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American Hospitals Waste a Shocking Amount on Administrative Costs

Flushed Away

The United States has, by far, the most expensive health care system in the world. Partly because the federal government lets the industry overcharge people and partly because its Rube Goldberg-like structure requires a huge amount of money spent on keeping it all running. Every hospital has to negotiate a different price with every insurer for just about every single item.

A new study in Health Affairs found we are wasting roughly $150 billion a year on hospital administrative costs. From Health Affairs:

We found that administrative costs accounted for 25.3 percent of total US hospital expenditures—a percentage that is increasing. Next highest were the Netherlands (19.8 percent) and England (15.5 percent), both of which are transitioning to market-oriented payment systems. Scotland and Canada, whose single-payer systems pay hospitals global operating budgets, with separate grants for capital, had the lowest administrative costs. Costs were intermediate in France and Germany (which bill per patient but pay separately for capital projects) and in Wales. Reducing US per capita spending for hospital administration to Scottish or Canadian levels would have saved more than $150 billion in 2011. This study suggests that the reduction of US administrative costs would best be accomplished through the use of a simpler and less market-oriented payment scheme.

While the Affordable Care Act had some provisions that were supposed to help reduce paperwork expenses, like promoting electronic records, but by just expanding the fragmented private insurance system it assured most of the needless waste will continue. Going with the creating of exchanges in fact just added another layer of bureaucracy onto a system already suffocating under the weight of administrative spending.

Photo by Ramberg Media Images under Creative Commons license.

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Jon Walker

Jon Walker

Jonathan Walker grew up in New Jersey. He graduated from Wesleyan University in 2006. He is an expert on politics, health care and drug policy. He is also the author of After Legalization and Cobalt Slave, and a Futurist writer at http://pendinghorizon.com

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