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Hospitals make money from their own mistakes, study says

By David Self Newlin | Posted - Apr 24th, 2013 @ 11:59am

SALT LAKE CITY — A new study from the Journal of the American Medical Association suggests that hospitals could actually profit from their own mistakes, lowering the incentive to implement procedures to reduce accidents and surgical complications.

Surgery is risky business and sometimes complications arise, as any doctor or patient knows. Depending on the procedure, between 3 and 17.4 percent of procedures will have a problem that requires extra treatment. But those complications can add up — some $11,500 per patient. That extra cost can mean a higher profit margin for hospitals, according to the study, released April 17.

Of 34,256 patients studied, 1,820 had complications like pneumonia or infection that were likely to be preventable. Those patients with complications paid far more to hospitals for their care, especially if they had private insurance.

On average the hospital made $39,017 more from a patient that had complications as well as private insurance. If a patient had complications and was covered by Medicare, hospitals made $1,749 more.

Things were different if you paid out of pocket, however; hospitals made far less money off of folks without insurance or with Medicaid.

"In contrast, for Medicaid and self-pay procedures, those with complications were associated with significantly lower contribution margins than those without complications," the study said.

What all this means is that hospitals that treat mostly people with insurance or Medicare could actually lose money by implementing systems and procedures that reduce the occurrence of preventable complications, like blood clots, for instance.

Dr. Barry Rosenberg, who participated in the study in order to help Texas Health Resources reduce their rate of surgical complications, said he was stunned by the results.

"We said, ‘Whoa, we're working our tails off trying to lower complications, and the prize we're going to get is a reduction in profits,' " Rosenberg told the New York Times.

"The payment structure have been set in a way that sometimes when hospitals move to do something that is clearly in the patients' interests … They may suffer a financial setback from doing what's right for the patient," said Nancy Foster, vice president for quality and patient safety policy at the American Hospital Association, in an interview with Reuters.

Doctors like Atul Gawande, author of "The Checklist Manifesto," said it isn't that "any hospital out there is saying, ‘we can make more money if we have more complications.' "

He said that simple things, like checklists reminding doctors to make sure they're about to operate on the right part of the body or give the right antibiotic, can have dramatic results. He told Reuters that moving to a system which incentivizes quality control measures such as bundled pay systems like Medicare, rather than current systems.

"Medicare appears to have largely avoided rewarding hospitals financially for avoidable mistakes," wrote Princeton healthcare researcher Uwe Reinhardt in an editorial that accompanied the study.

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