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The Role of Management Consultants in Health Care: How to Buy Wisely

All firms are not created equal. Here are things hospitals and other health care organizations should be on the lookout for.

November 2, 2015

Management consulting is a $20 billion sector in the U.S. health care industry. Hospitals, health systems, post-acute providers, medical device and drug manufacturers, insurers, medical groups and others routinely look for consultants for counsel or specialized, project management expertise.

The lion’s share of the bigger projects involve implementation of information systems or support of mergers and acquisitions: These tend to be the multimillion-dollar engagements staffed by teams of analysts and principals in the better-known firms. In most cases, these firms work in multiple sectors of the industry, leveraging their experiences in one to sell services in others.

The next tier of consultant activity involves a wider range of activities specific to a sector’s operational improvement or strategy development efforts. These tend to be one-and-done assignments typically billed at less than $500,000.

And then the rest. Smaller projects and studies usually done by “single shingle” niche shops.

Health care consulting is highly competitive. Each firm is constantly changing its focus to accommodate breaking trends or legislative mandates. Most tout their experience and attempt to explain why their approaches are different. And all rely heavily on relationships with current clients, knowing the majority of future revenues are derived from current clients.

As purchasers of consulting services, it’s increasingly difficult for users to choose wisely. Management teams and directors must become more attentive to the consultants they hire. A few observations:

1. The strength of a consulting firm is the combination of the depth of expertise of the consultants who do the actual work and the usefulness of the analytic tools they use. Often, the “senior professionals” who sell the work are not the subject matter experts. More frequently, they’re salespeople who are incentivized for increased revenues, not the results of the engagement. And the analytic tools that a firm uses as context for its counsel are key to the specificity and relevance of its recommendations. In purchasing consulting services, it’s important that members of the actual engagement team be interviewed and the depth of their experience probed via active questioning. A rule of thumb: Ask the firm to allocate at least half its time to Q&A, and suggest that PowerPoint use be limited.

2. Each consulting organization has strengths and weaknesses. Each is strongest in certain problem-solving activity and weak in others. Some are stronger in specific sectors or certain operational functions. Each has a different business model and unique culture. In some, principals and partners are focused on project delivery and client satisfaction; in others, principals and partners are rewarded for selling, and the actual work is pushed down to lower levels in their ranks. No two are alike, except that they all want more business. A buyer of consulting services should be cautious to discern between firms that “say” they have relevant experience and those that provide relevant, recent engagements.

3. Every consulting firm is image-conscious. Huge sums are spent to create powerful impressions of the firm, and mistakes or disappointing results with clients carefully concealed. Every firm has its share of disappointing projects, and purchasers of consulting services should probe those experiences and the key changes the firm made as a result.

As costs increase in the industry and as insurers and employers change their incentives from volume to value, health care consulting activity will increase in every sector. Some considerations that should be incorporated into the selection process are these:

1. Conflicts of interest: It’s important that client conflicts of interest and the mechanism that the firm uses to protect confidentiality are explicit and routinely reviewed. As the industry becomes more consolidated via coalitions, partnerships and formal integration, it is imperative that those relationships be disclosed and, in some cases, firms excluded from consideration when conflicts pose a risk to the objectivity of the work being performed.

2. Performance incentives: Purchasers of consulting services have a right to know how the delivery team is compensated, what factors are incorporated in their review and how principals and partners are rewarded based on the client’s activity. The firm should have nothing to hide.

3. Add-on costs: Every firm attempts to pass through “other” expenses in addition to travel reimbursement. Billings from consultants should be closely scrutinized and curious line item expenses queried. “Reasonable costs” for meals and travel should be specified, and hours charged for work routinely audited.

4. Industry experience: Firms that hire experienced professionals from industry provide more useful expertise than those that depend exclusively on “professional consultants” whose skill sets are more dependent on sales and relationship management than subject matter depth or technical expertise. Larger firms bring both; but often industry experience is subordinated in the firm’s hierarchy and turnover is high. Firms that blend both effectively, with high retention rates for industry-experienced professionals, are better suited to deliver implementable recommendations.

No doubt, health care consulting will continue to play a key role in health care’s transformation. Diligence in selecting firms wisely is necessary to get the results desired and disappointments avoided.

Paul H. Keckley, Ph.D., is managing director of the Navigant Center for Healthcare Research and Policy Analysis, Washington D.C. His H&HN Daily column appears the first Monday of every month. He is a member of Health Forum’s Speakers Express. For speaking opportunities, contact Laura Woodburn.

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