The incidence and cost of adverse events in Victorian hospitals 2003–04

Jonathon P Ehsani, Terri Jackson and Stephen J Duckett
Med J Aust 2006; 184 (11): 551-555. || doi: 10.5694/j.1326-5377.2006.tb00378.x
Published online: 5 June 2006


Objectives: To determine the incidence of adverse events in patients admitted in the year 2003–04 to selected Victorian hospitals; to identify the main hospital-acquired diagnoses; and to estimate the cost of these complications to the Victorian and Australian health system.

Design: The patient-level costing dataset for major Victorian public hospitals, 1 July 2003 – 30 June 2004, was analysed for adverse events by identifying C-prefixed diagnosis codes denoting complications, preventable or otherwise, arising during the course of hospital treatment. The in-hospital cost of adverse events was estimated using linear regression modelling, adjusting for age and comorbidity.

Main outcome measures: Cost of each patient admission (“admitted episode”), length of stay and mortality.

Results: During the designated timeframe, 979 834 admitted episodes were in the sample, of which 67 435 (6.88%) had at least one adverse event. Patients with adverse events stayed about 10 days longer and had over seven times the risk of in-hospital death than those without complications. After adjusting for age and comorbidity, the presence of an adverse event adds $6826 to the cost of each admitted episode. The total cost of adverse events in this dataset in 2003–04 was $460.311 million, representing 15.7% of the total expenditure on direct hospital costs, or an additional 18.6% of the total inpatient hospital budget.

Conclusion: Adverse events are associated with significant costs. Administrative datasets are a cost-effective source of information that can be used for a range of clinical governance activities to prevent adverse events.

Patient safety and quality are now clearly on the health policy agenda, with high profile problems in several Australian states1-3 receiving regular commentary in medical journals.4-6 Added to the real personal costs of adverse events are the financial costs, and a business case can be made to invest in new systems to prevent or at least reduce the number of these events. Here, we identify the incremental costs of adverse events in 2003–04 for a sample of Victorian hospitals.

Previous Australian studies have estimated that direct hospital costs of adverse events in Australia range between $483 million7 and $900 million per annum.8 International rates for adverse events (variously defined) range between 3.7% and 45.8% of all admissions,9 with the Australian rate found to be 16%.8 It is estimated that half of these adverse events are preventable.7

Methods for estimating in-hospital costs of adverse events have several limitations.10 Previous cost estimates based on additional length of stay8 do not account for the resource intensity needed to treat complications, nor do they adjust for the age or level of comorbidity of the patient group. Hence, there is a need to refine the basis for estimating in-hospital costs of adverse events so that it reflects resource use more closely.

In Australian hospitals, diagnoses and procedures for all separations (patients who were discharged, transferred, or died in hospital) are coded according to the International classification of diseases, 10th revision, Australian modification (ICD-10-AM).11

The ICD has a range of codes that by definition imply an adverse event:

In Victoria, the coding guidelines also require a prefix to the ICD-10-AM diagnosis code to indicate whether the diagnosis was present on admission to hospital or arose during the course of hospital treatment (the latter being designated by a C prefix). The C prefix can apply to any diagnosis (eg, pneumonia), not only those described above that imply an adverse event. It may only be assigned when the acquired diagnosis necessitated further treatment or extended the patient’s length of stay. This closely parallels the National Council on Safety and Quality in Health Care’s definition of an adverse event as “an incident in which unintended harm resulted to a person receiving health care”.12

The purpose of our study was to explore the incidence of adverse events in patients admitted in the financial year 2003–04 to selected Victorian hospitals, to identify the main hospital-acquired diagnoses, and to estimate the in-hospital cost of these complications to the wider health system.

Data source

We used the patient-level costing dataset that the Victorian Department of Human Services uses to set hospital payment relativities for casemix funding.13 Costs are estimated using computerised clinical costing systems that identify the costs of hospital care for individual patients.14 The 45 hospitals contributing to the dataset are the larger Victorian hospitals, accounting for 86.4% of weighted inpatient activity (ie, weighted according to complexity) for the period 1 July 2003 – 30 June 2004.

