ICE Series 2: The New Framework for Hospital Profitability Transformation.

Book Extract Chapter 5 on Page 65.

In a bid to aid operational Managers in achieving the balance between the social and financial outcome, strategy, and operations, a simpler business transformation concept has been proposed for hospitals and a framework developed. This is a business framework that hinges on Increasing Revenue, Controlling Cost and Enhancing Value, referred to as ICE Framework. The new framework is an improvement of Profitability Framework.

Understanding profitability issues can help executives, consultants, and entrepreneurs to diagnose and respond to falling revenue, declining sales volume, and rising costs. Businesses sometimes experience reduced profitability. This is not necessarily a problem since business sustainability depends on cash flow, and long-term growth can be achieved from capital accumulation, which shows up on the balance sheet not on the profit and loss statement. However, a drop in profits can be concerning if it is unexpected and unexplained. It can limit a business’s ability to achieve organic growth and may mean that its existing business model is not sustainable.

The Profitability Framework starts off by stating that profit is simply a function of revenue and costs. When a company is facing declining profitability, either revenue has decreased, costs have increased, or both. The idea here is to understand which side of the equation is pulling profitability down and how to go about rectifying the problem. The framework does not consider other service aspects that enhance the elements generating revenue and controlling cost. Profitability Trees are a special kind of Issue Trees created specifically to dissect profits. However, not all business problems are profit oriented.

With changes in healthcare regulations and reimbursement and in the face of innovative new entrants, hospitals and hospital systems are searching for new strategies for growth and revenue generation. Today, hospitals must get creative to find new sources of revenue among decreasing reimbursement and increasing regulations. And sometimes, those revenue sources can be hard to reveal hence that is why the drive to increase revenue has become a core strategic guidance for future growth leading to the formation of tactical and strategic action plans to specifically look at increasing revenue. With the drive to Increase revenue, healthcare management costs are also soaring in because of value-based care. Without proper attention, resource expenditures can quickly catapult, threatening hospital’s already-thin margins. The hospital management could identify and realize opportunities to control resource expenditure with proven approaches that reduce costs and boost productivity through formation of Cost Control action plans. Hospital administrators and clinical providers must work together to find forward- looking solutions to improve patient care and manage costs without sacrificing quality hence need for Value Enhancement.

The need to Increase Revenue, Control Cost and Enhance value is the basis of the acronym ICE; I for Increase Revenue, C for Control Cost and E for Enhance value. ICE as a hospital profitability transformation framework employs profitability framework tree by including and enhancing value-based healthcare, also known as value- based care. Value based care is a payment model that rewards healthcare providers for providing quality care to patients.

Figure 1: ICE hospital Profitability Framework by Aquinius(2020)

Under this approach, providers seek to achieve the triple aim of providing better care for patients, better health for populations at a lower cost and an excellent engagement of the service provider. Value-based care focuses on care coordination that ensures patients are given the right care by the right provider at the right time. Thus, in a value- based healthcare model, physicians may collaborate with each other on a patient’s care, rather than making decisions separately that can lead to gaps or overlaps in care.

ICE Transformation Framework is not about being the best, whether it is operations excellence, best practices, or marketing communication tactics. ICE Transformation Framework is about being different. Differentiations and competitive advantages that can beat market macro forces in today’s New World Marketplace. ICE Transformation Framework is just as much about what not to do as it is about what to do. It is a combination of benefits and trade- offs that your brand offers, differentiating you from the competing alternatives in the marketplace. Trade-offs are essential to ICE model. They create the need for choice and purposefully limit what the hospital offers to have a clear differentiation and competitive advantage.

Watch out for ICE Series 3: The Framework for Hospital Profitability Transformation

Published by Aquinius Mung'atia

Aquinius Mung’atia is the Head of Projects at Aga Khan Hospital, Mombasa, and was previously the General Manager of Muthaiga Golf Club and Sigona Golf Clubs, respectively. He is an expert in Strategic Management with over 20 years of experience in both hospitality and healthcare Industry. My Career path boast of extensive training and consultancy experience in Hospitality Industry, Hospital Support Services and Operations, Healthcare Projects and Facility Management, among others. The author is currently a PhD student in Business Administration and holder of MBA in strategic Management (University of Nairobi) and a 1st class honors degree in Hotel and Institution Management (Maseno University) Aquinius is also a healthcare insight and a data analytic enthusiast. Follow him on https://www.linkedin.com/in/aquinius-mungatia or Facebook Page https://www.facebook.com/significantinsights/

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