Why Hospitals Aren’t Like Google

by JHI Staff on August 27, 2013

At the end of my last post, I asked (and gave a hint of an answer to) this question: Should hospitals act like other businesses? As I put it:

Should they be aggressively marketing their services, and trying to find ways to raise their profit margins to fund improvements and the acquisition of new technology? Aren’t these sorts of pure business behaviors and goals at odds with the mission of trying to improve patients’ and communities’ health and saving lives?

I think the answer is: No, hospitals shouldn’t be exactly like other businesses. But they can be almost like other businesses in most ways, and can do an even better job in fulfilling their health-related mission as a result of it. Indeed, not running a hospital like a business invites a whole new set of potentially serious negative implications for patients.

Let’s zoom in on this last statement. If a private hospital, whether for-profit or not-for-profit, stopped trying to manage its costs and keep its revenues high enough to at least cover those costs—the two essential elements of a business—then it would eventually cease to exist. And before it would reach that point, it would be crippled by financial losses that would almost certainly lower the quality and breadth of care it could provide. This is certainly not a good thing for patients and communities they serve.

For public hospitals—that is, hospitals primarily funded by government—that’s not really a problem. But no matter what the country or municipality, taxpayers can’t and won’t allow the sinking of infinite amounts of government funding into health care. That means there will always be a gap between what the government can reasonably fund, and what at least some of the population will want to get. Private health care exists to fill that gap. The mix of public and private health care varies country to country. In some countries, like the U.S., private hospitals end up providing most health care. In others, like the U.K., it’s almost the opposite, but it’s still an important part of the system.

At Johns Hopkins Medicine International, we work with a range of both public and private partners, and often become involved in hospitals that are public-private partnerships. We’ve seen that all of these models can work well. But while private health care is typically an essential part of the health care landscape, if not necessarily the main part, there’s no getting around its one limitation: The money it takes in as payment for those services has to at least equal, on average, over the long term, what the services cost to provide. That’s why it has to be run much like any business, including engaging in marketing efforts to bring in customers.

OK, so what’s the problem? Why can’t a private hospital just operate like any business might and try to enlist marketing to squeeze as much revenue as possible out of customers? Well, that approach can work pretty well if you’re Google or General Motors, and your sole goal is to maximize profits. But health care is not an unbridled business; it has heart in it; it is a community trust. Society wouldn’t want much to do with a health care provider that placed high financial margins ahead of doing a good job with its mission of saving lives and relieving suffering.

The fact that there’s a good-of-society element to health care prevents private hospitals from being purely commercial sorts of ventures. To put it another way, private health care organizations face a tension between mission and sustainability. It’s a dynamic that’s present in all of our projects all around the world, just as it is for Johns Hopkins Medicine here in Baltimore. We are dedicated to doing the most to deliver high quality patient health, but need to ensure that whatever it is we do will be covered by the revenues needed to keep doing it into the foreseeable future.

Great hospitals find a way to balance those sometimes opposing forces, so they can provide the best possible care to as many patients as possible, while taking in enough revenue to sustain the operation. The balance might be different in for-profit versus not-for-profit hospital systems, in that not-for-profit need only cover their costs, while for-profit thrives by doing at least a bit better than that. But while for-profit health care providers may be less mission-driven and more revenue-driven than their not-for-profit counterparts, they still have to keep that good-of-society mission in mind.

I think every country in the world is still wrestling with the various tensions that arise from the desire to provide populations with good health care and the fact that doing so is a costly endeavor. Neither government nor free-market solutions, nor any combination, has yet proven perfect anywhere. We’re certainly trying to help our colleagues around the world get ever closer. If you know a place, let me know—and if an ideal solution does arise somewhere, I promise to let you know about it!

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Comments

John K Ludlow June 4, 2014 at 7:01 pm

What's obvious to me is the need for culture change in healthcare, and that will be tough. Our fee-for-service system and mindset perpetuates a system that's less interested in prevention and health and more interested in fixing unhealthy people. To that end, I still think healthcare can be run like Google. Here's how I'd do it...Salary all caregivers and reward them for the good they do not just the workRVUs. Carefully monitor healthcare outcomes. Evolve our preventive healthcare system. Make all costs completely transparent. Evolve telemedicine especially in the rural communities. Make hospitals and healthcare facilities really cool places to work.

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Brian Smith August 29, 2013 at 1:07 pm

Focusing strongly on both elements makes for a strong organization. Allow the nurses and physicians to focus on what they do best. Allow the CFO's and financial analysts focus on what they do best. Hire well at both ends and have senior management/board balance to meet organization's ultimate healthcare mission. Don't make it a compromise - make it the best of both worlds.

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