Or How Healthcare is A Different Kind of Business
Over 25 years ago, my peers in my residency program chose me as one of the two Chief Residents for that academic year. The faculty, which had the final say, approved the choice. That’s how I came to my first formal leadership role in healthcare.
As I have become a more experienced leader over the years, I realize how naive I was 25 years ago. I didn’t understand how much of the power to drive change relies on informal influence rather than formal authority. I was clueless about how the noble profession of medicine has also always been a business — and that it has to be that way. And, I didn’t understand how, despite that, it is not a regular business.
I have often wondered, “If I could go back in time and give some advice to my younger self, what would it be?”
The rest of this post and the next post are my response to that question.
Dear younger me,
You just accepted your first leadership position. You’re excited and terrified at the same time. You should be. However, I want to share something with you that will save you a lot of confusion over the next few years as you step into other leadership roles.
Healthcare isn’t like other businesses. And the sooner you understand this, the better leader you’ll be.
Someday, you will sit in your first budget meeting and hear a businessperson discuss “market dynamics” and “competitive positioning.” You will wonder when healthcare became more about business than about patients. You will likely feel guilty about being in that meeting. After all, you became a doctor to help people.
Let me ease your mind: healthcare has always been a business. But it’s the weirdest business you’ll ever encounter. And that matters more than you realize.
How Normal Businesses Work
Remember when you bought your car a few years ago? You researched different models. You compared prices. You test-drove a few options. You negotiated. You made a choice based on what you could afford and what met your needs.
That’s how most businesses work. Companies make things. Customers decide if they want them. If the price is too high or the quality is too low, customers will go elsewhere. Competition keeps everyone honest.
This works because:
Customers know what they’re buying.
Customers pay for what they get.
Customers can choose to buy or not buy.
Customers can easily compare options.
This is what they teach in business school. This is the model all your future CFOs will have learned. This is how most of the economy works.
But here’s what I need you to understand: healthcare breaks almost every one of these rules.
Why Healthcare Is Different
Remember the first patient you ever saw during your internship? Let’s call him Mr. Johnson. He came to the ER with chest pain. He was scared and hurting and had no idea what was wrong.
Could he shop around?
No. He needed help immediately.
Did he know what tests he needed?
No. That’s why he came to you.
Could he decide not to buy?
Not really. You don’t skip treatment when you might be having a heart attack.
Did he know how much it would cost?
In most other Western countries, it would cost him nothing, but in the U.S., neither he nor you knew the actual cost of the care he got.
This is healthcare. And it’s nothing like buying a car.
The Information Problem
Here’s the fancy economics term you’ll hear in meetings: “information asymmetry.” It means one person knows way more than the other.
In healthcare, this gap is enormous. You spent over a decade in medical school, residency, and fellowship. Mr. Johnson didn’t. He doesn’t know if he needs to rest or whether he needs multiple investigations and to be admitted to the ICU. He doesn’t know if that new medication you gave him is necessary or if an older, cheaper one works just as well. He can’t tell if you’re an excellent doctor or just an average one.
Mr. Johnson has to trust you completely. He has no other choice.
In most businesses, customers aren’t this helpless. When someone buys a car, they can research it online. They can read reviews from other owners. They can test drive it. They’re not experts, but they can make informed choices.
Your patients can’t do this. They’re entirely dependent on your expertise and your honesty. (As an aside, you are at the poorly-informed end of this asymmetry when you have to take your car to the mechanic.)
This will create ethical dilemmas that you’re not yet prepared for. What do you do when the expensive test is only slightly better than the cheap one? What do you do when a patient asks for a treatment you know they don’t need? These aren’t just medical questions. They’re business questions, too.
The Payment Problem
Here’s another thing that will drive you crazy. In healthcare in the US, the person receiving care usually isn’t the person paying for it.
Insurance companies pay. Medicare pays. Medicaid pays. Employers pay. Employees pay twice—first the premium and then the copay, coinsurance, and deductible. However, the copay at the time of service is usually just a small fraction of the actual cost.
This final step breaks the typical connection between the buyer and seller of services.
Imagine if your hospital cafeteria worked this way. Imagine that your employer, the hospital, deducted a ‘premium’ from your monthly paycheck to use the cafeteria. But when you actually buy your lunch, you only pay $5, no matter what you order. Would you pay attention to prices? Probably not. You’d get the steak instead of the sandwich, because why not?
This is a grossly simplistic understanding of what happens, but it happens in healthcare all the time.. Patients often don’t know what their care really costs. And even when they do know, they’re not paying most of it. So the standard price signals that control spending in other industries don’t work here.
