An estimated 135,000 of all patients in Victoria's public hospitals were exposed to medical mistakes last financial year, an auditor-general's report says.
The exact scale of the problem was unknown because there was no state register of medical mistakes, the report, tabled in state parliament on Wednesday, said.
However, in the last financial year 97 serious "sentinel events", including deaths, were reported.
Examples include deaths from medication mistakes and cases where the wrong person or body part was operated on or surgical instruments were left inside the patient.
Less serious incidents include patient falls and equipment failures.
The report estimates medical mistakes cost the Victorian health system $511 million a year.
And in half of all cases they are preventable.
Auditor-General Des Pearson criticised the state government for not acting on an earlier audit and introducing a state register to monitor patient safety in hospitals.
Victoria is the only state in Australia that does not have a system to register medical mistakes.
The government says a system is being developed but will not be complete until 2010.
Victorian Premier John Brumby defended the poor hospitals report card on Wednesday, saying improvements had been made across most areas of patient safety.
He said the rate of so-called "super bug" infections, deaths and ulcers had significantly reduced.
"So in all of these key indicators, the advice I've got is that there have been significant improvements in the operation of our hospital system," he said.
"That is not to say there aren't issues. We welcome the auditor-general's report and we will be implementing his recommendations."
A spokesman for Victorian Health Minister Daniel Andrews said an incident information system would be rolled out across Victoria's 86 health services later this year but would not be completed until 2010.
The system is estimated to cost $12.5 million and will be run through the Department of Human Services, spokesman Jason Frenkel said.
Opposition Leader Ted Baillieu said the government should not dither on the issue when patients were at risk.
"If one in 10 patients are suffering harm, then the need is urgent and if every other state has got that system, then we should have one as well," he said.
Australian Medical Association (AMA) Victoria president Dr Doug Travis said the only way the medical profession could learn from its mistakes was by collecting and analysing incident data.
"That's the cornerstone of safety management, you've got to have the pathways in place to learn," he said.
