Hospitals Make Mo’ Money After Causing Mo’ Problems

May 28, 2013 | Charles Bowen

According to a recently published study in the Journal of the American Medical Association (JAMA), rapper The Notorious B.I.G. had it all wrong, at least in the context of surgical errors. Researchers at Harvard Medical School say data shows that it’s actually mo’ problems that lead to mo’ money, not the other way around. The results of the study indicate that healthcare providers benefit financially in the event of a surgical complication, something researchers say might be partially responsible for stubbornly high rates of medical error.

The investigation began after researchers at Harvard say they wondered why so many hospitals seemed reluctant to implement even relatively simple procedures designed to reduce medical mistakes. For instance, something as small as requiring doctors to complete a surgical checklist before operating has been found to substantially reduce the rate of medical error, by as much as a third, yet many facilities seem resistant to introducing the new process. Researchers wondered whether the reluctance could have anything to do with money and say they were surprised at what a strong correlation between profits and medical mistakes they ultimately uncovered.

The data was compiled by combing through tens of thousands of patient records at a major Texas hospital. The researchers compared hospital bills with medical records and were surprised to see just how much a surgical slip-up boosted the bottom line. In surgeries that went off without a hitch, the hospital netted an average profit of $18,900. However, when the surgery went awry this number jumped to $49,400. The numbers revealed that when a patient with private insurance suffered a surgical error or complication, the hospital’s profit margin increased by an average 330 percent. Though Medicare mistakes were less lucrative, only a 190 percent increase in profit, the difference was slight.

Though the authors of the study were clear that they did not believe doctors were purposely harming patients to boost profits, they did say that the current insurance payment system in the United States is need of urgent reform. As it stands now, insurance providers reimburse doctors and hospitals for the services that are provided. This fee-for-service system has an unfortunate downside; it encourages hospitals to perform more and more procedures to make more and more money.

Rather than continue down this road, the authors of the study believe patients would benefit greatly by shifting towards a pay-for-performance system, which would reward doctors for genuinely improving a patient’s health. Medicare and some other insurers have already taken measures to make errors unprofitable, such as refusing to pay for what are known as “never events,” incidents like operating on the wrong leg or leaving surgical instruments inside a patient. Medicare has also announced a phased program in which hospital payments will be cut if too many patients are readmitted within 30 days. The hope is that these changes would financially incentivize both doctors and hospitals to ensure they are doing as error-free work as possible and thus better align a desire for profits with the best interest of patients.