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Adverse drug events (ADEs) are a serious health problem and are the leading adverse event experienced by hospitalized patients. Numerous hospitals have used different methods to improve the reporting of ADEs but few have undertaken studies aimed at the prevention of ADEs. We found that computerized ADE surveillance identified significantly more ADEs than our previous voluntary reporting method. Moreover, the computerized ADE surveillance system created a database of ADEs which allowed us to analyze the ADEs and design methods for prevention. We found that computer alerts of previously known drug allergies generated when drugs were ordered significantly reduced the number of type B ADEs, 56 vs 8 (p < 0.001). In addition, we found that the timely surveillance of ADEs combined with physician notification reduced the number of severe ADEs, 41 vs 12 (p < 0.001). Initial analysis of the ADE database has shown that on average patients with type B ADEs are hospitalized longer (17 vs 14 days) and have larger hospitalization costs ($30,617 vs $23,256) than patients with type A ADEs. Patients with severe ADEs also are hospitalized longer (20 vs 13 days) and have larger hospitalization costs ($38,007 vs $22,474) than patients with moderate ADEs. This indicates that the prevention and early treatment of ADEs can reduce the length of hospitalization and result in a considerable cost savings to the hospital.