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The transition from the traditional fee-for-service model to value-based care has thoroughly altered the way healthcare providers are reimbursed. As the focus has shifted to the value of care delivered, rather than the number of procedures or services rendered, quality and safety become primary themes. Medical errors-and notably preventable adverse events-have greater impact on hospital reimbursements than ever before, and in turn, can compromise the healthcare organization’s financial stability when claims are denied, adjusted, or even retracted. This report looks at how preventable medical events may impact healthcare providers’ revenue cycles.


Particular adverse medical events are classified as “never events” and may also be referred to as sentinel events or serious reportable events, with organizations applying varying definitions to each term. The prevalence of medical errors is no new revelation. For decades, studies have found that errors in healthcare occur at an astounding rate, and many with dire consequences to the health of the patient. Estimates of annual American deaths resulting from preventable medical error range between 250,000 and 440,000, making medical error the third most common cause of death in the U.S., after heart disease and cancer (Makary & Daniel, 2016). The Society of Actuaries estimated that medical errors cost the U.S. $19.5 billion in 2008, with non-reimbursable medical costs per error ranging from $810 to $47,099 (Milliman, 2010). Total costs, which include in-hospital mortality and short term disability costs, reached over $93,000 per error.

Type of Error Non-Reimbursable Medical Cost Per Error In-Hospital Mortality Cost Per error Short Term Disability Cost Per Error Total Cost Per Error
Postoperative Shock $47,099 $46,584 $- $93,682
Gastrostomy Complications – Infection $60,273 $6,492 $- $66,765
Non-Healing Surgical Wound $16,253 $2,114 $1,789 $20,156
Object left in body (Medicare Never Event) $8,031 $- $- $8,031
Unspecified adverse effect of drug medicinal and biological substance not elsewhere classified $810 $- $50 $860
Source: Shreve J, van Den Bos J, Gray T, Halford M, Rustagi K, Ziemkiewicz E. Schaumburg, IL: The Society of Actuaries; 2010. The Economic Measurement of Medical Errors.

This cost was later adjusted to 2016 terms, estimating an impact on the U.S. economy of $20.8 billion from medical errors, accounting for direct costs associated with care and services, as well as costs due to increased mortality rates and days of lost productivity from missed work (Perez, 2016). While much research is being conducted on medical errors and their impact in regard to both cost and well-being, there is more work to be done if this phenomenon is to be curtailed.


A study published in the Journal of Empirical Legal Studies analyzed the portion of adverse event costs that were borne by hospitals versus others (Mello, Studdert, Thomas, Yoon, & Brennan, 2007). The study found that while the average cost for negligent injury reached $113,280, hospitals were responsible for only 22% of the costs, and externalized 78% of costs associated with all injuries and 70% of costs associated with negligent injuries to outside payers. If fiscal burden is to be a driver of safety improvement, the outside payers rather than hospitals may be more financially inclined to find ways to reduce preventable medical errors. In the last decade, to combat the preponderance of preventable medical events plaguing Americans in hospitals and health systems, private insurers, as well as states and the federal government have put reporting requirements, penalties, and reimbursement processes in place.

The National Quality Forum (NQF) identified 27 “never events” in 2002. Never events are medical errors that are identifiable and preventable, and have serious consequences for patients. These events include wrong site or wrong patient surgeries, the unintended retention of a foreign object after a surgery, death or serious injury due to a fall, and a host of others (National Quality Forum, n.d.). Since 2002, 11 states have created mandates that require the reporting of never events, as identified by NQF. Another 16 states require serious adverse events-which may include never events-be reported (PSNet, 2016).

In addition to mandatory state reporting, The Hospital-Acquired Condition (HAC) Reduction Program was established to reduce payments by 1% for hospitals that rank among the lowest-performing quartile with regard to HACs. HACs are defined as a medical condition or complication that affect patients and that arose while the patient was in the care of a hospital or medical facility. This penalty is estimated to save Medicare $350 million annually (Centers for Medicare & Medicaid Services, n.d.).

In 2008, Medicare stopped paying for certain preventable medical errors caused by hospital negligence, saving an estimated $20 million each year (Brooks, 2007). Under the policy, hospitals-instead of Medicare or patients-were made responsible for the cost of additional procedures or extended length of stay associated with the identified errors. This policy, carried out by the largest insurer in the U.S., has proved influential to private insurers, with many taking a low or no tolerance approach to preventable medical events by denying or adjusting reimbursements for claims associated with never events, HACs, or other avoidable errors.

Today, nearly all of the top 25 largest U.S. health insurers by market share and their respective subsidiaries maintain and enforce policies that deny, adjust, or retract provider reimbursement for treatment costs associated with never events, serious reportable events, or HACs. Although such policies and procedures vary, four specifically maintain provisions that require hospitals to refund the associated payments received to insurers and patients as claimed or adjusted. Anthem Blue Cross and Blue Shield requires the hospitals to refund the payment within ten business days of becoming aware of receiving reimbursement.

Insurer Covered Lives and Provider Network Profile
  • 23.1 million medical members
  • Participating provider network includes about 1.15 million health care professionals and 5,667 hospitals
  • 40 million total medical members served by affiliated health plans
  • 74 million total lives served by all affiliated companies
Blue Cross Blue Shield of Massachusetts
  • Serves 2.8 million members
  • Provider network includes 74 hospitals and nearly 50,000 providers (primary care, behavioral health, ancillary)
  • Customers include 6 of 13 Fortune 500 companies headquartered in MA and more than 25,000 businesses across MA
Cambia Health Solutions, Inc.
  • Insures more than two million people in the Pacific Northwest
  • HealthSparq subsidiary brings transparency to 70 million consumers in 50 states

Source: Quantros 2017 Patient Safety Impacts on Provider Reimbursement and Revenue Cycle Report


Retracted or refunded payments can disrupt a hospital’s revenue cycle, an area that may already be presenting challenges to many providers. Efficiency and accuracy is crucial to maintaining a healthy revenue cycle, and having to refund payments adds a roadblock to the already complex process, and could lead to financial instability.

The decision to enact non-payment policies places financial responsibility, and thus patient safety accountability, squarely on the healthcare provider, instead of the payer or patient. As reimbursement challenges move to the forefront, hospitals will need to optimize their revenue cycle systems to improve payments and enable process efficiency (Glaser, 2011).


When medical errors and never events occur, the results can be both severe and devastating with regard to both patient welfare and the hospital’s finances. Despite policies and processes created and enforced to prevent medical errors from occurring, preventable medical errors still trouble the healthcare industry.

A consistent nomenclature with clear definitions across organizations and governing bodies can help in regulating reporting. While the ICD-10 coding system improves upon the prior ICD-9 system, a lack of standardization remains for classification and vocabulary used to reliably assess and measure the frequency and severity of adverse events. Such lack of classification may continue to inhibit the advancement of patient safety policies and implementation consistent with stakeholder concerns for these performance matters. Stricter reporting mandates, hospital protocols and government policies are needed to identify areas for improvement, determine root causes of medical errors and ultimately mitigate the adverse events from occurring. More work needs to be done to align federal, state and private non-reimbursement policies and clarify policy implementation guidelines.


Quantros’ mission and vision is to deliver solutions that dynamically monitor risks, measure financial and clinical performance and enable the quality improvements that make care safer. As a trusted value-based partner, our Software-as a-Service (SaaS) applications help thousands of hospitals, retail pharmacies and some of the nation’s largest health systems to capture actionable intelligence, reduce risks and reinforce their commitment to delivering cost-effective, safety-centered, high quality medical care.