Flatlined

Inefficient Hospitals

The Problem with Fee-for-service Medicine

The cost of inefficient hospital functioning can only be estimated because there is not enough hard data to be more accurate. I have talked with consultants who earn their living by helping hospitals to improve their processes. Their estimates of waste vary from 15% to 40%. The figure is probably someplace between these two extremes.

To understand why hospitals are inefficient, I must explain how they are paid, because that is the root of the problem. Private insurers pay by the number of tests and procedures performed and the intensity of the care required during hospitalization. It is essentially a cost plus profit payment system. That is the more tests and procedures that are performed the more that the hospital is paid.

Medicare pays a flat rate but the rate is based upon discharge status which includes the number of complications the patient develops during the course of hospitalization as well as whether the patient undergoes procedures during hospitalization. That is, the flat rate is determined more by what happens during the course of hospitalization and than upon admitting status.

Both methods either reward or do not sufficiently penalize complications and inefficiencies. In fact, one study showed that patients undergoing pancreatic transplants who had complications actually netted a hospital a higher profit margin than patients who had uncomplicated admissions.(1) Other studies have shown varying levels of decrease or increase in hospital profit margins for patients with complications.(2) There is no compelling business case for efficient care.

Medicare has implemented a new policy in which it does not pay for care of certain hospital-acquired complications, and that is a good start. But all of these payment methods pay hospitals more if they do more things to patients, so they promote inefficiency.

I can give some examples of what I am talking about when I say “hospital inefficiency”. On the neurosurgery wards of every hospital where I have worked, the nurses spent at least one-third of their time meticulously hand-writing notes. The nurses abhorred the time they spent away from their patients and the patients suffered for it. Electronic charting would have saved time, saved money, and reduced errors.

Over the years the only performance measure that was routinely provided by the hospital to the neurosurgery service was length of hospital stay, and this was because hospitals lose money the longer a Medicare patient stays. Infection rates, complication rates, and outcomes of treatment require more hospital resources to report regularly, and over the years we only sporadically saw such information. Complications are also very expensive, but preventing them received little consistent attention because they do not cost hospitals money, just insurers,

A significant amount of money could be saved in hospitals if they and their doctors had the same financial incentives. Doctors, however, are paid for different services and are paid separately from hospitals. The longer a Medicare patient stays in the hospital, the higher the cost to the hospital. But doctors have no reason to care how long a patient’s hospital stay is because it has no influence on their payment. I saw this payment dichotomy result in spectacular wastage and even reduced access to needed treatment.

Removal of an epileptic area in the brain cures many patients from seizures, transforming their lives. However, the patients must endure three to ten days of monitoring with electrodes in their brains while they lie in a hospital bed. They are closely watched on televised monitors by specialized nurses, their brain waves simultaneously recorded and analyzed on million-dollar equipment. These epilepsy monitoring units with their specially-trained staff consume immense resources and cannot be used very well for any other purpose than treating epilepsy. Our hospital’s epilepsy monitoring unit lay vacant or barely used on weekends and holidays because the neurologists and neurosurgeons responsible for these patients organized their schedules around a Monday through Friday work week. Meanwhile there was a six-month queue for patients to be admitted.

The hospital’s administrators could never compel doctors to write discharge orders early in the day to free up needed beds. Fully clothed patients sat among flowers in their rooms for hours waiting for doctors to write simple discharge orders. Meanwhile sick patients needing admission languished on their stretchers in the emergency room, not always safely, for lack of a hospital bed.

It was inefficiency in the operating room that drove so many surgeons to start their own hospitals in Houston. It has been commonplace in all the hospitals in which I have worked for surgeons and anesthesiologists to wait for over an hour between cases as $70,000 a year operating room nurses drank coffee in the adjoining lounge. The surgeons and the nurses were all waiting for minimum wage housekeeping crews to show up to clean the operating room between surgical cases. The housekeeping department, which supervised the cleaners, had little interest in the efficiency of the operating room. I once calculated the cost of this practice at $250 per minute, and that was without considering utilities. I have worked in many hospitals, and practices such as these are the rule, not the exception. An efficiency expert would be aghast at hospital workings.

The work of the American College of Surgeons can give us an idea of the magnitude of the variability in efficiency among hospitals. This group has been a leader in medicine in improving quality. Their National Surgical Quality Improvement Program examines the observed complication and mortality rates from a variety of surgical procedures among 500 hospitals who voluntarily participate in their program. Before comparing complication rates among hospitals, they first risk-adjust for the level of illness of the patients upon hospital admission. An 80-year old with diabetes and kidney failure would have a very different expected complication rate from heart surgery, for example, than an otherwise healthy 50 year old. For most complications and procedures the American College of Surgeons examines at least 20 different factors that influence the degree of risk.

After risk-adjusting the patients admitted to their participating hospitals, actual complication rates are compared to the number that would be expected for a given hospital. For hospital-acquired pneumonia, for instance, the range from the most efficient to the least efficient hospitals varies by a factor of 400 percent. We can give an idea of what the range of cost among these hospitals is likely to be. One study of patients undergoing general surgery and vascular procedures found that the average cost of care of patients without respiratory complications was $5,015 and the cost of care of patients with respiratory complications was $62,704.(3) This kind of expense will not be decreased until hospitals are paid so that there is a business case for quality and efficiency. What other business in the world is paid more for an inferior product or service?

