DOI: 10.1200/JOP.2016.014860 Journal of Oncology Practice - published online before print February 28, 2017
Impact of a New Palliative Care Program on Health System Finances: An Analysis of the Palliative Care Program Inpatient Unit and Consultations at Johns Hopkins Medical Institutions
See accompanying editorial on page
Palliative care inpatient units (PCUs) can improve symptoms, family perception of care, and lower per-diem costs compared with usual care. In March 2013, Johns Hopkins Medical Institutions (JHMI) added a PCU to the palliative care (PC) program. We studied the financial impact of the PC program on JHMI from March 2013 to March 2014.
This study considered three components of the PC program: PCU, PC consultations, and professional fees. Using 13 months of admissions data, the team calculated the per-day variable cost pre-PCU (ie, in another hospital unit) and after transfer to the PCU. These fees were multiplied by the number of patients transferred to the PCU and by the average length of stay in the PCU. Consultation savings were estimated using established methods. Professional fees assumed a collection rate of 50%.
The total positive financial impact of the PC program was $3,488,863.17. There were 153 transfers to the PCU, 60% with cancer, and an average length of stay of 5.11 days. The daily loss pretransfer to the PCU of $1,797.67 was reduced to $1,345.34 in the PCU (−25%). The PCU saved JHMI $353,645.17 in variable costs, or $452.33 per transfer. Cost savings for PC consultations in the hospital, 60% with cancer, were estimated at $2,765,218. $370,000 was collected in professional fees savings.
Palliative care (PC) programs, both consultation and inpatient unit–based (ie, a palliative care unit [PCU]), have been associated with improvements in symptom management and the quality of the patient experience,1,2 as well as increases in hospice referrals and improvements in survival.3-5
PC may reduce end-of-life resource utilization. One study6 found that PC consultation reduced the use of unnecessary care before death; patients who received PC were less likely to have chemotherapy, intensive care unit (ICU) admissions, multiple Emergency Department visits, and hospitalizations near death, compared with standard care. Similarly, a study from Veterans Affairs Medical Centers found that patients with PC were less likely to have an ICU stay, and had a shorter mean ICU length of stay, compared with standard care.7
Recent studies have emphasized the potential cost savings of PC relative to standard care for advanced illness.8-12 A comprehensive literature review by Smith et al9 found that the daily costs of care in the PCU were $1,095, compared with $2,538 outside of the PCU, a 57% reduction. Moreover, Nathaniel et al13 observed that a patient’s mean cost per day was $687 less in the PCU, compared with other acute care units.
Select studies have demonstrated the potential cost savings of PC consultations.11 For example, May et al14 found that PC inpatient consultation led to a 24% reduction in direct cost (if PC consultation occurred by day 2) and a 14% reduction in direct cost (if PC consultation occurred by day 6); this relationship was strengthened when patients had comorbidities. Bendaly et al15 found that the total costs of PC were $35,824, compared with $42,731 for standard care, a 16% reduction. Other studies have shown a 13% difference in costs between those receiving and not receiving a PC consult.16
Although the literature suggests the cost-savings potential of PC, some studies have methodological limitations, including heterogeneous methods,17 poor quality of evaluation,17 limited generalizability of the findings as the result of different models of care, and limited studies with control groups.18
In addition to improving patient care, an organized PC service can bring cost savings to a hospital. Whereas most studies have performed their cost-minimization analyses on the basis of clinical trial data, few have used administrative data that are available at most hospitals to estimate the total impact of a PC program on health system savings.19 In this study, we documented the financial impact of a PC program for a large academic health medical center, the Johns Hopkins Medical Institutions (JHMI). The cost analysis considers three components of this PC program, using administrative data: PCU costs, PC consultation costs (for patients in other inpatient units), and professional fees income. This analysis was done as JHMI prepared to expand the PCU from six to 11 beds and while increasing inpatient PC consultation capacity.
