Reducing complications may cost hospitals money

NEW YORK Tue Apr 16, 2013 4:14pm EDT

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NEW YORK (Reuters Health) - U.S. hospitals may have a financial incentive not to implement strategies and techniques that are known to reduce surgery-related complications, according to a new study.

The findings do not mean that "any hospital out there is saying, ‘we can make more money if we have more complications,'" said Dr. Atul Gawande, the study's senior author from Brigham and Women's Hospital and the Harvard School of Public Health in Boston.

But Gawande and his colleagues found that a hospital system in the southern U.S. ended up with more profit per patient - technically referred to as "contribution margin" - when its patients had one or more complications after surgery.

Depending on the procedure, between 3 and 17 percent of procedures will involve complications, which on average add about $11,500 of costs per patient, wrote the researchers in Tuesday's issue of JAMA.

Previous research had suggested complications actually hurt hospitals' bottom lines, but hospitals typically get paid per treatment and can get more money if - for example - a person getting their hip replaced ends up on a ventilator.

For the new study, the researchers reviewed how much money 12 hospitals located in the southern U.S. spent and received after caring for over 34,000 surgical patients in 2010.

In total, 1,820 patients experienced one or more complications after surgery that ranged from infections at the surgical site to strokes and cardiac arrests.

The researchers found the hospitals saw a profit per patient when patients were either privately insured or on Medicare, the federal health insurance program for the disabled and elderly.

On average, hospitals ended up with about $17,000 of profit for privately-insured patients who didn't have a complication after surgery. That compared to about $56,000 in profit for privately-insured patients who had one or more complications.

Among Medicare patients, the hospital profited about $1,900 when there were no complications. That compared to about $3,600 in profit when Medicare patients had one or more complications.

In contrast, the hospitals lost money - regardless of whether or not there was a complication - when their surgeons operated on patients who paid for their own surgery or were on Medicaid, the federal and state health insurance program for the poor. These people only made up about one in 10 of the hospitals' patients.

Overall, hospitals ended up with about $8,000 profit for every complication.


According to the researchers, despite the apparent profit, the hospital system included in the new study ended up losing money at the end of the year once fixed cost - such as light and water bills and other facility costs - were included.

But the per-patient profit is what hospitals worry about, Uwe Reinhardt, a healthcare economics researcher from Princeton University in New Jersey, told Reuters Health.

"These are (fixed) costs that are sunk. All you can hope is that you recover all or some of the cost of the patient care," Reinhardt said.

Nancy Foster, vice president for quality and patient safety policy at the American Hospital Association, told Reuters Health the study shows hospitals are actually punished when they introduce quality-improvement programs, because their loss would be even greater.

"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 Foster, who wasn't involved in the new research.

Gawande told Reuters Health that their results suggest it's in the hospitals' interest to move to a payment system that incentivizes the adoption of quality control measures, such as check lists. (Gawande is author of The Checklist Manifesto.)

One of those payment systems, says Gawande, is a bundled payment system, where hospitals receive one payment for a patient's entire stay.

Reinhardt wrote in an accompanying editorial that Medicare, which has been bundling payments since the mid-1980, may be considered a "smarter payer" than private insurers based on the findings.

"Medicare appears to have largely avoided rewarding hospitals financially for avoidable mistakes," wrote Reinhardt.

Gawande said his group has seen reductions in complications and deaths after working with the group of southern hospitals to renegotiate contracts with insurers and introduce quality-improvement programs.

"We don't know the answer to the next step of the question - whether the reduction will hold over time and whether it will help them flip from loss to gain," he said.

SOURCE: The Journal of the American Medical Association, online April 16, 2013.

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Comments (2)
SeniorMoment wrote:
Under the Medicare model, most hospitals can only save money on their Medicare patients by reducing complications since they get paid a set amount per surgery which covers any complications that extend the hospital stay. Patients under some private health insurance plans though have the potential with some insurance plans to generate less income per patients if complication frequency is reduced.

A lot of present day complications do more harm that good by extending the time a patient is in the dangerous, environment of a hospital. All good insurance plans should provide incentives for patients who can be treated at home, away from common sources of illness and disease, to be treated at home. When I was last in a hospital, I nearly checked myself out because I saw no good being in the hospital could do, and at the same time I was deprived of sleep simply by all in interruptions day and night. I had about 5-6 days of sleep deprivation because of what turned out to be withdrawal from a medicine, and then I was hospitalized by the ER. In the hospital from Friday night to Sunday morning I was only able to get about 4 hours of sleep, but when I went home I slept all day. In my case the hospital justified the stay as waiting for results by a radiologist reviewing the CAT Scan and MRI results. However, Saturday morning the hospital doctor said none of the results would result in my having surgery, regardless of results, so I should have been sent home where I was finally long enough off the offending medicine to sleep all day without disruptions.

Often hospital stays do as much harm as good, because they expose patients to people even much sicker than they are. Every stay in a hospital increases the risk of getting an antibiotic resistance hospital acquired infection, which is one of the reasons why for anything short of heart surgery I prefer no general anesthetic but instead pain medication and a strong sedative with outpatient surgery in a wing or other building environmentally separate from the hospital.

A couple who used to live in my neighborhood were between jobs and living in an RV when their child got sick. The hospital kept the child for a week without even telling the parents they had a right to take the child back. All they did in that week was administer IV antibiotics and presumably do the every four hour blood tests required at hospitals. The parents could have administered the IV’s while continuing onto their new home during the RV and any blood laboratory would have done any ordered test and if directed given the results to the parents and the originating hospital. Except for the ER visit, the entire hospital stay was unjustified. They could have simply traveled with blood lab orders they could have filled along their route and been given copies of the reports and told what to look for to see if the child needed further treatment. They had no insurance since they had left their jobs but didn’t have money to buy COBRA extended coverage. Even paying only 10% of the final bill, which was the negotiated settlement offer, they sold everything they owned including beds given by relatives to raise and their RV motorhome to raise that 10% to pay for what should have been just an ER visit and take home IV antibiotics and administration instructions with advice to quickly see a physician at the new home location.

Apr 16, 2013 5:32pm EDT  --  Report as abuse
SeniorMoment wrote:
I wonder if the article is confusing net revenue per patient with profit per patient. I have in my lifetime gotten all of my serious hospital care entirely from non-profit hospitals. Those hospitals do need enough net revenue excess per patient to pay for care for patients unable to pay the full cost of their care, while for profit hospitals need enough actual profit to reward investors for financing the hospital. (Hospitals that convert from non-profit to for profit are generally required by their state government(s) to provide free (or maybe money losing) care of a specified multiple millions of dollars per year to compensate the community that raised the funds to build the hospital.

Apr 16, 2013 5:41pm EDT  --  Report as abuse
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