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How Does Business Acumen Apply to Healthcare?

Business Acumen: Healthcare

Business Acumen in Hospitals:

Many of the individuals that lead critical aspects of hospital operations rose to their position of influence not because of their business acumen, but often despite it. These fearless leaders are those who are strong advocates for patient safety, clinical quality, and know and love the people they lead and serve.

Business Acumen in the Healthcare Industry:

While these skills are necessary for powerful leadership in healthcare, the future leader will need to combine these strengths with an improved sense of business and financial acumen. Those organizations who are brave enough to see this gap in leadership competency and take action to close it will be on the leading edge of improving not just the affordability of healthcare, but also the quality and experience. Understanding the 5 Drivers and their unique application to healthcare are critical in this progression of leadership.

5 Drivers in Healthcare:

Hospitals must think deliberately about cash and profits. While publicly traded corporations measure their cash position and cash flow, Hospitals focus more on days cash on hand and maximizing EBIDTA. Why? Hospitals and their boards see their business as crucial infrastructure for their community, so days cash on hand is a better measure of how long they could continue to operate given a large disruption in normal operations – demonstrating their strength to continue to serve in tough times. EBITDA – a key measure of the profitability of core operations – removes the expenses tied to depreciation of a hospital's heavy mix of assets. No one is writing a check for the millions of dollars of depreciation of their MRI machines, surgical robots and facilities, so EBITDA is the preferred indicator of operating profitability. Irene Kraus, the first female president of the American Hospital Association, coined the phrase “No margin no mission”. Developing leaders who understand the drivers of profit in your organization could not be more important to connecting their hearts to your mission.

Why Assets are Especially Important in Healthcare:

Effectively utilizing the assets within the healthcare industry is top of mind for the savvy healthcare leader. They see the dollars used in assets as belonging to the community, so maximizing their efficiency is as much a financial imperative as it is a sense of stewardship. The healthcare industry is very asset heavy compared to other sectors of the economy. For example, the Mayo Clinic recently invested in a proton accelerator as part of their cancer therapy services costing over $200 million. Balancing strength (days cash on hand) with utilization is a unique challenge for healthcare leaders. It might be interesting to ask yourself, “How well do my leaders understand the balance of strength and utilization of our community invested assets?”

How Could Growth be Negative?

For a hospital or health system, not all growth is good growth. A key determinant of good growth is “payor mix”, which distinguishes the money being generated from private insurance companies and government funded programs. The operating strategy can be different depending on how the patient intends to pay, as most commercial is reimbursed through fee-for-service, while government programs tend to reimburse based on a total episode of care. Hospital growth needs to be thoughtful and targeted, seeking higher volume in service lines or geographies that make financial sense while balancing the organization's mission to the community.

People are Most Important:

The people driver is at the center of our 5-driver model; For a hospital this could not be more true. The entire business revolves around their people, and it is the ingenuity and caring heart of their people that ultimately drives success. People also represent the largest cost to a healthcare provider - roughly 60% of the total cost structure within a hospital is wages. How well do your leaders understand the way people impact the profitability and growth of the business?

Business Acumen as it Applies to Healthcare:

Healthcare providers contribute such a critical and valuable service to our society, and the ones who understand business acumen are going to be the ones able to continue to the top of their careers. It may be a bitter pill to swallow to see that gaps in business acumen exist at potentially all levels of a healthcare organization. However, closing that gap will not only help you be more effective in serving your patients, but also develop your leaders into indispensable and committed partners in achieving your goals. Those leaders who understand the business of healthcare feel more connected to the organization, more empowered to contribute, and more committed to stay and lend their talents. Developing competency around the 5 Drivers and how they apply specifically to your organization is a winning strategy in today's environment of increased consolidation and affordability pressure. For more information on how to start a journey of leadership growth for your team visit our website.

How to Improve Business Acumen in Healthcare:

When I think of healthcare, I typically envision doctors, nurses, and health professionals running back and forth, solving health mysteries, creating amazing medical innovations, performing cutting edge surgeries, and so much more. It’s very rare that I think of the business that goes into those hospitals and healthcare facilities… but they ARE businesses. Finish reading at the link below:

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