From 2011 to 2022, CT hospital budgets devoted 12% to administration labor and 30% to direct patient care labor

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Parsing the latest data from NASHP’s Hospital Cost Tool finds that in 2022, Connecticut’s acute care hospitals averaged almost 32% of their budgets on direct patient care labor and just under 12% on labor costs for administration, which includes management, administration, and payments to their larger health system (called Home Office and Affiliates). While it might be expected that larger hospitals would be able to save on administrative spending, there is no relationship between hospital budget size and administrative spending percentage. It also might be expected that hospitals belonging to large systems could share administrative functions, and so would pay a lower share of their budgets on administration, but that is also not the case. COVID affected Connecticut hospital budgets by increasing both direct patient care labor and administrative labor spending, however other spending grew more than either one.

Hospitals, in Connecticut and nationally, report severe budget shortfalls and have asked policymakers for relief. Questions have been raised about how much of their budgets hospitals spend on administration compared to direct patient care. While it’s not strictly comparable, under the Affordable Care Act, insurers must spend at least 80% or 85% of premiums on medical care and quality improvement (Medical Loss Ratios). If they do not reach that benchmark, they must refund the excess.

NASHP’s Hospital Cost Tool uses the hospital cost reports required by the Centers for Medicare and Medicaid Services. The reports cover all spending including Medicare, Medicaid, commercial plans, uncompensated care, and other payers. Labor costs include benefits and contracted labor.

In 2022, Connecticut’s acute care hospitals devoted an average of 27.6% to direct patient care labor and 10.0% to administrative labor. While not entirely comparable, the administrative percentage is well below the Affordable Care Act’s Medical Loss Ratio standards and rates for Connecticut’s large insurers.

Connecticut’s acute care hospitals vary considerably in how much of their budget they devote to administration. In 2022, rates varied from 7.0% (St. Mary’s) to 14.7% (Windham). The state average is in yellow and independent hospitals are in green below. There appears to be no relationship between administrative budget share and independence from a large health system, or with total budget size (see graphic at the end).

Connecticut’s acute care hospitals also vary in how much they spend on direct patient care labor. In 2022, rates varied from 36.0% (Griffin) to 19.7% (Johnson Memorial). Again, there was no relationship with independence from a large health system or the total size of their budget.

Since COVID, Connecticut hospitals have increased spending on direct patient care, however, other hospital costs have grown far more quickly since 2020. Administrative labor spending increased sharply in 2020 but decreased in 2021.

Connecticut hospitals varied considerably in total expenses (all services) in 2022. Yale-New Haven was the largest at $4.0 billion to Rockville General at $42 million.