Hospital Capacity Shortages: An SEC-Backed Transparency “PULL” Will Open Beds Faster Than a “PUSH” by HHS

In the new normal of ongoing pandemics, hospital bed shortages will continue. Healthcare innovation expert and Harvard Business School Professor Regina Herzlinger says what we really have is more an access problem than a capacity one. Independent hospitals urgently need “surge plans” that form shared resource networks. Here’s how best to expedite them.

Hospital bed shortages are one of the big reasons the COVID pandemic has been so deadly, especially in the early weeks. And as much as we’d like to think COVID chaos is winding down, the crisis isn’t over. Most experts believe that several circulating respiratory viruses will create a new normal that requires continual need for hospitalization. And since the U.S. has fewer hospital beds per population than most developed countries, it’s urgent that we use them as effectively as possible.

Healthcare innovation expert Regina E. Herzlinger says what we have is more an access problem than a capacity one. We hear a lot about staff shortages in healthcare. Yet, even if adequate staff existed, hospital bed shortages would still be a problem. She says oft-cited solutions like additional government health corps are magical thinking—virtually unworkable in an industry that already has a major staffing shortage with the U.S. Department of Health & Human Services (HHS), a government agency that has responded so slowly to past needs.

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“During the pandemic, we saw some hospitals reach almost full capacity and start to panic,” says Herzlinger, Nancy R. McPherson Professor of Business Administration at the Harvard Business School and author of the upcoming book Innovating in Healthcare: Creating Breakthrough Services, Products, and Business Models (Wiley, 2023, 978-1119543008). “Yet in many cases, there were other hospitals in the same system that had plenty of available space. Those hospitals could have—and should have—accommodated the surge of patients.”

Yet the hospitals that were full couldn’t send patients to the other less busy hospitals for two reasons. One was a lack of transparency; they simply didn’t know there was space at other hospitals. The second was a lack of formal “surge plans” among neighboring hospitals. In other words, there wasn’t a procedure in place to make it happen. 

Herzlinger’s idea is to have the SEC to require hospitals to publicize their “surge” plans in a standard developed by its accounting arm, the FASB, in their required financial filings. This transparency, which will be analyzed and publicized by financial journalists, enables patients and investors to reward or penalize hospitals based on the quality of their surge plan compared to other similar hospitals. The transparency of their plans thus drives competition and innovation at the grassroots level and incentivizes hospitals to quickly take action instead of waiting forgovernment corps to come to their rescue. 

Herzlinger says hospitals can’t wait for government solutions to make their way through HHS channels clogged by other objectives. She is convinced that a “pull” approach in which patients and investors are the prizes to be pursued will work far better for our nation’s health systems than one that relies on a government-driven “push.”

Click here to learn more about this plan in an article written by Herzlinger and Richard J. Boxer, a Clinical Professor of Surgery, and published in Health Affairs

“The proposed transparency plan drives competition and innovation at the grassroots level, instead of relying on a top-down, magical thinking approach,” notes Herzlinger. “The trillion-dollar HHS is already overburdened and lacks the reputation the SEC has for getting things done quickly and driving transparency (which is crucial for the plan to actually work). By arming patients and investors with the right information about hospitals’ ability to meet surges in capacity, we can enable them to drive more positive outcomes by rewarding hospitals that do this well and motivating those who fall behind to do better.”

The transparency option works for hospital leaders and financial/compliance departments who know something has to change, adds Herzlinger. 

“This option gives hospitals a way to do good (save patient lives) and also do well (earning better ratings from investors as well as more market share),” she says. “It is the best solution for an industry and societal problem that we can’t afford to let drag out any longer.”

About the Author: 

Regina E. Herzlinger, the Nancy R. McPherson Professor of Business Administration at the Harvard Business School, has been named the “Godmother of consumer-driven health care” because of her groundbreaking scholarly articles and books on empowering consumers. Her latest book, Innovating in Healthcare: Creating Breakthrough Services, Products, and Business Models, coming January 2023, has won the AUPHA 2020-2021 Bugbee-Falk Book Award. She wrote Senator McCain’s presidential health care platform; has advised the U.S. Congress and President’s office on health care policy; founded the HBS Health Care Initiative; and won the first HBS Student Association Faculty Award for her Outstanding Teaching in Accounting. 

To learn more, please visit https://www.hbs.edu/faculty/Pages/profile.aspx?facId=6476.

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