Reasons for increasing administrative costs in hospitals

To evaluate trends in administrative expenditures by examining changes in administrative costs compared with other areas of the hospital budget, changes in expenditures for patient care departments compared with nonpatient care departments, and departments with a greater number of regulatory requirements compared with those with fewer regulatory requirements.

Annual hospital operating budgets submitted to Blue Cross were examined for an 8-year period from 1983 to 1990.

Seventy hospitals in Western Pennsylvania.

Annual operating expenditures.

Total administrative expenditures showed a larger growth rate (90%) than service departments (29%), ancillary services (30%), professional care (52%), miscellaneous expenses (70%), and the total hospital budget (45%). Administrative costs increased from 10.6% as a proportion of the total hospital budget in 1983 to 13.9% in 1990. These increases were seen regardless of hospital size. Departments with a greater number of regulatory obligations had a greater increase in expenditures (84%) than did departments with fewer regulatory requirements (5%). However, overall expenditures in departments with direct patient care responsibilities did not increase appreciably faster (44%) than in departments not providing clinical services (46%), possibly reflecting the fact that administrative costs may be increasing equally in both areas.

Administrative costs were found to be one of the fastest growing components of hospital budgets. Future research should determine the effect of these increases on the quality of patient care.