These errors occur all too frequently. The Institute of Medicine, a non‐partisan research organization chartered by Congress, estimates that 50,000 to 100,000 hospital patients die in the United States each year as a result of preventable errors. That’s almost three to six times the 18,000 Americans the IOM estimates die each year because they lack health insurance.
Medical errors are pervasive in part because the way we pay doctors and hospitals leaves them with too little direct incentive to improve patient safety. For the most part, insurers pay providers on a “fee‐for‐service” basis: for each service a doctor performs, he collects a fee. That creates an obvious incentive to recommend more tests and treatments, even if those services offer little or no benefit to the patient.
The problem goes beyond wasteful spending, however. If, through negligence, a healthcare provider causes a patient to require more services, he can often collect additional fees.
Medicare, the federal health care program for the elderly, provides an example. When Congress created Medicare in 1965, it assuaged doctors’ fears about government‐run medicine by agreeing to pay providers on a fee‐for‐service basis.
When a hospital discharges a patient, Medicare cuts the hospital a check based on the patient’s diagnosis, and cuts checks to the doctors who treated him. If, however, someone made a mistake that injured the patient and caused him to receive more services — if, say, he acquired a preventable infection, or received the wrong medication, or was injured in a fall, or developed bedsores, or underwent surgery on the wrong body part — then Medicare will send the doctors more checks, and might also increase the amount it pays the hospital.
Imagine remodeling your kitchen and paying the contractor extra to fix your garage door because he backed his truck into it. When Medicare and private insurers reward medical errors this way, Americans pay higher taxes and insurance premiums to cover the costs of other people’s mistakes.
After forty years, Medicare has finally wised up to this perverse financial incentive. Medicare officials have announced that starting this October, they will no longer pay the added costs associated with a list of obvious medical errors. Private fee‐for‐service plans such as WellPoint and BlueCross/BlueShield are following Medicare’s lead, as they usually do in matters of provider reimbursement.