Will Reduced Surgical Errors Hurt Hospital Bottom Line?

by Cathy Miller on June 25, 2014

in Health Insurance

Surgical errors post imageDid you know surgical errors contribute to higher profit margins for hospitals?

A study published in the Journal of the American Medical Association (JAMA) revealed that finding in 2013.

If you think about that, it makes sense. But should it?

Surgical complications mean more care, possible extended stays or re-admission.

More care + longer stays = more costs.

Surgeon and public health journalist, Dr. Atul Gawande, advocates a shift in philosophy for healthcare financial officers.

Dr. Gawande wants hospitals to profit “when things go right.” He would like to see healthcare organizations assume more financial risk for patient outcomes.

Sound reasonable?

Surgical Errors Study

The study reviewed more than 34,000 inpatient surgical procedures.

  • Privately insured − Profit margins were 330% higher for patients suffering at least one surgical complication
  • Medicare patients − Profit margins were 190% higher for patients suffering at least one surgical complication
  • Percent of complications − At 12 not-for-profit hospitals, 1,820 patients (5.3%) had at least one complication

Modern Healthcare article on the study quoted Nancy Foster, vice president for quality and patient safety policy at the American Hospital Association, who shared a different perspective.

She cautioned readers to mix fixed and variable costs into the equation.

Fixed costs are items like facility maintenance, electricity, costs for running a hospital. Variable costs include staffing costs, salaries, the cost of supplies and materials.

Foster explained the impact of fixed and variable costs on the bottom line.

  • Contribution margins (revenue minus variable expenses) were $1,800 higher for Medicare patients with surgical complications
  • Total margins (includes fixed expenses) decreased from -$5.500 to -$14,700
  • Patient mix − Approximately 45% were Medicare patients and 40% had private insurance

As Foster noted, “They’re losing money on these patients.”

Complications can occur with the best of care. Dr. Gawande believes there is room for improvement and for that, hospitals should be held accountable.

When Doctors and Finances Meet

Dr. Gawande shared his views on June 23, 2014 at the Healthcare Financial Management Association (HFMA) Annual National Institute in Las Vegas.

He reported oft-quoted statistics (as illustrated below)

Heath Care Costs Infographic-Blog

Everything’s Relative

Dr. Gawande points out that doctors focus on the 5 percent statistic, while financial officers see only the 50 percent stat. He suggests the two need to come together to find answers for treating the sickest patients.

An example cited in a Health Data Management article was health care professionals teaching severe asthma patients how to properly use an inhaler for maximum benefit.

Finance could loosen the purse strings by paying for a free vacuum cleaner for patients.

Working together for better health. There’s a concept.

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Notice of Disclaimer –Cathy Miller is not an attorney or health care provider and cannot provide legal or health care advice. The information provided is for your general background only, and is not intended to constitute legal or health care advice as to your specific circumstances. We recommend you review legislation with legal counsel and visit your physician for health care issues.

BigStock Photo Credit

Infographic – BigStock Photo Credit

 

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