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Who Pays for Medical Errors?An Analysis of Adverse Event Costs, the Medical Liability System, and Incentives for Patient Safety Improvement

Michelle Mello, JD, PhDHarvard School of Public Health

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Project on Legal Approaches to Improving the Business Case for Quality

Sponsor: Commonwealth Fund

Study Team: Michelle Mello, JD, PhD (P.I.)

David Studdert, LLB, ScD

Eric Thomas, MD, MPH

Cathy Yoon, MS

Troy Brennan, MD, JD, MPH

Research questions:

Who bears the costs of medical errors?

What implications does this have for safety incentives?

How can the law be used to effect greater cost internalization?

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Project Impetus

Significant burden of avoidable medical injuries

Policy discourse around the “business case for quality” conflates societal and hospital perspectives

Epidemiology of medical injury suggests significant cost externalization

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Empirical Strategy

1. Estimate the components of medical injury costs

2. Allocate components to payers

3. Determine the total amounts absorbed and externalized by hospitals

4. Judge whether the absorbed costs are sufficient to create incentives for safety

Using data on medical injuries & malpractice premiums in Utah and Colorado hospitals in 1992,

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Injury Data

13 Utah and 15 Colorado hospitals selected through stratified sampling

15,000 discharge records from 1992 randomly selected

Reviewed by physicians and insurance adjusters who judged:

1. Whether a medical injury occurred2. Whether it was due to negligence3. Economic consequences

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Analytical Sample

24 hospitals

12,514 discharges

465 adverse events

127 negligent adverse events

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Outpatient Care Costs

Disability Payments

Pain & Suffering

(Negligent Injuries Only)

Burial Costs (Fatal

Injuries Only)

Lost Income /

Lost Household Production

Inpatient Care Costs

Components and Flow of Medical Injury CostsStep 1.

Estimate injury costs Using data abstracted From medical records in Utah-Colorado study

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Outpatient Care Costs

Disability Payments

Pain & Suffering

(Negligent Injuries Only)

Burial Costs (Fatal

Injuries Only)

Lost Income /

Lost Household Production

Inpatient Care Costs

Nonbillable

Externalized to Health Insurer or Patient / Family †

Absorbed by Hospital

Externalized to Patient / Family †

Externalized to Disability Insurer

Components and Flow of Medical Injury Costs

Billable

Step 1.

Estimate injury costs Using data abstracted From medical records in Utah-Colorado study

Step 2

AppApply reimbursement rules to determine hospitals’ ability to bill for extra services

Step 3

Characterize each cost component as internalized or externalized

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Outpatient Care Costs

Disability Payments

Pain & Suffering

(Negligent Injuries Only)

Burial Costs (Fatal

Injuries Only)

Lost Income /

Lost Household Production

Inpatient Care Costs

Nonbillable

Externalized to Health Insurer or Patient / Family †

Absorbed by Hospital

Externalized to Patient / Family †

Externalized to Disability Insurer

Malpractice Premium

Total Costs Incurred by Hospital

Components and Flow of Medical Injury Costs

Billable

Step 1.

Estimate injury costs Using data abstracted From medical records in Utah-Colorado study

Step 2

AppApply reimbursement rules to determine hospitals’ ability to bill for extra services

Step 3

Characterize each cost component as internalized or externalized

Step 4

Determine hospitals’malpractice premiums paid

Step 5

Calculate hospitals’ absorbed costs as a proportion of their total injury costs

† Except for portion recouped through malpractice awards, represented by malpractice premium.

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ResultsCost per admission,

averaged over 24 hospitalsAll medical

injuriesNegligent injuries

Total medical injury costs $2,013 $1,246

Absorbed costs Unrecoupable care costs Malpractice premium

$238 $115 $123

$180 $57 $123

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ResultsCost per admission,

averaged over 24 hospitalsAll medical

injuriesNegligent injuries

Total medical injury costs $2,013 $1,246

Absorbed costs Unrecoupable care costs Malpractice premium

$238 $115 $123

$180 $57 $123

Externalized costs $1,775 $1,066

Proportion externalized 78% 70%

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Conclusions

Because they can externalize injury costs, hospitals lack strong financial incentives to improve safety

The single largest contributing factor is the low rate of malpractice claiming

Hospitals’ ability to bill for injury-related services further facilitates externalization of costs

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Cost-Internalizing Policy Reforms

Expand safety-based purchasing initiatives, e.g. the Leapfrog Group and “pay-for-performance”

Adjust reimbursement policy to preclude billing for care necessitated by a preventable medical injury

Develop alternative dispute resolution systems with lower barriers to claiming

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Study Limitations

Limitations of retrospective record review: Interrater reliability Can’t detect undocumented injuries and errors

1992 data

Exclusion of newborns

Did not consider physicians’ insurance premiums

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Detail: Costing Methodology in the Utah-Colorado Study Economic consequences estimated using injury

descriptions (newborns excluded)

2 physicians and 10 insurance adjusters estimated health care utilization, disability/lost work time, lost household production

Lost income estimated using occupation and Current Population Survey Consumption deduction applied to lost income estimates

for decedents

Lost household production estimated at $20/day

Health care prices came from several sources

Inflation and discounting applied

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Detail: Noneconomic Loss Estimates

Data: 889 paid claims from the MIMEPS study 85% settled, 15% tried

Divided claims into 35 severity/age cells

Calculated median total award for each cell

To isolate noneconomic damages, applied a multiplier representing noneconomics as a proportion of total awards from previous study of jury verdicts in California

Sensitivity analysis: Applied a flat 35% proportion

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Hospitals (n = 24) Medical Injuries (n = 465)

State Prevalence

Utah 11 (46%) All injuries 465/12435 (4%)

Colorado 13 (54%) Negligent injuries 127/12435 (1%)

Location Clinical Type

Urban 18 (75%) Operative 280 (61%)

Rural 6 (25%) Drug 54 (12%)

Teaching Status Medical procedure 49 (11%)

Major teaching 2 (8%) Incorrect/delayed diagnosis 27 (6%)

Minor teaching 7 (29%) Incorrect/delayed therapy 24 (5%)

Nonteaching 15 (63%) Postpartum/neonatal 13 (3%)

Ownership Anesthesia 6 (1%)

For-profit 7 (29%) Other 9 (2%)

Not for profit 12 (50%) Disability Rating

Government 5 (21%) Emotional only 1 (<1%)

Volume (# admissions) 8689 (4728) Insignificant 24 (6%)

Patient Mix Minor temporary 145 (36%)

Mean % Medicare (s.d.) 30% (8) Major temporary 167 (42%)

Mean % Medicaid (s.d.) 12% (7) Minor permanent 14 (4%)

Casemix index 1.4 (0.23) Significant permanent 7 (2%)

Major permanent 4 (1%)

Grave 2 (<1%)

Death 34 (9%)