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OBJECTIVE: To determine the effect of postpartum length of stay on newborn readmission. DATA SOURCES: Secondary data set consisting of newborns born in Washington state in 1989 and 1990. The data set contains information about the characteristics of the newborn and its parents, physician, hospital, and insurance status. STUDY DESIGN: Analysis of the effect of length of stay on the probability of newborn readmission using hour of birth and method of delivery as instrumental variables (IVs) to account for unobserved heterogeneity. Of approximately 150,000 newborns born in Washington in 1989 and 1990, 108,551 (72 percent) were included in our analysis. PRINCIPAL FINDINGS: Newborns with different lengths of stay differ in unmeasured characteristics, biasing estimates based on standard statistical methods. The results of our analyses show that a 12-hour increase in length of stay is associated with a reduction in the newborn readmission rate of 0.6 percentage points. This is twice as large as the estimate obtained using standard statistical (non-IV) methods. CONCLUSION: An increase in the length of postpartum hospital stays may result in a decline in newborn readmissions. The magnitude of this decline in readmissions may be larger than previously thought.