Incentives Reward Surgical Complications

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A study analyzing the relationship between major complications and hospital costs and profits revealed that surgical complications can yield hospital profits of as much as 330% while improving quality is perversely penalized.

This article published with permission from The Burrill Report.

Surgical complications can yield hospital profits of as much as 330%, according to a national team of experts in public health, economics, and clinical practice that analyzed the relationship between major surgical complications and hospital costs and profits.

“Evidence shows reducing harm and improving quality is perversely penalized,” says Atul Gawande from Harvard University’s Department of Health Policy and Management, in an interview available on the website of JAMA, where the study and an accompanying commentary by an economist are published.

When surgical complications are reduced, all payers benefit since their payments to the hospitals are reduced. However, for the majority of hospitals it’s not necessarily beneficial.

The problem, the authors write, is that depending on a hospital’s payer mix, the motivation to reduce surgical complications might be small since doing so can potentially worsen the hospital’s financial picture. The majority of hospitals in the United States treat patients with private insurance or Medicare and those hospitals would lose money by reducing complications. However, safety-net hospitals — those that treat patients that either pay out of pocket or have Medicaid — might improve their financial performance, writes Gawande.

In an analysis of more than 34,000 patient discharges after surgery from a multi-hospital system in the southern United States, the team found that for the same procedure with or without complications, those with complications provided hospitals with greater profits. Costs increased as well, but the contribution margin, representing revenue to the hospital after subtracting out costs incurred due to patient volume, rose significantly higher.

Although the 330% profit was calculated for patients with private insurance, the profit associated with Medicare patients was also high: 190%. Only Medicaid and self-paying surgical patients were not profitable, regardless of the presence or absence of complications.