Administrative Costs in Canada and the US

By January 15, 2020 January 16th, 2020 Commentary

I have waited to comment on this piece of “research” for several days.  I try not to be overly emotional in reactions but nothing gets me angrier than outcome driven “studies” that are full of misleading information and analysis and which are unaccompanied by an editorial attempt to rectify the errors.  Journalism has truly become pathetic in this country, even in supposedly scientific publications.  This article is yet another in a series by the same authors.  All you need to know is that they are long-time single-payer advocates with a strong ideological bent.  They aren’t capable of being objective.  They are trying once again to persuade us that the US health system spends an outrageous amount of money on what they categorize as administrative costs and that the gap with other countries with supposedly better health systems is widening.   (Annals Article)   It is hard to know where to start on a piece filled with so much inaccurate information.  Look at the author disclosures at the end of the article and you will see this is basically a piece of research designed to help the Sanders and/or Warren campaigns.  Here is an interesting one, let’s include profits in the definition of administrative costs.  That is absurd.  Oh, and look, the analysis actually excluded 32% of spending in Canada and 39% of spending in the US from consideration.

My primary objection with looking at administrative costs, either as a percent of all spending or on a per person basis, is that it ignores the role of much “administrative” spending in managing care, both for quality and for spending control.  I have made this point repeatedly.  Would you rather have $1000 of health spending, with $50 being administrative expenses, or $750 of health spending, with $100 being administrative expenses.  The answer is obvious.  Where would US health spending be if it weren’t for a lot of the activities that attempt to improve quality and control utilization.  The federal and state governments have already answered this question.  Medicare and Medicaid have moved large parts of their covered populations to private managed care plans, despite their far higher administrative costs than the standard fee-for-service basis of Medicare and Medicaid programs, because they deliver better quality at a lower total cost.  You don’t need to know anything else.

Another obvious problem is that the US has an exceptionally large and burdensome set of regulations, federal and state, that impose massive costs on providers and private health plans.  What would costs look like without those regulations, most of which have been demonstrated by research to have little value.  They ignore the burden of malpractice on physicians and other providers, which is due to the US legal system.   Finally, these authors largely ignore the price difference in administrative costs.  An activity-based analysis of administrative spending which held compensation levels and other cost components of administrative tasks constant across countries would substantially reduce the apparent level of administrative expense in the US.  Don’t misunderstand me.  I think we could do a lot to reduce administrative spending in the US, including cutting compensation for managers in not-for-profit entities.  These authors should reveal their full compensation from various entities and you would see that they are pretty well paid.  Maybe they are part of the problem and should cut their compensation to help with the administrative expense problem.

And here is the real bottom line–you can’t trust any research driven by people with clear ideologic goals.  They aren’t capable of being objective and you have no reason to believe that anything they say is accurate.

Kevin Roche

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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