U.S. hospitals spend more on administration than patient care

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U.S. hospitals spend so much on unnecessary administration tasks that it adds about $2,000 to the typical American household's healthcare costs, new research by two physicians concluded.

"About $1 out of every $4 of U.S. hospital spending goes to bureaucracy rather than patient care," wrote Steffie Woolhandler, M.D., and David Himmelstein, M.D., in the publication Troy Media.

Hospital administration costs in the United States run about $667 per person each year, whether hospitalized or not--for about $215 billion in total. That compares to $158 per person in Canada, $164 in Scotland and $325 in the Netherlands. If U.S. hospital administrative costs were on par with Canada, each U.S. household would save about $2,000 a year.

Woolhandler and Himmelstein concluded the primary reason for the stark cost differential is the fact that hospitals in the United States have to negotiate multiple contracts with insurers, versus the single-payer systems in those other countries, where such contracting issues are nonexistent. Woolhandler and Himmelstein also noted hospitals in the United States have been installing more layers of management over the past 15 years, which adds to the costs. That is the consequence of a market-driven healthcare system, wherein providers have to generate profits to fund capital projects such as new buildings and equipment.

The gap between hospital costs and patient charges in the United States also widened during roughly that same period of time, with a correlation between a lack of regulation on the state level and an increase in that gap. Researchers suggest hospitals made those markups due to pressure to make up reimbursement shortfalls.

The pair also argued that when market-driven reforms were introduced into the European counterparts, costs started to soar, particularly in the United Kingdom in the 1980s, and more recently in the Netherlands, where "radical market-oriented reforms now pressure hospitals to show a profit."

To learn more:
- read the Troy Media article

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