Background: Hospital cost containment, cost reduction, and alternative care delivery systems continue to preoccupy health care providers, payers, employers, and policy makers throughout the United States. The universal metric for gauging the success of these efforts is hospital length of stay (LOS). Reducing the LOS purportedly yields large cost savings. The purpose of this study is to assess precisely how much hospitals save by shortening LOS.

Study design: We reviewed the cost-accounting records of all surviving patients (n = 12,365) discharged from our academic medical center during fiscal year 1998 with LOS of 4 days or more. Actual costs were identified through the University of Michigan cost-accounting system. Individual patient costs were broken out on a daily basis and then decomposed further into variable direct, fixed direct, and indirect categories. The population was analyzed by determining the incremental resource cost of the last full day of stay versus the total cost for the entire stay. The data were also stratified by LOS and by surgical costs. An analysis of all trauma patients was then performed on all patients discharged from the hospital's adult level I trauma center (n = 665). Costs were determined on specific days, including admission day, each ICU day, day of discharge from the ICU, and each of the last 2 days before the discharge day.

Results: 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. Mean end-of-stay costs represented only a slightly higher percentage of total costs when LOS was short (e.g., 6.8% for patients with LOS of 4 days). Even when the data were stratified to focus on patients without major operations, the $432 average last-day variable direct cost was only 3.4% of the $12,631 average total cost of care. A focus on the trauma center helps to explain this phenomenon. For our trauma center, variable direct costs accounted for 42% of the mean total cost per patient of $22,067. The remaining 58% was hospital overhead (fixed and indirect costs). The median variable direct cost on the first day of admission is $1,246, and the median variable direct cost on discharge is $304. Approximately 40% of the variable costs are incurred during the first 3 days of admission.

Conclusions: For most patients, the costs directly attributable to the last day of a hospital stay are an economically insignificant component of total costs. Reducing LOS by as much as 1 full day reduces the total cost of care on average by 3% or less. Going forward, physicians and administrators must deemphasize LOS and focus instead on process changes that better use capacity and alter care delivery during the early stages of admission, when resource consumption is most intense.