Why are hospitals and large clinics so costly and capital intensive?

Posted by Clark Love on Aug 10, 2016 11:44:03 AM

I am entrepreneur, so I see the business world primarily through an entrepreneur’s eyes.  My role as CEO of BHN takes me inside many large hospitals and clinics.  I am always amazed at how capital intensive these operations are.  They have a device or machine for everything, and all the people with the right skills to operate the equipment as well.  As an entrepreneur, this just does not make sense to me.  As entrepreneur I've learned to look at capital as a very precious resource.   For hospitals, it certainly makes sense to have certain devices/equipment present for critical care needs (i.e. a defibrillator), but for other assets it does not make sense.  It would seem more logical and cost effective to share some of these capital-intensive resources with other locations or even other hospitals. 

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Very few hospitals today operate at one location.  They have either multiple hospital locations or multiple satellite clinics located in a geographic area.  All of these satellite clinics will have considerable overlap in the equipment and staff they have.   It would be very cost-effective to timeshare these resources among the satellite locations.  BHN helps a few progressive clinics and hospitals do this.  We provide mobile staff and mobile diagnostics equipment to service multiple locations which increases the utilization of the staff and increases the utilization of the equipment, making for a much more cost-effective solution.   Hospitals and clinics use us because we educate them on the process and provide the financial education to understand the real benefit of “fractional ownership” and “time sharing”. However, many hospitals and clinics could do this on their own with other different types of medical devices and medical services, but they tend not to do so.  It is my personal belief that many of them fall victim to the status quo.  In other words, they've always had a particular type of device at every location so why change even if that device has a 10% utilization rate and hardly anyone knows how to operate it because it gets such infrequent use.  

 

To provide a specific example of what I'm talking about, let’s look at urodynamics, which is one of the primary diagnostics we provide. I have seen dozens of hospitals that have urodynamics equipment at multiple satellite locations.  Each urodynamics machine only gets used for a few hours each month.  Furthermore, the staff at each location has such limited experience with urodynamics procedures, due to the infrequent use, they are terribly inefficient in performing the urodynamics test, which is bad for the patient and bad financially.  In this situation these locations have underutilized urodynamics equipment and inefficient staff – a double whammy.  A great alternative would be to have one urodynamics machine, one really well-trained staff person, and the progressive mindset required to move that equipment and staff person from location to location performing the procedures.  This would save them substantial capital expense and make them more efficient – a dual benefit. 

 

Additionally, I believe another primary reason for the capital inefficiency is the monumental sales efforts put forth by medical device/equipment makers.   The sales teams of device/equipment makers are some of the best in the world, and they simply overwhelm the procurement personnel at hospitals and clinics, convincing them to buy multiple units when one mobile unit would do.  I have personally seen these sales forces do this many times. 

 

Again, I don't think the above applies when we're talking about a device that has to be present on site for critical care needs. I'm referring to other devices, which constitute the vast majority of medical equipment.  Feel free to comment below if you agree or disagree with me. I hope to put together more tangible financials around this concept in the future and post them here. 

Topics: urodynamics, finance, hospital operations