HFMA VIEWS

Kevin C. (Casey) Nolan
Managing Director, Navigant Consulting, Inc.

On my most recent travels across the country I have made two observations: the airlines’ business model is fundamentally broken and so are most hospitals’ budgeting processes. I’ll save my discussion on the airlines for another day when my wallet isn’t so empty and my knees have recovered sufficiently enough to allow me to stand upright.

As for hospitals’ budgeting processes, my observations were “book ended” by two clients who could hardly be more different. One client is a 300-bed, sole community provider on the west coast in a largely rural area about two hours driving time away from the nearest major metropolitan area and the other is a five-hospital system anchored by an academic medical center located in an inner city market in the northeast. And while these two organizations were virtually total opposites in almost every aspect, they both had a budgeting process that appeared to be completely internally focused and retrospective in nature rather than market-based and prospective. Volume estimates in their budgets were largely based on last year plus some anticipated (hoped for?) growth factor. Neither organization appeared to include any consideration regarding market factors such as use-rates, market shares, competitive initiatives, etc., in the development of their volume estimates. This, in my opinion, is the equivalent of American auto manufacturers developing their sales forecasts without considering gasoline prices or the impact of some company named Nissan. And one named Toyota. And another one named Honda. Can you say oops?!?! As a result, one of these clients had a budget that projected an increase in volume at their facility that exceeded the total volume of cases in the market. Now, I am all in favor of aggressive growth targets, but even I draw the line at achieving more than 100% market share! 

I am convinced that hospitals’ budgets could be greatly enhanced by fully integrating business development, operations, human resources, and anyone else who has a relevant point of view into the budgeting process. Simply put: budgeting is a team sport. The best budgets are those that are developed collaboratively rather than sequentially. They take market dynamics into consideration in addition to internal factors. A collaborative, “outside in” approach to budgeting would, I am convinced, greatly increase the accuracy of most hospitals’ budgets, significantly decrease the “oops” factor, and foster a greater sense of teamwork and commitment on the part of those responsible for meeting budgets.

And now, let me tell you about the airlines’ fundamentally flawed business model…