In the past several years, there has been a growing need for more registered nurses in hospitals due to rising acuity of patients and shorter lengths of stay. The safety and quality of patient care is directly related to the size and experience of the nursing workforce. Inpatient working conditions have deteriorated in some facilities because hospitals have not kept up with the rising demand for nurses. This situation has motivated some state legislatures to enact or consider regulatory measures to assure adequate staffing. These regulatory measures assign some minimum level of staffing that all hospitals must meet regardless of the types and severity of patients.

This article provides an alternative to mandatory, nurse-to-patient staffing ratios. The main weakness of the regulatory approach is that hospitals are required to increase the number of registered nurses without receiving increased reimbursement for patient care.The main weakness of the regulatory approach is that hospitals are required to increase the number of registered nurses without receiving increased reimbursement for patient care. In response, hospitals decrease the number of other staff, such as unlicensed assistive personnel and house keepers, to compensate for the loss in revenue. This has put additional burdens on registered nurses as they are then forced to assume non-nursing care tasks (Mitchell, 2007). An alternative method that has the potential to improve inpatient nurse staffing and improve payment to hospitals would be to directly link the costs and billing for inpatient nursing care with hospital reimbursement.

This article will explore an approach that would link cost and billing with reimbursement by separating nursing care from daily room and board charges and billing for nursing care based on the actual hours of care delivered to patients. The method is an adaptation of the original work by Thompson and colleagues who argued for a nursing intensity adjustment for the Diagnosis Related Group (DRG)-based prospective payments to hospitals, which were implemented in 1983 (Thompson, Averill, & Fetter, 1979; Thompson & Diers, 1991). Incorporating nursing variable costs directly into the billing and reimbursement system could align payment with costs and also provide a new source of nursing data based within the national billing system. These data could provide a method to compare nursing care across different hospitals and allow reporting of nursing care intensity trends for individual patients within each DRG, which in turn could provide a basis for identifying which hospitals are performing well and which are not. Ultimately this could lead to a national consensus as to how much work nurses can perform safely for individual patients based on patient diagnosis, severity of illness, and other measurable characteristics, and provide an estimation of the economic value of nursing care and a measure of its worth.

This article will discuss the benefits of implementing a nursing intensity adjustment for nursing care by: reviewing the process by which nurses lost their economic independence; describing the gap between the supply and demand for registered nurses; presenting the arguments for and against mandatory nurse-to-patient staffing ratios; offering a different approach for increasing the number of registered nurses at the bedside, namely nursing intensity billing; proposing sources of funding to pay for nursing intensity billing; and identifying limitations of nursing intensity billing.

How Nurses Lost Their Economic Independence

At the beginning of modern nursing history, Nightingale educated nurses to take on more complex nursing duties and responsibilities in the care of the sick. Although this preparation took place in hospitals, Nightingale was really preparing these early nurses for independent practice in the home. Until the 1920’s, nearly all hospital functions were carried out by unpaid, student nurses under the watchful eye of the nursing superintendent while graduate (private duty) nurses provided care in the home. The modern hospital was born soon after the First World War with the introduction of a myriad of new technologies, such as aseptic surgery, anesthesia, modern pharmaceuticals, x-rays, and laboratories to measure biological functions. Within a decade, most acute patient care had moved from the home to the hospital; and the private duty nurses who had followed their patients into the hospital were eventually absorbed as employees of the hospital, losing their independence and entrepreneurial practice (Reverby, 1987). They lost their ability to set staffing standards; to establish their salary, since they were no longer paid directly by the family or patients for their services (Welton & Harris, 2007); and to demonstrate their value as registered nurses. The other negative outcome of this change was the incorporation of hospital nursing care into the room and board charge, both as an accounting for the total cost of nursing care and as the method used to charge patients for their care (Thompson & Diers, 1991).

