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Patient safety problems increase when hospital profit margins decline over time

Since the mid-1990s, the financial disparity between rich and poor hospitals in the United States has widened. According to a new study of Florida hospitals, patient safety suffers as hospital profit margins decline over time. These results suggest that financial pressures limit a hospital's ability to make costly investments to improve patient safety, conclude William E. Encinosa, Ph.D., and Didem M. Bernard, Ph.D., senior economists at the Agency for Healthcare Research and Quality.

The researchers used the Healthcare Cost and Utilization Project State Inpatient Data to analyze Florida hospital discharges from 1996 to 2000, and Florida hospital cost reports from 1995 to 2000. Their goal was to determine whether hospital financial pressures were associated with increased rates of patient safety problems for major surgeries. Many of the measures for the patient safety problems were constructed using the Patient Safety Indicator Module of AHRQ's Quality Indicators released in 2003. The total sample consisted of 1,054,281 major surgeries performed in 176 hospitals over a 5-year period. During the study period, the average profit margin ranged from -10 percent for hospitals in the lowest financial performance quartile to +15 percent for those in the highest financial performance quartile.

Overall, the rate of likely preventable patient safety events, including both surgery-related and nursing-related events, was nearly 9 percent in major surgeries. A set of 24 likely preventable patient safety events occurred with 12 percent higher frequency when the hospital was in the lowest compared with the highest profit margin quartile. The effect of a hospital's financial performance on safety outcomes was more likely to be manifest in the following year. This was probably due to the time it takes for cost-cutting changes in staffing and quality control to affect patient safety. The financial pressures underlying these detrimental changes were due to low reimbursements rather than to high costs. For example, the hospitals in the highest profit quartile had 7 percent higher costs per patient but 42 percent higher payments per patient compared to the hospitals in the lowest profit quartile.

See "Hospital finances and patient safety outcomes," by Drs. Encinosa and Bernard, in the Spring 2005 Inquiry 42, pp. 60-72. Reprints (AHRQ Publication No. 05-R070) are available from the AHRQ Publications Clearinghouse.

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