Original scientific article
Who Pays for Poor Surgical Quality? Building a Business Case for Quality Improvement

https://doi.org/10.1016/j.jamcollsurg.2006.02.015Get rights and content

Background

Both providers and payors bear the financial risk associated with complications of poor quality care. But the stakeholder who bears the largest burden of this risk has a strong incentive to support quality improvement activities. The goal of the present study was to determine whether hospitals or payors incur a larger burden of increased hospital costs associated with complications.

Study design

We merged clinical data for 1,008 surgical patients from the private sector National Surgical Quality Improvement Program to the internal cost-accounting database of a large university hospital. We then determined the marginal costs of surgical complications from the perspective of both hospitals (changes in profit and profit margin) and payors (increase in reimbursement paid to the hospital). In our analyses of cost and reimbursement, we adjusted for procedure complexity and patient characteristics using multivariate linear regression.

Results

Reimbursement for patients without complications ($14,266) exceeded hospital costs ($10,978), generating an average hospital profit of $3,288 and a profit margin of 23%. When complications occurred, hospitals still received reimbursement in excess of their costs, but the profit margin declined: reimbursement ($21,911) exceeded hospital costs ($21,156), yielding an average profit of $755 and a profit margin of 3.4%. Complications were always associated with an increase in costs to health-care payors: complications were associated with an average increase in reimbursement of $7,645 (54%) per patient.

Conclusions

Hospitals and payors both suffer financial consequences from poor-quality health care, but the greater burden falls on health-care payors. Strong incentives exist for health-care payors to become more involved in supporting quality improvement activities.

Section snippets

Study overview and data sources

We merged clinical information from the National Surgical Quality Improvement Program’s private-sector database to the internal accounting data available at the University of Michigan hospital. Only patients enrolled in the National Surgical Quality Improvement Program at this single university center during a 2-year period between January 1, 2001, and December 31, 2002, were included. Consistent with published methodology, the sample of surgical patients included the first 40 consecutive adult

Results

The financial burden absorbed by the hospital is best represented by changes in profits and profit margins when complications occur (Table 1). Mean reimbursement for patients without complications ($14,266) exceeded hospital costs ($10,978), generating an average hospital profit of $3,288 (23% profit margin). When complications occurred, hospitals still received enough reimbursement to cover their costs. Mean reimbursement for patients with complications ($21,911) exceeded mean hospital costs

Discussion

Although payors and hospitals both suffer financial consequences relating to poor-quality care, payors appear to bear a larger burden of the costs. When surgical complications occur, hospitals experience a decline in profits and profit margin per case, but reimbursement usually covers their costs. In contrast, payors always lose money with complications: reimbursement increases an average of 54% when complications occur. Health-care payors clearly have a large stake in ensuring the success of

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Competing Interests Declared: None.

Dr Dimick was supported by a Veterans Affairs Special Fellowship Program in Outcomes Research. The views expressed herein do not necessarily represent the views of the Department of Veterans Affairs or the federal government.

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