Variations in Hospital Administrative Costs

Abstract

Administrative costs in hospitals are substantial and can have a major effect on performance. Despite this fact, not much research has been done to better understand such costs. This study examined variations in hospital administrative costs using a data set of acute care hospitals in Florida over the period 2000 through 2004. Results indicated that inflation-adjusted total administrative costs increased from about $22 million to $28 million on average over this time period. However, the percentage of total operating costs devoted to administrative costs was quite stable over the period, averaging approximately 23 percent in each of the five years. Compared with those in rural areas, urban hospitals on average had higher administrative costs per adjusted admission but lower administrative costs as a percentage of total operating costs. Hospital administrative costs also differed by ownership: For-profit hospitals on average had higher administrative costs per adjusted admission than not-for-profit and government hospitals, but administrative costs as a percentage of total operating costs were highest for for-profit hospitals and lowest for not-for-profit hospitals, with government hospitals falling in the middle. For bed size, administrative costs as a percentage of total operating costs were highest for the smallest hospitals. Results of this study will be useful to healthcare managers searching for ways to reduce unnecessary administrative costs while continuing to maintain the level of administrative activities required for the provision of safe, effective, high-quality care.