Money From Mistakes

Medical errors during hospitalization are strikingly common in the United States. One study of ten hospitals[1], published in 2010 in The New England Journal of Medicine, found that out of 2,341 admissions, 588 incidents of harm were identified — a rate of 25.1 cases of harm per 100 admissions. According to one source[2], around 98,000 Americans die as a result of preventable medical errors each year. To put this number in perspective, diabetes[3] contributes to about 75,000 deaths each year in the United States and ranks sixth among all causes of death (after heart disease[4], cancer, stroke[5], lower respiratory disease, and accidents). Perhaps most disturbingly, as the 2010 study noted, awareness of the dangers posed by medical errors has been rising, yet the frequency of preventable errors has barely gone down.

Why haven’t hospitals taken the steps necessary to bring their error rates down? In a new study[6], published earlier this month in the Journal of the American Medical Association, researchers decided to “follow the money” and see if there was a relationship between postsurgical complications and the amount of money paid from insurance plans, using a 12-hospital system in the South as their subject.


As a New York Times article reports[7], out of 34,256 people who had surgery in these hospitals during the study period, 1,820 had preventable complications such as blood clots, pneumonia, or infection at the incision site. These patients tended to stay in the hospital four times as long as those who experienced no complications, leading to $30,500 more revenue per patient, on average. Complications in patients with private insurance or Medicare led to a net increase in revenue for hospitals, while for patients with Medicaid or who paid out-of-pocket, the extra costs of hospitalization were more than the extra reimbursement resulting from complications. As the authors of the study note in the article, no one is suggesting that hospitals are trying to create complications for profit. Rather, the financial disincentives may help explain why hospitals aren’t trying more vigorously to curb medical errors and reduce surgical complications.

So how could methods of payment be adjusted to change these warped incentives? One idea, long championed but seldom implemented, is to pay doctors and hospitals based on the value they provide, as measured objectively by outcomes, rather than for each service performed. As an article published last month[8] by Kaiser Health News notes, several major employers in the Unites States have formed a consortium called Catalyst for Payment Reform (CPR) in an attempt to help rein in health-care costs — including their own — by fostering value-based payment methods.

In a report[9] that was the focus of the article, CPR found that only 10.9% of health-care spending by employer-sponsored insurance plans last year took value into account. The other 89.1% of spending followed the regular fee-for-service pattern, indicating that doctors and hospitals had incentives to perform as many services as possible. The article notes that even large employers and insurance companies often lack the power to implement new methods of payment, since large hospital systems often have the upper hand in the negotiations to decide whether they are included in an insurance network.

What do you think — could changing the way doctors and hospitals are paid reduce medical errors? Should Congress or regulators force hospitals to adopt procedures that reduce errors and surgical complications, even if this costs hospitals a significant amount of money? Is there a fair way to pay doctors whose patients have chronic conditions, like diabetes, based on results rather than directly for the services they provide? Have you ever been the victim of a preventable medical error? Leave a comment below!

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