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For-Profit Hospitals More Costly, Less Efficient

The March 13, 1997, New England Journal of Medicine reports that for-profit hospitals are more costly, less efficient and spend less on patient care than private non-profit or public institutions, this finding based on data covering 6,227 US hospitals. The primary reason for such disparity? - soaring administrative costs.

Dr. Steffie Woolhandler, co-author of the study and Associate Professor of Medicine at Harvard highlights this issue: "In 1990, the average for-profit spent 31.8 percent of its budget on administration. By 1994, that figure had jumped to 34 percent. In medicine, market pressures are breeding inefficiency." Administration costs were 26.0 % of total hospital costs by 1994, contrasted with the 10.4% of total hospital cost that goes towards administration in Canada. The study also found that the number of administrative personnel rose from 18.1% to 27.1% of the healthcare workforce, all of which means, of course, less money spent on clinical personnel (i.e., caregivers).

"Wall Street is buying up hospitals. It's a myth that for-profit hospitals are efficient. They save money by laying off nurses, then hire consultants and bureaucrats to figure out how to avoid unprofitable patients and maximize revenues. For-profits increase costs, decrease care and generate windfall profits like the $359.5 million pocketed by Rick Scott of Columbia/HCA. They're fat and mean," Woolhandler says.

The study also discloses that profits, as a fraction of hospital costs, were 12.3% in for- profit hospitals and 4.9% in not-for-profits. One of the conclusions drawn from the study is that not-for-profits spend 1.51 times as much on clinical personnel as on administration and profits combined, whereas for-profits spend more to pay administrators and for profits than for patient care, and as a result, patient care suffers.

(This information was summarized from a longer article in Public Citizen's Health Research Group - Health Letter, April, 1997.)