Objective. Very low birth weight (VLBW)infants (those with birth weights <1500 g) account for only 1.2% of births but 46% of infant deaths. Large improvements in neonatal technology in the last 2 decades have significantly improved survival prospects for infants with low birth weights, but at a high cost. Due largely to a lack of data, the costs of medical care during the period in which infant mortality is measured (the first year of life), as well as the cost-effectiveness of that care for VLBW infants, have not been quantified. Despite this fact, public policies both toward providing insurance coverage for their care, as well as denying payment for their treatment, have either been proposed or implemented on cost-effectiveness grounds.
Patients. The study includes all VLBW single live births in the state of California during 1986 and 1987 that were continuously eligible (through traditional channels) for the state's Medicaid program.
Main Outcome Measures. Treatment costs were measured for all medical care received during the first year of life, including all inpatient and outpatient care received. The cost-effectiveness of care is measured by aggregate treatment costs for all singleton VLBW liveborns divided by the number of first-year survivors.
Results. Average treatment costs per first-year survivor for infants <1500 g was $93 800 (in 1987 constant dollars). Treatment costs per survivor were twice as high for infants <750 g ($273 900) as for the next highest birth weight group 750 to 999 g ($138 800) which was itself almost twice as high as for the 1000 to 1249 g group ($75 100). The gradient in cost-effectiveness with birth weight then drops off to $58 000 per survivor for infants with birth weights between 1250 and 1499 g.
Conclusion. Public policies aimed at improving birth outcomes by providing insurance coverage for pregnant women and children, such as the recent Medicaid expansions, can potentially be very cost-effective. Although maternal interventions such as prenatal care are relatively inexpensive, each normal birth that results instead in a VLBW birth saves $59 700 in first year medical expenses. However, cost savings attributable to increased birth weights depend on where in the birth weight distribution the increase occurs as well as the size of the birth weight increase. For infants with birth weights >750 g, significant gains can accrue from even a small shift in the birth weight distribution. A shift of 250 g at birth saves an average of $12 000 to $16 000 in first year medical costs and a shift of 500 g generates $28 000 in savings. However, there is a threshold effect on birth weight. For infants <750 g, increases in birth weight may increase medical expenditures. For instance, a shift in birth weight to the 750 to 999 g range increases costs by $29 000.
- VLBW =
- very low birth weight •
- CPI =
- consumer price index
Very low birth weight (VLBW) infants (those with birth weights <1500 g) are a high-risk patient population. Although they account for only 1.2% of births, these infants account for 46% of infant deaths.1 Large improvements in neonatal technology in the last 2 decades have significantly improved survival prospects for infants with low birth weights, but at a high cost. Neonatal intensive care stays are among the most expensive types of hospitalizations.2 Despite the great expense associated with the care of these infants, treatment costs, particularly during the period in which infant mortality is defined (the first year of life), have been poorly quantified. This study proposes to fill this knowledge gap, providing estimates of treatment costs and the utilization of medical services, both inpatient and outpatient, during the first year of life. It will also be the first to provide information on the cost-effectiveness of medical care during the first year of life for these infants.
Information on treatment costs for VLBW infants is useful given the policy trend toward increasing public insurance for mothers and children through expansions to the Medicaid program. One goal of such programs is to decrease the infant mortality rate in the United States, which is high, particularly compared with other industrialized countries. For instance, prenatal care costs are relatively modest, and each premature birth avoided can potentially save large sums of money. Yet, the cost-effectiveness of interventions such as prenatal care has been difficult to establish because the costs associated with premature births are extremely difficult to quantify.
Further, both private and public insurers are increasingly using cost-effectiveness criteria in evaluating medical treatments, particularly new technologies. For instance, the state of Oregon pays for the medical care of all of its low income residents based on a cost-effectiveness ranking. The relation between medical costs expended during the first year for VLBW infants and the number of survivors produced is unknown. Despite this fact, the state of Oregon placed the treatment of infants <500 g of birth weight at the bottom of the cost-effectiveness ranking, which would have effectively denied treatment for these children. Legal challenges, however, based largely on the Americans with Disabilities Act, prevented care from being denied.
