Business Issues Impact Hospital Performance – And Your Opportunities

A Small Change Can Make A Big Difference: 

How understanding business and political issues can earn you a seat at the board room table.

Did you know that hospital chain HCA increased its operating earnings by $100 million in the first quarter of 2009 by simply changing billing codes it assigned to sick and injured patients who came into its emergency rooms?  Even a tenth of that would be a huge shot of liquidity that could drive capital programs forward for a smaller healthcare system.

The changes were made after executives realized they lagged the industry in reimbursement for higher paying services, studied their practices and revised the coding to “better reflect the services being provided,” according to a recent article in the New York Times.  The article, “A Giant Hospital Chain Is Blazing A Profit Trail,” contained a treasure trove of insights into business and political issues facing hospitals today and is must reading for anyone doing business in this market.

A fictional story helps explains HCA’s strategy. A forty-seven year old, slightly overweight man arrives at the hospital emergency department complaining of a bad case of indigestion.  He has not had any recent illnesses and appears to be in generally good condition.  Is it a simple case of indigestion, or is it symptomatic of a heart attack?  The way this question is answered may, of course, have major ramifications for the patient. It will definitely have major financial ramifications for the hospital.

The article is fascinating for two reasons: First, it brings the issues alive clearly illustrating their implications in tangible terms. Second, it demonstrates that to truly understand the ramifications for a particular hospital, intelligence must be gathered from multiple sources and then aggregated to develop a reliably accurate picture.

The business and political issues are common throughout the healthcare industry.

The Times article may be about for-profit HCA, but the issues described are just as easily applicable to not-for-profit hospitals.  The issues are common.  How they affect a given hospital and how that hospital responds will be unique to that institution.

  • Emergency departments (ED) are typically both costly and overcrowded places to deliver care.  Waiting areas are clogged with uninsured patients who use the ED for primary care. Yet, for many people it may be their first exposure to the hospital and many admissions arise from the true emergencies. If it’s overcrowded, does this mean it should be re-designed and renovated or enlarged?  Would an alternative be to divert uninsured non-emergency patients to a different setting?
  • Hospitals and care providers are paid on a fee for service basis.  A complex system of coding has been developed to describe the care given to the patient, and insurance companies, Medicaid and Medicare have negotiated pre-determined reimbursement for each code.  As you can imagine the reimbursement for indigestion is minimal.  A strategic policy to be more astutely aggressive coding our 47 year-old’s ailment as a cardiac event opens a far more lucrative revenue stream. How much can revenue be increased by smarter application of the billing codes? (Who can help make those improvements?)
  • But, if the policy is too aggressive, insurers may audit the process and demand they be repaid. In some cases it could lead to charges of fraud.
  • Could the hospital reduce staff in the ED or other areas of the hospital to cut costs; could it be done without sacrificing quality of care?
  • What about the physicians? Are they aligned with the policy, or do they feel the hospital is more interested in revenue than in appropriate care? Will they go along, balk or even move their practice and patients elsewhere?
  • How might the hospital’s image in the community be affected? Would it weaken its reputation and thus its position in the market?  For that matter, what kind of image does the hospital wish to cultivate?  Is it losing patients to other hospitals because of the long waits in the overcrowded ED?

In our blogs, we often talk about these kinds of issues. The New York Times article brings them to life. The strategies hospitals choose may involve operational changes, consolidation with other hospitals, and even not-for-profits selling out to for-profit organizations or private equity investors. They also come with risks, some of which are noted in the article as well. To get beyond discussing healthcare’s business and political issues generically, read this article. It will light you up with questions to explore with your hospital client.  You can compare and contrast your client’s strategies with HCA’s.  With a richer understanding, you can begin to more effectively find ways to become a partner with your client in finding the right strategy and implementing it most effectively.

Developing client intelligence is like solving a well crafted mystery – many clues and lots of evidence.

Gathering truly meaningful client intelligence requires diligence and utilization of multiple sources to be sure you’re getting a complete, accurate picture.  Again using the article as an example, the Times aggregated intelligence from multiple sources to flesh out its story on HCA:

  • Interviews with numerous current and former doctors, nurses and administrators;
  • Interviews with CEO’s from non-HCA hospitals;
  • Interviews with HCA’s CEO;
  • Examination of federal and state hospital records, lawsuits and regulatory investigations;
  • Data analysis based on publicly available statistics from CMMS, the American Hospital Directory and state hospital associations;
  • Public disclosures, news releases and advertising programs by HCA.

When you begin to gather intelligence on your prospective client, use the Times’ list as an idea starter as you think about sources you can use. Unlike an investigative reporter or federal regulator, you’re not looking for dirt.  You want to understand which business and political issues are impacting your client and how.  Then you want to begin to understand how the leadership team is trying to address them – have they formulated a strategy, or are they still seeking solutions?  You need to constantly keep your intelligence current, and you have to pull gather all you have learned from your multiple sources, like fitting together pieces of a crossword puzzle. Then you can find a path to the hospital’s inner sanctum, so you can bring ideas for solutions to the table, either through resources you have internally or by forming alliances with others who can help fill the gaps.

In summary, you need to understand the business and political issues affecting hospitals generally.  Next you must know which issues weigh heaviest on your client, and what are the specific ramifications.  You must aggregate intelligence from multiple sources to build as complete a picture as possible. Then you must use the intelligence and allies  you’ve developed along the way to build a path to the C-suite that positions you to shape the opportunity and move it forward to execution.

We’ll have more on finding allies and building paths to the C-suite in future blogs.  For now though, to get a real world feel for the issues and how they interact, check out the Times’ article here.


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