The Law of Business in Healthcare

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Investments IN yields Returns OUT?

The healthcare playing field has changed greatly and has placed new demands on healthcare providers such as Accountable Care Organizations (ACOs). The new demands in turn shift the value of the organization as change disrupts all aspects of running a business. Getting paid for patient work is no longer as simple as treating a patient and releasing them. Increasing efforts to keep patients healthy after they leave the care of doctors is becoming mandatory. There are more risks associated with managing patients than ever before. Making money is no longer the same!

The underlying challenge? In this new healthcare business, it is definitely not business as usual. It is about developing new strategies to anticipate the direction healthcare needs to take and to be able to respond to new challenges. Regardless of the changes, there are some fundamental laws in business that can help sort this out. Sir Issac Newton’s third law of motion helps us understand how to navigate these new challenges so they become opportunities. Newton’s third law states: “For every action there is an equal and opposite re-action.” The parallel Law of Business might say: “If an organization decides to invest in a new widget to improve efficiencies, it expects a multiple return on its investment.” Correct, BUT the action and reaction in business has an intermediary – people. Thus, without a concomitant effort in training staff with the new widget, the return for investing in the widget is not maximized.

In order to understand where investment IN yields returns OUT, we need to consider the seven places where investments are optimized or not, where value is generated or lost. Not surprisingly these investments include both the tangible (task side) investments and the intangible (people side) investments. In upcoming blogs we’ll take a deeper dive into each as they directly affect things like patient and population management, efficient use of clinical resources, who are good performers and who can do better. For now, we summarize the 7 investments that create organizational value.

  1. Task side investments include two distinct areas: 1) Organizational Capital includes investments into systems and processes, intellectual property, brands and image; and 2) Physical Capital includes facilities, hardware, and machinery. Collectively, these capitals provide the means and ‘accelerators’ that help produce results – products and knowledge.

  2. People side investments also include two distinct areas: 1) Human Capital includes investment in knowledge, skills, training, and competencies. It reflects the synergies possible with diversity of culture and thought; and 2) Relational Capital includes the relationships built with partners, suppliers, customers, and teams. Collectively, these capitals create knowledge and build intellectual capital, the wealth in organizations.

  3. Finally, there are three additional investment capitals that link the task side with the people side to complete the picture. Tying the People and Task-sides together are investments in the Financial, Customer, and Spiritual Capitals. Financial Capital (cash, debt, investments) provides the WD-40® lubricant to accelerate wealth creation. While the customer is the reason for everything we do, Customer Capital provides feedback and reflects the return-on-investment of all the other capitals. Investing in Customer Capital offers invaluable returns in fine-tuning future investments. Spiritual Capital reflects the culture and the norms of the organization. It is the intangible input/investment from the organization that gives meaning, values, purpose, and feelings of well-being to people. Spiritual Capital provides the psychic power and energy in the creation of business success and wealth.

As a means to name the 7 areas of capital investments, we call these The Magnificent Seven (M-7) in reference to the 1960 movie of the same name where 7 professional gunfighters joined together to train and save a town from bandits. In this case, we are joining together the investment opportunities to accelerate a business’ value and success!

So investing in one’s business requires focused consideration of complementary investment factors to reap a positive ROI. It does require understanding that for every investment there are the task-side and the people-side considerations to facilitate maximizing value. Is this what you already do?

If you’re getting in the ACO game, or already there, or not performing at the level you need to, or are a private practice dealing with MACRA and MIPS or you just need more insight into your population … it really is possible.

© Baldwin H. Tom CMC
www.geoddgroup.com

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On October 24, 2016
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