Guest Post: How Hospitals Profit From Making Mistakes

Tyler Durden's picture

Submitted by Michael Krieger of Liberty Blitzkrieg blog,

One of the many things holding the nation back at the moment is the complete lack of incentive to be a creative, productive and honest member of society versus the tremendous incentive to be a corrupt, thieving, lackey for the establishment.  In a free market system, with a strict set of rules governing the game that is applied to everyone equally, market signals and incentives exist for companies to create a great product and to meet customer needs with great service.  In contrast, within a crony capitalist system, the primary incentive is to get as close as possible to political and corporate power in order to financially benefit from their oligarchical ownership of the controlled economy.

It is only within a completely disconnected from reality, crony, fraudulent economy where you could have a situation in which hospitals actually earn much larger profit margins from making mistakes and harming their patients, than from providing excellent care.  We learn from the New York Times that:

Hospitals make money from their own mistakes because insurers pay them for the longer stays and extra care that patients need to treat surgical complications that could have been prevented, a new study finds.

 

Changing the payment system, to stop rewarding poor care, may help to bring down surgical complication rates, the researchers say. If the system does not change, hospitals have little incentive to improve: in fact, some will wind up losing money if they take better care of patients.

 

The study and an editorial were published Tuesday in The Journal of the American Medical Association. The study authors are from the Boston Consulting Group, Harvard’s schools of medicine and public health, and Texas Health Resources, a large nonprofit hospital system.

 

The study is based on a detailed analysis of the records of 34,256 people who had surgery in 2010 at one of 12 hospitals run by Texas Health Resources. Of those patients, 1,820 had one or more complications that could have been prevented, like blood clots, pneumonia or infected incisions.

 

The median length of stay for those patients quadrupled to 14 days, and hospital revenue averaged $30,500 more than for patients without complications ($49,400 versus $18,900). Private insurers paid far more for complications than did Medicare or Medicaid, or patients who paid out of pocket.

 

The authors said in an interview that they were not suggesting that hospitals were trying to make money by deliberately causing complications or refusing to address the problem.

 

“Absolutely not,” said David Sadoff, a managing director of the Boston Consulting Group. “We don’t believe that is happening at all.”

 

But, he said, the current payment system makes it difficult for hospitals to perform better because improvements can wind up costing them money.

 

Dr. Barry Rosenberg, an author and a managing director of Boston Consulting, said the study came about because his firm was working with Texas Health Resources to find ways to reduce its hospitals’ surgical complication rates, which, at 5.3 percent, were in line with those reported by similar hospitals. Part of that work involved analyzing the costs, and he said the team was stunned to realize that lowering the complication rates would actually cost the hospital money.

 

“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,’ ” Dr. Rosenberg said in an interview.

If the above tale does not demonstrate how completely screwed up our economy and society is, I don’t know what will.  Even if we assume every single person in a given hospital is a completely moral, decent human being who would never purposely prolong a patient’s stay, the mere fact that investing in improvements in the hospital and providing better care could lead to a dramatic decline in profit margins is a total tradegy.  What do you think we are going to end up with if we have these kinds of incentives?

Full article here.