Hos­pi­tals ex­cel—in ad­min­is­tra­tive costs

Modern Healthcare - - COMMENT - By Dr. St­effie Wool­han­dler

When I was a kid in Shreve­port, La., my fa­ther was chief of ra­di­ol­ogy at the lo­cal hos­pi­tal. He also ran the hos­pi­tal and su­per­vised the cafe­te­ria. To­day he’d be the COO.

Now hos­pi­tal ad­min­is­tra­tion takes a vil­lage. And that’s not a good thing.

Hos­pi­tal ad­min­is­tra­tion cost the U.S. $215 bil­lion in 2011. Other na­tions ad­min­is­ter mod­ern, first-class hos­pi­tals for far less.

A study by our in­ter­na­tional team just pub­lished in Health Af­fairs found that ad­min­is­tra­tion con­sumed 25.3% of U.S. hos­pi­tal bud­gets—1.43% of GDP (up from 0.98% in 2000), or $667 per capita. Canada spent $158, Scot­land $164, Eng­land $225 and The Nether­lands $325. If U.S. hos­pi­tals ran as ef­fi­ciently as Canada’s or Scot­land’s, the av­er­age fam­ily of four would save $2,000 an­nu­ally on health costs.

Not sur­pris­ingly, ad­min­is­tra­tive costs were high­est where hos­pi­tals must cope with a mul­ti­tude of in­sur­ers, with vary- ing co­pay­ments, rates and reg­u­la­tions. Canada and Scot­land—where costs are low­est—have sin­gle-payer sys­tems that pay hos­pi­tals a lump-sum bud­get, the way we fund fire sta­tions. And like fire de­part­ments, their hos­pi­tals don’t col­lect from each vic­tim of mis­for­tune.

But pay­ment com­plex­ity isn’t the only cost driver. Cana­dian and Scot­tish hos­pi­tal ad­min­is­tra­tors don’t have to play fi­nan­cial games that gen­er­ate prof­its. Gov­ern­ment grants, rather than cap­i­tal mar­kets or ac­cu­mu­lated sur­pluses, fund new build­ings and equip­ment. Even in Ger­many and France—which have multi-payer sys­tems—ad­min­is­tra­tive costs re­main mod­est be­cause gov­ern­ment grants fund most hos­pi­tal cap­i­tal.

In con­trast, as Eng­land has forced hos­pi­tals to seek prof­its in an in­creas­ingly mar­ket-ori­ented sys­tem, ad­min­is­tra­tive costs have soared. And ad­min­is­tra­tive costs in the Nether­lands, which is im­ple­ment­ing rad­i­cal mar­ket­based re­forms, are sec­ond only to ours.

Our find­ings chal­lenge con­ven­tional wis­dom that mar­ket dis­ci­pline leads to hos­pi­tal ef­fi­ciency. Within the U.S., for­profit hos­pi­tals spend less than not­for-prof­its on clin­i­cal per­son­nel like nurses, yet have higher to­tal and ad­min­is­tra­tive costs. In­ter­na­tion­ally, hos­pi­tal ef­fi­ciency is best in na­tions shun­ning mar­ket forces.

Ac­count­able care or­ga­ni­za­tions that force hos­pi­tals to be­have like in­surance com­pa­nies won’t stream­line ad­min­is­tra­tion. But a sin­gle-payer re­form could re­al­ize vast sav­ings on ad­min­is­tra­tion and re­di­rect them to im­proved cov­er­age and care.

Dr. St­effie Wool­han­dler is a co-founder of Physi­cians for a Na­tional Health Pro­gram and a pro­fes­sor at the City Univer­sity of New York’s School of Pub­lic Health at Hunter Col­lege.

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