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Cost of Compliance: State Regulations Increase Health Care Costs

There are more than 2,100 Oregon rules governing hospital operations, and some of these compliance requirements siphon off dollars that could go to patient care.

These rules create a significant financial burden for Oregon’s 62 community hospitals, who collectively spent $126 million in 2017 on the labor required to comply with state regulations.

Those are two of the findings from a new study on the cost of compliance for acute care inpatient hospitals in the state. The study was commissioned by the Oregon Association of Hospitals & Health Systems (OAHHS) and conducted in partnership with the Master of Healthcare Administration (MHA) program at Pacific University. The group studied data from 2017. The title of the report is “Cost Burden: Evaluating the Financial Impact of Oregon State Regulatory Compliance on Oregon Hospitals and Health Systems.”

Read a copy of the report here

The study comes as the state looks at the total cost of health care within a statewide growth target. Hospital leaders say policy makers need to remember that regulations add significant costs. “As the state looks at the total cost of health care, we hope legislators consider the financial burden on providers from compliance with these regulations,” said Becky Hultberg, President and CEO of OAHHS.

The lead author of the study agreed. “Money spent ineffectively on compliance could be going to patient care,” said Laura Dimmler, director of the School of Healthcare Administration & Leadership at Pacific University.
In addition to being mindful about the cost burden of new regulations, the report includes the following recommendations:

  • Avoid regulatory redundancy by ensuring that new regulations do not conflict with or duplicate existing federal rules
  • Streamline implementation by writing laws and regulations clearly, making them simple, efficient, and cost-effective
  • Set achievable goals for new laws that are not overly burdensome, especially for smaller hospitals
Dimmler said legislators need to ask questions about the intent of the regulation, including finding out the overall cost and whether it will improve patient outcomes. According to a report by the American Hospital Association, staff salaries account for 85% of total compliance costs.

The report cited the example of Oregon’s nurse staffing law. According to the report, many survey respondents said the law prioritizes record-keeping over patient care.

The survey project came after the 2017 Oregon Legislature, in which 114 health care related bills were introduced. Of those, 45 passed and became effective laws in 2017 or 2018.

The American Hospital Association undertook a similar study which painted a similar regulatory picture.

The title of the AHA report is “Regulatory Overload” and cites a study showing that 25% of hospital spending, roughly $200 billion, goes to administrative costs. The report says hospitals and health systems spend $69 billion every year on compliance, and that the average hospital devotes 59 FTEs to meet those requirements. 

According to the AHA report, hospitals spend $1200 on compliance every time a patient is admitted.

The report recommends more collaboration with hospital representatives, including staff, to design bills and laws that put patient care first and don’t add unnecessary costs.

“At a time when health care affordability is top of mind for everyone, we need to streamline the regulatory environment to create rules that prioritize and enable high quality care for everyone,” said Hultberg. “These reports point out the need for efficiencies in our laws and regulations so that resources go to taking care of patients, not needless record keeping.”