Traditionally hospitals had used unpaid students to meet most of their staffing needs. With the influx of more patients coming into hospitals for their nursing care, the hospitals were challenged to incorporate this new cost of registered nurses into their accounting systems. Thompson and Diers (1991) relate:

Most hospitals were charging less than their [nursing] costs for room and board. Many theories have been advanced for this practice, the most likely one being that patients could compare the costs of a hospital ‘room’ with that of a hotel, not realizing the ‘room and board’ included many services not offered by hotels. The practice of costing and defining hospital service by this misnamed ‘room and board’ eventually proved to be self-defeating, and can be interpreted as a deliberately confusing practice. That nursing was buried along with brooms, breakfast, and the building mortgage had consequences not only for the visibility of nursing’s service, but also for the wage structures as hospitals increasingly began to compete on room and board rates, using oligoposonistic practices to artificially constrain nursing salaries. (p. 152)

A second change in nursing practice occurred just after the Second World War, as new technologies...were being introduced into the hospital environment. A second change in nursing practice occurred just after the Second World War, as new technologies such as ventilators, cardiac monitors, and powerful intravenous drugs, were being introduced into the hospital environment. The sicker patients who required these interventions dramatically increased the intensity of nursing care as well as the level of training and expertise needed to care for these more complex patients. It became more difficult to know how to staff the commonly used, large wards of that era as nursing intensity began to fluctuate more significantly with each new admission. Soon the modern cardiac and intensive care units were born, partly out of necessity to manage both nurse staffing and expertise (Cadmus, 1954; Cadmus, 1980). Now there were two types of units, the traditional “floor” and the newer, "intensive care" units (ICUs). Although the charges for each type of unit differed, both remained fixed charges for each patient within that type of unit. However, these charges did not reflect the variability in nursing care required for individual patients on either of these types of units. For example, a ‘stable,’ ventilated patient in the ICU could rapidly be weaned and sent to the floor to make room for an unstable and critically ill patient waiting in the emergency department. Sometimes such a now unventilated patient on the floor would actually require higher intensity nursing care than was needed in the ICU to maintain airway patency and oxygenation status. This increased care imposed a much higher nurse staffing demand on the medical or surgical floor; yet there was, and still is, no way for the hospital to bill for this extra nursing care required.

A third change that influenced nursing care, namely the introduction of managed care in the early 1990’s, moved a substantial number of patients requiring less intense care out of the hospital and into ambulatory or outpatient settings, thus decreasing the average length of patient stay. Graf, Millar, Feilteau, Coakley, and Erickson (2003) and also Unruh and Fottler (2006) have reported that lengths of hospital stay have decreased from a typically 7 to 8 day stay in the 1980s to a current 4 to 5 day stay, resulting in higher patient turnover as well as overall severity of illness. This “sicker and quicker,” inpatient environment has lead to a significant increase in both the intensity of nursing care for each patient and the need for more nurses, requiring a higher ratio of nurses to patients. Between 1980 and 2004 the average number of registered nursing-care hours per patient day has more than doubled from 4.7 hours per day to 10.7 hours, as noted in Figure 1. This trend illustrates the rapidly changing, inpatient care environment and the essential need to measure how well hospital-based nursing care is meeting the needs of today's patients. When hospitals do not increase nurse staffing to adequate levels, patient complications can occur and patient care can deteriorate to the point that hospitals fail economically. When hospitals do not increase nurse staffing to adequate levels, patient complications can occur and patient care can deteriorate to the point that hospitals fail economically. This failure occurs as a result of the high cost of treating those patient complications that could have been prevented by having an adequate number of nurses, but which will occur when an adequate number of nurses per shift are not provided. Assessing the cost of these preventable complications can help to demonstrate the economic value of the registered nurse (RN), who is prepared to prevent these complications. Yet the gap between the supply and the demand for RNs continues to grow.

Figure 1. Changes in Inpatient Length of Stay and RN Nursing Hours per Patient Day

Data for use in this figure were derived from the American Hospital Association (2005) annual survey and the U.S. DHHS National Sample Survey of Registered Nurses 2004 (HRSA, n.d.).

