David J. Shulkin

Like night and day--shedding light on off-hours care.

Dr. David Shulkin has begun making late-night administrative rounds at the hospital where he is president and chief executive officer. These visits are part of an initiative intended to address the stark discrepancy in quality between daytime and nighttime inpatient services.

Beyond the VA Crisis — Becoming a High-Performance Network

The Veterans Health Administration plans to evolve its current troubled system into a high-performance network based on a foundation of timely access and the integration of private-sector providers to ensure the best achievable outcomes for all enrolled veterans.

Reasons for Increasing Administrative Costs in Hospitals

The United States allocates more of its health care expenditures to administrative functions than do other industrialized countries [1], and as a proportion of medical spending, these expenditures have been increasing [2]. Previous estimates among California hospitals documented an increase in administrative costs of approximately 41% from 1980 to 1983 [2] and an increase of 46% from 1983 to 1987 [3]. Total administrative costs including insurance overhead and administrative expenses of hospitals and office-based physicians were estimated to be 22% of total health care spending in 1983 [1] and 24% in 1989 [3]. Possible reasons for increases in administrative costs include recent changes in the regulatory and marketplace climate (such as reporting and administrative requirements of prospective payment systems), increased utilization review requirements, greater payor demands for reduced length of hospital stay, and, in Pennsylvania, added reporting requirements to state agencies. Previous examinations of administrative costs have assumed that these expenditures have added costs without benefit, a position that we believe has not been fully substantiated. In this study, we examine the change in hospital administrative costs compared with changes in other areas of the hospital budget for an 8-year period (1983 to 1990) and also examine the change in expenditures for patient care departments compared with nonpatient care departments and departments with a higher number of regulatory requirements compared with those having fewer regulatory requirements. We also investigated whether hospitals with many patients may be able to more efficiently meet these demands than smaller hospitals, by examining the growth of administrative costs by hospital size. Methods Hospitals Surveyed Hospitals holding contracts with Blue Cross of Western Pennsylvania (BCWP) are required to submit annual Standard Provider Operating Budgets. Permission to examine these budgets for the years 1983 to 1990 was requested from all non-Veterans Affairs BCWP-participating hospitals. Seventy hospitals agreed to this request (responding hospitals) and 30 did not (nonresponding hospitals). The size of responding hospitals was categorized by the total annual in-hospital patient admissions in 1983, obtained from the operating budget. The size of nonresponding hospitals was categorized by total in-hospital patient admissions as listed in the American Hospital Association Directory [4]. Hospitals were also classified according to whether they provided general medical care or specialty care and whether they were short-term or long-term care providers [4]. The location of each hospital was classified according to location within or outside the metropolitan Pittsburgh area, as defined by the American Hospital Association Pennsylvania state map [4]. Finally, all hospitals were classified by teaching affiliation status according to criteria developed by the Pennsylvania Health Care Cost Containment Council [5]. Data Categories Annual operating expenditures were obtained from the BCWP Standard Provider Operating Budget, which represented hospital estimates of anticipated expenditures for the next budgeted fiscal year. Departmental expenditure estimates included salaries (except for nurses and salaried physicians), capital costs, and operating expenses. We categorized the data in three ways to isolate the change in administrative costs from changes in other expenditures. The first grouping was based on the six budget categories listed in the provider standard operating budgets: 1) administration; 2) service departments; 3) ancillary services; 4) professional care; 5) miscellaneous expenditures; and 6) the total hospital budget (Table 1). Administrative departments included general administration, accounting and fiscal services, admitting, data processing, nonpatient telephones, and purchasing-receiving. Service departments were those not directly involved in the provision of clinical care, excluding those listed in the administration budget category. Ancillary services included departments providing nonprofessional clinical services. Professional care consisted of salaries and wages for services provided by nurses and salaried physicians. Miscellaneous expenditures included nonreimbursable expenditures (for example, parking, gift shop, volunteer services) and other expenses (for example, interest, malpractice premiums, alcohol detoxification programs). The total hospital budget was obtained by summing all budget categories. The BCWP standard operating budget groupings do not perfectly separate administrative costs from other costs. For example, service departments include nursing administration and medical records, both of which are administrative functions. Utilization review (listed under miscellaneous expenditures) also included substantial administrative costs. However, most administrative expenditures were concentrated in the administration category. We did a sensitivity analysis where we redefined administrative cost to include all of those departments we believed had largely administrative functions. In addition to general administration and nursing administration, these included medical records, personnel, medical affairs, utilization review, and malpractice expenses. Table 1. Blue Cross of Western Pennsylvania Standard Provider Operating Budget Categories In the second method of isolating changes in administrative costs Table 2, we compared expenditures from hospital departments involved in direct patient care (ancillary services and professional care) with other budget categories that generally represented nonpatient care services (administration, service departments, and miscellaneous expenditures). Again these budget groupings were not perfect. For example, skilled nursing and home health, both listed under miscellaneous, represent patient care expenditures. However, most patient care services were concentrated in the patient care categories. Table 2. Comparison of Patient Care and Nonpatient Care Departments* In the third method of isolating changes in administrative costs, we examined annual expenditures of several departments that, in a previous study [6], had been shown to have either a larger or a smaller proportion of their resources devoted to compliance with regulatory activities. Departments with greater regulatory requirements were defined as those that spend more than 40% of their resources on compliance with regulatory requirements from both public agencies and third party payers, and department with fewer regulatory requirements were defined as those that spend less than 10% of their resources on regulatory compliance. These estimates were based on a 1978 report of the Hospital Association of New York that identified the amount of resources devoted by hospital departments to regulatory compliance. Data for specific departments with greater and fewer regulatory requirements were incomplete for some responding hospitals. Thus, this analysis was based on departments for which at least 85% of responding hospitals reported expenditure data. The departments with greater regulatory requirements in this analysis included administration, medical records, and nursing administration. The departments with fewer regulatory requirements in this analysis included laundry and linen, central sterile, and dietary (Table 3). Table 3. Departments with a Greater Number of Regulatory Requirements and Those with Fewer Requirements Data Analysis Characteristics of responder and nonresponder hospitals were examined for differences using the chi-square analysis, Wilcoxon rank-sum test, and the Fisher exact test. The percentage change in budget category operating expenditures from 1983 to 1990 was calculated. Departments with greater and fewer regulatory requirements were summed separately, and total expenditure growth was compared. The percentage change in operating expenditures was calculated for hospitals of different sizes, classified by the annual number of admissions. The three categories of hospital size were determined using an analysis of the distribution of responding hospitals. All costs are reported in nominal dollars because there was no reason to believe that administrative costs were affected by inflation differently than were nonadministrative costs. Results Of the 100 hospitals surveyed, 70 responded. No statistical differences occurred among the responding and nonresponding hospitals Table 4, according to teaching status, location, number of admissions per year, acuity of hospital care, or type of hospital. Table 4. Characteristics of Responder and Non-Responder Hospitals Figure 1 shows the results of the first analysis to isolate changes in administrative costs using standard BCWP budget categories. Administrative costs increased 90% during the 8-year study period compared with an increase in the total hospital budget of 45%; whereas expenditures for service departments increased only 29%; ancillary services, 30%; professional care, 52%; and miscellaneous expenditures, 70%. Administrative expenditures represented 10.6% of the hospital budget in 1983 (mean costs of

