Hospital administrative costs in the US

In a study of administrative costs in US hospitals, Woolhandler et al. reviewed 1990 Medicare cost reports from 6400 hospitals. The intent of this study was to determine the validity of previous administrative cost estimate studies in Californian hospitals, which were extrapolated nationwide. The study found that hospital administrative costs ranged from 20.5 (in Minnesota) to 30.6% (in Hawaii) of each hospital's spending. Furthermore, the investigators found that these administrative costs did not vary according to the level of managed care penetration in a particular US state. Using a health maintenance organisation (HMO) enrolment rate of 20% as the median, the study found hospital administrative costs to be similar to states with an HMO enrolment rate of < 20%. The authors concluded that reducing hospital administrative costs to the Canadian level (9 to 11% of total hospital spending) would result in annual savings of $US50 billion. Thus, the authors suggest that if administrative costs are high, US healthcare reform should follow a system similar to that used in Canada.