling 100 PSOs by the end of Year 3. After Year 3, we anticipate that the number of PSOs will remain about constant, with the number of new entrants roughly equivalent to the number of PSOs that cease to operate.
Healthcare providers, especially hospitals, currently assume some level of burden to collect, develop, and analyze patient safety event information similar to the information that will be reported to PSOs. We note that most institutional providers (especially larger ones) already do some of this data gathering. AHRQ anticipates that entities that currently operate internal patient safety event reporting systems either may be interested in: (1) Establishing a component organization to seek certification as a PSO; or (2) contracting with a PSO. Using data from the 2004 American Hospital Association, AHRQ conducted an analysis of the burden hours and likely costs associated with reporting patient safety event information to a PSO. See below.
Costs
The proposed rule enables providers to receive Federal protections for information on patient safety events that the providers choose to collect, analyze, and report in conformity with the requirements of the Patient Safety Act and the proposed rule. The proposed rule, consistent with the Patient Safety Act, does not require any entity to seek listing as a PSO and does not require any provider to work with a PSO. While all holders of patient safety work product must avoid impermissible disclosures of patient safety work product, we do not impose any specific requirements that holders must meet to comply with this obligation. The requirements of the proposed rule apply only to entities that choose to seek listing by the Secretary as a PSO. Similarly, the proposed rule does not impose requirements on States or private sector entities (including small businesses) that would result in additional spending, that is, the government is not imposing any direct costs on States or the private sector.
The Patient Safety Act, and therefore, the proposed rule, does impose obligations on entities that are listed by the Secretary as PSOs. Every PSO must carry out eight patient safety activities and comply with seven statutory criteria during its period of listing, including requirements related to the provision of security for patient safety work product, the ability to receive and analyze data from providers and assist them in implementing system improvements to mitigate or eliminate potential risk or harm to patients from the delivery of health care services.\19\ Because this is a new, untested, and voluntary initiative--coupled with the fact that PSOs currently do not exist--AHRQ does not have data on PSO fees, income, or expenses to estimate the precise monetized and non-monetized costs and benefits of the proposed rule. The following estimates reflect the cost of all incremental activities required (or contemplated) by the proposed rule.
\19\ These 15 requirements from the Patient Safety Act are discussed in proposed Sec. 3.102(b). The eight patient safety activities are defined in proposed Sec. 3.20 and the seven criteria are specified in proposed Sec. 3.102(b)(2).
For entities that seek to be listed as a PSO by the Secretary, AHRQ assumes that most of the total costs incurred will be for the establishment of a new organizational structure. AHRQ expects such costs to vary considerably based on the types of entities that request PSO listing (e.g., size; geographic location; setting; academic, professional, or business affiliation; and whether or not the entity is a component of a parent organization). It is anticipated that the proposed rule's cost to a PSO will likely be highest in the first year due to start-up and initial operational costs and establishment of policies and procedures for complying with PSO regulations. PSO operational costs will include the hiring of qualified staff, setting up data collection and reporting systems, establishing policies and procedures for ensuring data security and confidentiality, maintaining a patient safety evaluation system as required by the Patient Safety Act, and receiving and generating patient safety work product. The fact that PSOs are new entities for which there are no existing financial data means that estimates of the cost or charges for PSO services are a matter of speculation at this time. Additionally, the degree to which PSOs will exercise market power, what services they will offer, and the impact of a competitive environment is not yet known. Based on discussions with stakeholder groups, we believe that there will be a number of business models that emerge for PSOs. We anticipate that many PSOs will be components of existing organizations, which will likely subsidize the operations of their component PSOs for some time. Despite these limitations, AHRQ believes it can construct reasonable estimates of the costs and benefits of the Patient Safety Act. See "Provider-- PSO Costs and Charges" for an explanation of why the above-mentioned uncertainties do not preclude AHRQ from calculating overall costs, benefits, and net benefits of the Patient Safety Act.
As noted above, the proposed rule does not require providers to establish internal reporting or analytic systems. AHRQ expects, however, that many providers will do so in order to take full advantage of the protections of the Patient Safety Act. As a result, our estimates reflect an upper bound on the potential costs associated with implementation by assuming that all providers that choose to participate will establish robust internal reporting and analytic systems.
