Estimating Cost Savings
Often the most persuasive argument for hospital support is demonstrated cost savings resulting from formal palliative care services. While the program can generate revenue derived from delivery of palliative care, it typically will be modest compared to the larger number of dollars saved through shorter LOS or lower costs per day once the patient has been referred to palliative care.
One way to estimate cost savings from reduced LOS is to compare the hospital’s LOS data to national benchmarks. Whenever the hospital’s LOS data exceeds that of the national average there is an opportunity for clinical process improvement and cost savings.
Sources for Benchmark Hospital Data include:
- Medicare Averages: http://www.cms.gov/providers/hipps/ippspufs.asp. Look under “DRG Relative Weights,” look for data on length of stay.
- Agency for Healthcare Research and Quality (AHRQ): http://www.ahrq.gov. Look under “Data & Surveys” and select “HCUPnet
- Commercial Vendors: especially those whose data may be available through existing product or service relationships. Ask the utilization management or quality assurance staff in the hospital.
Below is a listing of the top 20 DRGs nationally for inpatient deaths based on data from the Agency for Healthcare Research and Quality (2001).
|Statistics for Deaths by DRG in 2001, National Data|
|DRG||Description||# of Discharges||Mean LOS (days)||DRG as % of all Discharges||Deaths||% of DRG Discharges who Died||% of Total inpatient Deaths||Ranked by Frequency|
|475||Respiratory system diagnosis with ventilator||190058||11.3||0.5%||61389||32.3%||7.1%||1|
|14||Specific cerebrovasuclar disorders except TIA||520348||5.7||1.4%||54637||10.5%||6.3%||2|
|123||Circulatory disorders w AMI, expired||54497||4.4||0.1%||54491||100.0%||6.3%||3|
|416||Septicemia age > 17||293080||7.3||0.8%||53634||18.3%||6.2%||4|
|127||Heart failure & shock||1019065||5.1||2.7%||42801||4.2%||5.0%||5|
|89||Simple pneumonia & pleurisy age > 17 w CC||789028||5.5||2.1%||40240||5.1%||4.7%||6|
|79||Respiratory infections & inflammations age > 17 w CC||240909||8.5||0.6%||34691||14.4%||4.0%||7|
|483||Tracheostromy except for face, mouth & neck diagnoses||90210||40.4||0.2%||23094||25.6%||2.7%||9|
|296||Nutritional & misc metabolic disorders age > 17 w CC||399916||4.8||1.1%||16796||4.2%||2.0%||11|
|87||Pulmonary edema & respiratory failure||97441||6.8||0.3%||16273||16.7%||1.9%||12|
|148||Major small & large bowel procedures w CC||264964||11.4||0.7%||15368||5.8%||1.8%||13|
|385||neonates, died or transferred to another acute care facility||84071||5.8||0.2%||14544||17.3%||1.7%||14|
|174||G.I. hemorrhage w CC||408601||4.4||1.1%||13075||3.2%||1.5%||15|
|203||Malignancy of hepatobiliary system or pancreas||64833||6.4||0.2%||12772||19.7%||1.5%||16|
|110||Major cardiovascular procedures w CC||99828||8.9||0.3%||12678||12.7%||1.5%||17|
|88||Chronic obstructive pulmonary disease||625710||4.8||1.7%||11888||1.9%||1.4%||18|
|172||Digestive malignancy w CC||64509||7||0.2%||9676||15.0%||1.1%||19|
|202||Cirrhosis & alcoholic hepatitis||92907||6.1||0.2%||9569||10.3%||1.1%||20|
Total U.S. inpatient deaths: 860,934; Total U.S. discharges: 38,011,600
Statistics for U.S. hospital stays, Diagnosis Related Groups (DRGs), Healthcare Cost and Utilization Project (HCUP) Nationwide Inpatient Sample (NIS), 2001 (Data extracted, death statistics isolated, raw deaths calculated and ranked by Lynn Spragens September 23, 2003). Internet Citation: HCUPnet, Healthcare Cost and Utilization Project. Agency for Healthcare Research and Quality, Rockville, MD. http://www.ahrq.gov/data/hcup/
The team should examine data on high potential DRGs – those DRGs where clinical improvements could lead to cost savings. (See Using DRG Data for guidance.) By comparing the hospital’s LOS data on high potential DRGs with national benchmark data, it is possible to estimate savings from reduced LOS as shown below. By multiplying days saved by number of cases in the DRG and total cost per day, savings can be estimated.
Palliative care programs can also lower “costs per day.” Research shows that factors contributing to lower costs per day include transfers out of the ICU and reduction in ancillary services and pharmacy costs.
Most hospital financial people prefer to look at just the direct cost portion of the total costs per day when estimating cost savings. This is because most of the overhead expenses that comprise the remaining indirect costs wouldn't disappear even when the corresponding direct costs are eliminated. Therefore, we conservatively focus on direct cost savings for each impact day (i.e., costs saved each day after a palliative care referral).
The percent of total cost that is attributed to direct costs can be highly
variable depending upon hospital practices. The Basic Impact
Calculator is a CAPC tool that helps find the financial savings for your
institution. The Basic Impact Calculator assumes that Direct Costs are 60% of
the Total Costs and that an Impact Day saves 40% of the average Direct Costs.
The Advanced Impact Calculator allows the user to set these
variables based upon their own institution.
Similarly, the downloadable spreadsheet, Estimating Total Cost Savings determines savings from both LOS savings and direct cost savings using assumptions regarding the number of dollars saved on direct costs per impact day.