Hospitals are littered with opportunities to become better businesses. As I learn about specific opportunities I’m capturing the list so that I can try (or help others) to solve them sooner or later.
Executive Summary – Hospitals Need Sales Reps to Grow Revenue
Hospitals current org structure fails to place necessary focus on growing volume and revenue. By adjusting the org structure and possibly even hiring pure sales reps, hospitals can grow volume and revenue through:
- increasing market share within the community
- improving price mix of volume.
Have you ever noticed that hospitals don’t have sales representatives? Even the for-profit hospital chains don’t have sales reps.
Excuses and Lack of Accountability to Revenue
There are lots of excuses for why hospitals don’t have sales reps. Many hospitals are not-for-profit and therefore claim to respond to the nearby community’s needs rather than push healthcare services upon their community. Many hospitals perceive that payors and provider networks dictate which hospital patients go to and therefore assume that building provider networks and striking deals with payors is the only way to grow patient volume.
These misconceptions lead to hospital accountability structures with disjointed and thin accountability for patient volume and revenue.
In most companies, there is a manager that is accountable for the costs and a manager that is accountable for the revenue (i.e. the sales manager). Each of these two managers report to someone that is accountable to the bottom line – both revenue and costs (e.g. the CEO or a business unit manager).
In hospitals there a managers that are accountable to the costs of their functional department (e.g. Surgical Department Director, Emergency Department Director).
But the accountability for revenue is very disjointed. Hospitals have “service line directors” (SLDs) that are responsible for the performance of clinical specialties throughout the hospital (e.g. Orthopedics, Cardiac). And included in the performance is usually an accountability to the volume of patients served by their service line. But they’re also accountable to the clinical outcomes of the patients in their service line (e.g. the Orthopedics SLD needs to make sure that orthopedics patients are receiving the correct surgeries and medicine, and that they are healing sufficiently). Further, the SLDs are usually only accountable to volume numbers – not revenue dollar amounts – because the SLDs are not highly involved in the payor reimbursement rate negotiations.
So at best, SLDs work to hit volume numbers primarily by working to make sure the doctors in their service line are equipped and happy to bring patients to the hospital. And if pressured to grow volume the SLDs perceive that their only lever is to recruit a new doctor and that doctor’s practice to the hospital.
Sales Reps Would Do It Differently
If hospitals hired sales reps and gave them a quota and compensation based on profitable revenue, the sales reps would find more and different ways to grow revenue.
The sales reps would look at the community around the hospital and recognize every citizen as a potential patient (customer) and every other hospital as a competitor. The sales reps would identify any doctors that take patients to competitor hospitals and persuade them to be more loyal. The sales reps would identify doctors that can / want to grow their practice and help them get more patients that would have otherwise ended up at the competitor hospital (e.g. young doctors just starting out, doctors with notoriety, ambitious doctors). The sales reps would aggressively recruit doctors and the doc’s patients away from competitor hospitals. And the sales reps would recruit doctors from out of the market (e.g. recent fellowship grads, or relocating docs) and bring them in to build practices with patients that would otherwise have ended up at the competitor hospital.
Sales Reps Would Find A Way
If you’re a healthcare expert, you’re probably shaking your head right now, “it’s not that easy, patients go where their insurance pays,” and “doctors are employees of hospitals now – not independent like the olden days.”
But sales reps wouldn’t care. They would find cracks in all of these reasons why “it’s not that easy,” and they would drive an ice pick hard and deep.
Sales reps would recognize that some patients are pressured financially by their insurers to go to the competitor hospital, but ~50% of patients have medicare / medicaid (CMS) and CMS patients can go anywhere. Sales reps would find those patients and bring them to their hospital instead of allowing them to end up at the competitor.
Sales reps would recognize that very few doctors are truly employees of hospitals but rather they are mostly part of associated physicians organizations with incentives to hit production expectations that the competitor hospital, but freedom (often legally mandated) to take patients to the hospital most appropriate for the patient’s needs. Sales reps would find the doctors that prioritize patient’s needs over production expectations and make sure that the doctor is aware of the advantages of her hospital over the competitor hospital.
Note On Pay for Performance vs Fee for Service
New hospital reimbursement models such as ACO global payments and risk-sharing may change this equation somewhat. In fact, I hope it does because I dream of the day when hospitals are incentivized to provide pro-active healthcare rather than reactive sick-care. But, this series of Hospital Business Improvement Opportunities is intended to be ideas for the realities of hospital business, and the reality today and for years (decades?) to come is that the overwhelming majority of hospital revenue is fee for service.