Increasing sales, growing the business

23. October 2008 William Davis (7)
I continue my portrayal of the fictional hospital, St. Matthews. Though fictional, it is based on real facts, figures, and situations.

Despite their success, administrators at St. Matthews’s Hospital continually fret over how to further expand their enterprise.

Market share can be increased, of course, by competing effectively with other hospitals, but that can be a tough arena. After all, St. Matthews’ competitors deliver pretty much the same services, and draw areas for patients overlap. The last thing the hospital wants is the appearance that heart care is a “cookie cutter” process, the same everywhere. In fact, this trend has hospital administrators wringing their hands. Two competing hospital systems in town recently launched multi-million dollar ad campaigns employing some of the same aggressive tactics St. Matthews’ marketers used successfully in past.

If St. Matthews is going to grow, new markets will need to be explored. What other strategies can a hospital system use to continue climbing the growth curve?

St. Matthews’ hospital administrators have drawn a number of lessons from other businesses. How about squeezing more procedures out of the population you already take care of? That’s an age-old rule of business: your easiest sales come from repeat customers. A former stent patient is going to “need” annual nuclear stress testing ($4000), more stents (about $25,000–39,000 per hospitalization), CT angiogram ($1800–2400), bypass surgery ($84,000), and so on. “Check-up” catheterizations, though clearly of little or not benefit to patients, are silently encouraged, yet another example of the bonanza of repeat procedures possible.

The lesson that “once a heart patient, always a heart patient” has been honed to an art form in business practices at St. Matthews and other hospitals like it. If you enter the system through your primary care physician or cardiologist, there’s an excellent chance you’ll end up with several procedures, diagnostic and therapeutic, over the ensuing years. Accordingly, St. Matthews provides a very attentive after-discharge follow-up program, complete with access to friendly people, phone centers, “support groups,” and even an occasional festive get-together, all in an effort to ensure future return to the system.

All in all, the St. Matthews Hospital System is a hugely successful operation. It provides jobs for thousands of area residents and provides high-tech, high-quality healthcare. Like any business—and no doubt about it, St. Matthews is a business with all the trappings of a profit-seeking enterprise—it grows to serve its own interests. The tobacco industry didn’t grow to its gargantuan proportions by doing good, but by selling a product to an unsuspecting public. So, too, hospitals.

Curiously, hospitals like St. Matthews continue to operate under the sheltered guise of not-for-profit institution with the associated tax benefits, ostensibly serving the public good. This means that all end-of-year excess revenues are re-invested and not distributed to investors. But non-profit does not mean that individuals within the system can’t benefit, and benefit handsomely. Under St. Matthews’ non-profit umbrella, many businesses thrive: 35 pharmacies, extended care facilities to provide care after hospital discharge, drug and medical device distributors, even a venture capital arm to fund new operations. The financial advantage conferred by “non-profit” status has permitted the hospital to compete with other, for-profit businesses, at a considerable advantage. For this reason, attempts have been made over the years to strip them of what some believe is an unfair advantage; all have failed.

While profits may not fall to the bottom line, money does indeed get paid out to many people along the way. Executives, for instance, pay themselves generous salaries and consulting fees, often from several of the entities in this complex business empire. Physicians are brought in as “consultants” or are awarded “directorships” for hundreds of thousands of dollars per year—Director of Research, Director of Cardiovascular Services, etc. Don’t forget the $3.7 million dollar annual salary paid to the CEO.

Hospitals and doctors have a vested interest in preserving this financial house of cards. They will fiercely battle anyone or anything that threatens the stream of cash. During a recent meeting of important doctors at St. Matthews Hospital, one cardiologist bravely voiced his concern that bypass surgery was performed too freely on too many patients in the hospital. The doctor was promptly and quietly asked to remove himself from the meeting. Several days later, he received a letter announcing his dismissal from the committee.

The silent conspiracy conducted by hospitals and cardiologists serves their own purposes better than the good of the public. Under the guise of good works, hospitals continue to promote strategies which are, for the most part, outdated, inefficient, inaccurate, and expensive. But that’s the rub. Expensive to you and your insurance company means more money for the recipient: your hospital and cardiologist, and the powers that support them. All this occurs while the real solutions that are of benefit to the public continue to be overlooked, hidden in the shadows.
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Comments (7) -

  • Anonymous

    10/23/2008 4:03:00 PM |

    Thanks for having the courage to say all of this!

  • Anonymous

    10/23/2008 4:52:00 PM |

    Yes, and let's elect a socialist for president who will work to make sure all American citizens have "free" access to this high standard of care they have a right to. Let's have a government that tells the people to eat in such a way they are all but guaranteed heart disease and then let's devise a universal health care system that will take their tax money to make them pay for their heart procedures. I'm going off a bit on a tangent here, but whenever I hear anyone start advocating a government-run univeral health insurance program, I think of the points you make about the greed of hospitals, and realize it puts a different perspective on just what it is these politicians are wanting the government to pay for.

  • Anna

    10/23/2008 4:55:00 PM |

    Dr Davis,

    Excellent pair of posts.  I wish more people would understand that while there are many people in medicine who are dedicated to caring for patients in the best way they know how, the "system" and some people in it have rigged the game to perpetually favor "the house", like gambling establishments.  Like post-vacation gamblers, post-procedure patients come away awed by the smoke & mirror shows.

  • Anonymous

    10/24/2008 12:12:00 AM |

    I am afraid we need to get medicine back to its altruistic roots.  Physicians should be limited to pay not to exceed $200k/yr. If you want to make more than this you should go to business school not medical school. Make it a law.

    On another note as the economy continues its colapse you will see medicine return to a decetralized model complete with a return to altruism and much less regulation. This is not an optimistic hope-it is where it is going.

  • Anonymous

    10/24/2008 5:10:00 PM |

    And we should make it a law that Angelina Jolie must dump Brad Pitt and date me. And that she must never make any dish for me that includes broccoli.  

    I hate broccoli.

  • Andrew

    10/24/2008 8:49:00 PM |

    ^^
    I hope you're right, but I don't see it happening that way.

    People with money and power will always struggle to increase both, regardless of the consequences.

  • Anonymous

    11/15/2008 6:29:00 PM |

    "Democracy is the worst form of government except for all those others that have been tried."

    ~ Winston Churchill
    Similarly with the hospitals, the pts seem to like them. It employs lots of people. Does it really matter that it is a lot of smoke? Is there a better way?

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