Hospitals Profit from Their Mistakes

If no good deed goes unpunished, does it follow that no bad deed goes punished?

It does, apparently, if you’re a hospital. As widely reported earlier this month, including by the New York Times, a new study published in the Journal of the American Medical Association [JAMA], says that errors committed by hospitals can be lucrative because insurers compensate them for patients who must remain hospitalized longer than they should as a result of preventable surgical mistakes.

According to The Times, “Changing the payment system, to stop rewarding poor care, may help to bring down surgical complication rates, the researchers say. If the system does not change, hospitals have little incentive to improve: in fact, some will wind up losing money if they take better care of patients.”

What is this, Opposite Day in Health Care?

Researchers analyzed records of 34,256 people who had surgery in 2010 at one of 12 hospitals run by Texas Health Resources, a large, nonprofit hospital system. Of those patients, 1,820 suffered at least one complication, such as blood clots, pneumonia or infected incisions that could have been prevented.

Without such complications, these patients would have been hospitalized three or four days; with them, they averaged 14 days in the hospital. The average tab was $30,500 more than for patients without complications ($49,400 versus $18,900). Private insurers paid far more for complications than did Medicare, Medicaid or patients who paid for their own care.

The researchers made clear to The Times that they weren’t suggesting that hospitals make deliberate errors in order to boost their bottom lines, nor were they refusing to address the problem. But they did say, the paper reported, “that the current payment system makes it difficult for hospitals to perform better because improvements can wind up costing them money.”

You’d think that insurers would be motivated to heal this sick financial scenario, and a spokeswoman for an insurance trade group said all the right things about moving American health care away from the fee-for-service model to one that emphasizes quality over quantity, one that rewards better care. She did note that Medicare and private insurers now use a “never list” of things they will not pay for, including leaving a sponge or instrument inside a patient, or operating on the wrong organ or wrong limb.

Still, given that, for example, Wellpoint, the corporate parent of Anthem Blue Cross Blue Shield and others, made a profit last year of more than $2.6 billion, how much farther will insurers go to fix a system that, for them, isn’t broken?

Reducing complications, said the researchers, means that insurers not only should not pay for substandard care, but should financially reward excellent care. Also, hospitals should be required to disclose their complication rates so that patients who have options can avoid those with high rates. Such facilities could either improve, or close.

To its credit, Texas Health Resources was trying to figure out how to reduce its hospitals’ surgical complication rates, which prompted the study. The outfit’s complication rate was 5.3%, about the same as those reported by similar hospitals. A Texas Health Resources consultant, according to The Times, said the they were stunned to learn that lowering the complication rates would cost the hospital money.

Dr. Mark C. Lester was one of the study’s authors and also is an executive with THR. He told The Times that its hospitals used a checklist system to help prevent complications. Harvard’s Dr. Atul A. Gawande is a pioneer of the checklist approach, and he also participated in the study. Surgical checklists, as we’ve described before, involve routine procedures, some of them quite simple, to ensure such things as the right patient is on the table, the right body part is being addressed, drug allergies are known and the right medications are being given in the right doses.

When asked if the hospital would lose money if more patients required less care, Lester said, “To us that doesn’t have an impact.”

“Reducing complications and increasing safety is why we’re there,” he told The Times. “If in doing that, some payments don’t come our way, it’s not of consequence. What’s of consequence is that people who come to us are in a safer environment.”

To learn more about hospital errors, read our backgrounder. For information about how to protect yourself and your loved ones while hospitalized, read our two-part newsletter, “Protecting a Loved One in the Hospital,” and “A Safer, Healthier Hospital Stay.”

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