For-profit health care: When surgical complications are good for business

I believe market forces and the pursuit of profits often bring creativity and innovation.

But not so much for health care. The problem was nicely crystallized in a Business Week article I read years ago, profiling the star CEO of a hospital chain. He was lauded for increasing revenue per patient, a key indicator. A few more tests, an extra day in hospital, fees for every aspririn dispensed, and the corporation does well and the CEO gets a bonus.

The problem was set out more starkly in a Wall Street Journal I snagged in one of the airports on the way back to Copan Ruinas from Victoria. 

It reported on a study that found U.S. hospitals make more money when a surgical patient has complications after surgery. A lot more money.

Thus there was no economic incentive to reduce avoidable medical complications that cause thousands of deaths and add billions to health care costs.

In fact, market forces worked against reducing surgical complications.

The study was legit. It was reported in the Journal of the American Medical Association and done by researchers from the Harvard Medical School, Boston Consulting Group and Texas Health Resources.

They looked at more than 34,000 surgical patients in 12 hospitals owned by Texas Health Resources.

And they found surgical complications - many avoidable - were good for business. Infections, complications, strokes, they all boosted the hospitals’ bottom line. The study found hospitals made an average $56,000 in profit from each privately insured patient who suffered complications, compared with an average $17,000 when the surgery went well. There were complications in about six per cent of surgeries, a fairly typical rate.

I’m not suggesting corporate execs, wringing their hands like Montgomery Burns, are plotting to have surgeons leave instruments inside patients or skimp on handwashing. (The latter surprisingly common.) The managers go home to their families too.

But proponents of private care can’t have it both ways. They argue market forces - the push for bigger profits - will ‘incentivize’ improvements in care.

So they have to acknowledge market forces now discourage efforts to reduce complications.  

No managers would say they like surgical complications because they are profitable. 

But they might say that spending on projects to address other problems is a higher priority. It’s not easy to explain the benefits of investing in programs that will reduce the companies’ profits.

Free-enterprise extremists likely have answers. The insurance companies, they might argue, should be pressing the hospitals to reduce surgical complications. The smart insurers would use the safest, lowest-cost hospitals, and cut premiums and attract more customers.

Except that isn’t happening. There are some 200,000 preventable deaths a year related to U.S. hospital stays. The rate of deaths from surgical complications has been declining, but slowly. 

The market isn’t working. Maybe the hospitals have too much power, or the insurers can charge what they like and have little incentive to push for better performance. It doesn’t really matter to the people who suffer as a result of avoidable complications, or everyone who pays higher health insurance premiums that flow to hospital shareholders.

There are still useful ways to encourage innovation through competition in a largely public system. (And we have an largely public system. Doctors are effectively Health Ministry employees with a great collective agreement.) 

Hospitals that find ways to deliver successful surgical outcomes could get extra funding, or financial incentives for participants. Why not? Everyone benefits if we can cut complications, or do four hip replacements for the cost of three. 

Meanwhile, proponents of private care face a problem. The current reality is that surgical complications are good for private hospitals in the U.S. And that is bad for patients.