Over the past 40 years, the number of U.S. hospitals declined by 12 percent, from more than 7,100 in 1975 to 6,200 in 2017, according to the latest American Hospital Association survey. And, yet, despite shuttering nearly 1,000 facilities, hospitals remain the nation’s largest source of health care spending, accounting for $1.1 trillion annually (or 33% of all national health care expenditures). Much of that money goes to the 7.5 million people employed by hospitals who, together, make up nearly half the nation’s health care workforce.
These statistics tell the story of an industry struggling to right-size its workforce, bring down costs and, ultimately, achieve more with less. If there’s a silver lining, it’s that we’ve seen this story play out before in another industry. To the benefit of the entire country, U.S. agriculture overcame many of the same struggles that hospitals face today.
Modern agriculture: Why a peach doesn’t cost $5
In 1870, half of the population worked in agriculture. Today, farming makes up less than 2% of the American workforce. That’s because, starting several decades ago, most family farmers realized they’d need to either “get big or go bust.”
Between 1950 and 1970, the number of farms declined by half, the population of farmers went from over 20 million to under 10 million, and the average farm ballooned from 205 acres to almost 400. Many rural communities called it a “crisis,” lamenting the loss of the American farming tradition. Modern society has a different word for it: “productivity.”
At the turn of the 20th century, the average farmer produced five major commodities (e.g., chickens, corn, milk, pigs, etc.) but fed just 26 people (even in the 1960s). By the end of the 20th century, the average farmer produced fewer than two commodities but took on considerably more responsibility and today feeds 155 Americans, more than five times as many. As farmers specialized and focused on achieving economies of scale, consumers benefited with a plentiful supply of affordable foods.
This is the crux of productivity: greater output with fewer people. We have modern agricultural practices to thank for the $0.99 peach and the $3 carton of cage-free eggs. And were it not for the farming-productivity boom of the previous century, our nation’s produce, dairy, and meat would be priced out of reach for many shoppers while leaving even more parents struggling to feed their families.
Productivity is key to industry revitalization, and it’s the only way we’ll once again make health care affordable.
Modernizing the U.S. hospital system
Nowadays, even the slightest whiff of a hospital closure sends politicians, business leaders, and labor unions running to defend their local facility. Naturally, they fear the loss of jobs and access to nearby medical care—not to mention the loss of prestige and status many communities associate with their local hospital. And in rural communities, where more than 110 hospitals have closed since 2010, these fears are especially relevant today.
Nevertheless, a difficult truth persists in towns of all sizes: Improving the quality of hospital care while reducing costs will require major changes, including the closure of many low-volume hospitals.
Here are five improvements needed to modernize the American hospital landscape:
Hospital megamergers have become one of the decade’s top health care trends. But whereas most businesses use M&A to streamline operations and lower prices, today’s hospitals consolidate to gain market control and raise prices. In the future, hospitals will need to merge and consolidate services, but they’ll need to so for the right reasons—namely, to bolster efficiencies and improve clinical outcomes.
To showcase the need for change, consider this fact: Along a 50-mile stretch of highway between San Jose and San Francisco, that there are 12 hospitals that offer heart surgery. Three of these facilities perform fewer than 300 cases a year. This means that for at least 65 days out of the year, heart-surgery teams at these facilities are available and getting paid, but are not performing surgery.
When it comes to its hospitals, the United States has a “volume problem.” For example, of the nation’s 6,200 community hospitals, 1,350 of them are classified as “Critical Access Hospitals.” These facilities house fewer than 25 beds, and nearly all are located in rural areas. Like many of the nation’s heart surgery programs, low-volume facilities are unable to deliver high-quality and efficient medical care.
Although the solution to this problem wouldn’t be popular, the logical and necessary thing to do is this: Consolidate and close 20% to 30% of all U.S. hospitals. Doing so would boost economies of scale, improve the quality of clinical care, and eliminate hospital-bed and medical-device redundancy.
Here’s an obvious fact: The more you do something, the better you become at it. Whether you’re playing the piano or providing medical care, specialization improves performance.
Here’s another obvious fact: Sub-specialization leads to even better outcomes. Surgical teams that do the same operation throughout the day consistently outperform those who are responsible for a wide range of procedures. And the narrower the set of procedures, the greater the individual expertise, and the more likely physicians are to increase the overall efficiency of health care delivery.
In 2015, The Permanente Medical Group (TPMG) looked at its total-joint surgery volume and came to a difficult conclusion. The group had too many orthopedic surgeons and not enough surgical cases. Nationwide, orthopedic associations frequently update their volume recommendations, detailing the bare minimum number procedures an orthopedist should perform annually to be competent. Rather than applying these minimal standards, clinical leaders at TPMG required that its orthopedic surgeons perform a sufficient number of cases so as to achieve superior outcomes.
