Hospital Management Consultants. Money for Nothing?

If you’re a healthcare business journalist like me, there’s a lot to love in a new study on what hospitals get in return for spending billions on management consultants. If you’re a hospital board member, the study raises a lot of questions you should be asking your C-suite. And if you’re a hospital management consultant, you just want the study forgotten by next week’s healthcare news cycle.

Five researchers from the University of Chicago, Brown University, the University of Wisconsin and the University of California Los Angeles did the study, which appears this week in the Journal of the American Medical Association. They wanted to know whether the hiring of management consultants by hospitals moved the needle on key financial, operational and quality-of-care measures.

The short answer is no.

They reached that conclusion by comparing performance measures of 306 not-for-profit hospitals that used a management consultant for the first time from 2010 through 2022 with performance measures from a matched set of 513 hospitals that didn’t use a management consultant from 2009 through 2023. Their data came from a variety of credible sources like hospitals’ IRS Form 990s, Medicare cost reports, HCAHPS surveys, Medicare claims and more.

The big news is that they found no significant differences between the two sets of hospitals on changes in things like net patient revenue, operating expenses, fixed assets, bad debt, days’ cash on hand, total margin, operation margin, inpatient length of stay, total inpatient days, staffing, 30-day mortality rates and readmission rates.

“These findings raise questions about the net value that nonprofit hospitals receive from management consulting services and call for careful examination of these contracts,” the researchers concluded.

The more interesting news to me is how much, and to whom, hospitals paid for management advice and didn’t get much in return, per the study. The study pulled the curtain back on those dollar figures. To wit:

• Of the total 2,343 hospitals that researchers had data for, 21% hired management consultants during the study period.
• The hospitals spent a total of more than $7.8 billion on management consultants over the study period.
• The average expenditure on management consulting services was $15.7 million per hospital, with the average cost of a management consulting contract at $6.2 million.
• The average length of a management consulting engagement was 1.4 years.

And the best part, at least to me, is the study ranked the largest hospital management consultants by how much hospitals paid them over the study period. In order, the six largest are:

• Deloitte at $1.2 billion
• Accenture at $1.2 billion
• Huron Consulting Group at $1 billion
• PwC at $800 million
• Premier at $600 million
• McKinsey & Co. at $400 million

Do you really want to be at the top of a list of companies that took hospitals’ money and gave nothing back in return, as this study suggests?

To be fair, an accompanying editorial by two unaffiliated researchers from the University of Michigan said, “There is likely more to the story.”

They said hospitals don’t randomly hire management consultants just because. They hire them because they’re struggling in one or more administrative, financial, operational or clinical areas. Using consultants helped them bring their performance in line with their peers.

Still, the researchers said, “As one of the first studies of its kind, this article raises as many questions as it answers.”

Indeed.