The Real Cost of Medical Mistakes

Risk & Insurance, April 1, 2001 by Lori Widmer

Mistakes by health care providers have a tremendous impact on insurance premiums, absentee rates, and workers' comp costs. With one-third of all premium dollars wasted paying for medical errors, employers are joining forces.

Doctors operating on the wrong leg and even the wrong side of the brain. Patients contracting infections after surgery. Nurses or pharmacists dispensing the wrong medication or the wrong dosage of medication. These and other medical mistakes cost lives. They also cost money, and not just to patients.

Employers also share the cost of these errors in the form of higher premiums. In fact, a study by the National Business Coalition on Health and the Midwest Business Group on Health shows that $140 billion of all premium dollars are wasted on medical errors.

Medical errors happen. According to the Institute of Medicine's (IOM) report on patient safety, mistakes lead to between 44,000 and 98,000 deaths a year. Since the IOM report was published, plenty of attention has been paid to medical errors. Employer groups are now addressing the costs to businesses and employees as a result of errors. "We have a very complicated health care system," says Hastings. "For many reasons, it's going to be a mixed system in the future. There's not going to be a magic wand type of change. It's going to take hard work."

More attention is being focused on the report's findings, enough so that several Senate bills have been introduced, all aimed at reducing errors. SS. 2738 proposes to reduce errors by creating a Center for Quality Improvement and Patient Safety that will track medical mistakes and implement best practices. Two other bills call for a reduction in errors by providing for voluntary reporting by health care providers. The Medical Error Reduction Act of 2000 (S. 2038) would establish 15 demonstration projects that would aid in developing a model for medical error reduction and reporting. All bills as of February 2001 are pending review.

In addition, in 1999, then President Clinton signed legislation providing the Agency for Health Care Quality and Research with $25 million for research to improve health care quality and to prevent medical errors. The agency then announced an award up to $2 million for 2000 to support best practices projects designed to improve patient safety.

"We have a rate of increase (in health care costs) for the fourth year, and this last year is the highest ever," says Helen Darling, senior consultant of group benefits and health care at Watson Wyatt, Stamford, Conn. "We will have doubled our health care costs in six years at the rate we're going. And it's going to get worse."

Impact on Business

Generally speaking, errors caused by the medical community have not been the responsibility of employers. While some employers have found themselves named in suits along with health care providers, many are not held liable for errors. Yet employers do pay in other ways.

"When there are errors made from a workers' compensation perspective, the employer is definitely responsible for the corrective action taken," says Annette Sanchez, senior vice president with Specialty Risk Services, Hartford, Conn. "In one instance, the wrong knee was operated on. The employer still had to pay for the proper surgery on the correct knee as well as the physical therapy that was necessary, as well as the additional costs that were necessary to rehabilitate that employee. Now we have someone with two legs that can't be used after surgery. All of that still falls under workers' compensation. And these are expenses that are passed on to employers and employees."

Many have blamed managed care for the problems. But this may not necessarily be the case. Managed care has brought soaring costs under control, in Doug Hastings' opinion. Hastings is an attorney with Epstein Becker & Green and president of the American Health Lawyers Association in Washington. "The Patient's Bill of Rights came out of the defeat in 1994 of the Clinton health plan, which was going to change the structure of health care delivery. What that did was put health care back into the hands of the private sector and the health plans to reduce what was then perceived to be the biggest problem--runaway health care costs. The health plans largely succeeded in that goal."

The beleaguered Patients' Bill of Rights was introduced in January 1999. It was designed to ensure that patients will have access to needed care, that doctors can practice without interference by insurance companies and HMOs, and that health plans are held accountable for medical decisions that lead to harm. The bill has opposition from managed care groups as well as employer groups. As of January 2001, the bill was referred to the Committee on Health, Education, Labor, and Pensions.

"What has held up the federal (approval) has been the health plan liability issue and related, the potential employer liability," says Hastings. "There are provisions that have been introduced that have been opposed by health plans both over harm and to some extend bad information. Health plans think this is inappropriate and will raise the cost of health care, and also employers believe it could make them directly liable. That's been the real debate." Hastings sees passage of the bill as it's proposed as "open season" for litigation.