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Administrative Costs

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According to Boddenheimer (2005a), the cost of administration of U.S. health care in 1999 was 24% of the nation's health care expenditures. In an attempt to reduce these costs, providers such as practitioners' offices, clinics, hospitals, and so on, have invested in Information Technology (IT). IT has played a role in improving quality through availability of the electronic medical record, aiding with HIPAA compliance, and streamlining insurance coding and billing services. Because of the increased demand for such systems, the administrative cost of implementation has also gone up.

It may seem to Americans that U.S.‐style free enterprise (i.e., private‐sector, for‐profit health insurance) is naturally the most cost‐effective way to pay for health care. But, in fact, many other countries' payment systems are more efficient than ours. U.S. health insurance companies have the highest administrative costs in the world. The CMS (2019) estimates project that $496 billion will be spent on administrative costs in the U.S. alone. Himmelstein (2014) reports that administrative costs account for about one‐fourth of the US hospital spending and this is more than spent in Canada (12%), England (16%), and the Netherlands (20%). Interestingly, Himmelstein found that there is no apparent link between higher administrative costs and better quality care (2014).

U.S. hospital administrative costs rose from 23.5% of total hospital costs ($97.8 billion) in 2000 to 25.3% ($215.4 billion) in 2011. During that period, the hospital administration share of national GDP rose from 0.98% to 1.43%. Canada spends 0.41% of their GDP on health care administrative costs. The rising spending on administrative costs need to be addressed at every level and corporate greed addressed.

Kelly Vana's Nursing Leadership and Management

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