Making Profits and Differences at Hospitals

The real value of a company—hospitals included—is not only in money, but in social good.
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Daily conversations in healthcare are increasingly dominated by money. Healthcare reform is relentlessly focused on cost cutting. Hospitals are frantically developing strategies to keep themselves profitable in a newly-capitated system of financing. Health professionals are struggling to maintain their incomes in the face of declining payments. And medical bills are now the largest cause of personal bankruptcy in the United States. Fifty years ago, healthcare was not so tightly linked to money. It has become so money-focused largely because, over the same period, healthcare spending increased from 5 percent to 18 percent of GDP, greater than any other segment of the U.S. economy.

In some respects, the growing focus on money is completely natural. For one thing, someone needs to pay the bills of physicians, hospitals, health insurers, and even publicly-funded health programs. Even if healthcare workers give their time and hospitals donate the supplies, equipment, and facilities, someone ultimately pays out of pocket or in uncompensated effort for the care of every patient. The question is not so much whether money should enter into the conversation, but how prominent a role should it play, and where the loyalties of the people involved ultimately lie.

To wit, what is a corporation’s greatest responsibility: to make a profit or to make a difference? On the one side of this debate is Milton Friedman—University of Chicago faculty member, Nobel Laureate, and one of the most important economists of the 20th century. On the other side is Jack Welch—former chair of GE, during whose tenure as CEO the value of the company increased 4,000 percent. In a 1970 New York Times Magazine editorial, Friedman famously declared, “The only social responsibility of business is to increase its profits.” Yet in a 2009 Financial Times interview, Welch called the idea of shareholder value “the dumbest idea in the world. Shareholder value is a result, not a strategy.” 

To be sure, no business is going to survive for long if its revenues do not exceed its expenses. The same is true for any medical practice or for a hospital. If a healthcare organization loses too much money for too long, it will cease to exist. But a necessary condition is not the same as a sufficient one. A business making widgets cannot expect to survive with a strategy that consists of nothing more than turning a profit. The same is true of a business that provides healthcare. To make a profit over the long haul, it is necessary to attract and retain employees who produce a product or service that customers are willing to pay for. And here, wages and prices are not the whole story.

I recently spoke with Eric Silfen, MD, chief medical officer of Philips Healthcare, one of the world’s largest medical technology firms. Before taking on his current role, Silfen practiced emergency medicine for 22 years. Over the course of his career Silfen discovered that to thrive, healthcare corporations need to see beyond the bottom line.

“Instead of being purely profit driven,” he says, “they need to be mission driven, they need a medical consciousness, turning what might otherwise seem mere jobs into vocations, true callings. Physicians and nurses need to feel that they are making a difference in the world, but so too do the people in research and development, marketing, and sales.” A healthcare corporation needs to perform well in a fairly traditional business sense, by innovating, increasing its market share, and controlling its costs, but it also needs to provide its employees with opportunities to take pride in the work they are doing.

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Richard Gunderman, MD, PhD, is a contributing writer for The Atlantic. He is a professor of radiology, pediatrics, medical education, philosophy, liberal arts, and philanthropy, and vice-chair of the Radiology Department, at Indiana University. Gunderman's most recent book is X-Ray Vision.

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