Perspective
Rethinking Health Care Labor
N Engl J Med 2011; 365:1370-1372October 13, 2011
Comments
open through October 19, 2011
- Article
Of the $2.6 trillion spent in 2010 on health care in the United States, 56% consisted of wages for health care workers. Labor is by far the largest category of expense: health care, as it is designed and delivered today, is very labor-intensive. The 16.4 million U.S. health care employees represented 11.8% of the total employed labor force in 2010. Yet unlike virtually all other sectors of the U.S. economy, health care has experienced no gains over the past 20 years in labor productivity, defined as output per worker (in health care, the “output” is the volume of activity — including all encounters, tests, treatments, and surgeries — per unit of cost). Although it is possible that some gains in quality have been achieved that are not reflected in productivity gains, it's striking that health care is not experiencing anything near the gains achieved in other sectors. At the same time, health care labor is becoming more expensive more quickly than other types of labor. Even through the recession, when wages fell in other sectors, health care wages grew at a compounded annual rate of 3.4% from 2005 to 2010.
Complicating this picture is the expansion of health insurance coverage to 34 million additional people over the next 10 years under the Affordable Care Act (ACA).1 This increase in the population of insured Americans will expand demand and the need for labor — potentially to the point where labor becomes scarce and therefore even more expensive. If we add these new beneficiaries to the health system and expand the workforce proportionally while retaining today's labor structure, total health care costs will increase by $112 billion, or 13%. Therefore, to be successful, any effort to slow the rate of growth of health care spending will require a change to the labor structure.
Standing in the way, however, is the inherent conflict between the federal goals of slowing that rate of cost growth and creating jobs in the health care system. President Barack Obama recently announced that health care is a major area of job creation, and we've seen 12% job growth in health care over the past 5 years. A recent report by the McKinsey Global Institute notes that for the United States to return to full employment, as many as 22.5 million jobs would need to be created, with 5.2 million, or 23%, in the health care sector.2 Over the past decade, health care has been one of the primary drivers of job growth in the United States. Unfortunately, these jobs have been added in part because the health system has not improved its productivity at the same rates as other sectors.
Increasing labor productivity has been the key feature distinguishing the U.S. economy from other developed economies. Over the past 20 years, our real gross domestic product (GDP) grew 2.5% annually, with total employment contributing 0.7% and labor productivity the remaining 1.8%. In comparison, the real “value added” of the health care sector, measured as the contribution of the industry's labor and capital to its gross output and to overall gross GDP, grew at 2.3%, with total health care employment contributing 2.9% while labor productivity actually decreased by 0.6% annually. In contrast, other industries experienced substantial growth in labor productivity (see graph
Real Sector Growth (Compound Annual Growth Rate), Broken into Labor Productivity Growth and Employment Growth in Various Sectors of the U.S. Economy, 1990–2010.). Aside from health care, only education and defense showed no aggregate gains in productivity. Although it's possible that there were unmeasured gains in quality deriving from technological improvement, as in the case of eye surgery, it is highly unlikely that after such effects were accounted for, labor productivity in health care would approach that of other sectors. Until the productivity adjustments to Medicare were added as a result of the ACA — an effort to recapture overpayments for one-time expenses on buildings or capital equipment that have been inappropriately included in annual inflation adjustments — only weak incentives existed to drive labor productivity. As a result, most efforts to tackle labor productivity have focused on eking out small improvements in approaches to nurse staffing and reducing average hospital lengths of stay by a few hours.Improving the labor structure in health care can be achieved in three ways: reducing the number of workers, lowering wages, or increasing productivity. The first option is a crude approach generally reserved for recessions, though employment in the health care sector continued to increase during the most recent recession. Wages can be lowered by either reducing current wages or replacing current workers with lower-cost (less skilled or more narrowly skilled) workers who can produce the same output. The field of law has gone through such a transition, with the number of jobs for paralegals and legal assistants growing 2.5 times as quickly as that for attorneys in the 2000s.2
Yet it is the final, and realistically most viable, option that provides the greatest return. If the health care sector is to achieve even the average improvement in labor productivity seen in the overall U.S. economy, we will need to redesign the care delivery model much more fundamentally to use a different quantity and mix of workers engaging in a much higher value set of activities. (Although some activities, such as feeding patients and tending to their hygiene, may be impossible to accelerate, productivity is improved when these activities are performed by lower-cost but capable labor. Approaches that encourage delegation of tasks from physicians and nurses to other workers — for instance, transferring postsurgical care from surgeons to physician assistants — provide opportunities for additional savings and increased productivity.) This solution implies eliminating myriad time-wasting, low-value activities; increasing our use of technology, data, evidence, and teams; increasing standardization to avoid rework; and relying on evidence-based personalized care to avert complications.
