Lessons from the Railroads: We’re in the Healthcare Business, Not in the Hospital Business

What is the real difference between volume-based, fee-for-service care and value-based care?

Answer: Being accountable for performance based on quality and economic efficiency, not “heads in beds” or the number of procedures and services. Hospitals must consistently provide high quality, efficient, reliable and predictable value.

We are having a bit of a railroad moment in healthcare right now. As Ted Levitt observed in his classic work “Marketing Myopia” back in 1960, the railroads largely went out of business because they thought they were in the “railroad business” and not the “transportation business.” Railroads missed their opportunities to thrive and grow because they could not think differently about what they did and what the market demanded.

So healthcare executives, take note. We are no longer in the hospital business, but the healthcare business.

In the hospital business, providers received payment for whatever they charged for, so hospitals focused on increasing volumes. In the healthcare business, hospitals only receive reimbursement if they deliver real value, so the goal becomes decreasing the volume of care for the covered population.

Just as the “boxes in boxcars” myopia hurt the railroads, the “heads in beds” mentality threatens hospitals. Value-based care requires a reliable and predictable delivery of value defined by:

  • Aggressively cutting costs by 35%-50%
  • Dramatically increasing quality by 40%-50%
  • Significantly improving patient, physician, and caregiver experience
Volume To Value Requires Big Cost and Throughput Improvements
It’s not just our view that hospitals must demand substantial, sustainable leaps in cost and quality performance. This graphic from the Health Care Advisory Board highlights how the “Path to Sustainability” for care management will require new thinking and bold improvements in costs, capacity and throughput, and case mix management. (Click image to enlarge.)
HC Advisor Board New Performance Standard

Just how do hospitals predictably and reliably deliver that value and quality of care? You might have guessed by based on the mission of Care Milestones, it starts with a focus on logistical control for patient throughput. There are a several key parts to such a logistical control system:

We will post more about how the shift from volume to value changes everything about the way hospitals operate and succeed financially. In my next post, I’ll again focus the logistical lens on patient care by asking:  What is absolutely reliable and predictable about the patient care experience at your hospital today?

POSTED BY Ben Sawyer

One thought on “Lessons from the Railroads: We’re in the Healthcare Business, Not in the Hospital Business

  1. Pingback: Lessons from the Railroads: We’re in the Healthcare Business, Not in the Hospital Business | henrykotula

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