healthcare compliance discussion

Grading Criteria

This assignment is worth 100 points. Please refer to the grading rubric. 

T he strategic planning process consists mainly of two interrelated activities: the development of the strategic plan and execution of the organization’s strategy. T he development of the plan is most often done with a multiyear time horizon (3, 5, or 10 years, for example) and updated annually. Strategy execution, on the other hand, is done on a continuous basis and is the critical factor in management of the organization’s strategic intentions, optimally providing continual feedback for the development of any future plans.

Although strategic planning is a dynamic and not a linear process, Figure 5-1 attempts to depict a logical progression of the steps undertaken to develop a strategic plan. As shown in Figure 5-1, the SW O T (Strengths, W eaknesses, O pportunities, T hreats) Analysis provides a foundation for strategy development. T his analysis serves two important functions: to gather a snapshot of how the organization is currently interacting with the market in comparison to the internal capabilities and intended strategic direction of the organization, and to identify market opportunities and threats that the organization may want to address in future strategic efforts.

FIGURE 5-1 Strategic Planning Process

T hrough analysis of the SW O T , strategy identification can begin. In this stage, the organization’s leadership team uses the information provided in the SW O T analysis to identify specific strategies that may be worthy of pursuit either to grow the organization or to protect current areas of strength. O nce these strategies have been identified, they must be narrowed down to a manageable number through selection and prioritization, and tactical implementation plans must be created. W ith the strategic plan completed, operating, marketing, and other supporting plans are developed. C ontrol and monitoring of the plan follows and is most effectively done on an ongoing basis throughout the year. W e will look at each of these stages of strategic planning in more detail; however, it is important to again keep in mind that strategic planning is not a linear process. T he feedback loop depicted in Figure 5-1 shows the critical nature of planning as an ongoing, dynamic, iterative process.

SWOT ANALYSIS

T he initial planning phase is often referred to as a SW O T analysis, as it aims to identify the internal strengths and weaknesses of an organization, along with external market opportunities and threats. It includes three distinct but intricately related components: the market assessment; the statement of the mission, vision, and values of the organization; and the organizational assessment.

Market Assessment

T he development of the market assessment may be the most complex and timeconsuming section of the strategic plan in that, in this component, virtually all aspects of the market must be examined to determine whether they represent opportunities or threats for the organization and to determine their future implications for the organization. Any of a number of market assessment models can be utilized for this analysis, but one of the most common is the F ive F orces Model developed by H arvard U niversity professor Michael Porter (1998). In this model, Porter identifies five market or industry forces that, when combined, determine the attractiveness of competing in a particular market. For health care, this model can be adapted to analyze the interactions between the power of the health care workforce, the power of consumers and payers, innovations in technology, the regulatory environment, and competitive rivalry, as depicted in Figure 5-2.

Power of the Health Care Workforce

T he power of the health care workforce can have significant strategic implications for any health care organization, as the workforce is composed of the front line of caregivers and support staff in providing services. In the SW O T analysis, an organization should look at the availability of all subsets of health care providers that are critical to its success. As an example, if obstetrics is a major clinical program of the organization, the organization should closely consider the future anticipated supply and demand of obstetricians (O Bs) in its market. W ith the significant increases in malpractice insurance targeted at obstetricians across the country, many O Bs have elected to discontinue delivering babies and focus solely on gynecology, while others have opted to retire early. T his has dramatically reduced the supply of obstetricians in many areas of the country and forced some hospitals to hire their affiliated obstetrical staff in an effort to cover their malpractice insurance premiums and keep them practicing. O ther hospitals have developed “laborists”—O Bs who are hired solely to work in the hospital and deliver babies. T hese moves are examples of strategies that could be adopted by organizations to either maintain or grow their obstetrical services and are in response to market trends.

FIGURE 5-2 Market Assessment Model

Another example of the power of the health care workforce is the potential ramification of the specific personnel shortages (e.g., nursing). W ith a shortage of personnel, wage and hiring expenses increase, jeopardizing the ability to offer those specific services. A nursing shortage may affect a hospital’s ability to add beds to meet growing demand for services. A shortage of radiology technicians may affect an organization’s opportunity to offer new state-of-the-art technologies. T he influence and availability of these and other health care personnel (and the organization’s dependency on them) must be considered when developing future strategies.