In March 2013, JHMI established a six-bed PCU with the goals of taking care of the patients with the most complex symptom needs, and providing optimal support for patients and their families. Care received at the PCU was not inpatient hospice care, but active management (eg, transfusions, epidural/intraspinal pain management, radiation, and physical therapy). The care provided in the unit was overseen by a hospice and palliative medicine (HPM)–trained physician who worked alongside other part-time HPM physicians and advance practice nurses (APNs). Many of the nurses were not trained in PC; however, the staff comprised PC-trained physical therapists, social workers, occupational therapists, and chaplains. The unit received patients directly from the Emergency Department, and as transfers from other Departments (eg, ICUs). Patients were discharged to homecare, home hospice, or subacute institutional care (hospice/nursing home). When not occupied by the PCU, patient beds were allocated to surgical and medical patients to ensure that revenue was maintained.
For PC consultations, physicians could request a PC consult and one of the HPM physicians or advance practice nurses would visit the patient, conduct an assessment, and provide the necessary care, including transfer to the PCU.
The study used administrative data for the PCU from March 2013 to March 2014, chosen because it was the first year of operation for the program. This analysis used 13 months of data, because the first month of operation entailed a slower uptake. This analysis compares variable costs for the 153 PC patient encounters. Patient encounters are each distinct stay of a patient in the unit (ie, if a patient was in the unit twice, he/she would be counted as two separate encounters).
Variable costs vary according to patient volume and include variable direct costs, which are directly related to patient care (eg, supplies, nursing labor, radiology/laboratory technicians); and variable indirect costs, which are indirectly related to patient care (eg, medical records clerks and housekeeping). Variable indirect costs are calculated as 24.2% of the total indirect costs, which also account for fixed indirect costs. Fixed costs are excluded from the calculation of costs because they are incurred regardless of where the patient receives care at JHMI.
For these 153 patient encounters, we calculated the difference between (a) variable costs per day in another functional unit before patients were transferred to the PCU (ie, Pre-PCU) versus (b) variable costs per day after transfer to the PCU (ie, PCU).
To assess the Pre-PCU costs, we inventoried the resources used by the patients before they were transferred to the PCU. Given that cost of care upon admission to a hospital is generally higher than at other times as a result of diagnostics, Pre-PCU costs were determined by the mean daily costs of two days before transfer for each patient encounter, which is an established method.20
To assess the PCU costs, we calculated the mean daily variable costs of the entire PCU length of stay. The mean daily variable costs of Pre-PCU and PCU were multiplied by the number of patients transferred to the PCU (153) and by the average length of stay in the PCU (5.11 days) to generate total variable costs per group. Because length of stay in the PCU was shorter than Pre-PCU, we used the amount of days in the PCU for ease of comparison.
Consultation savings were estimated using established methods by Morrison et al,11 wherein we divided consultations into categories of whether the patient was alive or decedent upon discharge from the hospital, assuming 11% decedent patients. Of note, Morrison et al excluded > 30-day stay outliers, and used propensity weighting to match PC and non-PC patients. We adjusted the findings of Morrison et al to US dollars in 2014, from $1 (2004) to $1.40 (2014) on the basis of the consumer price index health care component, using a commercially available calculator.21 To determine the total cost savings for consultations, we multiplied the number of consultations per category by the inflation-adjusted costs established by Morrison et al. We performed this analysis for the 964 inpatient consultations that occurred in the time period under study.
Similar to other institutions, JHMI accounts for professional fees (ie, a physician’s income for care provided to patients) as separate from the general cost of care for a hospital stay (eg, other health professionals’ time, equipment). JHMI typically uses a cost-to-charge ratio to determine professional fees, with estimated cost-to-charge ratio for professional fees of 45.5% for variable costs and 55.5% for fixed costs (Appendix Box 1 , online only). The actual collection rate is 50%–52%. For this analysis, a collection rate of 50% averaged across all insurers was assumed for professional fees.
