Increased costs of surgical complications have been borne mostly by third-party payers. However, numerous policy changes aimed at incentivizing high-quality care shift more of this burden to hospitals. The potential effect of these policies on hospitals and payers is poorly understood.Objective
To evaluate costs associated with surgical quality and the relative financial burden on hospitals and payers.Design, Setting, and Participants
We performed an observational study merging complication data from the Michigan Surgical Quality Collaborative and internal cost accounting data from the University of Michigan Health System from January 2, 2008, through April 16, 2015; the merged files from these data were created between June 5, 2015, and July 22, 2015. A total of 5120 episodes of surgical care for 24 surgical procedure groups (17 general surgical, 6 vascular, and 1 gynecologic) were examined. We report unadjusted and log-transformed risk-adjusted costs.Main Outcomes and Measures
We compared hospital costs, third-party reimbursement (ie, payer costs), and hospital profit margin for cases with and without complications.Results
The mean (SD) age of the 5120 patients was 56.0 (16.4) years, and 2883 (56.3) were female. The overall complication rate was 14.5% (744 of 5120) for all procedures, 14.7% (580 of 3956) for general surgery, 15.5% (128 of 828) for vascular surgery, and 10.7% (36 of 336) for gynecologic surgery. For all studied procedures, mean hospital costs were $19 626 (119%) higher for patients with complications ($36 060) compared with those without complications ($16 434). Mean third-party reimbursement was $18 497 (106%) higher for patients with complications ($35 870) compared with those without complications ($17 373). Consequently, with risk adjustment, overall profit margin decreased from 5.8% for patients without complications to 0.1% for patients with complications.Conclusions and Relevance
Hospitals and third-party payers experience increased costs with surgical complications, with hospitals experiencing a reduction in profit margin. Both hospitals and payers appear to currently have financial incentives to promote surgical quality improvement.