Health care is wildly inefficient. Hospitals, even well-run ones, operate at about 70% of capacity. Some of that dismal performance is by design. Hospitals and health care are subject to significant regulation. There is also a lot of “measure twice, cut once” that is necessary to avoid bad outcomes.
Even accommodating for the essential nature of health care, the sector’s productivity is dismal. The system runs almost entirely on labor and not very well. Despite adding about 500k jobs between 2010 and 2020, General, Medical & Surgical Hospitals’ discharges have remained largely constant at about 9 million per quarter. In other words, each additional unit of labor, has not produced incrementally more product.
The sheer size of health care, the number it employs and the regulatory system that limits innovation has and probably will continue to be a headwind for productivity. However, that gift that will keep on giving, COVID-19, appears to be in the early stages of bearing fruit.
As of the July print, health care is still about 400k workers below pre-pandemic levels. The longer this gap endures the more likely it becomes permanent. Providers, especially hospitals, are exhausting the near-term strategy of making fewer people work harder as demonstrated by JOLTS data on quits.