Healthcare (Monkey?) Business

With the recent financial meltdown and the apparent non-repentance of the industry even in the face of the severe backlash that has accompanied the tax-funded support of its institutions, one might say it is foolhardy to mention business and health in the same sentence let alone propose their marriage but that is exactly what I have set out to do.

Let's examine what a business is. In its simplest form, it is a purposeful activity. As one scales up discrete units are added until it takes on the complexity of a behemoth enterprise working towards a particular goal. In our contemporary world, this has come to mean turning a profit; the bigger, the better. Turning a profit instead of a loss (negative profit in normal parlance) has been the primary motivation of most businesses—create some value at a cost, try to capture part of that value by receiving a price, and hope that the fraction of value you capture is greater than your cost. One can do this either by creating or praying for a high price and/or keeping costs down.

In the medical field and in many other realms, the idea of business is seen as evil. This has been based on a long history of financial malpractice, questionable trade practices and lack of corporate commitment to society. A particular criticism is the ruthless efficiency with which the business world goes about, well, business. It is the one thing the common man hates about business; the lack of emotions in making personnel decisions, the drastic shedding of human resources when productivity falls and the quest to extract more and more such productivity from labor while keeping the wages down make companies appear uncaring and downright callous. This perception is worsened when profits are used for top brass bonuses. So why would anyone want this for medicine?

Medicine is usually seen as a benevolent, humanity-based endeavor geared towards providing that most basic of human needs, health. And that it is. It also, costs money and recently, exponentially increasing amounts of it. Suggestions for funding it abound and are outside the scope of this article. Regardless of how funding is provided or who provides it however, a basic equation must balance; cost must equal revenue. Consider a hospital which violates this rule. It would in time be unable to support its operations and the services it provides and will ultimately end up bankrupt depriving society of a necessary good.

One can argue that hospitals must not have profit as an incentive. However, they must still meet their costs. This just means they have a target profit of zero dollars as revenues are just enough to pay for expenses. Since many people will pay anything to maintain good health however, the incentive for hospitals to reign in cost is rather weak. To counter this, there are numerous reforms that limit reimbursement rates for healthcare providers. So let us assume prices and revenues remain constant. Then the only way to break even is to decrease cost. How does one do this? By becoming efficient.

Consider how long you have to wait in the emergency room before you see a doctor, are admitted or discharged home. How many times a day do you get stuck with needles for lab tests? What are the best distributions of work hours for your doctors to ensure they are available to take care of you and are alert/awake while doing it? What is the best means of physician-physician-patient communication/information system to ensure the best care for you? How do you design workspaces to minimize medical errors/accidents? In my Technology and Operations Management class in business school, I have already begun to learn about how people, resources and information flow through a system. The goal, of course, is that ruthless efficiency we talked about earlier; finding the bottlenecks and improving them, decreasing waste and increasing yield.

If there is one thing there is a general consensus on, it is that there is a lot of waste and organizational inefficiency in healthcare. An application of the concepts of business to healthcare organizations (which are inherently businesses by our definition above) will go a long way to saving money and decreasing the cost of care. The principles that underlie business are not intrinsically evil. They have just been used so often in the pursuit of individual goals that society frowns on. But they can be used for good too. Ruthless process efficiency, brewed in the context of compassionate care, can save costs while increasing the quality we deliver to our patients. Rather than swear off them, then, let’s apply business tools conscientiously for the general good. Society’s appreciation can then trickle down to the care providers who sacrifice for it. As one of my professors said, no one is begrudged for capturing value they create.

Prime

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This is the way I choose, the destiny I pursue
To help the unfit and the fit
To treat each according to his need
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