The Centers for Medicare & Medicaid Services has again changed the value-based purchasing metrics for inpatient care. New in 2015, there is increased emphasis on outcomes and efficiency and a smaller focus on clinical and patient experience outcomes. The new efficiency measure makes up 20 percent of the score initially and increases to 25 percent in 2016. Improving processes related to the management of patients will reduce length of stay and can have a big financial impact on your performance with this efficiency metric.

Improving LOS directly improves financial, operational and clinical outcomes by decreasing the costs of care for a patient, not only in facility expenses and supplies, but in staffing and premium pay. It can also improve outcomes by minimizing the risk of hospital-acquired conditions.

To measure improvement achieved through process changes intended to better manage LOS, it is important to utilize a consistent and accurate cost accounting approach to determine the components of your daily costs, including bed costs, ancillary testing and services, pharmacy and supplies as well as improvements, and this measurement should be customized to meet the needs of each organization. However, there are three methods most commonly seen in organizations to value LOS improvements. These methods range from conservative to more aggressive in their approach.

Options for Calculating LOS Costs

Room and board is a conservative method for valuing LOS costs. This is a very basic valuation that is easy to explain and usually there isn't a lot of disagreement from physicians and clinicians when determining what's included in the cost. While this method will produce a value for inpatient LOS and can be used to measure reductions, it misses some major costs, especially those related to procedures.

Total direct cost is a more comprehensive valuation method. This method is also moderately easy to calculate and explain to physicians and clinicians. It captures all of the direct costs related to the patient's stay and is used to calculate LOS reductions. The concern with this method is that it captures front-end procedure and surgical costs that will still be incurred even when LOS is reduced.

End of stay is at the middle of the spectrum. This captures the costs incurred towards the end of the stay, which are the costs most likely reduced as LOS drops. In this valuation method, an average direct cost of care incurred towards the end of the stay is used to calculate reductions.

In addition to these common valuation methods, there are many others organizations may use when valuing LOS reductions. Regardless of the method used, the key to success in valuing LOS improvements is determining a method for your organization and using it consistently over time to financially quantify improvements. It will take some time to come to a consensus on methodology, but it's an important exercise to work through with a LOS oversight committee.

When you think about all of the ways your facility's processes impact LOS, determining where to start when making improvements can be overwhelming. At VHA, we understand the common issues in managing LOS, how to set up the internal structure needed to measure and manage improvements and the role of executive management in leading, communicating and supporting change.

To gain actionable insights from VHA subject matter experts, join us for our webinar, Overstaying Your Welcome? Optimize LOS to Improve Performance. You can also register for our complimentary webinar series, Unleash the Potential in Your Service Lines. These monthly, hour-long programs share solutions for success in today's health care environment. View previously presented on-demand service line webinars or register today for upcoming programs.