Gov. Tim Pawlenty announced the new billing policy Tuesday during a speech in Washington.
The Minnesota Hospital Association has been at the head of efforts to reduce medical errors.
The group's executive director Bruce Reuben says members of his organization willingly worked to pass legislation several years ago requiring them to report their error rates to state health officials.
Rueben says the new billing agreement is just the next step in their quest to improve patient safety.
"We have been working on this for a while, so it makes sense that we would be the first ones to come out with a policy of not billing for the care made necessary by and adverse event," Reuben says.
Rueben says Minnesota hospitals agree that the new billing policy is the right approach, even though it could be expensive at times for hospitals to absorb the cost of preventable errors.
"This is not about cost. It's not about money. It's about making sure that the culture of safety is extended all the way through the patient's experience, including the billing part," says Reuben.
The agreement only applies to 27 types of mistakes referred to as "adverse health events." They include preventable bed sores, falls, medication errors and wrong site surgery.
Last year there were 154 medical errors reported by Minnesota hospitals.