Advice to Hospitals in a Downturn: “Market the High-Margin Service”

One  might think that hospitals would be recession-proof.  After all, hospital care is a necessity.

But one would be wrong. When times are tough, people put off elective surgery, and even avoid going to the hospital in an emergency.  Although they may have insurance, often they can’t afford the co-pays that accompany hospital care. As for the uninsured, not long ago a study showed that uninsured patients suffering from gunshot wounds often leave the ER, voluntarily, without being admitted to the hospital.. (I’ll be writing about this study in a future post.)
What can hospitals do?, a new blog “dedicated for current and emerging hospital leaders, thinkers and enablers” offers some advice:

“In recent months, our industry has experienced unforeseen financial pressures as a result of the economic downturn impacting our patient volumes, operating income and investment income,” Joe Wasserman writes.
It is easy and more fun to raise revenue than to cut costs,” he adds. “Look at raising prices if feasible. Check on your physician loyalty for additional referrals. Market the high margin services. Consider and evaluate initiating new services and closing non-profitable services.“

Thanks to HealthBeat reader ACarroll for letting me know about this blog. As  Carroll observes, the blog isn’t suggesting that a hospital might raise its income by gaining a reputation for “providing the best evidence-based medical care,"  or "providing  the medical care that patients need with the highest attention to their safety to ensure the best health outcomes."  (Perhaps a hospital might advertise how infection rates have fallen over two years—and challenge competing hospitals to disclose their infection rates over the same period. Or, a hospital might let the public know that its surgeons use “checklists” to avoid medical mistakes that occur when one small detail slips through the cracks. )

Instead the blog  tells hospitals to “sell your most profitable services—and sell hard.”
In addition, Hospitalimpract recommends that hospitals consider closing non-profitable service. This  would include  burn centers, trauma centers and  ER’s – the help that patients need most in an emergency.  This is not patient-centered medicine.

To be fair, the blog also offers some very good advice:

  • Executive management should reduce their expenses first before asking others to do so
  • Minimize the impact on your staff: To the extent possible, avoid layoffs and wage reductions.
  • Lower [your] operating expenses. This is not likely [to be] a transitory situation ” warns, “and ultimately we need to learn how to operate profitably under our Medicare reimbursement.”

This last recommendation is most important. Going forward, hospitals must learn become more efficient.  Even when this recession finally ends, no one will be able to afford hospital bills that continue to spiral by 5% to 8% a year—far faster than either GDP or workers’ wages.
As IHI president Dr. Don Berwick observed at a conference last fall:  “hospitals need to begin thinking of themselves as cost centers, not revenue centers.”  In the past, hospitals hooked on growth have concentrated on expansion and building revenues. In the future, if they want to be part of the solution, not part of the problem, they will focus on making health care affordable and sustainable over the long term.  This means slimming down, avoiding purely cosmetic or redundant investments, and learning to make maximum use of medical resources.

8 thoughts on “Advice to Hospitals in a Downturn: “Market the High-Margin Service”

  1. Maggie,
    Your analysis is correct, but one could read your essay as “blaming” hospitals and the hospital employed blogger.
    The problem here is the rules of the health care system, not hospitals per se.

  2. Vince–
    Good point–though I would say that some hospital CEOs put more emphasis on patients, while others are more engaged with profits.
    The hospitals that have focused on checklists and reducign infections have managed to reduce their cots.
    Too many of our hospitals are run by MBAs–not doctor, not nurses, not public health experts.
    Many of them believe that a hospital is a buisness, like any other, and that the “bottom line” is all important.
    The folks running medical centers like Intermountain (see NYT magazine a couple of months ago), Geisinger,
    UCSF, understand that a hospital is not a business.
    They understand that hospitals have a “mission”–to improve the health of the community where they live.
    Bottom line: some hospitals have fought what is wrong with our health care system; others haven’t.

  3. The GSW that is not admitted to the hospital is much more common than most people think. Most patients watch too much TV and think the Doc needs to pull out the bullet and plop it down into a metal basin with a satisfying CLANK. If it is an extremity wound, even if it fractures the bone, depending on the fracture as long as the neurovascular status is fine, all they often need is local wound care and oral antibiotics.

  4. Jenga–
    The point is that insured patients are much more likely to be admitted and treated and uninsured patients are more likely to go home–not becaue the hospital won’t admit them (though sometimes that is the case) but because the poor patient knows that once admitted, the bills will begin to pile up, he will have little control over what happens to him, he can’t afford the cost, and fears he’ll wind up losing the little he has.
    I’m sure you’re right that in many cases, it’s better to leave the bullet there. But the poor patients isn’t making an evidence-based decision. He’s just making a decision that he can’t afford the care.
    Hosptial CEOs who spend their time worrying about building revenues have lost sight of their mission–ie. patients.
    These are the hospitals that won’t pay for pallaitive care because they’d rather expand their cath lab (more lucrative.)(I know of at least one private hospital in Manhattan that has made that decision.)
    These are the hospitals that invest in cosmetics rather than a smoking cessation clnic.
    These are the hosptials that spend money advertising “We Do Botox.”)
    These are the hospitals that are investing little or nothing in infection control and refuse to reveal infection rates.
    These are the hospitals that don’t use surgical checklists because “ranimaker” surgeons object to them.
    Some U.S. hospitals should go belly-up. They’re not adding value to our health care system, they’re wasting health care dollars. And while they may look attractive, they’re putting patients at risk.
    In much of the country, we have more hospital beds than we need (which leads to unnecessary hosptializations) and too few community clinics, trauma centers and accountable care organizations that do a good job of managing chronic diseases (Here I’m thinking of places like Kaiser in N. California which has done an excellent job of managing heart disease.)

  5. Maggie,
    I don’t disagree that insured patients are less likely to forgo treatment. I think there are better examples than the GSW though. Outpatient vs Inpatient treatment is often evidence based, because most commonly it’s physicians like me on call are making the decision and we have no idea if they are insured or not because ER docs are not allowed to tell you over the phone and most of these admission and surgery decisions are made on the phone. We take care of 1-2 extremity GSWs a week here (Top 10 in violent crime per capita 10 years and counting). I can’t remember a single patient that was worried about the bill from a GSW. You have to wonder why they were shot in the first place. The vast majority I can tell you weren’t working on their thesis at Starbucks. The dynamic I see that often plays out is when they are admitted they leave voluntarily AMA. Many a time I go to round and Mr. So and So is gone, out of the blue. Why? The police know if they arrest them they will have to pay for the admission so they don’t. The patient also knows that the minute they are discharged the police are called. If they leave AMA they might get away and not go to jail. That is why most GSWs leave AMA, fear of incarceration not worrying about the bill.

  6. In a side note I forgot to put in, 50 cent was shot 10 times and still hasn’t paid the doctors that saved his life. I know the doc that tried to sue him to get paid for his work. Even the affluent don’t pay their bills sometimes.

  7. The hospitals that have focused on checklists and reducign infections have managed to reduce their cots. Thanks for your info.