The Gap Between Supply and Demand for Registered Nurses

Today we are experiencing a gap between patient need and the nursing care available to meet patient needs. Today we are experiencing a gap between patient need and the nursing care available to meet patient needs. This gap occurs because patients now remain in the hospital only as long as they are acutely ill and clearly in need of nursing care. Once these very acute care needs are met, patients are discharged. Soon other patients, likely with even higher acuity needs, will be admitted to these beds previously occupied by the recently discharged patients. A greater proportion of beds will then be filled by patients with very high acuity needs. Unfortunately, hospitals have not kept up with the need to provide more nurses to care for this increased number of patients requiring higher acuity care. This gap has led to discussions regarding the quality and safety of hospital nursing care currently provided. The increasing intensity of care, due to a greater number of invasive procedures, more powerful medications, and a growing number of patients with chronic acute illness, has markedly increased the intensity of nursing care needed. In addition, a growing elderly patient population with higher needs for help with activities of daily living has also contributed to the supply/demand gap for inpatient nursing care.

In the past few years, various state legislatures have attempted to close this gap by setting standards for higher levels of nurse staffing on patient care units. California legislators, at the behest of the California Nurses Association (not to be confused with the ANA/California, which is the constituent member of the American Nurses Association [ANA]), passed a law to require hospitals to staff so as to meet minimum nurse-to-patient staffing ratios on the various hospital units (Seago, 2002; Seago, Spetz, Coffman, Rosenoff, & O'Neil, 2003; Spetz, 2001). Several other states (Washington, Colorado, Texas, and New Jersey) have recently introduced new legislation to meet the demand for more nurses; and in the Massachusetts state house two competing bills addressed nurse staffing. One bill, strongly supported by nursing labor groups, advocated for mandatory nurse-to-patient staffing ratios; the other bill, supported by the Massachusetts Hospital Association and the Massachusetts Organization of Nurse Executives, advocated for the avoidance of staffing ratios by closer monitoring of nurse staffing trends and funding primary nursing education (Curtin, Gall, & Vigue, 2006). A proposed bill in the state of Washington would require the adoption of safe staffing plans rather than specific nurse-to-patient staffing ratios (Byrd, 2007). There have also been several attempts in the last few years in both the United States (US) House and Senate to address and enact hospital nurse staffing laws.

These legislative efforts raise a number of issues. First, ...there has been little evidence that specific nurse-to-patient staffing ratios improve safety or quality.there has been little evidence that specific nurse-to-patient staffing ratios improve safety or quality. For example, a study of California hospitals before and after the imposition of mandatory ratios demonstrated an increase in costs but no improvement in quality of care (Donaldson, Bolton, Aydin, Brown, Elashoff, & Sandhu, 2005). Legislatively mandated nurse-to-patient staffing ratios also create an unfunded mandate because the current payment system treats nursing care as a fixed cost that is the same for all patients regardless of the actual amount of nursing care delivered to an individual patient (Welton, 2007; Welton & Harris, 2007). This cost associated with hiring more RNs who will be needed for the higher, mandated ratios will not be offset by additional payment to hospitals. This legislation would require, but not fund, this new mandate. Arguments both for and against mandatory nurse-to-patient staffing ratios have now been put forth and will be discussed below.

The Argument For and Against Mandatory Nurse-to-Patient Staffing Ratios

Proponents of mandatory, nurse-to-patient staffing ratios point to research indicating an association between nurse workload and patient mortality and morbidity. Two studies in particular have been used to support development of state and federal laws. The first, a study of 799 hospitals in 11 states, found a higher prevalence of infections, such as pneumonia and urinary tract infections, failure to rescue, and shock or cardiac arrest when the nurses' workload was high (Needleman, Buerhaus, Mattke, Stewart, & Zelevinsky, 2002). A second widely acknowledged study investigated the relationship between staffing levels at 168 Pennsylvania hospitals in 1999 and mortality rates of selected surgical patients. The investigators reported that for each additional patient a nurse was assigned, there was a seven percent increase in the likelihood of dying for a patient under that nurse's care (Aiken, Clarke, Sloane, Sochalski, & Silber, 2002). These findings have been the primary arguments for setting specific, nurse-to-patient staffing ratios.

