How Plans Can Improve Outcomes And Cut Costs for Preterm Infant Care

Ten percent of newborns are admitted to a neonatal intensive care unit. NICU costs are high but controllable.


Over the past 25 years, preterm births have increased more than 35 percent. Today, about one preterm infant is born every minute in the United States.

The good news is that while preterm births are increasing, so too are medical advances for the care of these tiniest of patients. Infants can now survive at 22 to 23 weeks gestation. While remarkable, such advances have come with a high price tag.

According to data from the Institute of Medicine, the overall cost of preterm births in the United States is estimated at $26 billion.

For managed care organizations, advances in the care of preterm infants create both opportunities and a wide array of societal, ethical, and financial dilemmas. We must first understand the scope of the challenges faced, the factors influencing costs, the solutions that are possible, and ways to ensure broader access to medical advancements and technologies.

Effectively managing the care of preterm infants has always been a challenge for managed care organizations, and several factors are converging to make the task even more difficult. For example, increases in maternal age and greater use of in vitro fertilization, combined with remarkable medical advances, are leading not only to increases in preterm births, but also to medical complications and associated costs. The average medical costs through the first year of life are approximately $32,000 for preterm infants vs. $3,000 for a full-term infant.

Expenses for preterm infants can be easy to overlook in managed care organizations, as a neonatal intensive care unit (NICU) admission typically occurs for only about 1 of every 1,000 members in a commercial health plan (it’s two to three times as high in Medicaid populations). However, while NICU patients account for approximately 0.15 percent of the U.S. population, they account for about 0.45 percent of the total health care costs. What is more, the per-case cost of NICU care is among the highest that a health plan will face in its membership.

Length of stay

About 30 percent to 35 percent of NICU admissions have a NICU length of stay (LOS) of fewer than four days and often have hospital payments for care bundled with maternity payments.

Of critical importance is that the remaining 65 percent to 70 percent of NICU admissions typically have an average LOS of about 20 days. These patients are a source of large expenditures. Therefore, payments for a NICU admission with a LOS greater than four days typically will be $40,000 to $80,000 in a commercial health plan.

To help put these expenditures in perspective, the Agency for Health Care Research and Quality has compared charges for NICU admissions to other costly hospital diagnoses and found the cost of an average NICU admission similar to that of patients admitted for spinal cord injury and heart valve disorders.

Although hospital per-diem payments typically are less in a managed Medicaid population, the higher percentage of Medicaid newborns requiring admission to a NICU still results in large expenditures for NICU care.

Some health plans use diagnosis-related group (DRG) payment structures. While this may lower NICU payments for some individual cases, it is not without a downside. Using DRGs may encourage a higher NICU admission rate, and up to 25 percent of NICU DRG cases can hit outlier status, depending on the particular DRG contracting strategy.

Several additional factors have increased preterm birth costs. These include:

Increases in the number of late preterm infants. These infants, between 34 and 37 weeks gestational age, cannot be thought of as just “small-term infants.” Rather, they have increased medical risks, including a higher risk for NICU admission, hospital LOS 4 to 5 times as high as uncomplicated full-term infants, and increased short-term morbidities.

Advances in maternal age. Birth rates have increased for women over age 30 and have decreased for women under 30. Advanced maternal age at the time of delivery is associated with many risks, including greater chance of having a low-birth-weight infant and increased risk of multiple gestation delivery, each increasing the likelihood of preterm birth and NICU admission.

Growth in multiple gestation births. This trend, driven primarily by an increase in the twin birth rate, is in part related to advanced maternal age at delivery and also is related to the increased use of assisted reproductive technologies. There is an 11 percent incidence of preterm birth for singletons and 62 percent for multiple births.

Increases in Cesarean births. The C-section rate in the United States is at an all time high of slightly over 30 percent, driven by many factors, including maternal demographics and health conditions (particularly obesity), decrease in the rate of vaginal deliveries after C-section, and elective C-section without clear medical indication. Medical-legal concerns (for example, the perception that C-section deliveries are safer and therefore less prone to litigation) also contribute.

Changing maternal health risk. There is evidence to suggest that besides obesity, there is an increased incidence of diabetes and either inadequate or excessive weight gain during pregnancy, each of which can raise the incidence of preterm births.

NICU cost factors

MCOs must also better understand the factors leading to higher costs once an infant is admitted to the NICU. One key factor is that NICU LOS has increased, when adjusted for severity, by about 10 percent over the past decade, creating significant financial implications regardless of the contracting strategies employed for payment of NICU care.

