beating the financial squeeze: how to drive performance ... · optimizing roles and processes to...

For decades, health systems have recognized the strategic imperative of managing costs; most have concentrated on traditional performance improvement initiatives, including revenue cycle enhancements, group purchasing organization (GPO)-facilitated unit price discounts on supply costs, and reduced labor costs through operational benchmarking and other performance management tools. While additional savings can often be achieved through renewed efforts in these areas, accelerating pressures on expense management and capital requirements are threatening to outpace most organizations’ ability to manage performance. A fundamentally different approach to margin improvement is required.

Providers seeking to improve margins must directly address clinical care delivery and the associated clinical processes, within an operating environment organized to meet the changing needs of healthcare consumers. This means purposefully tackling the more complex, difficult initiatives – such as clinical variation, service rationalization and clinician productivity – as well as addressing organizational alignment and cultural change management to achieve sustainable results.

BEATING THE FINANCIAL SQUEEZE: How to Drive Performance Transformation in Your Health SystemAuthors: Rob Gamble and Pamela Damsky

A fundamentally different approach to margin improvement is required.

Beating the Financial Squeeze: How to Drive Performance Transformation in Your Health System

Complex Financial Realities Facing Health Systems Today

Unfavorable demographic and revenue shifts as commercial rates decline; more patients select higher co-pay/deductible plans and age into Medicare

Decreasing government reimbursement, including state restructuring of Medicaid

programs and continued movement toward value-based care

Regulatory shifts, such as potential changes to hospital-based billing and 340B pricing advantages

Continued shifts from inpatient to outpatient care, and from outpatient to virtual care settings

Rising costs for wages and benefits, supplies and drugs

Dramatic changes in the competitive landscape – from ongoing national and

regional mergers and acquisition (M&A) activity, to new competitors that peel off

volume across all care settings

Growing losses associated with expansion of the employed physician

base, especially for primary care

Increased expense-to-collect revenues and delays in payments

High cost of capital amid greater demand for upgraded facilities,

infrastructure, network development and the newest technologies


Driving Sustainable Performance TransformationTo truly transform performance and achieve next-level impact on the cost of care delivery and operating margin, providers must continually monitor, prioritize and focus on optimizing six inter-related operating dimensions as depicted in Figure 1 and described below:

F I GU RE 1

Dimensions of Transformational Performance

EXPEDITED ASSESSMENT AND MULTI-YEAR FINANCIAL IMPROVEMENT PLAN DEVELOPMENT

Rapidly assess organizational performance,

capabilities and areas of opportunity

Identify opportunities and estimate/quantify impact of the various revenue/cost levers

Develop comprehensive

financial improvement plan focused on highest priority

Implement targeted solutions to achieve and sustain results

Informatics & TechnologyOptimizing expenses while also maximizing the

utilization of existing and new systems to support goals

Operational expense managementCore functions, roles and processes associated with delivering care

and services to patients (unit costs)

Clinical Cost ManagementCosts of care delivery associated with clinical decision making (# of units)

Provider Enterprise ManagementOptimal utilization of providers to support the patient and physician experience

Revenue Cycle Optimization ManagementOptimizing roles and processes to collect all of the revenue associated with services provided

Growth and Revenue OptimizationUnlocking capacity and backfilling with strategic volume and revenue growth

1

2

3

4

5

6

*Scope dependent


Clinical Cost Management

Provider Enterprise Management

Clinical cost management addresses clinical costs of care by reducing readmissions and emergency department (ED) utilization; managing clinical variation; improving reliability and reducing “off-quality” events; better managing high-use/high-cost patient cohorts; and redefining sites of service across the continuum, including rationalization or consolidation of clinical programs. Success is highly dependent on physician leadership and engagement, as well as adequate infrastructure and resources (e.g., predictive analytics, hardwired decision tools).

Provider enterprise management aligns the health system and medical group around the strategic needs of the organization and drives both clinical and financial performance gains across quality and safety, access and capacity, clinical management and productivity, cost management and management structure. A comprehensive medical group optimization effort can result in direct improvements in volume and associated contribution margin of up to 30 percent.

