Here at Becker's our editorial team closely follows the financial reporting of health systems. When a health system reports revenue increases for same-day "sales" in the single or even double digits, there seems to be a certain respect for that level of performance. That respect is not unwarranted. As reimbursements are under pressure and with certain operating costs (e.g., information technology, etc.) on the rise, any health system able to drive revenue has mastered the goal of provider organizations for many years: drive volume, protect organizational health.
When we think about the mission of most healthcare organizations, though — advancing health — an increase in revenue starts to seem counterintuitive. Either there are more services being provided (meaning patients aren't staying out of the hospital or other facilities) or the price for the same volume of services is higher. While the latter doesn't exactly go against the mission of healthcare organizations, it certainly is concerning given the growing costs of healthcare in our country. There are some caveats of course. One might argue not all volume increases are a bad thing. In fact, a rise in preventive services is good. However, a rise in these services is very unlikely to lead to revenue increases because they are so much lower in cost compared to diagnostics, drugs, procedures and inpatient stays.
Randy Oostra, president and CEO of Toledo-based ProMedica Health System mentioned the focus on revenue at an event in Chicago last month.
The healthcare industry has developed in such a way that we "celebrate increases in revenue every year," he explained, adding. "You have to question it a little bit how we got there."
So, how did we get there?
By way of our payment system. Our long-standing fee-for-service system has encouraged a focus on the volume of services, and not so much the value of them — and certainly not the need for reducing them.
That, of course, is starting to change as we move toward risk-based payment structures. It's about time.
Finally nonprofit healthcare providers will be able to generate revenue to carry out their missions in a way that is more aligned with those missions. And, the for-profits can continue to drive revenue and margins through even greater efficiencies and aggressive risk-based contracting. More revenue for the bearer of the risk will come not from the provision of services, but from keeping patients healthy enough so that they don't need them — or, for those patients that do, providing them in the lowest-cost setting possible.
Executives of healthcare provider organizations have been conditioned throughout their careers to drive results that aren't that different from those desired by Wall Street — greater revenue, greater profit. But the truth is healthcare is very different from the industries closely followed by Wall Street. The goal should never be for greater revenue if greater revenue means more services and sicker people. And unfortunately, we've been operating in such an environment for decades. One day revenue will denote success at keeping people healthy and managing chronic illness — what we've wanted from our healthcare providers all along. Let's hope our industry moves swiftly toward this new end-state, since doing so will mean patients too will benefit when investors do.