We ran Shapiro-Wilk tests and constructed box plots to determine the distribution of the PCU costs. Because our data seemed skewed, we first performed the Wilcoxon signed-rank test for paired nonparametric data to assess the difference between Pre-PCU and PCU. Second, we performed a bootstrap analysis to verify the significance of our mean difference. All statistical analyses were performed using Stata statistical software.22
We were unable to conduct a similar analysis for the PC consultations and professional fees because we did not have access to the clinical characteristics of the usual care patients for propensity matching. The study by Morrison et al11 required 2 years of analysis and substantial grant support, and our financial analysis colleagues were satisfied by the standardized methods used in past studies.6-10,14-16,22
Definitions of the financial terms are given in the Appendix (online only). The Johns Hopkins Institutional Review Board approved this study.
From March 2013 to March 2014, 153 patients were transferred to the PCU from JHMI’s other functional units. These patients brought their prior costs and reimbursements when they were transferred. Although the unit cared for 56 patients who were transferred directly to the PCU from the Emergency Department, this cost-minimization analysis focused only on the patients who received care elsewhere in JHMI before transfer to the PCU to allow for a pre/post design. Table 1 contains overall revenue and costs for these 153 patients.
The PCU operated at 54% occupancy in the first year. The average length of stay was 5.11 days. Fifty-seven percent of transfers came from the ICU, which freed beds. The remaining patients were transferred from the following units: 23% from Surgical Science, 15% from Neuroscience, 2% from OB/GYN, 2% from the Emergency Department, and 1% from Oncology. Although only 1% of patients were transferred from Oncology (where there were some PC services in place), 60% of the transfers had cancer as a primary diagnosis, consistent with other units.9 The death rate in the PCU was approximately 25% (10% for patients from the ICU). Other patients were discharged to home, other functional units in the hospital, and other facilities.
The mean daily variable cost of Pre-PCU was $1,797.67 (standard deviation, $1,172.87), which was reduced to the mean daily variable costs of PCU at $1,345.34 (standard deviation, $239.83). Daily variable costs of PCU are on the basis of the overall costs outlined in Table 1; however, daily variable costs of Pre-PCU use are determined by the mean daily costs for 2 days before transfer.20 We multiplied the daily costs per patient encounter by the number of patients (153) and average length of stay (5.11 days). The cost savings are the difference between these products. The PCU saved the hospital $353,645.17 overall (or $452.33 per transfer), a 25% reduction in costs (Table 2).
From March 2013 to March 2014, the PC consultation team provided 964 inpatient consultations. Using the estimate by Morrison et al that 11% of patients who receive PC consultations die in the hospital, we estimated that 858 patients were discharged alive and 106 died in the hospital. We multiplied the number of discharges by the costs per discharge—the inflation-adjusted costs used established methods11 of $2,374 for patients discharged alive and $6,871 for patients who died in the hospital—and then added these figures to obtain the total savings for PC consultations of $2,765,218 (Table 3).
The professional fees were estimated assuming a 50% collection rate on charges. Because charges/billings for PC were approximately $740,000 for both inpatient and outpatient PC services, the total revenue for professional fees was $370,000.
Box plots of the variable costs per day for Pre-PCU, PCU, and the difference between the two suggested that the data were right skewed (Fig 1). Shapiro-Wilk tests conducted on these variables produced P values < .001, confirming that the data were not normal.
Because of the non-normality of the data, we performed the Wilcoxon signed-rank test to assess the difference between Pre-PCU and PCU. The median difference in the variable cost per day was significantly different from zero (median difference, −111, interquartile range of difference, −977 to −354; P < .001). Bootstrap analysis also showed that the mean difference was significantly different from zero (95% bias-corrected bootstrap CI [−655 to −283]). The results from the Wilcoxan signed-rank test and bootstrap analysis therefore confirm the findings regarding the significant difference between pre-PCU and PCU costs.
The total positive financial impact for the entire PC program from March 2013 to March 2014 was $3,488,863.17, which reflected the three PC areas combined: PCU ($353,645.17), PC consultations ($2,765,218), and professional fee collections ($370,000).
