The Business of Healthcare Guide

The Business of Health vs the Business of Healthcare

On January 19, 2012, after 131 years of operation, the Eastman Kodak Company filed for Chapter 11 protection in U.S. bankruptcy court. No doubt some people were surprised by this filing, because they grew up at a time when bright yellow boxes of film accompanied every family vacation and celebration. Those who were paying more attention offered many explanations for the bankruptcy. Central among them was that Kodak was late to recognize that it was not in the film and camera business: it was in the imaging business. With the advent of digital imaging, Kodak was outpaced by other companies that could better achieve consumer goals.

This lesson has been repeated many times over. In 1960, the editor of the Harvard Business Review, Theodore Levitt, wrote that the failure of railroads could be explained in part by the myopic view that they were in the railroad business and not the transportation business, which left them vulnerable to competition from cars, trucks, and planes. Levitt argued that it’s always better to define a business by what consumers want than by what a company can produce. Kodak had built a successful enterprise producing cameras, film, and photographic paper and chemicals, but what people wanted was images, and so when a better way to get those images was found, its customers followed.

The analogous situation in health care is that whereas doctors and hospitals focus on producing healthcare, what people really want is health. Healthcare is just a means to that end — and an increasingly expensive one. If we could get better health some other way, just as we can now produce images without film and transport people and freight without railroads, then maybe we wouldn’t have to rely so much on healthcare.

To some of us, the point may seem both obvious and irrelevant. We might concede that even if people don’t intrinsically desire doctors’ visits, medications, surgery, and imaging, those services are still the way to get people the health they want. Although that may be true, the leaders of Kodak or the railroads may have had similar thoughts in their own day. Yet they seem to have missed some signals. What signals might we be missing?

One signal is that while much of recent U.S. medical practice proceeds as if health and disease were entirely biologic, our understanding of health’s social determinants has become deeper and more convincing. An enormous body of literature supports the view that differences in health are determined as much by the social circumstances that underlie them as by the biologic processes that mediate them. Examples include the Whitehall study of British civil servants that revealed that civil-service grade is more strongly associated with mortality than any broad biomedical measure; research conducted in the Veterans Affairs health care system and elsewhere demonstrating the persistence of health disparities even within fixed health insurance and delivery systems; and models of fundamental causes that provide a conceptual explanation of how such disparities can persist over time, following different pathways in changing circumstances

None of this evidence suggests that healthcare is not an important determinant of health or that it’s not among the most easily modifiable determinants. After all, we have established systems to support the writing of prescriptions and the performance of surgery or imaging but have found no easy way to cure poverty or relieve racial residential segregation. But the evidence does suggest that healthcare as conventionally delivered explains only a small amount — perhaps 10% — of premature deaths as compared with other factors, including social context, environmental influences, and personal behavior.

If healthcare is only a small part of what determines health, perhaps organizations in the business of delivering health need to expand their offerings.

Based on this article, as a health practitioner it is time to do a thorough introspection on the kind of business you are providing. Are you just providing healthcare with the hope that it will produce health of the patient or are you actively involved in collaborating with your patients to provide health for the patient. You can achieve that by doing just three things:

  1. Continue with the provision of health care
  2. Every person you see must receive health education
  3. Engage with all your patients on health promotion issues

Leadership in Health

A few weeks back my mother had what she described as a terrible throbbing pain coming from her right ear. She went to our local hospital to be examined and for treatment. She arrived at the hospital’s general out patients department around 07h50 am. There were several other people in front of her therefore she had to wait. When it was her turn to register that was around 09h30, her folder could not be located, she waited a further 30 minutes or so before being given a “temporary” folder.

She relates that the hospital was dirty, water was dripping continuously from the taps, and the ceiling was collapsing. After several other delays, my mother was eventually seen by a clinician at 12h15. The clinician informed my mother that she will not be able to examine her ear because the otoscope has been out of order for more than three months. She prescribed some medication to go and fetch from the pharmacy. Out of the three items prescribed, she only got one item the other two were out of stock.

Hearing my mother’s story, I asked myself “What’s Wrong with the System?” It is my opinion and belief that efficient and cost-effective delivery of good quality healthcare is a function of Leadership. Chapter 8 of the South African Health Review 2013/2014 Report on Challenges and Constraints at District Management Level offers a glimpse of what may be wrong. In this chapter it is stated that – “Most of the problems identified relate to obstacles preventing the effective implementation of various steps in the management model. These originate from within and beyond the District Management Teams (DMT), and include issues such as inadequate delegation of authority to DMTS, defective budgeting processes, staffing issues, lack of managerial skills and vacancies in key managerial positions, and ineffective use or absence of quality management information systems to support decision-making”.

