COST BENEFIT ANALYSIS

WILLIAM CHARNEY,DOH

Politics of Cost Benefit

• Money is politics, politics is money in healthcare. Cost Benefit is political.

• Being right and cost-justified does not always lead to program funding.

• US is 27th on the list for providing per capita occupational safety for its workers @ $3.97 per worker.

Understanding the Politics of Cost-Benefit

• Budgeting for occupational programs should be an ethical issue not economic.

• Every hospital has an Ethics Committee. Get on the agenda

• Alliances with labor

• Struggle for $ on Health and Safety Committee

ADDING THE COST OF INJURY

• MOST COST BENEFIT ANALYSIS DOES NOT PROPERLY INCLUDE THE COSTS OF THE EMPLOYEE INJURY. WITHOUT THE COST OF THE INJURY RATIONALIZING EXPENDITURES AND BENEFITS IS IMPOSSIBLE.

The Science of Cost Benefit

• Cost Benefit Analysis is a science that must be understood before true injury costs can be determined and understood

• It is extremely rare that leaders of our healthcare systems understand or have studied the science of cost-benefit analysis regarding injury rates

OPENING OF FINANCIAL DOORS

• COST BENEFIT ANALYSIS(CBA) IS THE KEY TO OPENING THE FINANCIAL DOORS TO PURCHASE AND PROGRAM JUSTIFICATION. TOTAL COSTS INCLUDES:

• DIRECT COSTS

• INDIRECT COSTS

DIRECT COSTS

• DIRECT COSTS ARE CONSIDERED THE FOLLOWING:

• DIRECT COMPENSATION FOR REPORTED LOST TIME INCIDENTS

• MEDICAL COSTS

• INCREASE IN WORKERS COMP PREMIUMS

INDIRECT COSTS

• INDIRECT COSTS ARE CONSIDERED:

• LOST WORKDAYS(WAGES X HOURS LOST)

• LOST TIME FOR MANAGERS AND REDUCED PRODUCTIVITY DUE TO INJURY

• 21% DECREASE IN WORKER PRODUCTIVITY

INDIRECT COSTS CONT.

• OVERTIME PAID TO OTHERS DURING LOST WORKDAYS

• PERSONNEL AND TRAINING TIME TO HIRE REPLACEMENTS

• COST OF EMERGENCY TREATMENT

• COST FOR LIGHT DUTY

• RECRUITING COSTS/CLAIM PROCESS

APPLICATIONS

• INTERGRATING THE DIRECT COST OF THE INJURY INTO THE ANALYSIS

• INTERGRATING THE INDIRECT COST

• ANALYZING THE COST OF EQUIPMENT

• ANALYZING TRAINING COST

• ANALYZING DEPRECIATION COST

INDIRECT COST SIMPLE METHOD

• INDIRECT COST COMPUTATION IS CONSIDERED 4X THE DIRECT COST

• (SOURCE:Fragala, “How to contain injury in healthcare: Ergonomics, 1966. Charney,Cost benefit analysis for back injury. Journal of Healthcare Safety and Infection Control; Dec. 2000.

Archives of Internal Medicine

• Peer review article states indirect costs to be a factor of 2x

• Source: Archives of Internal Medicine, “Occupational injury in the US: July 28th, 1997 pp1557-1568

Formula Using Profit Ratios

• Estimated Cost Savings Divided by Profit Ratio = Dollars Not Having to be Billed

• Ex: Hospital Spends 170,000 on Lift Teams or Equipment calculates a savings in one year of WC of $54,000 divided by 2.8% profit ratio equals 2 million dollars not having to be billed to cover injuries.

Cost Benefit for Back Injury

• Back injury is one of the highest compensable injuries in healthcare

BUREAU OF LABOR STATISTICS

• THE BUREAU OF LABOR STATISTICS NOW C LASSIFIES HEALTH CARE PATIENTS AS DIRECT CAUSE OF ON THE JOB INJURY

CAUSES OF INJURY

• MANUAL LIFTING IS THE PRIMARY CAUSE OF BACK INJURY IN HEALTHCARE WORKERS. THE NINE MOST COMMON MANUAL LIFTS EXCEED THE NIOSH UPPER LIMITS FOR LIFTING AND MOST ENTER THE MICROFRACTURE RANGE OF 6400NF

FORMUALAS FOR CALCULATION

• BUSINESS PLAN CALCULATIONS REQUIRE;

• DIRECT COST OF INJURY(COMP AND MEDICAL)

• MULTIPLY BY FACTOR OF 4X

• COST OF EQUIPMENT

• COST OF TRAINING

COST BENEFIT ANALYSIS FOR 0 LIFT

• O LIFT HAS 2 TECHNOLOGIES: LIFT TEAMS AND O LIFT REPLACING MANUAL LIFTING WITH MECANIZATION. PREPARING THE COST BENEFIT IS CENTRAL TO GETTING THE FUNDING

• MECANICAL EQUIPMENT IS MANDATORY FOR SUCCESS : TWO STUDIES HAVE SHOWN THAT COST FOR EQUIPMENT IS PAID FOR WITHIN 12-15 MONTHS OF PURCHASE.