Power of Consumers and Payers

At the other end of the spectrum, as the ultimate purchasers of health care, the power of consumers is becoming a more significant market force—and one that has required a dramatic shift in the way the industry offers services. T oday’s consumers are demanding more and more from their health care providers on all levels (e.g., physicians, payers, and hospitals), both in terms of the availability of specific service offerings and in the delivery of those services. H istorically, health care organizations viewed physicians as the primary customers; without them, the organization could not provide services. H owever, in today’s world, the patient is becoming the central focus of customer service. T he potential impact of this shift to a patient-centric model of care needs to be considered when developing future strategies.

C onsumers can influence the health care market in other ways as well. D ifferent communities have different health care needs—one community may need increased access to primary care channels, while another may need better health education and screenings for chronic conditions. By identifying specific community needs, health care organizations can better target their services and potential growth opportunities. T he best way to do this is to understand the consumers in a particular market, and determine in what ways they may need to access health care services.

In concert with consumers is the power of payers. Some markets have multiple payers of various sizes and strengths, while others have one or two major payers that dictate market payments. In either case, a health care organization that relies on these payers must stay abreast of their needs and demands and how each may affect future operations and strategies. A good example of this is a market with one or two powerful payers that prefer a “late adopter” stance for new medical technologies. In other words, they prefer not to pay for new technologies until the technologies have been proven either medically effective or financially efficient or both. T his would be a significant threat to an organization that strives for a competitive advantage by being first to market with the adoption of new medical technologies. Alternately, the power of payers may also create opportunities for an organization. An example would be the general preference of payers for less costly outpatient services. H ealth care organizations that specialize in these types of service offerings (e.g., ambulatory surgery centers, diagnostic/imaging centers) have capitalized on this payer influence in many areas of the country.

Innovations in Technology

Another market force to be considered is innovations in technology. T hese innovations may represent the threat of substitute products, as new technologies often replace standard operations and services. A good example of this was the introduction of Picture Archive C ommunication Systems (PAC S). T his filmless imaging system significantly reduced the need for storage space for films and readers and the staff to maintain those areas, and allowed for remote electronic accessing of files, ultimately requiring a potentially smaller number of physicians necessary to interpret the images. Innovations in technology may also reduce the need for other types of clinical staff, as in the case of some surgical innovations (e.g., minimally invasive surgery, robotic technologies, drug advancements, etc.), and/or they may significantly increase the requirement of financial resources, as in the case of new radiology equipment (e.g., a new C T scanner, new fluoroscopy equipment, MR I, etc.) or new electronic health record systems (E H R s). As these and other new technologies become available, their potential impact on operations and systems needs to be considered in strategy development.

The Regulatory Environment

As a market force, the regulatory environment—on all levels, federal, state, and local—needs to be monitored for its effects on strategy development as well. C ongress continually enacts influential legislation, such as the 1986 E mergency

Medical T reatment and Active L abor Act (E MT AL A), the 1996 H ealth Insurance Portability and Accountability Act (H IPAA), focus on mandatory error reporting and physician self-referrals, and of course the Affordable C are Act (AC A) or “O bamacare.” L egislation at all government levels can have significant and rippling effects on all participants in the health care industry. Furthermore, the C enters for Medicare and Medicaid Services (C MS) often take the lead in changes in health care payment formulas that are frequently followed by payers at local levels. O ther far-reaching issues such as liability reform and quality of care measures may be dealt with on local, state, and federal levels as well. All of these actions can influence a particular health care organization’s strategy and need to be monitored and analyzed for their potential impacts.

Competitive Rivalry

C ompetitive rivalry, the last market force to be considered, is probably given the most significant attention in most organizations’ strategy development. W hether an organization operates in a near monopoly or an oligopoly, strategically savvy organizations always track their competitors’ moves and suspected intentions. Although it is unlikely that you will gain access to the actual strategy of your competitors, much information on their strategic intent can be gleaned from their market activities. Information on their service volumes, market share, and news coverage and press releases should be monitored. O ngoing discussions with your own physicians, staff, and suppliers will likely also yield valuable competitive intelligence. C ompiling this information together to see a larger picture often leads to an indication of competitors’ strategies. O nce their strategic intent has been identified, market opportunities for and threats against your own organization can be further addressed.

