Length of stay and hospital costs

In efforts to contain health care costs, providers have attempted to reduce patients' average length stay in hospital. The assumption has been that reducing length of stays yields large cost savings.

However, a new study based on actual cost data for patients who survived after hospital stays of four days or more finds that cost savings are minimal. Researchers examined cost accounting records for 12,365 patients at the University of Michigan medical centre.

They found:

The incremental costs incurred by patients on their last full day of hospital stay were $420 per day on average, or just 2.4 percent of the $17,734 average total cost.

End-of-stay costs represented only a slightly higher percentage of total costs when the length of stay was as short as four days.

Even for patients who did not have major operations, the $432 average last-day cost was only 3.4 percent of the $12,631 average total cost of care.

An examination of trauma centre costs helps to explain this phenomenon, say the researchers. For the trauma centre, the variable costs – in contrast to hospital overhead costs – accounted for 42 percent of the total cost per patient of $22,067.

The remaining 58 percent was hospital overhead.

The first day of admission cost $1,246 on average, while the cost of discharging a patient averaged $304.

Approximately 40 percent of the costs were incurred during the first 3 days of admission.

Thus the first days of hospital stays consume the most resources, while reducing the length of stay by a full day would only reduce costs by an "economically insignificant" 3 percent. The researchers suggest cost reduction should focus on changing processes to "better use capacity and alter care delivery during the early stages of admission, when resource consumption is most intense."

Source: Paul A. Taheri, David A. Butz and Lazar J. Greenfield, Length of Stay Has Minimal Impact on the Cost of Hospital Admission, Journal of the American College of Surgeons, August 2000.

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