How Can Healthcare Be a Good Investment?

With so much uncertainty in the healthcare sector these days, it’s hard to imagine anyone suggesting this sector might be a good investment.

But in the October 3 issue of Forbes Magazine, author Kristina Zucchi did just that, albeit with certain provisos, in an article titled Investing in Healthcare Facilities.

Ms. Zucchi, a certified financial advisor, said healthcare facilities can provide attractive investment opportunities provided they have strong fundamentals – especially operational efficiency.

“Any hospital that can maximize its profits by running efficiently through cost controls and garner market share by offering a better service and product (orthopedics, cardiac services and more renowned doctors) can grow faster than its peers.”

Operational efficiency in healthcare usually means adapting principles of Lean Management and Six Sigma and training employees to adhere to them.

But what is very often overlooked is the fact that those efficiency programs were developed to work in conjunction with automation on the factory floor. Adapting the first without the second doesn’t usually get you to where you want to go.

A big reason is that, with “people” programs, there is no reliable means to measure improvement. Automated online operational management provides instant feedback about current efficiency as well as insights into how to improve it.

Ms. Zucchi says that hospitals have shown steady historical growth, in part because of government assistance through legislation. Healthcare stock prices have a five year compounded annual growth rate of 13.6% compared to the S&P 500 at 10%, according to Bank of America Merrill Lynch Global Research.

And since most are non-profit and rural, she says the federal government has an “unwritten obligation” to keep them open because they may be the only source of medical care in their region.

Yet she acknowledges that Medicare reimbursement levels are critical, along with expected and actual volumes, bed occupancy rates and the competition level.

Those factors underscore the need for peak efficiency, especially given the fact that Medicare will penalize hospitals which don’t meet new outcome and performance standards.

TeleTracking’s Real Time Capacity Management™ solutions have been proven to not only deliver constantly improving efficiency, but to generate hospital revenue as well.

Still, technology is no “silver bullet.”  There is a need for Six Sigma and Lean too. These efforts shouldn’t be running on parallel tracks, but on the same track. That’s exactly how our  consulting group approaches implementation. Technology selection and process re-design need to be accomplished simultaneously, with involvement by the people who are on the front lines.

The Forbes article reminds us that the largest components of healthcare cost growth are labor and supply costs, and that investors should look at a hospital’s ability to contain both.

TeleTracking can help by adding much needed capacity without adding people or buildings, and by tracking high priced medical equipment which goes missing, costing hospitals an average of a million dollars each year.

“If a facility is located in an area where population growth is expected to be greater than average due to migratory trends (immigration, baby boomers moving south, etc.), then those facilities should exceed the expected average volume growth of 0-1%.”

The question becomes “is there room at the Inn?” With automated capacity management, there almost always is, because it streamlines patient throughput to virtually eliminate overcrowding.

Even with dramatic healthcare reform, the investor community still believes those hospitals that operate most efficiently can provide a decent return on their investments.

And TeleTracking is here to help.