Amongst many constraints that are identified in this report the following institutional design blockages are identified:

  • District management has no influence over policy directives.
  • Strategy is defined at national/provincial level.
  • District management has limited influence over allocated budget.
  • District does not control workforce planning and appointment of staff.
  • No clear system whereby lessons learned at district level are used to influence policy or strategy.
  • No clear system whereby lessons learned at district level are used to influence policy or strategy

With these constraints and challenges identified, the question arises – What is the nature of leadership required to improve the quality of healthcare delivered to society? Before answering that question it is important to recognise that leadership especially for the health sector, comprises a complex set of people and organisations operating inside and outside the health sector within and outside both public and private sector. What complicates the matter further is that these people work in unpredictable and complex environments with changing health needs, medical and technological advances, continuous regulatory changes, etc.

The leaders of the South African Health system include PHC facility managers, clinical managers, hospital CEOs, district and sub-district managers, provincial and national mangers, heads of departments within local, provincial and national government and others as you go up the government hierarchy. As in many other organisations there are informal leaders who may not hold any managerial position but draw their power from reputation, experience, technical skills, personality, networks, etc.

For effective and efficient delivery of quality healthcare all these different components of the health system, and the leaders in the system, need to find a way of working together, that therefore required a different kind of leadership rather than the traditional bureaucratic hierarchy based leadership. There is a need to redefine leadership using new paradigms that promote the development and diffusion of improvements and innovations. Current research evidences that there is a need for not just formal administrative leadership, but also a need to develop integrated leadership processes throughout healthcare delivery systems.

In my opinion the nature of leadership that will deliver improved quality of health to society is as follows:

  • Top-down tight control style of leadership needs to be loosened and allow the system to adapt to local contexts. This suggested approach applies throughout the system e.g. the top down loosening, in my mother’s hospital, could be the superintendent allowing the sister in charge of the ward to adapt to the conditions of his/her ward.
  • Leadership needs to encourage generation of new approaches and ideas (a bottom-up approach that will inform policy)
  • Encourage informal leadership – what can be defined as the entrepreneurial system – this is where generation of innovative approaches are developed.

The key in this approach is to watch out for the “rubber band” effect. Leaders need to pull the “rubber band” (the change process) and then pull gradually from the front end, making sure the back-end follows in order to ensure that the whole system moves to a new equilibrium.

The Dilemma of Private Health Provision

Private Health Provision Dilemma

I often hear an outcry from colleagues in private practice complaining about how difficult it is to practice in a most cost-effective manner. This difficulty is brought about by a perception or a reality that general practitioners are at the bottom of the “food chain” when it comes to financial compensation for healthcare service provision. Why is that?

The crude answer may lie in understanding the stakeholders involved and their interests. The dominant players are:

  1. Employers
  2. Payers ( e.g. medical aid administrators)
  3. Healthcare providers (e.g. general practitioners)
  4. Patients/Members/Workers (different names of the same group of people by different players)

Here is the dilemma – all four of these players have different interests and play different and sometimes conflicting roles in the provision of healthcare. Payers want to pay the healthcare providers as small an amount as possible for services rendered, on the other hand healthcare providers want to raise service prices due to various pressures exerted on their service provision. Employers continue to raise contributions for medical cover and reduce benefits and increase requirements for co-payments by workers/members. Members want more service from healthcare providers and to contribute as low as possible for medical cover. This situation is brought about by lack of a shared vision by all the players.

How can the shared vision be created? What the players need to focus on, is the provision of the right care, in the right place at the right time and the right cost. From a practical point of view how can this be achieved? The player who is “short-changed” in the total equation is the healthcare provider. Because he/she is the one that deals directly with the sick and irate member/patient, he/she does not have a door to knock on to the payer nor the employer.

The responsibility therefore lies with the healthcare service provider to devise mechanisms to engage the other players towards this shared vision.

This engagement can be done in one of two ways.

  1. Through practitioner associations
  2. Through independent practitioners operating in the same area organising themselves into group practices with a common vision.

I will not discuss the value of option 1 because the challenges do not lie at the level of the practitioner association but at the level of the individual practitioner.

