Do management consultants save non-profit hospitals money?
A typical administrative response to financial difficulty in large organizations is to hire consultants. The theory is that the expertise of consultants will uncover efficiencies that will (a) relieve the difficulties and (b) repay the investment in the consultants. So how’s that working out for American nonprofit hospitals, many of which struggling and threatened with closure?
“Findings Nonprofit hospitals in the US (n = 2343) collectively spent more than $7.8 billion on management consulting services from 2009 to 2023. A stacked difference-in-differences design comparing 306 US nonprofit hospitals that used a management consulting firm for the first time with 513 matched hospitals that did not use a management consulting firm during the study period found little evidence of substantial, statistically significant, or systematic changes attributable to management consulting engagements.
“Meaning These findings raise questions about the net value that nonprofit hospitals receive from management consulting services and call for careful examination of these contracts.”
Maybe buy lotto tickets instead?
Management consultants don’t provide value for nonprofit hospitals
“Findings Nonprofit hospitals in the US (n = 2343) collectively spent more than $7.8 billion on management consulting services from 2009 to 2023. A stacked difference-in-differences design comparing 306 US nonprofit hospitals that used a management consulting firm for the first time with 513 matched hospitals that did not use a management consulting firm during the study period found little evidence of substantial, statistically significant, or systematic changes attributable to management consulting engagements.
“Meaning These findings raise questions about the net value that nonprofit hospitals receive from management consulting services and call for careful examination of these contracts.”
Maybe buy lotto tickets instead?
Management consultants don’t provide value for nonprofit hospitals
Allow me to offer an opinion from a manufacturing consultant. What are the costs of operating a hospital? Infrastructure, Materials, and Labor. Yes?
The infrastructure is already there, Labor are your doctors, nurses, maintenance, and management. That leaves Materials.
I suspect the hospital was built to handle a precise number of patents. There is no unused areas sitting days and weeks at a time unused.
If you are not overstaffed and the building works as planned. There is only one thing left to look at and that is materials.
I am assuming that Labor is wisely chosen here.
Costs of Caring: Challenges Facing America’s Hospitals as They Care for Patients in 2026
@Bill,
You should sell your services. You can’t do any worse for advice than the current management consultants and they’re making money with bad advice.
Joel:
It is a mindless battle trying to convince management they can do better in their planning. Materials is a large part of the costs of manufacturing to which little is paid significant attention too. I can bet AI may be doing more of the planning while everyone looks elsewhere. Not a smart move.
It was in the seventies or early eighties when I had a managerial position at Parker Hannifin in Desplaines Illinois. We were planning manufacturing requirements for the Hydraulic and Air cylinders . . . piston type devices.
We hit the recession and demand disappeared. I had a plant to which we planned (MRP) and supplied materials to from our external suppliers. I got my little group together and gave them a directive. “Start reviewing your planning.”
If there is no demand for our facility or orders from our plants, either cancel the order or push the order out. We used a distribution report to review other plant inventories and our demand from them. So, they started to cancel the orders from the materials side and purchasing followed suit.
About 14 months later the Divisional head of finance and accounting (Bill Dold) came to me and said:
“I do not know what you are doing; but, keep it up. For 12 of 14 months, we had small profits (during this recession) and no profits for two months. We traced it back to expenditures in purchasing materials.”
It was our small department’s planning. My boss was an idiot out of sales. The expertise I had was learned and I did the job my department was doing. I could do it also if need be, I was a member of APICS, a certified CPIM and also a CPM in Purchasing. I did the Plossl and Wight seminars, installed MRP and MRPII systems. I consulted in my fields of endeavor for Ingersoll Engineers (the know-it=all of industry). It was a fun ride. I (we) could make the place hum.
I have my Masters (Loyola University of Chicago) and a couple lesser degrees (Lewis, etc.). I am retired and writing at Angry Bear with some other writers who are knowledgeable and I enjoy being with them. Thank you Joel for hanging around with us. I enjoy your commentaries.
I am done with that. At 77, I do not feel like entertaining management. If asked for help, I might do it for a dinner for my wife and I. Oliver Wight had a term for people who did not believe in utilizing MRP/MRPII. Cement Heads or something like that. An important thing to note. If you can not do it manually; how can you expect it to be done by a computer and know whether it is accurate or not?