Health insurers provide little incentive to reduce surgical errors because they pay hospitals for the longer stays and extra care that patients require for the resulting complications, according to a study published Tuesday in JAMA.
For the study, researchers from the Boston Consulting Group (BCG), Harvard, and Texas Health Resources (THR) examined the records of 34,256 patients who had surgery at one of 12 hospitals run by THR in 2010. In total, 1,820 patients experienced one or more complications after surgery, ranging from infections at the surgical site to cardiac arrests and strokes.
Overall, the study found that hospital revenue averaged $30,500 more for patients whose length of stay was longer because of an avoidable complication than patients without complications.
Specifically, the researchers found that profit margins were 330% higher when patients with private coverage experienced at least one complication. Hospitals on average made about $56,000 in profit for such patients, compared with about $17,000 in profit for privately-insured patients who did not experience complications.
Meanwhile, profit margins were 190% higher for Medicare beneficiaries who experienced at least one surgical complication. Hospitals profited by about $3,600 on average when Medicare beneficiaries experienced one or more complication, compared with $1,900 on average on Medicare beneficiaries without any complications.
The researchers recommend shifting away from the fee-for-service system, which results in insurers paying for substandard care, as well as providing bonuses to higher-performing hospitals.
The findings conflict with previous research that had suggested hospitals were negatively affected by surgical complications, Reuters reports.
Barry Rosenberg, an author and a managing director at BCG, said his team was surprised to realize that efforts to improve hospital performance would actually cost hospitals money. "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,'" he said.
Nancy Foster, vice president for quality and patient safety policy at the American Hospital Association, said the findings show that the "payment structure have been set in a way that sometimes when hospitals move to do something that is clearly in the patients' interests ... [hospitals] may suffer a financial setback from doing what's right for the patient."
Atul Gawande—a surgeon and professor at Brigham and Women's Hospital and Harvard School of Public Health and the study's senior author—suggested moving to a bundled payment system, where hospitals receive one payment for a patient's entire stay. Gawande also noted that hospitals should continue efforts to reduce surgical complications by adopting quality control measures, such as checklists.
In an accompanying editorial, Princeton University health care economist Uwe Reinhardt called the findings "troublesome but not surprising." He criticized the current payment system and wrote that Medicare—which he noted has been bundling payments since the mid-1980s—might be considered a "smarter payer" than private insurance because it "appears to have largely avoided rewarding hospitals financially for avoidable mistakes" (Grady, New York Times, 4/16; Seaman, Reuters, 4/16; Kutscher, Modern Healthcare, 4/16 [subscription required]).
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