Profitless Health Care (PHC)
Titles are supposed to be catchy, if you are reading this I probably succeeded in that regard. Given the nuance of meaning, PHC could mean anything, however. So to be clear, what I am referring to is value based care (VBC). Oh, you might think, that old thing. Don’t give up on me yet! VBC is all the rage. You can’t read a thoughtful industry magazine without some mention of this term or the triple aim or something similar. So, you might ask, what is the difference with PHC? Here it is, hold onto your hat (does anyone wear hats anymore?). PHC is health care without a financial profit! Now I have been a healthcare CFO, COO, or CEO for much of the last 30 years and you really cannot work in this space without reading, thinking, talking about, or taking courses to ensure profitability – whether you are in a for-profit organization or not-for-profit. So the acculturation is clearly healthcare without a profit is broke, bereft, and on its way to non-existence – right? Well, maybe not. Let’s say it this way, what if we took profit (or any of its guises i.e. margin, net assets, funded…, etc.) out of the picture, lexicon, and daily conversation. What if instead we focused on value without the side baggage of profit? When anything is put in the same conversation with profit, the profit motive trumps whatever else is being discussed. I am certain you have seen this, and likely been a part of this if you are a conscientious and successful leader of any tenure at all. In order to profoundly change our paradigms, however, we have to change our assumptions and our language. To be crystal clear unless we eliminate the profit motive we will fail at real reform, at real value added, at any profound transformation. There is nothing else that can stand against it, so eliminating it is the only answer. Everything is a cost center in PHC. Everything. Taking this perspective “value” really becomes the only currency that matters. Value could be considered the cost divided by the value. Value, of course, is defined by the customer. In this environment the mission and vision are predominant themes in the organization. Energy, discussion, politics, etc. are all focused on this value equation. Lean is a given, and the triple aim is more than a marketing slogan. Integrated Strategic and Financial Planning is how we drive that value for our individual community(s). PHC requires the best of all we are. Without a profit metric we have to focus on something else. A balanced list of key performance indicators (KPI) by which we judge our progress towards becoming the highest value adding organization in our community is our new metric. So having opened a wound and poured salt on it, let me provide a balm to all my CFO friends. We still have to keep financial statements, we still have to know our costs but our paradigm has changed to value based management of a fixed budget. We no longer use financials to determine profitable or unprofitable service lines, but looking at costs compared to value we allocate resources in ways to optimize outcomes. When we compare alternative new service options it is no longer about which provides the best margin. The politics and game playing over money making or losing services is gone. I cannot over emphasize the mental shift this represents. Rich Umbdenstock, CEO of the American Hospital Association, touched on this in the Spring 2013 “Chief Executive Officer” article for ACHE CEO Circle. He said “Revenue at some point and in some way is likely to be fixed, so risk management will become a cost and quality strategy in which hospitals aren’t trying to do more with less but are actually trying to do the most appropriate and least expensive intervention while getting the best results. That is a very different mindset for healthcare leaders than we’ve ever had before.” PHC is a more disruptive turn of phrase than value based care or triple aim, but I think more indicative of the magnitude of the shift required. I invite you to join the dialogue.
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