Business Case for Retiring an Unprofitable Service Line
Potential Economic Opportunities and Risks
There are potential economic opportunities and to retiring the outdated and unprofitable service line. Retiring an outdated service line is a necessary risk that can be the driving engine for improved efficiency and profitability within the organization. Most people think about hazards when they hear about risk rather than the significant opportunities and possibilities they offer. It can drive innovation and offer competitive advantage improving organizational profitability both in the short and long-term. Risk and opportunity exhibit duality in that one cannot exist without the other.
Care centers are continually focusing on controlling costs while maintaining high-quality care standards. The challenges have never been greater in meeting the needs of the community while ensuring long-term financial sustainability (Weinstein et al., 2017). The challenges mean that organizations are evaluating their service lines to take note of those that should be emphasized and those that need discontinuing. Service line organization is a process of managing, planning, and evaluating a care center’s performance. In the process of attending to a patient, they may need to come into contact with many departments. For example, in caring to cardiology patient, they may have to be served by not only the cardiology department, but also the nursing, registration, radiology, pathology, and many others.
The potential benefits from discontinuing the line include increased profitability for the organization and enabling physicians to concentrate on what they do best. The organization is set to be more lean and streamlined leading to highly motivated workforce to achieve set goals. However, the threats pose a financial security risk resulting from the foregone revenues earned from the retired service line. Laying off redundant workers will increase severance pay and is likely to have ripple effect to other departments due to demotivation. However, the potential economic benefits from discontinuing the unprofitable line outweigh the potential economic risks.
In analyzing a service line as a master-level health care practitioner, I will use a wide range of data from diverse departments to understand how each contributes to the organization’s financial sustainability and position. The analysis will enable understanding how the service line to be retired affects the entire organization and other service lines will be affected. Among the potential opportunities from retiring the outdated service line include increased revenues, investment in other lines, quality and efficiency improvement, and cost-effective treatments for patients. There is also the opportunity for consolidation with other services (Sunstein, 2011). A key threat is a fallout from affected stakeholders owing to the diminishing and discontinuing the service line. Another threat is key audiences not having sufficient information to understand the financial drain and the long-term viability of the organization.
Although care centers are continually reviewing their service lines to ensure profitability, there is a need to carry out a feasibility study to understand the financial risks. It is not only about providing services that are profitable since it may be detrimental to the patient’s wellbeing. Hence, it is vital to understand the implications of retiring the service line. In this particular case, the potential opportunities outweigh the potential threats, since the service line is outdated and can easily be merged with other departments.
Ethical and Culturally Sensitive Solutions
The risk of community and employee backlash, lost revenue, and decreased quality of care because of the increased workloads in other service lines are the most significant risks. On-going reviews, good communication and planning will help mitigate the risks. Other experts in various organizations have faced similar risks by either not discontinuing outdated service lines early or implementing the strategy without offering sufficient information to concerned stakeholders.
To understand the risks that are most significant, it is essential to make data-driven decisions through undertaking service line assessments. Through a financial analysis, we understand the growth potential verses the contribution margin and revenue verses contribution margin of the service line to be discontinued. The behavioral health service line is to be discontinued because it low margin and low growth potential.
The ethical and culturally sensitive solution consider factors such as the community the organization serves. One ethical consideration the organization needs to review is whether it is the only facility offering the service. It is important to consider the responsibility of the organization from a mission standpoint. Another consideration is the impact on quality and the viewpoint of quality (Dafny and Lee, 2016). Because there are competitors that are market leaders in offering the service and the organization has no chance of displacing them, it is better to concentrate on the service lines it does best.
Ethics and equality factor into the proposed solution to ensure no demographic is disadvantaged by the decision to discontinue the service line such as if there is other facility that offers the services in the community. Employees who are rendered redundant will also be treated humanely and offered severance pay or a chance to move to other service lines. Although the physicians who the duties will be transferred to will be burdened at first, the solution will seek to streamline the services over the 5 years.
The behavioral health service line exhibits duplication and the organization often faces problems during reimbursement. However, we have to weigh ethical issues such as disadvantaging the demographic that are primary purchasers of the services. A significant risk during the elimination process is escalation of expenses. There are actual and direct expenses involved in the process. One such expense is severance pay to staff who will be rendered redundant. Another significant risk is affecting the morale of other staff who might fear for their job security. The elimination may create a ripple effect to other departments because of alienated staff. Another risk is community backlash especially if the service is not available elsewhere within the locality.
