The Epidemic of Paperwork : The rampaging disease that may be fatal to health care cost containment

The nation’s health care system is seriously infected with an excess of administrative costs. That’s the conclusion of a study published in the current issue of the New England Journal of Medicine, which startlingly finds that one out of every four dollars spent in hospitals goes not for patient care but, broadly, for paperwork.

In 1990, the year studied by researchers, the nation’s hospitals on an average day held 853,000 patients, down from 1,373,000 in 1968. But administrative personnel employed by the hospitals totaled 1,221,600 in 1990, up from 435,100 in 1968. Of the $256 billion spent on hospital care in 1990, $63 billion went for administrative expenses.

Three years ago, according to federal estimates, the nation’s total health bill came to $666 billion. The projection for this year is $900 billion-plus. If the trend holds, that means hospital administrative costs this year could top $80 billion. A group called Physicians for a National Health Program estimates that total administrative expenses in the health care field this year will exceed $232 billion, or about one-fourth of the health bill.

Hospital administrative costs vary widely from state to state, according to the study. But it’s clear that the hyperinflation in health care administrative expenses relates directly to the great expansion in health care coverage, most notably including Medicare and Medicaid. Health insurers, private or government, don’t want to be defrauded. The extensive paperwork they require is in support of that goal.

According to Consumer Reports, more than 1,200 private health insurance companies add to the national red tape by the maintenance of their underwriting, marketing and administrative staffs. Doctors call it the “hassle factor.”

Can a better, cheaper way to get the work done be devised? A key question is whether the radical overhaul of the health care system President Clinton will propose this year or next can significantly cut administrative costs.

Spending one out of every four health dollars on administration is avoidable and wasteful. Canada spends only half the U.S. percentage. Is there a lesson to be learned from our northern neighbor?