Here’s the bottom line at the top: Labor-based productivity – that is, how much value is created per hour worked – is reasonably good in ambulatory health care. In fact, it’s higher than in many other areas of the economy, including the auto and information industries. This not only means that people at health centers and ambulatory facilities are working very hard, but that their work translates into economic value for the country.
Unfortunately, other measures of productivity in ambulatory health care are not as strong, particularly those that measure non-labor-based attributes of health care, such as technology adoption, workflow optimization and organizational efficiency. The good news here is that there is an opportunity to greatly increase productivity by focusing on these non-labor-based attributes and this opportunity comes as health centers are considering electronic billing and the adoption of EHRs. The rest of this column explains and expands on these ideas.
Recently, I was talking to two colleagues at MIT. Both are economists, and both agreed that productivity in health care must be low. How did they reach that conclusion? There are many ways economists measure productivity, but all of them look at how much economic value is produced by some specific effort or investment. Labor productivity is most often measured by the contribution, in dollars, to the Gross Domestic Product per hour worked in an industry. Total factor productivity (TFP) looks at other things that affect value such as the amount of technology adoption or how much workflows have been optimized. I measured both labor productivity and TFP for ambulatory and inpatient health care using data for the period 1998 to 2005 from the Department of Commerce. I also calculated these productivity measurements for the auto and information industries for comparison.
What I found did not match the expectations of my economist friends. I’ll focus on ambulatory health care here. The statistics I used from the Department of Commerce define ambulatory health care as including care provided at community health centers as well as other freestanding facilities providing surgical, trauma and other types of outpatient services. Hospital-based ambulatory services are not included in this definition. Labor productivity was moderately strong, measuring between 4¢ and 6¢ per hour worked, with a 6% compound annual growth rate (CAGR) over the time period. This was higher than in the auto industry (3¢-5¢ per hour worked with a 1% CAGR), but not as strong as the information industries (33¢-50¢ per hour worked with a 2% CAGR). Of most interest, though, is TFP. While TFP was initially high in ambulatory health care (about $3.12 per dollar of investment), it remained static over the period with a CAGR of less than 1%. TFP in auto ranged from $1.37 to $1.76 and a CAGR of 3%, while in the information industries it ranged from $1.52 to $2.46 with a CAGR of 6%.
OK, by now you really think I’m off the deep end. What does this mean and why is it important for health centers? It means that people working in ambulatory health care are working very hard and generating a good deal of economic value. Ambulatory health care alone produced 3.5% of the gross domestic product in 2005 compared with 4% for the information industries and less than 1% for auto. Viewed in terms of labor productivity, ambulatory health care is doing well. TFP, as I said above, is perhaps the more interesting and telling measurement. This measure was developed to judge the effect of factors not directly related to labor (hours worked) or investment (money spent) on productivity. Many things affect its measurement, but the most relevant factors are:
- Technology adoption
- Investment in research
- Reorganizing and optimizing workflow and work process
- Redesigning and optimizing organizational structure
Both the auto and the information industries showed large gains here, while ambulatory health care showed a slight loss from 1998 to 2005. Technology adoption, and work and organizational redesign have been ways of life in the auto and information industries over the last 20 years. Their gains in TFP are related to the very difficult work in these industries to improve work efficiency and utilize new technologies. The same cannot be said, certainly not at the same scale, of ambulatory health care.
However, the TFP measurement shows that there is a huge opportunity to greatly improve productivity by focusing on these factors. As it happens, this opportunity coincides with the emphasis on electronic billing and EMR adoption in ambulatory health care. Moving to e-billing and EMR use will require health centers to seriously address technology adoption and the redesign of workflows and work process, and possibly even organizational restructuring. This means that the kind of work done in the benchmark industries which resulted in large TFP gains, must now be done by health centers – with, we hope, similar productivity gains.
The catch is that health care is a different kind of industry, and health centers are different kinds of organizations than those found in other industries. Clinical outcome, not productivity, is how we measure success in health care and at health centers.
The key question is: Is there a link between higher productivity and better outcomes? While there may be, today there is no evidence to indicate that higher productivity is linked to improved outcomes. Improving labor productivity just means improving economic efficiency – how much you contribute to the economic output of the country. However, improving TFP by technology adoption and workflow redesign might well improve outcomes if it leads to more efficient encounters, fewer clinical and operational errors, and improved health status.
EMR adoption appears to be the beginning of this productivity improvement, but we don’t know much about the deeper relationship between productivity and clinical outcome. This is the focus of one of my ongoing research projects at the Foundation. Stay tuned…
David Hartzband, D.Sc., is Director of Technology Research at the RCHN Community Health Foundation and a Research Scholar in technology and organizations in the Engineering Systems Division at the Massachusetts Institute of Technology.
