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Hospitals profit from mistakes

By Jay MacDonald ·
Tuesday, June 4, 2013
Posted: 6 am ET

What if you received a bonus from the boss every time you screwed up?

It turns out that daydream is a reality in America's health care system.

A new study published in the Journal of the American Medical Association finds that hospitals actually make more money when treatments don't go as planned. Why? Because health insurance companies willingly shell out for prolonged hospital stays and additional care to treat surgical mistakes that could have been avoided.

Researchers from Harvard's schools of medicine and public health, the nonprofit Texas Health Resources hospital system and Boston Consulting Group, or BCG, analyzed 2010 records of 34,256 surgical patients at 12 hospitals run by Texas Health Resources. Of those, 1,820 developed one or more complications that could have been prevented, such as blood clots, surgical site infections and pneumonia.

Because of the post-surgical complications, the hospital stays of those unlucky patients quadrupled to an average of 14 days. As a result, the hospital was able to bill, on average, $49,400 -- or $30,500 more per patient -- for their mistakes than the $18,900 average it charged those who underwent surgery without complications.

The study showed that the hospital's profit margin on its mistakes was 330 percent higher when private insurers were involved and 190 percent higher when Medicare was footing the bill.

BCG managing director Barry Rosenberg said his team was surprised to learn that hospitals actually have a disincentive to improve performance.

"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.

The authors stressed that they were not blaming hospitals for intentionally causing complications for profit. Instead, they indicted America's fee-for-service health insurance payment system that provides little economic incentive for hospitals to improve their quality of care.

As for solutions, the authors called on hospitals to disclose their complication rates, which would bring consumer pressure to bear and thus help improve the quality of care. As for insurers, the researchers advised them to cease paying for substandard care and instead reward hospitals that demonstrate quality outcomes, an initiative currently underway through health care reform.

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Jay MacDonald is a Bankrate contributing editor and co-author of "Future Millionaires' Guidebook," an e-book by Bankrate editors and reporters.

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1 Comment
June 05, 2013 at 8:53 pm

You must have old information. I am an RN for 30yrs. Nowdays hospitals must follow SCIP protocol (surgical care improvement process) which requires appropriate antibiotics for the procedure, DVT prophylaxis(blood clot prevention) not leaving urinary catheters for prolonged time periods, giving beta blockers pre-op if there is a cardiac history. Any fall outs from these standards and hospitals loose reimbursements from government payers ie Medicare. Most commercial insurance follow Medicare rules when it comes to payment. Not to mention if a patient gets re-admitted to hospital within 30 days of discharge hospitals won't get reimbursed.