Resuscitating the Hospital Business Model
By Andy Waldeck, Steve Wunker
While the finances of a hospital are relatively easy to describe, it's harder to outline the underlying model bringing cohesion to the enterprise. We have found that hospital executives often ponder the basic business of a hospital versus its ancillary offerings. As hospitals face extreme pressure due to declining reimbursements, tough competition, defecting physicians, tight credit markets and other factors, it is more imperative than ever to nail down the essence of a hospital's business and to determine what is essential to protect and grow.
Few organizations define their business as delivering every type of service to everybody all the time, yet most general hospitals are set up along precisely these lines. The reason reflects the history of the hospital model. In the past, transportation was expensive and difficult, while physicians were relatively cheap. It made sense to centralize the provision of care in settings that could cater to the very diverse needs of a community.
Moreover, there were few technologies that could precisely characterize a disease to the extent that its treatment could be codified into a simple protocol. Physicians needed to adjust their care according to myriad medical circumstances, and the hospital had to provide a wide range of services to cope with the diversity of treatment plans.
How Hospitals Operate Today
Today, we face a different situation: It's easy to transport patients from a setting providing simple, standardized care to a tertiary institution. Physicians are expensive and must be used as efficiently as possible. Technologies enable the treatment of many conditions, allowing clinicians to apply hard-and-fast rules. Many conditions are treated in a highly predictable manner.
These circumstances enable less skilled practitioners (e.g., nurse anesthetists, general surgeons) to treat many patients in settings equipped to handle only routine types of cases. Patients with more complex conditions can then be the focus of institutions dedicated to a more complex type of care. Different types of conditions can be handled by hospitals with different kinds of business models.