Financial viability of healthcare institutions has become a major concern. Financial viability is explored from the financial outcomes of a healthcare organization such as revenues and profitability. Profitability is one of the major objectives for for-profit and not-for-profit healthcare organizations. How profitability is achieved varies from one healthcare organization to another. However, in this paper, one of the ways identified to help increase profitability for hospitals is increasing patient satisfaction. Patient satisfaction can be increased through improvement of patient experience or convenience, price transparency, and improving the quality of care. The issue of improving profitability of healthcare organizations by increasing patient satisfaction has been explored in several studies and literature. This paper reviews selected studies and literature exploring the issue. The literature review focuses on the association between profitability of healthcare organizations and increasing patient satisfaction through improving patient experience and convenience, ensuring price transparency, and improving the quality of care.
Consumerism in Healthcare: Increasing Patient Satisfaction Through Convenience, Price Transparency, and Quality of Care
Financial viability of healthcare facilities is a major determinant of the healthcare system’s sustainability. Financial viability across healthcare facilities is often examined based on a number of financial outcomes including revenues and profitability. Profitability is without a doubt the most common outcome used to measure performance of healthcare facilities. Both for-profit and not-for-profit healthcare facilities are examined on how much profit they make as this determines how sustainable provision of healthcare will be in the coming years. There is dearth of models explaining how healthcare organizations achieve profitability. Thus, several studies and literature have delved into how healthcare systems achieve profitability. For most healthcare organizations, focus is on increasing patient satisfaction through patient experience and convenience, price transparency, and quality of care.
Factors Affecting Patient Satisfaction
One of the steps taken by health care organizations towards increasing profitability is increasing patient satisfaction. Increase in patient satisfaction can be through patient experience and convenience, price transparency, and quality of care. Fang, Liu, and Fang (2019) argues that satisfaction has become the core competitiveness of health care organizations in modern society’s highly competitive medical environment. Increasing patient satisfaction plays a crucial role in retaining existing patients and attracting new ones thus increasing profitability. Thus, health care institutions must understand the factors that affect patient satisfaction if they are to achieve the mentioned objective. According to Fang et al. (2019), factors that affect patient satisfaction include individual factors of patients and factors from the hospital. Individual patient factors that influence satisfaction and ultimately profitability of medical institutions are such as gender, health status, income, medical insurance, family size, and marital status. From the hospital perspective, factors that affect patient satisfaction and ultimately profitability include fees, environmental facilities, medical conditions, and institutional level. Most patients with medical insurance often receive satisfactory care from medical institutions as this is one of the determinants for reimbursement from payers. This perspective thus translates to high satisfaction levels from medically insured patients, which results in increased profitability for health care organizations. Hospital factors stand out with regard to their impact on patient satisfaction. The study by Fang et al. (2019) enumerates how hospital factors such as medical staff service attitude, hospital convenience, and medical services technology affect patient satisfaction resulting in either decreased or increased profitability for medical institutions.
Patient satisfaction is a fundamental factor in competitiveness and profitability of healthcare organizations. Thornton et al. (2017) notes that with adequate feedback on patient satisfaction, medical institutions through their physicians and staff can maintain high standards paving the way for increased profitability. Payer systems rely on feedback on patient satisfaction when profiling individual physicians and determining the amount of compensation for medical institutions. Positive feedback on patient satisfaction results in high amounts of compensation and ultimate profitability for healthcare organizations (Thornton et al., 2017). Thornton et al. (2017) highlight critical factors that determine patient satisfaction. These factors are categorized into patient demographics, characteristics of the medical provider and institution. Patient demographics such as age, income, general health status, and socioeconomic status impact the satisfaction of patients with regard to care given to them (Thornton et al., 2017). A patient with high income is likely to pay for healthcare services rendered, which is essential for healthcare organizations in achieving their profitability objectives. Characteristics of the medical provider such physician-patient concordance in gender, age, or race can improve patient satisfaction. Other medical provider characteristics associated with patient satisfaction and realization of profitability objectives are such as primary language, sexual orientation, communication style, values, beliefs, and parental status (Thornton et al., 2017). The duration with which the patient has been with the physician also impacts patient satisfaction. Low patient satisfaction is often reported with first-year residents in healthcare facilities whereas residents with more experience and longer stay report higher satisfaction ratings (Thornton et al., 2017). To improve profitability owing to improved patient satisfaction, medical institutions should focus on patient demographics and medical provider characteristics.
