Predicting the marginal cost of direct nursing care for newborns

Cost of health care has significantly altered health care delivery systems in recent years. To secure an adequate proportion of the limited health care dollar, nursing must develop mechanisms for appropriate pricing of the nursing product. Although work has been conducted on cost of nursing services, the work to date has reported costs in adult populations. Studies have looked at pure cost of nursing services and nursing cost per DRG. Many of these studies have lacked a good measure of output. Rather than identifying proportion of total cost attributable to nursing, these studies have attempted to identify optimal amount of manpower and fiscal resources necessary to provide nursing care. In times of fiscal constraint, careful use of resources and the ability to understand resource allocation is imperative. This study was undertaken to develop a mechanism to evaluate nursing costs based on hospital characteristics and patient variables for newborns. The marginal cost estimate, a measure of how much more nursing resource would be consumed for each additional patient, was derived using cost functions. The study was performed using retrospective data from all New Jersey hospitals with obstetric and newborn services. Sixty-seven of the seventy hospitals were included in the model development. Data were collected from Newborn Services Quarterly Reports, SHARE fiscal reports and UB-82 Discharge data tapes for 1984 and 1985. Available data included total reported direct nursing costs, numbers of births, discharge by DRG, admissions by birthweight, transfers to newborn intensive care, number of newborn nursery beds, occupancy rates, and neonatal complications. Descriptive statistics for the sample hospitals were calculated including range and frequencies for continuous variables. Cost functions were then developed using multiple regression analysis. Total cost functions were derived using birthweight or discharge by DRG as the output measures. Marginal cost estimates were then derived from these cost functions for each additional infant admission and each DRG category. Cobb-Douglas specifications were also used to determine the return to scale and output elasticities of total cost. Marginal costs estimates were highest for infants weighing less than 1500 grams or those in DRG 386, extreme immaturity or respiratory distress syndrome.