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Measuring LOS, costs, and denials
By Toni Cesta, PhD, RN, FAAN
Senior Vice President
Lutheran Medical Center
Examples of financial outcomes measures include length of stay (LOS), cost per day, cost per case, and third party payer denials.
The most common indicator used by case management departments, length of stay is a sensitive indicator affected by virtually every department and discipline in the hospital.
A diverse indicator, it can be reported in an endless number of ways. Consider reporting length of stay broadly and then drill down as needed.
Consider reporting your length of stay by payer as different patient groups will have differing length of stay projections. For example, the Medicare patient might have a different expected length of stay than the Medicaid or commercial managed care patient. Medicare patients typically present with complexities such as comorbidities, financial or social issues, as well as their age, which might contribute to a longer overall length of stay. The better you understand the sub-sets of patients you are dealing with, the more likely you will be able to apply performance improvement techniques to reduce their length of stay.
Other metrics include:
Cost per day and cost per case.
To evaluate cost per day and cost per case, the hospital must have a cost-accounting system. Many hospitals have purchased software programs that allow them to differentiate between direct and indirect costs of care.
For case management's purposes, we are interested in direct costs of care. Direct costs are those resources that are used to care for a specific patient, such as medications, pharmaceuticals, and laboratory costs. Cost-accounting systems allow the user to calculate the actual dollar amount of resources spent on specific patients. Indirect costs are those associated with the running and maintenance of the hospital and include such items as heating, lighting, insurance, and other similar costs.
When evaluating your hospital's performance as it relates to the direct care of the patients, the direct costs can be compared to the expected direct costs for a specific patient type. For example, the hospital should know prospectively the cost of caring for a total knee replacement patient and can look at those cases in which the direct costs exceed those expected for possible performance improvement or quality improvement opportunities. For example, were the excess costs due to clinical complications, physician practice, throughput delays, or discharge planning issues?
Third–party payer denials.
Third-party payer denials are a commonly used financial metric. Denials can be related to actual dollars lost and are easily measured and tracked. The department of case management should keep track of initial denials received as well as those lost or recovered after appeal. Trending of the data can demonstrate significant financial returns to the hospital. The data should be routinely reconciled against the data being reported by the finance department to ensure that both departments are reporting in similar fashion.
To monitor denial data, the case management department must keep accurate data and enter that data into a database in a timely fashion. The data should be audited periodically to ensure that it is accurate. The denials then can be correlated to actual dollars based on the hospital's specific reimbursement rates.
The items below show the variety of ways in which denials can be aggregated and monitored:
Other financial metrics to consider include: observation days, average hours in observation, percent of patients admitted after observation, inpatient/outpatient conversion rates, and avoidable days versus excess days.