Back to basics - management of health services

Healthcare Financial Management, Feb, 1998 by Ronald D. Anspaugh

If anything has characterized health care during the last 15

years, it has been change. Medical technology, delivery models, payment

methods, information processing, and many other aspects of healthcare

delivery have advanced so far that the healthcare financial managers who

founded HFMA might not recognize today's industry.

We all hear that change is difficult. Yet, it seems that a new generation of

healthcare executives is deeply dedicated to change. They are always looking

for the next innovation that will provide them with an edge as they lead the

charge into the future.

Many of these leaders have done themselves, their organizations, and the

healthcare industry proud with their innovative approaches and forward

thinking. But, unfortunately, some "successful" professionals have failed to

take stock of basic business practices and processes that have formed and

continue to form the foundation of healthcare delivery in this country. As a

result, organizations have found their growth stalled by process breakdowns

that could have been avoided if these basic business practices had been

implemented at the outset.

Consider the way healthcare providers initially responded to managed care.

To capture market share, some provider organizations signed virtually every

managed care contract that came their way. Except for the important fact

that the "products" acquired by such contracts are patients, there is no

reason why this contracting process should be any different from other

contracting processes. This fact, however, seems to have gotten lost in the

shuffle. Many organizations have failed to conduct thorough due diligence,

fully explore the ramifications of proposed managed care contracts, and

conduct truly competitive negotiations, as they would if other types of

business transactions were involved. The result has been managed care

arrangements that have been financially and operationally disappointing for

healthcare organizations.

The business practice of ensuring that a fair price is paid for acquired

products and services seems almost too basic to mention. Yet, numerous

integrated delivery systems have learned the hard way that they have paid

too much for physician practices - especially primary care practices. These

IDSs could have avoided the disappointing financial results they have

experienced if they had conducted thorough practice valuations before

acquisition.

In addition, many healthcare organizations are continuing to confuse the

Business 101 concepts of horizontal and vertical integration. They purchase

group practices, home health agencies, hospices, and other types of

healthcare facilities to become vertically integrated, but then manage these

entities as though they were horizontal acquisitions. Hospital information

systems are used to manage these facilities' financial and business

operations, and experienced alternate site managers often are replaced by

individuals who may have spent their entire careers in hospital-centered

environments and who have not obtained the proper continuing education to

carry out their new assignments.

When it comes to information systems, very few healthcare organizations have

followed the prudent business practice of coordinating their growth with a

corresponding growth in capacity. It is certainly true that information

technology evolves rapidly, and systems sometimes become outdated before

they have been implemented to their fullest extent. Nonetheless, far too

many organizations expect an antiquated patchwork of systems to support

major new initiatives, such as the new electronic data interchange mandates

of the Health Insurance Portability and Accountability Act of 1996.

Unfortunately, ill-prepared managed care organizations that are required to

conduct business electronically with any requesting EDI-enabled provider

will face instant meltdown when the effective implementation dates arrive.

Finally, many of the "empowerment" initiatives that have been so popular

with healthcare executives are proving incompatible with continuous

downsizing. Many front-line workers are not seizing the reins of opportunity

because they lack the experience, and they fear that making a mistake will

cost them their jobs. Workers cannot simply be labeled "empowered" and then

be expected to perform. Training is basic, and we need to provide it.

Although health care has undergone many changes, some business practices

endure because they make good business sense. In our headlong rush to

embrace the new, we must keep these business basics in mind.