The financial impact of patient safety errors in healthcare

Keeping patients safe: It’s what healthcare providers strive to do every day. Look at any hospital or healthcare organization’s mission statement, and you’ll see that it addresses patient safety in some way—often listing safety as the number-one priority. However, patient safety isn’t just about avoiding errors and incidents to keep patients and staff safe from harm. There’s another side to the story: Patient safety errors can profoundly impact an organization’s financial viability.

The financial impact of medical and patient safety errors on healthcare organizations

Why is this important? At its core, a healthcare organization is a business that, like any other, needs revenue to survive. When a healthcare organization loses money or reimbursement due to fines, lawsuits, or patient leakage, it jeopardizes its ability to stay profitable. Without sufficient revenue, it can’t:

• Provide high-quality care by employing enough staff, causing workforce management issues
• Purchase the necessary supplies or cutting-edge tools and technology it needs (i.e., supply chain management suffers)
• Expand care and services for its community to fulfill its mission

Unfortunately, no healthcare organization is exempt from the financial impact of medical and/or patient safety errors. All sizes and types of hospitals are affected—including those with the best of intentions that strive to meet patient safety goals.

What are medical and patient safety errors?

To reduce medical mistakes, it's important to accurately measure how often they happen, using clear and consistent definitions. Despite a lot of research on errors in healthcare, very few studies have defined or measured the definition "medical error". Dr. Grober and Dr. Bohnen have published an article in the Canadian Journal of Surgery defining the term:  

Medical error: an act of omission or commission in planning or execution that contributes or could contribute to an unintended result. (Dr. Ethan D. Grober & Dr. John M. A. Bohnen, 2004)

Types of medical safety errors

According to the article: “Medical Error Reduction and Prevention” on the National Library of Medicine there are two types of medical errors:

1. Medical errors of omission occur as a result of actions not taken. For example when a nurse did not strap a patient into a wheelchair or did not stabilize a gurney prior to patient transfer.
2. Medical errors of the commission occur as a result of the wrong action taken. For example when a doctor administered wrong medication or not labeling a laboratory specimen that is subsequently ascribed to the wrong patient.

Cost and financial impact of medical and patient safety errors

In the United States, approximately 100,000 people die each year because of medical errors. The annual cost of medical errors to that nation’s healthcare industry is $20 billion. In Canada, one out of every seven Canadian dollars is spent treating the effects of patient harm in healthcare.

How do patient safety errors add up to lost revenue?

There are a variety of ways in which medical and patient safety related errors can impact a healthcare organization’s revenue stream. Consider the following:

1. Medical and patient safety errors can directly affect reimbursement under value-based payment programs. That’s because payments from commercial or government payers are increasingly tied to the achievement of quality targets. These targets or thresholds require the provider organization (and by extension, individual providers) to achieve outcomes that include meeting patient safety goals (e.g., fewer falls). Poor performance equates to less reimbursement.
2. Medical and patient safety errors can cause hospitals to lose money under capitated payment arrangements. That’s because errors may increase the total cost of care so that it ultimately exceeds the fixed payment the organization will receive. This is especially true for errors that result in hospital-acquired conditions that unnecessarily drive up the cost of care.
3. Noncompliance with accreditors often brings monetary penalties and fines.
4. Lawsuits (e.g., negligent credentialing, wrong-site surgery, etc.) by patients, their families, and even providers and staff can result in legal costs for handling and processing. Even logged incidents that don’t ultimately result in patient harm can drive up costs, contributing to revenue loss, if not managed well.
5. Real or near patient safety errors can cause extreme psychological effects in participants—such as anger, guilt, inadequacy, depression, and suicide. There are costs to treating provider burnout and addressing employee turnover.
6. Reputational harm can cause patients to seek care elsewhere. This is known as patient leakage, and it directly affects volume and revenue. As patients become more aware of publicly-reported quality ratings and outcomes data, they will likely choose their providers more carefully—especially in competitive markets where the supply of providers outweighs the demand for care. An organization’s reputation can be tarnished after a single patient safety error, and it can take years to rebuild a community’s confidence.

Who is responsible for safety’s effect on hospital finances

When it comes to patient safety, it truly takes an entire team. That includes people outside of the clinical care team, such as registration staff, coders and billers, clinical documentation improvement staff, and others. Everyone in the organization plays a role in ensuring a safe patient experience.

Each staff member must understand the specific role they play and how their actions can jeopardize or enhance safety. This includes knowing when and how to report incidents—a task that becomes more daunting as an organization’s culture changes through mergers and acquisitions and as new staff are hired. Having the right mix of people, process, and technology can help.

Not surprisingly, several of the World Patient Safety Day goals include the following:

• Ensure periodic review of all serious safety-related incidents reported in healthcare facilities.
• Create a policy for reporting serious incidents, such as never events and sentinel events. Define such incidents, and communicate policies across the organization.
• Give staff regular feedback on progress with the investigation of the incident they reported and communicate what action was taken.
• Mandate immediate reporting and investigation of serious safety-related incidents.
• Minimize the barriers to report, and replace paper forms with electronic methods of reporting.
• Organize rapid response teams and emergency activation systems to respond to situations in which staff and patient security is at risk.
• Track the number and proportion of serious safety-related incidents reported in a healthcare facility in a given time period. Interestingly, when organizations take patient safety seriously, employee satisfaction increases. In a “safety-first” organization, there is less staff turnover and greater staff productivity and efficiency. Additionally, when staff are satisfied, they’re better able to help make patients and their families more satisfied as well.

How healthcare organizations can reduce medical errors and improve patient safety

How hospitals can ensure patient safety while also safeguarding revenue

With so much at stake, how can hospitals ensure patient safety while also safeguarding revenue? In one word: Data. Using data to guide real-time improvement empowers healthcare organizations to identify and eliminate the risk of errors before they occur—not retrospectively after a patient has been harmed.

However, maximizing the use of data requires some degree of automation, so actionable insights can rise to the surface. Automation can quicken incident reporting and increase an organization’s ability to trigger immediate action. It can also remind staff members of upcoming compliance deadlines, so organizations are always one step ahead.

Even before the occurrence of COVID-19, many hospitals were operating on razor-thin margins, making them susceptible to the scaling back of services, or even closure. The pandemic only exacerbated the financial strain on many.

Reducing costs by improving patient safety

Today, hospitals worldwide continue their efforts to make their facilities safer places, by preventing or limiting errors to the extent possible. For all of them, meeting this goal starts with identifying and eliminating areas of potential patient safety risk. A digital quality management system allows organizations to combine all activities aimed at improving quality and safety so they can identify risks and address them holistically.

Learn more about quality management on our special topic page which discusses several important elements of quality management. Or download our eBook to get help writing your internal business case.