Hospital medical errors that result in patient harm and death are largely identified as system failures. Most hospitals lack the tools to effectively identify most system errors. Traditional methods used in many hospitals, such as incident reporting (IR), departmental morbidity and mortality conferences, and root cause analysis committees, are often flawed by under reporting. We introduced the Code S designation into our hospital's ongoing physician peer review process as an additional and innovative way to identify system errors that contributed to adverse clinical outcomes. The authors conducted a retrospective review of all peer review cases from January 2008 to December 2011 and determined the quantity and type of system errors that occurred. System errors were categorized based on a modified 5M model which was adapted to reflect system errors encountered in healthcare. The Code S designation discovered 204 system errors that otherwise may not have previously been identified. The addition of the Code S designation to the peer review process can be readily adopted by other healthcare organizations as another tool to help identify, quantify and categorize system errors, and promote hospital-wide process improvements to decrease errors and improve patient safety.