Is Profit becoming a Bad Word in Healthcare?

Last week, the Business Roundtable (BR) released an update to its “Statement on the Purpose of a Corporation” calling for business leaders and boards to expand their focus beyond profitability. The revised statement, signed by 181 of the 188 BR members, pledges “fair and ethical” consideration of the company’s customers, suppliers, employees and communities in addition to shareholders.

BR has been around since 1974. Its membership includes the CEO’s of the biggest companies in the U.S. accounting for $7 trillion in revenues and employment for 15 million. Among its members are prominent healthcare companies- Allergan, Anthem, Bristol Myers Squibb, Cigna, CVS Health, Johnson and Johnson, Kaiser Permanente, McKesson, Pfizer, Stryker and Walgreen’s Boots Alliance.

This pronouncement from BR should be no surprise: polls show declining trust in corporate America and eroding support for capitalism, especially among Millennials. “Profit” is a bad word in some circles. Business leaders are justifiably concerned.

As the biggest private-sector employer in the U.S. economy (17 million) and at 28% of total federal spending, healthcare should also be concerned, perhaps more so than other industries. Here’s why:

  • Healthcare is profitable. Over the past 10 years, the Standard & Poor’s Healthcare Index has increased 210.68% vs. 171.46% S&P 500 overall (as of 8/26/19). The industry’s profitability, along with financial services and technology, has been key to the stock market’s growth since the downturn that began in 2007

  • Most Americans think healthcare is too expensive. Surprise medical bills and out of pocket costs are the public’s biggest financial concerns ranking above everything else. They worry more about healthcare costs than transportation, housing or food.

  • Most consumers think the health system’s leaders put profit before everything else. Two in three American’s are discontent with the status quo in healthcare. The majority think profiteering is pervasive in every sector. They believe healthcare is a fundamental right, not a privilege, and companies should provide their services or products without financial consideration.

  • Most consumers are illiterate about how the system operates. Americans learn about the “health system” anecdotally: their personal interactions physicians, hospitals, insurers, medications et al shape their views.

  • Regulators are taking actions that draw attention to the industry’s profitability. Congressional challenges to not-for-profit tax status and community benefits by hospitals, skepticism about the legitimacy of drug company investments in research & development and recent efforts to dismantle industry sectors like group purchasing organizations and pharmacy benefits managers are evidence that healthcare is perceived to put its financial interests first. Profitability will be a key theme of regulatory scrutiny of every sector.

MY TAKE

The Business Roundtable’s decision to expand how companies should engage interests beyond their shareholders is a siren call for healthcare leaders in every sector. It’s just as applicable to not-for- profits as investor-owned enterprises as their executive compensation and non-operating activity get more attention.

I spend lots of time with healthcare boards and executives. Most think they’re balancing profit and purpose already. Most survey their employees, monitor employee discontent through Glass Door and tout their Net Promoter Scores as evidence of customer satisfaction. Most are increasing efforts as part of their ESG (environmental, social & government) focus. All forecast their profits/operating income and most hit their targets. But effective leadership in these organizations requires more.

Every healthcare organization must step back and take inventory. Three areas of immediate attention are:

  • Objective measurement of trust and confidence is the start: employees, suppliers, trading partners, consumers/customers and community leaders should be surveyed and results shared. In most organizations, honest dialogue is truncated.A key element focus in this analysis is each group’s views about the profits of their organization—how they're generated, how they’re used, and whether they’re balanced against the needs and values of employees, customers, suppliers and others.

  • Boards must base their CEO performance evaluation and compensation on factors beyond profitability. Behaviors that undermine the organization’s performance and culture must be factored in i.e. narcissistic behavior, lack of humility, an unwillingness to listen and learn, respect for peers and so on.

  • Organizational reputation should be taken more seriously, measured objectively and guarded passionately. Healthcare is a magnet for unwanted attention to our bad actors, errors and poor service. Often, profitability and ill-gotten gain are at the root of this attention.

In healthcare, we face daunting challenges: reducing health costs in the face or likely Medicare cuts and fiscal volatility, disgruntled physicians, disruptive competition and uncertainty about health policy top our list. It’s easy to relegate accountability to employees, consumers, suppliers and communities when profits are threatened.

The Business Roundtable callout about the changing role of the company is timely for healthcare. Sensitivity to and careful planning about our profitability is imperative.

Paul





P.S. Busy week ahead: Today, the Judge Thad Balkman will rule in the case lawsuit brought by the Oklahoma attorney general against Johnson and Johnson-- the first opioid case to go to trial. Thursday, the Gross Domestic Product, 2nd quarter 2019 (second estimate) and Corporate Profits, 2nd quarter 2019 will be released. Friday, the U.S. Commerce Department releases data on durable goods orders on Monday and personal income on Friday


FACT FILE

40% of Americans are very or somewhat satisfied that Democracy is working in the U.S. vs. 36% who are very/somewhat dissatisfied. The most trusted institutions are the military, Amazon, Google, local police, and colleges and universities and least trusted are the press, the executive branch, Facebook, political parties, and Congress.(2018 American Institutional Confidence Poll, Baker Center for Leadership and Governance https://bakercenter.georgetown.edu/aicpoll/)

36% of Americans have confidence in the U.S. medical system, down 4% in the last 10 years compared to 23% who have confidence in big business, up from 19% in 2010. By contrast, 68% have confidence in small business, up 2% in the same period. (Gallup Institutional Confidence Polling: https://news.gallup.com/poll/1597/confidence-institutions.aspx)

42% of Americans favor “a national health plan in which all Americans would get their insurance from a single government plan”---7% in last 10 years vs. 51% who oppose--+5% in last 10 years (Kaiser Family Foundation Poll July 2019 https://www.kff.org/slideshow/public-opinion-on-single-payer-national-health-plans-and-expanding-access-to-medicare-coverage/)

Confidence and trust in business leaders varies widely by age: among 18-29 year olds, 34%, among 30-49 year old, 40%, and among 50 and older, 50%. Comparing 9 occupation groups, business leaders tied elected officials with the lowest rating (Pew Research December 2018 https://www.pewresearch.org/fact-tank/2019/08/06/young-americans-are-less-trusting-of-other-people-and-key-institutions-than-their-elders/)

On a 0 to 100 scale, customer satisfaction in healthcare lags most service industries: ambulatory centers (77%), hospitals (76%), health insurers (73%) 2019 (American Customer Satisfaction Index https://www.theacsi.org/)