Healthcare CFO Lessons: How Should Hospitals Treat Low-Margin Services?

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Mark Luthringshauser joined Weetabix, a cereal company based in the United Kingdom, as vice president of finance in 2012 facing several tough decisions.

He evaluated all of the corporation's products, and shared the analysis with the company's other executives, according to a Wall Street Journal report. He found that several product lines were underperforming and losing the company money. For example, Weetabix decided to discontinue a line of cereal bars due to high competition and a lack of marketing support from consumers.

Overall, Weetabix ditched 14 percent of its private-label business in addition to ending its cereal bar products, according to the report. Mr. Luthringshauser's analysis helped the company increase its profits by double digits last year.

He said some of the many lessons from the evaluation were that organizations must continually find new revenue growth opportunities, and leaders have to discern what is positive revenue.

"The lesson for the organization, particularly sales, was that it is perfectly fine to walk away from revenue that is not driving profit," Mr. Luthringshauser said.

For hospitals and health systems, low-margin service lines are more difficult to evaluate, as many like obstetrics and behavioral health are necessities within a given community. However, successful CFOs are "continuously fine tuning and optimizing the way" business is done, according to the report.

More Articles on Hospital and Health System CFOs:
From Pizzas to Patients: Q&A With Mike Brown, CFO of Children's Hospital & Medical Center
The State of Healthcare Finance: 9 Major Survey Findings From Hospital CFOs
Why Timing is Key: St. Mark's Medical Center's Debt Refinancing Success

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