Scenario #1: ABC Hospital, a “small, privately-owned community hospital,” is struggling to survive in the face of increasing competition from larger, newer city hospitals with state-of-the-art equipment. The hospital is compliant with state and federal regulations pertaining to the administration of medical care, but “has not kept pace with some...
Scenario #1: ABC Hospital, a “small, privately-owned community hospital,” is struggling to survive in the face of increasing competition from larger, newer city hospitals with state-of-the-art equipment. The hospital is compliant with state and federal regulations pertaining to the administration of medical care, but “has not kept pace with some of the newer technologies and patient conveniences” offered in those newer facilities.
ABC Hospital has a huge problem: it is completely failed to remain relevant to the community it purports to serve. Under the scenario provided, it clearly has two options. Option number one is to close its doors. Option number two is to put together a plan to renovate and modernize the facility so that it is offering a quality of medical care commensurate with that provided by the newer, larger facilities. It is facing two major problems: dwindling reimbursements, presumably from insurance companies and federal programs like Medicare and Medicaid; and, consumers are understandably attracted to the newer hospitals with better facilities. The issue of reimbursements is an administrative one requiring a reassessment of the relationship between it and the insurance providers that are failing to compensate the hospital for its services. First, and putting aside the issue of the Affordable Care Act (“Obamacare”), it is usually health care providers that decide to discontinue accepting certain insurance plans, not the other way around, so one step might be to hold meetings with the various insurance providers and come to agreements with those willing to maintain a productive and, presumably profitable relationship. If a health care facility is repeatedly experiencing difficulties getting reimbursed by insurance companies, it needs to reconsider that business arrangement and discontinue accepting that insurance plan. Alternatively, it may be forced to pursue the matter through legal avenues – in effect, sue the insurance companies – a costly and protracted approach with no guarantee of success.
In the case of overdue billings administered through federal agencies, then contacting those agencies is required and, should that prove unsuccessful, then the hospital administrator should contact the U.S. congressional delegation representing the district and state in which the hospital resides. It is important to keep in mind, however, that billing problems are endemic throughout the health care industry, as well as throughout other industries.
The problem of losing customers to newer, better hospitals is pretty much a no-brainer theoretically. ABC Hospital has no choice and, in fact, has an obligation to modernize its facility. One can’t blame the public for preferring the hospital offering better quality medical care. ABC being privately-owned, its board of directors and senior administrators have to sit down and devise a plan to raise or borrow money – lots of money – to renovate the hospital and purchase and install new, state-of-the-art equipment on par with that used in the newer facilities. Any hospital that fails to maintain a level of care, including with respect to recapitalization of equipment and training of staff, commensurate with the competition deserves to fail. No board of directors wants to incur debt in order to invest in new equipment and to renovate the facilities, but it is the rare corporation that doesn’t eventually confront the exact same problem and understands that recapitalization is the sine qua non of remaining competitive and surviving in the marketplace.
The disadvantage to this approach is, as noted, the amount of financial debt incurred in purchasing new equipment – and state-of-the-art medical equipment is very expensive. Governments issue bonds and businesses take out loans precisely for this purpose, and ABC Hospital should be no exception.
Scenario #2: XYZ Health Department has endured budget cuts that have required staff reductions, which has resulted in the diminishment in the quality of care provided to customers. Employee morale has declined, and the customers are upset with the demeanor of those remaining employees whose workloads have increased to compensate for the reductions in personnel and with the declining quality of care provided.
Well, first, the consumer usually has options when perusing the market, including for health care. If the quality of service provided by XYZ Health Department is declining, then consumers will take their business somewhere else – assuming, of course, that XYZ is not the only health care provider in a remote rural community or in a desperately poor inner-city neighborhood. One of the core advantages of competition is that it forces businesses to remain attractive options for the public, which will otherwise take its money to competing businesses. Bankruptcy is unfortunate, but an inevitable result of a specific company’s inability or unwillingness to take those steps necessary to remain solvent. In the case of XYZ, it has taken painful but presumably necessary steps: it has reduced payroll. The downside, as noted is that the workload has been consolidated on the heads of fewer employees, who resent this development and whose resentment is passed on the consumer, who can bolt to the competition.
Clearly, XYZ needs a business plan to reverse its slide towards dissolution. What is not known from the scenario provided is whether administrative staff sat down with employees and proposed solutions that would avoid, at least near-term, a reduction in staff. For example, was existing staff receptive to the idea of accepting a pay reduction in exchange for everyone keeping his or her job? Were employees queried for suggestions on where improvements could be made? Have the individuals running the facility looked at financial options that would have allowed for facility improvements designed to increase business? Have managers stayed on top of employee grievances and counseled caution with respect to consumer services? Complaints from consumers regarding their treatment by staff have to be taken seriously and have to be addressed. While no employee wants to have additional work imposed upon him or her, the alternative could be worse: unemployment, the fate that befell those whose jobs were eliminated.
XYZ Health Department is in a death spiral, and an infusion of cash is its only real hope. As with the facility in Scenario #1, the owners or those running XYZ would do well to consider incurring debt through a loan in order to address budget shortfalls and to rehire separated employees. And, management needs to sit down and take a hard look at the underlying causes of the budget problems. Identifying areas for improvement, and implementing those ideas that appear sound, is essential for the future of the business. Are there areas where budget reductions can be made without eliminating more staff positions than absolutely necessary? Is executive compensation an issue that should be examined? Will taking out a loan, and using that money to implement labor-saving practices – for instance, acquisition of new equipment that requires fewer employees to operate and that uses less energy, an expensive budget item – help reduce the scale of the problem? Are there innovative management practices, like allowing for greater flexibility among employee schedules, an admittedly difficult proposition in the health care field, an option? Management is responsible for considering these and other questions. What it cannot do is allow a continued degradation in the quality of care provided to the consumer.