Hospital Management: what separates the profitable from the unprofitable?
Why is it that hospitals that perform well financially, continue to do so irrespective of outside factors, whereas poor performers seem to suffer any variance that enters the market. Even in tough markets battered with local regulations and recessionary climes, good performers still do relatively well. And yet the converse also exists – poor performers do badly even in good times. Perhaps the adage of “A good manager in a bad location is preferable to a bad manager in a good location” is an appropriate one.
It seems that the difference in management philosophy, resources and selective action are more important to the ability to perform than location and the communities that the facility finds itself serving.
These are some of the key factors that affect a facility’s performance:
1. Cash availability with enhanced liquidity. Poor cashflow management and taking your eye off the short term financial needs of a hospital are a marker for a poor profit prognosis. There are many resultant effects to insufficient cashflow, not least of all being the stress created with management.
2. A spread of high- and low margin business. Medicare or capitated patients represent a secure source of funds, but with that decreased risk comes a lower return. The goal is to have a balanced portfolio of private clients (who want and can pay for enhanced services) with those who want just their basic needs addressed. Hospitals that perform well have a good understanding of the needs of all existing and potential markets.
3. Efficiency. Hospitals that perform poorly do not control their labour hours per case. Although time is money, there is seldom a measurement or ethos for efficiency. It can be argued that patient care should not be compromised, but if an efficiency paradigm is not introduced, it can make a facility very ill – with everyone suffering the consequences.
4. Length of stay. When adjusted for case mix and outpatient volume, poorly performing hospitals show longer stays. This can have a number of causes, but the net effect is that the cost to the patient (and the funder) becomes more onerous resulting in discounts and greater debtor days (and even bad debtors). This is compounded with a fixed price for selected services per patient (having a greater effect when the proportion of private patients is low). Another reason could be poor communication between departments, such as a delay in posting test results or miscommunication between disciplines.
5. Give yourself meaning – or someone else will. Management need to harness perceptual tools at their disposal. Brand management and perceptual positioning are disciplines that must be part of the strategic plan for hospitals.
The only reason for a hospital overcoming challenges and succeeding as a reputable and profitable brand is a difference in approach and philosophy. An appropriate approach will harness a hospital’s assets — human and physical — to achieve the organization’s mission and vision.
Doing this alone can be a daunting process with a limited chance for success, as the possibility of having all the necessary skills in-house are most unlikely. Forming a partnership with a management consultancy is a crucial first step in accepting that there are rules for effective management – and these rules are not necessarily what were around when the hospital was first built.