By Kyle Herbert, MBA, CMA, CHFP

The LOS statistic is defined as total patient days divided by inpatient cases, and it is a significant driver of hospital net income. In fact, many financial personnel consider it to be the most significant measure of the effectiveness and efficiency of a hospital. The theory is that the less time a patient remains under hospital care, the fewer expenses being consumed.

This belief is driven by the premise that a majority of inpatients are insured through Medicare, which pays a fixed rate regardless of the patient's LOS.  The significance of the Medicare reimbursement methodology is that the maintenance of costs is shifted to the healthcare provider.

Analysis can be performed that calculates how much cost savings would occur if a healthcare provider reduced patient days for clinical services. Unfortunately, all payers cannot be viewed equally since each provider may have a unique contract rate.

The best practice to determine the monetary impact of decreasing patient days is to separate the governmental and nongovernmental payers. Certain payers, such as Blue Cross or Humana, may pay on a per diem basis. The reduction in days for these nongovernmental payers may not only decrease variable costs, but also net revenue. 

Kyle Herbert is a senior reimbursement analyst at Palmetto Health in Columbia, South Carolina (kyle.herbert@palmettohealth.org.)

This sidebar is excerpted from the author's lengthy article, "Calculating the Financial Impact of Reducing LOS," which is posted on HFMA's CFO Forum. To learn more about HFMA Forums, visit www.hfma.org/forums.

Publication Date: Friday, January 01, 2010