The lack of information on treatment costs for VLBW infants is largely attributable to the difficulties in studying the patient population, because VLBW births are rare events. Many studies to date have been based on care provided to VLBW infants during their initial hospitalization at a small number of hospitals and are thus of limited generalizability.2-6 More recently, studies of the diagnosis-related group payment system for newborns have provided cost estimates for the initial hospitalization based on discharges from somewhat larger numbers of hospitals.5 7-10
Although some information exists on the costs of the initial hospitalization for these infants, virtually nothing is known about treatment costs during the remainder of the first year of life, the critical period during which infant mortality is measured. Difficulties associated with tracking infants after discharge from the initial hospitalization compound the already existing problems of small sample sizes for the study of VLBW. Some information does exist, however, on medical care utilization during the first year of life. A study by McCormick11 followed 259 VLBW infants born in eight geographically diverse regions in the United States. For these infants, the rehospitalization rate was found to be 38.2%. Another study by McCormick12 provides some of the only evidence of outpatient service use after discharge from the initial hospitalization for these infants. Sixteen first year survivors whose initial hospitalization was at the Children's Hospital of Philadelphia (in 1983 and 1984) were followed for 1 year. The average number of physician visits for these infants was 18.5 with an average charge per visit of $30.
This study is based on a unique data set that provides detailed information on the use of medical services and treatment costs during the first year of life for a large number of VLBW infants. The data set comprises all VLBW single live births born in the state of California during a 2-year time period (1986 to 1987) who were continuously eligible for Medicaid through traditional channels (categorical eligibility). During the time period of this study, 39% of all VLBW single live births were covered by Medicaid in the state of California. Because the study is based on a population continuously eligible for health insurance, the entire claims histories for these infants are observed during the first year of life, so that accurate measures of resource utilization and costs can be obtained. Further, linkages to Vital Statistics data for California provides important information on which infants survived to the end of their first year of life. This is the largest and most comprehensive study to date of treatment costs during the first year of life for VLBW infants.
Claims data were obtained for all birth hospitalizations covered by Medicaid in the state of California for the years 1986 to 1987.
Because Santa Barbara and Monterey counties had their own county-wide managed-care systems during the study period, no claims from those areas were available for matching. In addition, the small number of mothers dually eligible for Medicare and Medicaid were excluded because the claims for their infants contain only the Medicaid portion and are thus incomplete.
Only live births with birth weights >400 g were retained. The data linkage is described in detail in Bell et al.13 The study sample was further reduced to include only single births. Because infants in a multiple birth often share a Medicaid identification number at birth, it is not always possible to disentangle the resources used by each infant, thus they were excluded from the study.
Because it was necessary to observe all medical claims, the sample was further restricted to include only categorically eligible children with continuous eligibility for Medicaid. During the time period of the study, children could either become eligible for Medicaid through traditional channels (the categorically-eligible program) or, for those with unusually high medical expenses, the medically needy program. Under the California Medicaid rules, infants who were medically needy had to spend-down to eligibility each month to qualify. Therefore, all claims were not necessarily observed and they were not included in the study. Among single live VLBW births in the California Medicaid program during the time period of this study, 55% were categorically needy and 45% medically needy at birth. Some infants also lost eligibility for the program during the first year of life. For those that were categorically eligible and survived to the end of their first year, 20% had lost eligibility at some time during the year and were also excluded from the study. Finally, a small number of infants were excluded because of the poor quality of data in their claims histories. The resulting sample size was 887 infants. The final sample for the study contains 71% of all continuously categorically eligible and 59% of all categorically eligible VLBW single live births in the California Medicaid program. Once the set of infants for the study was identified, the entire claims histories for the first year of life were obtained. This includes all inpatient and outpatient care received. Because of the large size of the underlying claims files, however, it was not possible to extract information on outpatient prescription drug use.
Table 1 shows the characteristics of the study sample contrasting it to the population of all VLBW single live births in the California Medicaid program and in the state as a whole. All infant characteristics other than discharge status from the initial hospitalization are derived from Vital Statistics data; discharge status is derived from the Medicaid claims. One-quarter of the study sample has birth weights <750 g, with an additional 22% having weights between 750 and 1000 g. The study sample does not have a significantly different birth weight distribution from either the Medicaid or California populations (χ2(3) = 4.95,P = .18; χ2(3) = 4.03, P= .26). Similarly, it does not differ significantly in the distribution of sex or the presence of congenital anomalies (χ2(1) = 0.79, P = .37; χ2(1) = 0.12,P = .72). The study sample, however, does differ significantly from both the Medicaid and California populations in the distribution of gestational age and race (χ2(4) = 10.6,P = .03; χ2(4) = 337.2, P= .001). Thirty percent of the infants in the sample have gestational ages under 27 weeks. The sample is one-half black, with an additional 20% of infants being white and Hispanic, respectively. In contrast, only 31% of the Medicaid population is black with 38% being Hispanic and 23% being white. In the state of California, only 26% of VLBW single live births were black with 31% being Hispanic and 34% being white.
Mortality rates are high in the study sample, with only two-thirds of infants being discharged alive from the initial hospitalization. Thirty-seven percent of infants in the study sample die within the first year of life; 32% within the first 28 days, with an additional 5% dying during the remainder of the first year. This compares to a 35% death rate during the first year in the California population (with 31% dying in the first 28 days and 4% dying during the remainder of the first year). The Medicaid population, however, has better survival prospects, with only 29% of infants dying during the first year (24% in the first 28 days and 5% in the remainder of the first year). The study sample does not differ significantly from the California population in the distribution of mortality (χ2(2)= 1.03, P = .60). In interpreting this finding, it is important to note that the study sample, by virtue of being categorically eligible for Medicaid, receives both health insurance and income supports. Thus, this is not the most socially disadvantaged maternal population in the state. The study population does, however, differ significantly from the California Medicaid population in the distribution of mortality (χ2(2) = 34.67, P = .001) primarily attributable to significantly higher 28-day mortality rates (χ2(1) = 34.25, P = .001). In interpreting this finding it is important to note that the study population is disproportionately black, a patient population with higher mortality rates.
Measures of Cost and Utilization
The entire claims histories for the first year of life were obtained for the infants in the study sample. This included information on the initial hospitalization, rehospitalization episodes, and all outpatient care received. Data on outpatient prescription drug use, however, was not available. Measures of utilization and treatment costs were created for all types of care received.
For inpatient hospitalizations, episodes of care were defined to contain all transfer hospitalizations. Because VLBW infants must be treated in neonatal intensive care units after birth, they are often transferred after delivery. In addition, transfers may occur to higher-level neonatal units for specialized care, and to lower level units for step-down care during the course of the hospitalization episode. In the initial hospitalization, one-third of infants were transferred at some point during the stay. For rehospitalization episodes, only 3% were transferred. The Medicaid data are unique in that they contain the entire claims history for the infants, thus permitting transfers across institutions to be tracked. We defined a transfer as a readmission to another institution within 24 hours of discharge. This approach is quite different from that taken in prior studies in which data from only one treating hospital were used to measure treatment costs. The high transfer rates makes these estimates more comprehensive and accurate than those based on care at any single hospital. (For rehospitalizations, all hospitalizations with an admission date before the first birthday of the child were included as first year rehospitalization episodes.)
Measures of treatment costs for inpatient care were created from information on charges on the Medicaid bills. Charges for inpatient hospital care are not accurate measures of treatment costs because of the manner in which hospitals price their services. Charges reflect a markup greater than costs. However, the same markup is not applied to all services. Thus, it is necessary to apply methodologies that convert individual charges on the patient bill to costs. The methodology we use is a standard method used to calculate hospital costs from charge data.14 15 Information on charges was converted to costs using departmental-level cost-to-charge ratios contained in cost reports filed with the California Office of Statewide Health Planning and Development. Hospital costs were adjusted to constant 1987 dollars using the California weighted hospital input price index.16(This index is defined quarterly and measures the rate of price increase in a fixed market basket of inputs used by hospitals in the production of patient care. For hospital services, it is a more accurate price adjustor than the medical component of the CPI, which was used to adjust outpatient claims.)
Because the California Medicaid claims often combine costs for the delivery as well as infant care, it is not possible in the initial hospitalization to separate out the labor and delivery costs, thus these are included in the measures. (For claims in which such costs were separable, the average labor and delivery cost was $870. In a small number of cases some maternal costs may also be included. Measures for inpatient days include only days for the infant, however. Similarly, rehospitalization episodes include only data for infant care.) Further, physician costs associated with the inpatient stay were also included in the episode, so that the costs reflect both the institutional and professional components of care. In both the initial hospitalization and rehospitalization episodes professional fees accounted for 17% of total episode costs. Physician claims were converted to 1987 constant dollars using the medical component of the CPI as defined by the Bureau of Labor Statistics.17
Outpatient care includes all care provided in settings other than inpatient. These include the following types of medical service: physician services, other practitioner services, freestanding ambulatory clinics, outpatient department, home health, laboratory, and other. Freestanding ambulatory clinics include such providers as local health departments, community health centers and clinic practices. These categories combined reflect all types of services on the outpatient claims for the VLBW infants in the study sample. For these services, costs are measured by charges as no methodology exists for converting charge data into data on costs. Charges were converted to 1987 constant dollars using the medical component of the CPI.
Ambulatory visits include all visits to or by physicians or other medical providers (such as home health care workers) during periods when the infant is not in the inpatient hospital setting. These are classified according to the setting in which the visit occurred: physician office, freestanding ambulatory clinics, home, or hospital based.
All measures of costs and charges reported are in 1987 constant dollars. To convert these to 1996 constant dollars, an inflation factor of 62% (based on the medical component of the CPI) would have to be applied.
Use of Medical Services During the First Year of Life
The initial hospitalization for infants with birth weights <1500 g averaged $53 600 in 1987 constant dollars, with an average length of stay of 42 days. As shown in Table 2, the largest differences in cost are related to the survival status of the infant. Infants who die in the initial hospitalization have average costs of $22 500, with an average length of stay of 11 days. Among in-hospital deaths, however, costs and lengths of stay differ by the time of death. Of the 296 infants that died during the initial hospitalization, 205 (69%) died within 1 day of birth. For these infants, average treatment costs were $6300 with an average length of stay of 2 days. For infants who died in the remainder of the initial hospitalization, average treatment costs were $58 800 with a length of stay of 30.4 days.
Infants who survive the initial hospitalization have average costs of $69 200, with an average length of stay of 57.1 days. Initial hospitalization costs, however, are related to the timing of death. Infants who survive to the end of their first year average $68 900 in the initial hospitalization. Those who survive the initial hospitalization but die during the remainder of the first year have initial hospitalization costs averaging $75 700, reflecting their increased illness severity. The cost of the initial hospitalization also varies by birth weight, from an average of $58 900 for infants born with weights <1000 g, to $44 100 for infants with birth weights between 1250 and 1499 g. Lengths of stay are 48 days for infants with birth weights in the 1000 to 1250 g range compared with 40 days for the other birth weight groups.
Among extremely low birth weight infants (<1000 g), 61% (247 infants) died in the initial hospitalization, with an average cost of $20 200 and average length of stay of 9.9 days. Those that died within 1 day of birth (178 infants) had initial hospitalization costs of $6300 (2 day average length of stay), with the remaining infants (69) having average treatment costs of $55 800 (29.2 days on average). Thirty-nine percent of infants with birth weights <1000 g (158 infants) survived the initial hospitalization. These infants had average treatment costs of $119 500 and an average length of stay of 86.9 days. Those that died during the remainder of the first year of life (10 infants) had average treatment costs of $113 500 (81.4 days on average), compared with $119 900 (and 87.3 days) for infants who survived the first year (148 infants). To scale the magnitude of these costs, it is worth noting that the average initial hospitalization cost for a normal birth (in 1989) was $1100.18
One third of infants die during the initial hospitalization. Among those who survive, the rehospitalization rate during the first year is high (38.9%). Infants who are rehospitalized have an average of 1.9 such episodes with an average length of stay of 10.9 days. As shown in Table 2, the rehospitalization rate decreases with birth weight, from 46.8% for infants born <999 g to 35.2% for those with birth weights between 1250 and 1499 g. Among infants who survived the initial hospitalization but died during the first year, the rehospitalization rate is 46.2% compared with 38.5% for survivors. The number of episodes is 1.6 vs 2.0 for the two groups. Lengths of stay during rehospitalization were 36.6 days for infants who died during the first year compared with 9.8 days for those who survived. The distribution of rehospitalization episodes is skewed, however, with the majority of infants (58%) having only one episode during the first year. An additional 22% have two episodes, and 11% have three episodes. The remainder of infants, however, have very intensive use of inpatient services, with a maximum of 13 rehospitalizations during the first year.
The average cost of a rehospitalization episode was $10 900 in 1987 constant dollars. Episode costs decreased with birth weight from $12 800 for infants <1000 g at birth to $9100 for infants in the 1250 to 1499 g birth weight range. The most striking difference in episode costs, however, were between infants that died during the first year ($48 800), and those who survived ($9200). This reflects differences in both lengths of stay and the intensity of treatment during each day of the stay. For infants who die, the average cost per day for rehospitalization episodes was twice as high as for those who lived.
Among infants who survived the initial hospitalization, 548 incurred some type of ambulatory visit. As shown in Table3, the average number of visits was 12 with an average frequency of occurrence of 1 visit every 2 weeks during periods the infant was not in the hospital. The majority of ambulatory visits occurred in the physician office and hospital (either the outpatient department or the emergency room) settings. Eighty-eight percent of infants had a physician office visit and 78% had a hospital-based visit. Among infants with each type of visit, the average number of visits in physician offices was 12 and hospital-based visits, 6. Visits in freestanding ambulatory clinics and at home were much less frequent, with only 8% of infants having a clinic visit and 19% a home-based visit. Infants with each of these visit types averaged three visits during periods not in the hospital.
The average charge for a visit was $57 in constant 1987 dollars, but varied by visit type. Home-based visits were the highest at $98 per visit, followed by hospital-based visits costing $74 per visit. In contrast, visits in physician offices were much lower, $45, and those in freestanding ambulatory clinics the lowest, $37. Aggregate expenditures for ambulatory visits were modest at $646, particularly compared with the cost of the initial and rehospitalization episodes.
During periods not in the hospital, medical care received includes not only visits but other services such as laboratory. There were seven types of medical services received by infants in this study. The fraction of infants with each type as defined by the provider of the care or medical service and the average expenditure by category were as follows: physician (92%, $499); laboratory (77%, $327); outpatient (75%, $503); home health (19%, $279); freestanding ambulatory clinic (8%, $212); other practitioner (6%, $363); and other services (39%, $565). Overall, aggregate expenditures for care not received in the inpatient hospital during the first year of life were $1397. This figure does not include outpatient prescription drug expenditures, as these data were not available for this study.
Medical Costs During the First Year of Life
Table 4 presents results for the total medical costs incurred by infants during their first year of life. For infants who died, medical costs to the date of death are included. For those who survived, all medical costs during the first year are included. A small number of infants were hospitalized on their first birthday. The costs associated with that hospital stay were truncated in Table 4 to include only those occurring during the first year, so that the figures presented represent costs actually incurred during the first year of life.
As shown in Table 4, medical costs during the first year of life for VLBW infants are high, averaging $59 730 in 1987 constant dollars. These costs, however, vary by the survival status of the infant. Infants who die in the initial hospitalization, average $22 460; $6310 for infants who died within a day of birth, and $58 820 for infants who die later in the stay. This compares to $78 400 for survivors of the initial hospitalization. Total first year medical costs, however, depend on survival status, being $76 850 for infants who survive the first year and $112 120 for those who survive the initial hospitalization but die during the remainder of the first year of life. Average first year medical costs for infants who die are $29 700. To scale the magnitude of these costs, it is worth noting that the average first-year medical costs for normal births (in 1989) was $2500.18
Medical costs accrued during the first year of life are largely a reflection of inpatient days. On average, for infants with birth weights <1500 g, 46% of the days alive during the first year are spent in the inpatient hospital setting. Overall, VLBW infants average 47.2 days in the hospital during the first year, 41.7 in the initial hospitalization and 5.5 in rehospitalization episodes. Infants who die during the initial hospitalization average 11 days. Those who die within a day of birth average 2 days compared with 30.4 days for infants who die later in the initial hospitalization. Infants who survive the initial hospitalization average 65.4 inpatient days during the first year of life with 20% of days alive spent in the hospital. This varies by survival status as well, being 64.5 days for infants who survive the first year and 85.3 days for those who survive the initial hospitalization but die during the first year. There is a large difference, however, between these latter two groups in the fraction of days alive spent in the hospital, being 18% for first-year survivors compared with 61% for infants that die during the remainder of the first year.
Because of the long length of stay in the initial hospitalization, medical costs during the first year are largely accounted for by the initial hospitalization. The initial hospitalization accounts for an average of $53 570 in medical costs compared with $5290 for rehospitalizations and $870 for outpatient care. However, these figures vary by the survival status of the infant. For infants who die during the initial hospitalization, all treatment costs (averaging $22 460) are accounted for by the initial hospitalization. For those who survive the initial hospitalization, the initial hospitalization averages $69 160 compared with $7930 for rehospitalizations and $1310 for outpatient care. Among those who survive the initial hospitalization, but die during the first year, the initial hospitalization averages $75 750, rehospitalizations $35 680, and outpatient care $690. For those who survive the first year, the initial hospitalization averages $68 860, rehospitalizations $6650, and outpatient care $1340.
The differences in cost between the two groups of infants who survive the initial hospitalization are largely driven by the cost of the rehospitalizations ($35 680 vs $6650) which is a reflection of the difference in inpatient days (28.2 days vs 7.4 days).
Among outpatient services during the first year, on average, 45% of charges are accounted for by ambulatory visits ($400) and the remainder, 55%, by other types of outpatient care ($470). Among initial hospitalization survivors, an average of $360 is spent on ambulatory visits compared with $610 for those who survive. This is attributable to a difference in the number of ambulatory visits between the two groups (3.5 and 11.3, respectively). Because infants who die spend 60% of days alive in the hospital, compared with 20% for those who survive, there are fewer ambulatory visits.
Cost-effectiveness of Medical Care During the First Year of Life
Cost-effectiveness of medical care during the first year of life for infants in this study is measured by the total medical resources expended during the first year for their care divided by the number of first year survivors. As shown in Table5, on average $93 800 in 1987 constant dollars were expended for each first year survivor produced. The cost-effectiveness of medical care varied sharply by the birth weight of the infant being twice as high for infants <750 g ($273 900) as for the next highest birth weight group 750 to 999 g ($138 800) which is itself almost twice as high as for the 1000 to 1249 g group ($75 100). The gradient in cost-effectiveness with birth weight then drops off to $58 000 per survivor for the 1250 to 1499 g group.