Mission, Vision, Values

T he information gleaned regarding the interaction of these five forces (health care workforce, consumers and payers, innovations in technology, regulatory environment, and competitive rivalry) in the market is matched against the organization’s Mission, V ision, and V alue (MV V ) statements. As the driving purpose of the organization, the MV V s are reviewed as part of the strategic planning process to ensure they continue to be aligned with the organization’s future market environment and to help identify future desired strategic directions. T he mission of any organization is its enduring statement of purpose. It aims to identify what the organization does, whom it serves, and how it does it. For example, the mission statement for G enesis H ealthcare, a skilled nursing and rehabilitation therapy provider, states “W e improve the lives we touch… through the delivery of high quality healthcare and everyday compassion” (G enesis, 2014, para. 1). O n the other hand, a vision statement strives to identify a specific future state of the organization, usually an inspiring goal for many years down the road. T he vision of the American H ospital Association is “of a society of healthy communities, where all individuals reach their highest potential for health” (AH A, 2015, para. 1). T he values statement should help define the organization’s culture —what characteristics it wants employees to convey to customers. An example of one such value from D uke Medicine in N orth C arolina is: “W e hold each other accountable to constantly improve a culture that ensures the safety and welfare of all patients, visitors, and staff” (D ukeMedicine, 2015, para. 6).

Although the mission statement is generally the most enduring of the three, each of these statements may be altered over time to adapt to the environment. As an example, the increasing influence of consumerism in health care drove many an organization to revise its vision and value statements to become more customer service focused, which in turn (hopefully) helped to change the organization’s culture. R eaffirming and/or adjusting these three statements in relation to market activity is a critical step in determining the desired future state of the organization.

Organizational Assessment

N ow that we have an idea of what our market looks like and understand our desired intent from our (reaffirmed) MV V , it’s time to take a hard, honest look at our own organization. In conducting an internal assessment, an organization turns the analytical lens inward to examine the areas in which it has strengths and weaknesses, as well as how it may build or sustain a competitive advantage in the market. L ike the market assessment, the organizational assessment has both quantitative as well as qualitative components. T he quantitative section of the internal assessment consists mainly of the organizational volume forecast and an assessment of the financial condition. T he qualitative section focuses on past strategic performance and leadership’s interpretation of the organization’s core capabilities (or lack thereof). E ach of these components is discussed further.

Organizational Volume Forecast

T he volume forecast is initiated by identifying the organization’s service area— usually a zip code–defined area where 70–80% of its patients are drawn from—and determining the population use rates for applicable service lines (e.g., cardiology, orthopedics, home care visits, C T scans, etc.). T hese data are usually collected for several historical time periods (e.g., the previous three years or twelve quarters) and can then be forecasted out several more time periods simply by using a mathematical trend formula, resulting in a baseline scenario. H istorical market share information is then applied to each service line, therein highlighting some of an organization’s strengths and weaknesses. By holding its market share growth trends constant, an organization can formulate a preliminary idea of how well it would fare if it were to stay its current course (and if its competitors do as well). E xamining the forecast from the perspective of market share, contribution margin, and/or medical staff depth will also yield service lines or areas of strength that may need to be protected and service lines or areas that could be developed further.

Financial Condition

As with the volume forecast, several years’ worth of key financial indicators should be analyzed to highlight additional strengths and weaknesses of the organization.

T hese may include indicators such as operating margin, net income, gross and net revenues, bond ratings, fund-raising, key financial ratios, payer mix, pricing, and/or rate-setting arrangements. T he organization’s historical performance against budget is also helpful to analyze and should yield further insight into strengths and weaknesses. Any financial forecasts that are available should also be included, as well as any routine or planned capital spending and/or facility improvement plans. It is critical to tie the financial reserves and needs of the organization to the strategic planning process to ensure the resulting strategies can and will be funded appropriately. T ying the financial information to the volume forecast also serves to provide budget targets for the upcoming year(s).

Strategic Performance

It is important to remember strategic planning is a dynamic rather than linear process and, as such, there should optimally be no distinct beginning or end. T hus, a review of the organization’s past strategic performance should be included as part of future strategy development. T his review can be as simple as an assessment of whether past strategies accomplished their intended goals or as multifaceted as an ad hoc leadership meeting to discuss roadblocks that led to failure or factors that drove success. E ither way, this review can and should provide valuable information for future strategy development and implementation.

Organizational Core Capabilities

In addition to the more quantitative strengths and weaknesses that can be outlined through the volume forecast and financial condition review, there are subjective strengths and weaknesses that need to be identified for strategy development as well. Identifying these capabilities can be quite challenging, as planners usually have to rely on surveys of and/or interviews with the leadership of the organization to gather this information. T his can be both time-consuming and value laden, but this information will be critical input for the plan’s overall success. W ith that said, T able 5-1 highlights some common methods of collecting this information and the benefits and limitations of each.

