Why Surgical Complications May Actually Hurt Profits Despite What You’ve Just Read

There’s a high-profile and important paper in JAMA this week by Sunil Eappen and colleagues. The study looked at surgical discharges during 2010 from a single 12-hospital system and came to the conclusion that admissions that include a surgical complication were associated with a higher profit (defined as the contribution margin) than admissions without complications. The authors conclude that this creates a disincentive for hospitals preventing surgical complications since they might see reduced profits as a result.  This is a very provocative finding and it’s getting a lot of well-placed media attention, as you might expect. There is an important caveat with the study that I would like to highlight.

In the study, the authors report that admissions with surgical complications result in $39,000 higher “profits” if the care is reimbursed via a private payer and $1800 if Medicare is the payer. However, as Dr. Reinhardt correctly noted in the editorial,

Allocating profit and loss is exquisitely sensitive to the many assumptions made in economic modeling and must be performed carefully to provide useful evidence about the financial ramifications of surgical complications and other services.

His concern dealt mostly with how the authors allocated fixed costs in their calculations. My concern has to do with what the authors assumed happens to an empty bed once a patient is discharged in a US hospital.

This is what the authors assumed (and mentioned as a limitation):

We did not estimate the effect of 3 potential factors that could affect the hospital economics of surgical complications. First, the shorter lengths of stay of procedures without complications could benefit the small percentage of hospitals operating at full capacity because they might be able to admit additional patients with favorable insurance who were “crowded out.”

What this means is that they did not include any profits that might be generated by an empty bed in a hospital. In the study, around 5% of patients developed a complication and stayed an excess of 11 days (at the median) – the mean would be higher.

Note: Based on recommendations of Johns Hopkins professor and retired CFO, Bill Ward, we focused on estimating the costs of HAI using return-on-investment calculations from filling empty beds that manifest through HAIs avoided in the Business-Case SHEA Guideline. In discussions he suggested that excess bed capacity is quickly taken off line and therefore doesn’t impact economic evaluation to a large degree. If there is no financial incentive to reduce excess length of stay, why has every hospital spent the past 20 years trying to reduce length of stay?

The big question: Do you believe that 5% of beds in hospitals with high surgical volumes sit completely empty for almost two weeks? Of course, there is excess capacity in the US system, but the amount of excess capacity is most important here, not that it exists. You can’t completely ignore profits from increased admissions. For example, if only one patient was admitted into a bed vacated by a “healthy” patient discharged at day three that would would have otherwise been occupied by a patient with a surgical complication discharged at day 14, the results of the study would be have been negated – i.e., it would have been a negative study. If more than one patient was admitted into an empty bed over 11 days, which seems likely at most high-volume hospitals, admissions with surgical patients with complications would result in reduced profits compared with admissions without complications. It would have been nice to see estimates of the excess capacity at the 12 hospitals under study.

A provocative study and wonderful analysis. However, as Dr. Reinhardt states, the study “provides important data on a pressing clinical and financial problem affecting hospitals” yet “much of this represents a shell game of how costs are allocated.” I would add, and which profits are included or excluded.

Eli Perencevich, MD is an infectious disease physician and epidemiologist in Iowa City, Iowa. He blogs regularly at Controversies in Hospital Infection Prevention, where this post originally appeared. You can follow him on Twitter at @eliowa.

4 replies »

  1. Complications = more required medical care, more required medical care = more cost, and more income…ummm…duh. Not quite sure what the study set out to prove other than to state the obvious.

    Concerning is the circular logic leap to motivation which would be, more income = disincentive to improve complications. This is exactly what the healthcare community does NOT need right now, more erroneous assumptions that there is an intentional focus on not wanting to improve care.

    Agree wholeheartedly that open, transparent exposure of quality and outcomes is mandatory for health providers. Can’t figure that not working to reduce complications is a viable business model.

  2. First and foremost, I am not aware of too many hospitalsand physicians that aren’t concerned about their Quality and Outcomes and doing what is best in taking care of patients. I worked in hospitals for over 20 years, small community and large teaching hospital. We had Performance Improvement Committees, Infection Control Committees, Surgical Case Review Committees, Patient Safety, etc. that looked at every possibile complication that occurred even once with a patient, and how to prevent a problem again, if something occured. For infection rates, we knew every individual that worked on an OR case to try and track common denominators. There are risks with certain types of procedures (bariatric) and with certain patients based on a current disease or even obesity. As more preventative care models, such as Medical Home, etc. roll out, it is possibile that patient acuity could go up for hospitals, but unless you have looked at their CMI over the years reviewed in the article, you wouldn’t know.

  3. This study is full of inaccuracies, IMO. From what I see happening in hospitals, surgeons refuse to operate on patients who are at high risk for developing complications following surgery. So they thoroughly screen all of their surgical candidates, with much needed help from their colleagues in the anesthesia department, for underlying conditions such as cardiac, renal or pulmonary insufficiency, and then scratch them off their surgical list if they are found to have any of these conditions that puts them at above-average risk for developing post-operative complications. Hospitals might not like this because they profit by having their medical and nursing staff treat and care for patient with post-operative complications. I suppose that the more complex their complications are, the greater the profits are for hospitals, but they’ll get plenty of pushback from surgeons who don’t want too many red marks on their record in terms complication rates.

    I believe the public has a hard time understanding that patients are a lot sicker than they were 10 years ago, even just 5 years ago. They are sicker not because the hospital staff has made them sicker, but because they come to the hospital already very sick. And even if the hospital staff is successful at treating patients with one medical problem, they often develop another medical problem, which sets them back even further in terms of hospitalization and rehab. When it get that point, most surgeons wouldn’t touch them with a ten feet pole! That’s the reality of the hospital world as I see it.

    Therefore, given that Dr. Barry Rosenberg is the managing director of “Boston Consulting,” I strongly suspect that his research is deliberately biased in his favor. After all, he profits big time whenever ObamaCare loads on more quality indicators for him and his consulting firm to track and audit!

    Follow the money, folks!