Impact & Expertise

Press Releases

  • April 16, 2013
  • Hospital Profits Rise When Surgical Complications Occur

  • New Research by The Boston Consulting Group and Partnering Health-Care Institutions Finds That Hospitals Lack Financial Incentives to Reduce Surgical Complications

BOSTON, April 16, 2013—Hospitals’ profit margins are higher when patients covered by Medicare or private insurance experience a surgical complication, according to new research by The Boston Consulting Group (BCG) and a group of partnering health-care institutions. The findings will be published tomorrow in a peer-reviewed article in JAMA, The Journal of the American Medical Association.

The study, the first of its kind aimed at quantifying the impact of surgical complications on hospital finances, analyzed a broad set of data on inpatient procedures.

The article is based on a study that BCG conducted in collaboration with Texas Health Resources and Ariadne Labs, a joint center for health systems innovation at Brigham and Women’s Hospital and Harvard School of Public Health. Analyzing more than 34,000 surgical inpatient procedures, the authors found that privately insured surgical patients who had one or more complications provided hospitals with a 330 percent higher profit margin than those who had no complications. Medicare patients with one or more complications produced a 190 percent higher margin. Therefore, efforts by hospital managers to reduce surgical complications could substantially hurt their hospital’s financial performance.

“This research provides dramatic evidence that hospitals lack financial incentives to invest in improving surgical quality,” said Barry Rosenberg, MD, a Chicago-based BCG partner in the firm’s Health Care practice and a coauthor of the study. “Policymakers talk about paying for performance, but instead Medicare and private payers are rewarding hospitals for complications. The U.S. health-care system is paying for harm.”

“It’s been known that hospitals are not rewarded for quality, but it hadn’t been recognized exactly how much more money they make when harm is done,” said author Atul Gawande, MD, a director of Ariadne Labs, professor at Harvard School of Public Health, and surgeon at Brigham and Women’s Hospital in Boston. “This clearly indicates that health care payment reform is necessary. Hospitals should financially gain—not lose—by reducing harm.”

U.S. health expenditures for surgical procedures, currently estimated at $400 billion annually, are expected to grow faster than the economy over the next ten years.

To measure the impact of complications on hospital profitability, the study used administrative data (health-insurance billing data) to evaluate the net revenues, fixed costs, and variable costs associated with 34,256 surgical inpatient procedures at a nonprofit, 12-hospital system in the southern U.S. during 2010. A total of 1,820 patients who had at least one complication were identified.

Other major findings of the research include the following:

  • Average revenue per patient with one or more complications was $30,500 higher than for patients with no complications ($49,400 versus $18,900).

  • For patients with private insurance, the contribution margin per patient (defined as revenues minus variable costs) with complications was $39,000 higher than the margin per patient with no complications. Total margin (defined as revenues minus variable and fixed costs) increased from $11,000 to $36,600 when complications occurred.

  • For patients with Medicare, the contribution margin per patient was $1,800 higher when complications occurred. Total margin decreased from –$5,500 to –$14,700 when a complication occurred. As long as the contribution margin is positive and there is hospital and operating room capacity, a hospital is financially motivated to provide care, even if total margin is negative.

David Sadoff, a Houston-based BCG partner who leads the firm’s Provider practice in North America and is a coauthor of the study, noted that leading hospital systems around the world are migrating to value-based and outcome-driven health systems to improve quality. “Reducing the cost and incidence of surgical complications is obviously of paramount importance to patients,” he said. “Hospitals should not be penalized financially for improving outcomes.”

BCG’s Health Care practice works with payers, providers, and biopharma and medtech companies. Its work with providers includes leading hospital systems and academic medical centers, and addresses such issues as performance improvement, physician engagement, strategy, and post-merger integration.

A copy of the article, “The Relationship Between Occurrence of Surgical Complications and Hospital Finances,” can be obtained from the JAMA website at

To arrange an interview with one of the authors, please contact Madeleine Desmond at +212 446-2856 or

About features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management’s agenda. It also provides unprecedented access to BCG’s extensive archive of thought leadership stretching back 50 years to the days of Bruce Henderson, the firm’s founder and one of the architects of modern management consulting. All of our content—including videos, podcasts, commentaries, and reports—can be accessed by PC, mobile, iPad, Facebook, Twitter and LinkedIn.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 82 offices in 46 countries.

Recent Releases

  • May 21, 2015 Leadership at All Levels of South Africa Is Needed to Address Four Key Social and Economic Problems view full release
  • May 11, 2015 Beleaguered Investment Banks Facing Uphill Battle view full release
  • May 01, 2015 The Internet Now Contributes 10 Percent of GDP to the UK Economy, Surpassing the Manufacturing and Retail Sectors view full release
  • April 30, 2015 The Boston Consulting Group Launches Institute in Honor of Founder Bruce Henderson's 100th Birthday view full release
  • April 30, 2015 Striking Gap Between Where Brazil's Leading Retailers Operate Now and Where Consumer Demand Will Be in the Future view full release
  • April 28, 2015 A New Study Explores the Link Between European Railway Performance and Allocation of Public Subsidies view full release
  • April 28, 2015 Mexico Is Ready for a Takeoff in Consumer Spending, Powered by Rapid Growth in Middle-Income Households view full release
  • April 23, 2015 Growing, Shifting Digital Use in India Means Big Changes for Marketers and Media Companies view full release
  • April 21, 2015 New Report Details the Likely Evolution of the Market for Self-Driving Cars view full release
  • April 20, 2015 New Report Explores Long-Term Challenges to Global ICT Ecosystem view full release

Accelerating Out of the Great Recession

Accelerating Out of the Great RecessionThis book details what high-performing companies must do to seize advantage in a slow-growth environment. more

BCG Offices

Globe BCG has more than 80 offices around the world. Learn about our global presence.

Social Impact

We are compelled to utilize our expertise to work with humanitarian organizations that impact local communities and the world at large. More