What Can Higher Education Learn from Healthcare?

What Can Higher Education Learn from Healthcare?
There are many lessons higher education leaders could learn from their healthcare colleagues when it comes to growth and specialization.
Once upon a time, there was an industry that went from an eight-percent to an 18-percent share of GDP, while for-profit entities displaced not-for-profits as the main providers of the service. If this sounds like the future of higher education, this was the shift that health care in the United States went through after 1980. What can we learn from this transition in a sector that shares several characteristics with higher education?

While many aspects of the changes in the U.S. health care sector could be precursors of changes in higher education, such as the concerns over access to and cost of delivering the service, I want to focus on two drawn from the hospital sector. First is the consolidation and geographic expansion of leading players in the sector. Second, and not unrelated, is the specialization of all entities.

Until for-profit companies entered higher education, the only institutions that had more than one campus were state institutions offering multiple versions of essentially the same service in different locations within their state. All private institutions had single campuses. Today, the University of Phoenix offers programs in more than 100 locations (I hesitate to call them campuses since so many are simply in rented office space), but traditional institutions have neither ventured out of state nor established multiple campuses within the United States, although many have established satellite campuses in other parts of the world. In contrast, the hospital sector has seen many of its leading institutions acquire facilities both within and beyond their states, and most have built networks of feeder hospitals and physician facilities in their neighborhood. The MD Anderson Cancer Center, for example, now has two international locations, five in its home state of Texas and four in other states. The Massachusetts General Hospital in Boston has merged with its neighbor and now has 15 locations within Massachusetts and 11 additional locations through its Partners HealthCare network.

Part of this consolidation is driven by the need to create a network of referring physicians who ensure an adequate supply of hospital beds and services, which is absent in the education sector. But consolidation also arises from the need to drive scale economies and exploit the efficiencies of specialization. These two forces should also be at work in higher education, but have not yet played out to the same extent. If they do, we should expect to see the acquisition of failing institutions by others and an expansion of geographic scope by all. Consider that exit rates of established companies in most businesses are at least four percent per annum. This implies that 100 private higher education institutions should be closing or being acquired each year. And successful entities could be growing their brand, not just through online courses, but through physical expansion to new geographies.

The second trend towards specialization is related. In the past, most hospitals provided the full range of services from an emergency department to maternity and oncology care. The exception would be the cottage hospitals that provided inpatient treatment but not necessarily the full range of surgery and specialties. This is very similar to higher education today, when every university or College clings to its science labs, humanities, languages and even classics departments. As hospitals become part of larger groupings — the consolidation observed above — they can specialize. The benefits of this are overwhelming. Cataract treatments can be performed at the Aravind Eye Care System in India for $35 each, partly because of lower labor costs, but mainly because performing more than 200,000 operations a year drives efficiency. Domestically, outcomes are improved when doctors perform more of the same surgeries — by up to 67 percent in some high-risk cancer surgeries — and costs decrease by six percent when stroke treatments were concentrated in a few London hospitals.

In higher education, the United Kingdom has gone some way to pushing universities toward specialization. Funding for research is tied to productivity at the department level, so that only high-quality departments receive grants supporting faculty. Funding is similarly going to be tied to performance outcomes and, as a result, many universities are closing entire departments that can no longer support themselves financially. More generally, it is recognized in the United Kingdom that, while Cambridge University might be the best university for economics, another university is actually better for Spanish. High school students are therefore advised on where to apply according to their program of study. Other than for technology, and the choice between liberal arts colleges and research universities, there has been little specialization by subject in the United States. However, tiering by quality has long been a feature of American higher education.

We might therefore expect the increasing emphasis on outcomes and cost to compel higher education to reexamine the notion of the “full service” institution. Rather than every school offering every course — even the Massachusetts Institute of Technology offers a Portuguese program — they might drop outlying subjects and concentrate in certain fields. If this was combined with school consolidation (or its precursor of sharing courses, such as the Five Colleges consortium in Massachusetts) we would get the best of both the efficiency and coverage that hospitals are already demonstrating.

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Readers Comments

John G. Karmen 2013/12/11 at 10:43 am

Interesting view on lessons from the health care sector. I do wonder whether we will see consolidation in higher education in the way Collis describes. It’s possible we could instead see an increase in partnerships between institutions to share resources, and the move of many institutions toward online education. Both these options seem more cost effective than acquiring another campus with physical assets.

Chuck Schwartz 2013/12/12 at 12:01 pm

We’re starting to see some of the actions in the health care sector also happening in higher education. For example, more institutions today are involved in consortia, which are characterized by shared services and specialization at each member institution. A further move into specialization could help streamline program offerings for students.

One potential downside is that students might not be as exposed to disciplines other than their own if each institution chooses 10 or 15 areas to focus exclusively on, which seems slightly counterintuitive when considering the growing popularity of multidisciplinary studies.

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