LEADERSHIP ASSIGNMENT PART 2

11/19/2020 A New Framework for Healthcare Performance Improvement

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H o w To | P r o d u c t i v i t y a n d P r o c e s s I m p r o v e m e n t

A New Framework for Healthcare

Performance Improvement Aug 14, 2018

By Gary Auton

Building a new, patient-centric continuum of care requires a

fundamental restructuring of the healthcare system.

The move to value-based payment is altering the structure and focus of

healthcare organizations. Every sea change demands strong leadership

and a winning game plan to achieve enduring success. That game plan is

performance improvement.

However, health systems have performance improvement strategies that

often are not in sync with emerging marketplace requirements.

Performance improvement plans are frequently based on slow,

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incremental improvement centered on labor productivity, supply, and

other non-labor costs. These traditional approaches, while useful, cannot

alone offset payment and volume declines for most organizations.

Building a new, patient-centric continuum of care requires a

restructuring of the healthcare system and a new taxonomy of

performance improvement interventions that are faster, broader, and

more strategic than those adopted in the past. Improvement initiatives

must increasingly focus on long-term, high-impact areas that re-engineer

clinical care, sharpen service portfolios, and exploit scale of operations.

Levels of Performance Improvement

Performance improvement opportunities accrue at different points and

with varying scope in a health system. Specifically, performance

improvement takes place at three levels: the department or program

(process) level, the cross-functional or cross-site (structural) level, and

the cross-market or cross-population (portfolio) level.

Performance Improvement Levels in Health Systems

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Process Level

Process changes represent the routine operational modifications leaders

make daily in their areas of responsibilities. Process initiatives include

routine department-level changes in work schedules, role design, and

workflow improvements that improve staff utilization and service to

patients. Specifically, program level changes include:

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Performance improvement takes place at three levels: process. Structure, and

portfolio.

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Process improvement. Strengthens the services and value provided to

patients, families, physicians, and other stakeholder groups. Department-

level initiatives usually focus on reducing waste, improving cycle time,

and building reliability into key work processes.

Facilities optimization. Modifies the layout and workspace of a

department to improve patient flow and facilitate the effective use of

resources.

Demand smoothing. Improves patient and work activity scheduling to

balance workload across days and weeks.

Role and team design. Creates jobs and assigns responsibilities to

improve flexibility and workload balance across work teams.

Dynamic staffing. Improves staff scheduling and deployment to meet

variable workload demand.

The organizational impact resulting from process-level changes depends

on department size and complexity. Organizations in the early stages of

performance improvement should first focus on building department-

level processes and systems.

Structural Level

At some point, health system leaders find that further improvement only

can occur by addressing processes and systems that cross over into other

areas of organizations. These improvement opportunities occur at the

second, or structural, level. Structural improvements represent

operational interventions that are executed among functions both in

single facilities and across multiple facilities in health systems. These

interventions often challenge and alter the foundational assumptions of

hospital and health system processes and organizations.

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Structural improvement levers include:

Structural process improvement. Improves key business processes

across functions and system entities to enhance service continuity.

Management restructuring. Redesigns leadership roles to better

leverage management resources across departments, programs, and

sites.

System rationalization. Leverages the advantages of system scale to

rationalize staffing and resources across multiple entities.

Service redeployment. Relocates resources and services to different

areas to improve service and lower operating costs.

Non-labor optimization. Builds processes and systems to manage

enterprisewide supplies and other non-labor expenses.

Demand regrouping. Reaggregates work to achieve better resource

alignment, build proficiencies, and improve workload balancing across

time and functions.

Utilization improvement. Lowers case cost and contribution margins by

reducing unnecessary utilization of clinical services.

Off-quality improvement. Improves clinical quality outcomes and

minimizes the costs of unfavorable quality events.

Structural improvement projects are often complex, requiring a great

deal of time and effort and the involvement of large, diverse groups of

leaders and staff. When executed effectively, structural improvement

initiatives can yield substantial gains in organizational performance.

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Portfolio Level

Beyond process and structural changes, further performance

improvement is achieved through alterations in health systems’ portfolio

of services and programs. Portfolio-level changes occur when health

systems reconfigure and redesign programs and services to respond to

changes in market demand. The aim of portfolio management is to

maintain a service offering that meets market demand and maximizes

revenues and margins. For health systems, portfolio improvement

includes:

Service divestment. Identifies services to eliminate or markets to exit.

Service outsourcing. Determines which care continuum components

should be produced internally versus by partnering entities.

Demand growth. Identifies strategic marketing opportunities and

tactical growth initiatives to build top-line revenues.

Revenue optimization. Improves net revenues and margins through

enhancements to organizations’ revenue cycles.

Continuum realignment. Realigns programs, resources, and investments

to build a stronger service continuum.

Portfolio improvement is a growing area of focus for large healthcare

systems. As accountable care and population health initiatives transform

healthcare delivery, health systems must institute changes to their

service portfolio by reducing investments in existing programs and

building new programs and capabilities. Similarly, growth and revenue

cycle improvements are necessary for building and sustaining operating

margins.

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System-Level Gap Closure Plan

Performance improvement strategies must address an increasingly broad

range of operational issues and extend for multiple years. For example, in

a four-year financial gap closure strategy for a regional healthcare

system, a hospital CFO prepared a forecast of the organization’s

expected decline in operating margins under a scenario that net revenues

per inpatient case for all payers would approach prevailing Medicare

rates. Based on this scenario, the organization’s operating margins would

drop by $36 million in the first year and grow to $60 million by the fourth

year.

The executive team then developed a multiyear gap closure strategy

featuring the deployment of 11 performance improvement initiatives,

including three focused exclusively on the physician practices division

(see exhibit on page 4). The plan enabled the organization to achieve a

positive operating margin by the second year.

Of note is that the strategy was built on assumptions of when benefits

were expected to be achieved and that these savings would be sustained

over time. For example, the labor productivity team forecasted a savings

of 175 FTE staff in the first year. The $10.4 million savings would be

sustained and accrue over subsequent years.

See related sidebar: 5 Keys to Successful Performance Improvement

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Example of a System-Level Gap Closure Plan

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A hospital executive team developed a multiyear gap closure strategy featuring

the deployment of 11 expansive performance improvement initiatives.

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This example illustrates several dynamics of multiyear performance

improvement:

Financial gap closure requires a multiyear portfolio of short-term

and longer-term initiatives.

Short-term improvements are found primarily through a focus on

labor productivity and non-labor expenses.

Revenue cycle improvements may generate substantial revenue

gains in the short term as well, depending on organizations’ current

performance.

These short-term initiatives are necessary but insufficient for

closing large financial gaps over extended periods.

Savings resulting from clinical utilization, quality, and portfolio

improvements can be substantial, but they take longer to

implement than other cost and revenue improvements, with

benefits from the long-term initiatives generally accruing two to

three years after launch.

Revenue growth normally includes short-term tactical

improvement and long-term strategic opportunities.

The work required to transform healthcare systems can be daunting.

Large-scale performance improvement challenges leaders at all levels of

the organization and usually surfaces unaddressed operational, strategic,

and cultural gaps. Paradoxically, leaders who are tasked with driving

performance improvement are often those individuals most threatened

by the change. It is not surprising that many transformation initiatives fall

short of expectations. However, by demonstrating organizational value

and the impact on future viability, performance improvement champions

can bring others on board.

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Gary Auton

Gary Auton (mailto:[email protected]) is senior director,

Galloway Consulting, an ADAMS Company.

About the Author

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11/19/2020 A New Framework for Healthcare Performance Improvement

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