PLGL: Naming the Biggest Controllable Line in the Inpatient Psychiatry P&L

The challenge with mental health is that there is never a good news day. The wins are silent; the losses are devastating. Sadly, that mirrors a behavioral health facility's P&L: the cost of prevention is hard to see, while the cost of failure is beyond words.

I wrote earlier about how challenging and unforgiving behavioral healthcare can be. And how the routine of observations is today the core solution, but with tremendous burdens to delivering safety. Observation culture creates the illusion of safety without naming the imperfect costs of compliance and the catastrophic cost of failure. There is an artificial opacity created by focusing on compliance with a Q15 while overlooking the risk factors that can combine to realize incredibly costly outcomes.

Naming the cost: PLGL

After spending years speaking with our partners about how they manage the inevitable mishaps that occur daily, we realized there is no clear, well-defined answer to the cost of failure in the system. Taking a step away from the day-to-day, leadership sees a disparate collection of costs and impacts: rejected claims, rising sitter costs, missed observations, failures in safety events, and increases in insurance. There is a lot of noise without an obvious direct signal.

I remember speaking with a well-tenured hospital executive after giving a lecture in New England last year, and they gave me a wonderfully succinct argument for why no one invests in fixing mental health: all costs are indirect, and a hospital administrator will only invest in initiatives that provide a clear line of sight to ROI. That has sat with me for a year, and after having hundreds of conversations since then, I now clearly see there is an answer to that challenge, through a much simpler approach…

At LIO, we call this direct and clear definition of the cost of failure in inpatient psychiatric care PLGL: Patient Liability and Grievous Loss. It is the combined, largely controllable cost of keeping acutely at-risk patients safe. We define two elements of PLGL: the recurring observation labor an inpatient facility carries out every day (the easy-to-see spend), and the catastrophic events that sit in reserves or are covered by insurance and viewed as one-offs (but in reality happen more often than they should). 

Now that we have defined PLGL, let's examine the elements.

The visible: what observation really costs

Drawing from my last post, we know that high-risk patients in units with ligature or safety risks must be under continuous observation with the ability to intervene immediately, via 1:1 observation. A continuous 1:1 watch runs about $561 a patient-day, and that is a conservative estimate before agency spend. That equates to roughly $205,000 a year for a single patient watched around the clock.

Now, no single bed runs at that all year, so the real question is more straightforward: How many days of true 1:1 watch does an average at-risk bed actually require in a year? To get there, let’s look at a baseline assumption, just 18 days of 1:1 at $561 a day is $10,000 per bed per year. Is that realistic? I think so. A psych bed turns over constantly, up to one in five of those patients needs some form of special observation, and each episode carries a few days of intensive watch, not the whole stay. Six episodes, three days each, and that gets you to 18 days. If we broaden the variability, we get to roughly $8,000 to $12,000 per at-risk bed a year, call it $10,000 in the base case and $15,000 and up in the highest-acuity settings.

And that band does not even include agency premiums or overtime. When you stack on cross-shift labor, agency costs, and overtime, the number climbs higher still, and that is exactly the problem. Not even the CFO can easily see this number.

The hidden risk: where PLGL turns catastrophic

Unfortunately, that is only part of the equation. The direct cost of a fall with injury adds about $37,000, and lengthens the stay. And in the most severe cases, when an inpatient suicide occurs, which is the highest share of psychiatric liability settlements and verdicts, individual cases regularly reach seven figures in costs to the facility operator. These costs are the tail of PLGL that the observation regime is meant to avoid. When it fails, annual per-bed costs can skyrocket.

The reality: PLGL is controllable

Fortunately, and you will hear me say this often, there is a better way. 

PLGL is controllable and reducible. Reducing incident frequency is the direct way to bring costs down, and that comes from shifting to an enhanced approach to observation. As I have highlighted before, independent studies of continuous monitoring programs show large drops in 1:1 sitter hours and cost with no increase in falls or self-harm. And to be clear, this is not just another virtual sitter on a screen. An average mental health hospital that reduces intensive 1:1 observation by 50% would release mid six figures of annual spend.

What is your PLGL?

I would love to know if my estimates ring true to you. How many at-risk beds do you have? How much does a day of 1:1 observation cost you, per day, per year? What does that equate to on a per-bed basis? Once you know that, then what is the catastrophic downside you are insuring against? What does that look like per bed? What was your YoY % increase? Lastly, what would a one-time catastrophic event do to your per-bed number? Do I have your attention now?

Now that you can see how PLGL clarifies how much you spend to manage risk, I would like to challenge you to think about how tools like the LIO platform can help you meaningfully reduce that risk and control that spend. 

The next question I get, though, is the challenge of safety versus privacy. Does putting ambient technology into a patient's room, or across a facility, add surveillance to the most vulnerable moments of someone's life? It is the right question to ask, and the answer is the whole point. My next post tackles that head on.

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Author: Todd Haedrich, CEO, LIO