Nonprofit hospitals spend billions on consultants with little measurable benefit

In recent decades, management consulting firms have become a fixture in the American healthcare system, wielding outsized influence compared to most other economic sectors. Hospitals navigating challenging financial and regulatory landscapes may call on these specialists for advice on strategic planning, cost-cutting, reorganizations, or revenue-boosting initiatives.

A new paper published in JAMA is the first large-scale, empirical attempt to determine the scale and impact of hospital investment in management consultant services.

Joseph Dov Bruch, PhD, first author, Assistant Professor of Public Health Sciences, University of ChicagoThis initial analysis suggests that consultants may deliver neither the dramatic efficiencies they promise nor the harms that critics sometimes fear."

Bruch and his colleagues combed through IRS Form 990 filings, which (among other detailed financial disclosures) require nonprofits to describe their five largest external contracts costing over $100,000 each year. Using machine learning, the researchers identified hospital contracts with management consulting firms, compared 306 hospitals that initiated contracts with management consultants between 2010-2022 with a matched group of hospitals that did not, and then analyzed differences in finances, staffing, operations, and patient outcomes.

Over 20% of all nonprofit hospitals engaged management consultants during the study period. In total, the sector spent at least $7.8 billion on management consulting services over roughly a decade, with the average hospital spending $15.7 million - money that might otherwise be used for patient care, facility improvements, or community health programs.

"It's not necessarily a waste, but we don't have evidence of meaningful improvements," said Bruch, who has spent years studying how nonprofit hospitals function in highly financialized markets.

Across metrics such as net patient revenue, operating margin, days of cash on hand, and even claims-based patient outcomes like readmission and mortality rates, there were no statistically significant or systematic changes linked to nonprofit hospitals hiring a management consulting firm. The only exception was a small increase in stroke readmissions - a slight negative effect.

The authors also point out that their current analysis was limited specifically to management consultants, but they recommend greater transparency and public accountability for how hospitals use tax-subsidized dollars on a broader level. When other types of consultants such as HR and IT consultants are included, the total sum spent by nonprofit hospitals reached more than $25 billion in the study period.

"Our study urges hospital executives toward greater caution about how money is spent on management consultants, and it demonstrates the need for additional research on how these contracts may or may not meaningfully impact health systems," Bruch said.

In addition to informing hospital leaders and policymakers, Bruch says this research was motivated in part by his role as a mentor and adviser. As a health policy professor, he frequently fields questions from students considering healthcare management consulting as a career path.

"Students who genuinely want to make meaningful changes in the healthcare system ask me if management consultants can actually reduce inefficiencies, and whether I would personally encourage that type of professional pursuit," Bruch said. "Answering those questions has been difficult because the evidence has been so limited. I'm hopeful more research on consultants will help people make more informed decisions about careers in healthcare."

Source:

University of Chicago Medical Center

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