Hospitals need to learn to reduce costs. You can’t just ask for more money to cover your rising costs. It’s a frequent topic on this blog, the Toyota Production System idea that:
1) The price is set by the market, not by you
Granted, healthcare is a really screwed up and complex market. But, the lesson still holds that SOMEBODY ELSE (someone external) sets the price for you and you have to live with it. That’s true if it’s manufacturing, consulting, or healthcare. You can’t go by the old notion of “my costs are X, so I’m going to tack on my profit margin and that’s my price.”
2) The only way to ensure a given profit is to reduce costs
Profit Margin = Price – Cost
If price is given, you have to control costs. And I don’t mean with traditional cost cutting (which would include getting rid of people, outsourcing, and closing operations). You have to use lean — reducing quality AND improving care… which will lead to lower costs.
Hospitals whine too much about how little they are paid. They need to get their controllable costs under control.
13% of hospital costs are due to controllable waste.
Source: Zuckerman, Hadley, and Iezzoni, 1994
I bet that number has grown since 1994. I see so much waste in hospital processes, it’s ridiculous. Different studies and experts estimate the percentage of non-value added time in healthcare processes and employee time at 40 to 50%. I believe it, based on my direct observations.
Let’s work on controlling costs (by improving quality and care). We really have no other choice. Healthcare money won’t grow on trees. We can’t afford to have healthcare costs rising 9 or 10% a year.
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