As a leader, you’re going to be stuck in a strange position. You’ll be trying to control costs, but your patients won’t be motivated to help. Neither will many of your colleagues, honestly.
Everyone will tell you to “order what’s best for the patient” without asking what it costs. You’ll need to figure out how to balance good care with sustainable costs. Nobody’s going to teach you how to do this. You’ll have to learn it on your own.
The Choice Problem
My washing machine stopped working three years ago. It was 15 years old. My repair guy said the cost to repair it would be about 40% of a new washing machine’s price. I had a choice. I could still choose to get it fixed. Or, I could buy a new one. I could go online and read reviews and recommendations for the new ones on the market. I could visit local appliance stores, look at my options, and talk to sales staff about them. I could go to the laundromat for a while until I made my decision. I could hand-wash clothes for a while if money were really tight.
When someone has a heart attack, they don’t have choices like that. They need care. Now. Today. No matter what it costs.
Economists call this “inelastic demand.” It’s a fancy way of saying people will pay almost any price because they have no alternative.
In most businesses, if you charge too much, customers walk away. In healthcare, patients can’t walk away. They need what you’re offering, regardless of the price.
This is one reason healthcare costs continue to rise faster than those of other sectors. The market forces that control prices don’t work as well here. And as a leader, you’ll feel pressure from multiple sides.
Patients will need care they can’t afford. Hospital and clinic administrators will want you to provide more care; more care equals more revenue. For insurers, more care means less margin. You’ll be caught in the middle.
The Competition Problem
Want to know why there aren’t more hospitals competing with yours? Because starting a hospital is incredibly hard.
You need hundreds of millions of dollars. You need years of regulatory approvals. You need doctors with the proper credentials. You need relationships with insurance companies. You need specialized equipment that costs a fortune.
Compare that to starting a restaurant. It’s hard, but people do it every day.
These high barriers to entry mean less competition. And less competition means less pressure to keep prices low and maintain high quality.
It also means you can’t easily increase supply when demand goes up. Right now, you’re short on cardiologists in your department. You can’t just make more cardiologists. It takes over a decade to train one. By the time they’re ready, your needs will have changed.
This supply-and-demand problem will continually frustrate you. Just know that it’s not something you can fix. It’s built into how healthcare works.
The Ethics Problem
Ethics is not a ‘problem.’ Call it ‘challenge’ or ‘conundrum’ if you will. Here’s what I mean.
Medical school did not prepare you for this. In most businesses, profit is the main goal. Make customers happy so they buy more, and make as much money as possible in the process. Simple.
In healthcare, profit competes with other values. You took an oath to “do no harm.” You have a duty to patients that goes beyond making money. This creates real tension.
What do you do when the most profitable decision isn’t the best decision for the patient?
What do you do when treating uninsured patients loses money, but turning them away feels wrong? What do you do when your bonus depends on metrics that might compromise care?
A coffee shop owner doesn’t lie awake wondering whether to give free coffee to people who can’t afford it. But you will face these choices. Every single day.
One day, you will be in a meeting with a department head or CEO who will ask you to see more patients per hour. Or keep ‘heads in beds’ longer. The math makes sense. More patients mean more revenue. However, you’ll know that rushing through appointments means missing details, making mistakes, and leaving patients feeling unheard.
You will want to refuse. To say that medicine can’t be rushed. And you’ll be right. But here’s what I learned: refusing isn’t leadership. Leadership is finding a different way.
You’ll need to ask better questions.
How can we redesign our workflows to make routine visits more efficient?
How can we identify ahead of time which patients actually need longer appointments and which don’t?
None of it will be perfect, but how can we make it better?
The answer to the department head isn’t, “No, we can’t change.”
The answer is, “Yes, but differently than you’re suggesting.”
What This Means for You
There’s a lot more nuance to all the above. But after reading all this, I wouldn’t be surprised if you asked yourself, “Why get involved in healthcare leadership?”
But here’s the thing. Understanding these differences will make you a better leader. And a better doctor. When someone from finance talks about “running healthcare like a business,” they might be applying strategies that work great for selling cars, but are terrible for treating patients.
In the next part of this letter, I’ll tell you how to lead in this weird space where business meets medicine. I’ll share what I’ve learned about finding balance, making tough choices, and staying true to the reasons you became a doctor in the first place.
For now, remember this: healthcare is different. That’s not an excuse for being inefficient or wasteful. However, it means you need different tools and a different way of thinking than those used in other industries.
You’ve got a long road ahead. But understanding what makes healthcare unique is the first step.
More soon.
— Your older, slightly wiser self.
