Room Costs for Common Pediatric Hospitalizations and Cost-Reducing Quality Initiatives

We conducted a retrospective, cross-sectional descriptive analysis of inpatient and observation encounters from January 1, 2017, to December 31, 2017, for children and adolescents aged 0 to 21 years using the Pediatric Health Information System (PHIS) (Children’s Hospital Association, Lenexa, KS). The PHIS is an administrative database containing patient data from 48 tertiary pediatric hospitals. For all encounters, the PHIS contains demographic characteristics and up to 41 International Classification of Diseases, 10th Revision, Clinical Modification diagnosis and procedure codes. These are used to determine the primary reason and severity (minor, moderate, major, or extreme) for hospitalization by using the All Patient Refined Diagnosis Related Group (APR-DRG) software by 3M. We focused our analysis on the 8 most frequent APR-DRGs typically managed by pediatric hospitalists, which included seizure (APR-DRG 53), bronchiolitis (APR-DRG 138), asthma (APR-DRG 141), pneumonia (APR-DRG 139), acute gastroenteritis (AGE) (APR-DRG 249), upper respiratory tract infection (URI) (APR-DRG 113), other gastrointestinal (GI) diagnoses (APR-DRG 254), and skin and soft tissue infection (SSTI) (APR-DRG 383). These diagnoses accounted for approximately one-quarter of all discharges in the PHIS.

Daily, itemized billing service codes along with charge information are submitted to the PHIS. Hospital charges are converted to estimated costs by using 29 department-specific cost/charge ratios collected from each hospital annually. We classified costs from each hospitalization into the following cost categories: room, clinical, laboratory, imaging, pharmacy, supply, and other. Room costs encompass overhead and staffing costs, including nursing and other general facility costs (building, electricity, and administration) necessary to care for patients. Room costs are primarily impacted by the days of hospitalizaiton.^16–18  The remaining categories fall under nonroom costs and encompass costs associated with the delivery of medical interventions to the patient. Clinical costs include procedures or administration of therapy such as conducting electroencephalography or administering intravenous fluids. Laboratory testing, radiographic imaging, and medications were included in the laboratory, imaging, and pharmacy categories, respectively. Supplies included miscellaneous items such as equipment associated with nasal cannula or nebulization machines. The “other” category included costs not contained within other categories, such as operating-room time or emergency-department costs included in the hospitalization.

We used frequencies and percentages to summarize categorical variables and used medians with interquartile ranges for continuous variables. For each cost category within each APR-DRG, we calculated mean percentages of cost within each category with 95% confidence intervals (CIs). Next, for each APR-DRG, we compared the mean percentages of cost across levels of severity using mixed-effects models, controlling for hospital clustering with a random intercept for each hospital. We calculated the percent of cost from the nonroom cost categories necessary to achieve a cost reduction equivalent to a 10% reduction in room costs. Finally, to identify areas of high cost and hospital-level variation, we calculated the adjusted percent of cost from nonroom sources for each hospital in each APR-DRG, using a generalized linear mixed-effects model adjusted for severity, age, number of complex chronic conditions,¹⁹  patient type (inpatient versus observation), sex, race, and payer. All analyses were performed by using SAS version 9.4 (SAS Institute, Inc, Cary, NC), and P < .05 was considered statistically significant. Because we used deidentified data, the Children’s Mercy Kansas City Institutional Review Board deemed the study exempt.

A total of 195 436 hospital discharges met inclusion criteria, which represented 24.6% of all discharges across the hospitals studied (Table 1). Age varied among diagnoses. Male patients represented >50% of discharges for all diagnosis, most notably with the diagnosis of asthma (61.3%). Patients hospitalized with asthma were more often of non-Hispanic African American race/ethnicity (42.7%); all other diagnoses were more often in those of non-Hispanic white race and/or ethnicity (45.1%–54.5%). Most patients did not have a complex chronic condition (73.8%) and were covered by public insurance (59.8%). All patients had a short length of stay, with a median of 1 to 2 days for all diagnoses.

For each hospitalization, we calculated the mean percentage of cost within each cost category (room, clinical, laboratory, imaging, pharmacy, supply, and other; Fig 1, Supplemental Table 2). The majority of total hospital costs were related to room costs, ranging from 52.5% of total hospital costs for seizure to 70.3% for bronchiolitis. Clinical costs were highest for seizure and asthma (29.1% and 22.6%, respectively) related to EEG procedures and administration of intravenous fluids. Diagnoses of SSTI and other GI diagnosis had the highest percentage of “other” cost (16% and 17%, respectively) secondary to emergency-department critical-care time and operating-room services. The remainder of nonroom costs (ie, laboratory, imaging, pharmacy, and supply) were marginal compared to the room and clinical charges for all studied diagnoses.

To determine differences in cost related to illness severity, we calculated the distribution of hospitalization cost across cost categories at each level of APR-DRG severity of illness for each diagnosis (Supplemental Tables 3 and 4). For the diagnosis of URI, bronchiolitis, pneumonia, and SSTI, patients with increased illness severity required more nonroom resources, such as laboratory and pharmacy. For those hospitalized with a seizure, asthma, viral gastroenteritis, or other GI diagnosis, those with higher illness severity had a higher proportion of total cost from the room. Regardless of diagnosis or severity, room costs represented >50% of total costs.

We calculated the percentage of nonroom costs needed to equal a modest (10%) reduction in room costs (Fig 2). For example, to equal a 10% reduction in room costs for a child hospitalized with bronchiolitis, a hospital would need to reduce clinical costs by 60%, laboratory costs by 201%, imaging costs by 586%, or pharmacy costs by 370%. This pattern holds true for every diagnosis: The cost categories of laboratory, imaging, pharmacy, and supply would need to be significantly reduced (most by >100%) to equal a 10% reduction in room costs. The clinical and other categories showed somewhat more attainable reductions to equal a 10% reduction in room costs (18%–60% and 31%–77%, respectively).

