Hospitals Are More Profitable When They Make Medical Mistakes

From The Davis Law Group, Feb. 19, 2019.
Because of the multi-million dollar lawsuits and disciplinary sanctions that typically result from medical errors and other forms of hospital negligence, it has long been understood that it would be in the best interest of both hospital patients and the hospital itself to avoid medical errors at all costs. And ever since Dr. Ken Kizer of the National Quality Forum (NQF) coined the term “never events” in 2001, patient advocates around the nation have developed outreach campaigns to educate patients about their legal rights in the event of an accident, mostly as part of an effort to hold hospitals accountable for their errors.

But a recent report published in the Journal of the American Medical Association (JAMA) suggests that hospitals who commit surgical errors and other types of complications actually aren’t that bad for business.

Study Shows Medical Mistakes are Profitable

According to the report, surgical errors mean longer hospital stays, additional care and medical procedures, and – undoubtedly the most surprising finding of all – a 330 percent higher profit margin compared to a privately-insured patient who experiences no complications during his or her stay.

I’ve come across some surprising statistics in my lifetime, but the fact that a hospital actually sees a profit that is three times higher when they make a mistake is just unbelievable to me. And more importantly, it means that patients are at an even greater risk of being victimized by hospital negligence.

Why? Because there is no economic incentive for hospitals to provide reasonable care to patients when making a medical mistake actually increases the profitability of that individual patient. I will not go as far as to say that hospitals would intentionally commit errors to increase profitability, but the numbers show that there is really no financial consequence when this happens in a U.S. hospital.

According to the JAMA report, the average patient who suffered one or more surgical complications or other forms of medical error resulted in approximately $49,400 in revenue for the medical facility. For patients who did not suffer any complications during their stay, the revenue contribution was around $18,900.

Financial Incentives Drive the Healthcare Industry

Medicare and some private health insurers have already begun working to create policies that will deny payment to healthcare providers when certain types of mistakes – including “never events” and other serious medical errors – are made. Some experts say this is a purposeful first step in reforming the healthcare system and making patient safety the primary focus of the industry.

Right now, many experts contend that the current state of the healthcare industry fosters the value of a high volume of patients, as opposed to better care and quality patient experiences. And since – as the study shows – the system currently allows for hospital errors to increase profitability, there is not likely to be any improvement until there is a financial incentive to provide better care.

There is a misleading component to this study, however, that leaves a number of additional questions unanswered. The study shows that patients have to undergo additional procedures and stay at the hospital longer after a medical mistake is made, which then turns a higher profit for the hospital. However, a significant proportion of these patients will have grounds for a medical malpractice claim as a result of the hospital’s mistake(s), which can cost healthcare organizations millions of dollars in the end.

Unfortunately, the study does not include any data regarding the inevitable reciprocating medical malpractice lawsuits that result from medical errors. However, the fact that nearly 80 percent of all medical malpractice claims result in zero payment to the claimant suggests that hospitals still manage to profit from their own medical mistakes, even if lawsuits are filed as a result because of the small chance that the lawsuit will result in a significant payment.