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Surgical Errors May Increase Profits For American Hospitals

According to a study appearing in the Journal of the American Medical Association, surgical errors can greatly increase the profit margin for the hospitals where they are committed. The research was conducted using data from more than 34,000 surgical patients who were operated on in selected Texas hospitals in 2010. The study looked at Medicare patients, privately insured patients, Medicaid patients, patients who paid out of pocket and patients using other forms of payment.

Roughly 85 percent of the surgical patients were insured through Medicare or through private insurers. The report showed that surgical errors led to hospitals realizing a 330 percent higher profit margin if the patient was privately insured. It further showed that Medicare patients who suffered surgical errors provided hospitals with a 190 percent increase in profit margin. In terms of straight numbers, a privately insured patient who was the victim of surgical error provided the offending hospital with, on average, $39,000 more in contribution margin (revenue minus variable costs) than if the hospital committed no error. Medicare patients provided $1,800 more in contribution margin if they were the victim of surgical mistakes.

The co-author of the study pointed out that this functionally rewards hospitals for committing surgical complications. He said in a press release, “This research provides dramatic evidence that hospitals lack financial incentives to invest in improving surgical quality.” A spokesperson with America’s Health Insurance Plans indicated that private insurance companies and Medicare might revise their practices to refuse to cover expenses for certain hospital errors. Whether that would leave the injured patient or the hospital to deal with the bill was not specified.

Hospitals should be financially and morally incentivized to improve the quality of the services provided to patients. A system that rewards a hospital for committing a surgical error is a threat to patient safety.

Source: CBS News, “Surgical complications and errors bring in more money for hospitals,” by Michelle Castillo, 17 April 2013

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