Founder, Creator @ Hospitalogy | Breaking down the business of healthcare strategy, M&A, finance, innovation, and partnerships | Building a community across healthcare siloes
Bigger isn't always better in healthcare. Just look at the graphic below. Some of the largest health systems in the country are underperforming. They've entered (or operate in) bad markets, hold bloated cost structures, and struggle to hold leverage against payors. As it turns out, and as I'm often reminded, market performance matters. It doesn't matter that you're just big and can absorb a vast swath of overhead. As a health system, the way you throw your weight around in markets is more important than ever. This is the key concept of density and having the right assets in the right markets. CVS, HCA, Tenet, and others all have mentioned the importance of market density in 2024. Density - and being dense in attractive markets - is primarily what separates -3.9% from 10%+ operating margins. I should have paid attention in physics!! PS: if you like graphics and analysis like this, subscribe to my newsletter Hospitalogy here with 34k+ others: https://lnkd.in/gniNmHvz
Jihye Tahk
2w
Density matters for health plans too. I personally think it’s really about the local market dynamics btwn payers and providers. I think the real issue is neither side is really incentivized to reduce cost while improving outcomes at scale — and that might be one of the many reasons why operating margin improvements with scale hasn’t happened - no incentive to achieve it, and portfolio based approach for many of the large players means there will be variations in margins across markets for payers and providers and times of investments for growth, and at times pruning when bets do not work out.
1). I don’t think your data is correct 2). This is nothing new 3). The only differences are the profit margins of the For-Profits and well run Not-For-Profits are lower in recent years… The For-Profits’ margins have dropped from 20 plus % to the teens… The well run NFPs are now running 8-12% .
Itula Mili
2w
In my opinion large density creates complacency. The notion revenue solves all problems. Being Big means unincentivized to reduce cost. Until external factors such as inflation cost surpasses payer revenue rate. Big hospitals operating in low margins need to flex with payers. Threaten with contract renewals. At the same time look in the mirror and start tightening up internally.
This is a really interesting graph. I'm curious what the comparison would be between Revenue/Bed and Operating Margin, or some other per unit estimate that de-scales the organizations. Also, do you pull this data straight from EMMA, or is there an aggregator you'd recommend for this type of work?
Andrew Serio
2w
Because Healthcare Delivery is a Business ( and 18.3% of US GDP), I absolutely agree, as will most of the actual Decision-makers in Employer Sponsored Coverage ( 54.5% of US Population) in that Industry, that your Market Performance Matters is or should be the focus of all Change Presentations into the 2nd half of this Decade!. Based on this great Chart, and it's Operating Margin, how about a US Healthcare Cost Crisis Solution discussion on the Kaiser-Permanente Model being the US Employer Sponsored Insurance/Coverage into the 2030s?
Malyka Ghani
2w
Great insight! As a medical biller, I've seen this play out. Big systems don't always mean better performance or easier billing. It's fascinating how market density impacts operations and payer relationships. Your point about having the right assets in the right markets really resonates with what I've observed in the field. This explains a lot about why some of our clients outperform others, regardless of size. Thanks for breaking it down so clearly!
Unfortunately, density means they all fight for elbow room in those attractive market and we all know what this does to quality and cost as the number of buildings increases.
Which one of these organizations needs to get leaner with management and administration?
The Taylor Swift of LinkedIn healthcare writing
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