Posted on October 15, 1997

For-Profit Hospitals Costlier and Less Efficient


October, 1997

Washington, D.C. A special article in the March 13th New England Journal of Medicine, "Costs of Care and of Administration at For-Profit and Other Hospitals in the U.S.," finds that for-profit hospitals are costlier and less efficient than public or non-profit hospitals, and that hospital paperwork costs are rising.

"The study shows that administrative costs in for-profit hospitals are soaring. In 1990, the average for-profit spent 31.8% of its budget on administration. By 1994, that figure had jumped to 34%. In medicine, market pressures are breeding inefficiency," said Dr. Steffie Woolhandler, co-author of the study, Associate Professor of Medicine at Harvard and co-founder of PNHP.

Administration consumed 26% of total hospital spending nationwide. For-profit hospitals spent 34.0% of their budgets on administration, compared to 24.5% at not-for-profits and 22.9% at public institutions. The data, covering 6,227 U.S. hospitals were obtained from the U.S. Health Care Financing Administration through a Freedom of Information Act request.

According to the study, a day in the hospital cost 35% to 57% more at for-profit general hospitals than at comparable non-profit or public facilities. Paperwork costs per general hospital stay averaged $2,289 at for-profits, versus $1,809 at non-profit and $1,432 at public hospitals, and all of these figures exclude hospital profits which average $123 per patient day at Columbia/HCA hospitals, the nation's largest chain of for-profit hospitals.

The study also found that administration costs rose from 24.8% of total hospital costs in 1990 to 26.0% in 1994 -- $61.8 billion. Hospitals in 7 states devote more than 29% of total spending to administration. States with more HMOs and for-profit hospitals had higher administrative costs. In contrast, Canadian hospitals spend only 10.4% on paperwork.

"Bureaucracy costs jumped sharply when non-profit and public hospitals were purchased by for-profits. If all U.S. hospitals became for-profit, hospital paperwork would rise by $14.8 billion annually," noted Woolhandler. She continued: "It's a myth that for-profit hospitals are efficient. They save money by laying off nurses, then hire consultants and bureaucrats to figure out how to avoid unprofitable patients and maximize revenues. For-profits increase costs, decrease care, and generate windfall profits, like the $359.5 million pocketed by Rick Scott of Columbia/HCA in 1996. They're fat and mean."

Study co-author Dr. David Himmelstein noted that "non-profit national health insurance like Canada's could save the U.S. $157 billion each year on bureaucracy and profits, more than enough to cover the uninsured and to upgrade coverage for the rest of us."

Dr. Quentin Young, an internist and National Coordinator for Physicians for a National Health Program added, "For-profits promised us efficiency, but instead they're wasting millions on bureaucracy. They're more expensive and less efficient. How much longer before we end the failing experiment with market medicine?"