A large obstacle to such a wholesale redesign is the complexity of the federal and state reimbursement rules and requirements for scope of practice, licensure, and staffing ratios. One example of the current inflexibility is the requirement that all imaging centers have a physician on hand at all times if intravenous contrast may be administered, owing to the 0.1% probability that a patient will have a severe, life-threatening allergic reaction.3,4 Surely, other health care professionals could be trained to respond effectively to such an allergic reaction, which would liberate these physicians to fill higher-productivity roles. In addition, though providers are integrating new technology into their systems, they have no incentive in fee-for-service reimbursement for improving productivity by converting inpatient encounters to virtual visits, incorporating remote monitoring, or managing treatments with lower-cost care coordinators. Though a Current Procedural Terminology code was created to permit billing for e-visits, it requires the patient to initiate the online visit. Hence, communication between physicians and patients — such as an e-mail follow-up after an office visit — does not meet the criteria, a limitation that hinders the uptake of technology.
Every other major sector of the economy has managed to simultaneously improve quality and consumer satisfaction and reduce costs, which suggests that the same should be achievable in the health care sector once the incentives are strong enough. Moreover, in industries in which productivity is improved, workers' wages grow, as they capture some of the value created by additional productivity.
It is critical that policymakers and health plans focus on revamping their reimbursement approaches to create stronger incentives to increase labor productivity. The combination of a risk-based payment model tied to outcome goals, on the one hand, and coding rules that are appropriate regardless of how providers achieve their clinical goals, on the other, could inspire the implementation of innovative, technology-based, analytically informed approaches that increase productivity. Alternatives that are not oriented toward substantial improvements in labor productivity will inevitably lead to a future in which health care salaries come under extreme pressure, as payers and policymakers resort to traditional levers of market-basket cuts and utilization controls. Therefore, as the system embarks on initiatives such as accountable care organizations, patient-centered medical homes, and bundled payments, it is imperative to work to optimize both patient outcomes and labor productivity.
Disclosure forms provided by the authors are available with the full text of this article at NEJM.org.
Source Information
From the Engelberg Center for Health Care Reform, Brookings Institution, Washington, DC (R.K.); Harvard Business School, Boston (N.R.S.); and the John F. Kennedy School of Government, Harvard University, Cambridge, MA (N.R.S.).
- References
References
1
Congressional Budget Office. CBO's March estimate of the effects of the insurance coverage provisions contained in the Patient Protection and Affordable Care Act (Public Law 111-148) and the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152). March 2011. (http://www.cbo.gov/budget/factsheets/2011b/HealthInsuranceProvisions.pdf.)
2
McKinsey Global Institute. An economy that works: job creation and America's future. June 2011. (http://www.mckinsey.com/mgi/publications/us_jobs/pdfs/MGI_us_jobs_full_report.pdf.)
3
American College of Radiology. ACR practice guideline for the use of intravascular contrast media. 2007. (http://www.acr.org/SecondaryMainMenuCategories/quality_safety/RadSafety/OtherSafetyTopics/intravascular-contrast.aspx.)