There are several weaknesses in these studies, as well as other studies, evaluating the relationship between nursing workload and patient care quality. The nurse-to-patient staffing ratios used by both Needleman's team and Aiken's team are hospital averages, not individual, nursing unit-level measures. There is no basis in these two studies for generalizing to any particular nursing unit or individual patient. Furthermore, the measure of patient death in the select surgical patients may not be a direct measure of general, inpatient, nursing quality. It is equally likely that the surgeon or surgical environment influenced the patient's outcome. We must also be cautious in generalizing the findings of these two studies from data collected in the late 1990’s to current hospital conditions. Although a recent review of nearly a hundred nurse staffing studies by the Agency for Healthcare Quality and Research found an association between staffing levels and patient mortality and hospital outcome, the authors concluded that these relationships are not causal (Kane, Shamliyan, Mueller, Duval, & Wilt, 2007). The available evidence does not support the establishment of specific nurse-to-patient staffing ratios at this time; and the extant literature contradicts the legislative efforts endorsed by those seeking mandatory, nurse-to-patient staffing ratios. The American Hospital Association (AHA), along with its individual member state associations, have universally opposed laws mandating any specific nurse-to-patient staffing ratio. The AHA has argued that nurse-to-patient staffing ratios reduce scheduling and staffing flexibility. The American Organization of Nurse Executives also opposes mandatory ratios and has called for a more balanced approach through increased monitoring of nurse staffing, improved recruitment and retention approaches, and development of undergraduate nursing education (American Organization of Nurse Executives, 2003).

Another problem related to mandatory staffing ratios is the cost associated with hiring new nurses. For example, consider a medium-size hospital that has on average 100 adult medical-surgical patients. An increase of just one hour of additional care by a registered nurse per day at $40 per hour would increase costs by $4,000 per day and $1.4 million dollars annually. The hospital will not receive any additional revenue for providing this additional patient care. This illustrates the underlying issue of how nursing care is currently billed and reimbursed in the acute care setting. As of the writing of this article, there is no direct accounting of nursing intensity or costs for individual patients, only a single mean cost of nursing care per patient day without any acknowledgment in the billing or payment system that different patients require different levels of nursing care. This lack of additional payment to a hospital creates a strong disincentive for hospitals to increase staffing and is one of the primary reasons the hospital associations are fighting these proposed laws as they appear in various statehouses across the United States.

Mandatory, nurse-to-patient staffing ratios purport to address the perceived imbalance between patient needs and nursing resources yet they do not address the very different levels of treatment complexity and nursing intensity among patients in a given unit. A study recently reported that the mean unit of time needed to care for patients having a specific diagnoses varied widely within each DRG category (Welton, Zone-Smith, & Fischer, 2006). Nursing care intensity and costs can also vary widely among patients on the same unit, across multiple similar units in the same hospital, and across similar units at many hospitals, based, for example, on differences in patient age, disability, expected self care, and cognitive level.

In a study of Massachusetts hospitals, significant differences were found for nurse-to-patient staffing ratios, intensity, and skill mix among similar types of units (Welton, Unruh, & Halloran, 2006). The distribution of mean care hours per patient day (staffing intensity) for adult medical/surgical units in community hospitals was significantly different than similar units at academic medical centers. The analysis was based on publicly reported data from the Massachusetts Hospital Association Patients First staffing database (Massachusetts Hospital Association, 2006). For example, nurse-to-patient staffing ratios on the adult units were 1:5.25 for community hospitals and 1:4.08 for academic medical centers. The imposition of mandatory, nurse-to-patient staffing ratios of 1:4 for all hospitals, as advocated by the Massachusetts Nurses Association (not to be confused with the Massachusetts Association of Registered Nurses which is the constituent member of the ANA), does not conform to the actual differences across hospitals by patient, nurse, and unit characteristics that currently exist in Massachusetts (Curtin, Gall, & Vigue, 2006). A uniform, state-wide ratio would burden smaller community hospitals as they have lower severity patients, yet would be required to staff at the same level as the larger teaching hospitals.

