HOSPITAL BUSINESS: PROFITABLE OR NOT?

Cancer Hospital in final stages of constructio...

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If the success of a business is based on capturing and retaining market share, hospitals and invasive specialty physicians are poorly positioned to do so.

–          Marc D. Halley, MBA

One of the biggest challenges hospital administrators face today is how to increase profit.  People would rather spend their hard-earned money on food, entertainment, or flashy gadgets.  Hospitals are visited only when people get sick.  Is there anything wrong with this general mindset?

Let’s start off with the strategies hospitals do in order to increase their market share.  A small hospital takes off by taking in primary care physicians.  They may do this by selling shares of stock.  As the number of practitioners increase, and with income on the rise, they find the need to acquire more equipment.  This also compels them to attract more specialists to man the equipment.  With these developments, operating costs increase, together with the need to attract more medical practitioners and patients.

A few things may happen after this.  First, the primary care practitioners who initially allowed the hospital to prosper may get displaced by the influx of specialists.  Disgruntled, they may bring their patients elsewhere, and the hospital loses its patients.  This leaves the hospital with unused equipment and specialists without referrals.

Second, patients may become attracted by the hotel-like atmosphere of the hospital.  They decide to try it out.  Bearing a card from a Health Maintenance Organization, they are led to a doctor’s clinic.  A battery of tests are requested.  Seeing that the results are normal, the patient is satisfied that nothing is wrong with him.  So he never returns again, till the next illness or the next executive check-up.  Meantime, the specialists, and the expensive equipment, remain untapped.  After a while, investors are turned off by the low return, and they bring their money elsewhere.

Eventually, the hospital simply relies on its emergency room admissions to recoup its losses.  However, with the ER being a highly chaotic area, no new relationships between the hospitals and its patients are created.  Stress escalates, and dissatisfaction ensues.  When the patient is sent home, he or she tells 5 people, each of whom pass on the negative experience to an increasingly exponential number.  Negative word of mouth propagates.

Finally, with escalating costs and rising inflation, the hospital decides to bite the bullet.  It spends more on PR and marketing, in an effort to attract patients.  It works!  Patients come, the hospital gains its market share, and profits once again.  Then management says: the formula works!  Let’s get more machines!  Let’s attract more specialists!  We’re the toast of the industry!

And they live happily ever after.

Do you agree?

Let’s talk about it on my next post!

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