---
title: "The Hidden Cost of Hospital Penalties: When Avoiding Tests Trumps Patient Safety"
description: STAT exposes hospitals discouraging infection testing to dodge Medicare penalties, risking patient safety, raising malpractice liability – urging CMS reform
author: Darie Nani (Editor-in-Chief)
date: 2025-09-23T06:07:50.000Z
updated: 2026-03-04T20:39:38.626Z
canonical: https://www.sovereignmagazine.com/article/the-hidden-cost-of-hospital-penalties-when-avoiding-tests-trumps-patient-safety
image: https://cdn.nanimediahouse.com/pd4lrfko16u.jpg
categories: Legal
content_type: Feature
region: United States
publication: Sovereign Magazine
---

A troubling investigation by STAT News has uncovered that some hospitals are deliberately discouraging infection testing to avoid financial penalties from Medicare, creating a dangerous precedent where regulatory gaming may compromise patient care and increase malpractice liability. Hospital leaders, realising that if they don’t look for infections they won’t find them, are [discouraging testing practices](https://www.statnews.com/2025/09/22/hospital-acquired-infection-reporting-healthcare-dirty-little-secret/) amongst clinicians, STAT reported.

## The CMS Penalty System and Its Unintended Consequences

The [Hospital-Acquired Condition (HAC) Reduction Program](https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/hospital-acquired-condition-reduction-program-hacrp) reduces Medicare payments by 1% for hospitals ranking in the worst-performing 25% on measures of hospital-acquired conditions, including infection rates. In 2025, approximately 724 hospitals faced these penalties for poor performance on hospital-acquired infections and conditions.

The programme calculates a Total HAC Score annually based on infection rates and patient safety measures reported to the CDC National Healthcare Safety Network and claims data. While a 1% payment reduction may seem modest, it can equate to millions in lost revenue for hospitals operating on tight margins, particularly as [readmission penalties continue to increase](https://www.modernhealthcare.com/providers/mh-cms-hospital-readmission-penalties-2026/) across the sector.

The original intent was improving patient safety through financial incentives, but the system has created perverse outcomes where hospitals prioritise penalty avoidance over comprehensive patient care. This reflects a broader challenge in [how regulatory rules can determine business survival](https://www.sovereignmagazine.com/article/why-washington-s-rules-decide-if-your-business-can-survive-financial-risk) when compliance costs and penalties reshape operational priorities.

## The Testing Dilemma and Patient Safety Implications

Hospital administrators are actively discouraging clinician testing practices, adopting what industry insiders describe as an ‘if you don’t look, you won’t find’ mentality documented by STAT. This approach creates significant risks of missed diagnoses and treatment delays, potentially leading to severe infections, sepsis or other complications that could prove fatal.

The practice exposes hospitals to substantial medical malpractice liability. When infections result from negligence or delayed diagnosis, healthcare facilities face potential legal claims from patients and families. A [team of medical malpractice lawyers](https://westernjusticelaw.com/practice-areas/bozeman-personal-injury-lawyer/medical-malpractice/) would likely examine whether hospitals followed appropriate infection control protocols and whether any delays in testing or diagnosis contributed to patient harm.

Patient outcomes suffer when hospitals prioritise regulatory compliance over thorough diagnostic practices. [Healthcare claim denials](https://www.sovereignmagazine.com/article/healthcare-claim-denials-surge-to-crisis-levels-as-providers-battle-insurance-company-rejecti) become increasingly relevant as insurance rejection rates rise, directly impacting both timely treatment and quality of care metrics, which can become meaningless if they’re artificially manipulated through reduced testing rather than genuine improvements in infection prevention and treatment protocols.

## Legal and Regulatory Response Needed

CMS faces enforcement challenges in monitoring whether hospitals are genuinely improving infection rates versus simply reducing testing volumes. The agency lacks robust mechanisms to detect when facilities are gaming the system through reduced diagnostic practices rather than enhanced patient safety measures, highlighting the need for more sophisticated [healthcare fraud detection systems](https://www.sovereignmagazine.com/article/ai-powered-healthcare-fraud-detection-set-to-save-billions-in-annual-losses) that can identify such statistical manipulation.

Medical malpractice claims related to delayed infection diagnosis are likely to increase as this practice becomes more widespread. Legal precedents suggest that hospitals have a duty to provide timely and appropriate diagnostic testing when clinically indicated, regardless of potential regulatory penalties. This evolving landscape reflects how [regulatory upheaval creates complex territory](https://www.sovereignmagazine.com/article/legal-bottlenecks-how-regulatory-upheaval-puts-us-injury-victims-in-complex-territory) for both healthcare providers and patients seeking legal recourse.

Healthcare policy experts are calling for reformed penalty structures that incentivise genuine safety improvements rather than statistical manipulation. [Patient safety advocates](https://centerforhealthjournalism.org/our-work/reporting/medicare-penalties-trying-stop-hospital-infections) support the programme’s goals but emphasise the need for ongoing refinement to ensure it effectively promotes safety while being fair to providers.

Reform proposals include stronger oversight requirements, transparency measures that track testing volumes alongside infection rates and penalty structures that account for case complexity and patient population characteristics. Industry recommendations focus on balancing accountability with patient care through metrics that reward comprehensive diagnostic practices rather than penalising thorough testing.

The investigation has also drawn attention to broader healthcare system pressures, particularly as [emergency department deaths have surged](https://www.newsweek.com/er-patient-deaths-us-hospitals-private-equity-2133777) at hospitals acquired by private equity firms, raising questions about whether financial priorities are increasingly overshadowing patient safety across the healthcare sector. This trend mirrors wider concerns about [regulatory priorities and workplace safety](https://www.sovereignmagazine.com/article/us-regulators-turn-up-the-heat-why-employee-wellbeing-is-now-a-legal-priority-not-just-a-prod) becoming secondary to financial considerations.

Healthcare institutions must also navigate the complex intersection of compliance requirements, as demonstrated by recent challenges in [healthcare compliance and patient trust](https://www.sovereignmagazine.com/article/beyond-compliance-what-healthcare-learnt-about-trust-from-digital-accessibility) where meeting regulatory deadlines while maintaining quality care presents ongoing operational challenges.

This investigation exposes a critical flaw in healthcare policy where well-intentioned penalties may inadvertently encourage practices that put patients at risk. The urgent need for regulatory reform must prioritise patient safety over financial metrics, ensuring that hospitals focus on genuine infection prevention rather than diagnostic avoidance. Without swift action, the gap between regulatory compliance and actual patient care will continue to widen, potentially costing lives whilst exposing healthcare systems to mounting legal liability. [strengthened cybersecurity strategies](https://www.sovereignmagazine.com/article/healthcare-under-siege-how-the-simonmed-ransomware-attack-exposes-critical-gaps-in-medical-im)