Nursing Intensity Billing as an Alternative to Mandatory Nurse-to-Patient Staffing Ratios

As more and more states introduce legislation to address the symptom, but not the cause of understaffing, it may be time to consider an alternative to mandatory ratios - one that does address this cause by considering the intensity of nursing care need for a given patient. Since hospital financial decisions are directly linked to payment for patient care, ...changing nursing from a cost center to a revenue center could change the dynamic between nurses and hospitals. changing nursing from a cost center to a revenue center could change the dynamic between nurses and hospitals. A cost center is the accumulated direct expenses, such as nursing salaries, and indirect expenses, for example electricity and laundry, for a particular unit. In the Medicare Cost Report, all routine care unit and intensive care unit costs are summarized as two separate categories. Revenue codes are used for billing for specific items of care such as lab tests, needed supplies, and medications. These charges are grouped to specific revenue centers that correspond with their respective cost centers, generally divided between accommodation and ancillary services. Since there is no direct allocation of nursing care to a specific billing code, nursing is not considered to generate any revenue for the hospital and is expressed only as a cost.

Simply stated, if Medicare and other payers for health care directly reimbursed hospitals for the actual nursing care given an individual patient, rather than bundling this care within a fixed room and board cost center based on hospital average nursing time and costs, hospitals would benefit by a more equitable payment system as the charges for nursing care would be equivalent to the associated costs for individual patients. The following section will describe the current hospital reimbursement system for nursing care, propose a new reimbursement model, discuss the benefits of this new model, and explain how this model can have a positive influence on health care policy.

Current Reimbursement for Nursing Care

In the current system, hospitals allocate all patient care expenses to specific categories or cost centers that map to the Medical Cost Report (Centers for Medicare & Medicaid Services, 2005; Centers for Medicare & Medicaid Services, 2006). For example, medications would map to the pharmacy cost center, and an electrolyte panel would map to the lab cost center. Currently direct nursing costs are allocated to one of only two accommodation cost centers: routine (floor) care and intensive care. All nursing costs are treated as a lump sum and then averaged and standardized per patient day. Since direct nursing care hours and costs are highly correlated, this accounting approach implies that all patients within either the routine or intensive cost centers receive the same level of nursing care (Welton, 2007). All hospitals receive the same payment for a given diagnosis, based on the DRG relative weight. Standardized nursing costs per patient day are used to set these weights, rather than the individualized amount of care given a particular patient. This creates a distortion or bias in the DRG-based system in that nursing care is held at a constant cost per patient day so does not affect the relative weight used to calculate the actual hospital reimbursement despite the fact that nursing care makes up 41% of all hospital costs (Dalton, 2007).

A New Model for Reimbursement of Nursing Care

A plan to create a national model for inpatient nursing intensity billing and reimbursement has been proposed to correct the inherent problem of treating nursing care as a fixed cost (Welton, 2006). The underlying principal of a nursing intensity billing model is to unbundle nursing care costs and billing from the traditional and archaic “room and board” charge and to instead establish costs based on the intensity of the care received by each patient. The model uses one of the existing revenue codes currently used to charge for all inpatient services (023x Nursing Incremental Charge) as a means to account for nursing care delivered to individual patients (Welton, Fischer, DeGrace, & Zone-Smith, 2006a). These revenue codes are administered by the AHA with input from various payers and other stakeholders through the National Uniform Billing Committee (AHA, 2006). These revenue codes map to related cost centers as mentioned above to determine a cost-to-charge ratio in order to determine payment because Medicare only pays for actual costs, not what hospitals charge for their services. A list of the standardized revenue codes can be found on the New York State Department of Health website (New York State Department of Health, 2007).

Benefits of the Nursing Intensity Billing Model

Billing separately for direct nursing care using the Nursing Incremental Charge revenue code for actual hours and costs would address several issues identified above. First, a direct accounting of actual nursing care time and costs for each patient would change how nursing care is allocated from a department-based scheme to one based on resources expended for individual patients (Finkler & Ward, 2003). This could eventually change the relative weights for individual DRGs to more closely match the actual costs of nursing care with payment within a given DRG.

A second issue that has generated growing concern is the proliferation of specialty hospitals that accept only a narrow range of relatively low severity but high revenue-producing patients. These hospitals tend to specialize in cardiac and orthopedic procedures; they siphon potential revenue from community and teaching hospitals that rely on these patients to offset losses from their more severely ill patients, i.e., those patients who consume a greater than average amount of hospital resources, but for whom the hospital does not receive additional payment (Medicare Payment Advisory Commission [MedPAC], 2005). To a certain degree, these specialty hospitals are taking advantage of the higher, relative reimbursement for nursing care provided to patients needing less than the standardized level of nursing care. This occurs because the DRG treats all nursing care as a fixed daily rate in relative weights used to calculate payment (Greenwald, Cromwell, Adamache, Bernard, Drozd, Root et al., 2006; Guterman, 2006; Stensland & Winter, 2006). Since these patients may require less nursing care than patients in other (non-specialty) hospitals, the hospital receives a relatively higher payment, given that the DRG relative weight is an aggregate of cost in all hospitals (Dalton, 2007).

