The Economic Impact of Patient Safety on Hospitals

Updated: Apr 10, 2019

If you’re at all skeptical about the importance of patient safety to hospitals’ financial well-being, consider this: annual deaths due to medical errors have been estimated at 200,000 in the United States alone, with up to 5% of all US hospital deaths considered preventable. The expenses associated with preventable mortality and morbidity are immense. An estimated $20 billion in healthcare costs are incurred each year from hospital-acquired infections (HAIs) alone, which are among the most preventable causes of morbidity and mortality.


Government-imposed penalties are increasingly used to enforce patient safety. In 2018, 751 hospitals suffered federal safety-related penalties that cost them 1% of their annual Medicare payments. Altogether, the penalties amounted to $566 million in reduced payments for FY 2019. Fines are levied from states as well as the federal government. California alone has issued over one million dollars worth of fines over a five-year period.

In addition, patient advocacy and healthcare analysis groups are helping to steer patients and employers away from high-error hospitals. According to The Leapfrog Group, healthcare plan purchasers pay billions of dollars in hidden surcharges for unintended harm to patients resulting from hospital errors. In response, the group now offers a cost calculator so that purchasers can see how much more they must pay to a hospital with a lower safety grade than one with a high safety grade. Consumer choice is emerging as another motive force, patients have been shown to overwhelmingly choose hospitals with better safety ratings over hospitals with poorer ones.


While penalties can be a substantial economic blow, they are usually not the first consequence that comes to mind when contemplating patient safety failures. That honor goes to the specter of medical malpractice lawsuits. Payouts for medical malpractice lawsuits reach into the billions annually. While not all malpractice lawsuits relate directly to preventable patient safety issues, a Rand Corporation study found a clear correlation between patient safety and malpractice suits, with nearly three quarters of the variation in annual malpractice claims linked to changes in patient safety outcomes. Importantly, current evidence implicates systems, not individual clinicians, as being most responsible when it comes to patient safety failures. This is good news, as resources exist to support health systems in implementing solutions to reduce medical errors. Considering the staggering costs of legal liability, it makes economic sense to invest in system-wide efforts—in the realms of personnel, improved practice policies, and technology—to prevent errors.

Treatment of Harm Inflicted on Patients

Even if a patient safety failure does not precipitate a lawsuit or penalty, it crates excess costs to cover treatment of the harm inflicted through the error. The OECD estimates that 15% of hospital expenditures go to treating safety failures. It further estimates that most of the burden can be attributed to a few common types of adverse events: HAIs, venous thromboembolism, pressure ulcers, medication errors, and wrong or delayed diagnosis. Illustrating the economic shortsightedness of staff reductions, the report asserts that the annual cost from common adverse events in England could pay the salaries of 2,000 general practitioners or 3,500 hospital nurses. In the USA, one in seven dollars is spent treating patients harmed during acute care. Conversely, improving patient safety from 2010 to 2015 in US hospitals that accept Medicare has been estimated to save approximately $28 billion.

Fixing what is broken proactively—before outsiders step in

Often driven by frustration at perceived inaction by hospital systems, issues like staff shortages receive little attention until addressed through proposed regulation. While regulatory mandates are usually well-intentioned, the rigidity they impose can lead to unintended consequences, with both direct and indirect economic impacts. Rigid regulations—which tend to be created by those with legal/political rather than medical backgrounds—often have negative impacts on patients and healthcare workers alike.

One example is the restriction of pain medication for patients who truly need it, a response to an addiction crisis linked to the overprescription of opioids. Another is the danger to patients from other patients in psychiatric settings, due to restrictions on involuntary hospitalization. Italian psychiatrists Biondi and Picardi describe how government regulations, enacted to address human rights infringements that were widespread in psychiatric care before the 1970s, can put not only healthcare personnel, but also other patients, neighbors or family members at risk from violent behavior by the small but worrisome minority of mental health patients who can become aggressive. Such regulations can also restrict psychiatrists’ ability to prevent severely depressed patients from harming themselves.

Poorly conceived, despite their often-laudable goals of helping patients, can place healthcare workers in a double bind, wherein any choice they make can be perceived as the wrong one, in hindsight. Such an environment can have a chilling effect that serves to paralyze or demoralize experienced healthcare workers. This cost proves difficult to measure, but, as with any factor that affects the well-being of healthcare workers, it will surely affect the financial well-being of hospitals as well.

Improving safety saves money, and more

The best way forward, in terms of economics, professional freedom for healthcare workers, and patient well-being, is proactive support of patient safety. This is best approached by viewing patient safety as a “team sport”, reinforcing a culture of 100% commitment to patient safety, and giving healthcare workers the support they need through a thoughtfully designed and consistently executed patient safety program. While this kind of cultural change requires investment, according to the OECD, the cost of prevention is typically much lower than that of harm, especially for common adverse events like HAIs and venous thromboembolisms. In the long term, the resources spent to enact safety improvements will improve hospital economics directly through decreased costs, lawsuits, and penalties, and convey indirect cost savings through enhanced well-being among both healthcare workers and patients.

Dr. CS Copeland holds a BA in neuropsychology from the University of California at San Diego and a PhD in molecular and cellular biology from Tulane University, specializing in parasitology and virology, with postdoctoral research in molecular entomology and computational genomics.

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