The Grattan Institute says Australia could save $1.5 billion a year if every hospital matched the performance of the best 10 percent on safety.
According to its new report, Safer care saves money, one-in-nine patients who go into hospital in Australia suffers a complication.
The report finds these complications cost public hospitals more than $4 billion a year and private hospitals more than $1 billion a year.
"If all hospitals in Australia lifted their safety performance to match the best 10 per cent of hospitals, an extra 250,000 patients would go home complication-free each year and the health system would save about $1.5 billion every year, freeing up beds and resources so another 300,000 patients could be treated," said the Grattan Institute.
It said its analysis of Australia’s 20 biggest public hospitals shows the cost of complications to the hospital was larger than the extra funding. On average, a complication cost the hospital more than three times the extra revenue it received.
It argues better information and accreditation systems that encourage useful improvements will be more effective than financial incentives for reducing complications.
It also says complication rates and accreditation outcomes should be public.
"Private health insurers also benefit from lower complication rates: their costs and future premiums fall," it says. "Insurers should increase pressure on hospitals to improve their safety performance, through contract negotiations and by making information on complication rates available to their members, either directly or through GPs."