Most Americans wonder why health care costs are so high. One of the biggest reasons is what is known as administrative costs, which the American Hospital Association reports represent 40% of the average US hospital’s total costs.
Local health care leaders, however, report administrative costs closer to 30%.
Story Medical Center CEO Nate Thompson reports 67 full-time equivalent employees are “purely administrative, about 31% of the total” and have no patient contact.
Likewise, Gary Botine, chief financial officer at Mary Greeley Medical Center, said over one-third of their overhead costs are for “non-clinical (non-patient care) administrative personnel.”
Administrative costs are expenses to deliver patient care that do not involve direct patient contact, such as doctors, nurses, laboratories and diagnostic imaging services.
Jenni Talbott, chief operating officer at McFarland Clinic, said that depending on how salaries are allocated, at least 30 to 35% of the clinic’s costs are for administrative work.
“We tend to be very lean in administrative costs, but sometimes that means that our physicians and other providers are taking on the administrative burden if that must be accomplished for billing and documentation services,” she said.
Examples of administrative costs include:
- Hospital and clinic billing departments
- Claims, pre-procedure and treatment authorization required by insurance companies
- Coding and regulatory compliance activity
- Paperwork and computer time burdens by providers (nurses, doctors, etc.)
- Contracting, human resources, finance and “back office” operations
In 2024, U.S. health care spending overall totaled $5.3 trillion. Administrative costs across payers and providers totaled $950 billion in 2019. Today, those costs have topped $1 trillion.
A complex multi-payer system
A major driver of the high administrative expenses in the US is our complex multi-payer (government and many private insurers) system, which creates:
- Billing complexity
- Prior authorization requirements
- Negotiating pricing in thousands of different contracts
- Compliance with government and private insurers’ complex rules and policies
Thompson put some of the high administrative costs into perspective at Story Medical.
“We have recently incurred additional administrative costs to maintain compliance with the federal No Surprises Act, an effort to enhance price transparency for patients as they shop around between facilities for elective medical tests and procedures,” he said. “It can be quite complicated and time-consuming for hospitals to produce the information required by this legislation.”
Managed Care, a “health care delivery system organized to manage cost, utilization, and quality,” has added to operations.
“The proliferation of Managed Care has also required us to add [full-time equivalents] and additional overhead expenses to our operation, Thompson said. “Managed Care companies often require services to be pre-authorized and call into question the clinical judgment of our physicians and providers, creating delays in care and adding substantial administrative workload to our hospital and clinic teams. This is a drain on staff time and morale.”
He said the burnout experienced by clinicians have increased since the COVID-19 pandemic, and it contributes to the national shortages of nurses and physicians.
“These shortages have, and will continue to, require hospitals to pay a premium for agency labor, increased recruitment costs, etc,” he said.
Denials, delays and hassles for providers
Physicians and hospitals all over the U.S. are burdened by numerous and variable prior authorization rules, utilization management policies and regulatory documentation rules.
In a February 2026 Advocacy Impact Report, the American Medical Association found that physicians’ teams report spending 13 hours a week on prior authorization tasks. Health Affairs Journal reported in June 2025 that Medicare Advantage private insurers denied 17% of all claims, and although most of those denials are eventually overturned, the delay and hassle of disputing or reviewing them significantly increase administrative costs. Many providers and patients have complained about these denials and delays in getting their medicine or their services.
“Patients assume these administrative delays are clinical decisions,” UnityPoint Health Chief Medical Officer Dustin Arnold said in an Iowa Medicine spring 2026 article. “In reality, they are often administrative barriers that have nothing to do with the patient’s individual circumstances.”
Prior authorizations a major time sink
Private insurers commonly require prior authorizations for services and treatments in employer-based insurance, Iowa Medicaid Managed Care and Medicare Advantage, all of which are private insurance coverage. There is virtually no prior authorization in original Medicare and Medicare supplemental plans.
The burden of prior authorizations that hospitals and doctors face to get many patient services or treatments approved is very costly in time and effort.
“My team [at MGMC] believes that (most) insurance companies are now using AI to deny claims for lack of prior authorization, medical necessity or you name it — without any clinician involved,” Botine said.
Botine said the burden then shifts to MGMC, and “we have to file additional paperwork and documentation to show medical necessity, or show we received prior authorization.”
For instance, “we didn’t think because of the insurer’s policy that it required prior authorization — and now the insurer says it does,” Botine said.
Because insurers are allowed to change their policies at any time and post it online, “we [MGMC] now have to access the new policy and monitor it daily, weekly, monthly.”
“We are hiring staff to manage insurance rules instead of investing in patient-facing roles,” Arnold said. “That shifts resources away from direct patient care and adds costs to the system.”
Other administrative costs add up
Other administrative costs include human resources staff, who help train, recruit and retain staff. Since there are widespread shortages of almost all health care roles, many hospitals are now spending large sums to hire “traveling nurses” and other temporary staff, often at as much as double the cost to keep them functioning.
Amber Deardorff, CEO of MGMC, reported in Des Moines that hospitals have used hundreds of costly traveling nurses, and the University of Iowa recently employed 600 traveling nurses at a higher cost because of inadequate nursing staff numbers.
According to physicianspractice.com, the ratio of clinic staff to physicians in large clinics is now around 4.5 staff for each physician, including 1.5 to 2 staff doing administrative work. McFarland Clinic has similar support-to-physician ratios.
Summary
When patients see their costly bills for hospital or clinic care, it is because our current health care system is burdened by administrative costs. Although most other countries have a much smaller share of administrative costs, because Americans have had the option of government-run versus private insurance, variations in administrative rules, procedures and policies add complexity and costs, as well as burnout among physicians and nurses — and in the end, decreased quality of patient care.
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