OBJECTIVE: Health-care leaders place significant focus on reducing the average length of stay (ALOS). We examined the relationships among ALOS, cost and clinical outcomes using a neonatal intensive care unit (NICU) simulation model. STUDY DESIGN: A discrete-event NICU simulation model based on the Duke NICU was created. To identify the relationships among ALOS, cost and clinical outcomes, we replaced the standard probability distributions with composite distributions representing the best and worst outcomes published by the National Institutes of Health Neonatal Research Network. RESULT: Both average cost per patient and average cost per ⩽28 week patient were lower in the best NICU ($16,400 vs $19,700 and $56,800 vs $76,700, respectively), while LOS remained higher (27 vs 24 days). CONCLUSION: Our model demonstrates that reducing LOS does not uniformly reduce hospital resource utilization. These results suggest that health-care leaders should not simply rely on initiatives to reduce LOS without clear line-of-sight on clinical outcomes as well.