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Previous Volume 336:769-774 March 13, 1997 Number 11 Next

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ABSTRACT

Background In 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 fiscal year 1994 on the basis of data the hospitals submitted to Medicare. We analyzed similar data for 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.

Source Information

From the Center for National Health Program Studies, Cambridge Hospital, CAMBRIDGE, MASS., and Harvard Medical School, Boston.

Address reprint requests to Dr. Woolhandler at Cambridge Hospital, 1493 Cambridge St., Cambridge, MA 02139.

Full Text of this Article

Related Letters:

Costs at For-Profit and Not-for-Profit Hospitals
Miller C. R., Epstein J., Woolhandler S., Himmelstein D. U.
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N Engl J Med 1997; 337:1779-1780, Dec 11, 1997. Correspondence

When Money Is the Mission — The High Costs of Investor-Owned Care
Greene H. R., Packard B. J., Mick B. A., Menendez R., Zinberg S. S., Silverman E. M., Skinner J. S., Fisher E. S., Himmelstein D. U., Woolhandler S.
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N Engl J Med 1999; 341:1768-1770, Dec 2, 1999. Correspondence

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