The shift to value-based payment mandates that hospitals and health systems do more with less. To be successful, organizations will need to cut costs, enhance operational efficiencies, and improve quality and outcomes. For boards, this means taking a new approach to strategic planning.

To begin, organizations must perform a detailed assessment of their competencies and weaknesses. The focus should be less about what's going on in the marketplace and more about what's going on inside the organization, says Brian Fuller, senior vice president, Kaufman Hall. "The self-evaluation is a key function of the strategic planning process and has never been more critical," he says. "It provides a clear understanding of where you are as an organization, identifying strengths and deficiencies to help set the organization's future direction." Identifying gaps and deficiencies is an important component of the operational assessment, says Brian Channon, senior vice president of Kaufman Hall. This process will help pinpoint what needs to be in place to achieve the organization's strategic objectives. Finally, the organization should conduct a thorough review of the organization's service offerings to determine relevance.

"By reducing organizational complexity, organizations can focus on what's important today and in the near future," says Channon. "The products and services should relate to the organization's strategy and mission."

Where to Begin? Five Key Steps

The operational assessment enables an organization to reassess many aspects of its operations and future plans. The process should be thoughtful and deliberate to gain an accurate appraisal of performance and needs.

  1. Gather information. A thorough review of data will help executives get a handle on the organization's operations, strategy, strengths and weaknesses. The focus should be on financial performance, human resources, strategy and service offerings, as well as outcomes and results.
  2. Get feedback. Feedback from senior leaders, the board and medical staff is critical and can be obtained in a number of ways, including one-on-one interviews, focus groups, surveys and workshops. "The process will not work if you only have the senior management's perspective," says Kaufman Hall's Brian Fuller.
  3. Build consensus. Once all of the relevant data and information are compiled, hold a series of meetings with stakeholders to formulate a consensus on the organization's strengths and weaknesses. This step also should explore barriers to long-term goals and how the organization can take advantage of its opportunities.
  4. Create an action plan. The board, senior leaders, medical staff and other key stakeholders should develop a plan to strengthen the organization's infrastructure: What improvements are needed before the
    organization can move forward with its action plan?
  5. Monitor performance. This process will identify any deficiencies in the action plan and help to allocate resources appropriately to areas of need.

What to Assess? Seven Domains

While the makeup of an operational assessment — how long it lasts, which stakeholders are involved — will vary from organization to organization, some basic structural elements are essential. For example, the initial step of gathering baseline information should focus on key strategic and operational areas and provide insight on the organization's position for the future. Seven domains should be examined.

Information Technology

  • IT infrastructure
  • Information sharing and coordination-of-care capabilities
  • IT master plan
  • EHR adoption rate
  • Data capabilities

Medical Staff

  • Physician integration
  • Clinical integration
  • Physician satisfaction
  • Relationship with other community providers
  • Physician leadership

Operations and Expense Management

  • Profitability
  • Capital spending and capital capacity
  • Liquidity
  • Debt capacity
  • Relationship with payers

Business Development and Strategy

  • Governance and management model
  • Openness to risk
  • Strategic plan
  • Mission, vision and values
  • Organizational awareness

Clinical Services

  • Efficiency and throughput
  • Accessibility and utilization
  • Patient safety and quality indicators
  • Service distribution
  • Staffing

Supply Chain

  • GPO contracts
  • Logistics and distribution
  • Supply expense as a percentage of net revenue
  • Supply expense per adjusted patient day
  • Standardization

Revenue Cycle

  • Payer mix
  • Bad debt
  • Percentage of preregistered patients
  • Net days in accounts receivable
  • Case-mix index

A CEO Talks: Assessment Suggests New Directions

Glenn Robinson, president and CEO, Hillcrest Baptist Medical Center, Waco, Texas

"In 2007, Hillcrest Baptist Medical Center sought outside help to analyze its strategic direction. That's the same year I came on board. The move followed several years of declining volume and revenues. The board recognized that dramatic changes were needed. Expenses were eating up revenue beyond an acceptable rate. The operational assessment included a review of the organization's operations, revenue cycle, staffing and supply chain to identify opportunities for potential savings and cost-reduction. In 2007, for example, we averaged 6.0 full-time employees per staffed bed. Changes in our staffing dropped the average FTE per staffed bed to between 3.8 and 4.1. Another one of the results of the assessment was a decision to seek an outside partner to ensure our ongoing success. After a thorough assessment, we partnered with Scott & White Healthcare. This past year, we had our best financial performance in 16 years. Volume has grown, although we did not achieve our target. We achieved our results largely through expense control."

Source: H&HN research, 2012