4
More D. Iodine contrast allergy. About.com. February 6, 2009. (http://allergies.about.com/od/medicationallergies/a/rcmallergy.htm.)
- Citing Articles (2)
- Comments (11)
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11 Reader's Comments
ROBERT THOMSON, MD | Physician | Disclosure: NoneROCHESTER NYOctober 15, 2011Another Perspective on Health Care Labor
Kocher and Sahni note that health care labor productivity decreased by 0.6% annually over the past 20 years. The following are some factors which may explain this statistic based on my experience and observations during 20 yrs of practice.
Complexity of care has increased with more treatment options and guidelines now than before. The aging of the population has increased the number of patients with chronic medical conditions. Recommendations for preventive health care have increased. Patients are encouraged more than ever to discuss their health, and they are armed with more information than before. With the risk of malpractice,the emphasis on documentation has increased. As a PCP, I have more requests for forms, notes, and prescriptions (e.g., scripts for OTC products purchased with FSA dollars). With our practice in a Medical Home pilot project, administrative demands are increased. Our EHR, in order to capture bullet points to calculate an E&M code, requires time-consuming data entry. HIPAA compliance requires time. Attempts to obtain Meaningful Use of our EHR consume extensive time. Fewer physicians work the heroic hours worked by physicians of past decades.Michael Neece | Other | Disclosure: NoneOctober 14, 2011Health Care Productivity
Clinical and non-clinical workers are too often burdened with administrative tasks that hinder their ability to care for patients. Regulatory, reimbursement processing, and reporting tasks reduce the time available for the real work of delivering exceptional care. As Doctor DAVID JOYCE highlighted above, there are opportunities to improve and automate our healthcare processes by involving those people who actually do the work.
VERNON ROWE, MD | Physician | Disclosure: NoneOVERLAND PARK KSOctober 14, 2011We Take Care of People, We Don't Make Widgets
This and the following seminal and antipodal articles, embody all the controversies of decades of debate over how healthcare should be delivered.
Kocher and Sahni compare real sector growth, labor productivity growth, and employment growth of various sectors, and not surprisingly finds that manufacturing has outpaced the other sectors from 1990-2010. The authors bemoan the fact that healthcare productivity cannot be favorably compared to manufacturing productivity.
Hartzband and Groopman, in the other hand, argue that a new language has been created to depersonalize the practice of medicine, the prevention of disease, and the healing of human beings whose lives have been shattered by illness. Patients become “consumers” and “customers.” Doctors, nurses, and allied personnel become “providers."
I believe the tension between these two approaches can be resolved easily as long as patients are allowed to decide their fate. Give them a choice, and they’d rather be people than widgets.STEPHEN TAYLOR, DO | Physician - Health Law/Ethics/Public Policy | Disclosure: NoneROCKWALL TXOctober 13, 2011Cannot find the disclosures for this article
Dr. Kocher is a partner in a venture capital fund which sells health care technology, medical and surgical devices and represents pharmaceutical companies. How is he unbiased in his opinions? This article is basically an advertisement for his company's services and products, which will, of course make health care more productive. All it will take is getting rid of that old fashioned interaction between the doctor and the patient.
Shantanu Nundy | Physician | Disclosure: NoneOctober 13, 2011Increasing Labor Productivity Can Mean More Time For Being A Doctor
Kocher and Sahni are spot on. How much time does the average physician spend doing tasks that do not require a medical degree? Perhaps my practice is not as efficient as those of the commenters, but listening compassionately to patients and consoling grieving families -- both tasks that I agree are best served by a physician -- make up a fraction of my time today. Instead I spend time handwriting prescription refills, seeing patients for urgent care complaints, counseling patients for behavior change which allied health professionals are more highly trained in, arguing with insurance companies, completing disability papers, etc. Is it possible that increasing labor productivity could mean that I spend less time doing tasks that can be reliably (or perhaps better?) performed through other members of my health care team or automated processes and more time doing tasks that physicians are uniquely qualified for?