2

3

Operational expense management

Operational expense management goes beyond labor productivity and supply costs to identify additional opportunities, such as shared clinical and support services across a system; organizational structure and span of control; right-sizing corporate services; scope and performance of outsourced services; benefits management; and performance of discretionary investments (e.g., “sacred cows”).

1


Informatics and Technology (I&T)

Informatics and technology (I&T) optimizes I&T investments while driving value by effectively leveraging the I&T portfolio across clinical and non-clinical functions, to advance decision support and improve provider and patient experience. This may include: I&T benchmarking and asset rationalization; optimizing electronic health record (EHR) functionality; deploying artificial intelligence/robotics to reduce transaction times; streamlining communications to permit focus on the most complex issues; or developing robust analytics and reporting to better identify trends, harness efficiencies and accelerate advances in clinical performance. A comprehensive IT optimization initiative can result in 5-15 percent improvement in I&T-related costs.

Growth and Revenue Optimization

Growth and revenue optimization balance cost reduction efforts with initiatives that support organizational growth, capacity utilization and value. For example, aligning preoperative access and throughput with demand supports surgeon recruitment and surgical program growth, and streamlining ambulatory scheduling while refining physician templates can improve patient experience and enable ambulatory growth and the ability to see new patients sooner - all of which support value-based care.

5

6

Revenue Cycle Optimization

Revenue cycle optimization ensures that roles and processes across the entire revenue cycle effectively enable providers to be fully reimbursed for the work they do while reducing the cost to collect. This may include improving revenue collection processes for newer payment arrangements such as risk-based contracts, vendor management strategies, and opportunities for robotic process automation. Comprehensive revenue cycle improvement initiatives typically yield at least 1-2 percent improvement in net revenue.

4


Breaking through to the next level of performance also requires a disciplined and structured approach to performance transformation, which includes:

Leadership aligned around the future requirements for success and committed to improving performance. The most successful transformation efforts are grounded in a shared understanding of the need for change and requirements for success. It is essential that leadership coalesces the organization around a future vision and sets a positive tone to motivate clinical and operational leaders to challenge themselves to identify solutions that simultaneously improve quality and cost.

High-performing clinical and operating models to support cost management and superior outcomes. Optimizing the roles of people who do the work, ensuring highly reliable and efficient processes for all aspects of care delivery and support, and leveraging technology for clinical and administrative decision making, communication, analytics and other processes are foundational to developing high-performing clinical and operating models.

Roadmap and defined resource plan timed to achieve necessary results without overextending organizational capacity. All health systems are challenged by initiative overload. Large-scale, strategic transformation initiatives involve and impact a range of departments, practices, functions and sites of care. It is important to focus resources on those areas that bear the greatest potential for improvement, rather than trying to address all areas in the same depth, at the same time. Careful attention to culture, planning and prioritization, and a robust roadmap timed to achieve results without overextending, will assure strong footing and momentum to successfully move forward.

Focus on establishing accountability, measuring progress and managing organizational change. Failure to plan, involve appropriate stakeholders or fully appreciate the interdepartmental resource demands required will impair success. Identifying strong leaders for each initiative, capable of building stakeholder support, garnering needed resources and driving forward to achieve agreed-upon goals, is critical for long term success. A rigorous project management approach that allows leadership to evaluate progress against milestones and to hold themselves accountable for achieving objectives depends upon reliable data, consistent reporting and transparency into results – all of which are critical to sustaining changes and developing a culture of continuous improvement across the organization.


CASE STUDY

BACKGROUND A premier Midwest academic health system sought to transform its operating performance, recognizing that its historic success and continued growth and capacity for strategic capital investments were at risk due to a number of financial factors, including: commercial payor reimbursement reductions, potential loss of favorable pricing (e.g., 340b), government program funding cuts (i.e., Medicaid), and continuing payor mix shift to Medicare. Leadership partnered with The Chartis Group to develop a comprehensive plan to improve operating performance through a combination of cost reduction and profitable revenue growth.

