Postsurgical complications may reward hospitals financially

From a hospital’s perspective, do postsurgical complications for procedures such as CABG pay? Quite possibly, if the patient has private insurance or Medicare, according to results published April 17 in the Journal of the American Medical Association.

Sunil Eppan, MD, of Harvard Medical School in Boston, and colleagues examined the occurrence of major surgical complications and their effect on a hospital’s financial ledgers. They used claims data for inpatient surgical patients who were discharged from 12 hospitals in one hospital system in 2010. They looked at 10 potentially preventable, severe surgical complications in nine common procedure groups, including CABG.

They extracted financial information from the hospital system’s cost accounting system. Variable costs were defined as costs that vary with patient volume, such as supplies and staffing; fixed costs as those that don’t vary, such as building costs, utilities and maintenance; total margin as revenue minus variable and fixed costs; and contribution margin as revenue minus variable costs, which offset fixed costs.   

“Hospital managers seeking to improve financial performance typically prioritize contribution margin when evaluating hospital activities,” Eppan et al explained. “For hospitals with substantial unused capacity, which comprises the majority of U.S. hospitals, any activity with a positive contribution margin is financially beneficial, regardless of total margin.”

Based on an analysis of 34,256 surgical discharges, they found 5.3 percent of patients had one or more postsurgical complication. Complications were associated with a higher contribution margin of $39,017 per patient with private insurance and $1,749 per patient with Medicare compared with patients who experienced no complications. For patients paid through Medicaid or self-insurance, complications were associated with significantly lower contribution margins.

The median length of stay for CABG patients with one or more complications was 17 days, 10 days longer than CABG cases with no complications and three days longer than the median length of stay for all surgical complications. CABG complications also were associated with significantly higher contribution margins compared with other surgical procedures, with the exception of spinal surgery.

“Depending on payer mix, efforts to reduce surgical complications may result in worsened near-term financial performance,” the authors pointed out. But facilities such as safety net hospitals whose primary patient populations are covered through Medicaid and self-insurance might benefit financially by reducing preventable complications.

Their analysis did not account for benefits from shorter stays for hospitals that operate at full capacity, reputational costs and possible reduced readmission rates. The authors noted that payment rates regionally, locally and by individual hospital vary depending on market factors.

Eppan et al observed that all payers benefit financially from reductions in surgical complications, and recommended developing bundled payment strategies and processes to limit hospitals’ ability to retrospectively recode into higher paying diagnosis related groups (DRGs).

Uwe E. Reinhardt, PhD, of Princeton University in Princeton, N.J., wrote that Medicare has used a model that bundles inpatient care into one payment per patient for decades. Based on the findings on contribution margins, “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 insurance. By having moved to the bundled DRG payment for inpatient care as early as the mid-1980s, Medicare appears to have largely avoided rewarding hospitals financially for avoidable mistakes.”