End Negative Ops Margins: Part II
Welcome to our 4 Part series on optimizing margins by ending negative ops margins. Each week we will present a new Part, up to 4 Parts. At the end of the 4th week, we will make available to you, on request, all 4 Parts as a single booklet for your consideration. Please don’t hesitate to email us with questions or comments.
PART II: MENACING MARGINS
Challenging and changing the hospital’s financial/operational ecology is a necessity for ending negative ops margins in small hospitals. To paraphrase and twist: “This may be easier done than said”.
The vast majority of America’s small hospitals (under $140 MM in Net Patient Revenues...NPR) have painfully, chronically, continuously and consecutively endured negative ops margins and their expanding negative consequences well beyond their small hospital.
Why should we care about small hospitals?...They are, after all, small.
• Small hospitals make up almost 40% of all US hospitals.
• 140 small hospitals have closed their doors in the last 11 years...that’s bad news and big numbers.
• Small hospitals are the greatest victims of, and the least prepared for, economically-burdened wind shifts...In effect, they are the canary in the coal mine.
These small hospitals’ chronically negative ops margins have resulted in:
• Position elimination/degradation, mass layoffs, “right-sizing”
• Executive resignations/firings/litigation for 100s of small hospital execs and associated legal expenses.
• Service/unit diminishments and closures...sometimes more than one per hospital per year
• Hospital “absorptions” & “disappearances” into other hospitals/systems...if they are lucky.
• Out-right door-closings/bankruptcies (Chapters 11 & 7) ...over 140 hospitals in the last 11 years, 37 closings just in years 2019 an 2020, with 453 now considered “vulnerable to closure”.....with that number growing....an American tragedy and an existential threat to small hospitals and their local communities.
With small hospitals often the largest employer in their small communities, and no other serious acute care nearby, hospital service line reductions, or worse, closings, can have a devastating effect on the hospital’s entire community, it’s tax base, other local businesses...and the community as a viable organism. All the more reason why hospital negative ops margins need to be ended...sooner, rather than later: It’s vital to the community’s well-being and very existence.
Sometimes small hospital’s negative ops margins start and finish a vicious cycle...and not in a good way:
• Hospital service line reductions increase local unemployment, reduce the local tax base and negatively affect all local health and non-health services.
• Local businesses cut back or close, also reducing the local tax base.
• The community becomes less appealing.
• The hospital can’t attract or afford the professionals it needs to recruit and becomes less inviting overall.
• Recruitment becomes more costly and unaffordable, until or unless negative ops margins are turned around.
In a small hospital in a negative ops margin vicious cycle...Small hospitals become greatly reliant on very expensive agency RNs...which the small hospital can’t afford. This greatly adds to the negativity of the hospital’s ops margins, adding to this vicious cycle. Nursing shortages result in short-staffing-generated increased infections, for which hospitals are often not paid and for which the small hospital can be financially penalized. Hospital can be sued as well, which it can hardly afford.
More and more people seek care and services outside the community. Some just move from an already-under-populated and/or under-served area, just leaving the community altogether and further lowering the community tax base and appeal. Federal assistance as recently seen, e.g., CARES, is highly unlikely to be repeated.
Continuous (even very) negative hospital ops margins for small hospitals too often become both highly visible and an accepted way of life, or the “new normal”, or worse, the “old normal”. It can get worse if nothing or little financially constructive and ameliorative is done.
Yet, it doesn’t have to be this way.
In spite of these “accepted/acceptable new normals” of very burdensome negativity, the knowledge and experience needed to eliminate these negative, menacing margins are well established and accessible. Most importantly, they are repeatedly proven-in-practice, over dozens of years. And even more importantly, they are available to, affordable for and utilizable by small hospitals.
All successful solutions for ending chronically negative ops margins in small hospitals are proven-in-practice and dollar-increasing, as based on and established by:
• Decades of hospital experience by 100s of professionally-trained hospital experts.
• Hospital-tested, researched, peer-reviewed approaches.
• Published, oft-practiced and implemented solutions in 100s of small hospitals in most American states...
...all with one core goal in mind:
To end small hospital negative ops margins...by doing what’s already been done....at other small successful hospitals....
These successfully implemented solutions are already dollar-generating and will be for years to come. This is not discovering or inventing a new wheel:
• It’s implementing and customizing an old wheel and refining, updating and detailing it, specifically for your hospital’s needs, wants and cultural and administrative specifics...Like the old med school training adage...“See one, Do one, Teach one...”
It’s not brain surgery. It’s an easy, practical, proven initiative. In other words: simplicity in action.
These successfully implemented, margin-enhancing solutions have become common-place because these solutions are routinely appropriated by hospital executives and cost-effectively implemented at the appropriator’s hospital.
In effect, the relevant tee shirt motto is: “Stolen shamelessly, proven effective!”
Remember the old hippie Abbie Hoffman book...? “Steal This Book!”
The same applies with these 1000s of margin-enhancing solutions..Steal These Solutions!
These solutions are constructive, useful, easy to implement and ops margin growing ...The more you “steal” or appropriate and implement, the greater your margin optimization. “Stolen shamelessly, proven effective”...is another way of saying:
• These solutions are not original.
• These solutions are dollar-valuable enough to be routinely “stolen.”
• The more they are “stolen”, i.e., actually-implemented, the more they are shown to be easy-to-implement, proven-in-practice and ops margin-growing.
The totality of these successfully implemented solutions is enterprise-wide ops margin optimization...a virtuous cycle.
For more details on growing positive ops margins from negative ops margins and for a better understanding of where ops margin-enhancing solutions come from and how they evolve and work, please see Part III , coming next week.
Meet the Author:
Rick brings over 35 years of experience in the healthcare industry helping hospitals and health systems on an enterprise-wide basis. He has worked as a Partner at a “Big Four” accounting/consulting firm, as a Managing Principal at one of the largest accounting/consulting firms in the Midwest, as a Chief Medical Officer at a 50 hospital/health system and as a Founder/CEO of a hospital consulting firm serving hospitals in 33 states.
As the leader of Microscope’s Margin Solutions, Rick works with hospitals to utilize a unique and patented approach to address hospitals’ needs for bottom-line enhancements by substantially increasing their savings, revenues and collections on a customized basis for each hospital/system. These bottom-line improvements facilitate cost-effectiveness and cost-efficiency, all without layoffs.
He is a member of the American Society of Addiction Medicine, Physicians Without Borders and the Sierra Club.
Rick was educated and trained at Johns Hopkins and Columbia Universities.