ENGAGEMENT HIGHLIGHTS:A comprehensive assessment across the key dimensions of operating performance described in the above framework identified margin improvement opportunities, as well as opportunities to enhance provider and patient experience. More than twenty departmental and multi-disciplinary initiatives were built into the budget for the following fiscal year, including: clinical variation, pharmacy, lab, revenue cycle, inpatient coverage, ambulatory optimization, service line planning and supply chain. A margin improvement dashboard was developed to track performance against earnings before interest, depreciation and amortization (EBIDA) targets for each identified opportunity.

Following the assessment, Chartis helped advance two of the priority initiatives, Ambulatory Optimization and Inpatient Coverage Model Redesign, and provided analytic support for the Clinical Variation work. The Ambulatory Optimization effort focused on unlocking capacity within the existing facilities and provider base to increase access for new patients, while maintaining a focus on enhanced provider experience and better utilization of technology. Work groups developed solutions focused on set-up and utilization

of Epic; allocation and utilization of clinic rooms; roles and responsibilities across care team members; provider scheduling template design and management; and piloting initiatives in select clinics.

The Inpatient Coverage Model redesign included: a revised process for patient triage and service assignments based on patient acuity and condition rather than admitting time; reorganized house staff teams including team structures, assignments, shifts and call schedules to increase overall admitting capacity and align

admitting windows with patient flow; and expanded the utilization of APPs to provide coverage for distinct patient populations.

A key to success was a collaborative approach to identifying opportunities and designing solutions, with broad participation across the organization. Clinical leadership and staff were engaged early in the process, with an emphasis on enhancing provider experience and facilitating ambulatory operations and clinical care delivery.

R E S U LT S

The organization is on track to hit margin improvement (EBIDA) targets of 5 percent

in Year 1, and 11 percent in Year 2 of controllable operating

expenses


Where to Start?A high-level assessment that begins broadly, then quickly dives deep into areas of clear opportunity is often the most effective approach. The best place to start is to ask some basic questions of your leadership team, as your collective answers will provide a better understanding of where you should begin and what your biggest challenges are along your journey.

The answers to these and other questions will start you on your journey toward sustainable performance transformation. Achieving next-level improvement requires extraordinary organizational leadership and commitment, but the potential results are undeniable – lasting impact on the cost of care delivery and the desperately needed capital to fund your organization’s growth and aspirations well into the future.

Have we meaningfully engaged clinicians in our performance improvement efforts in the past, and are we prepared to do so moving forward?

Have we tried something like this before? Were we satisfied with what was achieved?

Questions to Consider

Is our leadership team in agreement about the nature of the opportunities – are we all on the same page?

Do we know where our most likely operational/financial improvement opportunities lie and how large they are?

Is our culture ready to support the major changes required to improve performance, and do we have a robust approach to change management already established?


About the Authors

Rob [email protected]

Rob Gamble is a Director with The Chartis Group with over 25 years of experience as an accomplished advisor to healthcare organizations. He focuses on leading complex operational and performance improvement projects aimed at achieving sustained, transformational change for healthcare provider organizations.

Pamela Damsky [email protected]

Pamela Damsky is a Director at The Chartis Group and leads its Service Line Planning practice. Ms. Damsky has almost 30 years of healthcare experience, the majority of which is in advisory services. She brings deep expertise in organizational strategy, alignment, clinical transformation and performance improvement to help organizations succeed today while preparing for new and future environments.

© 2019 The Chartis Group, LLC. All rights reserved. This content draws on the research and experience of Chartis consultants and other sources. It is for general information purposes only and should not be used as a substitute for consultation with professional advisors.

Atlanta | Boston | Chicago | Minneapolis | New York | San Francisco

About The Chartis Group

The Chartis Group® (Chartis) provides comprehensive advisory services and analytics to the healthcare industry. With an unparalleled depth of expertise in strategic planning, performance excellence, informatics and technology, and health analytics, Chartis helps leading academic medical centers, integrated delivery networks, children’s hospitals and healthcare service organizations achieve transformative results. Chartis has offices in Atlanta, Boston, Chicago, New York, Minneapolis and San Francisco. For more information, visit www.chartis.com.

beating the financial squeeze: how to drive performance ... · optimizing roles and processes to...

Documents