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ALJ/MAC Decision Database


CMS to Hospitals: If it Should Never Happen, We Will Never Pay



Effective October 1, 2008, as mandated by the Deficit Reduction Act of 2005 (DRA), the Centers for Medicare & Medicaid Services (CMS) will require Medicare-participating hospitals to disclose all hospital-acquired conditions (HACs).[1] In addition, CMS will no longer pay hospitals any increased rate or any cost attributed to care made necessary by HACs as part of the Medicare Severity Diagnosis Related Groups (MS-DRGs).  Medicare will also prohibit the billing of these additional incurred costs to the patient.  For HACs and the included "never events" - things that should never happen in a hospital - CMS will pay Medicare-participating hospitals as though the secondary diagnosis, or never event, was not present.  Medicare will, however, pay for the items and services necessary to treat or correct the HAC or never event.


HACs and Never Events


HACs defined.  An HAC is a reasonably preventable condition, which was not present or identifiable at the time of hospital admission, but was present during discharge.  In general, HACs fall into several categories:

  • Those that are high cost, high volume, or both, as determined by CMS;

  • Those identified through the International Classification of Diseases, 9th Revision, Clinical Modification coding (ICD-9-CM) as "complicating conditions" (CCs) or "major complicating conditions" (MCCs) that, when present as secondary diagnoses on claims, result in a higher-paying MS-DRG; and

  • Those that are reasonably preventable.

As a prelude to implementing the no payment policy for HACs, CMS has issued an expanded list of HACs for which it will no longer provide payment.  In the list below, (*) indicates a never event and (†) indicates a recent Inpatient Prospective Payment System (IPPS) Fiscal Year (FY) 2009 change (not included in previous years).  


The HACs covered under the FY 2009 provision will include the following:[2]

  • Object left in patient during surgery*

  • Air embolism*

  • Blood incompatibility*

  • Catheter-associated urinary tract infection

  • Pressure ulcers*

  • Vascular-catheter-associated infection

  • Surgical site infection (specifically mediastinitis after coronary artery bypass graft surgery)

  • Hospital-acquired injury due to external causes (fractures, dislocations, intracranial injury, crushing injury, burns, and other unspecified effects)*

  • Surgical site infections following certain orthopedic procedures and bariatric surgery for obesity†

  • Manifestations of poor blood sugar control, such as diabetic ketoacidosis and hypoglycemic coma†

  • Deep vein thrombosis or pulmonary embolism associated with total knee and hip replacement procedures†

The list of HACs above includes seven never events which will not be reimbursed.  Never events comprising falls, burns, and electric shock are grouped as one HAC. 


Never Events defined.  The National Quality Forum (NQF), a not-for-profit organization that researches methods for improving the nation's health care system, has defined never events as errors in medical care that are: (1) clearly identifiable, preventable, and serious in their consequences for patients; and (2) indicative of a real problem in the safety and credibility of a health care facility.[3]  Because CMS selection criteria for HACs and the NQF selection criteria for never events are similar, the conditions selected for each overlap. 


NQF has compiled a list of 28 serious reportable adverse events or never events,[4] falling into six categories:

  1. Surgical events;

  2. Product or device events;

  3. Patient protection events;

  4. Care management events;

  5. Environmental events; and

  6. Criminal events.[5]

Examples of never events include surgery on the wrong body part, surgery on the wrong patient, the wrong surgery on a patient, instances of patient death or serious disability resulting from misuse of a device, infant discharged to the wrong person, patient death or serious disability due to medication error, patient death associated with a fall while under the care of a facility, and any instance of care ordered, or provided by, someone impersonating a licensed health care provider.


Policy Concerns


While the idea of ceasing to compensate hospitals for serious medical errors appears to be a logical means for public accountability, some policy makers would argue that halting funds does not offer a complete solution.  Anne Zieger, Editor of FierceHealthIT, for example, raises several scenarios in which the unanswered burden of payment will unjustly fall upon the patient or the public.[6]  She describes the following:

  • Patient - Insurer refuses to pay, but hospital disputes error. Patient is billed.

  • Patient - Patient sues doctor and/or hospital over the error, collects, and then insurance company collects from the patient through subrogation.

  • Doctor - Hospital stands behind the doctor who made the error, and allows him to "balance-bill" the patient for additional care.  If the doctor is an emergency department doctor, he may not be on the hospital's managed care contract, which would allow for a balance-billing arrangement.

  • Public - Hospital admits the mistake and insurer does not pay. Costs are then defrayed to all patients.

Cost Concerns


HACs have been reported by the Centers for Disease Control and Prevention to result in 2.4 million extra hospital days and approximately $9.3 billion in excess charges in a single year.  According to CMS, footing the bill for never events runs contrary to the goals of the movement to reform the Medicare system.  CMS argues that by decreasing the amount spent on HACs and never events, savings can be put toward more preventive measures and more accurate diagnoses and care from the time of admission.


As stated in CMS' announcement of changes to the Hospital Inpatient Prospective Payment System (PPS) for FY 2009, the President's FY 2009 budget proposal would: (1) prohibit hospitals from billing the Medicare program for never events and prohibit Medicare payment for these events and (2) require hospitals to report any occurrence of these events or receive a reduced annual payment update.[7]


Advocacy Concerns


A concern for advocates is that this new measure will likely have a negative impact on access to services, particularly for persons with poor health.  The concern is that hospitals may discriminate in admissions and access to certain services when there are concerns about potential health care outcomes and risks of acquiring an HAC.  From the perspective of CMS and Congress, the requirement to disclose any and all HACs will be a strong incentive for hospitals to make a correct diagnosis of symptoms upon admission (or as soon thereafter), to exercise precautions to avoid unnecessary surgical procedures, and to reduce HACs, thus reducing further injury or other health care complications.  Hospitals faced with the threat of reduced Medicare funding will hold doctors more accountable for their actions or omissions and will allocate additional resources to increase patient safety.




Advocates should continue to watch developments in this arena.  It will be important to use existing Medicare grievance and appeal processes to ascertain whether potential payment concerns related to an HAC or never event has led to an inappropriate denial of a service, treatment, or procedure.


[1] Deficit Reduction Act of 2005, Pub. L. No. 109-171, 5001(c), 120 Stat. 4.

[2] Press Release, “CMS Improves Patient Safety for Medicare and Medicaid by Addressing Never Events” (Aug. 4, 2008) (available at (follow “August 04, 2008” hyperlink)).

[3] Press Release, Ctrs. for Medicare and Medicaid Servs., Eliminating Serious, Preventable, and Costly Med. Errors – Never Events (May 18, 2006) (available at

[4] Press Release, Nat’l Quality Forum, Nat’l Quality Forum Updates Endorsement of Serious Reportable Events in health care (Oct. 16, 2006) (on file with author).

[5] Press Release, Ctrs. for Medicare and Medicaid Servs., Eliminating Serious, Preventable, and Costly Med. Errors – Never Events, supra note 2, at Appendix 2.

[6] Anne Zieger, Who Pays for Care When Errors Are Made?, Fiercehealth care (Apr. 4, 2008), http://www.fiercehealth

[7] Preventable Hospital-Acquired Conditions (HACs), Including Infections, 73 Fed. Reg.48471 (Aug. 19, 2008).


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