• Open Access

Public hospital admissions for treating complications of clinical care: incidence, costs and funding strategy


  • The opinions expressed are those of the author and do not necessarily reflect the views nor policies of the Victorian Department of Health.

Correspondence to:
Peter McNair, Palo Alto Medical Foundation Research Institute, 795 El Camino Real Palo Alto, CA 94301 United States. Fax: +1 650 327 8309; e-mail: mcnairp@pamfri.org


Objective: To quantify the frequency of, and the costs and payments associated with, admissions for treatment of injuries and illnesses that are consequences of care.

Data sources: Routinely-coded 2005/06 public hospital inpatient data from Victoria, Australia (1.25 million admissions) and corresponding patient-level cost data (1.04 million admissions). Payments reflected DRG-based prospective rates.

Study design: Retrospective analysis of admissions with principal diagnoses that specify adverse events arising as a direct consequence of healthcare.

Results: 1.5% (15,336) of the costed admissions specifically treat an injury or illness arising from medical or surgical care, consuming 2.74% of hospital prospective payments and representing $89.3 m (2.84%) of total reported costs. 1.4% (17,429) of all public hospital admissions and 2.82% of hospital prospective payments (estimated cost-$101.5 m per year) are committed to treating complications of care. Private residences or aged care facilities are the source of 84.9% (14,804) of these admissions. Inpatient death was the outcome in 0.7% (118) of these admissions.

Implications: Admissions for treating complications of care represent a small, relatively expensive, proportion of hospital admissions, which account for disproportionate levels of hospital costs and funding. A policy option providing incentives to reduce the incidence and costs of complications arising from care includes allocating all costs arising from transferred (re)admissions back to the original episode of care and developing a suite of specific DRGs to fund admissions for treatment of complications.

Hospital-acquired injury and illness results in considerable costs to healthcare systems.1 While the incidence and cost of hospital acquired injury has been estimated across jurisdictions, the focus of inpatient payment modification policies has been on events that occur within a single discharge. Until recently, payers of hospital care have not focused on funding policies that address the economic burden of readmissions for injuries and illnesses that are a direct consequence of medical and surgical care.2,3

In unified healthcare systems, such as the State public hospital system in Victoria, it may be possible to adjust prospective payments to create incentives for hospitals to better manage both patient safety and the costs of care for patients injured as a result of medical and surgical interventions.

This study set out to quantify the costs to hospitals and payers of admissions where treatment of previous conditions arising from medical and surgical care was the principal focus. It considers the strengths and weaknesses of payment system options that might place stronger incentives on hospitals to reduce these additional costs to the system.


All admissions sample

This study used routinely-coded data for 2005/06 from all public hospitals (n=142) in Victoria. The all admissions data set comprises patient level data for 1.25 million inpatient episodes of acute treatment in Victorian public hospitals from 1 July 2005 through 30 June 2006.

Cost study sample

A subset of acute inpatient admissions from 39 hospitals, including all major public hospitals, has costs reconciled to each hospital's general ledger, and allocated to patient admissions on the basis of either computerised patient costing systems, or a costing-model.4 This smaller data set is collected by the annual Victorian Cost Weights Study and is used in Victoria to calculate relative cost weights for funding purposes. Eighty-three per cent (1.04 million / 1.25 million) of acute inpatient episodes for 2005/06 were submitted to the cost study.

Study design

Descriptive analysis of routinely collected hospital discharge data. The cost study dataset allowed comparisons of cost and payment relativities for admissions that primarily treat complications of care and for admissions where a complication of care was not the principal reason for patient admission.

The all-hospital dataset enabled comparison of frequency and payments, but not costs for patients admitted for care of an injury or illness arising from prior treatments.

Identifying admissions for treating complications of care

Admissions where the principal diagnosis (that which is ‘established after study to be chiefly responsible for occasioning the patient's admission’) identifies a previous complication of care were extracted using a set of ICD-10-AM Fourth Edition codes.5,6 These comprise codes that specifically identify adverse events that are a direct consequence of healthcare from the ‘T’ chapter, ‘Y’ chapter and ‘end of chapter’ codes; a full list is available from the authors.7


Data were extracted using SAS (Statistical Analysis Software) version 9.1 and manipulated using MS Excel 2000. Payments were adjusted for casemix and complexity through the Australian Refined DRG complexity hierarchy.8,9


Costs versus payment for admissions arising from previous complications of care

Of the 1.04 million inpatient acute care admissions in the 2005/06 cost study dataset, 15,336 (1.5%) were admissions where the principal diagnosis was a complication of care, that is, the purpose of the admission was to treat a specific complication of care. These (re)admissions include only identifiable, specific complications of care. For example, a readmission to treat an “accidental puncture and laceration during a procedure” would be included, whereas a readmission / transfer for a fractured femur resulting from an in-hospital fall would not.*

A budget-capped prospective payment system is used in Victoria to pay the variable cost of inpatient treatment.8 The prospective payment covers around 75% of average patient costs, including all clinician wages and fees, with the remainder made up from non-volume related specified grants (e.g. training and development, capital and equipment grants). To determine the burden of subsequent hospitalisations for treating complications of care, we looked at the proportion of reported costs that were reimbursed by these variable payments (Table 1).

