By JEFF GOLDSMITH
Back during the Jurassic period, at the beginning of my consulting career, senior colleagues at Ernst and Whinney took me to lunch to explain to the newby the facts of life in healthcare finance. The biggest takeaway from that long ago conversation: the entire history of hospital finance was built up on the revenue side. Managing costs was simply too challenging for most C-suites, because it inevitably required involvement with medical staffs who, at the time, were independent practitioners and beyond the hospital’s direct control. Therefore, the job of payers-governments and private insurers- was to “reimburse” hospitals for their expenses (that is, so long as the costs were “allowable”). The subtext of using the term “reimbursement” was : “We already spent the money and you owe us!”
In 2026, this mindset miraculously persists. This is despite the fact that Medicare, the largest and most influential payor for hospital services, has not reimbursed hospitals for the cost of inpatient care for more than forty years and for outpatient services in more than twenty! And the rest of the payment system is rebelling against the role as the residual payer for the hospital’s “unreimbursed” expenses.
The result of three generations of managements trained to these expectations is akin to football players who only trained their upper bodies and left the lower bodies to nature. Catching the ball is one thing; blocking and tackling with no lower body leverage is quite another.
Today’s C-suites lack the reflexes, management information and cultural support to respond substantively to the damaging blow that is HR 1, which will both reduce dramatically Medicaid payment and increase the number of uninsured patients by as much as 14 million. Controlling expenses today means engaging clinicians-physicians and nurses-and altering their workflows, staffing and incomes, a political nightmare for many managements.
The “reimbursement” mindset is a huge handicap standing between current leadership and actual control over their operations. For those in an indefensible cost position, it is so much easier to give up ownership, merge with a larger system and let someone else unburdened by local socio-political constraints and perhaps with better management controls clean up their extensive agenda of unfinished business. The reluctance of legacy managements to actually cut costs is a hidden contributor to the industry’s continuing consolidation.
Those who pay for care have had enough. The ability of care system leaders to shift those unmanaged costs onto the dwindling collection of full bore commercial payers is coming to an end. Commercial insurers are no longer willing to fund all the hospitals “unreimbursed” costs. Angry progressive policymakers and academics, egged on by Arnold Ventures, are agitating in state legislatures to cap commercial rates as a percentage of Medicare.
Sooner or later, hospital managements will take ownership of their piece of the healthcare affordability challenge. And they will be getting up early to hit the gym . . . and build the strength, balance and muscle memory to manage their entire business, not just their revenues.
Jeff Goldsmith is a veteran health care futurist, President of Health Futures Inc and regular THCB Contributor. This comes from his personal substack.
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