NCPA - National Center for Policy Analysis

Hospitals Profit When Surgeries Go Awry

April 18, 2013

When patients suffer from complications on the operating table, hospitals reap huge profits, according to a new study in the Journal of the American Medical Association, says Politico.

Perverse financial incentives offered by private insurers and Medicare actually pad hospitals' profits when surgeries go awry, according to the study.

  • Hospitals earned 330 percent higher profit margins on surgeries with one or more complications when they were paid for by private insurers.
  • Surgeries with complications covered by Medicare earned 190 percent higher profit margins.
  • That translates to approximately $30,500 more per faulty surgery.

The data are a gut-punch to the hospital industry at a time when health care stakeholders universally insist on reforms that pay for high quality care, rather than quantity. It also underscores the financial risks faced by providers that might be otherwise interested in payment reform but worry it could lead to instability or job losses if they end up losing funds and resources.

One of the study's authors emphasizes that he doesn't believe health systems intentionally cause complications to reap financial gain, but they might slow-walk reform efforts to help their bottom lines.

The study indicates that some movement toward bundled payments -- paying hospital systems fixed rates for different types of care, regardless of whether there's a complication -- has helped reverse the incentive to leave quality issues unaddressed. But most hospitals have yet to transition to such a system.

The study, which was completed in partnership with the Boston Consulting Group and Texas Health Resources, looked at more than 34,000 inpatient surgical procedures performed in 2010 at a nonprofit hospital system in the southern United States. Of those procedures, 1,820 resulted in a complication.

Source: Kyle Cheney, "Study: Hospitals Profit When Surgeries Go Awry," Politico, April 17, 2013. Sunil Eappen et al., "Relationship between Occurrence of Surgical Complications and Hospital Finances," Journal of the American Medical Association, April 17, 2013.


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