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Nonprofit hospitals that engaged management consultants saw “little evidence of substantial, statistically significant, or systematic improvements attributable to consulting engagements,” despite paying an average of $15.7 million apiece for the consultants’ services.
A roundup of 306 U.S. nonprofit hospitals that used management consultants for the first time between 2010 and 2022 was compared with a sample of 513 matched hospitals that did not use management consultants between 2009 and 2023. Hospitals often employing a consulting firm for multiple contracts, with each contract costing an average of $6.2 million.
Despite the 306 nonprofit hospitals spending more than $7.8 billion on consulting fees in the aggregate, the only notable difference in outcomes was around 30-day readmissions for stroke patients. These findings were reported in “Changes in Nonprofit Hospitals’ Finances, Operations, and Quality of Care After Using Management Consultants,” an article detailing an original investigation.
The article, which was authored by Joseph Dov Bruch, Cal Chengqi Fang, Yan Bo Zeng. Avni Parthan and Ashvin D. Gandhi, appeared on JAMAnetwork.com, an online site associated with the Journal of the American Medical Association, on May 4.
“These findings raise questions about the net value that nonprofit hospitals receive from management consulting services and suggest the need to carefully examine the widespread use of management consultants by hospitals and other organizations across the health care industry,” the authors wrote.
The use of management consultants by nonprofit hospital administrators has grown significantly of late. Consultants are often retained in hopes of improving operational efficiency, increasing revenue, setting strategic direction or making general improvements to management practices. “If they do improve management practices, the literature suggests this could ultimately improve health care delivery and quality of care for patients,” according to the authors.
Northeast hospitals were most likely to use management consultants, with just under one third (31.1%) doing so, followed by Midwest hospitals (27.2%), southern hospitals (25.6%) and western hospitals (16.1%). While many attributes of the hospitals using management consultants matched with hospitals that did not, there were a few differences. Those using the consultants showed an operating margin of 1.1%, compared with 2.8% among those that didn’t. The hospitals using the consultants spent more on charity care ($19.3 million versus 14.6 million) and fixed assets ($145.6 million compared with $114.2 million) than those that didn’t.
“Hospitals’ increasing use of management consultants is emblematic of the health care industry’s trend toward corporatized behavior,” the authors wrote. “Such large outlays have real opportunity costs —for example, among nonprofit hospitals that hired management consulting firms, the average expenditure of $15.7 million could alternatively fund the annual salaries of approximately 46 hospitalists or 167 registered nurses.”
The report authors allowed that consultants may have been engaged to validate decisions or review actions hospital administrators would have taken without paying for consultants. But they note that, given the importance of nonprofit hospitals to communities, “there is a strong public interest in evaluating the effects of their spending on management consultants,” especially given the lack of readily recognizable benefits.