The rising costs of health care are an increasing concern for health systems; thus it is desirable to implement less costly patient-centered care that improves quality of life. Our study demonstrated that in addition to clinical trial-based cost studies that focus on PC as an isolated intervention, when PC is integrated into a hospital (via a PCU and PC consult program), it can have a positive impact on the total budget by lowering costs per day. Although the common perception is that provision of inpatient consultations is the easiest way to provide PC, there are cost benefits to having a dedicated PCU and consultations. Our study reinforces the findings of Nathaniel et al13 that a patient’s mean cost per day was $687 less while in the PCU, compared with before transfer to the PCU. In addition, the fact that the PCU was operating at 54% of capacity (using the unoccupied PCU beds for other patients) and was profitable confirms that PC is affordable. The professional fees offset approximately half of salary and benefits.
This study reinforces previously reported benefits of PC. If PC consultations are performed with inpatients, the 30-day readmission rate is cut from 15% to 10%. Furthermore, if a discussion about goals of care occurs between a patient and provider, the 30-day readmission rate risk is 36% of what it would be if the discussion was not held.23 Similar results were seen in a hospital–hospice partnership, with a five-fold reduction in 30-day readmissions.16
During the period studied at JHMI, if PC saw patients who were eligible for hospice, 57% of them went home with hospice; if PC did not consult because of the attending physician’s preference, only 27% went home with hospice.24 Patients who received a PC consultation were 3.24 times more likely to be discharged to hospice (P < .001), 1.52 times more likely to be discharged to a nursing facility, and 1.59 times more likely to be discharged home with services (P < .001).25 In patients from New York who were insured by Medicaid, the referrals to hospice increased more than 10-fold if PC saw the patient.26 Going home with hospice generated a 5% 30-day readmission rate versus a 25% rate for matched patients who did not go home with hospice.27 Scibetta et al28 calculated that patients who received early versus late outpatient PC cost the health system $5,198 less per person; this estimate would amount to $1,632,172 for 314 outpatient consultations,16,23-27 which we did not include in this analysis.
This study demonstrates the system benefits of PC and could be instructive for organizations and their decision makers who are designing/expanding PC programs. Health systems should be able to replicate this analysis with available accounting data. Furthermore, these figures may underestimate the full system savings, because we did not account for factors such as the following: inpatient backfill revenue; more appropriate ICU bed use; an increase in hospice referrals by 340% in 3 years (which saves Medicare $8,697 per person); savings from early outpatient PC (which saves $6,697 per patient with cancer by avoiding inpatient end-of-life care)28; reduced nursing turnover as the result of relief of moral distress in the ICUs; the opportunity for increased revenue from improved patient satisfaction scores (Hospital Consumer Assessment of Healthcare Providers and Systems); and reduced readmission rates.27
This study has limitations. Some components may limit its generalizability. First, the analysis examined the PCU in its first year of operation, which may not be representative of subsequent years. The start-up costs were minimal because the nursing unit was already established, the additional education expenses were minimal (two 4-hour sessions for nurses), and we maintained the same nursing/patient ratios and hours. Nurses were taking care of many of the same types of patients as before, but under the direction of the PC team.
Second, the PC team itself had years of experience at other institutions, and the study only used data from JHMI. Third, during the time under study, Maryland did not use diagnosis-related group reimbursement, instead relying on a per-diem reimbursement. Maryland has since switched to a fixed global reimbursement model, which makes cost reductions even more important.29 Other studies that document cost minimization of PCUs and PC consultation services have been done in diagnosis-related group–based environments,31 but studies have documented substantial cost savings for PC in globally budgeted Veterans Adminstration32 and Medicaid populations.33 Kaiser-Permanente, an example of a vertically integrated health maintenance organization and insurer, showed that PC improved the quality of care; saved $4,855 per person when started as inpatient;30 and saved $7,552 per person (−33%) when started as outpatient.10
Furthermore, this analysis compares variable costs for 153 PC patient encounters, not patients; if a patient was in the unit twice, he/she would be counted as two separate encounters, thereby undermining the assumption of independence in our model. To assess duplicate patients, we would need to link patient encounter numbers with medical record numbers. Because this study did not obtain informed consent from patients in accordance with the Health Insurance Portability and Accountability Act, we were unable to link to medical record numbers, which are identifiers.
