To Prepare for Future Surges, U.S. Hospitals Must Start Planning — & Sharing Resources—Now! By Regina E. Herzlinger

Healthcare innovation is my specialty. More than that, it’s my passion. And while I have spent a good portion of my career focused on “micro” innovations (like life-saving medical devices), I’m just as fascinated with “macro” innovations—how we as organizations and, indeed, as a nation, can shift to accommodate the big, sweeping disruptions that force us to find new ways of thinking, doing, and evolving.

Here is a question regarding the latest big disruption: Since many hospitals struggled (and in many cases, failed) to adapt to the strain of each COVID-19 surge, is the U.S. healthcare system now better prepared to weather the next, inevitable public health emergency? So far, the answer is largely “no.”

One contributing factor to thousands of 2020 and 2021 COVID-19 deaths was a lack of capacity in hospital ICUs. Even before the pandemic, this was an area where our nation had scant capacity of hospital beds, when compared to most other developed countries. For instance, contrast America’s 2.8 beds per thousand people to Germany’s 8 beds per thousand.

The good news is, regardless of when (or if) our hospitals’ capacity increases, there are ways to materially improve our nation’s access issues in the short term. Foremost among those strategies, in my opinion, is requiring hospitals to create surge plans that form shared resource networks.

Surprisingly, relatively open hospitals were often available near severely overburdened ones in the early days of the pandemic. For instance, one 536-bed hospital in Spokane County, Washington was at 92 percent capacity. Meanwhile, another 583-bed hospital in the same county was only 30 percent occupied.

Wouldn’t it have made sense for these two hospitals to share the load?

For starters, Hospital A might not have known when, or if, Hospital B had extra space to accommodate the cases they could not. Then too, like other types of businesses in all industries, hospitals compete against each other for patients. Historically, therefore, there has been a lack of transparency regarding capacity. Hospitals are reluctant to share this type of revealing information with competitors. A lack of “surge capacity plans” among hospitals in the same resource network also played a role in the capacity imbalances seen during the pandemic.

How can hospitals surmount these challenges—many of which have been ingrained in their operations for decades? The idea of a dedicated Federal government corps of public health personnel has been floated numerous times. This corps, staffed by the U.S. Department of Health and Human Services (HHS), would address and manage capacity shortages while simultaneously responding to emergencies. However, I believe this “solution” would not deliver the desired results for several reasons:

• Outside personnel from a Federal government corps would lack the institutional knowledge to efficiently take over the capacity management of local, independent private hospitals.
• HHS is itself overburdened and failed to materially improve the U.S. response to COVID-19.
• The creation of a government corps of public health personnel would require policy change from a contentious Congress that is all too often mired in partisan gridlock.

My colleague, Dr. Richard J. Boxer, and I have extensively discussed and written about alternative approaches to surge capacity management, including in a recent Health Affairs article. We recommend that the Securities and Exchange Commission (SEC) require oversight of a new accounting standard for surge capacity management. The SEC is widely lauded for its transformation of organizations that trade financial capital in terms of transparency. It has been responsible for creating comprehensive, trustworthy accounting standards that provide investors with the information, statements, and reports that reduced the cost of capital and improved their resource allocation. The SEC can replicate these results in healthcare.

The SEC’s free-standing accounting division, the Financial Accounting Standards Board (FASB), should create enforceable standards requiring hospitals to create “surge” plans for their resource networks and to publish these plans in their required financial filings. Dr. Boxer and I believe that this plan would have numerous benefits:

• Hospitals would be responsible for creating and implementing their own plans, which would encourage grassroots innovation and boost stakeholder engagement. (Having solutions forced upon hospitals by a government organization would likely have the opposite effect.)
• Because of SEC transparency requirements, and its readily accessible EDGAR data system, hospitals’ plans would be analyzed and widely publicized by financial journalists.
• Financial analysts would be able to easily see which hospitals could be more stable in pandemic times, and rate them accordingly.
• Investors and donors would be able to allocate resources to hospitals with the best surge plans, thus rewarding them for their preparedness.
• Meanwhile, hospitals with weaker surge plans would be downgraded by financial analysts, giving them a powerful incentive to improve their plans and resource networks. If they failed to do so, new hospitals would have the space to emerge.
• Patients would also be able to use this information to choose which hospital or healthcare system to utilize during a public health crisis or virus surge.
• Because hospitals would be competing with each other for funding, ratings, and patients, they would be incentivized to act quickly instead of passively waiting for aid from a government agency or serendipitously cobbling together a network.
• Hospitals have a strong financial incentive to partner with others in their resource network. Hospitals that are overfull with medical COVID patients rather than surgical ones, tend to lose money, as do those that are at low capacity. Many hospitals have lost surgical patients to flourishing, freestanding ambulatory surgery centers. By working together, and, if possible, opening surgical capacity, each hospital’s financials would benefit.

To encourage surge capacity transparency, multiple groups must advocate for hospitals to make these changes and coordinate with each other. Here are actions that various parties can take:

1. Political leaders can mandate that the SEC’s FASB create standards requiring hospitals to develop and disclose their surge capacity plans. The same disclosures required by the SEC should also be required by the HHS’s division for pandemic planning alongside Senators Richard Burr and Patty Murray’s new pandemics preparedness bill.
2. Hospital leaders can choose to proactively disclose their contingency plans for surge capacity—perhaps as part of their marketing. The confidence in their organization will rise when they see that it is prepared to handle future public health crises.
3. Employers can opt to only include healthcare systems with well-articulated surge capacity plans in their benefit offerings. Just like hospitals, employers can use this in their marketing by explaining to employees that these benefits changes are being made to keep them healthier and safer in the future.
4. Insurance companies can similarly choose to require that hospitals have surge capacity plans in place in order to remain in their networks.
5. Members of the public can choose to seek healthcare at hospitals with transparent contingency plans. After all, patients stand to benefit most by receiving care from organizations who keep their safety top-of-mind.
6. Journalists can actively advocate for change in this area. They can recognize hospitals that proactively create surge capacity plans, and call out those that refuse to cooperate with other organizations in their resource networks.

Ultimately, I can see no reason for hospitals to not coordinate their efforts during future surges. The benefits to hospitals and to the public are manifold—and most importantly, lives will be saved when these changes are made. The sooner our nation can get started on this initiative, the better for all involved.

Editor’ Note:  Regina E. Herzlinger, the Nancy R. McPherson Professor of Business Administration at the Harvard Business School, has been named the “godmother of consumer-driven healthcare” 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 2024, has won the AUPHA 2020-2021 Bugbee-Falk Book Award.

She wrote Senator McCain’s presidential healthcare platform, has advised the U.S. Congress and President’s office on healthcare policy, founded the HBS Health Care Initiative, and won the first HBS Student Association Faculty Award for her outstanding teaching in accounting. With her husband, she founded two successful medtech innovation firms.