Healthcare In healthcare, much like what Billy Beane faced in the early 1990’s, hospitals need to make dramatic cuts to operating expenses. The business model that has worked for decades is being disrupted. In the past, hospitals could make more money by filling beds with patients and leveraging the insurance companies for higher rates. That model won’t work anymore. Employers can’t afford to continue to pay the higher premiums and so the hospitals, much like Billy Beane, need to find new ways to deliver the care and still make a profit. Incremental cost reduction will only take you so far. Hospitals need to be smarter about how they solve this dilemma. So, what statistics or opportunities should the hospitals use in the new paradigm?
Some key drivers or recommendations for the new paradigm for healthcare systems include:
Financial metrics: Finding new metrics that capture value creation including earnings growth, cash flow growth, and return on invested capital. Then use capital allocation to maximize the total return. Try to look at these not in the traditional sense but using only the statistics to see where it might lead you in your decisions. Then see if there are any learnings or ideas about how to change the business approach that haven’t previously been examined.
Population health: Much has been published on “Population Health.” In essence, population health is "the health outcomes of a group of individuals, including the distribution of such outcomes within the group." Once health systems are paid to keep a defined population healthy, there is a paradigm shift from a “sickness” model to a “wellness” model. This requires health systems to re-tool their thinking about the business model to focus on improving the health of the population and lowering costs.
Innovation: Invest in innovation! Transformational change won’t happen without it. Find problems that need solutions and seek new ways to resolve these issues. Innovation is a huge part of the solution! Over time, the most successful organizations in every industry are those that have invested in innovation. It can’t be embedded in operations; it needs to be independent and self-sustaining to flourish. Looking for a quick payback is the wrong approach.
Diversification: Diversify away from inpatient care and “heads in beds.” Look for new revenue streams. Outpatient models and lower cost delivery settings may be more profitable and drive more value. Diversification can also lower your risk profile. If a health system is reliant on inpatient business to make a margin and reimbursement or costs shift, the health system could be vulnerable. Those that find the right balance can survive the peaks and valleys.
