The wealth differential How do big-margin hospitals do it? by Erik DeLue, MD, MBA
Published in the March 2011 issue of Today's Hospitalist
The wealth differential in this country continues to grow with the middle class shrinking and poverty at a 15-year high. And now, the wealthiest 1% of the country has amassed 35.6% of our total wealth, a disparity that keeps growing despite the recession.
While the stagnation of real income growth for the middle class and growing inequity among all of us has many causes, health care is certainly a major factor in our new social class realities. But this commentary is not a socialist screed or a plea for more "trickle-down" economic
Hospitals are not immune to the phenomenon of the ultra-rich vs. the mostly have-nots.
policy. It is merely an observation that hospitals are not immune to the phenomenon of the ultra-rich vs. the mostly have-nots.
At least that's my take on Forbes Magazine's ranking of the 25 hospitals with the greatest operating margins.
Let's begin with some perspective. In my home state of New Jersey, half the hospitals operated at a loss last year, and most had slim profit margins well in the low single digits. Then there is Flowers Hospital in Dothans, Ala., which Forbes reports had an operating margin of 53%. Moving down the list, the 25th most profitable hospital still cleared 24%. The majority of these hospitals are for-profit corporate entities. (I'll note that most of the hospitals listed have disputed the accuracy of the Forbes' claims.)
So the first questions to ask are: Do these hospitals have hospitalists, and are they hiring? This, of course, assumes that they share their wealth with the hospitalists, not get rich from underpaying them.
And even if they have hospitalists, I would love to see this analysis done: "Operating margins for hospitals with and without hospitalists." Actually, maybe I don't want to see that because there could be an inverse relationship between financial success and the presence of a hospitalist program, without an ability to demonstrate causality. Why? The rich hospitals probably don't need us and certainly wouldn't want to upset the apple cart of a medical staff that is likely reaping some of those profits.
Cutting out the fat
Seriously, what does this large differential mean for us and our patients?
First, it suggests that there is still plenty of money to be made in health care. Given the fact that for every well-run system there are many more that are run poorly, such wealth should not automatically be seen as an indictment. After all, we don't like it when our banks fail, and I suspect we would like it even less if our hospitals all became insolvent every time the economy soured. Point being: To an important degree, our system has to be set up to make sure that the worst-run (or the most geographically challenged) hospitals don't routinely fail.
Further, many of the successful hospitals have employed Lean and Six Sigma techniques to trim waste and inefficiencies. That's led to many other hospital systems trying to model that behavior. We all know the enormous amount of "fat" that exists in even the best-run hospital, so there is likely much to be learned from hospitals that "do it right."
Still, I struggle with the idea that many hospitals are just breaking even in an environment that creates this amount of financial success for others. I know well the old saying, "No margin, no mission," but when the current top-operating margins would make Bill Gates jealous, something has to be at least a little bit wrong.
Whatever these hospitals are doing, one can only hope it results in better care for the communities they serve. But given the Dartmouth Atlas of Health Care data, which consistently show that "more expensive" doesn't necessarily translate into "better quality," you have to wonder if improved margins don't often come from over-utilizing highly profitable procedures. No hospital is immune to this type of financial behavior. But perhaps the Forbes 25 are the most adept at capitalizing on a system of uneven rewards?
We will judge the success of health care reform by many metrics: improved access to care, better preventive medicine and judicious pay for performance would all be nice for starters. However, if 10 years from now we see a similar Forbes 25 list, I submit that it will prove to be just one more reminder that we've failed to reshape the albatross that our current health care delivery system has become.
Erik DeLue, MD, MBA, is medical director of the hospitalist program at Virtua Memorial in Mt. Holly, N.J. Check out Dr. DeLue's blog and others on the Today's Hospitalist Web site at www.todayshospitalist.com.