Are Hospitals Incentivized to Make Medical Mistakes?

by JHI Staff on June 4, 2013

A recent study essentially made the case that hospitals are financially incentivized to botch surgery on patients. The prominently published study was co-conducted by highly respected surgeon Atul Gawande, who is with Boston’s Brigham & Women’s Hospital (and who is also a celebrated popular writer on medical care). From Healthleaders Media’s coverage of the study (linked to above):

The report, published in [the April 17] Journal of the American Medical Association, was prepared by Sunil Eappen, MD, Gawande and others. It analyzed 34,256 surgical discharges from an unidentified 12-hospital system in the southern part of the country. The analysis revealed that private insurers paid $55,953 when the patient had a surgical complication but only $16,936 when the procedure went without a hitch−more than three times or $39,017 more.

Some 1,820 patients experienced one or more complications from their surgeries in this system. For Medicare, the cost difference was much smaller, but still significant. When patients had a complication, the federal government reimbursed hospitals $3,629, compared with $1,880 if the surgery was complication-free, or $1,749 more. In the hospital system studied, 40% of the patients were covered by private insurance, so complications represented a substantial profit for that organizations, Gawande says.

Gawande says he doesn’t think health care systems are even aware of the large revenue boost involved in surgical complications. But it’s really kind of obvious, when you think about it. When a mistake leads to a patient needing a lot of extra care, hospitals bill for that extra care. So, yes, they make more money on it.

Gawande also makes a point of saying that he doesn’t think physicians or hospitals are deliberately inviting errors in order to boost profits. But he does think the higher revenues from complications are contributing to a safety problem. From that same article:

Gawande insists that hospitals are not making essential quality improvements to avoid complications, even though many strategies have been proven effective. “It’s no surprise that [hospitals] have not made the major kinds of investments in quality control that you might expect, given these kinds of cost figures we’re seeing,” says Gawande....

I’m a big believer in the importance of financial incentives for improving health care, and for lowering costs. As I’ve previously written here, for example, the fact that U.S. patients don’t have any “skin in the game” when it comes to health care—that is, the costs of more-expensive-than-necessary forms of care don’t come out of their pockets—is probably one reason it’s hard to hold down health care costs here.

But having said that, holding up these apparent incentives as a factor in the rate of medical mistakes doesn’t really cast much light on the problem of medical errors, nor on patient safety in general. Whatever extra short-term revenues might come out of higher patient-complication rates, I think physicians and hospitals are not only dedicated to lowering error rates because it’s the right thing to do, but because they are also focused on the longer-term costs of errors. There are serious liability risks to medical errors. And there is also the potential for taking a big hit to the bottom line if a community becomes aware that a physician or hospital is associated with high error rates. Given that these rates are often published, and that errors can make headlines, it really doesn’t seem like a great business model to pursue a lack of safety to make a quick buck.

Everyone at Johns Hopkins, for example, is very focused on patient safety, thanks in part to the leading role that Peter Pronovost and our Armstrong Institute for Patient Safety and Quality have played throughout the world in establishing processes and providing education and training for improving patient safety and reducing medical errors.

In addition, collaborating on better patient safety is one of the most in-demand services we provide in other countries. Through training, mentoring, metrics and the pursuit of accreditation, we’ve seen error rates drop substantially at most of the health care systems working with us. Never—not once—have I heard any of our collaborators anywhere express any concern about how an increase in patient safety might adversely affect the bottom line. (And our collaborators are usually pretty sensitive to that bottom line, and tend to be very outspoken about any concerns they have about it.)

That’s not to say that health care systems don’t have an incentive problem. Here in the U.S., we have the giant challenge of a system in which hospitals and physicians have long been paid according to how much service they provide—the more treatment they give patients, the more they’re paid. I think it’s extremely rare for reputable physicians or hospital systems to provide patients with more care than is good for them—let alone to purposely make mistakes—in order to increase revenues. But it takes a lot focused, ongoing effort to find the very best ways to both provide top-quality, safe care and hold down costs. If the incentives aren’t there to spur and reward such efforts, they may happen much more slowly, or not at all.

There’s a lot of effort going on now in the U.S. to try to convert to a system where hospitals and physicians are instead paid to some extent according to how good a job they do in improving and maintaining patient health and in lowering the cost of care, even if that entails less rather than more treatment, such as through preventive care. Gawande et al did a great job in bringing the perverse short-term incentives of medical errors to light, but I think we’ll achieve a lot more in patient safety, as well as in quality of care and better health care values, if we focus on the bigger incentives picture rather than on the short-term one.

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