Module 3: Obtaining Resources
Action Plan
Background
- Hospitals run on razor thin margins. While they tend to be high revenue operations, this is matched by high labor and supply costs. As such, there simply is not a lot of excess money in the system.
- The average margin for the S&P 500 companies is 11.3%.
- The average hospital margins are around 1-3%.
- This is average. In 2022 most hospitals lost money.
- On average, roughly half of all hospitals lose money in any given month. Therefore, most hospitals lose money at least one month per year. The goal is to have the profitable months outpace the months with a loss.
- While technically any positive margin is good, breaking even is not enough. In fact, organizations need at least a 3-4% margin to operate effectively. Less than that makes it difficult to address unexpected operational expenses, invest in new service lines or technologies, and put money in reserves.
- These are big businesses with median revenue of around $600-900 million.
- The main sources of revenue are:
- Professional fee billing
- Grants and contracts
- Hospital support—20% of all school funding comes from hospitals.
- Without hospital support nearly all medical schools would lose money.
- Without faculty support (clinical care/leadership) nearly all academically affiliated hospitals would lose money.
- Each DRG has a relative weight (RW). The RW is the amount of resource it takes to care for that DRG divided by the amount of resource to care for the average DRG.
- RW directly impacts reimbursement with higher RWs equating to higher reimbursement.
- The case mix index is a measure of average DRG-RW.
- Small changes in the CMI equal large increases in revenue.
- Hospital improve their CMI by improvements in coding and by caring for ‘sicker’ patients.
- Hospital executives care a lot about CMI because it is the main driver of the top-line (revenue).
- Hospital executives care a lot about efficiency of care because it is the main driver of the bottom-line (margin).
- Business drivers are the external forces that dictate internal objectives, tactics, and decisions. They are not under the leadership’s control rather they happen in the environment OUTSIDE the four walls of your hospital. But the CEO must react to these drivers.
- The driver is often invisible to the front-line staff.
- But the reaction to the driver is visible.
- Being able to link the reaction to the driver allows for sense-making.
- Additionally, understanding the driver allows you to predict how your CEO/leadership team will react and make decisions in the future.
- Your goal is to find solutions that allow both the hospital and the diagnostic excellence program to thrive.
- Avoid positional bargaining as this leads to a competitive negotiation and you are likely to lose.
- E.g., ‘I need an administrative staff member for diagnostic excellence program.’ This is a position that is likely going to be met with a position of ‘I’m not going to fund an administrative staff member for diagnostic excellence program.’ This will be a competitive negotiation.
- Rather, bargain interests and not positions. To understand interests, ask ‘why’ as many times as possible to move past what you both want (position) to why you want it (interest).
- The key to any successful negotiation is to never ask for what you want but rather to ask for what they want. The trick is to be take what you want and present it as what they want so that they say ‘yes.’ In doing that, you’ll also get what you want (because it’s the same thing!).
- The key is to bargain over shared interests. If it’s a shared interest, then it’s what they want. So, you are now asking for resources and support to accomplish what they want (so they are more likely to agree) while also ensuring you get what you want.
- At the root of nearly all hospital interests is to be more financially viable. As such you should fashion nearly all your requests around ‘making’ or ‘saving’ money for the hospital.
- For diagnostic excellence the shared interests are saving money and improving outcomes. To save money and improve outcomes, you will need resources to do that. To do this you need to show a business case that nets, after your programmatic costs) a cost savings. This is how you tie your ask (resources) to their (and your) desire to save money and improve outcomes.