For the purpose of descriptive analysis, the sample was stratified into single-day (length of stay ≤ 1 day) and multiday (length of stay > 1 day) patient admissions. As the diagnosis-related group (DRG) system allocates some patients to particular DRGs based on whether or not the patient was mechanically ventilated, such patients were reassigned to the appropriate DRG, disregarding mechanical ventilation. As DRG assignment may be influenced by adverse event diagnoses, adjacent DRGs (those with subcategories for complications and comorbidities) were collapsed into a single “adjacent DRG” (adjDRG) to reveal the relationships between complexity of care, complications and resource use.

The coded clinical data for Victoria have been used previously in patient safety research to analyse the epidemiology of hospital-acquired sepsis15 and to predict in-hospital morbidity.16 Studies of the coding quality of the dataset report high degrees of accuracy of core data elements.17-20

Identifying adverse events

Based on a method developed in a previous study,21 adverse events were identified using the C prefix to the ICD-10-AM diagnosis code. Patients can have multiple adverse events; identification of the leading adverse event was undertaken using the hierarchy of codes described in the Introduction. Thus, when a case was found to have a T code, it was flagged with a T marker variable and excluded from further allocation; remaining cases containing “end of chapter” codes were then identified, flagged and excluded from further allocation; then remaining cases with the listed Y codes were flagged and likewise excluded from further allocation. All remaining complication types were identified by selecting the ICD-10-AM code corresponding to the first appearing C prefix. Individual diagnoses were then grouped on the basis of their ICD-10-AM code to characterise the most frequently recorded code groups in the sample.

Costs of adverse events

AdjDRGs from the dataset were analysed for the difference in cost between cases with and without complications. The cost of adverse events was calculated by two methods. First, the mean cost was calculated for cases with and without a recorded adverse event for each adjDRG. Second, an analysis of the combined effect of age, comorbidity and the presence of an adverse event on the cost of an episode of care was calculated using coefficients from a linear regression model, with the total cost of the admitted episode as the dependent variable. The length of stay variable was excluded from the model, as it is both a predictor and outcome of an adverse event.

The 10 adjDRGs contributing the greatest dollar value attributable to adverse events were identified by establishing the mean difference between episodes with and without adverse events, and multiplying by the number of cases in each group. The incremental cost of adverse events in these individual adjDRGs was also estimated using linear regression, adjusting for age and pre-existing comorbidity, with the total cost of the episode as the dependent variable.

The adjustment for presence and severity of pre-existing comorbidities was calculated using the ICD-10-CM mapping of the Charlson index22 by Sundararajan et al,16 a validated and widely accepted measure of comorbidity.23,24 C-prefixed diagnosis codes were excluded from this analysis to ensure that the Charlson index adjusted for comorbidities present on admission and not complications arising during the episode of care.


Adverse events are associated with higher costs, longer length of stay and higher mortality rates. The incremental cost of adverse events represents 15.7% of the total in-hospital cost in the sample. The costing dataset sample used here includes 86.4% of Victoria’s weighted inpatient activity and 90% of the direct hospital expenditure in Victoria. Assuming other Victorian hospitals have the same adverse events profile, the cost of adverse events for Victorian weighted inpatient activity would be about $511.457 million per annum. As Victoria represents about 25% of national hospital expenditure, the financial toll of adverse events for Australian inpatients is estimated at about $2 billion per annum. Of course, not all this money can be saved. One of the limitations of administrative datasets is the inability to distinguish preventable from non-preventable adverse events; however, previous studies have estimated that 40%–50% of adverse events are preventable.8,25 Even considering the costs of systematic efforts to prevent these events, savings to the health system could be enormous.

Regression analysis has been previously used in estimating the cost of adverse drug events,26 and the method used in our study represents an advance in the estimation of in-hospital costs, as adjustment for confounding variables is possible. However, this approach underestimates costs associated with adverse events, as it is limited to events and costs identified during the episode of care and not any flow-on costs once the patient is discharged. This is of particular relevance to the two-thirds of the sample that had a 1 day or less length of stay. Adverse events in these cases would generally not become apparent until after discharge and may be treated in the community or occasion a second episode of hospital care — costs which have not been captured here.