AHRQ recognizes that many state governments, public and private health care purchasers, and private accrediting and certifying organizations already employ voluntary and/or mandatory patient safety event reporting systems. As health care organizations increasingly focus on the monitoring of adverse events, the use of voluntary reporting systems to detect, evaluate, and track such events has also increased. Preliminary findings from AHRQ's Adverse Event Reporting Survey, conducted by the RAND Corporation (RAND) and the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), show that 98 percent of hospitals are already reporting adverse medical events.\20\ This survey was administered to a representative sample of 2,000 hospitals, with an 81 percent response rate. Thus, it is anticipated that the associated costs of the proposed rule for hospitals with existing patient safety event reporting systems will be very minimal, because the majority of these organizations already have the institutional infrastructure and operations to carry out the data collection activities of the proposed rule. AHRQ assumes that the estimated 2 percent of hospitals that currently have no reporting system are unlikely to initiate a new reporting system based on the proposed rule, at least in the first year that PSOs are operational.
\20\ RAND and Joint Commission on Accreditation of Healthcare Organizations. Survey on Hospital Adverse Event Reporting Systems: Briefing on Baseline Data. August 16, 2006 Briefing.
Hospital Costs
We extrapolated findings from the RAND-JCAHO survey in order to calculate the burden hours and monetized costs associated with the proposed rule, using data from the American Hospital Association's 2004 \21\ annual survey of hospitals in the United States \22\ to estimate the number of hospitals nationwide. This figure served as the denominator in our analysis. We acknowledge that, over time, not all providers working with PSOs will be hospitals; however, it is reasonable to use hospitals as a basis for our initial estimates, given the preliminary indications that hospitals will be the predominant, if not exclusive, providers submitting information to PSOs during the early years in which PSOs are operational.
\21\ American Hospital Association. Fast Facts on U.S. Hospitals from AHA Hospital Statistics. November 14, 2005. Available at: http://www.aha.org/aha/resource_center/fastfacts/fast_facts_US_hospitals.html. Web Page.
\22\ The 2005 survey results will likely be released in November 2006.
Based on American Hospital Association data, there are 5,759 registered U.S. hospitals--including community hospitals, Federal hospitals, non-Federal psychiatric hospitals, non-Federal long-term care hospitals, and hospital units of institutions--in which there are 955,768 staffed operational beds. Based on the RAND-JCAHO finding regarding event reporting in hospitals, AHRQ calculates that 98 percent of the 5,759 hospitals (5,644 hospitals with 936,653 staffed beds) already have, and are supporting the costs of, a centralized patient safety event reporting system.
AHRQ assumed that an institution will report an average of one patient safety event (including no harm events and close calls) per bed per month. Based on this assumption, AHRQ estimates that all hospitals nationwide are currently completing a total of 11,239,832 patient safety event reports per year. Based on the assumption that it takes 15 minutes to complete each patient safety event report, we estimate that hospitals are already spending 2,809,958 hours per year on this activity. At a Full-Time Equivalent (FTE) rate of $80 per hour, we estimate that all hospitals nationwide are currently spending approximately $224,796,634 per year on patient safety event reporting activities.
AHRQ estimates that, once collected, it will take an additional five minutes for hospital staff to submit patient safety event information to a PSO. We, therefore, estimate that the total burden hours for all hospitals nationwide to submit patient safety event information to a PSO totals 936,653 hours annually with an associated cost of $74,932,211 based on the assumption that all hospitals nationwide reported all possible patient safety events (using the heuristic of one event per bed per month).
During the first year following publication of the final rule PSOs will be forming themselves into organizations and engaging in startup activities. We assume that there will be a gradual increase in the number of entities seeking listing as PSOs, beginning with a 10 percent participation rate. We assume as many as 25 percent of hospitals may enter into arrangements with PSOs by the end of the first year; however, the overall effective participation rate will only average 10 percent. This assumption translates to 93,665 hours of additional burden for hospitals to report patient safety event information to PSOs with an estimated cost of $7,493,221. Assuming a 40 percent participation rate of all hospitals nationwide during the second year that PSOs are operational, there would be 374,660 burden hours with an estimated cost of $29,972,884. Assuming there is 60 percent participation rate of all hospitals nationwide during the third year that PSOs are operational, there would be 561,990 burden hours nationwide with an estimated cost of $44,959,326. (See Table 1).
