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Objective

To demonstrate a refined cost-estimation method that converts detailed charges for inpatient stays into costs at the department level to enable analyses that can unravel the sources of rapid growth in inpatient costs.

Data Sources

Healthcare Cost and Utilization Project State Inpatient Databases and Medicare Cost Reports for all community, nonrehabilitation hospitals in nine states that reported detailed charges in 2001 and 2006 (n = 10,280,416 discharges).

Study Design

We examined the cost per discharge across all discharges and five subgroups (medical, surgical, congestive heart failure, septicemia, and osteoarthritis).

Data Collection/Extraction Methods

We created cost-to-charge ratios (CCRs) for 13 cost-center or department-level buckets using the Medicare Cost Reports. We mapped service-code-level charges to a CCR with an internally developed crosswalk to estimate costs at the service-code level.

Principal Findings

Supplies and devices were leading contributors (24.2 percent) to the increase in mean cost per discharge across all discharges. Intensive care unit and room and board (semiprivate) charges also substantially contributed (17.6 percent and 11.3 percent, respectively). Imaging and other advanced technological services were not major contributors (4.9 percent).

Conclusions

Payers and policy makers may want to explore hospital stay costs that are rapidly rising to better understand their increases and effectiveness.