1 Who Pays for Medical Errors? An Analysis of Adverse Event Costs, the Medical Liability System, and Incentives for Patient Safety Improvement Michelle Mello, JD, PhD Harvard School of Public Health

2 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?

3 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

4 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,

5 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 occurred 2. Whether it was due to negligence 3. Economic consequences

6 Analytical Sample  24 hospitals  12,514 discharges  465 adverse events  127 negligent adverse events

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10 Results Cost per admission, averaged over 24 hospitals All medical injuries Negligent injuries Total medical injury costs$2,013$1,246 Absorbed costs Unrecoupable care costs Malpractice premium $238 $115 $123 $180 $57 $123

11 Results Cost per admission, averaged over 24 hospitals All medical injuries Negligent 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%

12 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

13 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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15 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

16 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

17 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

18 Hospitals (n = 24)Medical Injuries (n = 465) StatePrevalence Utah11 (46%) All injuries465/12435 (4%) Colorado13 (54%) Negligent injuries127/12435 (1%) LocationClinical Type Urban18 (75%) Operative280 (61%) Rural 6 (25%) Drug 54 (12%) Teaching Status Medical procedure 49 (11%) Major teaching2 (8%) Incorrect/delayed diagnosis27 (6%) Minor teaching 7 (29%) Incorrect/delayed therapy24 (5%) Nonteaching15 (63%) Postpartum/neonatal13 (3%) Ownership Anesthesia 6 (1%) For-profit 7 (29%) Other 9 (2%) Not for profit12 (50%)Disability Rating Government 5 (21%) Emotional only 1 (<1%) Volume (# admissions)8689 (4728) Insignificant24 (6%) Patient Mix Minor temporary145 (36%) Mean % Medicare (s.d.)30% (8) Major temporary167 (42%) Mean % Medicaid (s.d.)12% (7) Minor permanent14 (4%) Casemix index1.4 (0.23) Significant permanent 7 (2%) Major permanent 4 (1%) Grave 2 (<1%) Death34 (9%)