It is also important to emphasize the limitations that the PCU experienced in its first year, which include the following: the PCU shared the floor with the high-amenities unit, and its higher costs, increased luxuries (eg, special dining service), and clientele were not well suited as an adjacent unit; the nursing staff was not specialized in PC; and it had a limited number of PC-trained physicians and other providers, which necessitated a low census. Had these shortcomings been addressed earlier, there may have been a higher volume of patients in the PCU, which would have had an impact on costs and subsequent savings. JHMI has remedied these limitations and substantially expanded the PC program with a larger inpatient unit (11 beds v the original six) and increased inpatient and outpatient consultations, with an estimated cost savings of approximately $5 million per year.
In conclusion, the intent of this study was to bolster existing research demonstrating the health benefits of PC by considering a financial perspective. As JHMI and Maryland move to an accountable care organization model, it is desirable to implement programs such as the PC service, which improve patient-centered care and generate cost savings. Any system seeking to improve the patient experience and quality of care, with affordable additional costs offset quickly by savings, can use this model as a template.
Conception and design: Sarina R. Isenberg, Natasha Gill, Deirdre Torto, Terry Langbaum, Rab Razzak, Thomas J. Smith
Financial support: Michael Cardamone
Administrative support: John McQuade, Natasha Gill
Collection and assembly of data: Sarina R. Isenberg, Chunhua Lu, John McQuade, Natasha Gill, Michael Cardamone, Deirdre Torto, Thomas J. Smith
Data analysis and interpretation: Sarina R. Isenberg, Chunhua Lu, John McQuade, Kelvin K.W. Chan, Deirdre Torto, Terry Langbaum, Thomas J. Smith
Manuscript writing: All authors
Final approval of manuscript: All authors
Accountable for all aspects of the work: All authors
The following represents disclosure information provided by authors of this manuscript. All relationships are considered compensated. Relationships are self-held unless noted. I = Immediate Family Member, Inst = My Institution. Relationships may not relate to the subject matter of this manuscript. For more information about ASCO’s conflict of interest policy, please refer to www.asco.org/rwc or ascopubs.org/journal/jop/site/misc/ifc.xhtml.
No relationship to disclose
No relationship to disclose
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Leadership: Teva Pharmaceuticals (I)
Travel, Accommodations, Expenses: Teva Pharmaceuticals (I)
No relationship to disclose
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Cases – number of inpatient encounters (discharges) during period of the report and coded with all patient-refined diagnosis-related groups.
Avg Los – average length of stay of the inpatient encounters.
Tot Chgs – average total charges incurred during stay of inpatient encounters.
Net Revenue – average of net revenue. This is calculated as the charges for each patient multiplied by an expected collection rate for a similar type of case and responsible payer.
Var Dir Cost – costs directly related to patient care that vary according to patient volume. Some examples include supplies, nursing labor, radiology/laboratory technicians.
Tl Dir Cost – average of all direct costs (fixed and variable).
Var Ind Cost – costs indirectly related to patient care that vary according to patient volume. Some examples include medical records clerks, housekeepers, and nutrition aides. Variable indirect costs are calculated as 24.2% of the total indirect costs, including fixed indirect costs.
Tl Ind Cost – average of total indirect costs.
Total Cost – average of total costs.
The abstract of this article was published in J Clin Oncol 34, 2016 (suppl 7S; abstr 2). This research was presented at the ASCO Quality Care Symposium, Phoenix, AZ, February 26 to 27, 2016, and at the Johns Hopkins High Value Research Symposium, Baltimore, MD, February 1, 2016. This work was supported by the Canadian Institutes of Health Research # 146181, the California Healthcare Foundation Grant # 18339, National Cancer Institute core grant P30 CA 006973 to the Sidney Kimmel Comprehensive Cancer Center Program, the Patient-Centered Outcomes Research Institute (contract # 4362), 1R01 CA177562-01, and 1-R01 NR014050 01 NINR.
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