The Antidote

Over time there are “rules” or collective wisdom which govern organizations in any field of endeavor. Some are universal and beneficial such as treating employees in a fair and consistent manner without regard to national origin, race, gender or sexual orientation. You generally cannot go wrong with the golden rule of treating others as you would like to be treated.

There does develop over time within enterprises in a specific industry a collective wisdom which can be pernicious and with which no one takes exception because that is the way things are or should be. This is the playground for many consultants.

We have in healthcare several harmful beliefs which I believe lead to harmful results to the organization and the people it serves. Trigger warning! This may cause you to have an attack of the vapors, particularly if you make your living by helping health care organizations with these beliefs. Consultants beware!

The first harmful belief is that given the high proportion of patients on Medicare you must find a way to at least break even financially in serving these patients. Failure to do so will, so to speak, result in financial failure. This mantra about breaking even with Medicare has been repeated relentlessly. It is nonsense.

The federal government is a price-fixer when it comes to Medicare payments. Take it or leave it. The rules for reimbursement for Medicare are ever changing and what is paid for services rendered is determined by the needs of the federal budget and the whims of politicians and bureaucrats. That is why under the payment scheme for Medicare inpatients there is a specific payment for care given to people who suffered burns while water skiing. There are ten thousand or so such examples, some even more nonsensical.

Given the absurdity of the Medicare payment system and the political skullduggery which occurs every year, very few organizations will ever break even from Medicare. It is OK to howl now if you are a consultant in this area and I have triggered a deep sense of insecurity. You know I am right. Financially, Medicare is rigged—- heads you lose and tails the Feds win.

The second harmful belief is that the health plans you contract with are your partners in healthcare. Together, you can deliver cost effective care to the masses. Just agree to reducing your compensation by 30 to 40 million dollars and we are partners. Sign here.

For-profit health plans have three month attention spans. They periodically promote the idea of “partnering” with providers as a ploy to reduce what they pay for care rendered to patients. Partnering with for-profit health plans is like swimming with sharks.

The health plans refer to what they pay hospitals and doctors as their “loss ratio”. From the health plans’ perspective, if they must pay you 80 cents out of every dollar of premium revenue they coerce, strike that, I mean collect from employers and individuals, they have a loss ratio of 80 percent. The other 20 per cent covers their costs and profits.

If you look at non-profit health plans, they typically have loss ratios that are 90 percent or higher. They pay more of the premium dollar for actual care and would seem to be more economically efficient than their for-profit brethren who typically have loss ratios in the lower 80 percent range.

I once fell for the contention that healthcare providers and plans should be allies. It took me years to get my organization out of what was a very one sided and financially harmful arrangement. For-profit health plans are short sighted and driven by the need to deliver quarterly reports pleasing to their shareholders. Fine and well but healthcare providers do not need these kind of allies. We have a different mission.

The final harmful belief is that healthcare providers can achieve financial success by reducing costs. The bean counters love this belief and there is a kernel of truth contained in the belief. There are financial norms for some things. If most organizations can do something with just five people and you are doing it with ten people, it is probably worth a look at your processes. This is low hanging fruit and their are many fruit pickers called consultants who can help you.

What is harmful is the belief that all fruit picking is beneficial. Often times in healthcare, you see the cost reductions in areas that are delivering services to people and providing revenue. The services may be part of an array of services, each by itself looking like a financial loser. When you take a look at the total array of such services, you see that the service being cut back makes it possible to operate other services at a positive gain.

I realze I am getting in the weeds here but my experience has been that when you reduce or eliminate a service to cut costs, there are unexpected consequences which hurt the enterprise as a whole. It is a harmful belief that an organization in financial difficulty or anticipating such can find salvation by cutting revenue producing services. Greater attention needs to be given to increasing revenue by developing new services for patients.

These harmful rules have lead many healthcare providers down a path which ends in serious financial difficulty. Cutting costs, whether it is pursuit of a mythical Medicare break even point, partnering with health plan sharks or just doing it without regard to process changes will not result in long term success. You cannot cost cut your way to success. Attention to growing revenues in addition to prudent process improvements is the antidote to these three harmful rules.