How do you promote quality when quality doesn’t pay?

Study suggests surgical complications lead to higher reimbursement

When a study in the Journal of the American Medical Association (JAMA) reported in April that surgeries with complications lead to higher reimbursement from payers1 — public and private alike — the mainstream press jumped on it with headlines that seemed to implicate the medical profession with some sort of scam: By not doing the best job, they could make more money. “Hospitals profit from surgical errors,” said the New York Times. NPR’s modulated the tone a bit with “Quality conundrum: complications boost hospital profits.” CBS News added the word “error” into its Internet headline — something sure to grab readers’ eyes.

Essentially, the headlines were true. The study, by Sunil Eappen and his coauthors, found that hospitals gain financially from surgeries with complications, getting higher reimbursement than surgeries that do not go wrong. The accompanying editorial2 noted right at the top that while they never said hospitals are purposely flubbing surgeries or thwarting quality programs that would reduce complications, that’s the message many will hear.

The study showed that a surgery with complications paid for by private insurance would garner almost $40,000 more in profit — equal to an increase of about 300% — than the same surgery without them. Even Medicare payments for the surgery with complications would lead to about $1,700 in additional profit for a hospital, or almost double the profit for a normal surgery.

The basis for the numbers was more than 34,000 surgeries done at 12 hospitals in Texas. The authors chose 10 potential complications, including surgical-site infections, DVT, pneumonia, or being on a ventilator for more than 96 hours. Patients experiencing one or more complications stayed in the hospital for an average of 14 days, compared to about three days for patients without complications.

Encouraging quality

The accompanying editorial doesn’t dwell on the implications drawn by the headline writers of the mainstream media — that there is a disconnect between payment and quality — but instead focuses on the “shell game” of allocating costs, and ends with an admonishment that there needs to be more focus on how costs are attributed to specific service lines.

This may be in part because of the advent of the Affordable Care Act and its emphasis on accountable care organizations, value-based purchasing, and a carrot and stick approach to quality (or its lack).

To the wider community, though, the issue is one of how to encourage quality in a system that doesn’t always reward it. And given the need to convince hospital boards and executives to fund quality initiatives — along with everything else — it becomes more difficult for quality leaders to make an argument to spend on something that perversely may cost the hospital money.

Lead author Sunil Eappen, MD, a professor at Harvard School of Medicine and the chief medical officer at Massachusetts Eye and Ear Infirmary in Boston, says it’s difficult for financial managers to find the money for everything that various stakeholders want paid for, so it would not surprise him at all if quality initiatives that address surgical complications fall by the wayside specifically because the financial impact is negligible or negative. “I think that actually does happen. But I do not think they are thinking when they make those decisions that they do not want to improve surgical outcomes because it will cost them money. It’s more general than that: What will have the bigger financial benefit, this project or that one? Which do you choose if you can only afford one?”

That’s the sick part of the system — that you can actually improve quality and hurt your financial position. It could be that the accountable care organization structure will water down the effect Eappen and his co-authors found in the study. “It could make a huge impact, but the reality right now, today, is that we have a DRG-based system where complications change the DRG and you get paid more.” What payers should be doing is changing the payment system to pay hospitals and doctors the same regardless. He uses the example of a hip replacement, where compensation can triple if there are complications. The issue with paying the same amount for every hip replacement is that it doesn’t take into account that every patient is different — an 80-year-old with a hip replacement is a different surgery from an athlete who is 30. It needs an element of risk adjustment.

“And in a perfect system, every hospital would take care of equal numbers of sick patients, not cherry pick the healthiest ones. And inner-city hospitals with poorer patients are likely sicker. So how do you set an appropriate fee?”

Those permanent fixes are down the line, Eappen says. For now, he suggests that quality managers talk about the disconnect with the executives and the board and let them know that improving quality is the right thing to do, and in the future is likely to result in better reimbursement and no penalties.

“The executives should be talking to payers about this, too,” he says. “They should be encouraging the insurers to reward them for quality, because they are the ones who are paying more for complications. Rather than pay more for them, they should pay more for quality outcomes.”

Put your money where your mission is

Another point to emphasize — and one that the editorial makes — is that having patients in the hospital for as much as four times longer when they have complications ties up beds that could go to other patients who have other surgical needs.

New research suggests that you should be talking to your board about quality, too. A study in Health Affairs3 reported that U.S. hospital boards are more concerned with financial metrics as opposed to quality metrics than their counterparts in Britain.

It may take Medicare and private insurance changing their payments to really get hospital boards and executives to put in the money, time, and dedication it takes to accomplish quality, safety and patient experience initiatives, says Charon Blaney, RN, PhD, an oncology clinical supervisor at Our Lady of Lourdes Hospital in Lafayette, LA.

In the interim, patients are reading the headlines — and not the editorials and “study limitations” sections in peer-reviewed journals. “The financial aspects will be impacted by the power of the consumer,” she says. “Patients have the ability and knowledge to shop around for the best, most cost-effective health care. So if the C-suite is reluctant now, they will either feel the impact from patients or payers.”

If you want them to change their tune now, show them how investing in quality and safety can improve their bottom line by highlighting projects that have saved money, time, and even lives, Blaney says.

Eappen says that the more you educate board members about quality and get them involved, the better the quality that gets delivered to patients. “Invite them to your quality committee meetings,” he says. “Immerse them in your world so they see the impact of what you do.”


1. Eappen S, Lane BH, Rosenberg B, et al. Relationship between occurrence of surgical complications and hospital finances. JAMA. 2013;309(15):1599-1606. doi:10.1001/jama.2013.2773.

2. Reinhardt UE. Making surgical complications pay. JAMA. 2013;309(15):1634-1635. doi:10.1001/jama.2013.3451.

3. Jha AK, Epstein AM. A Survey Of Board Chairs Of English Hospitals Shows Greater Attention To Quality Of Care Than Among Their US Counterparts. Health Aff April 2013 vol. 32 no. 4 677-685.

For more information on this topic, contact:

Sunil Eappen, MD, Chief of Anesthesiology and Chief Medical Officer, Massachusetts Eye and Ear Infirmary, Boston, MA. Telephone: (617) 573-3378. Email:

Charon Blaney, RN, PhD, Oncology Clinical Supervisor, Our Lady of Lourdes Hospital Lafayette, LA. Email: