Methods Used to Develop Cost Estimates: Assumptions and Sources

Cost CategoryLower-Bound Cost EstimateUpper-Bound Cost Estimate
Resource EffectCost per UnitResource EffectCost per Unit
Hospital (increases with longer LOS)Additional nursing labor of 2.5 h for each additional 12 h of LOS17$6.67/h of extra stay*Additional nursing and other labor, consumables (eg, ice packs, drugs), hospital overhead costs$23/h of extra stay
Physician (increases with longer LOS)Two additional 15-min visits—1 by a pediatrician and 1 by an obstetrician/ gynecologist—for every additional night’s stay; no additional overhead (authors’ assumption)$33 per pair of physician visitsTwo additional 30-min visits—1 by a pediatrician and 1 by an obstetrician/gynecologist—for every added night’s stay; plus additional physician overhead (authors’ assumption)$94 per pair of physician visits
Postdischarge medical care (decreases with longer LOS)Hospital resources saved as a result of reduced newborn readmissions; varies according to LOS§None
Postdischarge informal care (decreases with longer LOS)NoneNone
  • * Mean compensation of hospital nurses in 2000 was $32/hour.16 For every 4.8 hours of additional LOS (12/2.5 = 4.8), 1 additional hour of nursing care is assumed to be provided. Thus, the cost of additional nursing care is assumed to be $6.67 for each hour added to the patient’s LOS ($32/4.8 hours = $6.67/hour).

  • In Maryland, LOS increased by 0.51 per day per delivery after implementation of that state’s postpartum mandate, and inflation-adjusted charges increased by $282.31,13 suggesting an increase in charges of $23.06/hour. Incremental charges should overstate incremental hospital costs because 1) charges may include overhead costs that are not sensitive to LOS and 2) many variable costs that may be built into charges on a flat per diem basis are higher on earlier days than on later days of a stay.

  • Pediatricians’ mean income (after expenses, before taxes) in 1998 was $139 600, or $150 272 in 2000 dollars, or $57.93/hour assuming 54.5 hours of work per week, 47.6 weeks/year.15 Obstetrician/gynecologists’ mean income in 1998 was $214 400, or $230 790 in 2000 dollars, or $75.64/hour assuming 63.7 hours of work per week, 47.9 weeks/year.15 For the upper-bound cost estimate, we added 40% of physician labor costs to represent physician overhead.37

  • § Calculated as ([prob(readmission | old LOS)] − [prob(readmission | new LOS)]) × (mean charge for readmission × 0.8). The predicted probabilities are for readmission within 28 days of birth6 assuming all newborns weigh 3500 grams, have no congenital anomalies or newborn abnormalities, have a gestational age of 40 weeks, are male, and are born to mothers who are at least 18 years of age and married. Mean charge for readmission is from the Birth Event Record Database. Charges were multiplied by 0.8, the mean hospital-level cost to charge ratio for Washington State hospitals in 1989 and 1990, according to data provided by the Washington State Department of Social and Health Services.