Here are the practical steps that individual practitioners can take:

  1. Identify like-minded GP colleagues in the area where you practice (3 to 5 of them)
  2. Agree that you form a group practice, that will still operate in the same area
  3. As a group, approach the dominant employers and administrators
  4. Ensure that all the three players (employers, payers and practitioners) are in one room to negotiate the common vision (right care, right time, right cost and right place). A process like this may need to be facilitated by a neutral party
  5. Implement the agreement

The dilemma of provision does not end with the agreement with other players, there is a lot of work that as healthcare providers you still need to do. The survival of solo-practitioners is fast becoming a thing of the past. Economics of private practice dictate that group practice is the way to go. As a group practice there is leverage in terms of time, systems and overheads. With the national health insurance on the cards group practices stand a better chance of survival than individual practices.

The group practice approach addresses both business and clinical aspects of the practice. When group practice is structured appropriately, the quality of life from a monetary and time perspective for the practitioner improves tremendously.

Promoting Your Health Practice

Promotion Strategies for Your Practice

Did you know that frustrated patients are more likely to tell their story more often than happy patients? They are also more likely to exaggerate their frustrations (just for the dramatic effect). It is customer service levels that builds, maintains and motivates the customer. Promotional activities are however of limited value if there is no consistency in the delivery of the service from the practice in its totality.

Here are 6 strategies you can use to promote your practice:

  1. Health Practitioner’s Commitment: The discipline of being on time, adhering to the displayed working hours and going beyond the working hours when a need arises. There is nothing as frustrating to patients like arriving at a practice and the practitioner is not around for reasons other than an emergency.
  2. Aesthetics of the practice: The practice must be patient friendly from the entrance of the property, the reception area and the consulting room itself must be designed in a way that enhances customer experience.
  3. Staff training: This is the most important aspect of the practice. Staff at the front desk are the first people to interact with the patient and therefore they need to be well trained to be friendly, caring and be competent in their role at the practice.
  4. Practice Policies and Procedures: The purpose of having policies and procedures for every aspect of the practice is to enhance the practice to deliver quality clinical care, to deliver high quality customer service, to enhance the practitioner’s productivity and to enhance and maintain financial viability of the practice.
  5. Health Promotion Community Service: The visibility and value adding services of the practitioner within a defined community builds the name of the practice. As a practitioner, participate in giving health education to community structures, such as schools, churches etc.
  6. Health Articles: As a health practitioner, link yourself with a local newspaper or local radio station, get a slot where you write and/or talk about health education and promotion.

Pricing for Services

Pricing for Services Rendered

I recently had a matter that needed to be resolved by the lawyers through the courts. It was fascinating and frustrating for me to observe how lawyers charge for their services. I paid hundreds of thousands of rands and I lost the case in court. When the judgement was passed I sat there licking my wounds and said “how do these lawyers charge so much and there is no guarantee” Is there a formula used here for charging the kind of monies they charge?

My thoughts went to our own profession, health practitioners. The question is – what determines the price you charge for your services? Colleagues who are in private general practice will have cash rates and medical aid rates. From a medical aid rates point of view the GP is a price taker. The medical aid determines how much they will pay for services rendered. If they paid less than the service rendered you are left to try and recover the deficit from the patient. Is this practice fair? For cash paying patients is there a formula that GPs use to determine the price of the service?

In this article I would like to put a challenge out to all those in private practice and taking cash for services. The challenge is to interrogate your cash pricing model and see if it is compatible with the value of the service provided. Is your pricing based on where you are located? If you were located in a different area would you still charge the same price? If the answer is yes to both questions, you are short changing yourself. The price you charge for your service should be the value of the service irrespective of the locality.

Remember pricing is a psychological issue, there is no fair price, there is only perceived value. If your cash price is low the perception is that the service you deliver is of low quality. That perception starts with you in valuing your own services.

Health professionals are sitting between the proverbial rock and a hard place where on one side, they need to pay personal and business bills like all other businesses and on the other side they need to offer a service that sometimes is looked at as a social service.

Lawyers value their services and they charge for that value. I therefore implore you as a health professional to value your service and charge appropriately for that value by doing less you are devaluing your own service and the profession

Business is Time and Time is Money

The commonest reason for my clients to fail to complete tasks is that they did not have enough time. The person could not get around into doing the task. I always emphasize that there is enough time for everything, one just needs to allocate tasks to time. The tasks that get the allocation are those that you deem important.

