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Modeling Hospital Costs of Sepsis Care in COVID-19 Era

A condition-based economic model can reveal hospital costs for sepsis care more accurately than traditional cost tracking by service or unit, according to a paper recently published by the Healthcare Financial Management Association (HFMA).1

Sepsis is one of the largest drivers of hospital costs, with 270,000 deaths and $27 billion in related cost across the US annually.2 Erin Bina, Global Product Marketing Manager, GE Healthcare, and colleagues, David Kulick, MPH and Shailja Vaghela, MPH at The Focus Group Consulting suggest that condition-based modeling can illuminate the substantial impact sepsis treatment and care can have on a hospital’s margin and this transparency can inform reduction strategies and allocation of resources.

“True costs, both direct and indirect are often underrepresented in current cost accounting practices as they do not capture utilization and impact across all sites of care in a hospital, making it challenging for hospital management to accurately assess the marginal impact,” Bina explained.

Bina and colleagues emphasize the importance of hospitals clearly identifying and prioritizing costs now, as they confront mounting financial uncertainties. They point to revenue loss from postponing elective procedures and delaying necessary care, while incurring costs related to COVID-19—estimated as of June 30 to have exceeded $200 billion in the US.3

The condition-based, economic model, developed by GE Healthcare and Roche Diagnostics, quantifies direct and indirect costs in the context of payment realities to ascertain the impact on margins of large and small hospitals.

“The condition-based approach reflects a more holistic way to evaluate the precise impact that multi-disciplinary treatment models have on institutions and for sepsis related care,” Bina and colleagues explain.

Indirect costs such as litigation, disease monitoring and quality programs are traditionally absorbed into administration expenditures, the authors note, without being linked to specific conditions or disease management.

“Because several of these cost centers can play a major role in sepsis management, they were considered in this model,” Bina and colleagues point out. “For example, sepsis surveillance programs are crucial for reducing mortality and morbidity, and they require significant staffing resources. Moreover, failure to meet regulatory guidelines can potentially incur steep penalties.”

Direct costs that are incorporated into the model include the length of stay affected by sepsis, which can be 75% longer than for patients hospitalized for other conditions.Cost of readmissions is also factored, as this can follow incomplete acute treatment, inadequate follow-up care and/or heightened risk of recurrence. Personnel costs per case are examined in practitioner-to-patient ratios and are combined with daily cost rates in both ICU and non-ICU settings.

Estimated payments are based on epidemiology and severity of the condition, and the age of the patient. The analysis considers payor mix against CMS Medicare rates, adjusted in turn to Medicaid and commercial rates to better elucidate the cost of sepsis treatment against standardized costs for non-sepsis cases.

Application of the model for the US indicates that the average annual marginal loss from sepsis care for large hospitals (>500 beds) is approximately $34 million, and approximately $9.9 million for small hospitals (<200 beds). Comparing sepsis with non-sepsis cases revealed total average cost in large hospitals of approximately $58 million vs $21 million; and $17.2 million for sepsis care compared with $5.2 million for non-sepsis cases in smaller hospitals.

“This model demonstrates that on top of the extraordinary human impact, sepsis is likely more expensive than most administrators realize,” Bina commented. “In a time of even more demanding margins and severe revenue loss, the economic cost of sepsis should be more thoughtfully prioritized.”

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1. Kulick D, Vaghela S, Bina E. Sepsis poses a cost-containment challenge in the face of the COVID-19 pandemic. Healthcare Financial Management Association (HFMA). July 20, 2020. Accessed July 24, 2020.

2. Hatfield KM, Dantes RB, Baggs J, et al. Assessing variability in hospital-level among U.S. Medicare beneficiaries with hospitalizations for severe sepsis and septic shock. Crit Care Med. 2018; 46:1753-1760.

3. American Hospital Association (AHA). Hospitals and health systems face unprecedented financial pressures due to COVID-19. May 2020. Accessed July 26, 2020.

4. Hall MJ, Williams SN, DeFrances CJ, and Golosinskiy A. Inpatient care for septicemia or sepsis: A challenge for patients and hospitals. US Department of Health and Human Services, National Center for Health Statistics Brief, No.62. June 2011. Accessed July 26, 2020.