Improving Patient Experience/Convenience and Impact on Profitability
Since the Centers for Medicare & Medicaid Services (CMS) decision to institute value-based purchasing (VBP), patient experience has had a direct financial impact on healthcare facilities. According to Richter and Muhlestein (2017), the VBP incentive or penalty on hospitals by the CMS has been partially based on Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) scores. HCAHPS emphasizes positive patient experiences through dimensions such as patient communication with nurses, patient communication with doctors, pain management, responsiveness of hospital staff, cleanliness and quietness of hospitals, communication about medicines, as well as how information is discharged. Hospital executives have since focused on improving patient experience that is stressed in HCAHPS. This is owing to the fact that HCAHPS scores have been a component of the overall reimbursement scores since 2013. The concern for many healthcare providers has been on whether boosting patient experiences results in greater benefits such as increased profitability. In their study, Richter and Muhlestein (2017) note that there is a close link between improving patient experience and hospital profitability. Essentially, by ensuring a more positive patient experience, hospitals are likely to witness an increase in profitability. Positive patient experience results in high HCAHPS scores and increased reimbursement by the CMS that translates to increased profitability for healthcare organizations. On the contrary, a negative patient experience leads to low HCAHPS scores that trigger reduced reimbursement by the CMS (Richter & Muhlestein, 2017). A low reimbursement to a particular hospital may be associated with decreased profitability. Other than CMS reimbursements, positive patient experience increases return-to-provider rate and patient loyalty all of which translate to increased profitability.
How improvement of patient experience helps to improve a hospital’s financial performance in terms of increased profitability continues to be debated. Betts et al. (2016) explore a study conducted by Deloitte that establishes the value of patient experience and whether healthcare facilities that have better patient-reported experience perform better from a financial perspective. The study notes a close association between improvement of patient experience and increase in financial performance for hospitals. Some of the factors that accompany improved patient experience and ultimately lead to improved financial performance include strengthened customer loyalty, building of reputation and brand, as well as a boost in the utilization of the services of a hospital in the form of referrals to friends and family (Betts et al., 2016). Another factor associated with improved patient experience is a decrease in the risk of medical malpractices for physicians and lower staff turnover ratios, which if put together, catapult hospitals to better financial performance (Betts et al., 2016). Most payers are looking for better value hence their support for hospitals to focus more on patient experience. Payers such the CMS have come up with programs such as VBP whereby healthcare facilities are rewarded for their commitment to improving patient experience. The cumulative rewards for hospitals lead to profitability. Betts et al. (2016) highlight key findings of the study by Deloitte with regard to the association between patient experience and increased profitability for healthcare facilities. One of the findings is that hospitals with positive or better levels of patient experience often earn disproportionately more than what is spent as compared to hospitals with negative or lower levels of patient experience. Another finding of the study is that hospitals with highly engaged staff are likely to report improved patient experience, which translates to better financial performance.
Although hospital administrators show concern for the relationship between patient experience and financial performance, there are skeptics who believe that patient is only nice to have but does not contribute to financial performance. The answer to skeptics is in the decision by payers to reward or reimburse healthcare facilities based on patient experience scores (Gaughran, 2016). Gaughran (2016) reiterates the findings of a study by Deloitte on the connection between patient experience and improved financial performance or profitability. According to Gaughran (2016), improved patient experience lays the foundation for critical aspects such as strengthened customer loyalty, growth in reputation and brand, and boosted use of the services of healthcare facilities mainly through increased referrals to family and friends. When patients report positive experience for factors such as night-time noise level and communications skills of physicians and nurses, hospitals are likely to witness an improvement in performance in the form of profitability (Gaughran, 2016). Having quality staff is an antecedent of positive patient experience and ultimately increased profitability. Thus, it is increasingly becoming important for healthcare facilities to invest in staff. The investment in staff comes with an increase in cost. However, the increase in revenue or profitability for hospitals that invest in staff who help to improve patient experience is usually more than the increase in cost (Gaughran, 2016). Investing in staff to improve patient experience leads to what is referred to as positive return-on-investment.
