Costs and Reducing Waste in Pediatric Critical Care

Reproduced with permission from the Organisation for Economic Co-operation and Development. OECD Health data 2012: How does the United States compare. http://www.oecd.org/unitedstates/BriefingNoteLISA2012.pdf. Accessed October 25,2012.

Pediatric critical care services have experienced increasing utilization in recent years, and the costs associated with this care have increased as well.⁷ At this point it is important to define a few economic terms. Costs refer to the overall expenses incurred by the healthcare organization in providing medical services. Costs need to be distinguished from charges, which are the payments requested by a healthcare provider or organization for medical care provided regardless of the anticipated amount of net revenue to be received or the anticipated source of payment. Total costs refer to the combination of fixed costs plus variable costs. The fixed costs are the business expenses that are not dependent on the level of goods or services produced by the business. For example, the costs of physicians, nurses, ancillary personnel, structural depreciation, maintenance, consumption, and disposable material are examples of fixed costs in the hospital setting. Variable costs are expenses that change in proportion to the activity of a business. In healthcare, these variable costs include, for example, those associated with procedures, medications, blood products, laboratory tests, and radiology imaging.

The costs of care are influenced by a variety of factors including patient length of stay, severity of illness, diagnoses, region of the country, practice patterns, provider or group personal preferences, and others. In healthcare economic terms, costs are usually measured in one of 3 ways: microcosting, aggregated costs, or charges. Microcosting assigns individual costs to each item used in the care of a patient. For example, each medication dose, laboratory test, radiograph, and clinician time unit (eg, nurse, respiratory therapist, physician) would be assigned a value. Aggregated costs involve assigning a cost for groups of patients with similar conditions such as diagnosis-related groups. Charges are the values assigned to any given item or service based on market conditions. Many published studies use charges as a reflection of the cost of care, and to date there are no standard approaches to accurately measuring costs. In a recent article, Kaplan and Porter⁸ suggested that “providers have an almost complete lack of understanding of how much it costs to deliver patient care.” Furthermore, these authors note that “the widespread confusion between what a provider charges, what is actually reimbursed, and its costs is a major barrier to reducing the costs of health care.” Clearly, reforming healthcare will rely in large part on a better understanding of the costs associated with care delivery and the relationship of these costs to outcomes.

The primary driver of pediatric critical care medicine costs relates directly to the total number and utilization of beds in these ICUs. Much of the information related to costs of care in the ICU is derived from adult Medicare data contained within the Healthcare Cost Report Information System (Centers for Medicare & Medicaid Services, Baltimore, Maryland). In 2004, one-third of all Medicare hospitalizations were associated with some time spent in the ICU.⁹ The average ICU cost per day was approximately $2,600 in comparison to the acute care unit cost per day of approximately $1,500. By 2005, the average ICU cost per day had increased to more than $3,500 (Figure 5-2).³ In 2005, adult ICU costs represented 13.4% of hospital costs, 4.1% of national health expenditures, and 0.66% of the US GDP.⁹

Figure 5-2. United States ICU bed costs per day between 1986 and 2005

Data were derived from Halpern NA, Pastores SM. Critical care medicine in the United States 2000-2005: An analysis of bed numbers, occupancy rates, payer mix, and costs. Crit Care Med. 2010;20:65-71.

Little has been written about pediatric-specific ICU costs of care. One of the earliest attempts to characterize the costs of pediatric ICU care was carried out by García et al¹⁰ in 1997. This study took place in a 12-bed pediatric ICU where 495 admissions were examined over 17 months. The mean total costs were $826 per patient per day. Fixed costs represented 72% of the total, whereas variable costs accounted for 28% of the total. Variable costs were significantly greater in nonsurvivors than in survivors ($542 ± $52 vs $179 ± $7; P < 0.001). Most important, the cost of pediatric ICU personnel was the largest factor in overall intensive care costs.

Chalom et al¹¹ in a 1999 publication examined all children admitted to a 20-bed pediatric ICU in 1994. The hospital costs were calculated using 2 methods. The first method involved use of the patient charges with cost-to-charge ratios. The second method examined all direct and indirect expenses using microcosting methods. In this analysis, insignificant differences were noted between the 2 methods. The mean cost per admission was $12,342 ± $22,313, and mean cost per day was $2,264 ± $868. Of these costs, the critical care room costs represented 52.1% of the total, laboratory studies were 18.3%, and respiratory therapy, pharmacy services, and radiology each accounted for between 6% and 8% of total costs. In addition, the total cost was closely related to several factors including length of stay, severity of illness, diagnosis, and organ failure. In this study, the most important factor in determining cost variability was severity of illness. In addition, increased severity of illness was associated with greater laboratory and radiology study costs.

In recent years, reimbursements for critical care services have come under greater scrutiny, with ever-increasing rates of payment denial. However, declining revenues are not a recent phenomenon, as the largest cuts in Medicare history were enacted in 1997 through the Balanced Budget Act. This legislation subsequently resulted in significant erosions of hospital margins, including those of teaching hospitals.¹² Historically, the approach to this type of imbalance has focused on reductions in payment levels, eligibility, and benefits. Organizational or individual efforts to improve quality or reduce unnecessary services have generally not been rewarded. As a result, the healthcare delivery system in the United States is fraught with inconsistency, waste, and a lack of full attention to quality. Recently, Berwick and Hackbarth⁷ delineated some of the opportunities available to reduce healthcare waste. They suggest that areas of important focus should include reduction in overtreatment, improved care coordination, execution of better care processes, reduction of administrative complexity, improved pricing, and reduction in fraud and abuse. The authors project that in the absence of attention to these 6 focus areas, there will be a predicted growth of healthcare expenditures to more than 20% of GDP within the next 10 years. The rationale for this growth include failures of care delivery and care coordination, overtreatment, administrative complexity, pricing failures, and fraud and abuse. Those authors suggest that by focusing efforts in these areas, the United States would experience at least a 20% savings in total health care expenditures.

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