Are surgical errors a new revenue stream for hospitals?

A recent study published in the Journal of the American Medical Association (JAMA) reveals a shocking trend: hospitals have greater profit margins when surgical patients suffer complications. The study, led by doctors at Harvard's medical school, the Boston Consulting Group (a renowned management consulting agency) and Texas Health Resources (a nonprofit hospital system running hospitals throughout Texas), showed increased "contribution margins" for both privately insured and Medicare patients when one or more surgical complication led to additional care needs.

The issue

Medical experts and pundits around the country are concerned about the findings of the study, worried that it reveals a fundamental flaw in the nation's medical billing system that results in inadvertent financial penalties when hospitals implement patient safety measures.

At issue is the fact that the nation's healthcare system primarily operates on a procedure-based payment scheme, meaning that hospitals can bill - and both private and government insurers pay - for each individual aspect of the treatment.

For example, if one patient comes to the hospital for a simple, outpatient knee arthroscopy, his (or her) insurance will be billed for the procedure itself and any related costs like supplies, specialist fees, any medical implants or devices used, etc. If that same patient has a successful surgery, but later develops an infection at the surgical site, his insurance will still be charged for the surgery itself, but will also be responsible for the costs of treating the infection, which could include medications, wound care, IVs or even additional procedures. The result is the hospital making a much larger profit even after accounting for additional labor costs.

Possible solutions

One theoretical solution to the problem is what is known as "bundling." This is a type of billing structure that pays care providers a flat fee for a particular type of procedure, regardless of complications or follow-up treatment. This approach has been used by Medicare for years, which is why the profit margin on surgical errors and complications for Medicare patients is roughly 20 times less than patients with private insurance. Bundling can work to the patient's advantage, because it encourages hospitals to make fewer mistakes by taking away any sort of financial incentive to provide additional treatment that could have been prevented.

Another possible approach to remove the financial "bump" received from preventable surgical complications is to compensate hospitals according not only to the type of procedures performed, but the quality of care that patients receive. A "reward" system like this would serve to persuade hospitals to provide the best possible care they can so as to increase their bottom line.

For now, the issue of profit margins on surgical complications will continue to be a concern for patients and for patient advocacy groups. Hopefully hospitals will begin to move toward systems that encourage the highest quality care regardless of the payment structure involved. In the meantime, though, if you or a loved one are dealing with the pain and frustration of a preventable surgical complication, seek the advice of an experienced personal injury or medical malpractice attorney in your area.