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U.S. Hospitals' Administrative Expenses Increased Sharply During COVID-19
Yang Wang1, Ge Bai2,3, Gerard Anderson1,4
1Johns Hopkins Bloomberg School of Public Health, Baltimore, MD, USA.
Insights
During the COVID-19 pandemic, U.S. hospitals significantly increased administrative expenses while clinical expenses grew minimally. This shift in spending may indicate operational adjustments or inefficient cost management by healthcare facilities.
Area of Science:
- Healthcare Management
- Health Economics
- Pandemic Response
Background:
- The COVID-19 pandemic led to decreased revenue and furloughs in the U.S. hospital industry.
- Hospitals' administrative expenses, over a quarter of total spending, were examined for pandemic-related adjustments.
- Understanding these changes is crucial for assessing hospital cost-containment strategies during crises.
Purpose of the Study:
- To analyze the changes in U.S. hospitals' administrative and clinical expenses during the COVID-19 pandemic in 2020.
Main Methods:
- A time-series observational study was conducted.
- Data included 1420 general acute-care hospitals from 2016 to 2020.
- Annual administrative and clinical expenses were the primary measures analyzed.
Main Results:
- Median administrative expenses increased by 6.2% from 2019 to 2020, compared to a 0.6% increase in clinical expenses.
- Interrupted time-series regression showed an additional 6.4% rise in administrative costs in 2020.
- Hospitals with higher utilization, lower COVID-19 burden, or in wealthier areas saw greater administrative expense increases.
Conclusions:
- Administrative expenses grew substantially faster than clinical expenses in 2020, increasing their share of hospital spending.
- This trend may reflect hospitals' pandemic operational efforts or suboptimal cost management.
- Further investigation is needed to determine the drivers and implications of rising administrative costs.
Background:
In response to the declining utilization and patient revenue due to the COVID-19 pandemic, the U.S. hospital industry furloughed at least 1.4 million health care workers to contain their clinical-related expenses. However, it remains unclear how hospitals responded by adjusting their administrative expenses, which account for more than a quarter of U.S. hospitals' spending, a proportion substantially higher than that of other industrialized countries. Examining changes in hospitals' administrative expenses during the COVID-19 pandemic is important for understanding hospitals' cost-containment behaviors under operational shocks during a pandemic.
Objective:
To assess changes in hospitals' administrative expenses and clinical expenses during the COVID-19 pandemic in 2020.
Design:
Time-series observational study.
Participants:
1420 Medicare-certified general acute-care hospitals with fiscal years starting in January and continuously operating during 2016-2020.
Main Measures:
Hospitals' annual administrative expenses and clinical expenses.
Key Results:
Hospitals' median administrative and clinical expenses both increased consistently around 4% each year from 2016 to 2019. From 2019 to 2020, the median administrative expenses grew by 6.2% while the median clinical expenses grew by 0.6%. The interrupted time-series regression estimated an additional 6.4% (95% CI, 4.5 to 8.2%) increase in administrative expenses in 2020, relative to the pre-COVID annual increase of 3.9% (95% CI, 3.3 to 4.4%), while an additional increase in clinical expenses in 2020 (0.5%; 95% CI, -0.3 to 1.4%) did not differ from the pre-COVID annual increase of 3.7% (95% CI, 3.5 to 4%). Stratified analysis showed hospitals with larger utilization volume, located in states with lower COVID-19 burden, or situated in counties with higher median household income experienced larger increase in administrative expenses in 2020.
Conclusions:
In 2020, administrative expenses grew much faster than clinical expenses, resulting in a larger share of hospital financial resources allocated to administrative activities. Higher administrative expenses might reflect hospitals' operational effort in response to the pandemic or inefficient cost management.
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