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.

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Yen Cross's picture

 Hospitals are "Death Wards" for the uninsured.  Don't get sick Bitchez/

Manthong's picture

The free man's theraputive alternative that will screw the system..

Try to stay healthy, but if you cannot..


like every other animal.



..if you are red, you are not free.


LetThemEatRand's picture

And yet the public is almost universally convinced that the problem is lawsuits, e.g., private parties seeking redress for wrongs that lead to the higher costs that profit the hospitals.  Let's get rid of that mechanism for private redress through the Courts so our well-meaning health care system can have no accountability at all.  To anyone.

Manthong's picture

the system is the problem, not the solution.

LetThemEatRand's picture

The health care system will exist in one form or another regardless of the political system.  And it will continue to benefit from its own mistakes (higher cost to patients = higher profit) unless there is a check and balance.  It's not like you can negotiate the cost of emergency surgery -- the remedy is after you've been screwed.  The insurance industry and American Medical Association are powerful entities who have convinced the public to reduce their accountability.

Manthong's picture

where was the AMA in May of 1790?

LetThemEatRand's picture

In 1790, doctors used saws and leaches and thought infection was caused by humors.  The AMA is a private entity.

Manthong's picture

The AMA and the WHO owns you.

Obamacare owns you.

You and your children are slaves unless you lose your fear.

This cannot be argued.

LetThemEatRand's picture

We all get sick and we all need medical care (maybe a very few get lucky and just die in their sleep after never seeing a doctor or needing surgery, but the vast majority are not so fortunate).  Most people can't pay six figures for a simple operation or a new knee or cancer treatment etc, yet the medical system as it has evolved with private insurance and private pay demands that.  What do you propose if the People can't get together and pay into a fund to pay for care for themselves when they need it?

Manthong's picture

geez LTER.. can't you see?

it is not up to the system to take care of us..

it is up to us individually and collectively through love, charity and dignity... but not through the coercion of a system run by self interested villians and ignorant tools.


LetThemEatRand's picture

I don't like to rely on charity.   There are a few charitable doctors, but most want cold hard cash when you need an MRI.   I prefer to have a choice to band together with my fellow mortal humans and fund healthcare as needed, kind of like car insurance.

Manthong's picture

.gosh.. I don't want you to have to pay for me and I don't want to have to pay for you.

I think that has something to do with freedom. 

but I would be pleased to share some of my excess to help your family..

LetThemEatRand's picture

There is a difference (we all pay taxes for things like roads and satellites and defense and airports), but it seems to me like the real issue is -- what is the alternative.  You proposed charity.  Which hospital will give me a free MRI and knee replacement again?  There are several hundred million people in the U.S. and the VAST majority cannot afford to pay for a simple procedure out of pocket.    What do you say when their kids need an expensive operation that will save their lives and no Bill Gates shows up with a checkbook?

Manthong's picture

aw.. focus for a moment your savings..

the system is rigged to deny you rental value for your money.. 

the system is rigged to steal your medical " insurance investment" as well.

there is no insurance as the counterparties are demonstrated thieves

you are the only guarantor of your life and security.

maybe you will find some friends to trust

but they likely will not be in government.

 oh.. and there is no free lunch or free knee.


LetThemEatRand's picture

That's great ideologue stuff, but the reality is that most people could save 50% of their income for 20 years and it would be wiped out by a one week hospital stay, which typically runs six figures.  You have no solution to that other than more platitudes I suppose.  

Manthong's picture

platitudes.. hmm,, like Socrates, Plato, Aristotle, Bastiate, Locke, DeToqueville, Jefferson, Mises, Hayek et al..

I suppose so,

Unique Snowflake's picture

If the govt didn't tax the fuck out of everyone to pay for it's bullshit corrupt promises, people could live, save and be prepared for medical costs. The problem IS govt and fractional reserve infinite debt growth. Without these, people would be far more productive, responsible and when needed, even charitable.


Speaking of leeches...

LetThemEatRand's picture

Bullshit.  If the average person saved 50% of their income (more than is taxed) for 20 years , it would not pay for their child's cancer therapy ($500K)

Harlequin001's picture

That's because the cost of medical services is far too high. If big pharma couldn't sell services to a provider that has no concern for market forces such as the govt then all these highly paid surgeons would be idle, until they reduced their fees to something that could be substantiated by the market and not a leveraged insurance policy. In which case I too would support lower taxes and pay my own medical bills.

It shouldn't cost 500K for a child's cancer therapy.

Not sure what you're arguing about here...

noless's picture

Are you fucking trolling man? Your argument has it's basis in nominal cost in a system which is demonstrably broken and parasitical, have you worked in medical Billing? There is no fucking spoon..

