Surgical Complications: Greater Hospital Profit-margins

Photo: Operation

Researchers found out that who pays for patients’ care determines the financial implications of surgical complications; ©
Cathy Yeulet

Privately insured surgical patients who had a complication provided hospitals with a 330 percent higher profit margin than those without a complication, according to new research from Ariadne Labs.

Medicare patients with a complication produced a 190 percent higher margin. The findings mean that, for hospital managers, efforts to reduce surgical complications could result in substantially worsened financial performance.

Ariadne Labs is a joint center for health system innovation at Brigham and Women's Hospital (BWH) and Harvard School of Public Health (HSPH), Boston Consulting Group, Texas Health Resources, and Massachusetts Eye and Ear Infirmary.

"We found clear evidence that reducing harm and improving quality is perversely penalized in our current health care system," said Doctor Sunil Eappen, the lead author.

"It is been known that hospitals are not rewarded for quality. But it had not been recognized exactly how much more money they make when harm is done," said senior author Doctor Atul Gawande.
An estimated 400 billion dollars is spent on surgical procedures each year in the United States. While effective methods to reduce complications have been identified, hospitals have been slow to implement them. Financial incentives may be a reason. The goal of the study was therefore to evaluate the hospital costs and revenues associated with having one or more major complications with surgical patients covered by four primary insurance types — private insurance, Medicare, Medicaid, and self-payment.

The researchers analyzed data from 34,256 surgical inpatients discharged in 2010 in a non-profit, 12-hospital system in the southern U.S. They looked at ten severe, preventable surgical complications and the contribution margin — revenue minus variable expenses — per patient. A total of 1,820 procedures were identified with at least one complication.

The results showed that, for privately insured patients, complications were associated with a 39,017 dollars higher contribution margin per patient (55,953 versus 16,936 dollars). For Medicare patients, the contribution margin per patient was higher by 1,749 dollars (3,687 versus 1,880 dollars). For Medicaid and self-payment, complications were associated with significantly lower contribution margins than those without complications.

What that means, say the researchers, is that who pays for patients' care determines the financial implications of surgical complications. In this hospital system, private insurers covered 40 percent of patients, Medicare covered 45 percent, Medicaid covered 4 and 6 percent were self-pay, a breakdown that is comparable to the average U.S. hospital in 2010. Overall in this hospital system, complications were associated with a more than 8,000 dollars higher contribution margin per patient.; Source: Harvard School of Public Health