Some of the drivers for the increase in NICU length of stay include:

Increased survival of the very-low-birth-weight infant. These infants can have an extended LOS and significant ongoing costs after hospital discharge.

Change in the way in which neonatal care is practiced. Certain medications used in the NICU in the past have had their use curtailed because of significant concern about long-term side effects.

Maternal concerns. There are increased maternal risks and therefore there is increased risk to the infant associated with advanced maternal age. Teen births are also creating challenges associated with lack of prenatal care, the potential for substance abuse, untreated STDs, and poor adherence to care guidelines.

NICU staffing and structure. Some research has shown that having multiple caregivers, insufficient staffing, and a high NICU census and resulting busy staff can influence LOS and outcomes. Variations in NICU practice also extend stays. For example, evidence suggests that when there are multiple caregivers (residents, attending fellows, and so on) care is less continuous on weekends compared to NICUs with fewer personnel providing direct care. Variation in NICU practice from other sources may also extend the hospital stay.

The rewards and benefits in finding ways to better manage costs are too great to ignore. Steps that managed care organizations can take to ensure better outcomes and reduce costs include:

Know and understand factors influencing NICU expenses. Have the ability to examine claims data and identify problem areas, including outliers.

Benchmark case-mix adjusted LOS and create meaningful and attainable LOS goals for contracted providers. Establish and measure clinical goals as well, and track these results in a database to allow feedback to providers on comparative performance measures.

Use clinical guidelines, regularly updated based on the latest research, that incorporate best practices and evidence-based medicine.

Create strong case management programs staffed by clinicians and support staff members who understand NICU patients, can anticipate case trajectory, and can understand the key issues of managing these low-volume, high-cost patients.

Offer an integrated home health team to facilitate safe and timely discharges and avoid unnecessary delays while procuring durable medical equipment (DME) nursing visits, and any necessary follow-up visits after discharge.

Develop programs that improve communication with families, specifically to promote family visitation and involvement in the care of their infant, and knowledge of what to expect during the NICU stay.

MCOs should also review hospital DRG contracts carefully and focus additional resources on patients likely to become outliers. Another important step for MCOs is to identify the potential for level-of-care savings. Hospitals often have three levels of care, ranging from level 3 for the sickest infants, typically those on ventilators, to level 1.

Although 45 percent to 50 percent of NICU days are typically billed at level 3, analysis of managed NICU experience from a large health plan’s external database indicates that only about 25 percent of NICU days truly qualify for this highest level.

Effective for families & MCOs

A comprehensive approach to management of the NICU population can improve many clinical factors in the NICU such as weight gain, feeding progression, continuity of care, and discharge planning.

Not only are these clinical improvements important for the infant and family, but they also lead to a more cost-efficient hospital course.

Using these guidelines and a NICU database, health plans have been able to achieve the following outcomes:

  • Reduction of 8 to 12 percent in hospital length of stay
  • Reduction of 15 to 25 percent in payments for the highest level of care
  • Earlier shifts to lower levels of care
  • More than 30 percent reduction in readmissions after NICU discharge
  • High family satisfaction levels, with rates greater than 95 percent

When organizations strive to meet these goals, the results will not only include the promise of healthier newborns, but also savings that can be used to strengthen and build even better programs.

Mike Kornhauser, MD, is vice president and senior medical director, and Roy Schneiderman, MD, is regional medical director at Alere Women’s and Children’s Health. Both are board certified in neonatal-perinatal medicine. Alere offers patient-centered health management and wellness services to large employers and health plans. Its Women’s and Children’s Health division delivers services in all areas of maternal and newborn care.; 800-304-7866

By the numbers

Care for infants in neonatal intensive care units (NICUs) accounts for 75 percent of all dollars spent for newborn care.

The average cost for infants hospitalized in neonatal intensive care units is around $3,000 per day. While the average cost to an employer of a healthy baby born at full-term, or 40 weeks of gestation, is $2,830, the average cost for a premature baby is $41,610. If the baby is born at 26 weeks, the cost can quickly rise to $250,000 or more.

Infants with a moderately low birth weight can cost 46 percent more than infants born at normal birth weight. The U.S. Agency for Healthcare Research and Quality reports that medical costs for the average very-low-birthweight infant are $79,000, compared with $1,000 for a normal newborn.

A rise in twin and triplet deliveries, coupled with an increase in the number of women having children later in life, has indirectly contributed to an increase in preterm deliveries. According to a 2008 National Vital Statistics Report, the rate of premature births has increased by 36 percent since the 1980s.

NICU length of stay has increased, on a severity adjusted basis, by about 10 percent over the past decade.