In summary, the direct costs--which would be voluntarily incurred if all hospitals nationwide that choose to work with PSOs during the first five years also chose to establish systematic reporting systems-- are projected to range from approximately $7.5 million to nearly $63.7 million in any single year, based on 10 percent to 85 percent participation rate among hospitals. These cost estimates may be high if provider institutions, such as hospitals, do not submit all the patient safety data they collect to a PSO. If only a fraction of the data is reported to a PSO, the cost estimates and burden will be proportionately reduced.
Table 1.--Estimated Hospitals Costs To Submit Information to PSOs: 2008-2012
| Year | 2008 | 2009 | 2010 | 2011 | 2012 |
|---|---|---|---|---|---|
| Hospital Penetration Rate | 10% | 40% | 60% | 75% | 85% |
| Hospital Cost | $7.5 M | $30.0 M | $45.0 M | $56.2 M | $63.7 M |
PSO Costs
A second category of costs, in addition to incremental costs borne by hospitals, is that of the PSOs themselves. PSO cost estimates are based on estimates of organizational and consulting capabilities and statutory requirements. We followed the standard accounting format for calculating "independent government cost estimates," although the categories did not seem entirely appropriate for the private sector. In order to estimate PSO costs over a five-year period, we made several assumptions about the size and operations of new PSOs. Specifically, we assumed that PSOs would be staffed modestly, relying on existing hospital activities in reporting adverse events, and that a significant proportion of PSOs are likely to be component PSOs, with support and expertise provided by a parent organization. Our assumptions are that PSOs will hire dedicated staff of from 1.5 to 4 FTEs, assuming an average salary rate of $67/hour. We estimate that a significant overhead figure of 100%, coupled with 20% for General and Administrative (G&A) expenses, will cover the appreciable costs anticipated for legal, security, travel, and miscellaneous PSO expenses. Although we believe that the above estimates may be conservative, we also believe that PSOs will become more effective over time without increasing staff size. Finally, we estimate that the number of PSOs will increase from 50 to 100 during the first three years in which the Secretary lists PSOs and remain at 100 PSOs in subsequent years. Table 2 summarizes PSO operational costs for the first five years based on these estimates.
Table 2.--Total PSO Operational Costs: 2008-2012
| Year | 2008 | 2009 | 2010 | 2011 | 2012 |
|---|---|---|---|---|---|
| Number of PSOs | 50 | 75 | 100 | 100 | 100 |
| PSO Cost | $61.4 M | $92.1 M | $122.8 M | $122.8 M | $122.8 M |
Table 3 presents the total estimated incremental costs related to implementation of the Patient Safety Act, based on new activities on the part of hospitals and the formation of new entities, PSOs, from 2008-2012. Estimates for total Patient Safety Act costs are $80 million in Year 1, increasing to $186.5 million in Year 5.
Table 3.--Total Patient Safety Act Costs Including Hospital Costs and PSO Costs: 2008-2012
| Year | 2008 | 2009 | 2010 | 2011 | 2012 |
|---|---|---|---|---|---|
| Hospital Penetration Rate | 10% | 40% | 60% | 75% | 85% |
| Hospital Cost | $7.5 M | $30.0 M | $45.0 M | $56.2 M | $63.7 M |
| PSO Cost | $61.4 M | $92.1 M | $122.8 M | $122.8 M | $122.8 M |
| Total Cost | $68.9 M | $122.1 M | $167.8 M | $179.0 M | $186.5 M |
Provider--PSO Costs and Charges
We have not figured into our calculations any estimates for the price of PSO services, amounts paid by hospitals and other health care providers to PSOs, PSO revenues, or PSO break-even analyses. We have not speculated about subsidies or business models. Regardless of what the costs and charges are between providers and PSOs, they will cancel each other out, as expenses to providers will become revenue to PSOs.
Benefits
The primary benefit of the proposed rule is to provide the foundation for new, voluntary opportunities for health care providers to improve the safety, quality, and outcomes of patient care. The non- monetized benefits to public health from the proposed rule are clear, translating to improvements in patient safety, although such benefits are intangible and difficult to quantify, not only in monetary terms but also with respect to outcome measures such as years added or years with improved quality-of-life. Although AHRQ is unable to quantify the net benefits of this proposed rule precisely, it believes firmly that the proposed rule will be effective in addressing costly medical care problems in the health system that adversely affect patients, their families, their employees, and society in general. Finally, estimating the impact of the proposed rule in terms of measurable monetized and non-monetized benefits is a challenge due to a lack of baseline data on the incidence and prevalence of patient safety events themselves. In fact, one of the intended benefits of the Patient Safety Act is to provide more objective data in this important area, which will begin to allow tracking of improvement.