Table 1.  Cost and revenue and proportion of cost covered by prospective payments for admissions principally treating complications of care compared with all other acute-care admissions, Victoria, 1 July 2005 to 30 June 2006.
 No of admissionsTotal cost ($M)Prospective payment revenue ($M)Proportion of cost covered by prospective payment revenue
  1. Source: Victorian Cost Weights Study, 2005/06

Admissions arising from complications of care15,336$89$6471.22%
Other acute admissions1,021,397$3,057$2,25973.92%
Total (All costed admissions)1,036,733$3,146$2,32373.85%

Statewide payments for admissions that principally treat a complication of care

Of the 1.25 million acute inpatient admissions in Victorian public hospitals in 2005/06, 17,429 (1.4%) had a principal diagnosis of a complication of care, that is, the purpose of the admission was to treat a specific complication of care (Table 2). The Victorian Department of Health (VDH) made prospective payments of $72.0 million for these subsequent hospitalisations in 2005/06 (Table 2).

Table 2.  Most frequent primary diagnoses for admissions with a complication of care as the primary diagnosis in descending order by prospective payment, Victoria, 2005/06.
Three digit ICD-10-AMa diagnosis code and descriptionNo of admissionsProportion of total admissionsSum of prospective payments ($000)Prospective payment per admission
  1. Note: a) International Classification of Diseases, Version 10, Australian Modification (Fourth Edition)

  2. Source: Victorian Admitted Episode Dataset, 2005/06.

T81 – Complications of procedures, not elsewhere classified5,6900.46%$23,417$4,115
T84 – Complications of internal orthopaedic prosthetic devices, implants and grafts1,8770.15%$15,893$8,467
T82 – Complications of cardiac and vascular prosthetic devices, implants and grafts1,8500.15%$11,673$6,310
T85 – Complications of other internal prosthetic devices, implants and grafts1,9350.15%$6,673$3,449
T86 – Failure and rejection of transplanted organs and tissues9380.08%$2,867$3,057
T83 – Complications of genitourinary prosthetic devices, implants and grafts9930.08%$2,470$2,488
T87 – Complications peculiar to reattachment and amputation1700.01%$1,357$7,980
K91 – Post procedural disorders of digestive system, not elsewhere classified2550.02%$1,072$4,205
T80 – Complications following infusion, transfusion and therapeutic injection1500.01%$904$6,028
P12 – Birth trauma to scalp8110.06%$890$1,097
T88 – Other complications of surgical and medical care, not elsewhere classified4120.03%$851$2,066
O91 – Infections of breast associated with childbirth6330.05%$653$1,032
All other diagnosis codes1,7150.14%$3,317$1,934

This does not include the episodes where the complication of care is treated as part of the initial admission (i.e. at the time of the injury without transfer to another hospital or care type), nor care for non-specific hospital-acquired illness and injuries (e.g. patient falls and hospital-acquired pneumonia). VDH made prospective payments of $2,555 million for all acute-care admissions in 2005/06. The most frequent principal diagnoses for the readmission episodes are shown in Table 2.

Of the 17,429 admissions, 14,804 (84.9%) were admitted from a private residence or aged care facility, 1,481 (8.5%) were from a birth episode and 1,144 (6.6%) were a transfer either from another care type or from another hospital (Table 3). These admissions resulted in 15,324 (87.9%) discharges to home or aged care facility, 1,927 (11.1%) transfers to another care type or facility and 118 (0.7%) inpatient deaths.

Table 3.  Admission source and discharge destination for the 17,429 admissions for treatment of hospital-acquired complications of care, Victoria, 2005/06.
Admission SourceNo of admissionsDischarge destinationNo of admissions
  1. Source: Victorian Admitted Episode Dataset, 2005/06.

Residential aged care77Residential aged care205
Transfer from another health service1,070Transfer to another health service1,757
Statistical transfer from non-acute care within the same health service74Statistical transfer to non-acute care within the same health service170
Birth episode1,481Death118
  Left against medical advice60


Admissions to treat complications of medical and surgical care are expensive. Comparison of costs for these admissions with the DRG payment amount demonstrates that they represent only 1.5% of total admissions, but 2.84% ($89.3 million) of total costs and 2.74% ($63.6 million) of total payments. The $25.7 million shortfall between costs and prospective payments for these admissions translates to an average shortfall of $157 per acute-care admission when compared to payments for all other 2005/06 acute-care admissions. Although this shortfall is only in the variable payments (disregarding the 25% of funding for non-volume-related costs), over a hospital's caseload, the financial impact would be considerable.

