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Administrative costs in U.S. hospitals
S Woolhandler1, D U Himmelstein, J P Lewontin
1Center for National Health Program Studies, Cambridge Hospital and Harvard Medical School, MA 02139.
The New England Journal of Medicine
|August 5, 1993
Summary
U.S. hospital administrative costs in 1990 were higher than previously estimated, averaging 24.8% of spending. These significant bureaucratic expenses were not reduced by increased enrollment in health maintenance organizations (HMOs).
Area of Science:
- Health Services Research
- Healthcare Economics
- Hospital Administration
Background:
- Previous U.S. hospital administrative cost estimates relied on controversial California data.
- High bureaucratic costs suggest potential savings from policy reforms.
Purpose of the Study:
- To accurately estimate nationwide hospital administrative costs.
- To assess the impact of health maintenance organizations (HMOs) on these costs.
Main Methods:
- Analyzed Medicare cost-reporting data from 6,400 U.S. hospitals for fiscal year 1990.
- Calculated administrative costs by aggregating specific Medicare cost-accounting categories.
- Classified most other expenses as clinical, with exclusions and proportional allocations for certain categories.
Main Results:
- Nationwide average hospital administrative costs reached 24.8% of total spending in fiscal year 1990.
- Administrative costs varied by state, from 20.5% in Minnesota to 30.6% in Hawaii.
- Administrative salaries constituted 22.4% of total hospital salary expenditures.
Conclusions:
- U.S. hospital administrative costs exceed prior estimates and are more than double those in Canada.
- Increased health maintenance organization (HMO) enrollment and managed-care competition did not demonstrably lower hospital administrative costs.