By Alan Bavley
The Kansas City Star, Sept. 8, 2014
Eye-popping compensation packages of hospital executives — particularly those at safety-net and nonprofit hospitals — are regular fodder for exposes and editorials.
Consider the $1.2 million that tax records show was paid to former Truman Medical Centers CEO John Bluford in salary, bonuses, benefits and deferred compensation, or the nearly $1.5 million paid to St. Luke’s Health System CEO Melinda Estes, or the $2 million paid to Children’s Mercy Hospital CEO Randall O’Donnell. Those are typical of what leaders of major U.S. hospital organizations make.
But sensational figures like these may just be a symptom. The billion-dollar problem appears to be the bloated bureaucracies of American hospitals.
A study out today in the journal Health Affairs finds that 25.3 percent of hospital expenditures in the U.S. go toward administrative costs rather than to care of patients. That’s twice the percentage that hospitals in Canada devote to administration. And it’s more than at hospitals in any of the other countries — France, Germany, the Netherlands, the United Kingdom — examined by an international team of health economists and policy experts.
If U.S. hospitals could cut administrative spending to Canadian levels, they’d save more than $150 billion, the researchers estimated.
The reason hospitals elsewhere spend so much less on administration is that their countries have nationalized health care systems, the researchers said.
U.S. hospitals must deal with myriad insurance plans that pay different amounts and use different paperwork. Hospitals need an army of clerical personnel and managers, as well as specialized IT systems, to deal with that. In the other countries the researchers studied, hospitals are paid uniform rates or get lump-sum budgets to care for patients.
Hospitals in those countries also get government grants to cover modernization and expansion. U.S. hospitals fund such projects largely through revenues of their day-to-day operations. Efforts to boost those revenues, such as creating profitable services lines, lead to further expenses.
Simplifying health care to a single-payer system could trim administrative costs of U.S. hospitals, the researchers suggest. That would be something along the lines of a Medicare program that covers everybody.
And that’s unlikely to happen. Too many sectors of the health care industry are vested in the current system. And to many, the idea of a single payer raises the specter of socialism.
America’s alternative to socialized medicine turns out to be bureaucratized medicine.