|
May
1997
Costs
of care and administration at for-profit hospitals and other hospitals
in the United States
Woolhandler S and Himmelstein DU;
New England Journal of Medicine 1997; 336:769-74.
[ see
abstract below ]
I love research that defies conventional wisdom, as this paper does. We
are all led to believe how mean and lean for-profit hospitals are, and
so would expect less money wasted on administration versus the amount
being spent on the necessary medical care of our patients.
The authors state: "Many assume that the growth of for-profit hospitals
in the United States is attributable to the lower costs and greater efficiency
and that competitive pressures are wringing excess from hospitals. That
was not true in the past, and is not true now. More money is siphoned
out of the system by for-profit hospitals to administer them, leaving
less money for the care of patients."
In this study, for the fiscal year 1994, 3382 not-for-profit private hospitals,
1228 private hospitals, and 1555 public hospitals were compared using
hospital reported data that is required of all hospitals doing business
with HCFA. Data from 6227 non-federal (i.e. VA excluded) hospitals were
studied. General short-term care hospitals were the majority (5201).
Expenses were defined as administrative, clinical, mixed administrative/clinical,
and other (e.g. gift shops). Mixed administrative/clinical costs were
allocated by the authors to the appropriate administrative or clinical
area. The cost analysis was controlled for percent of outpatient services,
regions, average wages, and number of beds.
Administration costs went up since 1990 from 24.8% to 26% of total hospital
costs. For-profit hospitals consumed a whopping 34% of total hospital
expenditures, up from 31.8% in 1990. Public and private not-for-profit
hospitals consumed 22.9 and 24.5% in administrative costs.
Inpatient care costs rose. For-profit hospitals had much higher inpatient
costs reported to HCFA than public or not-for-profit hospitals. For-profit
hospitals cost $1405/day, not-for-profits cost $1040/day, and public hospitals
cost $895/day. Total costs per inpatient discharge were similarly scaled.
Administrative costs accounted for a large portion of the difference in
costs for inpatient care. While spending more on administration, for-profit
hospitals paid their employees less.
The authors conclude that business success in the marketplace may not
mirror efficiency. Hospitals may make great profits by "cherry-picking"
patients, aggressively collecting fees, etc. They do not necessarily make
greater profits by providing either cheaper care, or by decreasing administration
and only delivering necessary medical care.
The authors ask whether we are buying improved, more efficient medical
care, or simply expanding the pocketbooks of the administrators and stock
holders of these for profit hospitals. In my humble opinion, it is the
latter.
Return to the Current
Literature Review Front Page, or read the abstract:
ABSTRACT
Background: In the fiscal year 1990, administration accounted for
24.8 percent of total hospital costs in the United States--nearly twice
the share in Canada. Studies from the 1970s and early 1980s found high costs,
especially for administration, at for-profit hospitals.
Methods: We calculated administrative costs for 6227 nonfederal hospitals
and the total costs of inpatient care for 5201 acute care hospitals in the
United States for the fiscal year 1994 on the basis of data the hospitals
submitted to Medicare. We analyzed similar data for the fiscal year 1990.
Using multivariate analysis, we assessed the effect of hospital ownership
(private not-for-profit, for-profit, and public) on administrative costs,
controlling for hospital type, census region, hospital size, and the proportion
of revenues derived from outpatient services. We adjusted inpatient costs
for local wage levels, hospitals' reporting periods, and case mix.
Results: Administrative costs accounted for an average of 26.0 percent
of total hospital costs in fiscal year 1994, up 1.2 percentage points from
1990. They increased by 2.2 percentage points, to 34.0 percent, for for-profit
hospitals; by 1.2 percentage points, to 24.5 percent for private not-for-profit
hospitals; and by 0.6 percentage point, to 22.9 percent, for public hospitals.
In 1994, administration accounted for 37.5 percent of total costs at psychiatric
hospitals (44.4 percent at for-profit hospitals) and 33.0 percent of total
costs at rehabilitation hospitals (37.7 percent at for-profit hospitals).
In a multivariate analysis, for-profit ownership was associated with a 7.9
percent absolute (34 percent relative) increase in the proportion of hospital
spending devoted to administration as compared with public hospitals and
a 5.7 percent absolute (23 percent relative) increase as compared with private
not-for-profit hospitals.
Among acute care hospitals, for-profit institutions had higher adjusted
costs per discharge ($8,115) than did private not-for-profit ($7,490) or
public ($6,507) hospitals. Much of the difference was due to higher administrative
costs ($2,289, $1,809, and $1,432 per discharge, respectively).
Conclusions: Administrative costs as a percentage of total hospital
costs increased in the United States between 1990 and 1994 and were particularly
high at for-profit hospitals. Overall costs of care were also higher at
for-profit hospitals.
|
