Cash flowing cash cows

Published 8:34 am Saturday, July 22, 2017

Editorial by Bobby Tingle

Marketing 101 is composed of four items and all of them start with the same letter. Product is a physical item or a service you provide to your customer.

Price is the mutually agreed upon and mutually beneficial monetary benefit exchanged for the product or service. Price must exceed cost of delivery.

Place is the physical location from which the product or service is served.

Promotion is the communication channel linking the served and server with the message that brings the two together.

When all four components of marketing are operating efficiently, cash cows are born. In any business venture, the goal is always producing a cash cow.

Cash calves need protection from infections and viruses to grow and develop. They need proper nutrition and maintenance. Their growth and development will require expansion and upgrades of infrastructure to enable full maturation. In short, they have to be managed well.

A full-grown cash cow is worth it. Cash cows mutually benefit for the served and the server.

Hospitals are not known for becoming cash cows. But in order to succeed it must be built with the same marketing principles in place necessary to create a cash cow.

Others have studied the options available for establishing a local hospital. For the most part ,their findings have all pointed in the direction of establishing a hospital with a rural designation.

There are four classifications of rural hospitals, each with their own formula for determining reimbursement rates for patients covered by Medicare. The majority of rural hospitals classified Critical Access Hospitals (CAH). This classification of hospitals receives reimbursement at a rate of 101 percent of their Medicare allowable costs for inpatient and outpatient care. The other classifications receive reimbursement rates based on a Prospective Payment System or a hospital-specific rate calculated from historical costs.

On the surface this makes CAHs appear to be the classification with the best prospects for establishing a financially strong hospital. The fixed rate, 101 percent, looks impressive.

The Rural Health Research & Policy Center published a study in August 2010 that is very helpful in understanding how reimbursement rates affect financial performance of rural hospitals. The report is titled, A Comparison of Rural Hospitals with Special Medicare Payment Provisions to Urban and Rural Hospitals Paid Under Prospective Payment. You can find this report online at

In the summary of the report, the research indicated financial performance of hospitals among all classifications is impacted by low volumes, payment from other payers and uncompensated care contributing to their financial condition.

This indicates hospitals require private insurance, Medicaid and self-pay patients for strong financial outcomes. High patient volumes, particularly among patients whose providers contribute reimbursement at a rate exceeding the cost of providing service, are most desirable.

Seeking rural hospital designation classified as a CAH is important as we pursue a hospital for Orange. It should be pursued.

Location of the hospital, quality of the service provided, utilizing best practices in management of the operation and controlling costs are also very important. Attracting quality providers, doctors, nurses and other health care professionals will attract patients.

Ultimately the goal is to get the best possible classification for reimbursement from Medicare patients. But providing the caliber of service that will attract a high volume of patients is critical.

It all gets back to Marketing 101, product, price, place and promotion.

Orange should pursue establishment of a hospital. Research indicates establishment of a hospital district and a hospital with a rural designation.

Success will come with effective financial management and delivery of service which attracts patients.

The bottom line is we need a hospital that can attract local patients.


Bobby Tingle is publisher of The Orange Leader. You can reach him at