Editorial: New approaches needed to solve hospitals' productivity woes

Later this year, the U.S. Bureau of Labor Statistics will issue its first report measuring hospital productivity. It won't be good news.

According to preliminary data to appear in a forthcoming Monthly Labor Review article, hospital productivity fell 0.2% a year between 2001 and 2010. Over nearly two decades, the output derived from the cost of labor and capital poured into healthcare—the classic measure of productivity—rose at a paltry 0.7% average annual rate.

By comparison, U.S. productivity over that longer period, including the healthcare sector, went up an average of 2% a year.

The next time you hear economists bellyaching about the nation's low productivity and blaming it for stagnation in the take-home pay of average Americans, know that they should really be complaining about healthcare's drag on overall economic performance.

While many healthcare economists question the accuracy of the BLS approach, which the agency's economists admit fails to take into account quality (outcomes), no one thinks the sector is doing a good job of deploying its resources in a cost-effective manner.

You don't have to be a sophisticated bean counter to understand what is going on. When hospital employment rises year after year, despite falling admissions and patient days, efficiency clearly hasn't been a high priority for hospital administrators.

The American Hospital Association's annual TrendWatch reveals all. Between 2001 and 2013, annual admissions fell slightly to 33.6 million from 33.8 million. But because of plummeting lengths of stay, total patient days fell to 182.4 million from 194.1 million, a 6.4% decline.

Hospital employment, on the other hand, rose 20% over those dozen years, from 3.99 million to 4.79 million. And those were measured as full-time equivalent workers, thus eliminating the bias introduced by the rise of the part-time, contingency workforce used by many hospitals to “control” costs.

The frequently heard complaint that nurses are bearing a tougher load isn't borne out by the statistics either. Total RN employment in hospitals, again measured as FTEs, rose 43% to 1.37 million between 2001 and 2013, increasing their share of overall hospital employment from 24% to 28.5%. Today, industry consultants say nursing accounts for half of all labor costs, or 30% of total hospital spending.

So is targeting the nursing corps a good way to increase productivity? At least some of the increase in employment has been driven by the more difficult case mix that winds up in hospitals. Today, easier-to-treat patients are being shuffled off to ambulatory surgical facilities.

Moreover, the increased use of part-time and flex-time nurses at some hospitals to eliminate overstaffing during quieter hours has led to some efficiency gains. But focusing on nursing costs doesn't get to the heart of the problem.

There's mounting evidence that the employment mix inside hospitals does not reflect the best use of human resources. At the recent Healthcare Financial Management Association meeting in Orlando, Fla., I asked a strategic planner of a major hospital system about its current mix of physicians to physician assistants. “Four to 1,” he said. “What should it be?” I asked. “One to 4,” he replied.

Another deep-dive into BLS statistics reveals the potential in re-engineering hospital processes in ways that make better use of human capital. That re-engineering also would address what many claim is a coming shortage of physicians. And it would simultaneously provide more good-paying jobs for middle-class Americans.

Over the past decade, the nation has added only 28,000 physician-assistant jobs. Their total ranks are still fewer than 100,000, with an average salary in May 2014 of $97,280. The nation's more than half a million practicing physicians, on the other hand, averaged more than twice that much in pay, even as their ranks continued to grow. Salary increases over 10 years for both groups were about 37%.

A similar pattern exists in the nursing ranks. Registered nurses kept up with inflation, with a 23% salary increase over the past decade to $69,790. The licensed practical nurse profession, on the other hand, actually saw its ranks shrink slightly between 2005 and 2014, to under 700,000 jobs and they received only a 20% salary boost to $43,420.

The initial report on hospital productivity due out this fall should serve as a wake-up call for hospital administrators. Their re-engineering efforts over the past decade focused on improving outcomes, reducing errors and increasing patient satisfaction. It's time to add improving efficiency to the agenda.