Starting in 2008, Medicare would not cover the cost of a surgeon leaving an instrument in a patient, giving a patient transfusions of the wrong blood type, certain types of hospital-acquired infections, or other “preventable” mistakes (Liz Marlantes,

“Medicare Won’t Cover Hospital Mistakes: New Rules Aimed at Promoting Better Hospital Care and Safety,” ABC News, August 19, 2007). Hospitals will have to cover these costs and cannot bill the patient. These changes are designed to provide hospitals with a stronger incentive to prevent those mistakes, particularly infections. The Centers for Disease Control and Prevention estimates that 2 million patients are annually infected in hospitals, costing society more than $27 billion. Nearly 100,000 of those infections are fatal. Many of these infections could be prevented if hospitals more rigorously follow basic infection control procedures, including having doctors and nurses wash their hands between every patient treatment. Is Medicare’s policy designed to deal with adverse selection or moral hazard? Is it likely to help? Explain.