AHRQ has relied on key findings from the medical professional literature to provide a qualitative description of the scope of the problem. The Institute of Medicine reports that 44,000 to 98,000 people die in hospitals each year as a result of adverse events.\23\ The Harvard Medical Practice Study found a rate of 3.7 adverse events per 100 hospital admissions.\24\ Similar results were found in a replication of this study in Colorado and Utah; adverse events were reported at a rate of 2.9 per 100 admissions.\25\ Adverse events do not occur only in hospitals; they also occur in physician's offices, nursing homes, pharmacies, urgent care centers, ambulatory care settings, and care delivered in the home.
\23\ Institute of Medicine, "To Err Is Human: Building a Safer Health System", 1999.
\24\ Brennan TA, Leape LL, Laird NM, et al. Incidence of Adverse Events and Negligence in Hospitalized Patients. New England Journal of Medicine. 1991. 324: 370-76.
\25\ Thomas EJ, Studdert DM, Burstin HR, et al. Incidence and Types of Adverse Events and Negligent Care in Utah and Colorado. Medical Care. 2000. 38: 261-71.
The importance of evaluating the incidence and cost of adverse events cannot be underestimated. They are not only related to possible morbidity and mortality, but also impose a significant economic burden on both society and the individual (patient, family, health care workers) in terms of consumption of health care resources and lost productivity, and in many cases avoidable pain and suffering. However, to prevent adverse events, it may take many years for the proposed rule to achieve its full beneficial effects, and it will remain a challenge to track the effect of the proposed rule on the patient population and society, generally.
It may be possible to measure improvements in patient safety in general descriptive terms regarding improved health outcomes. However, it is more difficult to translate such improvements to direct monetary savings or outcome measures that can be integrated into a single numerical index (e.g., units of health improvement, years of life gained). By analyzing patient safety event information, PSOs will be able to identify patterns of failures in the health care system and propose measures to eliminate patient safety risks and hazards as a means to improve patient outcomes. As more information is learned about patient safety events through data collection by the PSOs, the care delivery environment can be redesigned to prevent adverse events in the future. However, PSOs will not have the necessary authority to implement recommended changes to improve patient safety in providers' health care delivery organizations. It will be up to the providers themselves to bring about the changes that will result in a reduction in adverse events and a resultant improvement in the quality of care delivered.
The submission of more comprehensive information by health care providers regarding patient risks and hazards will likely increase the understanding of the factors that contribute to events that adversely affect patients. The expected benefit of this information would be improvements in patient safety event reports and analyses, which would translate to better patient outcomes and possible economic savings attributable to the more efficient use of health care services. Due to the uncertainty of the benefits and costs associated with the proposed rule as delineated above, it is then possible only to make general estimates of the monetary values of expected improvements in patient outcomes, that is, savings to the healthcare system.
We can estimate monetized benefits by referring to the Institute of Medicine report, To Err Is Human,\26\ which estimates total national costs of preventable adverse events to be between $17 billion and $29 billion, of which direct health care costs represent over one-half (totaling between $8.5 billion and $14.5 billion). Based on the assumption that PSOs may be able to reduce the preventable adverse events by between one percent and three percent within their first five years of operation, this reduction would amount to be between $85 million--$145 million in savings at the 1 percent level if the whole nation were affected, and $255 million--$435 million at the 3 percent level, if the whole nation were affected. Applying a median figure from the Institute of Medicine range to PSOs, based on an increasing impact from 1%-3% as it grows over the first five years, we see progressively growing savings as shown in Table 4. It should be noted that we are estimating savings by assuming a percentage reduction of adverse events from the overall occurrence rate delineated by the Institute of Medicine report. We are not tying the estimated reduction to those events specifically reported to PSOs. Events that have already occurred do not represent a potential for savings. The presumption behind the estimated savings is that the reporting, analysis, and institution of ameliorating policies and procedures will result in fewer adverse events going forward because of such PSO activities.
