Editor’s note: This commentary is by Jan van Eck, director of D.J. Engineering, manufacturers of technical engineering assemblies including aircraft landing gear components.
[V]ermonters will recall a series of articles in the press describing the financial losses at the rural hospitals in the state, and focusing on Springfield Hospital, where the deficit ramped up to $6 million before the top executives abruptly resigned. The underlying reasons are straightforward and easily understood: the hospital serves a poor rural community with limited incomes, many residents uninsured (and thus Medicaid patients), a high fixed-cost overhead burden, and no place to raise revenue. At this point the drums of bankruptcy are beating, which when it happens will result in unsecured creditors taking a collective big hit of about $6 million. For a poor rural Vermont community, that is a serious hit to its business sector, money that has to come from “somewhere,” and might even collapse some of those vendor businesses in a cascade of financial pain.
What to do? The classic response, and that of the new management team, is to try to cut costs. So nurses are let go and leaving physicians are not replaced. The emergency room goes to less staff, and less coverage, which is risky enough, as trauma patients are not likely to be conveniently sequenced to the new coverage schedule. In short, it looks like a perpetual state sponsorship with continuing, indefinite state infusions of cash. Except the state itself is strapped, and an increasingly unlikely source of financial support.
When the dust settles, what you are left with is a perpetually unprofitable hospital, one where the patients are poor, only some have private insurance, a number are indigent, and the rest offering reimbursement for care via low-paid Medicaid. This is a grim picture.
Are there other solutions? Of course there are. The hospital needs other revenue sources – not tied directly to patient insurances. Let’s take a look.
While nonprofit, a hospital is still a business.
It is folly to think of a hospital as other than a business. It needs both positive cash flow and positive earnings in order to stay open. Springfield at one time was an economic powerhouse, manufacturing specialized machine tools for sale across the U.S. It even had a railroad running up to town. Today, the factories are shuttered, the rail line a hiking trail, and no immediate prospects of a revival to the good old days. The sources of revenue for the hospital remain a smaller number of insured patients, whatever cash the state government can grant, and Medicaid and Medicare reimbursements from the feds. Those latter payments are well below full costing, and without either fund-raising or reimbursement increases, the outlook is not rosy. As the wealthy have left town, the prospect of rich folks writing charitable big checks is also looking improbable as a sustained source of funding.
Yet the hospital, by its nature, needs lots of cash, due to the high fixed overhead. What to do? If you ask any businessman, he will tell you that the first thing you need in order to be successful is a willing buyer of your product, one who is flush with cash and able to write the check for it. If you have no buyers, you can have the greatest product on the planet, but you still have nothing. So, what product can the hospital go sell somewhere, beyond its medical services to the local community? People outside the market area are not going to make the longer trip to Springfield, so the traditional sales of hospitalization services has a finite limit, and those buyers don’t have the cash in any event, as we have already noted. It has to be “something else.”
Outside sales for sustainable profits.
Yet the hospital has all kinds of internal expertise, including management expertise. Thus it can sell either a product, or a service, or both, to persons outside, including to other hospitals. Yes, there are hospitals out there that turn a profit, and in the case of say Kaiser Permanente, it can be quite a large profit. Those potential customers have the cash to be able to buy products and services from Springfield Hospital. What can be sold?
All hospitals today have a looming internal threat: “hospital-acquired infections.” You have the astonishing situation of a person coming in for an operation and acquiring some totally lethal infection while inside as a patient. Even more threatening, some of these can be “super-bugs” that are mutated biologic matter, resistant to treatment by the current universe of pharmacological preparations. It can be disastrous, and fatal.
Hospitals try to fight against this by having this small army of cleaners going about, wiping down every possible touch surface with these cloths soaked in alcohol. But intuitively, you know that is fighting a losing battle. Our culture mandates that “visitors” be allowed in to be with the sick, and those visitors bring with them a totally lethal army of bacterial and viral matter. Every surface they touch gets a transfer of more infectious matter, and you can swab all day and all night and you don’t get rid of it. Meanwhile, the staff and the patients themselves then in sequence touch the same surfaces, thus becoming the receptors of that infectious material.
So the current situation is the hiring of low-grade labor to walk around with spray bottles and alcohol and wipes, trying vainly to stem the inflow of biologic infections. Ask yourself this: If you could transform this into a passive system that requires no attention and is 100% effective against all bacteria and viral matter, on every surface, would you write the check as a hospital administrator to buy that product? I am betting you would.
Selling into a felt need.
What I have come up with is a formulation of a material that would be applied to all contact surfaces by a thin coating. It would go on as a liquid and then solidify as a deposited dry coating. The material will prevent multiplication, or colonizing, of those bacteria and fairly rapidly kill them off.
To do this, a customer hospital would have to invest in a spare set of their contact surfaces: door handles, striker plates, faucets, telephone handsets and keypads, bed rails, all the stuff that anyone would routinely touch – and leave germs on. You don’t need a complete set of everything, just some small fractions, say 5% or 10%, as spares. Springfield Hospital sets up a subsidiary coating operation in a facility close at hand, and does this coating service for a fee. Now the customer spares are sent up to Springfield and are coated with the formulation material. The spares are returned and their hospital maintenance changes them out on-site, the removed parts again sent up to Springfield for coating, and so on until the entire hospital is outfitted with contact surfaces bearing the coating. There goes your hospital-acquired infection problem, one more giant headache is history.
The coating plant would fit right in with Springfield Hospital. The plant itself is mundane enough, with local employment for taking the pieces and inserting them into the coating tanks, then having them dry, and packaged for return transport. The technical supervision would be by hospital staff on-site, and that plant would be either right on hospital grounds or walking distance, all of which is easy enough to do given a rural hospital. The hospital bills for the coating services as an invoiceable sale, and picks up fresh cash flow and income.
Conclusion: Springfield can have a financially healthy hospital.
To resolve knotty issues such as rural hospital poverty, you do have to move past both the bureaucratic and the ideological mindsets, which at this point are focused on cost-cutting. In a hospital setting, you cannot cut your way to solvency and simultaneously offer an appropriate spectrum of care to the community being served. So the deal is to go find other sources of revenue. And where are those? Unless the selectboard can cajole some billionaire to move into town and write million-dollar checks every year, even fundraising will be dismal, due to one overarching reality: the hospital is sitting in a poor, rural town in a poor rural state.
That reality is not going away. Prices cannot be raised as nobody has any money, and the third-party payers will resist that. The state is not likely to do full funding; it has its own financial issues. So that leaves the directors to go figure out what other product or service the institution can sell, to develop a new collateral source of revenue.
Setting up a business unit that will apply a germicide coating to building components likely to be touched, for the specific purpose of defeating hospital-acquired infections, is a real block-buster. Every medical facility will want it. The sell-in is facilitated by having hospital administrators, typically MDs, talking with other hospital administrators, especially at conferences. Coating quality control is enhanced by having hospital diagnostic and testing facilities at hand. The customer is going to be comfortable knowing that there are physicians involved in oversight. And the pricing for the coating services will provide plenty of free cash throw-off to fund the entire hospital budget. If you cannot bring in more money through one door, then try another.
How big could it be? Try $1.6 billion. You would be able to finance medical care for every person in Vermont without user fees or insurance plans. When you are up against the wall, hire yourself an entrepreneur, and go find yourself a new solution.
