In healthcare, most don’t quite understand the business cycle from a financial perspective which leads to irresponsible business practices and/or ill managed balance sheets.
To proof my point, I ran an experiment with my 10-year old daughter Maia and a front line manager. My hypothesis was that both understand the basics however would sell a service or product at a loss.
Now that every pre-teen in America is buying glue by the gallon, I used her amateur slime business as an example for my daughter. After making about 10 ounces of purple glitter slime, I asked her to price it for sale on Ebay. After much thought and a few questions, she gave me a sales price of $4.50/10oz at an estimated cost of goods $2.50/10oz leaving a respectible profit margin of $2/10oz. I was actually proud of her that she was able to think about cost vs revenue and conceptualize a profit margin. (Actual cost ~$10/10oz)
Next, a healthcare manager in a busy clinical practice using same concept expect this time utilizing a basic-clinic visit for analysis. After some thought, she came up with a cost of $40/pt vs revenue of $78/pt leaving a healthy margin of $38/pt. (Actual cost ~ $93/pt)
Both my daughter Maia and the manager felt great providing a service or selling a product at a significant loss!
My hypothesis proofed right that neither had any real understanding of cost of doing business. However, I don’t blame them for not knowing, it is the system they work in that has not done enough to provide the right education, development and information to heighten their business acumen.
As positude leaders, we need to take the time to develop managers who have a deep appreciation and understanding of the entire business cycle by improving their business sense. Only then can you expect responsibility and accountability in setting price points and/or reducing cost.
Be responsible and keep learning!