Productivity in Healthcare
"Increases in healthcare productivity move about ½ the national average, by 2027, 57% of hospitals will be operating at a net loss. " This was a statistic said to my cohort and me by Dr. David H. Berger, (SVP and COO of Baylor St. Luke’s Hospital Medical Center) during one of our panelist discussions during my time at Texas Medical Center’s Innovation Accelerator TMCx.
1st, how do you measure productivity in healthcare, 2nd what data proves that healthcare lags behind the national average, and 3rd what can be done to close the gap? A fantastic article “Measuring Productivity in Healthcare: An Analysis of Literature” serves as the backbone to the statements made throughout this blog, which the article defines parameters around labor productivity growth (LP) vs. multifactor productivity growth (MFP). Labor productivity growth, which measures the increase in output per worker over time, while MFP measures the increase in output over time that is achievable with the same set of inputs (same amount of labor, capital, energy, etc. ) Increases in MFP represent improvements in technology (with the same set of inputs, the economy figures out how to produce more. Note: MFP is defined as a residual: it is the increase in output that cannot be explained by changes in inputs.
MFP= Growth rate of real output-growth rate of inputs*input shares.
We have now determined how you measure productivity in healthcare, now what data backs up that shocking statistic. Productivity in healthcare measured in the past typically defined outputs as spending on health goods and services (drugs, hospital services, physician services” which, were then deflated by an appropriate price index to determine the measure of real output over time (MFP). Unfortunately, when leveraging expenditure data and deflators from the Bureau of Economic Analysis, Triplett and Bosworth (2004) found negative productivity growth in U.S medical care in 1987-2001, at a rate of about 1%/per year. A similar study conducted by Cylus and Dickensheets (2007) measuring productivity growth for hospitals, conducted their study by measuring net revenue for hospital deflated by the producer price index for hospitals as their measure of output and found over a 10-year (1995-2005) moving average of growth in hospital MFP was 0.3-0.6%. Note: Spitalnic et al. updated the previous study by extending it to 2013 and yielded similar results, that being the average growth rate of hospitals MFP was between 0.1-0.6% compared to the average growth of non-farm businesses having an MFP of 1%, this substantiates the claim said by Dr. Berger.
Finally, what can be done to close the gap to ensure that our healthcare system can remain financially stable in the years to come? In short, technology, which should have been transparent with the MFP calculation done up front, but what types of technology? Technologies that can drive efficiency will be at the forefront of this fight because it can maintain the inputs (labor, capital, energy) and drive far more profitable outputs. The question for a later blog would be where to focus those dollars towards healthcare technology that yield the highest value for providers deploying them and in what capacity? In the age of Artificial Intelligence what aspects of labor can become automated, so that resources can be better allocated to maintain the level of care, but at a more productive rate. As an obvious bias, M&S Biotics aims to implement our technology in hospitals to do just that!
-Joshua Mecca M.S
President and Founder
Sheiner, L., & Malinovskaya, A. (2016). MEASURING PRODUCTIVITY IN HEALTHCARE: AN ANALYSIS OF THE LITERATURE.