Nonprofit hospitals spend billions on consultants with no clear effect

Source: Hacker News

Background

Management consulting firms have become a fixture in the American healthcare system, wielding outsized influence compared to most other economic sectors. Hospitals navigating challenging financial and regulatory landscapes may call on these specialists for advice on strategic planning, cost‑cutting, reorganizations, or revenue‑boosting initiatives.

Study Overview

A new paper published in JAMA — “Changes in Nonprofit Hospitals’ Finances, Operations, and Quality of Care After Using Management Consultants” — is the first large‑scale, empirical attempt to determine the scale and impact of hospital investment in management‑consultant services.

“This initial analysis suggests that consultants may deliver neither the dramatic efficiencies they promise nor the harms that critics sometimes fear,” said first author Joseph Dov Bruch, PhD, Assistant Professor of Public Health Sciences at the University of Chicago.

Data and Methods

• Data source: IRS Form 990 filings, which require nonprofits to disclose their five largest external contracts costing over $100,000 each year.
• Identification: Machine‑learning techniques were used to flag contracts with management‑consulting firms.
• Sample: 306 nonprofit hospitals that initiated management‑consultant contracts between 2010‑2022, matched to a control group of hospitals without such contracts.
• Outcomes examined: Finances, staffing, operations, and patient outcomes (e.g., readmission and mortality rates).

Key Findings

• Prevalence: Over 20 % of nonprofit hospitals engaged management consultants during the study period.
• Spending: The sector spent at least $7.8 billion on management‑consulting services over roughly a decade, averaging $15.7 million per hospital.
• Impact on performance:
  • No statistically significant or systematic changes were observed in net patient revenue, operating margin, days of cash on hand, or claims‑based patient outcomes.
  • The only notable effect was a small increase in stroke readmissions, indicating a slight negative impact.
• Broader consulting spend: When HR, IT, and other consulting services are included, total spending by nonprofit hospitals exceeds $25 billion for the same period.

Implications

• The evidence does not support the notion that management consultants deliver dramatic efficiency gains for nonprofit hospitals.
• Greater transparency and public accountability are needed regarding how tax‑subsidized dollars are used for consulting services.
• Hospital executives should exercise caution when allocating funds to management consultants, and further research is required to assess the true impact of these contracts on health‑system performance.

Publication Details

• Title: “Changes in Nonprofit Hospitals’ Finances, Operations, and Quality of Care After Using Management Consultants”
• Journal: JAMA (May 2026)
• Authors: Joseph Dov Bruch, Cal Chengqi Fang, Yan Bo Zeng, Avni Parthan, Ashvin D. Gandhi

The study was motivated in part by Bruch’s role as a mentor and adviser to students considering careers in healthcare management consulting, highlighting the need for robust evidence to guide career and policy decisions.