The quality of surgical outcomes improved significantly in the years that followed. What’s more, 60% of orthopedic patients went home the same-day (compared to the previous inpatient average of three days), thus dramatically lowering the risk of hospital-acquired infections (the No. 1 killer of inpatients today). And by applying optimal (not minimal) volume standards to other specialties, the medical group observed similar improvements in outcomes tied to complex cancer resections and minimally invasive laparoscopic procedures.
In hospitals, productivity is typically measured by the length of a patient’s stay or how long it takes to complete a procedure using an expensive machine (a scanner, a robot, etc.).
A better way to measure productivity (and to understand the opportunity for improvement) would be to calculate the size of the population served by a single surgeon or machine. This measure would tell us how many physicians and specialists are needed in any given geography. And when applied nationally, this measure would no doubt indicate that we have far more specialists than necessary.
Eliminating jobs is always a touchy subject, but eliminating hospital jobs is especially sensitive. These are high-paying positions, staffed by respected members of the community. That’s why mayors, city councils, and hospital boards fight vigorously to keep their facilities open, even when there are better alternatives.
Closing hospitals can have a particularly negative impact on small-town economies. However, imagine the implications if there were 10 million more farmers today producing the same volume of food. We’d be a nation of $5 peaches and $15 cartons of eggs.
Naturally, one of the biggest safety concerns when closing inpatient facilities in smaller towns is getting patients the emergency care they need in a timely manner.
One solution would be to shutter the inpatient areas of underperforming hospitals while maintaining 24-hour emergency services. Although this change would require amendments to current laws, it would be safer to stabilize rural patients at the local ER and then transport them to larger, high-volume facilities that are staffed by physicians with greater expertise and more experience.
But getting patients from one location to another is expensive. Today’s ambulance and air-transport services are extremely over-priced, with helicopter rides to the hospital totaling as much as $25,000 for people without private insurance. As it is throughout the health care system, the pricing strategy for emergency transportation doesn’t reflect the actual cost of services rendered. It reflects a dire lack of competition and regulation.
The next step toward making hospital care efficient requires a more efficient transportation system, something the federal government will need to establish and help fund. This would be the equivalent of the government’s role in road construction and utility provision.
Completing the modernization of the American hospital system will require doctors to use modern technology to better coordinate patient care.
Imagine this: A 40-year-old man has a potentially life-threatening condition like sepsis. Given the complexity of the infection, he needs to be transported from his small local hospital to a large multispecialty facility where doctors have the expertise and technology to treat him effectively. In the current hospital system, this patient will mostly likely arrive at the receiving hospital’s emergency room (ER), where a second set of doctors will evaluate him and order duplicate laboratory tests, thus driving up costs and delaying definitive care.
It doesn’t have to be this way. By connecting doctors at both sites through a common electronic health record and video technology, the physicians can decide together on the best course of treatment—without all the usual ER delays and redundant tests.
Physicians at the Mid-Atlantic Permanente Medical Group (MAPMG) in the states of Virginia, Maryland, and in Washington, D.C., have used this approach successfully for the past five years. As one example, imagine doctors working at one of Kaiser Permanente’s 24-hour urgent care centers diagnose a patient with a heart attack. These physicians, trained in emergency medicine, can quickly connect via video with cardiac specialists in a nearby hospital and arrange for the patient to go directly to the cath lab. This results in timelier care than if the patient had gone to the hospital’s ER.
To fix hospitals, follow the money
Long ago, a news reporter asked the notorious bank robber Willie Sutton why he robbed banks. Sutton replied, “Because that’s where the money is.”
If we want to make medical care more affordable for more people, we’ll need to fix our overpriced hospital system. That begins by closing inpatient facilities with low volumes, eliminating redundant high-end services, and finding ways to provide higher quality care with fewer physicians, nurses, and staff.
Just like the farms of the 20th century, today’s hospitals have to change, whether communities like it or not. The only question is who’s going to drive the change? Already, signs of disruption are emerging from outside the hospital industry.
Major employers like Walmart are directing patients to medical centers of excellence. One company in Wisconsin has begun to offer its employees $5,000 to receive total joint replacements in Mexico, just to avoid the higher cost (and lower quality) of getting the procedure done locally.
In a “people-intensive” industry like medicine, the cost of care can’t be more affordable until the cost of labor comes down. To make the U.S. hospital system as efficient as U.S. agriculture, we need to close low-volume facilities, streamline clinical services, and retain fewer people. Although these actions will prove painful in the short-term, they’re essential for reducing costs and improving the quality of American health care.
Robert Pearl is a physician and CEO, Permanente Medical Groups. He is the author of Mistreated: Why We Think We’re Getting Good Health Care–And Why We’re Usually Wrong and can be reached on Twitter @RobertPearlMD. This article originally appeared in Forbes.
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