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Hospitals profit from complications

Study shows surgical complications bring more costs but higher profits

Hospitals make more of a profit when surgical patients develop complications finds a new study published Wednesday in JAMA.

A team of researchers  analyzed findings from nearly 35,000 surgical discharges from a 12-hospital system in the southern U.S. They found that the occurrence of postsurgical complications was associated with a higher per-encounter hospital contribution margin for patients covered by Medicare and private insurance but a lower margin for patients covered by Medicaid and those who self-paid.

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The study was conducted as a way to measure the financial implications associated with postsurgical complications. The goal, said study author Atul A. Gawande, MD, professor at Harvard Medical School, was to evaluate the fixed and variable hospital costs and revenues associated with the occurrence of one or more major postsurgical complications for four primary payer types – private insurance, Medicare, Medicaid and self-payment. The analysis included administrative data for all inpatient surgical discharges during 2010 from the nonprofit 12-hospital system.

Nine common surgical procedures and 10 major complications across the four payer types were analyzed. Hospital costs and revenue at discharge were obtained from hospital accounting systems and classified by payer type. Hospital costs, revenues and contribution margin (defined as revenue minus variable expenses) were compared for patients with and without surgical complications according to payer type.

According to the study, the authors found that the rate of inpatient surgical complications is significant, with estimates ranging from 3 percent to 17.4 percent, depending on type of procedure, type of complications, length of follow-up and data analyzed. In addition to patient harm, major complications add substantial costs, previously estimated at $11,500 per patient.

Overall, out of 34,256 surgical discharges examined in the study, 1,820 patients (5.3 percent) experienced one or more postsurgical complications. Study researchers found that the occurrence of one or more complications was associated with higher hospital costs in all payer types but hospital revenue varied by payer type.

Compared with patients without complications, patients experiencing one or more complications were associated with a higher contribution margin of $39,017 per patient with private insurance ($55,953 versus $16,936) and $1,749 per Medicare patient ($3,629 versus $1,880). “In contrast, for Medicaid and self-pay procedures, those with complications were associated with significantly lower contribution margins than those without complications,” according to the report.

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“Findings were interesting,” said Gawande. “Healthcare costs increased substantially with complications, which is no surprise. We are also paying hospitals for quantity, not quality, which is also no surprise, Patients with surgical complications ended up creating profits, however. That was a surprise.”

Gawande said while effective methods for reducing surgical complications have been identified, such as checklists for certain conditions, “hospitals have been slow to implement them.”

According to the study, some of the reasons hospitals may be slow to implement some of these procedures is that reductions in surgical complication rates may reduce revenues under certain reimbursement schemes. “Previous estimates suggest that reducing surgical complications could harm hospital financial results but have been limited by use of small data sets or simplified surrogates such as patient length of stay,” the study noted.

“We’ve been trying to unravel why certain quality measures have been so slow to penetrate healthcare,” said Gawande. “This is an area where we won’t succeed in health reform unless we see surgical quality and costs come down. The bottom line is that the findings that hospitals profit when serious complications occur is appropriately unnerving for people, and at a minimum, it suggests that there’s a problem that needs to be addressed.”

Gawande added that hospitals could begin to renegotiate their insurance contracts in order to reward fewer surgical complications. 

“If hospitals succeeded in doing this, it would be a significant pathway for our goals of health reform. This is the basis for moving forward,” he said. “This is a pathway for other hospitals to follow. Bundled payments could solve this. A flat fee for surgery with guaranteeing quality – this represents a direction we could go in with options under reform.”

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