This study is limited to the secondary analysis of 2005/06 routine hospital data in an attempt to quantify the acute inpatient cost of serious complications of medical and surgical care requiring (re)admission to hospital. Although the study only analyses discharges for a single year, little year-to-year variation in the incidence of these complications is expected. The study does not capture the costs of complications of care that are treated in the same acute episode, nor have we quantified the costs of non-admitted emergency, rehabilitation, nursing home, palliative or primary care that arise from these complications of care. In addition, the study could not identify the number of times patients were readmitted for treatment of their complication(s) of care.

Analysis on all acute admissions to Victorian public hospitals in the same period shows 1.4% of admissions were for treatment of a prior complication of surgical or medical care. These admissions consume 2.82% ($72.0 million) of all hospital variable payments and, extrapolating from the cost data findings, would represent $101.5 million spent solely on admissions for treating specific complications of medical and surgical care.

The literature indicates that international rates for inpatient adverse events (variously defined) range between 3.7% to 45.8%, with the Australian average rate reported to be approximately 16% of admissions.6,10,11 Around 20% of all hospital admissions result in readmission.12–14 This study finds that 1.4% of all admissions are specifically to treat a direct consequence of medical or surgical care, an undetermined proportion of which will be readmissions. For the majority of episodes receiving treatment for complications of care, the healthcare setting responsible for the original adverse event is not able to be determined from the administrative data used in this study. However, most likely sources of injury include inpatient care in both public and private hospitals, non-admitted outpatient and emergency care.

Alternative payment policy

The current Victorian prospective payment system allocates variable payments for acute care episodes based on DRG-specific cost weights.# This approach effectively provides a theoretical incentive to transfer cases with hospital-acquired complications as these cases are more costly than cases with no hospital-acquired complication (results not shown). Moreover, more than one hospital could potentially claim reimbursement for treatment of the same complication of care when the patient is transferred (e.g. from the hospital in which the complication is sustained to a hospital with critical care facilities). This works to the disadvantage of the funder in the absence of a financial incentive to better manage complications arising from medical or surgical care, subsequent (re)admissions and their costs.

There is an opportunity to apply a complication-averaged payment policy, the principals of which are discussed elsewhere.15,16 A complication-averaged payment policy would trace transferred patients across episodes to allocate all costs incurred by receiving hospitals back to the original episode for estimation of DRG cost weights. This would result in funding the originating hospital based on the average cost of the entire complicated episode (including transfers), with the receiving hospital's costs to be fully recovered from the originating hospital. Under this policy the funder (in this case VDH) could either: 1) withhold payment for acute admissions specifically to treat hospital acquired complications that arise from transfer and allow the receiving hospital to bill the originating hospital; or 2) make payment to the hospital receiving the acute readmission specifically to treat a hospital acquired complication and subtract the amount of the payment from funding provided to the originating hospital.

This would create a strong incentive for hospitals to minimise complications of care. Originating hospitals would have no control over the costs of care in ‘receiving’ hospitals, and the latter would have no incentive to minimise their treatment costs. While this provides a strong incentive, it may discourage appropriate referral of more complex cases to better-equipped hospitals, as the originating hospital sought to stay in control of treatment costs. This unintended consequence may be difficult to detect.

The Victorian system only permits the linkage of patient records for patients who are transferred between services. Costs associated with patients who are discharged and readmitted cannot be detected, nor hence included, in the proposed DRG payment modification. Even if patients could be uniquely identified across the system the policy would create complex budget adjustments, or cross-billing between hospitals and other healthcare providers. The complexity of this approach in multi-payer systems may be seen as an insurmountable barrier, as would attributing responsibility to private hospitals, day surgery facilities and doctors' offices outside the public hospital system. While neither individual health services, nor the state, should bear the costs of treating patients that have sustained a complication of medical or surgical care at privately funded institutions, the cross-billing involved in excluding these admissions is substantial and a pragmatic approach may be to avoid this complexity.

Our recommendation for the payment of non-transfer admissions and readmissions is to develop a suite of specific DRGs to fund the costs of admissions for treatment of complications. Separately identifying and paying for these cases would address the problem of under-funding of ‘receiving’ hospitals because the weights for the new DRGs would reflect their higher treatment costs within the DRGs to which they are currently assigned. Combined with the funding incentives on originating hospitals for transferred patients, this might provide the right balance between incentives to reduce incidence and costs of hospital-acquired injuries and illness, but support appropriate treatment for unavoidable admissions in the receiving hospitals.

Healthcare systems have both benevolent and financial reasons to reduce the rate of admissions for hospital-acquired injuries. However, funding system incentives may be modified to try to reduce the incidence of these cases, and policy makers should take care to ensure that patients already harmed in the process of their healthcare do not face barriers to high quality and appropriate follow-up care.


  • *

    While in-hospital falls can be be captured with diagnosis codes in the range W00–W19 followed by a place of occurrence code Y9222 (Health service area), this also includes falls that are sustained in day procedure centres, health centres, homes for the sick, hospices, and outpatient clinics. Some fall-related injuries sustained in these health service areas may not be a direct consequence of medical nor surgical care.

  • #

    An exception is small rural hospitals where annual funding is guaranteed irrespective of service volume.