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Medical Mistakes Boost Hospital Profits

It’s a sad fact of medical economics that healthcare providers actually profit when their mistakes result in longer hospital stays and extra patient procedures.

That’s the conclusion of a study recently published in the Journal of the American Medical Association and outlined in a recent New York Times article. While no one is suggesting that hospitals are deliberately sabotaging patient care by causing complications, there’s no denying that improvements in patient care can actually end up costing the hospitals money.

  • The study analyzed the records of more than 34,000 surgical patients in 12 Texas hospitals in 2010. Of those, 1,820 had preventable complications like infected incisions, blood clots or pneumonia.
  • For the patients with complications, the median hospital stay quadrupled to 14 days, increasing revenue by an average of $30,500.
  • A key figure in the analysis was the “contribution margin,” which measures the hospital’s income and ability to cover its costs. For patients with complications and private insurance, this figure tripled. For those with Medicare, it doubled.

An insurance industry spokeswoman said the study illustrates “the perverse incentives of the old fee-for-service system.” She emphasized that health care needs to move toward methods of payment that reward better care.

One of the study’s authors, Dr. Barry Rosenberg, agreed. He explained that the research actually grew from efforts to reduce surgical complication rates. “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.’”

The article points out that Medicare and some other insurers already refuse to pay for malpractice-type errors like leaving materials inside patients or operating on the wrong body part. The researchers suggest that publishing a hospital’s complication rate could influence patient choices and impact the hospitals’ all-important bottom line.


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