Experts Testify: Millions can be saved in administrative costs

By: Dr. Deborah Richter

The Senate Health committee took testimony this week from two national experts on the subject of administrative costs in health care with particular emphasis on hospital administrative costs.

Dr. Himmelstein is a researcher and physician from  Harvard University.
Dr Kahn is from University of California San Francisco.

Dr. Himelstein reported that 26% of hospital costs in Vermont can be classified as administrative costs according to the definition specified by Medicare. The day prior the Hospital Association stated that administrative costs consumed only 20% of total hospital spending ($1.9 billion in 2008- the latest available figure). Regardless of which figure you accept, Himmelstein concluded that Vermont could save anywhere from $133 to  $247 million in hospital administrative costs if hospital billing were eliminated and replaced by with a lump-sum payment and single payer financing. Those interested in more detail can find it in Himmelstein’s methodology.

Dr Kahn reported that his research conducted in 1999 in California found 6.6% to 10.8% of total hospital spending could be saved out of total hospital spending. He has stated that these administrative savings percentages can be extrapolated to U.S. hospitals in general. He also reported that his more recent research places administrative cost savings even higher. Applying his 1999 figures to Vermont’s 2008 hospital spending ($1.9 billion) that would mean a savings $118 and $195 million saved.

The irony of these remarkable findings – savings in the hundreds of millions – was at the same time the Senate and House also was busy taking testimony about the devastating impact general budget cuts were going to have on Vermonters. It was a classic connect-the-dots failure that they made no connection between the hundreds of millions in savings awaiting them in a rational approach to health care reform and the cruel budget cuts they are obliged to make.

Leave a Reply