Hospitals Flatlining OPLs
By Glen Phillips

America’s Broken Hospital System
America’s hospital system is in transition. Rapidly rising costs are taking a toll on every aspect of what is generally a comfortable system for consumers of healthcare services.

The American Hospital Association (AHA) has indicated that some of the things that Americans have taken for granted are starting to erode. One of those sacrosanct givens is the right of Americans to depend on our healthcare system whether we can afford it or not.

The AHA cites their greatest challenges to future growth as worker shortages, increasing patient demand, constrained capacity, regulatory burdens, rapidly increasing costs, reduced Medicare and Medicaid payments, a growing number of uninsured patients and decreased access to capital for improvements.

Since 1980, the cost of healthcare has continued to increase at the expense of taxpayers and a small percentage of foreign patients who are private payers and not dependent on the third-party insurance system. Furthermore, the Medicare and Medicaid system is straining under the heavy load of retiring baby boomers. The cost of health insurance is so high that most employers are no longer able to afford 100% hospital coverage.

Many Americans are aware of the Occupational Safety and Health Administration (OSHA) and the burdens it places on America’s businesses. They may not realize that those same regulations apply to hospitals as well. These regulations are very much needed. However, they have swollen the ranks of hospital clerical and reporting employees dramatically over the last three decades. It’s reported that for every hour of bed-side patient care, nurses have to spend a half hour filling out reports and doing paperwork. Many of the nursing shortages come as a result of disenchantment with the roles nurses must now play as a patient-care provider.

The ‘world is flat’ phenomenon
One of many premises presented by Thomas L. Friedman in his oft-cited book The World Is Flat is that we in the Unites States have educated the world to do what only we used to do well. For example, our healthcare education has been shared with every required hospital occupational profession. While the American healthcare system has continued to improve and innovate, the medical community has recruited, trained and depended on many foreign doctors, nurses, medical specialists and administrative types who have taken their newly acquired skills back to their home countries and created an excellent American-like hospital industry. These foreign hospital workers, the ones that the American hospital industry recruited to work in U.S. hospitals, have created some excellent and dynamic hospitals; specifically in India and Thailand. India’s population in 2006 is slightly over 1 billion people vs. a U.S. population that last month was projected to top 300 million. The reason for this discussion is to point out the positive impact America has had on the world and how that is affecting our population. Well-trained, foreign medical professionals have built state-of-the art hospitals in the own countries; they have sought and are getting Joint Commission International (JCI) accreditation; now insurance companies and third-party payers will allow and pay for the outsourcing of American healthcare. In some cases they are encouraging the use of foreign hospitals for expensive procedures.

If America is to retain its “crown jewel” reputation as the best healthcare provider in the world, its hospitals must flatten themselves to compete. To survive they must “think outside of the box.” That includes outsourcing. No longer will corporations and insurance companies pay $100,000 for an employee’s heart bypass surgery when they can send those patients on a “medical vacation” for 2-3 weeks and get the same procedure done for $10,000. (See http://www.pacificresearch.org/pub/hpp/2006/hpp_09-06.html).

Competition forces ‘flattening’
The largest retailer in the world, Wal-Mart, doesn’t manufacture a single item; it out sources everything it sells and markets through a supply chain that is well-designed, well-managed, well-executed and FLAT. The Wal-Mart business model is leaner and much more efficient than other retailers. That model has improved the purchasing power of every shopper who enters their doors. In order for businesses to survive in the future, they must reduce the bloat, trim the excesses and get flat.

Consider for a moment the discussions that are going on between General Motors and Ford. They are actually talking about a potential merger; this would have been unheard of a decade ago. The Boards of Directors of both companies realize that the survival of the American automobile industry means they must change the way they are used to operating.

Furthermore, America’s airline industry has taken some brutal financial blows over the past 10 years. All of the airlines are rethinking and reworking their business models and doing what’s necessary to survive. Often their choices are to compress and flatten their organizations through outsourcing of work and maintenance where that work can be done more competitively. Because of this strategic self-examination, they may well offer reasonably priced flights to patients who decide to take advantage of the aforementioned foreign medical vacations.

Outsourcing can flatten hospital costs
The signposts are in place and the path has been laid for hospitals and healthcare providers. The shrill cry of pain can be heard from every city, state and federal agency, corporation (large and small), business and insurance company that is saying, “Enough is enough.” Hospitals must get back to their core business and that is providing high-quality, reasonably priced hospital care. The only way that’s going to happen is with a major paradigm shift and by eliminating excess fat. Hospitals alone will have to determine what’s necessary in their own organizations to flatten their way of doing business.

In 1980, the AHA reported that America’s Hospital Workers totaled 3,412,500 or 1 employee per 2.5 licensed beds; that number has increased to 6.09 employees per licensed bed in 2006. Hospital labor costs alone account for 45% of the expenses in the average community hospital with another 15% going to employee benefits. The major tactic for reducing hospital costs is by flattening the cost of labor and its associated employee benefits.

One of the real dilemmas facing U.S. hospitals is the shrinking pool of prospective employees. The shrinkage applies not only to doctors and nurses but the entire array of employees it takes to make a hospital function. A recent report prepared for the AHA by First Consulting Group Inc. of Long Beach, CA, revealed the shortage rates for selected positions in hospitals (see above). It’s interesting to note that the employee shortage is chronic and across the board, but RNs, LPNs and nursing assistants are the positions about which the industry is most concerned.
Another major concern for the American hospital system is the age of the hospital’s physical plants. Hospitals simply have not had the cash to renovate or update their main buildings, which averaged about 9.3 years old according to estimates published in 1999. Now, some seven years later, the average physical plant age is +/- 16.5 years. To make matters worse, the cost of new and renovated construction ranges between $230/square foot and $400/square foot for hospitals.
At a time when more physical plant space is needed, there are limited financial resources to do what needs to be done. Hospitals have borrowed so much money and floated so many bond issues that many now find themselves in a precarious financial position. It’s estimated that more than 33% of the hospitals in the United States are losing money every year.

Employee shortages, high physical plant costs, critical space deficits and the need for increased on-site patient care and related functions all create situations where hospital executives have to rethink their priorities. What must be kept on-site and what can be outsourced? Increasingly, economics is driving the most logical decisions. That includes all textile-related services; this is clearly one of those non patient-critical activities that can and should be outsourced. In order for that to happen, the laundry industry must come up with ideas to prove to the hospital industry that outsourcing isn’t a risky proposition.

Outcomes of this tiny flattened world
There are great lessons we can all learn from historical events. A prominent example is the rise and fall of the British Empire. The proud and glorious British Empire was a powerful and advanced collection of countries united under one flag worldwide. The British once were known for the advancements and contributions they made to mankind. Those advancements eventually caused the United Kingdom to tumble from a first-rate country to an “also ran” country. A few of the many reasons for Britain’s downfall included expensive local labor, lack of research and development and international competition. Now it seems that America’s hospital system is headed down that same road.

The AHA recently published a white paper titled Cracks in the Foundation: Averting a Crisis in America’s Hospitals (http://www.aha.org/aha/content/2002/pdf/cracksreprint08-02.pdf). In this paper, AHA cites the following reasons for the potential demise of America’s hospital system.