Costs for last inpatient day pale beside upfront costs
Researchers at the University of Michigan, Ann Arbor’s Health System, present a convincing case that hospital length of stay (LOS) has run its course as a cost-reduction target.1
"The incremental costs incurred by patients on their last full day of hospital stay were $420 per day on average, or just 2.4% of the $17,734 mean total cost of stay for all 12,365 patients," they wrote. Even for patients with LOS of four days, the last day accounted for 6.8% of the total cost.
The study used data from the university hospital’s cost-accounting records for surviving patients, a total of 12,365, for fiscal 1998.
Individual patient costs were broken out and further divided into three categories:
1. variable direct costs (nursing, lab work, and X-rays);
2. fixed direct costs (maintenance of the operating room, and nursing units);
3. indirect categories (dietary, housekeeping, and transcription).
For the university’s trauma center, variable direct costs amounted to 42% of the mean total cost per patient of $22,065. The remaining 58% was hospital overhead, including fixed and indirect costs. The median variable direct cost on the first day of admission is $1,246; on the last day, it drops to $304.
"Historically, LOS may have been a relatively simple and useful surrogate for costs," they write. Few hospital accounting systems were sophisticated enough to monitor actual costs. While physicians had little incentive to pursue what were regarded as administrative activities, they could reduce LOS successfully. However, "focusing substantial physician effort on further reductions in hospital LOS will yield little value."
For future cost reductions, physicians can play effective roles in two key areas:
• Collaborate with hospital administrators to make better use of hospital capacity and overhead.
This might entail shifting patient activities to off-peak periods when operating rooms, beds and other facilities have not been used in the past. It could also involve referring new patients to spread the cost of overhead over a larger population.
• Reduce costs in the early stages of hospital care.
"Measures that curtail these costs will have economically important effects," they note.
For their part, hospital administrators can build partnerships with physicians by:
• keeping physicians informed;
• providing incentives to work on process improvements during the early stages of hospital admissions.
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