Because time equals money (Thompson & Diers, 1991) there are a number of other advantages to identifying the needed, direct nursing care hours, a measure of direct nursing costs needed for a given patient, rather than using broad, department mean hours and costs per patient day. First, transitioning to a nursing intensity billing mechanism allocating actual nursing resources (time and costs) would ultimately align nursing costs with associated hospital reimbursement (Welton, Fischer, DeGrace, & Zone-Smith, 2006b).

Additionally, information used to charge for hourly nursing care time would be included in the national data repository used for setting rates, health care policies, and conducting health services research. ...information used to charge for hourly nursing care time would be included in the national data repository used for setting rates, health care policies, and conducting health services research. A national repository of nursing intensity data linked to discharge, medical diagnosis (e.g. DRG), and other administrative data would allow comparison of nursing care across multiple institutions. These data would allow benchmarking and trend analysis across hospitals to provide a more robust measure of the relationship between nurses and patient care quality/outcomes of care compared to existing measures that use hospital-level, average nurse-staffing levels (Welton, 2007). For example, aggregate floor care and intensive care nursing hours from the 023X revenue code charges and units (hours of daily nursing care billed for an individual patient) for each DRG could be used as a normative reference for both staffing and cost estimation. Hospitals would then be able to compare their mean nursing intensity by DRG with other hospitals. Those hospitals falling well below a mean level may be providing less nursing care than other hospitals, thus raising potential issues of quality and safety. Hospitals that are providing substantially more than the mean amount of nursing care time by DRG may be inefficient or providing more nursing staff than required for that case mix of patients.

This repository of nursing intensity data could also represent the initial implementation of the nursing minimum data set envisioned by Harriet Werley and many others over two decades ago (Werley, Devine, & Zorn, 1988). Nursing intensity was one of the four nursing-specific items to be included in the Nursing Minimum Data Set along with nursing diagnosis, nursing interventions, and nursing outcomes. Although there has been significant progress over these 30 years in explicating nursing terminologies and codes (Lunney, Delaney, Duffy, Moorhead, & Welton, 2005), their actual use in the billing and discharge data sets has not been accomplished to date.

The current effort to collect inpatient nursing data within the National Database of Nursing Quality Indicators (NDNQI) may provide a template for collecting aggregate data that can be used to compare nursing care across multiple institutions (Trossman, 2006). The NDNQI measures quarterly nurse staffing patterns and unit-based, quality indicators such as skin breakdown and falls. This national NDNQI effort, with over one thousand participating hospitals, does demonstrate a way to compare nursing care across multiple settings. However, the NDNQI data are collected at the unit level, not the individual patient level. Hence, the usefulness of this data for direct billing for nursing care may be limited.

A third benefit of a nursing intensity billing model is that it could provide the basis for a pay-for-performance, more recently termed a value-based-purchasing, reimbursement mechanism (Baker, 2003). In the example above, a national or regional comparison of nursing floor care and intensive care mean hours and costs by DRG can be used in combination with quality, outcome, and patient-safety data to reward hospitals that provide superior nursing care at the least cost. Unfortunately, any mechanism to pay for inpatient nursing performance may reward hospitals that are already providing excellent care. It may then potentially exacerbate issues of quality for hospitals that are not providing adequate staffing for reasons that may be difficult to overcome such as providing care in rural settings. The current emphasis on medical and hospital pay-for-performance does not adequately address nursing care primarily due to the lack of information about the interaction between a given nurse and a specific patient (Baker, 2003; Frolich, Talavera, Broadhead, & Dudley, 2007; Milgate & Cheng, 2006).

