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Navigating the Downturn, Part II

June 2, 2008
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In this part of our interview, Krentz talks about how CEOs and CFOs can address the buy/build question.
Though some may debate the label to be placed on the current economic downturn, no one questions the fact that the country is certainly in the midst of one. And while the crisis was born of defaulting subprime mortgages in the financial markets, it has rippled into the rest of the American economy. Unfortunately, healthcare has not been spared the ill effects. To help hospital executives navigate these choppy waters, HRCM Editor-in-Chief Anthony Guerra recently talked with Susie Krentz, senior principal, strategy and planning national practice director, with the Noblis Center for Health Innovation.
Part I

AG: The Wall Street Journal recently wrote an article indicating there are have and have nots in healthcare; some hospitals are awash with cash and some are struggling. A colleague of mine on staff agrees. What are your thoughts?

SK: I think, as a general statement, I would agree with your colleague. It is not totally bimodal, but I think if you look at the graph of organizational health, there seems to be more of a spread, and those that are economically challenged are really getting economically challenged. And some of the successful organizations, for a variety of reasons, either because they’ve done great things with their clinical quality or they have communicated to the community what they do and how they do it and people want to go there, are very fortunate.

I think nothing is ever black and white and good articles, like the Wall Street Journal, is very compelling to read, things are always complicated as to why they look the way they do. I think one of the things to put in context is the numbers in terms of the hospitals’ bottom lines; how large they are. If you are a $1 billion healthcare enterprise with lots of hospitals, and if you don’t have a pretty robust spend, you won’t be able to reinvest to buy the next CT scanner or PET scanner or replace an old building.

Healthcare is a very capital-intensive and people-intensive industry. They invest a lot in facilities and equipment and the equipment is obsolete fast. State of the art in healthcare is a moving target because of all the wonderful advances. On the one hand, we expect healthcare organizations to be state of the art; no one wants to go to the old run down, old breaking-down-equipment hospital. At the same time, there is a sense of why should they be making all this money? They need to make all this money so that they can stay state of the art and reinvest.

Sometimes we focus on, in isolation, a bottom line number without thinking maybe they need that to meet the mission and to reinvest for the long term. These organizations are here, maybe have been here, for 100 years, and they plan to be here for another 100 years. It’s not like a restaurant that, if it fails, no big deal, another one will come in next week. So, there really is a very long-term view that organizations have to take. I think those that are fortunate enough to have, are going to have big demands on them in the future, when you think about all the healthcare needs we’re going to have. They’re going to have plenty of mission-driven reasons to use a lot of those resources and to stay financially healthy.

AG: Do you suspect that some of the well-to-do hospitals, the non-profits, have robust philanthropy programs in place?

SK: Clearly philanthropy has become a very important source of capital for hospitals, and some hospitals, for a variety of reasons, have been more successful in that dimension, either because of the programs they’re doing or the clinical research. A lot of times, the philanthropy supports not just a building but some research enterprise or teaching enterprise that takes a lot of resources. I think, in most communities, there’s often some organizations that seem to do a lot better job in the philanthropy arena than others, and often that’s the result of decades of philanthropic development by those healthcare organizations. That’s become a very important piece.

AG: Do you work with healthcare organizations on their philanthropy programs?

SK: Noblis has done some work in terms of what’s the need for philanthropy, and the role it plays. We help some foundations do some planning; but we aren’t philanthropy consultants. There are some consultants that specialize in philanthropy feasibility studies where they test the market and how much the donors can give. We don’t do that level of work. We would help if, for example, you have an initiative at your hospital, you want to develop some new capability and, to make it happen, you’re going to need to finance 30 percent by philanthropy. We help if you want to achieve a certain initiative and can’t do it out of operations. We help them figure out what they will need to communicate to the community in order to make something happen, to find out if the community wants it.

AG: So you help hospitals and healthcare organizations figure out the financing for projects they may want to execute?