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Humber River Hospital is shown in Toronto on Wednesday September 10, 2014.

The Canadian Press

For a country that has so much invested in medicare – financially, politically and emotionally – we have shockingly little idea of how much it costs to administer our universal healthcare system.

The Canadian Institute for Health Information publishes an annual report on health spending – which was $211-billion last year, or $5,988 per capita – but the data on administrative costs is thin as a whisper.

According to the annual National Health Expenditure Trends report, administrative costs were $6.3-billion in 2013, or a mere 3.1 per cent of total spending. But that figure requires a significant asterisk.

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There isn't a business or government on Earth that spends as little as three cents on the dollar on administration, except maybe a kids' lemonade stand.

If you go to the explanatory tables in the CIHI report, you learn that administrative costs actually cover only two things : "infrastructure costs to operate health departments" and "prepayment administration," which is essentially the cost of of processing payments to hospitals, physicians and drug plans. In a single-payer system like Canada's, these are negligible costs.

What does it really cost to run the system on a daily basis? That we don't know.

We know that hospitals and nursing homes don't run themselves; neither do doctors' offices or pharmacies. But administrative costs are hidden in larger expense categories.

In 2013, hospital spending was $59-billion, drug spending was $33-billion, physician services cost $29.3-billion, and other institutions like long-term care homes cost $20.8-billion.

If you do the math quickly, you realize those four categories account for more than 70 per cent of all spending.

How much of that is for administration? Again, we're left to guess, and not much effort is put into teasing out a number.

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This lack of tranparency speaks to a lack of accountability and, a certain extent, shows contempt for the importance of management and administration.

(However, to be fair, many individual institutions such as hospitals do publish that information, largely because they are registered charities and the are legally obliged to do so.)

But a new study, published Thursday in the journal Health Affairs, sheds some light on one aspect of the overal cost of hospital administration.

The research team, led by Dr. David Himmelstein, a professor in the school of public health at City University of New York, found that total administrative costs for Canadian hospitals are 12.4 per cent of their overall spending.

Is that good or bad?

Well, in the context of the research, it's exceptionally good. Admistrative costs in Canadian hospitals are half as much as those in the U.S. (25.5 per cent) and less than those in The Netherlands (19.8 per cent) and England (15.5 per cent), and similar to Scotland (11.6 per cent.)

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As the authors point out, one of the major advantages of a single-payer system is bureaucratic efficiency. Canadian hospitals, with few exceptions, get lump sum payments that cover their global budgets, and separate funding for infrastructure spending.

In the U.S., and some European countries like The Netherlands, funding comes from a panoply of insurers, private and public, and that requires significant administration. Further, these hospitals need to generate surpluses to fund capital projects (and, in some cases, profits for shareholders).

Good administration should, of course, result in efficiencies, more choice and greater attention to the needs of patients, so lower costs are not necessarily better.

In theory, investing in administration should lower overall costs. But Dr. Himmelstein and his team found the opposite pattern: Total hospital costs were highest where administrative costs were highest.

The research paper concluded that if U.S. hospital could bring their administrative costs down to Canadian levels, they would save a whopping $150-billion a year.

But let's stick with the Canadian story.

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What this new research paper tells us is that Canadian hospitals spend roughly $7.3-billion on administration, and that calculating those costs doesn't take much effort.

We know from earlier research – also done by U.S. researchers – that administrative costs for Canadian physicians are 16.9 per cent of their billings (compared to 26.9 per cent for their U.S. counterparts, which is again good.) That also translates to another $4.7-billion in administrative costs.

Presumably these calculations could be done in every expense category to give us a fairly accurate estimate of the cost of administering our beloved medicare system.

Canadians often complain that the health system is bureaucratic and bloated.

For the most part, this is unsubstantiated rhetoric. The evidence that we have suggests that, on the contrary, the Canadian approach, for all its faults, is efficient, or at least cheap relative to other countries.

That's good, but not necessarily good enough.

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We have to stop pretending that a system as vast and complex as health care runs itself. We need to invest in good management and administration, especially if we want to undertake long-overdue reforms.

But the starting point has to be talking openly about the real level of administrative costs, not wallowing in the fiction that we spend next-to-nothing.

André Picard is The Globe's public health columnist.

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