Hospitals make a lot more profit when an insured surgical patient develops complications than when the procedure proceeds error-free, says a new study by Boston surgeon Atul Gawande, MD.
Hospitals also profit, though to a lesser degree, when complications occur in Medicare patients.
Gawande insists that hospitals are not making essential quality improvements to avoid complications, even though many strategies have been proven effective.
"It's no surprise that they [hospitals] have not made the major kinds of investments in quality control that you might expect, given these kinds of cost figures we're seeing," says Gawande, of Brigham and Women's Hospital and author of numerous books and articles on healthcare improvement.
Gawande emphasizes that he doesn't think hospitals or doctors are deliberately causing their patients to have complications so they can bill for more reimbursement.
"I know of no hospitals that are deliberately accepting or provoking complications for the sake of profit," he says. He adds that until now he's "not sure anyone, even the hospital systems themselves, really understood the financial magnitude of the profit margins that come from these complications."
The report, published in Wednesday's Journal of the American Medical Association, was prepared by Sunil Eappen, MD, Gawande and others. It analyzed 34,256 surgical discharges from an unidentified 12-hospital system in the southern part of the country.
The analysis revealed that private insurers paid $55,953 when the patient had a surgical complication but only $16,936 when the procedure went without a hitch−more than three times or $39,017 more.
Some 1,820 patients experienced one or more complications from their surgeries in this system.
For Medicare, the cost difference was much smaller, but still significant. When patients had a complication, the federal government reimbursed hospitals $3,629, compared with $1,880 if the surgery was complication-free, or $1,749 more.
In the hospital system studied, 40% of the patients were covered by private insurance, so complications represented a substantial profit for that organizations, Gawande says.
"The presumption was that when you have a DRG (diagnostic related group) payment, it's a global fee, and therefore the hospital absorbs the cost when you have a complication. But in fact what happens is that [the hospital] moves to other DRG codes if a surgical case goes wrong. It may be billed as an ICU patient rather than a surgical patient, and then you start seeing substantial margins rise."
For patients covered by Medicaid or self-pay, profit margins were much lower or the hospital lost money.
Nancy Foster, vice president for quality and patient safety for the American Hospital Association, heatedly disputed the report's implications that hospitals aren't incentivized to avoid complications.
She pointed to a table in Gawande's paper that proves this 12-hospital system, overall, lost money when its patients developed complications, with a negative margin of about 6.4% across all payers.
"If you think that hospitals are somehow differentiating by payer, that would be odd," she says. "And it's clear to me that when hospitals prevent these complications, they do have a financial incentive to do so," not the other way around.
Besides, she says, every hospital in the country is dedicated to patient safety at some level. "We haven't gotten to perfection yet, much as we would like to get there. But we are dedicated to making patient care safe regardless of the consequences to the bottom line."
To suggest that hospitals are not trying to improve safety because their financial incentives direct the opposite, she says, "is disingenuous" by Gawande and his co-authors.
But Leah Binder, president of The Leapfrog Group, which represents employers that purchase health coverage, says Gawande's report illustrates profits from complications "that are outrageous− an example of cost-shifting to purchasers that is senseless."
She says it should be a "wake-up call" to employers that "you are being taken by the hospital community, that you are paying almost $40,000 more every time a hospital makes an error during surgery" with a covered worker.
"These numbers tell us there's profit to be made in suffering. Whether hospitals are deliberately taking advantage of this opportunity or whether they just happen to benefit from it is irrelevant."
Binder adds, "In what other industry do you pay more because they're worse? Do you pay a restaurant more because they have a rat infestation? No. I don't care whose fault it is. The numbers in this paper are astonishing."
She says it should be seen as "a call to action for purchasers to get to the negotiating table. You must realign these incentives."
Gawande says that major private insurer incentives such as bundled payments are "the direction we have to go."
For example, he says, "when you see Walmart cutting a deal with hospitals like the Cleveland Clinic, where for a certain operation [Walmart] gets a guaranteed price regardless of the number of procedures or whether there are complications, this is a real shot across the bow. It's a signal to other hospitals that this is something that's going to be asked of them."
"It's a very big cultural shift for medicine to adopt these things," he says.
Certainly hospitals have become safer, especially in the last several years as reporting on Hospital Compare and other efforts have raised awareness, Gawande acknowledges.
"I'll be the first to tell you that there has been substantial improvement that has happened. Death rates, for example, have fallen.
"But if you compare what we really should have as quality control measures, we have known programs that cut death rates from anywhere from 15% to 50%. Those should be norms throughout the healthcare system.
"Instead they're only present in a minority of hospitals. And all of our studies find that we can go in and implement multiple protocols that cut death rates at those kinds of magnitudes, but the puzzle is, why hasn't that spread throughout the system?"