Hospital Administrative Costs

To the Editor: Woolhandler et al. (Aug. 5 issue) 1 did not analyze the range of hospital administrative expenditures, only the statewide average. Since distributions of financial data are generally highly skewed, the average is rarely typical 2 . Data on health maintenance organizations (HMOs) clearly follow this pattern and demonstrate the importance of considering economies of scale as well. For example, the weighted average administrative cost in HMOs is 9 percent of revenues -- about the same percentage the authors attribute to the Canadian system, which they favor. Administrative costs per member decline as the size of the HMO increases: half . . .