The “Hard Dollar Delusion”: losing touch with the reality of “soft” dollars

Photo of Salvador Dali’s sculpture, “Profile of Time” by Julo, Public domain, via Wikimedia Commons

— Jonathan A. Handler, MD, FACEP, FAMIA
— John Vozenilek, MD

Two nurses work in the emergency department (ED) at Jeneral Hospital: Nurse Awesome and Nurse Awful. Nurse Awesome is removing patient Jim’s IV in prep for his discharge. Nurse Awful is simultaneously doing the same for patient Fred in another room.

Nurse Awesome warns Jim that his IV needs removal, and that removal can hurt, but the procedure will be done as painlessly as possible. Nurse Awesome very gently and carefully peels off the tape holding the IV in place, applying a liquid to reduce the tape’s stickiness. Even though Jim feels no pain, Nurse Awesome apologizes to Jim for any discomfort he might have felt. Jim leaves the hospital a happy and satisfied patient.

Nurse Awful walks in the room and just rips out the IV with no warning. The tape painfully takes Fred’s arm hair with it, and poor Fred yelps in pain. “You’re all set for discharge,” Nurse Awful says, then turns around and leaves the room. Fred angrily leaves the hospital.

One month later, both Jim and Fred are told by their respective doctors they each have heart disease and need angioplasty. Jim normally gets his care at Jeneral Hospital’s big rival, Spesifik Hospital. But he remembers the tender care of Nurse Awesome at Jeneral, and decides to go to there instead for his angioplasty. Fred normally gets his care at Jeneral, but remembering his horrible experience with Nurse Awful, Fred decides to go to Spesifik Hospital instead.

Both Jim and Fred are well-insured by the same company. Their insurer will pay $50,000 to either hospital for each angioplasty. Were it not for Nurse Awesome, Jim would have gone to Spesifik Hospital for his angioplasty, and Spesifik would have gotten the $50K of revenue. Instead, thanks to Nurse Awesome, Jeneral got the $50K. On the other hand, were it not for Nurse Awful, Jeneral would also have gotten the $50K of revenue from Fred’s angioplasty. However, Nurse Awful was so awful that Fred decided to go to Spesifik Hospital instead. Jeneral lost $50K of revenue thanks to Nurse Awful.

Together, these two procedures represented $100K of revenue. Jeneral Hospital’s ability to get that $100K of revenue depended entirely on the brief interactions between the two patients and their nurses. If Nurse Awful had been nicer, Jeneral would have gotten all $100K. If Nurse Awesome had been thoughtless, then Spesifik would have gotten all $100K. Clearly, those two interactions had a real, significant, and measurable impact on the top and bottom line financial performance of the two hospitals.

But who actually gets financial credit for these procedures? Typically, those in closest proximity to the financial transaction. The clinical team performing each procedure gets to bill for their work. The hospital gets to bill for its facility use and other fees. At many institutions those transactions get a special, magical name: “hard dollars.” On the other hand, the financial value of the nursing interactions gets a much less awesome name: “soft dollars.” The difference between hard and soft dollars isn’t the real-world importance of those dollars or their actual impact on top and bottom line performance. The difference is simply how hard they are to measure. Hard dollars involve direct transactions and therefore are measured more easily than soft dollars that create value through a more circuitous path. The result: hard dollars hold first class status in the business while soft dollars suffer the indignity and persecution of second-class citizenry.

Yup, in the minds of many business leaders, “hard” dollars are not only more easily measurable, they are also better, more real, and more respected than “soft” dollars. Therefore, hard dollars are more often measured and far more likely to drive business decisions than “soft dollars.” Since soft dollars are difficult to measure, managers commonly believe that the numbers are unreliable and often overstated. Therefore, they often go unmeasured, under-measured, or poorly measured. Thus, the attitude toward soft dollars becomes a self-fulfilling prophecy: if soft dollar impacts are discounted or not measured, then an initiative whose business case was built on soft dollars will look like a failure even when it wildly succeeds. With that in mind, consider this story…

Once upon a time, in a galaxy far, far away, a company had led innovation in a new therapy. The therapy had strong benefits for patients and it was much less costly than alternatives, but it was complex to prescribe. This inhibited its adoption by the medical community. To address this, the company built an app to make prescribing the therapy easier, and provided the app for free. It was widely used, adoption of the therapy grew, and the company became a world leader in sales of the therapy. Of course, they had never assessed how much of the market growth and their resulting market lead were due to the app. Over time, the app grew long in the tooth. Users demanded new features, but the company was reluctant to invest in a free app. Such an investment would be measured as a hard dollar loss. Soft dollar benefits from the app weren’t measured. Market share began to dwindle. Leadership’s refusal to measure and recognize the app’s soft dollar impacts led to decisions that worsened the company’s top and bottom line performance. They blamed their losses on changing market conditions and failed to recognize that their decisions helped create those unfavorable market conditions.

Measuring soft dollar impacts is doable! Well-known techniques, such as A/B testing and conjoint analysis, robustly measure soft dollar impacts. Unfortunately, many business leaders have little familiarity with them. When that leads management to dismiss them as overly academic exercises that don’t mean much “here in the real world,” results suffer accordingly.

Great healthcare leaders recognize that healthcare is a complex adaptive system in which unintended consequences often occur after interventions. They are also familiar and comfortable with clinical controlled trials that serve as a key sources of new healthcare knowledge. This is the “A/B test” of the clinical world. What distinguishes the best healthcare leaders is that they consistently measure and value both hard and soft dollar outcomes because they recognize that even the simplest healthcare system interventions have far-reaching and unpredictable impact. We are fortunate to work with great healthcare leaders who value both soft and hard outcomes, and that makes all the difference in our ability to implement transformative innovation that enables more effective, efficient, and compassionate care.

Nurse Awesome spent a few minutes with Jim. Nurse Awful spent just 30 seconds with Fred. If we only measure hard dollars, we conclude that the health system got the same reimbursement for these interactions, but Nurse Awful spent 80% less time doing the work than Nurse Awesome. Hurray for Nurse Awful and boo for Nurse Awesome? That kind of delusion is not just harmful to the two nurses, and not just harmful to the two patients, it leads to decisions that harm all patients and the health system’s viability. The fix is simple: get in touch with the reality of soft dollars.

All opinions expressed here are entirely those of the author(s) and do not necessarily represent the opinions or positions of their employers, affiliates, or anyone else. For the content herein, any resemblance to real persons, living or dead, and/or real entities, extant or defunct, and/or specific events, future and/or current and/or past, is purely coincidental.

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