The total costs of adverse events are a function of the incremental cost of adverse events in each adjDRG, the number of admitted patients in the adjDRG, and the rate of adverse events in the adjDRG. Thus, the greatest contributors to the cost of adverse events in the health system are not necessarily the most costly episodes of care, but include high-volume episodes of care, such as hip surgery, where the cost is marginally increased due to complications.

We have identified the significant cost to the Australian health care system associated with adverse events, and we have shown how administrative datasets can be used to identify the incidence of adverse events. These data can assist in a wide range of clinical activities to reduce rates of such events, as an alternative to investigating individual cases. We believe that judgements as to the preventability (or otherwise) of particular events are better made at the local level. Abstracted data cannot reflect nuanced judgements beyond those currently made by Victorian coders: recording the fact of harm (as documented in the medical record) and the timing of that harm (ie, before admission, or during the current episode). Analysis of administrative data is less costly and more timely than purposive record review, and is likely to improve on the sensitivity of voluntary incident reporting. The use of cost data is particularly useful in setting priorities for remedial action and in making the “business case” for programs designed to reduce the rates of adverse events.

3 Incremental costs and characteristics of adverse events in Victoria (2003–04). Selected statistics: 10 adjacent diagnosis-related groups (adjDRGs) contributing the greatest dollar value attributable to adverse events, and data for total admitted episodes

Adjacent DRGs

Number (incidence of adverse events)

Associated mortality rate

Mean length of stay in days (95% CI)

Mean cost ($) without adverse events (95% CI)

Mean cost ($) with adverse events (95% CI)

Adjusted incremental cost ($)*


Estimated cost ($) attributable to adverse events in sample

B02 Craniotomy

2 206



12 358

28 387

16 664


20 130 112



(11 790–12 926)

(26 726–30 049)

G02 Major small and large bowel procedures

2 347



10 707 

23 112

11 858


17 134 810



(10 033–11 382)

(21 663–24 561)

901 Extensive O.R. procedure unrelated to principal diagnosis

1 360



7 523

28 054

19 952


10 734 176



(6 921–8 125)

(24 791–31 318)

T01 O.R. procedures for infectious and parasitic diseases




10 598

38 506

27 219


9 200 022



(9 486–11 710)

(33 554–43 458)

F08 Major reconstruct vascular procedures

1 174



11 609

24 775

12 745


9 036 205



(10 947–12 270)

(23 066–26 483)

I08 Other hip and femur procedures

2 927



9 321 

15 991 

6 440


8 706 880



(9 046–9 595)

(15 308–16 674)

B60 Established paraplegia/quadriplegia




8 482

38 878

30 572


8 621 304



(6 404–10 560)

(31 586–46 170)

F06 Coronary bypass w/o invasive cardiac investigations

1 560



17 157

23 051

5 533


7 663 205



(16 483–17 831)

(22 271–23 831)

I03 Hip revision/hip replacement

2 936



13 119

17 843

4 863


7 420 938



(12 838–13 400)

(17 281–18 405)

F04 Cardiac valve procedures with CPB pump




23 483

34 676

11 224


6 812 968



(21 954–25 012)

(32 576–36 777)

Model/Total for top 10 adjDRGs

17 056



10 957

24 084

12 532


105 460 620



(10 703–11 211)

(23 544–24 624)

Total admitted episodes

979 834



2 181 

14 027

6 826


460 311 310



(2 171–2 190)

(13 865–14 187)

* P < 0.005; † Adjusted for age and comorbidity (calculated using the modified Charlson index). O.R. = operating room; w/o = without; CPB = cardiopulmonary bypass.

Received 9 December 2005, accepted 15 March 2006

  • Jonathon P Ehsani1,2
  • Terri Jackson2
  • Stephen J Duckett2

  • 1 Department of Human Services, Melbourne, VIC.
  • 2 School of Public Health, La Trobe University, Bundoora, VIC.


We would like to acknowledge the assistance of Peter McNair, Steve Gillett, Daniel Borovnicar and Jane Fewings from the Department of Human Services who provided ongoing support with the Victorian Costing Dataset, and Associate Professor Damien Jolley for his advice on approaches to data analysis.

Competing interests:

None identified.

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