\26\ Corrigan, J. M., Donaldson, M. S., Kohn, L. T., McKay, T., Pike, K. C., for the Committee on Quality of Health Care in America. To Err Is Human: Building a Safer Health System. Washington, DC: National Academy Press; 2000.
Table 4.--Total Estimated Cost Savings by Percent Reduction in Adverse Events: 2008-2012 *
| Year | 2008 | 2009 | 2010 | 2011 | 2012 |
|---|---|---|---|---|---|
| Hospital Penetration Rate | 10% | 40% | 60% | 75% | 85% |
| Percent Reduction in Adverse Events | 1% | 1.5% | 2% | 2.5% | 3% |
| Savings | $11.5 M | $69 M | $138 M | $215.625 M | $293.25 M |
* Source: Baseline figures from IOM Report, To Err Is Human, on total national health care costs associated with preventable adverse events (between 8.5 billion and 14.5 billion). Year 1 estimates are based on mid-point figures.
It is assumed that when the proposed rule is implemented, it will have a beneficial effect on patient outcomes. Eliminating adverse events would help to ensure the greatest value possible from the billions of dollars spent on medical care in the United States.\27\ AHRQ concludes that the potential benefits of the Patient Safety Act-- which encourages hospitals, doctors, and other health care providers to work voluntarily with PSOs by reporting of health care errors and enabling PSOs to analyze them to improve health care quality and safety--would justify the costs of the proposed rule.
\27\ Corrigan, J. M., Donaldson, M. S., Kohn, L. T., McKay, T., Pike, K. C., for the Committee on Quality of Health Care in America. To Err Is Human: Building a Safer Health System. Washington, DC: National Academy Press; 2000.
During the first five operational years of PSOs, we calculated the net benefits based on total costs and benefits. (See Table 5.) We estimate that costs of implementing the Patient Safety Act will reach break-even after 2010 and provide progressively greater benefits thereafter.
Table 5.--Net Benefits: 2008-2012
| Year | 2008 | 2009 | 2010 | 2011 | 2012 |
|---|---|---|---|---|---|
| Total Benefits | $11.5 M | $69 M | $138 M | $215.625 M | $293.25 M |
| Total Costs | $68.9 M | $122.1 M | $167.8 M | $179.0 M | $186.5 M |
| Net Benefits | ($57.4) M | ($53.1) M | ($29.8) M | $36.625 M | $106.75 M |
| Discounted net present value at 3% | ($55.7) M | ($50.0) M | ($27.3) M | $32.5 M | $92.1 M |
Discounted net present value at 7% |
($53.6) M | ($46.4) M | ($24.3) M | $27.9 M | $76.1 M |
Confidentiality Rule
The confidentiality provisions are included in the Patient Safety Act to encourage provider participation. Without such protections, providers will be reluctant to participate in the expanded reporting and analysis of patient safety events, and low participation will severely inhibit the opportunity to reap the benefits from efforts to improve patient safety. The proposed rule requires any holder of patient safety work product to maintain its confidentiality but, with the exception of PSOs, the appropriate security measures are left to the holder's discretion. Proposed Sec. 3.106 establishes a security framework that PSOs must address but, even then, PSOs are given discretion to establish the specific security standards most appropriate to their organization. Violation of the confidentiality provisions under the proposed rule creates a risk of liability for a substantial civil money penalty. If a person makes a knowing or reckless disclosure in violation of the confidentiality provisions, that person will be subject to the enforcement process, and subject to costs including participation in an investigation and payment of a civil money penalty, if imposed.
While participating providers may incur some costs associated with maintaining the confidentiality of patient safety work product (e.g., developing policies/procedures to keep information confidential, safeguarding the information, training staff, etc.), those activities and associated costs are not required by the proposed rule and are likely minimal in light of existing procedures to meet existing requirements on providers to maintain sensitive information as confidential. We are proposing a scheme that places the least possible amount of regulatory burden on participants while simultaneously ensuring that the confidentiality provisions are effectively implemented and balanced with the objective of encouraging the maximum amount of participation possible. We were mindful of not placing unnecessary regulatory requirements on participating entities because this is a voluntary initiative, and we did not want entities interested in participating to forego participation because of concerns about the associated risk of liability for civil money penalties.
Return to top
Return to Table of Contents
Return to previous section
Proceed to next section
540 Gaither Road Rockville, MD 20850