Many believe that one of the reasons that health care costs are so high in the United States is because financial incentives are misaligned. In a fee-for-service system, providers and facilities make more money the more they do. This can lead to an over-use of services, since those in the health care system are encouraged to do more, not less. Even in a less fee-for-service focused system, the incentives are in the wrong direction. Physicians and offices make money when they see patients. Hospitals make more money when they admit patients. A recent study published in JAMA illustrates an even more perverse financial incentive. In “Relationship Between Occurrence of Surgical Complications and Hospital Finances,” Sunil Eappen and colleagues examined how surgical complications effect hospital finances:
Design, Setting, and Participants: Retrospective analysis of administrative data for all inpatient surgical discharges during 2010 from a nonprofit 12-hospital system in the southern United States. Discharges were categorized by principal procedure and occurrence of 1 or more postsurgical complications, using International Classification of Diseases, Ninth Revision, diagnosis and procedure codes. Nine common surgical procedures and 10 major complications across 4 payer types were analyzed. Hospital costs and revenue at discharge were obtained from hospital accounting systems and classified by payer type.The main outcomes of interest were measures of how much hospitals spent and earned on patients who both had surgical complications. Why? Because under the reimbursement system of the United States, hospitals actually might make more money when complications occur. The first thing to note is that most patients did not experience a complication. Of the more than 34,000 discharges studied, only 5% had a postsurgical complication. But a patient with private insurance who had a complication resulted in a much higher profit to the hospital ($55,952 versus $16,936). Complications were also associated with a higher profit per patient with Medicare ($3629 versus $1880). Please understand that I (and I'm sure the authors) do not believe that any hospitals or physicians are intentionally harming patients in order to make more money. That shouldn't be the take home message from this study. What’s important to note is the problem the current system poses to any kind of reforms that might improve quality. What are the financial incentive for hospitals to reduce surgical complications? Under the current system, hospitals actually stand to lose money if they do so. Since they are actually rewarded for caring for these issues, eliminating them will actually hurt their bottom line. Those who might see a financial benefit from reducing complications are payors and patients themselves. But those stakeholders aren’t necessarily responsible or empowered to make changes in processes of care. If we want a system where hospitals are fighting to reduce complications and improve quality, then we need to find a way to induce them to do so. The current state of affairs does the opposite. We could, perhaps, find ways to pay more for procedures without complications than those with them. Or, we could refuse to pay for care for complications at all, providing a strong incentive for hospitals to prevent them entirely. As things stand, however, we are asking many in the health care system to do things that are both hard and costly to them. That’s never a good combination if we want to see real change. –Aaron Carroll Dr. Aaron E. Carroll is an associate professor and vice chair of health policy and outcomes research in the department of pediatrics at the Indiana University School of Medicine. He blogs about health policy at The Incidental Economist and tweets at @aaronecarroll. As part of our ongoing effort to raise awareness of health services research and increase its application in policy and practice, AcademyHealth has partnered with Austin Frakt, Ph.D., and Aaron Carroll, M.D., M.S., to contribute posts on the subjects of health care costs, delivery system transformation, and public and population health – areas AcademyHealth has identified as a priority in the current policy environment. As regular contributors, they’ll be discussing current events with an eye toward how new and existing research informs the issues.