No Work. No Time. No Risk. Yes, Margin
The great majority of small hospitals under $150MM in NPR have faced and will continue to endure years of negative ops margins and executive turnover...or even much worse, service reductions, loss of Medicare contracts and growing numbers of closures.
These significant and severe financial and operational burdens are continued and exacerbated by these small hospitals’ lacking the necessary resources to dig out of their negative margin hole and role.
Their resource lack that is endemic to and intrinsic to small hospitals include the following deficiencies:
- Lack of sufficient numbers of staff
- Lack of sufficiently experienced staff
- Lack of sufficiently expert and specialized staff
- Lack of highly reimbursable, highly specialized services
- Lack of internal and community resources to recruit, support and grow any of the above
- Lack of sufficient days cash on hand and/or cash flow to purchase and acquire any of the above
These deficiencies have led to the closing or severe diminution of 100s of small hospitals over the last 10 years or so. For example, see the rush of stressed small hospitals to convert to rural emergency hospitals. Therefore, it’s essential that these deficiencies become sufficiencies....in order to stop this chronic, cyclical hemorrhaging and contraction.
These overarching resource deficiencies can be further described as:
- a lack of small hospital positive margin dollars and cash flow needed to recruit, acquire, keep and grow any, let alone all, of the above asset necessities
- a lack of community resources sufficient to attract and keep any or even just some of the above.
As is clear from all these negativities, this is a vicious cycle that needs to be converted to a virtuous circle. Any one set of these deficiencies contributes to and exacerbates further deficiencies and negativities...which only makes a bad situation worse...and worse.
The immediate question then becomes, how does the small hospital turn this vicious cycle into a virtuous circle?
What can the small hospital doimmediately?
In many cases it is an emergency that is only worsening, quarter by quarter.
What can the small hospital do to begin to climb out of this deepening and in most cases multi-causal and multi-victimizing financial and operational rut?
What can not the small hospital do operationally and quickly,now?
How can the small hospital speedily resolve these operational and financial dilemmas, including chronically negative ops margins and declining cash flow?
- The small hospital cannot do it (resolve and solve the above deficiencies) on its own quickly with such inherent internal resource limitations. That’s where the No Work, No Time necessity comes into play for the hospital. No Work, No Time are engagement enhancement requirements for the small hospital to meet the needs of the hospital, now and in the immediate future.
- The small hospital can’t afford a standard, by-the-hour consulting fee or a fixed fee. Such high small hospital financial and operational risk, from very expensive external expert consulting engagements are simply not affordable or feasible for the small hospital today. To quickly and successfully perform a turnaround procedure for the small hospital remains a continuing problem, given the current costs and time of doing so.
If all apparent, supposedly readily available internal and external solutions are not feasible or affordable, what’s a small hospital to do...now?
What are the solutions and their ingredients needed to quickly achieve this necessary and immediate turnaround of enhanced, viable ops margins and cash flow?
How does the small hospital stop this enduring, long-lasting compounding burden and cycle?
At a minimum, solutions for small hospitals today must be:
- Externally implemented, as the hospital does not have the internal people or historic or institutional experience or expert resources at hand or readily accessible. Nor does the small hospital have the dollars or time to acquire these solutions internally any time in the near future, given the small hospital’s often declining financial and operational status quo.
- No work: (by the hospital) can only be implemented by outside experts doing virtually all or 95% of the necessary engagement work. If done externally, the hospital has no need for (nor can the small hospital afford) staff overtime (OT) or new hires.
- No Time: Only experienced external experts can do the necessary implementations quickly, correctly and cost-effectively, with no or very little time and zero out-of-pocket expenditures by the hospital.
- Affordable...Affordable must mean no up-front billings/expenses. All engagement expenses/payments must come from and be taken from new, net savings and new net revenues. These new savings and revenues must be demonstrable, consensually satisfying new dollars that are booked and mutually agreed to as accurate, real and bookable. No out of pocket expenses are affordable. That means....
- 100% zero risk....as the hospital can’t afford to take any dollar risks. Its cost of capital is already not affordable, let alone sustainable. That’s where No Risk comes into play. No Risk is a small hospital requirement for a successful, ASAP new substantial cash plus infusion implementation and resolution.
- Here is where Yes, Margin must be the end result.
In other words,all these critical ingredients of No Work, No Time, No Risk are required to achieve the desired result of ASAP Yes, Margin.
Too Good to Believe?
This all sounds too good, even on paper. And in fact, maybe it sounds too good to believe. How does this supposed, significantly enhanced margin come about? For the small hospital it means increased ops margins with no increase or change in staff, no increased work load, no upfront fees, ever, and with zero risk, always. Isn’t that a seemingly fantastical proposal?
Where and how can the small struggling and vulnerable hospital gain comfort, let alone margin with such a potentially extreme and even non-credible proposal? Why or how can the small hospital believe in this when in all likelihood the hospital has had zero experience with such an engagement contract?
What gives the small hospital, from such a proposal and its potential consequent engagement, any sense of credibility, professional appeal, institutional reasonableness, legal comfort and Board trust?
In order to achieve those stated reasonable standards and expectations, we argue that any small hospital engagement contract that purports to significantly and quickly increase ops margins and cash flow, must have a contract with the following terms and clausescontractuallyimbedded, delineated and explicated:
- All legal disputes must be adjudicated in the hospital’s home state.
- There can be no upfront or out-of-pocket fees, ever.
- All engagement fees must be based on a percentage of engagement-generated new savings and/or revenues, mutually agreed upon for both the amount of the fee and the measurement methodology for determining the fee amount.
- The chief engagement consultant must have at least 10 years of experience in no-risk, pure contingency successful small hospital engagements and implementations.
- Billing period for new savings/revenues must not exceed 24 months per solution.
- Each solution/approach must have been implemented successfully at, at least 5 similarly situated hospitals.
- Every implemented solution must produce and does produce new, countable savings/revenues for the small hospital
- Published reference material for each solution/approach presented to the hospital is readily available for the hospital’s review.
- Layoffs and service reductions are not required for a successful engagement and designated ROI achievement. Nor is any use of overtime or new hires required or desired.
- A mutually agreed upon guaranteed ROI is contractually imbedded...and should never be less than 2 to1.
- Mutual agreement on how the contractually guaranteed ROI is to be achieved and how it is calculated.
If you’re a small hospital with chronically negative ops margins, and most small hospitals are, please consider the above implementation prescription necessary for enhancing your ops margin.
For any questions or more information, please contact:
Rick Kunnes, MD