InTheLandOfTheBlind's picture

stop looking for him to actually be substantive in response.... it is all rhetoric... dealing with actual care will not happen here

Manthong's picture

Lastly.. capitalism is supposed to be about capital accumulation..

The economic abortion we are in makes capital accumulation impossible for ordinary working folks through anything other than deceit, theft or blind luck.

The kids are screwed until we fix this.

Please look beyond the immediate facades of security and understand the dangers to freedom that are lurking to plunge us back into serfdom.

LetThemEatRand's picture

Most of those dangers have taken over our Constitutional government of the People and call themselves capitalists.   And where is your solution to the practical problem of a 3 year old with cancer whose parents work part-time at some big company and therefore have no health insurance?

Manthong's picture

dependent.. subservient..  hopeless..  pitiful,, ask your government for mercy

LetThemEatRand's picture

Ideology, and no practical solutions.  Still.

Manthong's picture

I did not understand the prevailing sentiment..

my apologies.

Accordingly, you should not ask or petition..

just go ahead and beg.

LetThemEatRand's picture

Still waiting for your solution for the 3 year old with cancer.  

akak's picture

What, have you been diagnosed with cancer?

It couldn't have happened to a more deserving person.


PS: I am guessing cancer of the brain?

LetThemEatRand's picture

You have just summed up your ideology perfectly.

Manthong's picture

Man,, I will send you fifty bucks.. but please don't steal it from me first.

LetThemEatRand's picture

Okay, but don't drive on my road or use my hospital that I contributed to.  

LetThemEatRand's picture

He says until he needs to drive to the hospital.   Do you believe your own bullshit?

akak's picture

Are you simply insane, or evil?


LetThemEatRand's picture

Just not a complete narcissistic asshole like you, akak.  What would Rand say?  I'm sure I'll hear it soon.

Manthong's picture

thanks.. that was fun   :-D

as God is my witness, I will crawl in a hole and die with horrid pain to F the model of the evil manipulators.

LetThemEatRand's picture

No, like Rand you'll take public assistance when it is in your own interest. 

Gohn Galt's picture

Rand.  There are many that will not take or participate in public assistance.  It is not easy in the USA as everyone and everything is against this decision.  So it may seam.  On the otherside of dependence is true independence.  No government in history has really been for independence.  By its definition it must promote/support dependence or it will be the vehicle to its own demise. 

Besides, as you know, these hospital errors are not errors at all.  Government controls the playing field and rewards what it wants more of.  Votes and protesting are meaningless distractions for serfs, the only real voting is with your wallet or your feet.

Good comments Manthong.

Gohn Galt's picture

How about making it illegal to offer any other solution that is not approved by the kabal.  Of course the laws of the universe work differently in the US, so solutions that work outside of the US might not ever work inside the US.

Hobbleknee's picture

Chemo therapy wouldn't cost $30K a pop if it weren't for the current system of using insurance to pay for everything, which was also brought about by government meddling. There is alos charity, which would also increase if taxes decreased.  Also,

LetThemEatRand's picture

It costs $250K to go to medical school.   The ABA (a private entity) restricts entry.

Hobbleknee's picture

I think you mean AMA, but yes, there are many reasons for the outrageous prices, all of which have nothing to do with the mythical "free market" or its absent brother Capitalism, and everything to do with government intervention and cartels, like the AMA.

I actually tried to edit my comment with more info this morning, but I kept getting a strange error.

StychoKiller's picture

Like anything else the Govt subsidizes, the subsidized will grow larger; in this instance, the Govt is subsidizing sick people.  Tell us once more how Big Brother is gonna ride to the rescue (again!)

Rusty_Shackleford's picture

"I don't like to rely on charity."



"...but pointing guns at people and demanding they pay for my consumption is just fine."



Mr. Magniloquent's picture

Private insurance pools did exist, but are largely the creation of Congress and FDR's buereaucracy. The expense of medicine has far more to do with AMA's monopoly on medicine, and the deliberate barriers to entry within the field. Prohibitive, and often innane regulations form the third angle of the "iron triangle". I was a medic and diagnostic tech. for 5 years at a training hospital. You would be astounded as to the realities that go on in such a place.

fonzannoon's picture

I always thought humor was infectious.

Hobbleknee's picture

Doctors still use saws, and leeches have been replaced by maggots.

StychoKiller's picture

Well, yeah, but in each instance, the maggots and saw(s) are sterilized between patient usages.  The question EVERYONE should be asking is this:  WHY does every market the Govt meddles in, end up with skyrocketing costs?