Authors say single-payer reform could save $150 billion annually on hospital overhead

Sept. 8, 2014
Contact:
Mark Almberg, mark@pnhp.org, (312) 782-6006

A study of hospital administrative costs in eight nations published today in the September issue of Health Affairs finds that hospital bureaucracy consumed 25.3 percent of hospital budgets in the U.S. in 2011, far more than in other nations.

Administrative costs were lowest (about 12 percent) in Scotland and Canada, whose single-payer systems fund hospitals through global, lump-sum budgets, much as a fire department is funded in the U.S.

The study is the first analysis of administrative costs across multiple nations with widely varying health systems. It was carried out by an international team from the U.S., the U.K., France, Germany and the Netherlands, and was coordinated by researchers at the City University of New York (CUNY) and the London School of Economics.

The researchers analyzed detailed accounting data that hospitals reported to each nation’s government. The data covered virtually all hospitals in each nation. The research was funded by a grant from The Commonwealth Fund, which played no role in the study.

Hospital administrative spending totaled $667 per capita in the U.S., vs. $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 about 20 percent higher than in Canada and Scotland, but still 40 percent below the U.S. levels.

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

The study also found that U.S. hospital administrative costs rose from 23.5 percent of hospital budgets ($97.8 billion – 0.98 percent of GDP) in 2000 to 25.3 percent ($215.4 billion – 1.43 percent of GDP) in 2011.

In contrast, the proportion spent on administration by Canadian hospitals fell slightly from 12.9 percent in 1999 to 12.4 percent in 2011. The article attributes the high administrative costs in the U.S. 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, for nonprofit hospitals, surpluses) in order to fund the modernization and upgrades essential to survival.

Paradoxically, this entrepreneurial imperative has reduced hospitals’ 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 researchers found that within the U.S., administrative costs were highest (27.2 percent of spending) at for-profit hospitals.

The relatively high hospital administrative costs in the Netherlands, and rising costs in England – both of which are transitioning to market-oriented hospital systems – were also cited as evidence that increasing reliance on market mechanisms raises administrative costs.

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

He added: “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 in insurance exchanges and ‘accountable care organizations.’”

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

Woolhandler is a professor at CUNY/Hunter College who also holds appointments at Harvard and the Albert Einstein College of Medicine. She co-founded Physicians for a National Health Program with Dr. Himmelstein.

**** “A Comparison Of Hospital Administrative Costs In Eight Nations: US Costs Exceed All Others By Far,” David U. Himmelstein, Miraya Jun, Reinhard Busse, Karine Chevreul, Alexander Geissler, Patrick Jeurissen, Sarah Thomson, Marie-Amelie Vinet, and Steffie Woolhandler. Health Affairs, September 2014.

A link to the abstract of the study is available here: http://content.healthaffairs.org/content/33/9/1586.abstract

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bullet Points for Legislators

  • Single Payer saves money.  For the past 20 years, states have commissioned studies on different types of health care systems.   In EVERY case, single payer was shown to be the only way to cover everyone and the only system that saved money and controlled costs.

  • Publicly financed does not mean government run health care.  YOU have publicly finance health coverage, but the government does not make decisions regarding your health care.

  • Cost conscious patients often don't get the care they need.   Most decisions are made by the doctor in concert with the patient, but the patient relies on the doctor's knowledge to make a decision.  Expensive tests and treatments cannot be ordered by the patient, only the doctor.

  • Lifestyle choices are not what is fueling high costs in health care.   The United States ranks low in general health indicators, but high in good health habits.  We smoke less, drink less and consume less animal fat that many other countries with better health indicators and much lower health care costs.

  • Businesses can accurately determine their health care costs and are not subject to unanticipated large premium increases.

  • It will reduce labor costs due to a more efficient way of financing health care, eliminating much wasteful administration.

  • Workers' Compensation costs will be reduced, likely by half, due to the fact that everyone has health coverage and there is no need for the medical portion.

  • It reduces the need for part time employees and provides easier recruiting.  There are no pre-existing conditions or Cobra issues.

  • Eliminates the oversight of health benefits and bargaining health coverage with employees.

  • It creates healthier personnel and more stable employees, reduces absenteeism and eliminates employer health coverage complaints.

  • It reduces employee health related debt and personal bankruptcies.

  • It frees up family income that can be spent on other goods and services, thus stimulating the economy.

Tips for Writing Letters to Editor

Follow guidelines for your local paper (word count, submission instructions, etc.)

Frame your letter in relation to a recent news item Use state specific data whenever possible (let us know if you need help finding some!)

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Be aware of your audience and emphasize how Medicare for All is good for ALL residents of the state

Criticize other positions, not people Include your credentials (especially if you work in the healthcare field)

Avoid jargon and abbreviations

Don’t overload on statistics and minor details

Cover only one or two points in a single letter

Avoid rambling and vagueness

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