The high cost of administration

Dear Medical Staff Leader:

Many of you have probably seen the provocative special article, "Costs of Health Care Administration in the United States and Canada," published in the August edition of the New England Journal of Medicine. The article is an excellent portal of the American health care system as a hugely complex collection of uncoordinated providers, insurers, government agencies, and destructive incentives. The principle findings of the authors'
meticulous research should drive and shape the debate about how to fund and provide health care to the people who live in the United States. Consider the following comparisons between health care costs in the United States versus costs in Canada:

1. The U.S. spends nearly $300 billion annually on health care administration (31% of the total compared to 16.7% in Canada).

2. In the U.S., we spend $1,059 per capita to administer our health care program compared to Canadians who spend only $307 per capita.

3. In the U.S., 27% of the health care labor force is administrative versus 19% in Canada.

4. Physicians in the U.S. spent 13.5% of their time involved in administrative activities compared to 8.4% for their Canadian counterparts.

5. The cost of administering the Canadian Health Program is minuscule when compared to the U.S.

However, medical staff members should think twice before blaming hospital administrators for these cost disparities. Administrators are not the cause of our problems, but rather simply representatives of an unfortunate consequence of our evolution from a poorly funded cottage industry to a well-compensated collection of related businesses and industries.

Likewise, hospital managers should refrain from blaming physicians. Leaders must recognize that conflict, infighting, and legal action do not lead to improvements in the work environment, productivity, and quality. Shared understanding and cooperation are necessary to move forward and enact change.

It is also critical to understand that physicians and hospitals depend on one another to deliver good, cost-effective care to the community. There will certainly be competition among businesses, misunderstandings, mistakes, and winners and losers--these factors are natural consequences of the incentives that drive our actions and reactions. However, it appears the U.S.--a nation that has so much to offer its population--seems to be squandering its most valuable resource. Physicians are frustrated by the myriad rules, regulations, and insurers that impede their practice. And hospitals are unable to concentrate fully on their patient care mission because of the constant need to respond and react to ever-changing payment systems.

The job of a medical staff leader is to help the organization balance forces that it can't control. Perhaps many of you will still be in active practice when the nation comes to its senses and removes the root cause of so much waste and so many of our problems.

That's all for this week.

All the best,

Hugh Greeley