Health practitioners are notorious in complaining about lack of time or for not being on time for appointments. In some cases the time excuses or reasons are legitimate in other cases, it is due to lack of planning. When one considers a health practice as a business, time allocation becomes important. As the owner of this business you need to allocate time for:

  • Clinical work (technical aspects of the practice)
  • Entrepreneurial and Leadership work (how to grow and improve the practice and motivate staff)
  • Managerial or Administration work (get on top of the numbers, manage what you measure)
  • Keys to Time Management
  • By allocating time in a week or a day for these three broad tasks you will start to realize that “Business is Time and Time is Money”.
  • Basic Premise
    • Accept that you will never be able to do everything you want, therefore allocate to you only those tasks that bring you closer to your goals and delegate others
  • Spend your time doing what is key to success of your total practice business
  • Work on only the tasks that can only be done effectively by you
  • Follow the 4 ‘Ds’ – Do it….. Delegate it…..Defer it….or Dump it
  • The key to efficient use of time is planning
  • Create a “template” schedule for each time period – month/week/day – which allocates time periods for specific types of tasks

This approach can be tricky for health practitioners who do not use the appointment system for seeing clients, however, if your practice falls into that category, it does not absolve you from planning your time. The most time wasting activities conducted by practitioners are those that can be delegated to either a receptionist, a nurse, or the office manager. This brings me to a point where if you do not have appropriate staff for the tasks, you end up doing them yourself.

Here is an activity that you can start doing today that can give you an indication of whether you are efficient in using your time or not:

  • Keep a daily time log
    • Record everything you have done on a particular day
    • Analyse the recording
    • Determine why you had to do those activities
    • Are there activities there that could be delegated
    • Why did you not delegate them
    • Which of those tasks could be discarded

    By keeping a time log you will soon realize areas where you waste time and areas where you can save time and therefore make more money for your business.

To Inc. or not To Inc.

The Health Professions Council of South Africa (HPCSA) lists the following business models as acceptable for health professionals:

  • Solo Practice
  • Partnerships
  • Associations
  • Incorporated Practices

Any other business model/formation or structure outside of these models is unacceptable and would lead to prosecution by the HPCSA.

The question that I get on a regular basis from health practitioners is whether it is a good idea to register a Personal Liability Company (Incorporated) or not. My first and general answer to the question is that yes Incorporate the practice. Incorporation is a process whereby a medical practice becomes it’s own entity, a corporation – with specific tax, financial and legal implications. Incorporation however does not protect practitioners from liability as the ultimate responsibility remains with the practitioner, it is not a shelter for unprofessional conduct.

The follow up question is – “what is the best time to incorporate a practice, early or late?” – again my general quick answer is Incorporate as early as possible in the life of the practice. The reason is that it is more cost-effective as early practices do not have a lot of assets and liabilities that may have to be transferred to the new entity.

There are two important benefits that comes with Incorporation:

  • The practice becomes a juristic person (i.e. it is separate from you the practitioner)
  • It enjoys corporate tax rates – which are normally lower than individual tax rates

The other question that I often get revolves around financial audit requirements. The Company’s Act, 2008 stipulates that audited financial statements are required on the date that the company files its annual return with CIPC, if the aggregate value of assets held at any time during the financial year exceeds R5 million.

The following are the general characteristics of a Personal Liability Company:

  • A Personal Liability Company’s name must end with the word ‘Incorporated’ or with its abbreviation ‘Inc’.
  • Just like with a private company, a Personal Liability Company is also required to have a minimum of one director on the board of directors.
  • A Personal Liability Company is also, just like a private company again, not required to appoint an independent auditor, a company secretary, or an audit committee.

Increase Your Price

Annually between September and October  medical schemes announce their contribution increases. Some of the medical schemes have already made their announcements for 2017 increments. The average increase from the schemes that have made the announcement is 10.6%. There are various reasons for these above inflation increases.

The reasons boil down to increased costs for the schemes. An article on the 26th of September 2016 by Fin24 states that “Medical inflation is higher than normal inflation – and this is not a tendency restricted to South Africa. It is not unusual for medical inflation to outstrip CPI inflation by 4% to 5%. The reasons cited are various: the falling rand and the rising cost of importing medical equipment, the rising costs of medication, the increasing costs of private healthcare, where doctors can charge higher than medical-fund rates, increasing average age of principal members on the schemes, and high private hospital costs. Another reason cited by schemes is the increase in expenditure on hospitals. Most schemes are also experiencing a spike in the claim patterns of their members”.

What does these increases mean to you the health practitioner?

From a simplistic point of view they have nothing to do with you as a health practitioner. Please allow me to continue with the simplistic narrative. The schemes are increasing their member contributions based on various cost pressures their business face.

The major questions for you as the health practitioner is: When last did you increase your prices? What informed your percentage increase? When are you going to increase your prices again? Do you know the cost drivers of your practice?

My suggestion is as follows:

  • Spend time and understand costs drivers in your practice
  • Increase your prices to outstrip the costs
  • Do not get into contracts that lock you into certain price ranges for your services
  • Leave the medical schemes to do their business and focus on your business sustainability and profitability

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