• (Source: Garg and Charney)

FORMULAS FOR CALULALTION

• 2 FORMULAS FOR CALCULATION OF EQUIPMENT

• 1 VERTICAL, LATERAL AND SIT TO STAND DEVICE PER MEDICAL WARD

• I VERTICAL, LATERAL AND SIT TO STAND FOR EVERY 8-15 PATIENTS

• ONE LATERAL TRANSFER STRETCHER PER ER TRAUMA ROOM

Garg Equipment Formula Ratio

• Based on number of patients needed to be transferred: 2 total lifts per 17-24 patients and 3 total lifts for 33 to 50 patients

• Sit to Stand: 6 sit to stand 42-50 patients

• Re-positioning Equip: 10 devices 42-50 patients

DEPRECIATION COST FORMULA

• MECHANICAL EQUIPMENT LIFE EXPECTANCY IS 7-10 YEARS IF PROPERLY MAINTAINED.

• SOFT PARTS NEED REPLACING MORE FREQUENTLY(MATTRESSES, SLINGS ETC.

Some success studies

• OSHA cited over 50+ studies showing a positive cost benefit for “0” Lift

• Texas Hospital: Fragala: Added Lift equipment WCB costs reduced from $111,159 to $743

• Garg: 7 Nursing Home Study: Injury rates reduced by 62%

Studies (cont)

• Surrey Memorial:Bruening 1996: no lift policy reduced injuries by 96%

• Lawrence Memorial: Fragala: Lift aids on 2 high risk units: Lost time hours dropped 43%

• Charney: 60 bed Tampa Nursing Home: No lift, ceiling lifts: Lost time dropped to 0

British Colombia Study

• A one year study replacing floor lifts with ceiling lifts showed a payback period of 4 years.

• Payback period shorter when indirect costs included

• Perspective of facility itself, benefits exceeded costs by 6 to 1 or a rate of return of 17.9%25

British Colombia Study (cont)

• 65 ceiling lifts installed

• reduced injury rates by 58% within 1 year

• Patient Lifting injury costs pre $83,000

• Patient Lifting injury costs post $27,000

• re-positioning pre $113,000

• re-positioning post $65,000

• Payback 3.9 years

• Benefit cost ratio 2.53

• Internal rate of return 8.1%

• Source: Speigel, et al Implementing a resident lifting system: AAOHN vol 50, no.3 March 2002

CBA in Needlesticks

• Adding the cost of the stick to the mathematics of Cost-benefit makes safety devices cheaper than non-safety

• GAO calculates that a low post-exposure cost is $500 per stick, a moderate is $1500 per stick and a high is $3000 per stick.

CBA in Latex Exposure

• Peer review studies show that going to a non-latex facility is cheaper than paying for the costs of maintaining a latex environment.

JUSTIFICATION RATIOS

• SOME HOSPITALS AND LTC FACILITIES WILL HAVE HIGHER JUSTIFICATION RATIOS THAN OTHERS. THE PROGRAM IS BASED AS MUCH UPON RISK PREVENTION AS COST. ONE PERMANENT DISABILITY CAN COST A SYSTEM OVER $100,000.

BARRIERS TO SUCCESS

• WORKERS COMP COSTS IN MOST SYSTEMS IS ONLY 1% OR LESS THAN TOTAL OPERATING COST BUDGET.

• DEPARTMENTAL AND SYSTEM COSTS FOR BACK INJURY CAN BE WELL HIDDEN AND INSULATED

• “HIGHER PRIORTIES” MYTHS

• CEOS,CFOS NOT TRAINED IN CBA

ROADS TO SUCCESS

• MANY STUDIES NOW SHOWING GREAT CBA BENEFITS.

• SOME STATES HAVE ERGO LEGISLATION.

Calculating the costs:OSHA

• Each prevented injury or illness resulting in time away form work saves $28,000

• each serious injury or illness avoided saves $7000

• Source: OSHA e-compliance assistance tools

Studies on indirect costs

• Peer review studies on the 1:1 all the way to 10:1 ratio of indirect costs to direct costs.

• Source: Charney, Journal of Healthcare Safety and Infection Control; vol 3 no2 and Fragala...

CONCLUSION

• EVERYWHERE PEER REVIEW SCIENCE LOOKS THERE IS A POSITIVE(+) COST BENEFIT ANALYSIS TO IMPLEMENTING SAFETY PROGRAMS IN HEALTHCARE