Healthcare's biggest challenge is neither the flaming fires of medical inflation nor the embarrassingly high number of uninsured Americans.
Although price hikes and access remain major problems, the top priority is designing a payment system that addresses the actual cost of providing medical services, as well as the expense of training clinicians, treating the indigent and operating community health programs.
These segments can be bundled together or treated individually. The point is, they must be recognized as costs of doing business. Those favoring private-sector solutions should call for rejuvenation of community rating or something more creative. The alternative is a government-directed single payment system, a concept bitterly opposed by many healthcare executives.
Disproportionate-share charges, tax breaks and capital cost charges have not done enough to smooth the rough spots. And the industry will continue to unravel unless all sides become attuned to the weaknesses of the current payment system.
At the same time, hospital managers must recognize the relationship between pricing and financial performance.
A new report by Cleverley & Associates signals a flurry of hospital closures because of deteriorating profits and the inability to manage costs. The Columbus, Ohio, research and consulting firm believes many small hospitals in rural areas and low-income urban neighborhoods "are two steps from the financial abyss."
As the distance widens between the haves and have-nots, policymakers need to realize high-performance hospitals are successful because of their ability to negotiate prices above costs. They are also able to develop money-making product lines and stand firm against discount-hungry managed-care plans.
The poor performers don't necessarily have higher costs. What they lack is negotiating power, investment income and cash reserves. Many are close to defaulting on debt payments. Managers facing these long odds at least have to examine and understand pricing strategies.
A better answer is a redesign of the payment system. Without it, look for a healthcare crisis in a neighborhood or town near you.