To mitigate the impact of these risks, it is important to undertake a complete assessment of the payer mix and the market dynamics. The process has to be professionally handled and adequate planning undertaken within time. Good communication will ensure all the stakeholders to be affected receive adequate information in time to minimize backlash. The problem is a major risk as well as not undertaking assessments on an on-going basis to ensure sufficient time for exit, communicating to the various stakeholders, and recalibrating the resources of the organization.
Ethical and Culturally Equitable Ways of controlling Costs
There are three internal data types that important during financial analysis of the service line. First, is the revenue and expense data derived from the service line. The other is patient accounts and demographic data, and finally the cost accounting data. Cost accounting is one issue that offers many problems for many healthcare organizations. It is essential to consider the contribution to the bottom line by using a good cost accounting system. This is by considering the revenues, expenses, and allocating indirect costs appropriately.
The process will use a business intelligence tool with healthcare accounting features to link patient revenue data and costs to the department. To understand the cost for single behavioral health patient, it is important to connect the two systems together. It will provide insight into the service line’s performance revealing allocation of total costs to each patient served. The exercise will allow the organization leaders to view whether the service line is really generating a profit or loss.
Before discontinuing the service line the organization leaders should have a complete picture of the service line performance. Hence, the financial analysis should connect with quality data. The analysis should also combine the internal data with external data such as competitor analysis and market demographics. The decision makers should consider whether improper management is the reason for the service line failing to break even.
The reason for the failure may be due to the organization failing to allocate sufficient resources necessary for success. Another infrastructure necessary is organization marketing and advertising efforts by allocating resources service line leaders to control, although they tend to centralize the tasks to a single department. The other departments that will be handling the service line need empowerment through equipping them with business training and experience to ensure seamless transition. The organization will use the dyad management model where the practitioners and administrators share management responsibilities.
The service line analysis will try to make sense of the real profit points to set a strategic direction for the 5 years coming. It should go beyond understanding the contribution margin to arrive at absolute profitability. Apportioning the service line to other departments may not be profitable, or may place increased workloads leading to decreased quality care (Swansburg & Swansburg, 2002). Thus, the executives will use the analysis to understand capital investments necessary in other departments and a baseline for tracking performance of the service line going forward.
For the organization to position itself for the future, a number of steps are necessary. First is a review of all the service lines to understand their contribution margin and share to total costs. Second is to identify the service lines that can absorb the services rendered by the one being retired. Next is to study the market to forecast future volumes. Another step is reviewing the case-mix index to make sense of complexity of the patients served. Next is to calculate the percentage of revenues from each. The other steps assessing include assessing the impact on overall profitability, and finally benchmarking the financial and operational performance against other service lines.
The process adopts strategies to maintain and maximize benefits while controlling costs and conform to ethical and equitable standards. The service line exhibits decreasing volume and low profitability. Reimbursements cannot be improved (Marcinko, 2006). The line also shows decreasing payor mix, and the employees working in the department are demotivated leading to the decision to discontinue.
It is vital to commit to decision making based on data rather than discontinuing a service line based on articles it is no longer profitable or in reaction to actions of a competitor. To justify decisions made, it is essential to make sure data is reliable. The staff that will be running the service line during the five years will need to be knowledgeable about the process. On-going reviews of the data will verify the accuracy of the analysis.
Practitioners with vested interests in the outcome of the analysis may pushback, hence it is vital to be prepared to ensure credibility of the process. Periodic reviews will keep the management informed about trends and performance of the service lines taking on the extra duties for better planning and decision making. Profitability is only one of the consideration in deciding the service lines to be expanded or eliminated.
References
Dafny, S. L., and Lee, H. T., (2016). Health Care Needs Real Competition. Harvard Business Review. https://hbr.org/2016/12/health-care-needs-real-competition
Marcinko, D. E. (2006). Dictionary of health insurance and managed care. New York: Springer Pub. Co.
Sunstein, C. (2011). Humanizing Cost-Benefit Analysis. European Journal of Risk Regulation, 2(1), 3-7. Retrieved August 19, 2020, from www.jstor.org/stable/24323237
Swansburg, R. C., & Swansburg, R. J. (2002). Introduction to management and leadership for nurse managers. Boston [u.a.: Jones and Bartlett.
Weinstein, J. N., Geller, A., Negussie, Y., Baciu, A., & National Academies of Sciences, Engineering, and Medicine (U.S.). (2017). Communities in action: Pathways to health equity. Washington, DC: The National Academies Press.
