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Objective: To evaluate trends in administrative expenditures by examining changes in administrative costs compared with other areas of the hospital budget, changes in expenditures for patient care departments compared with nonpatient care departments, and departments with a greater number of regulatory requirements compared with those with fewer regulatory requirements., Design: Annual hospital operating budgets submitted to Blue Cross were examined for an 8-year period from 1983 to 1990., Participants: Seventy hospitals in Western Pennsylvania., Measurements: Annual operating expenditures., Results: Total administrative expenditures showed a larger growth rate (90%) than service departments (29%), ancillary services (30%), professional care (52%), miscellaneous expenses (70%), and the total hospital budget (45%). Administrative costs increased from 10.6% as a proportion of the total hospital budget in 1983 to 13.9% in 1990. These increases were seen regardless of hospital size. Departments with a greater number of regulatory obligations had a greater increase in expenditures (84%) than did departments with fewer regulatory requirements (5%). However, overall expenditures in departments with direct patient care responsibilities did not increase appreciably faster (44%) than in departments not providing clinical services (46%), possibly reflecting the fact that administrative costs may be increasing equally in both areas., Conclusions: Administrative costs were found to be one of the fastest growing components of hospital budgets. Future research should determine the effect of these increases on the quality of patient care.

This paper reports on The Hospital of the University of Pennsylvania's experience and concerns as a participating primary care site in a Medicaid managed care program (HealthPASS), which was established in 1986. Enrollment is mandatory for approximately half of Philadelphia's medical assistance population. Participating primary care sites receive monthly capitation for enrollees and serve as "gatekeepers" for specialty and inpatient services. The report discusses why the academic medical center chose to participate in the program and how existing activities were modified to meet both increased demand for primary care and increased administrative requirements. It also identifies characteristics of the HealthPASS program and of the medical center that have impeded effective case management of care for the urban poor population that the program serves. Improving the quality of care for the medically indigent while controlling costs is essential, but political realities and the special needs of the Medicaid population must be acknowledged. Increased attention must be given to the impact that political compromises have on the design and effectiveness of a managed care program.

Prophylactic use of misoprostol has been found to cause a 15-fold reduction in the rate of gastric ulcer among symptomatic nonsteroidal anti-inflammatory drug users with osteoarthritis. Using data from a variety of sources, we performed a decision analytic-based evaluation of direct medical costs in these patients to determine whether routine prophylactic use of this medication is a preferred strategy over no prophylaxis. The base-case analysis revealed that misoprostol is cost-reducing for the initial 3 months of prophylaxis when the compliance rate is 60%, the silent ulcer rate is 40%, and the medication is priced below $1.74/d (expected costs per patient of approximately $300). The model is highly sensitive to changes in these parameters. Changing the rates of hospitalization and operation have less effect. Reliable estimates of misoprostol's economic impact after the initial 3 months of treatment are impossible to develop with current data. Nonmedical direct costs, patients' out-of-pocket costs, and indirect economic effects, such as work loss, were not considered in the model. All would enhance the economic benefit of the medication. Health care policy makers and payers must consider trade-offs between the clinical and economic implications of preventive medical interventions, such as misoprostol, especially as the call intensifies for more efficient allocation of health care resources.