Using financial penalties to tackle healthcare errors

By Professor Ramon Z Shaban*
Tuesday, 08 May, 2018

Using financial penalties to tackle healthcare errors

With one in nine hospital patients suffering from a hospital-acquired complication, financial penalties are being increasingly used to motivate hospitals to ensure their risk and safety management systems are foolproof.

The safety and quality of health care is a priority driving force for hospitals, healthcare workers, patients and the wider community globally.1 Today Australia — for the most part — enjoys a comprehensive medical system that is centred on universal health care, enabled by a range of free and subsided public enterprises which, together with private enterprises, operate collectively as a complex system.

Such a complex system, however, has many moving parts. How these parts operate individually and collectively directly influences the safety and quality of the health care that the system provides. When they don’t operate correctly or smoothly, or fail altogether, the system gives rise to error and the consequences for individuals can be, and sometimes are, catastrophic.

Understanding HACs

These hospital-acquired complications, known as HACs, are defined by the Australian Commission on Safety and Quality in Healthcare (ACSQH) as a “complication for which clinical risk mitigation strategies may reduce, but not necessarily eliminate, the risk of that complication occurring”2. A recent report by the Grattan Institute suggests that one in every nine hospital patients in Australia suffers a hospital-acquired complication, in the order of 900,000 patients every year.3

The costs of these hospital-associated complications, in human and financial terms, and others are well documented4. Central to contemporary clinical quality frameworks in hospital and other healthcare settings are efforts to prevent these and other forms of HACs.

Reducing the rate of, and ultimately preventing hospital-acquired complications, is a key contemporary mandate for hospitals and health professionals. The ACSQH has established and published a list of 16 hospital-acquired complications following reviews of the literature, clinical engagement and testing of the concept with public and private hospitals.3

Table 1: Identified hospital-acquired complications in Australia3

Hospital-acquired complication


Pressure injury

  • Stage III ulcer
  • Stage IV ulcer
  • Unspecified decubitus ulcer and pressure area

Falls resulting in fracture or intracranial injury

  • Intracranial injury
  • Fractured neck of femur
  • Other fractures

Healthcare-associated infection

  • Urinary tract infection
  • Surgical site infection
  • Pneumonia
  • Blood stream infection
  • Central line and peripheral line associated bloodstream infection
  • Multi-resistant organism
  • Infection associated with prosthetics/implantable devices
  • Gastrointestinal infections

Surgical complications requiring unplanned return to theatre

  • Post-operative haemorrhage/haematoma requiring transfusion and/or return to theatre
  • Surgical wound dehiscence
  • Anastomotic leak
  • Vascular graft failure
  • Other surgical complications requiring unplanned return to theatre

Unplanned intensive care unit admission

  • Unplanned admission to intensive care unit

Respiratory complications

  • Respiratory failure including acute respiratory distress syndrome requiring ventilation
  • Aspiration pneumonia

Venous thromboembolism

  • Pulmonary embolism
  • Deep vein thrombosis

Renal failure

  • Renal failure requiring haemodialysis or continuous veno-venous haemodialysis

Gastrointestinal bleeding

  • Gastrointestinal bleeding

Medication complications

  • Drug related respiratory complications/depression
  • Haemorrhagic disorder due to circulating anticoagulants
  • Hypoglycaemia


  • Delirium

Persistent incontinence

  • Urinary incontinence


  • Malnutrition

Cardiac complications

  • Heart failure and pulmonary oedema
  • Arrhythmias
  • Cardiac arrest
  • Acute coronary syndrome including unstable angina, STEMI and NSTEMI

Third and fourth degree perineal laceration during delivery

  • Third and fourth degree perineal laceration during delivery

Neonatal birth trauma

  • Neonatal birth trauma

As such, hospitals across the country are required to focus their efforts on reducing the rate of, and ultimately preventing, hospital-acquired complications. One way of motivating improvement is to price the cost of hospital-associated complications and to restrict public funding of such complications by imposing a financial penalty on the health system where it occurred. For example, financial penalties for preventable hospital-acquired infections have existed in some jurisdictions in Australia for some time, such as for preventable bloodstream infections.5

Financial penalties

But system-wide efforts to “price-prevent” hospital-acquired complications have arrived. Amendments to the National Health Report Agreement in 2017 signal the introduction of a comprehensive pricing and funding model for hospital-acquired complications6. This was followed by a Ministerial Directive7 to the Independent Hospital Pricing Authority (IHPA)8 to implement the agreed recommendations of the COAG Health Council on pricing for safety and quality to give effect to:

“(i) nil funding for a public hospital episode including a sentinel event which occurs on or after 1 July 2017, applying to all relevant episodes of care (being admitted and other episodes) in hospitals where the services are funded on an activity basis and hospitals where services are block funded; and

(ii) an appropriate reduced funding level for all hospital acquired complications, in accordance with Option 3 of the draft Pricing Framework for Australian Public Hospital Services 2017-18, as existing on 30 November 2016, to reflect the additional cost of a hospital admission with a hospital acquired complication, to be applied across all public hospitals; and

(iii) undertake further public consultation to inform a future pricing and funding approach in relation to avoidable hospital readmissions, based on a set of definitions to be developed by the Australian Commission on Safety and Quality in Health Care.”8

This follows reports of health insurance companies requiring hospitals to provide warranties on surgical procedures and imposing financial penalties on hospitals where patient outcomes result in a hospital-associated complication.9

It is clear is that there are firm efforts to reduce healthcare-associated complications through pricing and financial penalties for such events, and equally firm efforts to make every complication count.2

*Professor Ramon Shaban is the Clinical Chair and Professor of Infection Prevention and Control at the University of Sydney and Western Sydney Local Health District, within the Sydney Nursing School and Marie Bashir Institute for Infectious Diseases and Biosecurity.

  1. Institute of Medicine. To err is human: Building a safer health system. Washington DC: The National Academies Press; 2000.
  2. Australian Commission on Safety and Quality in Health Care. Hospital-aquired complications. 2018 (accessed 05 February 2018).
  3. Duckett S, Jorm C, Danks L, Moran G. All complications should count: Using our data to make hospitals safer. Melbourne, Australia: Grattan Institute, 2018.
  4. Trentino KM, Swain SG, Burrows SA, Spirivulus PC, Daly FS. Measuring the incidence of hospital-acquired complications and their effect on length of stay using Classification of Hospital-acquired Diagnoses (CHADx). Medical Journal of Australia 2013; 199(8): 543-7.
  5. Russo P, MItchell B, Allen C Chang, Hall L. Healthcare-associated infection in Australia: tackling the ‘known unknows’. Australian Health Review 2017.
  6. Council on Federal Financal Relations. Schedule 1 - Addendum to the National Health Reform Agreement: Revised Public Hospitals Arrangements to the Intergovernmental Agreement on Federal Financial Relations. Canberra: Council of Australian Governments; 2017.
  7. Australian Government. Direction to the Independent Hospital Pricing Authority ont he performance of its functioins under section 226 of the National Health Reform Act 2011 - No 2/2016. Canberra: Australian Government; 2016.
  8. Independent Hospital Pricing Authority. Media Release - Ministerial Direction from the Hon. Greg Hunt under section 226(1) of the National Health Reform Act 2011.: Independent Hospital Pricing Authority,; 2017.
  9. Parnell S. No public funding for serious mistakes in hospitals. The Australian. 2017 March 7, 2017.

Top image: A virus infects blood. Credit: ©

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