Nathan Kaufman Is Right About the Tragedy. Here's What It Costs You Monday.

health systems margin improvement physician groups tactics Oct 12, 2026

What It Costs You Monday — a 10-part series on healthcare margin at the operating level. You're reading Part 1: The Opening. Nine items follow, two a week.

At the end of July, Nathan Kaufman published a piece in HFMA with a simple and uncomfortable argument. American healthcare is a shared pot, and everyone drinking from it — payers, systems, physicians, vendors, pharma — is behaving rationally by taking as much as they can. Nobody sacrifices margin voluntarily. So the pot drains, and the correction eventually arrives as regulation rather than as restraint.

Economists call that a tragedy of the commons: a shared resource everyone has a private reason to overuse and nobody has a private reason to protect. The classic version is a village pasture where every farmer adds one more cow. Each cow makes sense for its owner. The grass still runs out.

I think that is right, and what follows is not an argument with it.

It is the next step. Kaufman wrote what is going to happen to healthcare economics and which areas to watch. He closes with nine recommended strategies. What I want to do — here, and over the next several weeks — is work out what those nine actually require of a health system or a smaller hospital that has to keep operating inside the tragedy he describes.

Not how the economics will play out. He has written that. This is the operating level: what somebody has to do differently on Monday.

"Your survival costs your competitor nothing. You can both make it — and the goal is that you both do."

WHERE THE ARTICLE STOPS

The diagnosis is macro, and the areas to watch are right. But the piece never comes down to the organizational level, and that gap is not a small one.

Take his first recommendation: define clinical and financial goals, measure progress, and immediately address deviations from benchmarks. True of every organization that has ever existed. And hospitals and practices do not fail at measuring — most of them have more reports than anyone reads. They fail on the word immediately. A variance gets noticed, discussed at the next meeting, and absorbed. No named owner. No date.

That pattern repeats across all nine. Each one is correct, and each one is a category rather than an action.

THE VARIABLE UNDERNEATH ALL NINE

Underneath every one of them sits a single question that decides whether an organization is still here in five years. Can you outrun the cost monster?

That is what my team and I call it, because that is how it behaves. It does not negotiate. It does not take a year off. And it is not your competitor — it is your own cost structure, and it is always moving.

That distinction is where the commons framing misleads, and it matters more than it sounds. Kaufman's logic runs toward an endgame — a shrinking pool, rational actors, and whoever is left holding it at the end. It implies that somebody has to lose for you to win.

You don't have to play that game.

The thing chasing you is an absolute threshold, not a race against the organization down the road. A rural hospital does not close because a competitor forty miles away was faster. It closes because its own economics stopped working. Your survival costs your competitor nothing. You can both make it, and the goal is that you both do.

Two disciplines get you there, and between them they are most of the job.

Margin discipline. The monthly line-by-line scan, department by department, every expense and every account, every time. Revenue capture out of the volume you already have rather than volume you have to go buy. Prevention rather than appeals.

Capital allocation discipline. Not taking on fixed cost you don't need. What you want is variable cost as low as it can go, so that when you grow, more of it reaches the bottom line. New capital does the opposite — it converts flexibility into an obligation that has to be fed no matter what reimbursement does.

Do both and you stay in front of whichever tipping point arrives first. One of them is legislative: rate caps, cost controls, regulation. The other is attritional, which is organizations going out of business on their own economics. Something is going to happen. The only question for any single operator is whether they are still standing when it does.

THE RECOMMENDATION I'D STRIKE

Which brings me to the one place I part company with the article outright.

Under "focus on the basics," Kaufman recommends smart growth, and names adding ambulatory surgery centers as the example. I would not, for three separate reasons.

It adds capacity, not margin. One of the problems health systems are getting into is growing in spots. All that does is create more capacity, spread cost across more sites, and drive cost per case up everywhere. You do not end up with a new profitable service line. You end up with the same volume in more places.

It drains a labor pool that nobody replenishes. Surgical techs at a surgery center don't take call, and that is very hard to compete with. So the pool of techs and OR nurses willing to take call shrinks — and as it shrinks, the call burden on everyone still in it goes up, which makes those jobs worse, which pushes more of them out. We have been through stretches where you simply could not get an OR nurse. It is a perpetual cycle and it gets worse every turn.

It converts flexibility into fixed cost at the worst possible moment. If rate controls are as probable as the article argues, adding fixed obligations is precisely the wrong direction.

Now notice what the first two of those actually are. Every system builds for its own entirely rational reasons. Collectively they fragment volume across more sites, bid against each other for the same scarce people, and raise everyone's cost per case. That is the tragedy of the commons — recommended inside an article about the tragedy of the commons. And the labor version is the same mechanism running on people instead of dollars: a shared pool, nobody responsible for refilling it, and every individually sensible decision taking from it.

TWO QUESTIONS BEFORE YOU BUILD ANYTHING

None of that means never build. If you need OR capacity, build it.

But there are two questions to ask first, and I would ask them of yourself rather than of your team, because the honest version of this conversation is a private one.

One. Does it add capacity you actually need, in a way that significantly grows the top line?

Two. Is it the most efficient way to grow that top line?

Most expansion passes the first question. Almost nobody can answer the second — and the second is the one that decides it.

Here is the part most people never check. You may think you are getting volume when all you are doing is spreading it around. That is usually what happens: an organization redistributes volume it already had, or already should have had, adds fixed cost in the process, and experiences the whole thing as growth.

Which is why buying volume and building capacity are not the same act. Acquiring a practice takes on volume that already exists, with revenue that already exists, on assets somebody else already paid for. Building a new site creates fixed cost and hopes volume follows.

THE PART THE ARTICLE CAN'T SOLVE

One more thing, and it is the honest limit of the whole exercise.

Kaufman diagnoses a collective problem — nobody sacrifices margin voluntarily, so a correction gets imposed — and then hands out individual advice. Both halves are fine. The missing sentence is the one joining them: you cannot fix the commons by yourself.

Which leaves exactly one strategy available to a single operator. Outrun the cost monster, and still be standing when the correction lands.

WHAT'S COMING

Over the next several weeks I am taking Kaufman's nine recommendations one at a time, two a week, and working out what each one requires at the operating level — where I agree, where I would do something else, and what it looks like when it actually gets done.

Before the first one, five questions worth answering in writing:

When a variance shows up in a department this month, who owns it by name, and by what date?
What was the last capital decision we made — and can I state what it added to the top line, rather than what it added to capacity?
Which of our services is drifting: financially fine on paper, but nobody has named the value it produces for us specifically?
If our volume stopped growing tomorrow, how much revenue is still sitting inside the volume we already have?
Am I managing to stay ahead of the cost monster, or managing to beat somebody else?

Two ways to take this further.

Connect with me on LinkedIn. That is where this series is running — two items a week — and where I work through most of this in public. If you lead a hospital or a health system, it is the easiest place to keep the conversation going.

Ready to talk about where your organization stands? I work with health systems, rural hospitals and organizations in smaller markets on exactly this: margin containment, capital decisions, and getting cost visibility down to the people who can actually act on it. It is a conversation rather than a pitch — bring the situation and we will work through what your options actually are.

→ Connect with me on LinkedIn · Book a free strategy session

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