Global healthcare has evolved immensely over the last centuries, through the vast advancements of technology and groundbreaking pharmaceutical discoveries. With COVID-19 concerns still rife, the spotlight has shone on the global healthcare sector – yet counterintuitively, the Economic Intelligence Unit (EIU) expects a 1.1% decline in healthcare spending across the world’s 60 largest economies, due to a sharp fall in non-urgent care spending.
Nonetheless, the pandemic has made it evident that healthcare is one of the most essential sectors of the world, with global healthcare spending previously having been expected to reach USD 8.7 trillion in 2020. Although the impact of COVID-19 on hospitality versus healthcare appears to have been polar opposites, there are many similarities to be drawn between the two sectors – after all, both rely on the ‘human touch’ and offer care and respite to their guests.
In a webinar with EHL, Patrik Bruhlmann, CEO & Board Director of Pacific Healthcare Group of Companies, drew comparisons between the hospitality and healthcare industries, and offered insights into the future developments of the healthcare sector.
Hospitality vs. Healthcare
We’re going to be comparing hospitality and healthcare quite a bit today. In a previous conversation we’ve had, you mentioned a common root of the term of hospitality and hotels and hospitals, right? But hotels and hospitals are so different now.
PB: Yes, I think it’s always good to see where the word always comes from – the word (‘hospital’) comes from Latin (‘hospes’) and gives you a quick overview of what it actually means – to provide a safe place to sleep, which is associated with shelter and friendliness. With hotels, we clearly know that this is how they must be; otherwise, they won’t attract customers. But in a hospital environment, people sometimes forget that this is a big part of recovery as well: how well the patient feels, how properly looked after they are – not only in terms of the doctors or a prescription or diagnosis, but also in terms of care, which means it also involves the nursing and cleaning staff.
[With that in mind,] I really would hope that hospitals recruit proper F&B and rooms division people, because it’s so simple to provide what is a normal offering in any hotel in the world. And there are good one-star and two-star hotels, it’s not just about five-star hotels – it’s really about providing what a patient wants to pay or can pay for.
You mentioned that one of the bigger differences between hotels and hospitals is who pays for what – and that changes the buying pattern as well.
PB: That’s correct. My father always used to say, “The one who pays is the one who says what’s going to happen.” And hotels obviously see that immediately – if I’m not happy, I walk out of the door and there’s another three or four two-star hotels around the corner. And whether I pay $50, $100, or $200, I can change it every day; I can also do that in the restaurant business, the airline business etc. In the hospital, that is also true if I’m a self-pay patient. [But even then,] how can I rate a doctor or hospital? There’s no TripAdvisor for hospitals where I can say, “The appendix was very well-removed, and the food was good in the hospital.” If you are lucky enough to have a very expensive private insurance, then you can go to any hospital, request any doctor, change hospitals, and look at different options. But your insurance may just give you a chain of hospitals that you can go to, with no free doctor choices. And in the government hospitals, you usually get in the queue and see whichever doctor is available at that time. A lot of countries have universal healthcare, where basically everyone gets good healthcare provided by government hospitals, and that’s also a big difference. So yes, I think one of the biggest differences is who pays in the hospital and healthcare sector.
Revenues and costs in healthcare
What are the revenue streams of a hospital compared to a hotel? Do you think that hospitals carry out efficient revenue management with the time of doctors?
PB: I think the revenue streams of a hotel are classic F&B, rooms, and whatever you can generate in the space of hotels. Hospitals have a similar simple structure. On one hand is rooms or inpatient care, and that is inclusive of F&B and the bed and what’s needed there. In hotels, you may measure revenue per available room (RevPAR). Similarly, in hospitals, you have revenue per doctor, and they have commission structures in terms of what they produce. You also have the utilization rate of operating theatres – how many hours of an operating theatre are used? How many hours is an MRI (magnetic resonance imaging) scanner used? A machine that only operates 12 hours, whether it’s an X-ray machine, and MRI scanner, or an ultrasound machine, is lost money. So, hospitals try to extend hours – for example, you do lab tests and all diagnostics before or after hours so that when the doctor works, all of that becomes revenue-generating for the doctor.
It’s also about square meterage – how many square meters can you utilize for treatment rooms, the operating theatre, the outpatient clinic etc. Back-of-house in hospitals are also usually kept to a minimum. Very few hospitals have a swimming pool or gym, because it’s usually not revenue-generating. No insurance will pay for you to have a bit of a swim in the rehab, except in a rehab clinic – that’s another business again but usually, those non-revenue-generating areas are minimized.
What about fixed versus flexible costs?
