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Articles by Donald E. L. Johnson

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Hospitals must put cost and benefits in context

By Donald E. L. Johnson

Health Care Strategic Management, Sept. 2002, Vol. 20, No. 9

Copyright 2002 by The Business Word Inc.

Employers, politicians and even some policy analysts are beside themselves because they don’t know how to contain soaring health insurance premiums and the rising health care expenditures that are behind those rising premiums. In short, they’re infuriated and frustrated that physicians, hospitals and insurance companies are prospering while the rest of the economy seems to be in a stall, if not in a recession.

Health care costs are hot topic

This is a sharp turnabout from a few years ago when physicians were angry about their own declining incomes (and they still are when it comes to Medicare payments), hospitals were hammered by budget cuts imposed by the Balanced Budget Act of 1997 and flat payments by managed care organizations (MCOs) and insurers were under-pricing their products and in the red.

We’ve all seen the resumption of rapidly rising health insurance premiums coming, knowing that uncontrollable health care costs would put health care back on the national agenda as never before.

As expected, employers and their employees are angry and don’t know what to do about their health insurance, because they look only at the rate of increase in premiums. They are not looking at the cost of health care in the context of the cost of doing business and the cost of living productive lives.

Most important, they don’t understand that a lot of their cost increases are indirect tax increases that Congress and state legislatures are imposing on them through insidious cost shifting of the cost of Medicare and Medicaid to the privately insured and self-insured.

No easy solutions

One comprehensive report on how all the players see the situation was published in the Aug. 11 Sunday New York Times. Although the Times devoted two full editorial pages to its report, it’s simple conclusion was that no one, not even Sen. Hillary Clinton has any answers.

Congress is too evenly divided to pass any meaningful legislation.  And nobody wants benefits restricted or cut—not physicians, allied health care professionals, patients or politicians. Indeed, their continuing clamor for new benefits and mandated benefits is responsible for part of the increase in health care costs.

Look at return on investment

While the Times article is a good refresher course on health care economics and politics, an even better article, “Welcome to the health-care economy,” in the Aug. 26 issue of Business Week reports that health care economists are taking another look at the return on investment in health care services.

Health insurance is a maintenance expnese

For years, we’ve contended that health insurance premiums are cheaper than support and maintenance contracts on copiers and expensive information systems software. Health insurance helps workers stay healthy and minimizes the time they lose to accidents and illness. If employees and their knowledge are an organization’s most important asset, what’s the problem with spending 4%, 5% or even 10% of sales on them? Just renting or owning and maintaining offices and factories costs most companies 3% to 8% of revenues.

Nationally, the country spends 14%, or $1.4 trillion, of its gross domestic product (revenues) on medical care, Business Week notes.

But the biggest chunk of those costs are borne by Medicare and Medicaid, which cover the sickest patients. Only 3% of the population accounts for 40% of total health care expenditures, and most of that burden falls on various government programs, not on employers or their employees.

The General Accounting Office estimates that by 2050 about 66% of the federal budget will be spent on health care.

Think health income, not just health costs

Instead of looking on health care only as a crushing expense, which it is for many people and employers, we need to look at it as:

  • A source of well-paying jobs for more people.
  • A growth industry and investment opportunity.
  • A benefit of the wealth of the country-something everyone works for, expects and demands. It’s what we are all working to afford.

“Health income” exceeds “health expenditures”-for every $1 spent on health care there is a $2 benefit, according to a Yale University health care economist, William D. Nordhaus.

Saving the life of any working person or young person provides huge returns in net benefits to the economy.

For example, a 10-year-old saved from a premature death may go on to pay and enable others to pay tens of thousands or even millions of dollars in taxes as an engineer, physician, nurse, educator or hospital administrator.

A strategic concern for hospitals

What does this have to do with strategic management? Strategic management involves managing the expectations and behavior of employees, customers, policy makers and regulators. That is, hospitals must operate within their business environments and at the same time try to improve and maintain the favorable characteristics of their environments. A key strategy and core competency of every hospital is to sell the benefits of health care, which usually are taken for granted or forgotten when the bill comes in the mail. Even those who deride the ideas of sales, public relations, marketing and lobbying must recognize that unhappy customers make politicians unhappy. In health care, unhappy politicians are poison. Because trade associations have limited budgets, they can’t accomplish their educational mission without help from hospitals, hospital employees, physicians and allied health care professionals.

Health care workers have a stake in selling benefits

All of them need to be sold on selling the benefits of health care. They need talking points, which can be offered in pep talks, meetings, employee publications, e-mails and even ads run in local newspapers. Every profession in health care needs to sell the benefits, and every medical society and allied professional society needs to get on the team. This means that hospital executives and their marketing managers should identify people in their organizations who are on the boards of various trade associations and professional societies and encourage them to get their membership groups involved in selling the benefits of health care.

Every internal and external publication and Web site published by a hospital or integrated health care delivery system should have a story in each issue about the benefits of health care. Profile patients from several years ago who faced death and today are making contributions to society and the economy as productive workers, parents, etc. Suggest similar stories to local journalists, and talk the story up whenever there’s a chance to talk to a local service club, political organization, or whatever.

The return on an institution’s investment in selling the benefits of health care will be hard to measure, but it will be substantial if Americans can be persuaded to improve the system rather than tear it apart.

 

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