The US healthcare system is complicated. Many would argue that it is dysfunctional and broken. Despite advances in technology, systems, and process improvement efforts, inefficiencies seem greater than ever, and care is less patient focused. Having many clinical friends, I am amazed at their level of job dissatisfaction. It’s no wonder an increasing number of these critical resources are leaving the industry. According to a report by Mercer, the drain of talent from the healthcare industry is expected to result in a shortage of over 100,000 workers nationwide by 2028. Staff shortages will drive further inefficiencies and patient dissatisfaction. Persistent staff disenfranchisement will inevitably hamper safety, quality, and patient outcomes.
Cutting Costs—and Quality
From hospital to hospital, the overarching priority is cost cutting. Yet cost cutting, if not done in a very “surgical” manner, negatively impacts quality, care outcomes, and patient satisfaction. Some evidence suggests that hospital boards spend as little as 5-10 minutes in meetings on the topic of quality. Yet it has been proven over and over across industries that to deliver a quality product or service, you must first establish a culture of quality expectations “on the inside.”
And this quality is as much attributable to attitudes as it is to processes. Case in point: Boeing has suffered significant setbacks due to quality issues in an industry with significant technological process controls. What changed at Boeing was its focus on people; labor-management relationships have given way to a transactional culture. In healthcare, as in the critical aviation industry, transactional cultures work against the mission of caring. The natural outcome of focusing on caring is welcomed appreciation by staff members, greater commitment to serving patients, and, ultimately, improved financial results.
Despite current and forecasted challenges, the healthcare industry remains slow to change. Most hospitals and systems claim maintaining financial viability to be the greatest challenge. As a result, many clinical staff are being expected, and in some cases pushed, to generate more revenue by increasing throughput, in effect spending less time with each patient and doing more surgeries.
This trend is even more apparent in organizations owned by private equity firms, which follow a playbook to quickly grow margins (often via extreme cost-cutting measures). My opinion is that private equity has no place in healthcare. Some of the negative impacts are evident by a rise in defaults and bankruptcies in healthcare organizations owned by PE firms.
Who’s Benefiting at Nonprofits?
However, it would be wrong to place too great a blame on PE. Close to 60% of community-based hospitals in the US are designated as not-for-profit, a number that jumps to 76% if you include state and federally owned hospitals. In exchange for tax-exempt status, the hospitals are required to provide access to care and other formidable benefits to the community. Yet, according to a recent study, most nonprofit hospitals are getting more in tax breaks than they provide in community benefits.
Furthermore, there is the issue of nonprofit hospital C-level compensation. Executive salaries have skyrocketed, while clinical compensation has been stifled. For example, from 2005 to 2015, the average compensation of major nonprofit hospital CEOs jumped 93% from $1.6 million to $3.1 million, while the average hospital worker wages increased just 8%. This imbalance raises important questions about how nonprofit hospitals are prioritizing their funds and highlights a need for pay practices to come in line with the hospitals’ commitment to community care.
I believe an equally, if not more significant issue, is the impact on staff morale. The salaries and perks extended to the top executives are not lost on clinical staff who are being required to do more. In many cases, the nurse-to-patient ratio, a key driver of burnout for nurses, has increased significantly, leading to fatigue and increasing quality issues. The fact that a nonprofit healthcare system’s board approved an ad during the Super Bowl at a likely cost of upwards of $8 million can only leave us, the patients, and staff members to question how real the issue of diminishing profitability really is.
Driving Accountability
It would be easy to conclude that the industry, especially the not-for-profit entities, requires more oversight. However, more government oversight is not the answer. It is incumbent on us, whether clinicians, consumers, or taxpayers, to do all we can to remain informed, expose the truth, and drive fiscal and ethical accountability by healthcare boards and executives if we expect our nonprofit healthcare systems to truly be responsive to our needs and duly serve their charitable missions.
Most importantly, boards must apply a high degree of scrutiny and ethical dispositioning to expenses, especially those that do not directly contribute to improving workforce engagement and satisfaction, quality, clinical outcomes, and patient and family member experience.
March 4, 2025
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