Study: Hospitals 'Profit Handsomely' From Surgical Errors

Hospitals nearly triple their profits when they make surgical errors, compared to how much they make when patients don’t suffer harm, according to a new study published in the Journal of the American Medical Association (JAMA).

On average, the hospitals studied reaped an extra $30,500 in profits when a patient developed one or more potentially preventable surgical complications because insurance plans pay more for longer stays and extra care, the study found.

Some surgical mishaps boosted profits by up to $44,000 per patient, reported researchers from the Boston Consulting Group, Harvard, and Texas Health Resources, a large nonprofit hospital system.

“It’s shocking, crazy and perverse that hospitals are being financially rewarded for harming patients, while the prize for hospitals that are working hard to improve patient safety and reduce surgical errors is losing money,” says Barry Rosenberg, MD, a coauthor of the study and a partner in the Boston Consulting Group.

The study, which analyzed 34,256 inpatient surgical procedures performed in 2010 at 12 hospitals run by Texas Health Resources, was the first to analyze the effects of surgical complications on hospital profit margins.

An accompanying JAMA editorial states that the current fee-for-service payment system “can tempt otherwise admirable people into dubious conduct,” and the study findings should be “an impetus for payment reform.”

The editorial also said it was "untoward" to have a payment system in which "hospitals in the United States can profit handsomely from postsurgical complications, even if the hospitals could avoid them."

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Lethal Hospital Mistakes on the Rise

In 1999, the Institute of Medicine published a report saying that hospital errors killed nearly 100,000 Americans a year—a rate of lethal medical harm comparable to four jumbo jets crashing each week.

Since then, despite more than a decade of effort to improve patient safety, medical errors and complications have actually gotten worse, affecting one in three hospitalized patients—a rate 10 times higher than previous estimates, reports a 2011 study published in Health Affairs. The researchers also found that current reporting methods miss 90 percent of serious adverse events.

Eleven common medical mistakes resulted in 895,936 deaths in 2008, according to an analysis of published research by Carolyn Dean, MD, ND, author of Death By Modern Medicine: Seeking Safer Solutions. “If medical error was a disease, it would be the leading cause of death in the US.”

Overall, an estimated 15 million Americans (out of 37 million who are admitted) suffer medical harm in hospitals annually, according to the Institute for Healthcare Improvement. Along with the human toll, hospital errors cost the healthcare system $17.1 billion a year, another recent study reported.

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A System That Rewards Substandard Care

The JAMA study authors don’t believe that surgeons and hospitals are deliberately bungling procedures to boost profits; however, they do feel that the U.S. healthcare system urgently needs to change the payment structure to stop rewarding mistakes.

The current fee-for-service system works just like its name implies. Hospitals get paid for each service they provide. Simple math tells us that hospitals can make extra money by performing additional services. Medicare is now transitioning to a pay-for-performance system, intended to reduce the rewards for medical mistakes. Right now, nearly 80% of Medicare payments are made on a fee-for-service basis, according to Dr. Rosenberg.

In the JAMA study, 1,820 patients suffered preventable complications, such as blood clots, pneumonia, and infections. Such problems more than quadrupled the median hospital stay, from a median three days for uncomplicated surgery to 14 days when adverse events occurred.

For flawless surgery, the hospital netted a median profit of $18,900, compared to a profit of $49,400 when the operation went awry.  Complications doubled the profit if the patient was covered by Medicare, and tripled the profit if the patient had private insurance.

The study used a measure of profit called the contribution margin and found that post-op problems connected with spinal, neurological, and heart surgeries boosted the hospital bottom line the most.

“If a patient has colon cancer surgery, Medicare pays a certain fee, but if the patient gets a post-operative infection that leads to pneumonia and has to be put on a ventilator for several days, the payment for ventilator care is higher and more profitable than the payment for the original surgery,” says Dr. Rosenberg.

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David Goldhill, author of Catastrophic Care: How American Health Care Killed My Father—and How We Can Fix It, offers an even more harrowing and tragic case. His dad was hospitalized to treat pneumonia and within 36 hours, developed a hospital-acquired infection that lead to sepsis and a gruesome death five weeks later.

Then his mother was hit with the bill for what Goldhill calls “the service of killing my father”—$635,685.75.

“Had I booked Dad a room at the most expensive hotel in town for the five weeks of his illness, filled the room with a million dollars’ worth of hospital equipment leased for $15,000 a month, given him round-the-clock nursing care, and paid a physician to spend an hour a day with him (roughly 50 minutes more than at the hospital), it would total roughly $150,000,” Goldhill wrote for Bloomberg View.

Understandably, the grieving widow didn’t pay the bill, nor did the hospital try to collect, Goldhill reports. However, the hospital did receive a hefty fee from Medicare for its fatal care, he adds.

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A Simple Way to Reduce Surgical Errors

Ironically, the JAMA study was conducted to look at ways that Texas Health Resources could reduce its rate of surgical complications. Based on data collected in 2010, its hospitals have a rate of 5.3 percent, comparable to that of similar medical centers. Although this rate is average, Texas Health Resources are hoping to improve.

In 2011, Texas Health Resources hospitals started using a surgical checklist developed by study coauthor Atul Gawande, MD, who pioneered this approach, which is similar to a preflight checklist used by airline pilots. It includes double checking the patient’s ID, which part of the body is being operated on, and that the right medications have been given to reduce risk for infections and blood clots.

Dr. Gawande’s research shows that this simple checklist can cut surgical errors by more than a third, yet most hospitals haven’t adopted it. “We wondered if finances were playing a part in this,” he told the New York Times.

“We Need to Make Safety Profitable”

Despite discovering that its hospitals were losing money by making surgery safer, Texas Health Resources continues to use the checklist. Mark Lester, MD, a study coauthor and executive VP of the hospital chain told the New York Times, “Reducing complications and increasing safety is why we’re there. If in doing that, some payments don’t come our way, it’s not of consequence.”

Medicare and some other insurers have taken measures to make errors unprofitable, such as refusing to pay for “never events” like operating on the wrong leg or leaving surgical instruments or sponges inside the patient. It has also announced a phased program in which hospital payments will be cut if too many patients are readmitted within 30 days or give the hospital poor marks on patient satisfaction surveys.

However, says Dr. Rosenberg, “payment reform is moving in baby steps, while patients continue to suffer medical harm. There’s no doubt that financial incentives can work: When Medicare announced several years ago that it wouldn’t pay for care if patients developed central-line IV infections, the rates of those infections fell dramatically, so we need similar incentives that make safety—not mistakes—profitable.”

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