Betts (2017) asserts that good patient experience is a key driving factor for high profitability of healthcare facilities and that the patient experiences are closely associated with better care. Customers remain loyal to healthcare facilities where positive patient experiences are reported. Besides, the positive reputation of these facilities usually spreads to the wider community thereby boosting referrals for the specific facilities (Betts, 2017). The happier the patients are, the lower the possibility of malpractice risk among physicians and the lower the cost incurred in addressing the risks. In this regard, hospitals have the opportunity to channel financial resources to more important areas resulting in improved financial performance. Betts (2017) also gives insight into the VBP reward given to healthcare facilities for positive patient experience scores. As already mentioned, these rewards or reimbursements contribute to the profitability of healthcare institutions in the long run. There is economic sense when hospitals decide to invest in patient experience. Although costs may increase, the increase in revenue tends to be more. The difference between the revenue generated in the process and the cost initially invested for patient experience translates into profitability (Betts, 2017). With this perspective in mind, going forward, it is becoming increasingly important for healthcare organizations to consider investing in technology that creates better patient experience. Some of the tools or technologies that can improve patient experience are such as offering convenient payment processes for patients, conducting follow-up of appointments, and making appointment scheduling easier for patients. Healthcare consumers are shopping for healthcare more than before (Betts, 2017). Any slight interference with patient experience can force consumers to switch hospitals resulting in decreased profitability.
Price Transparency and Impact on Profitability
There is a close association between price transparency and patient satisfaction. Ehnes, Dauner, and Dougherty (2020) aver that improvement of patient satisfaction owing to a hospital’ price transparency often leads to increased profitability. Recently, the CMS directed hospitals to release pricing information to consumers prior to service provision. The CMS direction expects healthcare facilities to list standard prices for close to 300 services that are deemed shoppable. The CMS also expects hospitals to list the lowest prices that will be accepted from consumers who may be uninsured and decide to pay out of pocket (Ehnes et al., 2020). Although the new price transparency rule is receiving pushback and backlash from stakeholders in the healthcare industry, its benefits to hospitals in terms of contributions to profitability over the long-term cannot be ignored. According to Ehnes et al. (2020), one of the potential short-term consequences of price transparency is that prices for selected hospital services will become more competitive thus translating into improved financial performance for hospitals. Price transparency could see hospitals set competitive prices for discretionary services such as imaging, medical and surgical procedures, laboratory services, and outpatient clinic visits. Besides, with regard to price transparency, hospitals could increase the number of elective procedures they conduct in lower-cost ambulatory surgery centers as well as outpatient hospital departments. Some of the additional elective procedures that can be provided by hospitals include non-urgent coronary interventions and knee replacements (Ehnes et al., 2020). With an increased number of services provided, improved financial performance for hospitals will be inevitable.
Like any other market, the healthcare market is considered a powerful mechanism in the allocation of resources and determining prices. According to Hilsenrath, Eakin, and Fischer (2015), when the market has a marginal cost pricing, it is likely to achieve production efficiency and optimization of mutually advantageous transactions occurring between buyers and sellers. In the healthcare industry, calls for organizations to ensure price transparency are proving difficult to address. Most institutions in the sector believe that price transparency could harm them financially by driving away consumers of healthcare services. With price transparency, healthcare facilities give a breakdown of how costs are incurred in every step of healthcare provision (Hilsenrath et al., 2015). Usually, cost accumulation starts when a patient makes a call to book an appointment with hospital administration. Cost continues to accumulate when the patient makes physical visits to a hospital and takes part in ancillary services such as laboratory technology. The advantage of this is that the patient is made aware of where resources are used throughout the health care experience. The administration and staff are also made aware of resource utilization throughout healthcare, which results in the improvement of administration’s ability to understand capacity utilization thereby making the right and needed adjustments with regard to staffing and skill mix (Hilsenrath et al., 2015). In addition to making patients and administration aware of cost utilization through healthcare experience, price transparency helps in retention and attraction of more patients translating into increased profitability (Hilsenrath et al., 2015). Price transparency also paves the way for improved efficiency during care delivery, waste reduction, as well as increased quality of care. These aspects go a long way in attracting more patients to a healthcare organization leading to improved financial performance.
