How Can Health Systems Appropriately Invest While Reducing Expenses?
Coming out of COVID-19 and the highest inflation seen in 40 years, health systems are under enormous pressure to control expenses and improve their financial situation.
This situation is markedly different from past economic challenges because the three years of COVID and inflation came at a time when health systems were barely keeping up with the service, technology, and accessibility demands of their patients. So, while health systems hunkered down to meet the needs of the most acute patients during the COVID emergency, new industry entrants were aggressively working to meet the increased service, technology and accessibility demands. As a result, health systems find themselves beset by novel competitors who are changing how healthcare is delivered.
Invest Like You Have a Future
Even in a time of emergency, health systems must invest like they have a future. Those simply attempting to survive the next 12-24 months before investing need to consider if the strategic dissonance required to hunker down is really temporary or indicative of a failed strategy that sacrifices the future for the present.
Forward-looking organizations address this strategic dissonance by investing in building future capabilities and assets alongside operational cuts and financial repair strategies adapted to current realities.
Three Indicators of Appropriate Future Investment
Three indicators give insight into how health systems are balancing future investment.
Growth-Oriented Culture
Most health systems have a perpetual mission. This requires a forward-looking culture and development of capabilities and assets relevant to the future marketplace. Given healthcare’s pace of change, those who stand still, even for a brief period of time, may find themselves too far behind in the race, particularly with new industry entrants who move at a faster speed. .
What is a growth-oriented culture? It is a culture which is willing to sacrifice some of the present for the future rather than some of the future for the present. If a system is willing and able to cut unprofitable operations to fund future investments, there is a strong chance it has a growth-oriented culture.
Differentiate Investments
领英推荐
Forward-looking organizations will differentiate between investments in traditional business lines and future business lines. ?While returns are more immediate with traditional business lines, setting up the future business lines will create not just new capabilities, but future value, sustainability, and relevance. Additionally, given the macroeconomic environment, most believe poorly performing traditional health system business lines will not ever achieve their historic performance levels. Thus, organizations should look to the future and make educated investments on these business lines. Organizations that double down on the past will sacrifice the future for the present.
Measure Investments based on their Actual Returns
Too often business plans are put together with completely unrealistic expectations. As a result, finance teams become skeptical of any new program and tend to see existing services as the only investments, which create a return.
Instead, it is important to measure the businesses for what they are realistically expected to return. In periods of reduced margins for historical business lines, the assumptions for continued investment should change to reflect the current experience. In fact, given the ubiquitous need for healthcare services, a reduction in the performance of historical business lines suggests future business lines will perform better as a minimum return on capital is always required for an industry to remain viable.
Those who are adapting their return expectations to the financial challenges facing the industry today will increase their prioritization of future business lines.
Implications for Health Systems Today
Forward-looking health systems quickly cut expenses while maintaining their long-term capital investment requirements. Those who short-change investments are simply sacrificing the future mission to allow less cuts to be made today. Where future mission sacrifices are unavoidable, successful health systems will maintain more of their future business line investments and cut back on their current business line investments where financial stress demonstrates return on historical business lines must be tempered.
Invest like you have a future for if you don’t you will certainly not have one.
?
Kate Lovrien and Luke Peterson are principals with Health System Advisors. Health System Advisors creates industry transformational changes by advising health system leaders as they advance their organizations.
?