MGMA 2009: A warning from the airline business


If you're in Denver to attend the MGMA annual conference, you almost certainly got crammed into a plane as one of a hundred-odd sardines. Why do airlines do this? Well, it seems pretty simple to me--the business is simply built on an impossible-to-fix business model. The question is, to what extent is the healthcare industry (especially hospitals) painted into the same corner? 

In the airlines, you've got a business where the capacity for delivering your core product is relatively fixed--I imagine new airplanes don't pay for themselves very easily--and you can only cut down so much on salaries, fuel costs and standard business expenses. Of course, that leads to mergers and tightly-knit partnerships (if things are good) and bankruptcies if things don't go well. 

Then, add to that the fact that there's not a whole lot of ancillary businesses that your Uniteds and Deltas of the world can get into, other than charging a myriad of small fees--which feel, to me, like they're selling you a Coke and charging you separately for the bottle. Interestingly, those fees have actually been somewhat successful for airlines, despite the grumbling they invoke from passengers. In fact, those little $25 dollar fees here and $30 dollars there have added up to $669.6 million for the second quarter of '09 alone, four times what they raised last year.

In fact, a recent report from the U.S. Department of Transportation said that low-cost and regional airlines had their first profitable operating margin for Q2 '09 since the third quarter of 2007, boosted by those annoying fees. The low-cost and regional airlines had a profit margin for the quarter of about 7 percent, something most hospitals long to have.

OK, now back to the healthcare. In some ways, the two industries are quite different: Hospitals have multiple service lines rather than one core service to deliver. That gives healthcare facilities much more flexibility than airlines, which have to keep sinking billions of dollars into expensive equipment far more often.

Still, when it comes down to it, a hospital is a hospital and it delivers healthcare. It has a comparatively fixed capacity, and as we're reminded frequently these days, it can be hard simply to optimize the use of those beds by getting people in and out of them.  Hospitals are saddled with immensely expensive infrastructure, competition, pressure from payers who want to see a race to the bottom (along the lines of airline consumer price competition) and huge exposure if anything major goes wrong. Hospital CXOs can squeeze staffing ratios some, but not too much, and there's legal and practical reasons why they can't extend their mission too far beyond direct care.

So, if you agree that the two industries share common problems, what can healthcare organizations learn? Well, to me the lessons aren't rocket science, but they're still worth some thought:

  • While I don't recommend that hospitals unbundle services to the point where they're charging $25 extra per visitor--or some silly thing--there may be opportunities to charge for additional non-clinical services (Wi-Fi, rooms in a hotel they've purchased next door, community activities that go above and beyond the mission that could generate fees) and so on. Maybe some hospitals and health plans will actually turn a profit on some of their green efforts, for example by selling energy they generate from solar or the like to neighboring buildings. Hey, use your imagination.
  • Offering care offsite in settings which are inherently unlimited, such as remote management of fragile patients, do a lot to address the capacity problem. You can only have so many beds, but if you plan well, you can expand telemedicine-backed home care into a large business. Given that this seems to be an effective clinical approach, it's a good idea anyway.
  • Remember how you feel in an airplane? Crushed together, streamed through endless gates, processed and packaged as though you were entering some little cage? If your hospital gives visitors that feeling, it's definitely worth considering whether you can do more to address human factors in the process of navigating the facility, much less being a patient there. Simple steps such as employing a concierge add a little expense and much to a patient's feeling of comfort. (If you really want to go all the way with patient comfort, there's Planetree, but that is, of course, a whole discussion of its own.)

Well, this discussion could go on much longer, but I'll leave it at this: Any business that's forced to treat people like cattle, carry insane overhead and can barely handle the logistics of getting the job done is in trouble. I know you can do things differently. - Anne

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