Quality of Care and Impact on Profitability
Quality of care is closely linked to patient satisfaction. Paul III et al. (2016) argues that in the healthcare context, the higher the quality of care provided, the higher the chances of patient satisfaction. There are several indicators or measures of the quality of care provided by healthcare institutions. One of the indicators is effective distribution of medication to reduce medical errors. Another indicator is coming up with toilet plans aimed at reducing bowel accidents for residents. These indicators tend to increase the quality of care in healthcare facilities while increasing how effective staff of the facilities are. Outcomes of the quality indicators often reflect on processes and increase in patient satisfaction. Consequently, with patient satisfaction, more patients are likely to be attracted to the healthcare facility triggering enhanced financial performance (Paul III et al., 2016). Hospitals can also demonstrate process-based quality indicators such as appropriate use of restraints amongst patients, audit efficiencies when it comes to the use of restraints, tube feeding rate, and catherization rate, as well as appropriate use of psychoactive drugs in patients. Increased quality of care through the mentioned indicators is often accompanied by better patient outcomes and patient satisfaction, which then pave the way for increased number of patients through referrals to friends and family (Paul III et al., 2016). An increase in the number of patients translates into increased profitability for a medical institution.
Nevola (2016) also highlights a close association between quality of care and patient satisfaction, which lays a foundation for increased profitability in most healthcare facilities. As outlined by Nevola (2016), based on hospital quality measures, hospitals may negotiate favorable rates from payers. Higher rates owing to better quality measures leads to profitability. Positive patient perceptions about the quality of care they receive in a hospital may have a substantive impact in steering future patients to a hospital (Nevola, 2016). Contrarily, negative patient perceptions about care quality may have adverse impacts by driving patients away from a hospital. Profitability is often assured when patients are steered toward rather than away from a hospital. Another association between the quality of care and profitability is evident in the increased reimbursements by payers for quality of care provided to patients (Nevola, 2016). The quality of care is determined by the HCAHPS scores. The higher the scores, the more the reimbursements by payers leading to increased revenues and profitability.
Based on the literature explored, there is a close association between increased patient satisfaction and increased profitability for healthcare institutions. Patient satisfaction can be achieved through improvement of patient experience, ensuring price transparency, and improving the quality of care. It is important for hospitals and other healthcare facilities to determine the factors that affect patient satisfaction. These factors can be at the individual level or organizational level. Improvement of patient experience or convenience can result in increased reimbursements by payers translating into profitability. Positive patient experiences can also result to increased patient numbers as a result of referrals to family and friends. The increased numbers also lead to increased profitability. Decisions by healthcare facilities to ensure price transparency and improve quality of care can also increase profitability by retaining and attracting more patients and attracting increased reimbursements by payers.
Betts, D. (2017, May 31). Better patient-reported experiences = more hospital profitability. Retrieved from https://medcitynews.com/2017/05/better-patient-reported-experiences-profitability/
Betts, D., Balan-Cohen, A., Shukla, M., & Kumar, N. (2016). The value of patient experience: Hospitals with better patient-reported experience perform better financially. Deloitte, 22. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/life-sciences-health-care/us-dchs-the-value-of-patient-experience.pdf
Ehnes, C., Dauner, C. D., & Dougherty, T. (2020, March 6). 10 Things to Expect from the New Hospital Price Transparency Rule. Retrieved from https://www.healthaffairs.org/do/10.1377/hblog20200304.157067/full/
Fang, J., Liu, L., & Fang, P. (2019). What is the most important factor affecting patient satisfaction–a study based on gamma coefficient. Patient preference and adherence, 13, 515. https://doi.org/10.2147/PPA.S197015
Gaughran, K. R. (2016, November 1). Patient Experience Improves Financial Performance. Retrieved from https://patientexperience.com/patient-experience-improves-financial-performance/
Hilsenrath, P., Eakin, C., & Fischer, K. (2015). Price-transparency and cost accounting: challenges for health care organizations in the consumer-driven era. INQUIRY: The Journal of Health Care Organization, Provision, and Financing, 52, 0046958015574981. https://doi.org/10.1177/0046958015574981
Nevola, A. (2016). Revisiting ‘The Determinants of Hospital Profitability’ in Florida. Journal of Health Care Finance, 43(2). https://pdfs.semanticscholar.org/6147/17c588e01d6f6249cafa7e9b3c59d4d3ae0e.pdf
Paul III, D. P., Godby, T., Saldanha, S., Valle, J., & Coustasse, A. (2016). Quality of care and profitability in not-for-profit versus for-profit nursing homes. https://mds.marshall.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=1155&context=mgmt_faculty
Richter, J. P., & Muhlestein, D. B. (2017). Patient experience and hospital profitability: Is there a link?. Health Care Management Review, 42(3), 247-257. https://doi.org/10.1097/HMR.0000000000000105
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