The move to value-based payment models could mean improvements in patient safety.

Sylvia Mathews Burwell, secretary of the U.S. Department of Health and Human Services (HHS), recently announced ambitious plans for transitioning the traditional Medicare fee-for-service program, which covers 70 percent of beneficiaries, to value-based payment models, with the goal of having at least 50 percent of payments flowing through accountable care organizations (ACOs) and bundled payment programs by the end of 2018.a Many major private payers and state Medicaid programs also have embraced value-based payment models, making it increasingly likely that the U.S. healthcare system will soon reach a tipping point in terms of payment reform. This shift provides an exceptional opportunity to improve the quality and safety of health care.

For health systems in the process of transitioning to value-based payment programs, improving patient safety can be key to financial survival. ACOs with shared savings/risk arrangements tied to the total cost of care and patient outcomes feel the financial consequences of unsafe care directly. Under bundled and capitated payment programs, the costs of treating injuries resulting from errors erode hospital margins. Reducing preventable harm will benefit the bottom lines of all.

National estimates of the impact of preventable adverse events on hospital costs are in the range of $16 billion to $18 billion annually, with healthcare-acquired infections alone accounting for nearly $10 billion.b Because of underreporting of adverse events, these estimates understate the actual costs.c In addition to hospital costs, catastrophic medical malpractice payouts ($1 million or greater) total about $1.4 billion per year.d More difficult to estimate, but far greater than healthcare costs and malpractice combined, are the societal costs associated with preventable adverse events, such as lost days of work, lower workforce productivity, pain and suffering, and long-term disability.e

The healthcare industry in recent years has realized significant improvements in certain aspects of patient safety, demonstrating that the knowledge and tools exist to tackle safety issues. HHS estimates that national reductions in infections, adverse drug events, and other incidents prevented nearly 15,000 deaths and 560,000 patient harms in hospitals in 2011 and 2012, resulting in $4.1 billion in savings.f Further reductions in harm and harm-related costs require widespread adoption of proven practices, as well as their application to the many other safety challenges yet to be tackled. Far higher levels of safety in the healthcare sector are within reach if industry leaders seize the moment.

Boosting the Bottom Line

In this new value-driven and increasingly competitive marketplace, investments in patient safety yield immediate savings by reducing the incremental or variable costs of treating adverse events. But several additional benefits contribute to a far greater overall rate of return. Creating a safe environment for patients and healthcare workers enhances workplace productivity, morale, and retention.g In an increasingly transparent marketplace, a strong track record for safety improves a health system's reputation and ability to increase market share and encourage patients to use in-network services. Over time, a high-performing health system with minimal adverse events will experience reductions in malpractice premiums and an increase in capacity to provide new services or accommodate increased demand.

The new payment environment, with its focus on quality improvement, offers health systems an opportunity-and an incentive-to focus on patient safety as a means to reduce costs. To promote widespread support for such efforts, health system leaders, purchasers, and policy makers should increase transparency regarding the costs of adverse events and the savings associated with safety investments, thereby sharpening the connection between patient safety and a health system's financial security. To this end, health system senior finance executives and chief safety officers should work collaboratively to quantify both the human toll and financial impact of unsafe care and work environments.

Specifically, these executives should ensure that financial statements shared with trustees, leadership, staff, and the public include estimates of the direct and indirect expenses associated with medical errors, broken down by the most common types of errors. Adverse-event reports shared with patients and families should include estimates of financial harm, detailing the portions of those costs that are borne by the patient (e.g., any copayments or deductibles associated with services to treat adverse events), health system, and third-party payer. Finance leaders also should ensure that a portion of their organizations' capital budgets are allocated for investments in safety (e.g., computerized physician order entry systems, barcoding, remote access to patient data, and picture archiving and communication systems). Once these investments have been implemented, finance leaders should track the ROI.

Making visible the costs of unsafe care will prompt health system leaders to make wise investments, build a culture of safety and respect for people, and take appropriate action to address professional performance issues (e.g., noncompliance with safe practices such as hand-washing protocols).

Driving Safety Improvements

There are many other ways to leverage market forces to encourage and reward safety, and all stakeholders can participate. For example, health plans should expand the set of safety metrics in their public-reporting and value-based payment programs to include measures of the following:

  • Safety culture
  • Incidence and human impact of adverse events by type
  • Workforce safety
  • Costs of harmful events resulting from unsafe care and work environments

For its part, HHS should fund the development and testing of a health-system-level composite measure of financial harm from unsafe care that includes both healthcare costs and societal costs (e.g., work loss, disability payments, pain and suffering). Finally, public and private purchasers and health plans can take steps to better educate consumers about the impact of errors on their health and pocketbook, and about the information available to help them choose hospitals that offer safer care.

Over the past two decades, progress in patient safety has been due largely to the intrinsic motivation of health system leaders and professionals to protect their patients from harm. The shift to value-based payment presents health systems with an opportunity to greatly enhance this progress by making explicit the financial consequences of unsafe care, to underscore the point that investing in patient safety is both the right and the profitable thing to do. Further sharpening the connection between safety and institutional financial success will accelerate progress toward a high-performing healthcare system.

Janet M. Corrigan, PhD, MBA, is a distinguished fellow, The Dartmouth Institute, Hanover, N.H..

Elliot Wakeam, MD, MPH, is a resident, Division of General Surgery, Department of Surgery, University of Toronto, Toronto.

Tejal K.Gandhi, MD, MPH, CPPS, is president and CEO, National Patient Safety Foundation, Boston.

Lucian L.Leape, MD, is adjunct professor of health policy, Harvard School of Public Health, Boston.

The authors would like to acknowledge the helpful comments from the members of the Lucian Leape Institute and also from Bonnie B. Blanchfield.


a. Burwell, S.M., “ Setting Value-Based Payment Goals—HHS Efforts to Improve U.S. Health Care,” The New England Journal of Medicine, Jan. 26, 2015.

b. Department of Health and Human Services, “New HHS Data Shows Major Strides Made in Patient Safety, Leading to Improved Care and Savings,” May 7, 2014.

c. Jha, A.K., Chan, D.C., Ridgway, A.B., Franz, C., Bates, D.W., “Improving Safety and Eliminating Redundant Tests: Cutting Costs in U.S. Hospitals,” Health Affairs, September-October 2009; Zimlichman, E., et al., “Health Care-Associated Infections: A Meta-Analysis of Costs and Financial Impact on the U.S. Health Care System,” JAMA Internal Medicine, Dec. 9/23, 2013.

d. Wardle G., Wodchis W.P., Laporte, A., Anderson, G.M., Ross Baker, G.,  “The Sensitivity of Adverse Event Cost Estimates to Diagnostic Coding Error,” Health Services Research, June 2012.

e. Bixenstine, P.J., Shore, A.D., Mehtsun, W.T., Mehtsun, W.T., Ibrahim, A.M., Makary, M.A., “Catastrophic Medical Malpractice Payouts in the United States,” Journal for Healthcare Quality, July-August 2014.

f. Goodman, J.C., Villarreal, P., Jones B., “The Social Cost of Adverse Medical Events, and What We Can Do About It,” Health Affairs, April 2011.

g. Lucian Leape Institute, Through the Eyes of the Workforce: Creating Joy, Meaning, and Safer Health Care , National Patient Safety Foundation, 2013.

Publication Date: Saturday, August 01, 2015