Wednesday, April 17, 2013

Fwd: qotd: Public and private payment of hospital complications

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-------- Original Message --------
Subject: qotd: Public and private payment of hospital complications
Date: Wed, 17 Apr 2013 11:13:52 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

April 17, 2013
Relationship Between Occurrence of Surgical Complications and Hospital
By Sunil Eappen, MD; Bennett H. Lane, MS; Barry Rosenberg, MD, MBA;
Stuart A. Lipsitz, ScD; David Sadoff, BA; Dave Matheson, JD, MBA;
William R. Berry, MD, MPA, MPH; Mark Lester, MD, MBA; Atul A. Gawande,

We found that under private insurance and Medicare, which cover the
majority of US patients, the occurrence of surgical complications was
associated with higher hospital contribution margins. Depending on payer
mix, efforts to reduce surgical complications may result in worsened
near-term financial performance.

The financial effects of surgical complications varied considerably by
payer type. Complications were associated with more than $30 000 greater
contribution margin per privately insured patient ($16 936 vs $55 953)
compared with less than $2000 per Medicare patient ($1880 vs $3629). In
contrast, for Medicaid and self-pay procedures, those with complications
were associated with significantly lower contribution margins than those
without complications.


April 17, 2013
Making Surgical Complications Pay
By Uwe E. Reinhardt, PhD

In this issue of JAMA, Eappen et al reach the troublesome but not
surprising conclusion that hospitals in the United States can profit
handsomely from postsurgical complications, even if the hospitals could
avoid them.

Under the federal Medicare program, payment for all of the services
involved in hospital inpatient treatment has been bundled since the
mid-1980s into 1 payment per inpatient case categorized into 1 of 745
distinct diagnosis related groups (DRGs) of cases, which are categorized
by adjustments for complications and comorbidities. This approach has
made Medicare a pioneer in payment reform that has since been copied

According to the authors' propensity-adjusted estimates, a patient with
1 or more complications results in a $39 017 (95% CI, $20 069-$50 394)
greater contribution margin than a patient without complications if the
care is reimbursed by a private payer. In contrast, for Medicare, the
gain in complication-related contribution margins is only $1749 (95% CI,
$976-$3287). This observation contradicts the prevailing perspective
that private insurers are axiomatically assumed to be smarter payers
than government-run Medicare. However, if, as the authors imply, many of
the observed postsurgical complications were avoidable, then perhaps
Medicare should more appropriately be considered a smarter payer than
private insurers. By having moved to the bundled DRG payments for
inpatient care as early as the mid-1980s, Medicare appears to have
largely avoided rewarding hospitals financially for avoidable mistakes.

However, the data reported by the authors appear different for the
state-run Medicaid programs. Essentially, Medicaid did not even cover
the hospital's variable costs of treating Medicaid patients. Suggesting
to the public that fellow citizens receiving Medicaid have adequate
health insurance but then not covering even the clinicians' and
hospitals' variable costs of treating those patients might warrant the
label of "government-initiated Medicaid fraud."

Comment: In reporting this JAMA article on surgical complications and
hospital finances, headlines throughout the nation are stating that
hospitals profit from surgical errors. The story that should be reported
is that private insurers have been richly rewarding hospitals for
surgical complications, whereas Medicare has largely avoided paying
these rewards.

Specifically, private insurers pay an average of $39,000 more for
surgical complications whereas Medicare pays only $1,700 extra.
Obviously the government has done a much better job than the private
sector in ensuring value in our health care purchasing, not to mention
providing incentives to improve performance.

The government isn't always right, as the Medicaid program demonstrates.
Being chronically underfunded, Uwe Reinhardt suggests that the resulting
underpayments "might warrant the label of 'government-initiated Medicaid

Medicare's prospective payment system using DRGs (745 diagnosis-related
groups) has improved payment levels, but it still provides an incentive
for the provision of excess care. There is a better way. Hospitals
should receive global budgets based on legitimate costs, just as our
fire and police departments are budgeted. Periodic re-budgeting will
compensate for changing medical and community requirements. Of course,
incentives catering to passive investors should be removed by converting
all hospitals to nonprofit status.

Global budgeting for hospitals is just one of the features of the single
payer model of reform as advocated by Physicians for a National Health
Program, all of which together would result in an affordable system of
high-quality care for everyone. We should go for it.

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