US Hospital Administrative Costs Exceed Comparable Countries

An analysis of hospital administrative costs across 8 countries found hospital bureaucracy accounts for a quarter of hospital spending in the United States, according to a study in Health Affairs.

The international research team led by David Himmelstein, MD, used data from 2010 or 2011 to compare hospital administration costs in the US with Canada, England, France, Germany, the Netherlands, Scotland, and Wales. Administrative costs in the US were by far the highest (25.3%), followed by the Netherlands (19.8%), and England (15.5%). In Scotland and Canada, both single-payer systems, administrative costs were only about 12%.

According to the researchers, reducing US per capita spending for hospital administration to the level of Scotland of Canada would have saved more than $150 billion in 2011.

“We’re squandering $150 billion each year on hospital bureaucracy,” Himmelstein, a professor at the City University of New York’s (CUNY) Hunter College School of Public Health and lecturer at Harvard Medical School, said in a statement. “And $300 billion more is wasted each year on insurance companies’ overhead and the paperwork they inflict on doctors.”

In the US, for-profit hospitals spend a larger portion of costs on administration (27%) compared with nonprofits (25%), public (23%), and teaching (24%) hospitals. From 2000 to 2011 hospital administrative costs increased 120% from $97.8 billion to $215.4 billion.

Since the Netherlands and England are both transitioning to market-oriented payment systems, the authors write that the data suggests a simpler and less market-oriented payment scheme would reduce administrative costs.

“Only a single-payer reform can squeeze out the bureaucratic waste and use the money to give patients the care they need,” Himmelstein said. “Instead, we’re layering on more bureaucracy in insurance exchanges and accountable care organizations.”

While the proportion of hospital costs spent on administration rose in the US from 23.5% in 2000 to 25.3% in 2011, Canada’s costs decreased from 12.9% to 12.4% during that same time period.

Unfortunately, the study reported there was no evidence that America’s higher administrative costs translated to better quality care or yielded any other benefits.

“For 3 decades our policy makers have pushed market-oriented strategies that have turned health care into a business,” Steffie Woolhandler, MD, MPH, senior author and a professor at CUNY’s Hunter College, said in a statement. “As a result, Americans now have the world’s costliest health care, and our life expectancy is years shorter than in most other wealthy nations. It’s time to admit that, when it comes to caring for sick people, markets don’t work.”