Cost minimization models: Applications in a teaching hospital

Sakesun Suthummanon, Vincent K. Omachonu

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

The primary objective of this article is to explore the feasibility of the application of cost minimization analysis in a teaching hospital environment. The investigation is concerned with the development of cost per admission and cost per patient day models. These models are further used for determining the value of the length of stay that would minimize cost per patient day (projected length of stay) and for estimating the costs. This study is based on total of 109,060 observations (2002), obtained from a teaching hospital in South Florida. The top 10 diagnosis-related groups (DRGs) with the highest volume are selected for the study. The cost models are fitted to the data for an average R2 value of 87.3%, and a mean absolute percentage error (MAPE) value of 16.1%. The result demonstrates that if a hospital can control the length of stay at the projected level, on average, the cost per admission and the cost per patient day will decrease. Based on 8703 admissions for the selected DRGs in 2002, the total cost per year and the cost per patient day are decreased by approximately 8.56% ($15,453,841) and 4.02% ($66.30), respectively. Overall, these results confirm that the concept of cost minimization analysis in economic theory can be applied to healthcare industries for the purpose of reducing of costs. Cost minimization and cost variation analyses offer useful information to hospital management for better decision-making. It would be an important aid in making management decisions, particularly for cost reduction.

Original languageEnglish (US)
Pages (from-to)1175-1183
Number of pages9
JournalEuropean Journal of Operational Research
Volume186
Issue number3
DOIs
StatePublished - May 1 2008

Keywords

  • Cost minimization
  • Cost per admission
  • Cost per patient day
  • DRG

ASJC Scopus subject areas

  • Information Systems and Management
  • Management Science and Operations Research
  • Statistics, Probability and Uncertainty
  • Applied Mathematics
  • Modeling and Simulation
  • Transportation

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