Moving towards a nursing intensity billing model based on the existing nursing incremental charge (023X) would provide new data about the nursing care of hospitalized patients independent of the medical diagnosis. However, much more study is needed to clearly define the role of nurses in achieving high quality hospital performance, and to devise methods to adjust payment based on that performance. The first step towards that goal is to identify the optimum level of nursing care for each patient – not more, not less. It is anticipated that the Centers for Medicare and Medicaid Services, as well as other payers for inpatient care, will more likely adjust hospital payment if data are available to link nursing care intensity with patient needs and resulting outcomes/quality of care.

Impact of the Nursing Intensity Model on Health Care Policy

Directly reimbursing hospitals for nursing care is not a silver bullet and will not immediately improve conditions at those hospitals with the highest nursing workload. Rather, it is a long-range strategy to raise the visibility of nursing at the highest levels of health care policy development, thus increasing the focus on health care relative to health cure.Directly reimbursing hospitals for nursing care...is a long-range strategy to raise the visibility of nursing at the highest levels of health care policy development, thus increasing the focus on health care relative to health cure. Nursing-intensity billing would provide an alternative, market-based approach compared to mandatory nurse-to-patient staffing ratios, an approach that both hospital associations and nursing labor organizations could potentially embrace.

An intensity-adjusted payment for inpatient nursing care received by a hospital could become a revenue stream and decrease the incentive to cut nursing positions. Currently hospital nursing care is cross subsidized (Dalton, 2007). For example, hospitals may receive reimbursements that are higher than actual costs for certain interventions, typically in surgical or procedural types of DRGs. This higher reimbursement is related to the current dominance of ancillary (procedural) charges compared to accommodation (room and board) charges in the payment system (Cromwell, Drozd, Gage, Maier, Richter, & Goldman, 2005; Cromwell, Maier, Gage, Drozd, Osber, Richter et al., 2004; Drozd, Cromwell, Gage, Maier, Greenwald, & Goldman, 2006). The excess of revenue to costs in reimbursing interventions is used to offset the lower payment to cover additional nursing costs associated with certain types of patients, typically medical patients.

Inclusion of an independent nursing adjustment to hospital payment would provide additional information to policy makers to determine how health care resources are expended. The reallocation of health care dollars, or at a minimum the consideration of nursing care relative to each diagnosis (DRG), would provide a balance to the near total emphasis on the medical aspects of inpatient care. Linking inpatient nursing care to the billing system would provide a way to balance the ancillary charges related to procedures, operations, and other medically related curative methods, with the associated nursing care embedded within the accommodation charges.

In summary, the introduction of a nursing intensity billing model has the potential to provide crucial data that has been missing for so many years. Information about the distribution of nursing intensity and needed skill mix provides a means to evaluate the human capital needed to care for patients. It provides a way to balance care (routine and intensive care costs related to nursing activities) with cure (ancillary charges related to procedures, drugs, radiology, and other technical interventions). We need to do both well. Unfortunately the existing payment system does a poor job of estimating nursing care needs.

Sources of Funding for Nursing Intensity Billing

An important question to ask is where the money to pay for a nursing intensity billing model might come from if it were implemented nationally. The answer is that initially there would be a shift in reimbursement, from over-compensated procedures to medical patients, such as stroke, pneumonia, and urosepsis patients, who have relatively higher nursing care needs (Welton, Halloran, & Zone-Smith, 2006). As noted previously, this overcompensation is related to the manner in which current hospital reimbursement can be increased by ancillary charges, whereas nursing care is locked into a fixed room and board per diem charge (Dalton, 2007). Billing directly for nursing care would reallocate reimbursement to more nursing intensive patients.

Another source of income could come from the return-on-investment of improved care resulting from an adequate number of nurses providing the care. Both higher percentages of registered nurses to all nursing staff (RN%) and overall higher number of nursing care hours may lead to lower infection rates, falls, skin breakdown, failure to rescue, and unnecessary inpatient death, leading to overall lower costs of care (Needleman, Buerhaus, Stewart, Zelevinsky, & Mattke, 2006). The change in payment, from use of the mean hospital nursing costs to increased payment for patients requiring more intense nursing care, could allow hospitals to improve staffing for those patients who have traditionally required more nursing care than was reimbursed. However, it is difficult to predict how hospitals would actually respond to these increased payments as there is no accountability for hospitals to increase nurse staffing for any particular patient merely because the payment they receive is increased.

