Corporate Social Responsibility in Private Hospitals

“A business that does not show a profit at least equal to its cost of capital is irresponsible; it wastes society’s resources. Economic profit performance is the base without which business cannot discharge any other responsibilities, cannot be a good employer, a good citizen, a good neighbour. But economic performance is not the only responsibility of a business… Every organization must assume responsibility for its impact on employees, the environment, customers, and whomever and whatever it touches. That is social responsibility.” - The Daily Drucker, Peter Drucker

At the heart of delivering good private healthcare lies an apparent contradiction. Hospitals for profit are expected to make money, arguably capitalising on patients’ misfortune and suffering. Some may feel that being socially responsible means providing unlimited healthcare without paying attention to profit. Yet as Peter Drucker’s quotation above shows, they would be wrong because being socially responsible is first and foremost about using scarce resources well and this applies to not-for-profit hospitals just as much as it does to profit-making hospitals. The advantage profit-making hospitals have, is that normally profits are a good signal that what is being provided is valued and being done efficiently. Yet in this area too, there is a problem because some treatments cannot be justified on grounds of profits.

Who are the stakeholders?

So what do we really mean by corporate social responsibility (CSR) in the private hospital context? Perhaps the easiest way to answer the question is to consider who the stakeholders of private healthcare are. First and foremost they are customers (patients and families) served by hospitals, employees working in hospitals and governments who have a vital interest in public health of electorates that can vote them out of office if they are dissatisfied with the health service they receive. Shareholders are also primary stakeholders, but in many countries are regarded as less important because much of society still has to come to terms with the idea of making money from peoples’ suffering.

Customers

In business, as opposed to healthcare the focus is on creating and retaining loyal customers. Again in the words of Peter Drucker:

“It is the customer who determines what a business is. For it is the customer, and he alone, who through being willing to pay for a good or a service, converts economic resources into wealth, things into goods. What the business thinks it produces is not of the first importance—especially not to the future of the business and to its success. What the customer thinks he is buying, what he considers ‘value’ is decisive—it determines what a business is, what it produces and whether it will prosper.

The customer is the foundation of a business and keeps it in existence. He alone gives employment. And it is to supply the consumer that society entrusts wealth-producing resources to the business enterprise.” – Drucker; The Practice of Management

There are, however, problems when we apply this thinking to healthcare:

• Patients demand the best care regardless of economic justification and are often unable to pay for it, looking to government to meet the bill
• Governments are finding they can no longer afford to do this
• Successful healthcare reduces the number of patient visits; it does not try to maximise loyalty or retention, unlike business. We cannot, therefore, adopt a customer focused approach designed to maximise repeat purchase!

Employees

Without good, caring doctors and nurses, hospitals cannot deliver the care patients expect. If they provide the best terms and working conditions, recognising in a world short of medical talent, they compete globally to keep their best people; and if they ensure administrative procedures facilitate patient care then, in the words of Hippocrates, staff will be motivated to:

"Declare the past, diagnose the present, foretell the future; practice these acts. As to diseases, make a habit of two things—to help, or at least to do no harm."

Governments

Governments need to be re-elected and so their interest is quite simply making sure that healthcare does not a become political ‘hot potato’. Governments welcome private healthcare as long as it is politically acceptable and so private hospitals that forget this in their search to be profitable put themselves at risk of losing their “Licence to Operate”.

Shareholders

A fair return on capital employed is all that shareholders can ask for, and they need to remember that unlike many other businesses, the provision of healthcare is an emotional and moral issue that may mean they have to live with a lower rate of return than they might otherwise like. If they are perceived to be “scalping” their patients, they will lose their “Licence to Operate”.

CSR equals capital stock renewal

Another way of looking at CSR is to regard it as a form of Capital Stock Renewal reflecting the need to preserve natural capital (by minimising the hospital’s environmental footprint), to improve social capital (by supporting the institutional framework of laws and acceptable business practices) and to invest in human capital (by empowering and training staff). If we look at CSR in this way, we can see how it affects the hospital value chain in figure 1: As can be seen, there are a number of issues hospitals must address if they are to behave responsibly across the value chain.

Natural capital

The issues appear in R&D where private medicine needs to be careful to avoid charges of abetting biopiracy and encouraging the patenting of traditional medicines. They also appear in "purchasing" and “production” (the processes, by which patients are admitted, diagnosed and treated) and relate primarily to the environmental impact hospitals can have through waste, pollution, emissions and the use of water and energy. From a policy perspective, hospitals need to think about adopting the ‘3Rs' designed to reduce, re-use (if possible) and recycle (again if possible) necessary inputs.

Social capital

The key issues here are to ensure that all the way through the value chain, business is undertaken so as to avoid, or at least minimise the opportunities for corruption. The issues involving intellectual property are more complicated because they require careful cost-benefit analysis of the value of generics versus patented brands. From a marketing perspective, hospitals should adopt a policy of truthful selling and ethical marketing, lest they become associated with capitalising on the suffering of others.

Human capital

Here the issues that run right across the value chain all are associated with how best to recruit, retain, upgrade and motivate scarce qualified staff who are in demand everywhere in the world.

This approach recognises the fact that for organisations to be truly socially responsible, they must focus on:

• What they exist to do
• How they go about doing it and
• Only lastly, what they do with the money once they have made it

The business case for CSR

Properly embedded, socially responsible behaviour across the hospital’s value chain ensures that the role of private hospitals as legitimate healthcare providers will be accepted by both government and electorates alike. It will:

• Preserve access to patients and their demand for services provided because patients will not feel ‘scalped’
• Guarantee the supply of willing and motivated staff because employees will feel the hospital is doing what is ‘right’ to patients and staff
• Keep governments ‘on side’ as they will not have political repercussions to fear
• As a result, provide access to quality partners and investors from around the world, happy to be associated with organisations that respect the environment, the laws and conventions of the countries in which they operate and provide good care for both patients and staff, thus ensuring a benign political environment.

Figure 2 summarises the business case for being socially responsible for business, and it applies equally to private hospitals.

Conclusion

The first responsibility is to use scarce resources well and private hospitals have the benefit of the profit mechanism to signal they are doing this. Being responsible means finding the right balance between what patients want and governments can afford, ensuring that society as a whole has good standards of public health, and that staff are willing and able to provide the care needed. Doing this affects the entire hospital value chain. Doing this well guarantees access to patient demand and employee supply and ensures public acceptability and acceptance of private medicine, thus ensuring the long term success that shareholders demand if they are to get an adequate return on their investment.