The average cost of producing a first-year survivor is $93 800 in 1987 dollars. The average treatment costs during the first year for singleton VLBW live births vary by birth weight, but in a nonlinear fashion as shown in Table 5. Because of high mortality rates, the average cost is lowest for infants with birth weights <750 g ($49 900). The most expensive group is the next highest birth weight range, in which mortality rates are lower, but infants require more treatment resources. For infants with birth weights between 750 and 999 g, medical costs during the first year of life average $79 200. This drops to $63 400 and $51 000, respectively, for the next two birth weight groups.
This study provides estimates of medical treatment costs and the cost-effectiveness of medical care during the first year of life for VLBW single live births. The study sample consists of infants continuously eligible for Medicaid through traditional channels (the categorically needy program) in the period 1986 to 1987. It contains 71% of these infants and is thus representative of this population. The study sample does not differ significantly from the California population of such infants in either birth weight distribution or survival characteristics. Similarly, it does not differ from the California Medicaid population in birth weight distribution, but has a significantly higher 28 day mortality rate. The sample of infants in this study does, however, differ in racial composition from both the California and Medicaid populations, having a significantly higher proportion of black infants. Further, the study population considered here consists of only single births. Twenty percent of VLBW births in the state of California are multiple births (17% in the California Medicaid population). These infants have higher mortality rates than single births. Treatment costs may be higher or lower than those for single births, depending on the timing of death. Thus, treatment costs and the cost-effectiveness of medical care for these infants may be higher or lower than those reported here for single births.
The data for this study are from 1986 and 1987. When making inferences to the present, some caution is warranted because of intertemporal factors that may have affected mortality, treatment costs, or both. Because of inflation, all figures presented in this article would be 75% higher in current (1996) dollars. However, since the time period of this study, advances in neonatal technology, such as surfactant therapy have occurred affecting both mortality rates and treatment costs. Mortality rates since 1987 have improved.19However, the change in treatment costs, net of inflation, since then is unknown. The recent literature, however, suggests costs may have decreased. A study by Schwartz et al20 demonstrated in 14 hospitals that after the introduction of surfactants in the late eighties, in-hospital mortality rates and resource use among infants weighing 500 to 1500 g at birth declined.
Similarly, since the late eighties there have been changes in the nature of insurance coverage. The general trend among insurers has been to emphasize cost containment. For hospitalizations, these goals are typically accomplished by prospectively set rates, such as through the use of diagnosis-related groups and selective contracting. Managed care may include incentives to decrease the length of the initial hospitalization, as well as decreasing the number of rehospitalizations. How reimbursement mechanisms affect treatment costs or outcomes in neonatal intensive care remains an open question for future research.
The infants in this study were treated under the reimbursement rules in effect for the California Medicaid program in 1986 and 1987. During this time, the state selectively contracted with a fixed number of hospitals to provide care for Medicaid patients. Contracts were signed based on negotiated, prospectively-set per diem rates. The advantage of the patient population in this study is that the infants were treated under a uniform system of reimbursement. The results of the study are thus generalizable to infants in insurance plans that selectively contract with per diem reimbursements. Most managed-care plans selectively contract with providers and thus follow this type of reimbursement mechanism. However, the nature of those contracts for neonatal care is not known. Per diem contracts may contain fewer cost-containment incentives than those based on other mechanisms such as a fixed payment per diagnosis.
This study quantifies the cost-effectiveness of medical care for VLBW infants during the first year of life, the period for which infant mortality is measured. Each first year survivor produced costs $93 800 (in 1987 constant dollars) in first-year medical costs. Producing survivors in the lowest birth weight range (<750 g) is almost five times as costly ($273 900) as in the highest end of the birth weight range (1250 to 1499 g), in which each survivor costs $58 000. The cost per first year death is $29 700.
