Problems in Achieving Health-Care Reform

Abstract

A serious problem with the concept of MC is that similar arrangements have not contained costs; administrative costs in U.S. hospitals are exorbitant. Woolhandler, Himmelstein, and Lewontin (1993) studied administrative costs for virtually all acute-care hospitals in the United States in 1990. Hospital administration accounted for an average of 24.8% of total costs (twice as high as those in Canada), ranging from 20.5% to 30.6% for individual hospitals. A discouraging fact was that administrative costs were not lower, but were slightly higher in states in which health-care management organization (HMO) enrollments included more than 25% of the population (California, Massachusetts, Minnesota, and Oregon—administrative costs were 25.6%) as compared to those with low HMO enrollment (administrative costs were 24.6%). This suggests that introducing MC will not solve the problem of high administrative costs—at least it did not in those states. No state had administrative costs as low as the 9–11% reported for Canadian hospitals, or the 10–15% reported for France. The 24.8% estimate of administrative costs in the United States is too low, because it did not include most hospital advertising and marketing costs, which add another 1% to total hospital costs, nor did it include clinical expenses for clerical personnel in clinical units, such as ward clerks, receptionists, and secretaries.