BCG: Hospitals earn too much on medical mistakes

07 May 2013

It is beneficial for U.S. hospitals when doctors make mistakes. Because they earn more on patients who need additional treatments to undo medical mistakes. This remarkable finding comes from a study by Boston Consulting Group in collaboration with the Harvard Medical School and Texas Health Resources. Principal of the study was the renowned healthcare magazine "The Journal of the American Medical Association.

BCG studied treatments and financial settlement of more than 34.000 patients across 12 US hospitals. Of those surgeries, 1.820 patients (5,3%) experienced one or more complications, such as blood clots, stroke, infection, septic shock, pneumonia or cardiac arrest.

Hospital compensation 

The compensation hospitals receive is in the US dependent on the type of insurance. When a privately insured person is treated, hospitals receive on average $17.000 in working revenues. Yet when a complication arises the average working revenues jumps to $56.000, an increase of 330%. For medicare** patients the amounts are substantially lower. A complication-free treatment receives $1.800, with complication this can amount to $3.600, equivalent to 190% higher margins. Important reason for the higher margins is the increase in the number of nights a patient has to stay in the hospital, an activity that has high margins.

BCG Artsen


In the report the consultants do not suggest that complications are caused intentionally. Yet they do emphasize that there is an "absolute need for payment reform" in the healthcare market. "Hospitals make more money the longer a privately insured or Medicare patient stays" says Barry Rosenberg, partner in BCG's health care practice. "As a result, hospitals may lack financial incentives to take steps to reduce surgical complications". The financial relationship between insurers and hospitals is also dubious he says. "Insurers are rewarding hospitals when there are complications. This is not the type of incentive you want in a healthcare system".


Another finding is that hospitals are rewarded for quantity of treatments, and not for the quality of it. "It's known for years that hospitals are not rewarded for quality, but to date it was not clear exactly how big the gap was between quality and financial reward. The results again provide a strong signal to governments worldwide: reform the financial structure of healthcare markets and bring them in line with modern client demands" says Atul Gawande, co-researcher and professor at Harvard.


* Texas Health Resources is a big conglomeration of non-profit hospitals in the American state of Texas. ** Medicare is a social insurance program of the American federal government that secures the accessibility of healthcare insurance for Americans over the age of 65, and young people with a handicap or a terminal disease. In 2012 50 million qualified for the insurance program. Medicare typically accounts for about half of all health care costs.


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