The administrative costs in US healthcare sector consumed approximately $156 billion in 2007 and this spending is projected to reach $315 billion by 2018. Recently, a study published in Health Affairs compared hospital administrative costs of eight nations. According to the study, the US hospital administrative costs were the highest, consuming 25.3% of hospital budgets in 2011.
Canada and Scotland had the lowest expenses amounting to just 12%, whereas German and French hospital expenses were 20% higher than Scotland in UK and Canada. But it is still 40% lesser than US.
According to the industry experts, if the per capita spending for hospital administration was reduced, the US healthcare industry would have saved more than $150 billion in 2011.
Reason behind High Administrative Costs in the US
Hospital administrative cost accounts for approximately 25% of the total US hospital spending. The healthcare system in the US is different from other countries and how the hospitals get funding affects the administrative costs. In Canada and Scotland hospitals are funded through a single-payer-system whereas the United States are funded through a multi-payer system that adds to the administrative time.
Hospitals in Canada and Scotland receive funding from direct government grants and global operating budgets, whereas in the US, surpluses from day-to-day operations account for most of the hospital capital funding.
US hospitals also have a large number of administration personnel compared to other nations. Countries where hospital administrators have few responsibilities aside from management and co-ordination, administration alone takes up approximately 12% of total hospital spending.
How Can US Hospitals Bring Down their Spending?
Hospital administrative spending totaled $158 per capita in Canada, $164 in Scotland and $667 in the US. According to David Himmelstein, Lecturer at Harvard Medical School and Professor at CUNY / Hunter College School of Public Health, around $300 billion and more is wasted every year in the US on overhead of insurance companies and the paperwork these companies inflict on doctors. He added that US is consuming approximately $150 billion every year on hospital bureaucracy.
Experts believe that a single-payer model in the US healthcare system will lead to administrative savings. In the US, complexities involved in billing various insurers with different payment rates, documentation requirements and rules have led to the rise in administrative costs.
There is a strong need to implement effective cost-cutting measures that will help bring down the expenditures without affecting quality of patient care.
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