Public programs pay for the medical care of a large number of VLBW infants. This care is expensive, particularly for the initial hospitalization. For infants that survive the initial hospitalization, medical care must be provided in the community upon discharge. Costs for care received outside of the inpatient hospital setting during the first year of life are modest, only $1300. The portion accounted for by ambulatory visits are modest as well, $700. Reimbursement rates under Medicaid programs, however, are low, potentially restricting access to care. In this study, reimbursements for ambulatory visits averaged only one-half of charged amounts. Given the expense of the initial hospitalization (averaging $78 400 for each survivor), and the high cost of rehospitalization episodes (averaging >$5000) increasing reimbursements might increase access to ambulatory care at a modest cost. However, it remains an open research question as to whether increasing reimbursements for ambulatory visits for these children would increase access to care. If better access to ambulatory services result in better outcomes or fewer rehospitalizations, the cost-effectiveness of medical care could be further increased.
The California Medicaid experience demonstrates that before the Medicaid expansions (which occurred in the early 1990s), public insurers often became the payers of last resort for VLBW infants. In the state of California during the years of this study, 1986 to 1987, the state paid for the initial hospitalization of 39% of all VLBW single live births in the state; 18% of all VLBW single live births were covered by Medicare's medically needy program. Under the medically-needy program, the extraordinary medical expenditures incurred by these infants made them eligible for Medicaid on that basis alone. Thus, from a public policy perspective, providing insurance coverage to poor pregnant mothers before birth gives the state the opportunity for maternal interventions that may decrease the likelihood of premature births and thus result in decreased public expenditures.
Public policies, such as the recent Medicaid expansions that provide insurance coverage for pregnant women and children have been based on arguments of the cost-effectiveness of providing medical coverage during pregnancy to reduce adverse birth outcomes. A recent study by Huntington and Connell21 has questioned the cost-effectiveness arguments made in the prior literature for such interventions as prenatal care, however. One criticism has been the inaccuracy of measures of treatment costs for low birth weight infants. This study demonstrates that any prenatal intervention that results in a normal birth instead of a VLBW birth results in approximately $59 700 in first year medical savings for medical care provided to the infant (in 1987 constant dollars). Even a shift in the birth weight distribution can produce significant savings. For infants with birth weights >750 g, a shift of 250 g at birth saves an average of $12 000 to $16 000 (as shown in Table 5, shifting from the 750 to 999 g range to the 1000 to 1249 g range decreased average treatment costs by $15 800; from the 1000 to 1249 g to the 1250 to 1499 g range decreases average treatment costs by $12 300.) in first year medical costs and a shift of 500 g generates $28 000 in savings. (A shift from the 750 to 999 g range to the 1250 to 1499 g range decreases average treatment costs by $28 100.) However, there is a threshold effect on birth weight. Shifts that move infants from the lowest birth weight ranges (<750 g), in which mortality is highest, will actually increase treatment costs. An increase in birth weight from <750 g to between 750 and 999 g increases treatment costs by $29 300; an increase to the 1000 to 1249 range increases costs by $13 500. However, these increased expenditures also produce more survivors and have the effect of moving infants into ranges in which medical care is more cost effective, with fewer treatment resources expended per survivor produced.
This research was funded by grant number R01HS06567–01 from the Agency for Health Care Policy and Research.
I would like to thank Barbara Thurston for secretarial assistance.
- Received July 19, 1996.
- Accepted December 16, 1997.
Reprint requests to (J.R.) RAND, 1333 H St, NW, Suite 800, Washington, DC 20005.
- ↵Prager K. Infant Mortality by Birthweight and Other Characteristics: United States, 1985 Birth Cohort. Hyattsville, MD: US Department of Health and Human Services, Public Health Service, Centers for Disease Control and Prevention, National Center for Health Statistics. Vital and Health Statistics Series 20, No. 24, DHHS Pub. No. (PHS) (94–1852); July 1994
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