To compare hospital-level variation by severity-adjusted percent of nonroom costs, we created a heat map for each of the 8 common pediatric diagnoses (Fig 3). Notable hospital-level variation in nonroom costs was seen across all diagnosis (seizure 25%–81%, bronchiolitis 12%–51%, asthma 19%–63%, pneumonia 19%–62%, AGE 21%–78%, URI 21%–63%, other GI diagnosis 28%–69%, and SSTI 21%–71%). The asthma, seizure, and other GI diagnoses had higher nonroom costs on average, perhaps related to a greater number of common interventions during hospitalization, such as albuterol administration for asthma. Hospitals with a higher percentage of nonroom costs in one diagnosis tended to have a higher percentage of nonroom costs in other APR-DRG categories as well.

In this study of 195 436 common pediatric hospitalizations, room costs alone accounted for >50% of total hospitalization costs even when accounting for illness severity. Overall, we found that to equal a modest reduction (10%) in room costs, reductions within individual nonroom cost categories would often be unrealistically high (often >100%). Room charges can encompass building, utilities, staffing, and administrative costs. As such, they can be more difficult to directly affect from a provider standpoint, whereas nonroom costs can be more immediately impacted by provider decisions. Despite this, initiatives addressing reduction in individual nonroom costs are unlikely to lead to large cost savings when viewed in the context of the total cost of hospitalization. Initiatives targeting variability in care delivery⁷  (eg, clinical pathways or guidelines that reduce diagnostics or unneeded treatments) across a hospital system, however, may create widespread changes in practice that result in notable cost savings. Furthermore, there are likely additional benefits of standardizing care in nonroom cost categories beyond cost reduction, including reduced variability and improved timeliness of care.

This study supports previous work suggesting QI projects focused on reducing individual unnecessary tests or treatments for specific diagnoses result in minimal overall cost savings.^{5,8,9,12,20,21}  However, a system-wide initiative focusing on redundant or unnecessary laboratory testing may result in significant savings. Redundant testing in the United States has been estimated to cost upward of $8 billion per year.²²  Several large health care systems have shown substantial reduction in cost by applying system-wide test-reduction initiatives. Examples include reducing routine daily testing, implementing focused testing (eg, ordering a hemoglobin count instead of the complete blood count), obtaining tests based on predictive value (eg, obtaining blood cultures only in those with high risk of bacteremia),²³  and monitoring the use of high-cost genetic testing. Although the proportion of unneeded tests related to each individual disease may be small, the global impact on the health system of small changes can result in substantial savings.

We found substantial hospital-level variation in nonroom costs, ranging from 20% to 80% of total costs of hospitalization regardless of diagnosis. This hospital-level variation outlines opportunities for improvement in standardization of practices. Instead of projects focused on a single disease, several institutions have implemented clinical practice guidelines and care process models to reduce variation for multiple diagnoses, leading to fewer unnecessary tests and interventions and resulting in improved patient-level outcomes.^6,24–26  For example, a large-scale improvement project aimed at implementation of practice pathways within a freestanding tertiary children’s hospital system showed significant reduction in costs and decreased length of stay for many of the 15 clinical pathways studied.²⁷  However, the development and maintenance of these pathways requires substantial cost and resources, which may reduce overall cost savings resulting from their implementation.

In this study, we describe cost allocation related to room and nonroom costs of hospitalized children with common childhood diagnoses. The costs we report reflect operating expenses for room and nonroom costs. It is likely that QI initiatives aimed at reducing nonroom costs may have more of a substantial financial impact if they are also able to reduce room costs in the long-term. For example, avoidance of unnecessary laboratories may reduce length of stay by decreasing follow-up testing or allowing for more expedited discharge. Future studies examining the direct and indirect impact of an initiative may demonstrate that the downstream effects of such an intervention provide meaningful cost savings.

Our study has several limitations. The study population includes only patients admitted to tertiary pediatric hospitals. As such, our results may not be generalizable to pediatric hospitalizations at large because practice styles may vary on the basis of hospital type (tertiary-care, urban hospital versus community hospital). However, our sample included 48 hospitals with reasonable variation in practice, and all demonstrated a predominance of costs associated with room costs. Second, patient-level characteristics and hospital clinical practice patterns influence length of stay, which in turn affect the percent of total charges attributed to room charge. We accounted for these effects by adjusting modeling for patient-level (including demographics, severity, number of complex chronic conditions, and patient type [inpatient versus observation]) and hospital-level covariates (including clustering on hospital and state). We also estimated costs from charges instead of using cost accounting systems, which may not accurately reflect actual costs. However, because we are looking at proportions of costs, differences in actual costs should be minimal. Finally, we examined the 8 most frequent APR-DRGs, which represented 24.6% of the total number of hospitalized patients during the study period. It is likely that different patient populations, including those with chronic conditions requiring frequent hospitalization (eg, cancer, diabetes, and renal failure), have different proportions of charges, in which a QI initiative may be more successful at reducing overall hospitalization costs.

Room costs account for a large proportion of total hospitalization costs. Improvement initiatives directly or indirectly affecting determinants of room costs, such as length of stay, or broadly addressing nonroom costs, such as system-wide reductions of unnecessary testing and reducing variability in care through standardization, may promote safe and effective care while also providing measurable cost savings.

AGE

acute gastroenteritis

APR-DRG

All Patient Refined Diagnosis Related Group

CI

confidence interval

GI

gastrointestinal

PHIS

Pediatric Health Information System

QI

quality improvement

SSTI

skin and soft tissue infection

URI

upper respiratory tract infection