How to Boost Margin and Mission in Healthcare

By Bill Fotsch and John Case

Volume 2 Issue 4, February 17, 2015

unnamedHealthcare is an unusual industry.  It’s part business, part mission-driven service. It’s high tech and it’s high touch. The one indisputable truth is that every healthcare organization must generate more revenue than it spends.  As the saying goes: No margin, no mission.

But many healthcare employees don’t like to think about this fundamental economic principle.  They prefer to see themselves as working in human services, not business.  They get upset when an owner raises financial considerations in determining priorities.

What to do?  In my experience, the key is to educate people about the economics of the business—and then help them take responsibility for making the right tradeoffs.

Look at the experience of a cardiac care unit at Baltimore’s Johns Hopkins Hospital.  The unit’s administrator was frustrated—he wanted more focus on cost.  The nursing team pushed back, wanting instead to emphasize quality.  Out of frustration, the administrator handed the unit’s books over to the nurses and said, in effect, “Here, you make the decisions.”

The nurses began to study the financials.  First, they noticed that revenue and patient counts were down. Doctors with admitting privileges were apparently using the hospital only for their most complex patients.  So the nursing team worked with physicians to learn how Johns Hopkins could meet the needs of all their patients. Revenue and patient counts started to rise.

Next, the nurses recognized that they needed to add staff.  Before, they had insisted on hiring only RNs.  Now, they saw that much of the work did not require an RN’s skills.  So they reorganized the workflow, hiring aides and LPNs to take on many of the tasks.

 

Before long, physician and patient satisfaction were both on the rise, cost per employee was down, and the unit’s margin had increased.  The nurses then worked with the administrator to develop an incentive plan, with a portion of the increased margin going to the team.  That further boosted employee morale and engagement, which led to still greater patient satisfaction.

Could the people at your company learn to think like businesspeople, the way those nurses did?  Sure—I’ve seen it happen over and over.  Every organization is unique, but all must earn a surplus.  Financially literate employees—employees who understand the economics as well as the service aspect of healthcare—can figure out how to improve outcomes all around.

Bill Fotsch is founder and president of Open-Book Coaching.  He has helped nearly 400 companies around the world improve results and the lives of their employees through open-book management.  John Case is the author of Open-Book Management and editor of the new website www.RetoolingCapitalism.com.

Editor’s Note: For many years, both Bill and John have been leaders in the movement to increase employee participation and ownership in their companies. We believe their insights have great value in continuing healthcare market evolution.