The cost of caring for patients with tuberculosis: planning for a disease on the rise.

2 915 161 per hospital) and 13.9% in 1990 (mean cost of

Commentary: why quality improvement efforts in health care fail and what can be done about it.

6 371 043 per hospital), with a peak of 15.3% in 1989 (mean cost of

Innovations in Patient Care: Changing Clinical Practice and Improving Quality

5 693 839 per hospital, Figure 2. When the sensitivity analysis was done with a broader definition of administrative activities, these costs increased 107% during the 8-year study period, which represented 14.6% of the hospital budget in 1983 and 20% of the budget in 1990. Figure 3 shows the breakdown of administrative costs by hospital size, where there were no discernible trends. Figure 1. Cumulative percentage increase in average expenditures by budget category. Figure 2. Percentage of administrative budget compared with total hospital budget, by year. Figure 3. Percentage of administrative costs compared with total hospital budget by hospital size. Figure 4

Hospital Administrative Costs in the US

OBJECTIVE An economic analysis was conducted for all patients with a primary diagnosis of tuberculosis admitted to a university hospital for a 1-year period in 1992. DESIGN The economic analysis was conducted by using the hospital billing system to capture resource use for patients with tuberculosis and cost-to-charge ratios to estimate hospital costs. SETTING A university teaching hospital. PATIENTS Patients with a primary diagnosis of tuberculosis were included in the study. RESULTS The average length of stay for patients was 22.7 days on initial admission to the hospital and 13.5 days on readmission. The average cost of care was

Understanding Veteran Wait Times

27,109 for initial admission,

Use of claims data for determining the appropriateness of ambulatory cardiac monitoring.

13,094 for readmission, and

Why the VA Needs More Competition

20,222 when all patients were included. CONCLUSION Room costs were the most significant contributor to the total cost of care, followed by laboratory costs and ancillary hospital costs. We calculate the average cost for caring for a patient with tuberculosis at approximately