Making Profits and Differences at Hospitals

The real value of a company—hospitals included—is not only in money, but in social good.


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.

"People want to keep their jobs and earn a good living," Silfen says, "but they also want to make the world a better place and produce something of real social worth. In some cases, the best question corporate leaders can ask themselves is not, 'How can we make more money?' but 'How can we help our people do something transformational in a socially responsible direction?'"

Silfen tells the story of a new product developed by Philips design engineers, a smokeless indoor-cooking stove. The product seemed promising, but the market for it was not clear, until Silfen’s physician friends on a trip to Guatemala encountered a woman who expressed a desire for just such a product. She waned a better way of cooking tortillas that would not fill her house with smoke or burn her children. Company engineers went to work adapting the basic stove design to Guatemalan culinary practices, designing molds that could be used locally to produce the product. Over the past three years, the stove has taken off.

The Guatemalan cooking stove, Silven says, is still not a real contributor to Philips’s bottom line. But benefits are not always quantifiable in dollars. Silfen describes the grateful expression on the face of a young mother who, for the first time in her life, can cook for her family without worrying about smoke, fires, and burns. A host of Guatemalans are now gainfully employed, producing and selling the stoves while developing skills that will help them secure better lives for themselves and their families.

There are also substantial benefits for the employees of the corporation. Many of those who worked directly on the project have discovered a greater sense of fulfillment in their jobs as they are making a difference in the lives of real people. When the story of the project was shared with other employees through the corporate intranet, many who weren’t even part of the project said, “This is fantastic. How can I contribute to it?” Other employees have been moved to learn more about Guatemala and donate funds to the cause.

As Silfen says, “Everyone believes in doing good, but not everyone understands how to do it.” The challenge is to know what an organization is capable of and then leverage such capabilities in new and creative ways that enhance human life.

“When this happens,” he continues, “a corporation becomes a more attractive place to work, recruiting and retaining better people, enabling them to find more fulfillment in their work, and generating more goodwill among potential customers.”

If philanthropic messages like Silfen’s ring true even in a large multinational corporation, it seems likely that many U.S. medical practices and hospitals can resonate with them as well.