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Hospital Bureaucracy Costs Billions in Unhealthy Spending

By Laura Kiesel
MainStreet, Sept. 22, 2014

NEW YORK (MainStreet) — Hospitals in the U.S. spend exorbitant amounts on overhead compared to those of other countries, and that's causing financial ills for the average American patient.

According to new research comparing hospital costs in eight nations, including the United States, Canada, England, Scotland, Wales, the Netherlands, France and Germany, the U.S. spends twice as much on bureaucracy as other nations. In particular, the U.S. spends $150 billion annually in hospital overhead alone.

The study — which was spearheaded by the City University of New York (CUNY) and the London School of Economics and also included researchers in France, Germany and the Netherlands and published in the September issues of peer review journal Health Affairs — also found that overhead comprised a little over a quarter (25.3%) of hospital budgets in the U.S. in 2011. What's more, the researchers found that within the U.S., administrative costs were highest (27.2 %) at for-profit hospitals.

Specifically, hospital administrative spending totaled $667 per capita in the U.S., $158 in Canada, $164 in Scotland, $211 in Wales, $225 in England and $325 in the Netherlands. Comparable dollar estimates could not be calculated for French and German hospitals because of accounting differences. However, their hospital administration costs were still found to be about 20% higher than in Canada and Scotland, yet still 40% below the U.S. levels.

"We're squandering $150 billion each year on hospital bureaucracy and $300 billion more is wasted each year on insurance companies' overhead and the paperwork they inflict on doctors," study lead author Dr. David Himmelstein, a professor at the CUNY/Hunter College School of Public Health and lecturer at Harvard Medical School, said in a release.

Overall, administrative costs were lowest (about 12%) in Scotland and Canada, where single-payer systems fund hospitals through global, lump-sum budgets, similar to how fire departments are funded in the U.S.

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

According to the nonprofit coalition Physicians for a National Health Program, single-payer national health insurance would take the form of a public or quasi-public system or agency organizes health care financing, while delivery of care still remains privately managed. Often termed “Medicare for all,” a single-payer system would cover all residents of the U.S. for medically necessary care. For the CUNY-led study, the researchers analyzed detailed accounting data that hospitals reported to each nation's government. The researchers primarily attribute high administrative costs in the U.S. to how complex billing is because of multiple insurers and to the entrepreneurial imperative for hospitals to turn a profit (or, in the case of nonprofit hospitals, to yield surpluses) in order to fund improvements and upgrades. However, the study found no evidence that the high U.S. administrative costs translated into better healthcare for patients or yielded any other benefits.

In fact, the study indicated that entrepreneurial drive in overhead actually reduced hospitals' efficiency, causing them to funnel more money into marketing and to choose more “profitable” patients over unprofitable ones.

Both the Netherlands and England are transitioning to more market-based hospital systems, which seems to be driving up their administrative costs, in turn offering more evidence that reinforces the fact that profit-based medical care actually can be more costly while also being less efficient.

"For three decades our policy makers have pushed market-oriented strategies that have turned health care into a business,” said Dr. Steffie Woolhandler, senior author of the study. “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."

Though there is bill in the reintroduced to the House that sought to introduce a national single-payer health insurance system in the U.S. -- H.R. 676, or The Expanded and Improved Medicare for All Act -- it is currently stalled in Congress. In 2011, the Vermont state government enacted a law that established the first state-level, single-payer health care system in the nation.

http://www.mainstreet.com/article/hospital-bureaucracy-costs-billions-in...