Alexander Geyer | Physician | Disclosure: NoneOctober 13, 2011Is healhtcare an industry?
The perspective provided by Kocher and Sahni is most intriguing, particularly the application of new and personalized technologies. However, is tending to the physical and spiritual needs of the ill really an industry? One of the most frequent complaints voiced by patients is the loss of personal relationship with their physician and fragmentation of their care. Listening compassionately to the patient may not be a high value activity. Perhaps it should be delegated to a trained assistant who could then summarize the patient's complaints in a 30 second online presentation to the virtual physician who could then perform his or her high value activity of dispensing advice. That will boost productivity, but do we really want to go down that road?...
john santiago | Physician | Disclosure: NoneOctober 13, 2011certification vs proficiency
Dangerous frontier. Replace proficiency with certification. Will the cost savings in marginally skilled labor justify outcomes? In the end who is responsible? My guess-probably not the people writing the checks.
DAVID JOYCE, MD | Physician | Disclosure: NoneARNOLD MDOctober 13, 2011It's the process St---d
Process improvement led by those who actually do the work is virtually non-existent in the American health care industry. Yet it is the key to increasing productivity in all industry. One sees some high profile institutions who tout process improvement but it has yet to take hold with the rank and file. In fact, there is no hospital in Maryland, at this time, with an effective worker led program. Ford Motor Company was a wreck until Edwards Deming introduced data driven process improvement and a culture of change in 1981. It took them just six years to reach profitability.
The current health system with its top down management is in no position to accept the benefits of modern leadership and management principles. Yet they will be forced to change as the overall health care spending decreases. Those who will be successful in the future will adapt a continuous improvement culture, but from where I stand it still seems far away.SERGIO STONE, MD | Physician | Disclosure: NoneVILLA PARK CAOctober 12, 2011Health Care Productivity
Since health care is not only an industry but also a personal relationship, how do you increase productivity while giving comfort and counselling to a mother who lost a child to cancer? How would you limit the time spent with her to increase productivity?
STEVEN DAVIDSON, MD | Physician | Disclosure: NoneBROOKLYN NYOctober 12, 2011Baumol's cost disease plays a role
There's no doubt that some professional, technical and support work in health care can be reallocated. Further physical plants can be redesigned and operated so that, for example, nurses do not spend an hour of each shift seeking and obtaining supplies needed in the care of a patient.
Exceptional examples of both exist. Neither of these interventions will yield the magnitude of effect health care and budget exigencies require.
A mid-level provider may place a chest tube in a ventilator dependent patient suddenly decompensating secondary to a pneumothorax. That same mid-level provider is not performing a lobectomy for tumor. More of us are likely to seek that lobectomy in coming years, the diminution of the smoking epidemic not withstanding; an effect not close to that achieved by the Salk vaccine substitution for the iron lung.
I've spent the past 15 yrs wringing the efficiency possible from a wonderful ED staff using everything I had learned from Deming, Berwick, et. al. and believe the authors' proposition laudable, perhaps an opportunity over decades. I doubt near term value. The social psychology of practitioners and their own leadership of clinicians mitigates against it.
More like a visit to an Apple store
This article tries to think through the consequences of recent laws and labor constraints. We are increasing the demand by making health insurance coverage to expand but not the supply. Health care is different from other industries where new technologies have led to increased productivity. The health care industry is much more rigid and fragmented with intangible products such as quality of care and difficult to measure outcomes. Also, it is not the buyer that is the patient but the doctor in a relationship with the payor who determines what the best course of action is. In the olden times there was a strong doctor patient relationship, but recently this trust has eroded significantly. It is imperative for new technologies to bring all three parties; the patient, the payor and the doctor to the table and allow them to communicate freely about cost and quality. This will be less like an Amazon market place, and more like a visit to an Apple store, where you can actually discuss the merits and limitations of different technologies and their impact, as well as their cost. This is indeed an imperfect analogy just to stress the point that we need both, new technologies and an open mindset.