Investment decision making in the health care industry: the future

Abstract

The economic and political environment in which providers of health care will operate during the 1980s will continue to be increasingly restrictive. Any private-sector organization's long-run survival depends directly on the quality of its investment decisions, broadly defined. This decision making will require three major innovations if private sector health care providers are to survive: 1) traditional biases about the economics of not-for-profit entities must be abandoned; 2) standard data, procedures, and personnel from the accounting discipline must be supplemented with information, methodologies, and people from the discipline of corporate finance; and 3) economic and fiscal risk must be measured and incorporated into both investment decisions and interactions with external regulators. Practitioners can begin to implement these innovations immediately. Although substantial literature exists developing all these concepts generally and applying them to for-profit settings, the literature purporting to treat investment decision making for private-sector health care providers is, on average, replete with conceptual error, simplistic thinking, erroneous applications, and out-of-date methodologies. The literature is, in a word, horrid. Authors, both practitioner and academic, should stop writing terrible books and booklike periodicals for easy royalty dollars, and, instead, pursue sound applied research and disseminate their results in classrooms and in refereed journals.