Higher admin costs in Ontario

Hospital restructuring, insurance claims boost expenses, CEO says

Hospitals in Ontario spend more on administrative departments than hospitals in other Canadian provinces, a new analysis of hospital performance measures has found.

Measuring administrative expense and comparing to a hospital’s total expenses is a way of assessing an institution’s financial efficiency, according to the Canadian Institute for Health Information (CIHI). The not-for-profit organization released its groundbreaking analysis Wednesday.

“If you are spending an exorbitant amount of money on your administrative costs as a per cent of your total cost, that is money that could be directed to other places,” said Kira Leeb, director of health system performance at CIHI. In general, she said, a lower value for this measurement indicates greater efficiency.

In 2009, the most recent year for which data is available, the provincial average for administrative expense was 5.92 per cent. That means, on average in Ontario hospitals, just under six per cent of total expenses were spent on administrative departments, such as finance and human resources. In comparison, the national average was 4.84 per cent.

In the Greater Toronto area, almost every hospital ranks higher than the national average for this specific measure and half of the large community hospitals are higher than the provincial average.

In 2009, the University Health Network spent 4.45 per cent of its expenses on administrative departments, the lowest of any of the GTA’S five teaching and 14 large community hospitals. That year, the Rouge Valley Health System funneled 8.79 per cent of its expenses toward administrative departments — the most of any large community hospital in Ontario.

Rik Ganderton, president and CEO of Rouge Valley, said major financial issues came to a head in 2007 and 2008, which led to a major hospital restructuring plan that included, among other things, costly severance packages.

The hospital, he added, also has a very high insurance premium because of a large clinical claim that was filed against it in the early 2000s and a fraud claim in 2007.

“And those have contributed to us having insurance premiums that are about two-and-a-half to three times the average. That adds about 1.5 per cent to our administrative costs, and our restructuring adds about 1.3 per cent to our administrative costs.”

He said Rouge’s average administrative costs in 2011 and 2012 improved to around 7.8 per cent.

“We’re still above (the average). But we’re still continuing with some restructuring and we continue to experience the large insurance premiums as well.”

Mark Rochon, interim president and CEO of the Ontario Hospital Association, said comparing administrative expenses at hospitals across Canada and to a national average is a bit like “comparing apples and oranges.”

Ontario has 150 hospital corporations, each with its own administrative costs, whereas Alberta has one organizational structure for the province, Rochon said.

He also pointed out some hospitals have different organizational structures that would account for higher administrative costs. Research hospitals, for example, may have additional overhead.

In general, though, publicly releasing such performance measures, Rochon said, stimulate a hospital to ask: “What can we understand about the cost structure in our organization, and are there opportunities . . .to improve?”