Weaknesses and Limitations of Nursing Intensity Billing

There are a number of key issues that may diminish or prevent implementation of a nursing intensity billing model. First, the need to collect real-time data regarding hours of nursing care is labor intensive and prone to error, bias, and missing data. For example, nurses may overstate the time they spend actually providing nursing care; or if too busy they may not record actual nursing time. Second, there is a potential for fraudulent billing if the actual number of nursing care hours was lower than what was actually charged. A third issue could be patient response upon receiving their hospital bill. Patients may report that they did not receive all the nursing care indicated in the bill because some, if not much, of nursing time is spent away from the patient's bedside. A forth issue might be the need to compare nursing-care intensity across different patients and hospitals. It has already been noted that the medical diagnosis correlates only weakly with nursing care time; hence billing for nursing care within the DRG is problematic (Welton & Halloran, 2005). It is also possible that regional differences in nursing care could influence the care given and hence, payment to hospitals, if a nursing intensity billing model was implemented. Smaller hospitals may be at higher risk as they tend to have patients requiring less intense nursing care. Hence smaller hospitals may be more affected by changes in case mix and census than larger hospitals (Dalton, 2003; Dalton, Holmes, & Slifkin, 2003).

Conclusion

In summary, I recommend that all proponents of mandatory, nurse-to-patient staffing ratio laws consider the alternative of improving staffing levels by reimbursing nursing care based on the intensity of the care given. In addition, a nursing intensity billing model could reestablish the link between nurses and patients. It could help nurses demonstrate the value of what they do for patients. Currently we cannot show the economic value of nurses because we lack the data to do so.Currently we cannot show the economic value of nurses because we lack the data to do so. Linking nursing intensity, direct costs of care, and payment for that care within the billing and reimbursement system could profoundly change the relationship between nurses and hospitals. It could provide data needed to increase staffing levels and subsequent quality of care, and result in better hospital performance in the long run.

Mandatory nurse-to-patient staffing ratios may exacerbate, rather than correct, the imbalance between patient needs and available nursing resources in U.S. hospitals because patients have different care needs. The evidence has clearly demonstrated that many factors related to nurses, patients, and hospitals create a high degree of variability in nursing intensity. Creating a single set of national or state nurse-to-patient staffing ratios could create a situation in which some patients receive more nursing care than needed, and others less care. This could lead to lower quality of care and higher costs. Mandatory nurse-staffing ratios may exacerbate rather than correct the imbalance between patient needs and available nursing resources in U.S. hospitals because patients have different care needs. In contrast, optimizing nursing intensity based on actual patient needs could address the perceived nursing shortage by creating a better fit between patient demands and the nursing resources used in the clinical setting.The nursing intensity billing model is able to provide much greater flexibility in matching needed nursing resources with hospital reimbursement... The nursing intensity billing model is able to provide much greater flexibility in matching needed nursing resources with hospital reimbursement than the mandatory, nurse-to-patient staffing ratios. The data used to unbundle nursing care from room and board charges could also provide crucial data to compare nursing intensity by diagnosis across multiple patients and hospitals.

Ultimately, the nursing intensity billing model provides an incentive to hospitals to improve nurses staffing by investing in nursing care, changing nursing care to a revenue source, and comparing or benchmarking hospitals to regional and national norms based on the administrative data. In the future, this billing model could lead to establishing normative standards for inpatient nursing performance and creating methods to adjust payment based on the merits of the nursing care provided.

Author

John M. Welton, PhD, RN
E-mail: weltonj@musc.edu

Dr. John Welton is an Associate Professor and Faculty Chair at the Medical University of South Carolina College of Nursing. He is a graduate of the University of North Carolina PhD program in nursing; he has researched inpatient nursing intensity and staffing patterns and published widely on the subject. He is also a member of the American Organization of Nurse Executives nursing intensity task force to examine the potential of a national nursing intensity billing model. He is currently funded by AONE to conduct a pilot study evaluating the nursing intensity billing model.