Study: U.S. squanders $150B a year on hospital bureaucracy

By William Ulwelling, M.D.
Albuquerque Journal, Sept. 15, 2014

How affordable is the American health care system? And are matters getting better or worse? One factor is the cost-effectiveness of our hospitals. A major study published recently in Health Affairs revealed a big problem, and proposed an answer.

This study of hospital administrative costs in eight nations found that hospital bureaucracy consumed 25.3 percent of hospital budgets in the United States, far more than in other nations.

Step across the border into Canada and administrative costs in its hospitals – funded through a single-payer system – run about 12 percent. On a per capita basis, Americans are spending $667 per person on hospital administration, while Canadians spend only $158.

Of note, the study found no evidence that the high U.S. administrative costs translated into better care or yielded any other benefits.

These administrative costs are increasing – from 23.5 percent of U.S. hospital budgets in 2000 to 25.3 percent of hospital budgets in 2011. And the $215 billion American hospital administrative cost is a big-ticket item, amounting to 1.43 percent of our GDP.

The article attributes the high hospital overhead costs in the United States to two factors: (1) the complexity of billing a multiplicity of insurers with varying payment rates, rules and documentation requirements; and (2) the entrepreneurial imperative for hospitals to amass profits (or surpluses for nonprofits) to fund modernization and upgrades essential to survival.

Paradoxically, this entrepreneurial imperative has reduced hospital efficiency, driving them 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.

The study’s author summarizes the problem: “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.

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

The Patient Protection and Affordable Care Act was a step in the right direction but we need to move to a single-payer system. The recent Health Affairs article adds to the concerns that, unless health care financing reform is put in place, Americans may be saddled with an un-Affordable Care Act.

Implementation of a single-payer system, also known as “Improved Medicare for all,” would provide substantial administrative and cost efficiencies. Additionally, it could remedy the greatest shortcoming of the ACA, which falls short of providing true patient protection.

While the ACA is expected to cover an additional 26 million people by 2024, forecasters expect that 31 million Americans will still lack insurance coverage in 2024. If our health care system became more cost-efficient and affordable, the savings could cover the final step of ensuring universal patient protection for all Americans.

Physicians from across the country – myself included – are fighting for improved Medicare for all. The organization leading the fight is Physicians for a National Health Program and, with 19,000 members, it is the nation’s largest single-payer advocacy group.

Here in New Mexico, the local chapter of Physicians for a National Health Program has invited Dr. Andy Coates, president of PNHP, to speak to the public at University of New Mexico Health Science Center Domenici Auditorium this Thursday from 5:30 p.m. to 7 p.m. His talk, “Beyond the ACA: The Single-Payer Solution” will discuss the new research on hospital waste, as well as other reasons why the American health care system needs to progress beyond the ACA. 

Dr. William Ulwelling is a resident of Albuquerque.