T he key to gathering the most value from the leadership input is to challenge leaders (e.g., executives, physicians, managers, etc.) to think within a strategic context, as opposed to the operational mode they are involved in on a day-to-day basis. Merely asking leaders to identify an organization’s weaknesses, for example, can result in responses such as poor parking or a lack of marketing, whereas framing the question to identify challenges to the organization in growing service volumes may better yield answers such as an aging medical staff, lack of capacity, etc. It is important to incorporate these identified strengths and weaknesses into the organizational assessment for further discussion.

STRATEGY IDENTIFICATION AND SELECTION

T hroughout the development of the SW O T , the building blocks for strategy identification begin to emerge. If the organization is at the start of the development of a multiyear plan, it will usually conduct a rather thorough SW O T analysis. H owever, if the organization has an identified long-term strategic direction, the SW O T may selectively analyze only those areas that are relevant to the identified strategic direction. For example, if the organization has resolved to grow defined service lines, the analysis may focus more specifically on those areas of the market. Alternately, if the direction is diversification, the analysis may focus more on areas related to the organization’s current strengths, whether they are related to service line or internal capability. R egardless of the depth of the SW O T , it serves as input for the next step in the process, strategy identification and selection.

Scenario Development

Strategy identification usually begins with the baseline scenario developed for the volume forecast. H owever, at this point, it is important to apply planning assumptions to the scenario and not simply accept the baseline. For example, will the organization plan to hold market share constant for a particular service, or will the organization hope to grow that market? Alternatively, the organization may decide to discontinue a specific service, perhaps due to predicted declining reimbursement or lack of physicians. By applying different planning assumptions, many different scenarios may result.

It is also critical that the information and data gathered in the market assessment, including the competitor assessment, be incorporated into this forecast in the form of further planning assumptions. For example, are there new technologies on the horizon that will affect service volumes? O r is there a dearth of providers that may counteract predicted increasing utilization of a particular service for a period of time? D esired financial targets also need to be incorporated here.

O verlaying these planning assumptions onto the baseline scenario can result in any number of future scenarios by adjusting their relative impacts. T his is where strategic planning really becomes an art vs. a science, and it is often difficult to quantitatively determine the extent to which market forces may affect future market volumes. Because of this, the underlying planning assumptions should be debated extensively. T o this end, there are several companies that provide assistance and/or models for quantifying market forces; a sampling of these companies is provided as additional resources at the end of this chapter.

From this scenario analysis, several potential strategic directions for the organization may emerge. T he strategic direction is the goal that the organization desires to accomplish within the planning time frame. G enerally, as each scenario may have different probabilities for success and may require different levels of resource investment, the specific scenario (and strategic direction) that will ultimately be chosen will often depend on an organization’s tolerance for risk.

Outcomes

O nce a strategic direction is chosen, specific desired outcomes should be targeted and strategies to accomplish this identified. As an example, if an organization concludes it will differentiate itself through its orthopedic services (strategic direction), the desired outcome may be to lead the market in orthopedic service volumes within two years. T o accomplish this, the organization may identify strategies to increase its surgeon base, add rehabilitation services, or develop a center-of-excellence program. A strategy is a carefully designed plan to accomplish the desired outcomes.

E ven the largest and most fiscally sound organization cannot successfully implement all the strategies it can conceive of, nor should it try to. A successful strategic plan is focused and, just as importantly, executable; too many strategies may render the plan ineffective simply because there is too much to do. Strategy is all about making choices. A clear and focused strategy will guide decision making, prioritize resource allocation, and keep the organization on its desired course; in choosing which strategies to pursue, an organization is also choosing which strategies not to pursue. At this stage in the planning process, the organization’s leadership must determine its ability to successfully execute the strategies it has identified.

Factors to consider in making this determination are highlighted in T able 5-2 and include, for example, the degree to which the strategy has the ability to help the organization meet its financial targets. Alternatively, does the organization have the financial resources to fund the strategy appropriately in terms of operating and capital expense? Additionally, does the organization have the internal capabilities to successfully execute the strategy—does it have, or can it acquire, the necessary human resources? Is the strategy transformational enough to bring about the desired change? E qually important, is there a champion to take ownership of the strategy’s success? By going through the exercise of matching potential strategies to financial and other targets, and matching implementation requirements to resource availability, strategy selection is accomplished.

Strategy Tactical Plans

T he final step in the actual development of the strategic plan is the creation of specific tactical plans for each strategy, which are necessary for translating the plan into action. T actical plans answer the who, what, when, where, and how questions of strategy implementation. T able 5-3 shows an example of a basic template for a tactical plan that, when completed, will help drive implementation of the strategy.