Healthcare: Community Service or Business?

Posted on May 13, 2011


As federal budget debates continue, the four largest components of our federal deficit spending—Social Security (23%), Medicare / Medicaid (20%), defense (20%), discretionary (19%)—will continue to receive a lot of attention. Healthcare, in fact, has been leading the dicussions in many cases, as the other three have been treated with kid gloves thus far.

I find that the identity crisis in healthcare about why hospitals are in existence is one of the greatest obstacles to overcome. Is healthcare a community service or a business product? Many people believe healthcare is a right, others feel it is a priviledge. When this position is clearly defined in the eyes of citizens, hospitals, and government, I think many of the major financial decisions about healthcare will start to fall into place.

Ironically, entitlement payments like Medicare (healthcare for the elderly) and Medicaid (healthcare for the poor) are the main source of funding for the businesses we call hospitals. Although Medicare and Medicaid appear to be reliable sources, the funding behaves much more similar to non-profits who have one main benefactor and expect a check cut every year to keep essential services going. Or like a private business who has one client that makes up 85% of its revenue. This is what Medicare and Medicaid are to hospitals right now. Risky. How does this work long-term?

Healthcare design for a ‘community service’-driven non-profit provider is no different than for a ‘bottom line’-driven for-profit provider. Service lines should be no different.

As non-profits receive pressure to be more entrepreneurial and self-sustaining in their missions, they realize they cannot rely 100% on donations. Similarly hospitals, especially non-profit hospitals, must act more ‘entreprenurially’, i.e. like a business looking to maximize resources and leverage opportunities.

For those who doubt hospitals can make the tough decisions, I submit as evidence the trend of hospitals closing obstetrics departments. This means no baby delivery. Taking off my healthare designer hat, I look at baby delivery as one of the two fundamental needs for a community. The average citizen needs a place to go to when waylaid with an emergency and when they need a baby delivered. Everything else, one could argue, can wait until the next day, week or month.

I respect hospitals for needing to make money. It is sad, however, that the template for sound business decisions in some hospitals involves closing one of the two essential services a hospital provides. Still, strangely I wonder how a community does not produce a greater uproar about losing a core service like obstetrics? I would much rather trade an MRI suite for a birthing suite.

Walmart has found a way to make money in the long-run by operating several ‘loss leaders’—products sold at or below cost which allow the store to sell more higher margin products elsewhere. This is a level of business risk and pricing sophistication most hospitals likely cannot execute, at least not now.

Until they can citizens, and the architects that design for hospitals, must wait, patiently and patient-like, as healthcare providers revisit their missions, decide what is essential for their communities, and what they can make money on, before building next. To me, healthcare as a business is here to stay. I can only hope birthing babies in the OB and dealing with the urgently unexpected in the ED are two such fundamentals.