Healthcare Economics and Medical Errors

Economics of Medical Errors

Medical Error Economics

The 1999 Institute of Medicine (IOM) report To Err is Human: Building a Safer Health System pulled the curtain back on the dark secret of medical errors (Institute of Medicine, 2000). The best estimates at the time suggested that between 44,000 and 98,000 people were dying each year due to medical errors. A more recent study discovered that the current system of relying on voluntary reporting probably underestimates the annual incidence of adverse events by 90% (Classen et al., 2011). This new finding was based on experts analyzing medical records for anomalies that could potentially represent a serious medical error. The authors of this study concluded that nearly a third of all hospital admissions probably result in an adverse event because of medical errors.

The recent passage of the Patient Protection and Affordable Care Act (ACA) of 2010 contains provisions designed to eliminate disincentives for patient safety improvements (reviewed by Andel, Davidow, Hollander, and Moreno, 2012). For example, hospitals will be required to carry the financial burden of hospital readmissions and may even be penalized for a history of poor performance. As these provisions go into effect, the hope is that in the absence of incentives that inhibit patient safety reforms, the threat of penalties, and the economic advantages of improving patient safety will be sufficient to motivate providers to adopt the necessary reforms.

Andel and colleagues (2011) discussed various problems with the U.S. healthcare system in terms of medical errors, including the disincentives. While no one is accusing providers of intentionally causing harm to patients to boost their incomes, Andel and colleagues note that the system discourages reforms that would tend to improve patient safety. This essay reviews what evidence Andel and colleagues found that supports an economic argument for implementing patient safety reforms.

Background

Grober and Bohnen (2005) searched the literature for a standard definition of medical errors and when they came up empty, created their own. Based on their scholarship, a medical error is an unintended patient outcome resulting from an action or lack of action by a care professional. The World Health Organization (WHO; n.d.) has concluded that the risk of medical errors increases when a medical professional is unfamiliar with a procedure, inexperienced, working under time pressures, fails to perform checks, fears a poor assessment, has difficulty communicating with the patient, lacks empathy for the patient, or is experiencing fatigue, stress, hunger, or illness. This list suggests that medical errors are hard to avoid and for this reason the WHO recommends that care professionals learn to take care of themselves, know personal limitations, ask questions when doubts exist, practice unfamiliar procedures, plan ahead, and design a system of checks to minimize mistakes. In addition, Andel and colleagues (2012) would encourage care professionals to consider the negative economic impact of medical errors on their employer's balance sheet. By extension, poor organizational performance would reduce competitiveness in the healthcare market and decrease job security.

Estimating the economic burden of medical errors is not an easy task, but necessary to incentivize patient safety reforms (Andel, Davidow, Hollander, and Moreno, 2012). Of the 6.3 million medical injuries that occurred in 2008, at least 1.5 million were judged to be preventable. The cost of the preventable injuries was estimated to be about $19.5 billion, of which 87% was in direct medical costs. The other $1.4 billion was incurred by lost productivity and deaths. Earlier studies suggest that the overall cost on a national level could have been as high as $50 billion in 1984; however, the current consensus seems to be somewhere around $20 billion annually.

On average, hospitals operate within a narrow 5% margin (Andel, Davidow, Hollander, and Moreno, 2012). During the most recent economic downturn, this margin was maintained by delaying equipment upgrades and facility maintenance, reducing staff levels, limiting training, and managing pharmacy operations to favor multi-dose medications and to limit losses due to short shelf-lives. Medical errors are believed to have increased 5-fold due to the pharmacy management changes alone. The fines and penalties that hospitals will begin to incur under ACA provisions may shift this balance sheet to favor patient safety over the goals of past cost-cutting measures. Up to 1% of the operating margin for the worst performing hospitals could be lost under ACA, which may be sufficient for causing poor performing hospitals to close their doors.

Andel and colleagues (2012) base their predictions on studies that examined the effects of pay-for-performance incentives on physician behavior and patient outcomes. Based on these studies, a difference of $5 is sufficient to influence physician behavior.

To further support their prediction that patient safety reforms can produce large savings in health care costs, Andel and colleagues (2012) cite several examples of healthcare systems that have implemented such reforms and reaped large benefits. Intermountain Healthcare in Utah is one example and they implemented changes to reduce treatment variations, which if implemented nationally, could total $3.5 billion annually in healthcare savings. These savings were achieved by establishing evidence-based decision trees for making costly care decisions, thereby eliminating inter-provider variation in how care was provided. This reform resulted in significant improvements in the quality of care provided, while also providing large savings.

The potential savings in healthcare costs nationally, through the implementation of decision trees that eliminate variations in the care provided, were believed capable of reducing healthcare costs nationally by 40% (Andel, Davidow, Hollander, and Moreno, 2012). Based on 2009 data, the U.S. outspent other nations in terms of healthcare by a wide margin (Squires, 2012). A 40% savings would reduce the 17% of gross domestic product (GDP) allocated to healthcare costs in the U.S. currently, to about 10% of GDP. This would bring U.S. healthcare spending down to levels equivalent to other Western nations.