Section 5 - Portrait of a modern HMO 

     The story begins - 

The chief aim of capitalism, as we all know, is to increase capital. Of course, needing to make money isn’t really new for any health care organization, whether it’s for-profit or not-for-profit.  Both varieties have always had to be vitally concerned about where the money is coming from.  Forget that, for even a moment, and you’re lost forever, no matter what sort of good works you may perform.

What’s new for contemporary HMOs is that making money is no longer something to be whispered about, or a topic unsuitable for public discussion, or a necessary evil. Making money is now more than okay. It’s expected, celebrated and rewarded; it’s become why HMOs exist in the first place.  In fact, making money is the means by which HMOs will save the American health care system. And the better they are at making money, the better they are for society.

This new paradigm is uniquely American.  Every other western nation has bent the market to accommodate the needs of health care.  We are bending health care to accommodate the needs of market.  And it’s drastically affecting the way HMOs operate.

For The Patient (FTP) - 1995

It’s 1995.  The Clinton health care reform plan has just gone down in flames, and it’s a new era for HMOs – HMOs like FTP. 

FTP, established in 1993, has already gained a foothold in eight cities along the eastern seaboard.  Following the original business plan, FTP was taken public last year.

But FTP is in trouble. Earnings, and consequently stock prices, have been stagnant.  Enrollments have not grown to expectations; the physicians on FTP’s panel (most of whom are new to managed care) have been reluctant to change their inefficient patterns of practice; and it’s been difficult to get hospitals in the FTP system (some of which have been rivals for decades) to cooperate with one another. The shareholders are restless, and in response the board has just fired the old CEO (a physician and one of the FTP’s founders) to bring in a hard-nosed businessman who will know how to put things right.

Gekko immediately sizes things up. He begins with the three fundamental steps that must always be taken when building a business: First, define your customers.  Second, define the scope of your business (i.e., decide what it is you do to make your customers happy).  Third, figure out how to maximize your revenues and minimize your expenditures, while applying your scope of business to your customer base.  

Defining the customers

To Gekko, making money is everything – but not because conservative Republicans have recently swept Congress, or because it’s the new paradigm for health care. Making money is everything to Gekko because that’s what the stockholders of FTP have put him on this earth to do.

Thus, Gekko is acutely aware that, from the his own personal standpoint, his primary customers are, and can only be, the shareholders of FTP.  Every last decision he makes must be geared toward pleasing those shareholders.

Gekko knows this is where FTP's original CEO had made his big mistake. The poor man had considered his primary customers to be the patients enrolled in FTP, and the doctors who took care of them. It wasn’t until his final shareholders’ meeting that the old fool had finally got it.  Of course, it had been too late for him by then.

The shareholders are always the ultimate customer for any corporation, Gekko realized. At the same time, to keep those shareholders happy, Gekko also had to identify the business customers - the ones who purchase the product sold by FTP. 

Gekko’s predecessor had blown this one, too, because he had thought the patients who enrolled in FTP were the purchasers.  But patients don’t really choose health insurance. They just sign up for whatever insurance product is chosen by their employers.

The people who actually make the decision to buy FTP, Gekko knows, are the V.P.s in charge of benefits - the corporate officers who negotiate the employee health insurance contracts for their companies.  Gekko fully understands how important this relatively small and easily identified core of people is to FTP, and he will do whatever is necessary to convince them to offer FTP to their employees as one of their insurance options – or better yet, as their only insurance option.  Gekko is not worried.  He knows these people - they're corporate executives, like him.  He knows what he needs to do to get their business. 

At some level, Gekko supposes, the doctors and patients of FTP also have to be considered his customers.  But this feels wrong to him.  The doctors and patients, after all, are the ones who spend his money.  Keeping them happy implies that he’s letting them spend more money than they might otherwise get to spend.  Keeping them happy therefore feels counterproductive.  As he learns more about the business of health care, Gekko tells himself, he’ll have to figure out ways to make it matter as little as possible about keeping doctors and patients happy.

Defining the scope of business

This is also pretty straightforward for Gekko.  FTP’s main business is to take in money in the form of health insurance premiums, and in return, to arrange for the provision of health care to the individuals for whom the insurance is paid.  How FTP should go about providing that health care is a completely open question for Gekko.  There are a lot of ways to do it, and he’s not married to any one of them.  The only criterion is that whatever method he uses needs to satisfy his customers (i.e., the shareholders and the corporate V.P.s). 

Since his main goal is to make money for the shareholders, Gekko also understands that he needs to be alert to any other opportunities that may present themselves for increasing the value of FTP.  Focusing only on providing health care may prove to be a disservice to his ultimate customers.

Next: how to maximize revenue (bringing in the bucks)

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