I'm Praveen Suthrum. After 13 years of building and running NextServices, a healthcare technology/management company, the challenges and opportunities in the industry leap out at me. I also get early access to industry trends and changes.

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Let's talk more openly about profitability in healthcare

Let's talk more openly about profitability in healthcare

Dr. John Noseworthy, chief executive of the world renowned Mayo Clinic, recently said in an internal meeting that they must "prioritize" commercial insurances over Medicaid (insurance for the poor).

Commercial insurances pay better and contribute to better margins. Medicaid, a government insurance, pays much less and is possibly a loss-leader.

Read: Mayo Clinic: Privately insured patients to get priority over Medicaid, Medicare patients

As a business executive, Dr. Noseworthy's concerns are well founded. He said that Mayo reached its "tipping point" with a 3.7% increase in Medicaid patients. If they don't balance their numbers, they would have no money to pay salaries.

Dr. Noseworthy released a statement this week saying that he "regrets" making those comments. With Minnesota regulators after him, he's at risk of a civil rights investigation.

Read: Mayo Clinic CEO walks back comments on prioritizing privately insured patients

We seem to be stuck between two purposes of a healthcare business: service to patients and profits to shareholders. Both views tug at each other all the time.

Here are the two views:

1) Medical establishments exist for the larger purpose of service to the sick and needy

2) Medical establishments exist, as do other businesses, with objectives of growth, profitability, and return on investment

The first view cannot be fully true.

Most medical establishments, including not-for-profit systems, don't merely exist for social good of the sick and needy at the cost of making money.

Hospitals are well-aware which specialties are lucrative and which are not. That's why we have more oncologists (who treat cancer) than geriatricians (who care for the old).

The second view is also not true. That healthcare systems are just business machines out to profit from patients.

There are several examples of struggling healthcare organizations that could benefit from an ounce of business discipline.

We live in a world where both views co-exist. But ever so quietly.

Let's talk more openly about profitability in healthcare

May be, it's not customary for a chief executive of a large not-for-profit system to say the obvious. That profit margins are also important.

Read: Strong performance in 2016 brings Mayo Clinic care to millions

Or may be, we are too sensitive an industry to not speak out loud about such things. We would rather talk about saving lives than making or saving money.

It's perhaps why the healthcare industry balloons in costs every year. Keeps many secrets.

For example, try answering these questions:

  1. Why aren't most health systems transparent about costs and fees of care?
  2. Why is there a big difference in reimbursement between private and government insurances?
  3. Why do we find centers of excellence around heart surgeries or cancer treatments and not around chronic disease or palliative care?

Nothing what Dr. Noseworthy said about prioritizing private insurances should be new to healthcare organizations. Several healthcare providers tend to balance their payor mix in just the same way - between commercial and government insurances.

According to a recent Medscape survey, more than one-third of doctors say they would be selective on whom they see.

Read: Are More Doctors Cherry-Picking and Lemon-Dropping Patients?

In the name of Hippocratic Oath, doctors are censured when they cherry-pick patients. But no one seems to mind if doctors go out of business fighting a broken system.

Increased paperwork, regulations, staff costs. Declining reimbursements. They are expected to brave it all and continue to follow their calling.

We tend to push reality under the rug.

For the sake of outwardly compliance. Or worse, for not spoiling our marketing message to patients.

Let our maturity as an industry come through in dialog about dysfunctional financial incentives and systemic problems that we carry.

So that we can fix them. So that we bring a balance to what we desire in terms of both service and money. So that healthcare doesn't become a victim of its own vice.

We don't have to approve or disapprove what Mayo's chief said. Instead we have to use the opportunity to delve deeper into why it might be true. Everywhere.

Even if it's not so polite to talk loudly about it.

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