SECTION 2: MEASUREMENT Measuring the Cost of Neonatal and Perinatal Care

This article provides an overview of neonatal intensive care unit (NICU) treatment costs. It discusses data sources as well as the methods for measuring costs, contrasting the strengths and weaknesses of alternate approaches. In addition, detailed information on NICU treatment costs is presented from a nationally representative sample of 25 hospitals with NICUs. The sample consists of 3288 very low birth weight infants (<1500 g at birth) with admission dates between January 1, 1993, and September 30, 1994. Information on median treatment cost per infant, ancillary costs, accommodation costs, length of stay, and cost per day are presented. In addition, ancillary costs are disaggregated further into those for respiratory therapy, laboratory, radiology, pharmacy, and all other ancillary services. Pediatrics 1999;103: 329–335; NICU cost, VLBW cost. ABBREVIATIONS. NICU, neonatal intensive care unit; VLBW, very low birth weight; HCFA, Health Care Financing Administration; AHA, American Hospital Association. Athough advances in neonatal technology in the past decades have improved survival prospects significantly for infants born prematurely, these have come at a high cost. Neonatal intensive care stays are among the most expensive types of hospitalizations.1 Quality improvement efforts will affect treatment costs because they will alter, in some way, the resources used in patient care. Because of the high cost associated with each day spent in the neonatal intensive care unit (NICU), quality improvement efforts that result in better patient outcomes and reduce the time spent in the NICU can potentially produce significant cost savings. However, treatment costs also may rise, because not all quality improvement efforts will necessarily reduce the resources used in patient care. In this article, we first discuss how NICU treatment costs are measured. We then turn to a discussion of how treatment costs can be compared across institutions and, finally, present recent evidence of what is known about the costs of neonatal intensive care based on data obtained from the Cost and Resource Utilization project in the Vermont Oxford Network. MEASURING COSTS Treatment costs often are measured by charges in the literature. Yet, charges for hospital stays are not accurate measures of cost, because they confound the actual costs of treatment with the pricing policies of hospitals. This is particularly problematic for comparisons across hospitals, for which pricing policies can vary widely. In a study of very low birth weight (VLBW) infants in the California Medicaid population, Rogowski and Harrison2 found that the average charge for the initial hospitalization overestimated treatment costs by 53%. However, even for comparisons of patients within a given hospital, the total charge for a patient’s care is not an accurate measure of the cost of treatment. This is because the same mark-up is not applied to all services provided by a hospital. In fact, wide variation often exits in the mark-up rates for individual services within hospitals. As an example, different mark-ups are likely to be applied to respiratory care supplies than to antibiotics. The total charge for a given patient reflects the composition of services used in treatment and the size of the mark-ups applied to those services. Thus, the total charge represents a different mark-up over costs for each patient, depending on the types and amounts of services used in their treatment. To measure treatment costs, therefore, it is necessary to disentangle the pricing policies of hospitals from data on charges. Figure 1 delineates the creation of hospital cost measures from data on hospital charges. These follow methods established in the literature.3,4 The basis for all measurements of hospital costs is data on hospital charges. Data on hospital charges can be obtained from several sources, including detailed bills, UB-92 forms, and state-mandated hospital charge abstracts. Each of these data sources varies in the level of detail on charges provided. The most detailed data are line-item bills. These list each service provided during the patient’s stay with the associated charge. Such data, for a typical neonatal intensive care stay, are voluminous. For a typical hospital, there may be 10 000 charge codes used to create detailed patient bills. Alternately, more aggregated data exist on UB-92 forms. The UB-92 form is the standard Medicare bill and contains information on charges that is more aggregated than a detailed bill. Although few neonatal intensive care stays are billed to Medicare, most hospitals generate these forms for other types of patients as well, and this From RAND, Washington, DC. Received for publication Sep 9, 1998; accepted Sep 9, 1998. Address correspondence to Dr. Rogowski, RAND, 1333 H St, NW, Suite 800, Washington, DC 20005. PEDIATRICS (ISSN 0031 4005). Copyright © 1999 by the American Acad-