Economic productivity in healthcare means eliminating middle managers

Cutting administrative work out of the healthcare system is the first step to increasing the industry's economic productivity, said David Cutler, a Harvard University economics professor and campaign advisor to President Barack Obama.

In a Tuesday afternoon session at the HIT Symposium at the Massachusetts Institute of Technology in Cambridge, Cutler showed attendees how unproductive the healthcare industry is due to excessive administrative procedures. "When I think about what will be the impact of health IT over the next few years, the first thing I think about is eliminating middle managers, the people whose job it is to just work the system," he said.

Nurses spend a third of their time documenting – a procedure Cutler said often involves printing digitized information and re-entering it into another IT system. This is an example of the inefficiency that needs to be driven out of the current healthcare delivery model, he said.

According to Cutler, industries that have shown strong growth in productivity do three things in common: They use a lot of IT and use it effectively, provide worker compensation for increased productivity and empower workers to make decisions.

These industries include retail and manufacturing but not healthcare, which has seen flat or negative productivity in the last 20 years. Cutler said healthcare shouldn't necessarily be measured by output volume – as other industries are – but by the quality of the care services provided. Nonetheless, healthcare stands to benefit from an empowerment- and incentive-based approach.

IT implementations are key to increasing healthcare productivity, but the empowerment and compensation must come along with it, he noted.

Luckily for the healthcare industry, he said, hospitals have very low margins (on average, 4 percent) and can therefore see  financial benefits from improving productivity and efficiency. Hospitals can more than double their margins by reducing costly readmissions, a process that comes with better incentives for the staff to keep sick patients at the hospital.

"You can make a lot of hospitals' profits be higher even as you save money as well," noted Cutler.

Cutler said the national economy stands to benefit from a more productive healthcare industry. One in 20 dollars in the GDP is spent on healthcare.

"If you want to solve the long term economic picture, you've got to do something about healthcare," he said.

Health insurance coverage for every American is key to this, Cutler said. Without covering all patients, "you still have this game where you decide to not provide care to the people who have the least coverage," he said.

Federal spending on healthcare is not only essential, but makes sense in the current economic climate.

"Any spending is good in a recession," Cutler said, "as long as you're investing in things with long term value."