This third annual report on the safety of hospitalized Medicare patients builds on past efforts to evaluate hospital performance. The report uses the Agency for Healthcare Research and Quality's Patient Safety Indicators to provide benchmarks for such performance, identify current trends in safety issues, and estimate preventable events nationally. The report suggests that the patient safety incidents captured account for more than $9 billion in excess cost during 2002-2004, and more than 250,000 potentially preventable deaths occurred during the same time period. Grading for all states and a selected group of highly rated hospitals is included with the implication that, if all hospitals performed at a level comparable to the ones acknowledged, more than 44,000 Medicare deaths could be avoided with a costs savings of $2.45 million. As with the second annual report, several methodological limitations exist, and the reports themselves did not receive external peer review.