OBJECTIVE: As a component of healthcare reform, payers, hospital administrators, and physicians are looking for ways to reduce hospital expenditures and improve efficiency. The economic benefit of a reduced hospital stay must be weighed against the cost of the treatment or process necessary to achieve the reduced length of stay (LOS). The objective of this paper was to estimate the potential economic benefit of a reduction in inpatient hospital LOS for a common type of admission, community acquired pneumonia (CAP). RESEARCH DESIGN AND METHODS: Data for this study were from the CAP hospital admissions selected from the 2006 Healthcare Cost and Utilization Project (HCUP) National Inpatient Sample (NIS). Potential savings associated with a 1 day reduction in CAP LOS were estimated using three methods: (1) average cost, (2) weighted-average incremental cost of an additional day, and (3) weighted-average predicted mean costs from regression models which were used to estimate incremental cost adjusting for hospitalization characteristics. MAIN OUTCOME MEASURES: Cost per day of CAP hospitalization. RESULTS: A total of 1,471,295 CAP admissions qualified for the analysis. The cost for each day of reduction in LOS in 2009 US dollars was $2273, $2373, and $2319 for the three methods: simple average, incremental, and regression, respectively. Subgroup analysis and regression analysis indicated higher costs were identified: in patients who died in the hospital, had hospital stays in the Northeast or West, and in large hospitals. Longer CAP hospitalizations had a higher cost per additional day. Limitations include those typically associated with the use of administrative claims (e.g., lack of clinical detail, issues related to diagnosis coding). CONCLUSIONS: Eliminating a day during the course of a CAP admission is potentially worth $2273-2373 in economic benefits (2009 dollars). As we strive for greater efficiency in healthcare delivery, changes in processes and/or improved diagnostics or treatments may potentially achieve a reduction in the length of stay. The cost of such changes or improvements must be weighed against the economic benefit of a shorter hospitalization.