Pursuing productivity: As a labor-intensive industry, healthcare works to become more efficient

Texas Health Presbyterian Hospital Flower Mound, a small hospital in the outskirts of Dallas, has prided itself on the satisfaction of its patients and employees. But the hospital also has taken measures to ensure it is equally productive.

Flower Mound, which has about 700 employees, uses labor analytics software to staff appropriately. It has an electronic health record that's fully integrated with its parent system, Arlington-based Texas Health Resources. And the hospital has a Six Sigma black belt person on staff—someone whose job it is to find and extract wasteful processes from the organization.

“We really try to look and make sure our processes are solid and sound and efficient as possible,” said Spencer Turner, president of Texas Health Presbyterian Hospital Flower Mound, which captured the No. 1 overall ranking and top spot among providers on Modern Healthcare's 2016 Best Places to Work in Healthcare list.

Healthcare organizations in the post-reform era, especially hospitals and medical groups, are routinely faced with the challenge of having to do more with less. The Affordable Care Act actually instituted a labor productivity adjustment to Medicare payments. If healthcare productivity growth falls below the broader economy, Medicare reimbursement will be bent downward.

Yet from a productivity standpoint, there is a lot of room for improvement in healthcare, which historically has lagged behind the rest of the economy.

Hospital productivity fell an average of 0.2% every year from 2004 to 2013, despite modest gains in recent years, according to the latest data available from the Bureau of Labor Statistics. That essentially means labor costs and capital expenses outpaced the crude output of hospitals (patient volume and revenue). Indeed, inpatient admissions continue to decline across the country even though hiring has gone up.

Productivity increased in most other industries due in large part to advances in technology. In healthcare, telehealth has the potential to lower costs and increase access for patients in remote areas. Using more physician assistants, nurse practitioners and technicians to conduct or help with routine cases instead of doctors also could keep labor costs in check while maintaining quality care.

In some respects, healthcare productivity growth is somewhat limited because the labor-intensive industry has to rely heavily on the well-paid work of doctors, nurses and other clinicians. The airline industry, for example, replaced ticket agents with kiosks. But robots haven't replaced human medical providers, at least not yet.

“The practice of healthcare itself—the fundamental of being able to communicate with a provider who can discuss your issues, spend time with the patient—those are all things that you can't get rid of,” said Kyle Salem, chief of staff at Omaha, Neb.-based consulting firm CQuence Health Group, the No. 1 supplier on the Best Places list.

The outlook for healthcare productivity gains is mixed. The ACA's insurance expansion in 2014, along with low job growth in the healthcare sector, appears to have significantly boosted productivity that year, according to an analysis conducted by Paul Hughes-Cromwick, co-director of the Altarum Institute's Center for Sustainable Health Spending, an economic think tank. But a surge in hiring over the past two years—almost 675,000 healthcare jobs have been created from January 2015 to June 2016—could eat away at the industry's briefly improved efficiency.

Further, over the past several years more hospitals and health systems have either begun employing physicians or added more employed doctors.

Financial statements analyzed by Modern Healthcare show that physician employment has resulted in higher labor costs, but efficiency has not always followed.

It's worth noting that calculating productivity within hospitals is not an exact science. Bureau of Labor Statistics figures, for example, do not take into account the quality of care or outcomes. “With healthcare, there's always this question of unmeasured quality assessment,” Hughes-Cromwick said.

For example, volumes could decrease because patients don't need to be readmitted, or patients are receiving care in ambulatory surgery centers and other outpatient settings that they once would have gotten in hospitals.

With admissions declining, the larger number of employees may be caring for a higher-acuity case mix of inpatients.

“The technology has improved so certain types of services don't require hospitalization,” said Brian Chansky, a Bureau of Labor Statistics economist who studies industry productivity.

Although many health systems and companies are moving to value-based care strategies that encourage more outpatient care, a lot of the system still revolves around the model of being paid for each service or treatment. Facilities that require a big investment, such as proton-beam therapy centers or diagnostic facilities, often are built with the intent of recouping money—productivity be damned.

“The goals of the healthcare system from a productivity standpoint are often misaligned with the goals of the patient and the patient's family,” Salem said.

Turner of Texas Health Flower Mound believes rooting out the wrong incentives and, more importantly, empowering employees to do the right thing may be the best ways to boost efficiency.

“We've got a highly satisfied workforce,” Turner said. “When you put those types of employees in an environment where you have really refined processes, it becomes a really productive facility.”