Dangerous Hospitals

It should be no surprise that an inefficient hospital system is also dangerous. I do not know any physician who will leave a family member in a hospital over night alone. There is a reason for that. They know too much. In 1999 the Institute of Medicine published To Err is Human, a landmark book based on a study of medical errors.(4) The Institute concluded that medical errors in hospitals kill forty-four thousand to ninety-eight thousand people per year. The report’s authors pointed out that this number of deaths is equivalent to the death toll from the crash of one jumbo jet per day, making medical error in the United States the fifth leading cause of death (if we apply the larger number above). It also concluded that the primary problem was not bad doctors but bad systems. The Institute of Medicine’s conclusions were based upon studies that reviewed the medical records of 30,121 patients in New York in 1984 and 15,000 patients in Colorado and Utah in 1992.(5), (6) While these figures were old when To Err is Human was published in 1999, no one believed that they had changed. Critics argued that the numbers were inflated because some of the patients would have died anyway--cold comfort to the patients.(7) The Institute set a five-year goal of reducing death from medical error by fifty percent. Though there has been some notable progress from voluntary programs, no one believes that this goal has been met.

The Institute of Medicine based its conclusions upon studies that primarily examined errors of commission--doing something wrong. The results of errors of omission, the failure to do something needed, were not calculated in the study. An example of an error of commission in a hospital is a blood-stream infection caused by inserting an intravenous line or giving a patient the wrong dose or wrong medication. An error of omission might be to fail to recognize that a patient is getting into trouble from a blood clot in the wound after surgery or failing to prescribe a medication to prevent a second heart attack at the time of the patient’s hospital discharge. When the number of errors of commission and omission were added, one investigator estimated the potentially preventable death toll at 284,000 in 2004, the most recent systematic data on hospital error.(8) If this is true, then error in hospitals is the third leading cause of death in the United States behind heart disease and cancer. In 2007 the airline industry reported a rate of misplaced bags of 7.93 mishandled bags per one thousand passengers, increased from 3.84 bags per one thousand passengers in 2002.(9) In 2007 the Institute of Medicine estimated that hospitalized patients are the subject of one medication error per day and medication errors are just one kind of error.(10) A hospitalized patient has a vastly greater chance of being the subject of a medical error than of having his bag misplaced by an airline.

  1. J. A. Cohn, M. J. Englesbe, Y. M. Ads, J. L.Paruch, S. J. Pelletier, T. H. Welling, C. J. Sonnenday, J. C. Magee, J. D. Punch, D. A. Campbell, Jr. and R. S. Sung, Financial Implications of Pancreas Transplant Complications: A Business Case for Quality Improvement American Journal of Transplantation 2007; 7: 1656–1660
  2. Justin B Dimick, MD, William BWeeks, Raj J Karia, Smita Das, Darrell A Campbell Jr Who Pays for Poor Surgical Quality? Building a Business Case for Quality Improvement, Journal of the American College of Surgeons, 202, No. 6, June 2006.
  3. Justin B Dimick, Steven L Chen, Paul A Taheri, William G Henderson, Shukri F Khuri, Darrell A Campbell Jr, Hospital Costs Associated with Surgical Complications: A Report from the Private-sector National Surgical Quality Improvement Program. Journal of the American College of Surgeons, 199, No. 4, October, 2004.
  4. Linda T. Kohn, Janet M. Corrigan, and Molla S. Donaldson, eds., To Err is Human: Building a Safer Health System (Washington, D.C.: National Academies Press, 2000).
  5. Troyen A. Brennan, Lucian L. Leape, Nan M. Laird, et al., “Incidence of Adverse Events and Negligence in Hospitalized Patients: Results of the Harvard Medical Practice Study I. 1991,” Quality and Safety in Health Care13, no. 2 (April 2004): 145-151.
  6. Atul A. Gawande, Eric J. Thomas EJ, Michael J. Zinner, et al., “The Incidence and Nature of Surgical Adverse Events in Colorado and Utah in 1992,” Surgery 126, no 1 (July 1999): 66-75.
  7. Rodney A. Hayward and Timpthy P. Hofer, “Estimating Hospital Deaths Due to Medical Errors: Preventability is in the Eye of the Reviewer,” JAMA 286, no. 22. (December 12, 2001): 2813-2814.
  8. Barbara Starfield, “Is US Health Rally the Best in the World?” JAMA 284, no.4 (July 2000): 483-485.
  9. Jonathan Mummolo, Del Quentin Wilber, “Now Arriving at Carousel 1, Far Fewer of Your Bags,” Washingtonpost.com, October 1, 2007. Accessed online 2007: http://www.washingtonpost.com/wp-dyn/content/article/2007/09/30/AR2007093001653_pf.html.
  10. “Preventing Medication Errors,” Institute of Medicine Report Brief, July, 2006. Accessed online 2007: http://www.iom.edu/Object.File/Master/35/943/medication%20errors%20new.pdf.