Reasons for Increasing Administrative Costs in Hospitals

doi:10.1059/0003-4819-119-1-199307010-00012

Reasons for Increasing Administrative Costs in Hospitals

From the Office of Clinical Outcome Assessment and Quality Management, University of Pennsylvania Medical Center, Leonard Davis Institute of Health Economics, University of Pennsylvania, Philadelphia, Pennsylvania; Shadyside Hospital, Pittsburgh, Pennsylvania. Requests for Reprints: David J. Shulkin, MD, Hospital of the University of Pennsylvania, Administration-1 Founders, 34th and Spruce Streets, Philadelphia, PA 19104. Acknowledgments: The authors thank Blue Cross of Western Pennsylvania, the Pennsylvania Medical Society, and the Hospital Association of Pennsylvania for their assistance and cooperation; they also thank Michael Karpf, MD, Barbara Hanusa, PhD, and James Goin, PhD for their statistical support and guidance. Grant Support: In part by the Shadyside Hospital Foundation, Pittsburgh, Pennsylvania, and the Robert Wood Johnson Foundation. Dr. Shulkin was a Fellow in General Internal Medicine at the University of Pittsburgh and a Robert Wood Johnson Foundation Clinical Scholar at the University of Pennsylvania during part of the time that this work was done.

Abstract

Objective: To evaluate trends in administrative expenditures by examining changes in administrative costs compared with other areas of the hospital budget, changes in expenditures for patient care departments compared with nonpatient care departments, and departments with a greater number of regulatory requirements compared with those with fewer regulatory requirements.

Design: Annual hospital operating budgets submitted to Blue Cross were examined for an 8-year period from 1983 to 1990.

Participants: Seventy hospitals in Western Pennsylvania.

Measurements: Annual operating expenditures.

Results: Total administrative expenditures showed a larger growth rate (90%) than service departments (29%), ancillary services (30%), professional care (52%), miscellaneous expenses (70%), and the total hospital budget (45%). Administrative costs increased from 10.6% as a proportion of the total hospital budget in 1983 to 13.9% in 1990. These increases were seen regardless of hospital size. Departments with a greater number of regulatory obligations had a greater increase in expenditures (84%) than did departments with fewer regulatory requirements (5%). However, overall expenditures in departments with direct patient care responsibilities did not increase appreciably faster (44%) than in departments not providing clinical services (46%), possibly reflecting the fact that administrative costs may be increasing equally in both areas.

Conclusions: Administrative costs were found to be one of the fastest growing components of hospital budgets. Future research should determine the effect of these increases on the quality of patient care.