'Market forces' create bloated hospital bureaucracies: international study

By Markus Mannheim
The Canberra Times (Australia), Sept. 9, 2014

United States hospitals spend a quarter of their budgets on administration, more than twice as much as some other countries, an international study has found.

Meanwhile, separate data suggests Australian public hospitals may be only marginally more efficient than American hospitals.

The latest issue of Health Affairs journal reported on the eight-nation study, which found "bureaucracy" - e.g. central administration, IT and marketing - took up 25.3 per cent of US hospital budgets in 2011.

By comparison, administrative costs were only about 12 per cent in Scotland and Canada, countries with simpler, publicly funded health systems.

Hospitals in nations with some elements of private funding, such as Germany and France, had intermediate administrative expenses, while those shifting to "market-oriented payment systems", such as the Netherlands (19.8 per cent), faced costs closer to the US's.

The study attributed the high costs of the mostly private US system to the complexity of billing, given the need to deal with a wide range of health insurers and payments.

However, it also said the "entrepreneurial imperative" to make a profit undermined efficiency, by encouraging hospitals to "divert personnel and dollars to marketing, to cherry-picking profitable patients and services (and avoiding unprofitable ones), and to expensive computer systems and consultants to game the payment system".

Lead author Professor David Himmelstein, of Hunter College's school of urban public health, said US hospitals wasted $US300 billion a year on insurance companies' overheads "and the paperwork they inflict on doctors".

Another author, Steffie Woolhandler, said the result of America's market-oriented healthcare policies had created "the world's costliest healthcare, 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."

Australian hospitals were not included in the international study.

However, Independent Hospital Pricing Authority data published this year shows overheads made up 22.7 per cent of the costs faced by Australian public hospitals in 2011-12.

A spokeswoman for the authority said this amount was "not the same as administrative costs as described in the study by Himmelstein et al, and direct comparison should not be made to the figures quoted in the study".

The national commission of audit warned earlier this year that hospital expenses were "one of the fastest-growing areas of government spending", with budgets expected to grow by 10.4 per cent a year over the next decade.

Markus Mannheim is public service editor at The Canberra Times.