PB: That’s a very important aspect of any business: what is a fixed cost and what is a variable cost? That shows you the flexibility of the business and especially now, during COVID times, [it is very important to know] how much you can cut off your costs to bring down your break-even points. And hospitals are terrible at this because almost everything is a fixed cost. Doctors and nurses are usually a scarce resource, so you have difficulties in recruiting and retraining them and they become almost a fixed cost – that’s the bad thing about fixed costs. But the good thing about fixed costs, as we all know in the airline and hotel business, is that as soon as you go over the break-even point, it’s cash into your pocket right away, and the more throughput you have in the hospital the better.
Screengrab from EHL’s Hospital(ity) in Healthcare Webinar. Presentation courtesy of Pacific Healthcare Group of Companies
Developments in the healthcare sector
What’s your view on e-healthcare? For example, if we can do the diagnosis or basic treatments at home, then there’s no need to go to hospitals or for infrastructure; so perhaps the cost of healthcare could be reduced.
PB: I was just looking at that business model and there’s a large company in India who provides even ICU (intensive care unit) care at home – they provide all the machines [at the patient’s home]. Unfortunately, they don’t make money, and because of scarcity of talent, it has its limitations. Which doctor wants to go to your home? A doctor sells time – so would a doctor want to spend one hour driving to your home, look at you for five minutes and drive another hour to the next patient? Probably not, because he only charges for the five minutes where he sees the patient. From an economical point of view, it’s much better if a doctor sees you at the hospital.
[Regarding e-healthcare,] during COVID, we have seen an increase of patients seeking a doctor’s opinion [via video call] on a computer. But [you still have to do] lab tests; you need to take blood, take urine, you need to press – “does it hurt here?” You need to go through diagnostics tests and again, the machine that gives you the diagnostic ability is in the hospital. In order for a doctor to make an informed decision of what treatment is good, [it needs to be done in person] – unless it’s a simple fever and he says, “Go to the pharmacy and buy ibuprofen of paracetamol.” This is again a reality check of where and how revenue is generated, and how an e-model can be sustained. But definitely, the diagnostics business will become a much bigger part of the hospital or healthcare system.
What do you think about luxury senior living? Do you think those industries will grow faster than traditional hospitals?
PB: That’s an interesting business model and you have different models there. “Does it make money?” –that’s the basic question everyone usually asks. Aged care is very expensive and the problem with aged care is also who is paying for it – is it the person him/herself, the family, insurance, or the government? There are some interesting aged care models in Australia, where you basically have a tiered approach: First, you buy into an aged cared facility like you’re buying an apartment, and you stay there until, for example, you cannot walk or have an underlying sickness. You then move into a room where you have a nurse and if that is not enough, you’re transferred gain into a higher care environment. And when you die, the apartment or share that you bought in that senior living environment goes back into the pool, so that gives them the ability to re-sell space. And you can do a little research on these companies and see their financials – they’re not great. Because again, it’s about people – who is taking care of the elderly; where do you recruit them and what is their cost? Unfortunately, I have not seen a huge financial attraction from retirement villages. I think that can come, but when is the time? It’s difficult. As you know, timing is everything. If you’ve invested too early, you’ll go bust. If you invest tomorrow and there are already 20 operators, you’re too late.
Screengrab of example tiered options at Weary Dunlop Retirement Village in Wheelers Hill, Melbourne by Ryman Healthcare. Source: Ryman Healthcare
I think that will be an interesting space to watch and – for example, just thinking out loud: during this COVID time, with so many empty hotels, which hotel operator would have the guts to say, “It’s going to be empty for the rest of its life, why don’t I transform this operation into a new operation that has a different life cycle?” There are, of course, many hotels who operate as COVID quarantine wards – but do they have the guts to say, “No. COVID will go away, and then there will be something else coming; I will cater for the elderly and do that in cooperation with hospitals, where doctors come and visit etc.” – would such a business model be more viable now [than before COVID]?
Career advice – From hospitality to healthcare
What would you suggest if a hospitality student would be interested in pursuing healthcare management after graduation? What positions would be available in the industry?
PB: I think good private hospitals should recruit directly into their system. But nevertheless, I think to go via a service provider, whether they’re F&B or a provider of beds [could also work] – and I think [working via these areas] also gives you a bit more credibility with hospitals when you say, “I know this industry. I know this area.” Because there’s also some kind of snobbism that one has to deal with [in hospitals] – the doctors and healthcare providers are very ‘untouchable’ and if you don’t use a certain vocabulary when speaking in a hospital environment, people will think, “Why don’t you know those 10 words that you should use in a hospital?” So, I think it may be easier to go via annex industries like I did.
I don’t think there’s any university degree per se or full four-year course that you could do. But there are definitely annex courses, particularly in the US, where big private hospital chains are operating, that will allow you to dive a bit deeper into both the vocabulary and the running of hospitals and what is needed there.