Changes in Nonprofit Hospitals' Finances, Operations, and Quality of Care After Using Management Consultants

The presence of management consultants in the US health care industry has increased dramatically in recent decades and is now higher than in most other sectors of the US economy. Hospitals hire management consultants to provide external expertise and advise on strategic planning, organizational change, cost cutting, and revenue-enhancement activities. Despite the prominence and influence of these firms, there is no empirical evidence in the US documenting either how much is spent on these services or whether that spending leads to measurable improvements.

To quantify nonprofit hospitals' spending on management consultants and to evaluate changes in finances, operations, and quality of care following the initiation of a contract with a management consulting firm.

Observational study using a stacked difference-in-differences design to compare 306 US nonprofit hospitals that used a management consultant firm for the first time in 2010-2022 with 513 matched hospitals that did not use management consultants during 2009-2023.

First use of a management consulting firm.

Financial performance (eg, revenues, expenses, margins, cash reserves, and fixed assets), operational measures (eg, inpatient utilization, staffing, executive and worker compensation, charity care, and community benefits), and quality-of-care measures (eg, claims-based 30-day mortality and readmission for acute myocardial infarction, pneumonia, and stroke).

More than 20% of nonprofit hospitals hired management consultants during the study period. Nonprofit hospitals that hired management consultants paid an average of $15.7 million for their services, and nonprofit hospitals collectively spent more than $7.8 billion on these services from 2009 to 2023. Despite this substantial investment, analyses of hospitals' financial performance, operational decisions, and claims-based patient outcomes revealed little evidence of substantial, statistically significant, or systematic improvements attributable to consulting engagements. Relative changes were estimated for financial measures, such as net patient revenue (-2.22%; 95% CI, -5.11% to 0.76%; P = .14), operating expenses (-1.07%; 95% CI, -3.56% to 1.49%; P = .41), fixed assets (2.05%; 95% CI, -6.54% to 11.42%; P = .65), bad debt (-6.31%; 95% CI, -19.82% to 9.48%; P = .41), days' cash on hand (-8.56%; 95% CI, -28.00% to 16.13%; P = .46), total margin (-0.19 [95% CI, -1.20 to 0.82] percentage points; P = .71), and operating margin (0.15 [95% CI, -0.94 to 1.23] percentage points; P = .79). Relative changes were estimated for operational measures, such as inpatient length of stay (1.71%; 95% CI, -0.34% to 3.81%; P = .10) and total inpatient days (0.29%; 95% CI, -2.57% to 3.23%; P = .85). Relative changes for quality-of-care outcomes were also generally not significant. The sole exception was 30-day readmission for patients with stroke (1.37 [95% CI, 0.14 to 2.61] percentage points; P = .03), which was not robust to alternative specifications.

Nonprofit hospitals expend substantial resources on management consultants, but there was no evidence of meaningful changes in hospital finances, operations, or quality of care. These findings raise questions about the net value that nonprofit hospitals receive from management consulting services and suggest the need to carefully examine the widespread use of management consultants by hospitals and other organizations across the health care industry.