Abstract:
The days of a practice putting up a shingle or sign and waiting for patients to come for treatment are over. The same applies to hospitals, which can’t just have beds, an emergency department, an operating room, and an intensive care unit and hope to remain profitable in this tumultuous era of healthcare delivery. Now it is imperative to have a strategic plan to move forward. Practices and hospitals need a plan in order to prosper, rather than settle for mere survival.
Medical practices and hospitals can survive without a strategy, but that is about all they can do. They will be like the proverbial duck that appears calm on the surface of the water, but, in reality, those practices and hospitals that lack a strategy will be paddling like hell underneath the water to remain afloat. Without a strategy, hospitals and practices will struggle to remain profitable or survive over the long term. In the United States, that’s why hospitals are being bought out or even closing.(1) The same applies to medical practices that are being acquired by hospitals or are merging with other practices within the community. With a well-crafted, clear strategy, which is effectively communicated to all members of the practice or team, and then carefully implemented, the likelihood of success, profitability, and enjoyment from the healthcare profession is dramatically increased. Let us be clear, however: the process is not easy, and it does require considerable time, energy, and effort to successfully carry it out.
What is Strategy?
Strategy is a framework within which the choices about the nature and direction of the practice or hospital are made. It is the boundaries that determine what lies inside or outside the practice’s or hospital’s priorities. It is strategy that defines what services will be offered to patients in the medical practice and what services or products the hospital will offer to patients and doctors who use the facility. The strategy will define what patients the practice is going to attract and what payers they are or are not going to accept. The strategy also may prioritize geographic areas that the practice or hospital will focus on, such as what zip codes to market their services to. The strategic plan also defines the direction in which the practice or hospital is headed and how it might maintain an existing course or strike out in a new direction.
Gathering Intelligence
Strong strategic planning is grounded in research, ensuring that the resulting direction is well-informed. To get started, it is important to create strategic questions that will guide the planning process in order to focus the data gathering. These questions will be high-level and will address fundamental decisions that will have to be made, such as “Should we expand our geographic footprint, and if so, where?” Other strategic questions may address services offered, the financial model, operations, growth, or other big issues facing the practice or hospital.
The data-gathering phase begins internally, by looking at information such as the practice’s financial statements, patient base, operational metrics, services offered, and patient and satisfaction metrics, among others. It is important to look at both a current snapshot of the organization’s status and trends over the past five years. Then dig into the details of any trend that stands out to in order to understand the key drivers. For example, if the profit margin has been decreasing over the past five years, is that decline due to the revenue side or overhead costs? If it is on the revenue side, is it due to decreased reimbursement rates, decreased productivity from practitioners due to an operations bottleneck (leading to fewer patients seen), or something else? Understanding the past trajectory of the practice and its current strengths and weaknesses is a key starting point for making sound decisions about the future.
External data can inform the opportunities and threats facing the practice in the future.
At the same time, external intelligence is also critical. This includes data such as demographic changes in the geographic footprint of the practice, long-term trends in the healthcare system, and the competitive landscape. When analyzing the competitive landscape, it is important to consider organizations that may not seem immediately relevant, but that may provide an alternative for patients in some way. For example, a large practice may not consider the new “minute clinics” a competitor, but patients may go there for certain quick services, in which case the large practice would need to take these clinics into consideration in making decisions for the future. On the one hand, those quick services may be areas in which it is strategic to vie for the patients because it brings them into the office for other higher-paying services. On the other hand, these may be lower-priority services, and the large practice might do better by focusing on other services where it has a unique advantage. Looking at market share trends over time can also help inform where the competition may be gaining ground. External data can inform the opportunities and threats facing the practice in the future.
Once the key challenges facing the practice or hospital have emerged, it can also be useful to gather intelligence from other practices or hospitals that have been through these challenges to learn from best practices or mistakes. While direct competitors often do not want to share competitive information, there often are a few analogous organizations, either serving a different set of patients or located in other geographic areas, that may be able to offer insight. Additionally, when there are other practices or hospitals with whom the practice collaborates and which would benefit from stronger practices themselves, these organizations are also often willing to share their perspectives.
Strategy Formulation
The insights garnered from the intelligence-gathering phase are used to craft a strategic direction for the organization. Start by setting three to five key strategic goals. These goals may be offensive or defensive in nature, depending on the strengths, weaknesses, opportunities, and threats identified. For example, if the practice sees unmet need in its area, perhaps expanding its presence and increasing its market share in that specific area is a goal. However, if the market is saturated in its current area, perhaps expanding to new geographic areas is a goal. Or if a host of new competitors have emerged and patients have been leaving, perhaps a goal is to improve patient satisfaction. Retaining a customer generally consumes significantly fewer resources than acquiring a new one.
After setting the key, high-level goals, the next step is constructing directed initiatives that will enable the practice to achieve those goals. In response to the first example—increasing market share within the current area—perhaps the demographics are shifting, which is creating an opportunity to serve an entirely new segment of the market. If this is the case, an initiative may be to target certain populations as a means of acquiring new patients. If an inadequate number of exam rooms is revealed to be the cause of a bottleneck that is hindering practitioners’ ability to see more patients, perhaps physical building expansion is a goal. For the second example—patients have been leaving the practice—understanding why patients have been dissatisfied can help guide appropriate initiatives. Are patients concerned about the quality of care? Or do they simply go somewhere else because it is more convenient or they feel more comfortable speaking a different language? Initiatives should have a specified timeline, which is sequenced based on any contingencies—that is, initiatives that must be completed before another can begin—and then prioritized based on maximum effectiveness at minimum cost.
The strategic plan must be supported by the budget, including both revenue generation and expenses.
Constructing a plan that is simple and easy to follow allows everyone in the practice to prioritize decisions and resource utilization to ensure the whole practice or hospital is moving in the same direction. In this way, strategic plans not only tell a practice what to do going forward, but also create boundaries, eliminating potential directions that may be a distraction from the core strategy.
Planning Process
The strategic plan must be supported by the budget, including both revenue generation and expenses. On the revenue side, the strategic planning process can help the practice understand where the best opportunities for revenue lie and target those areas. This could take the form of addressing payers or rates, or targeting a different mix of clients based on their typical payers, or even targeting different services that have higher profitability rates than others. Whatever the goal, the revenue projections should reflect these priorities and should show an anticipated shift over time.
Resource allocation often is the place where tough decisions must be made. Because strategic planning eliminates some activities that are not a priority, costs may need to be cut in some areas to reallocate those resources to a new priority area. For example, if the plan is to target a new patient demographic, more resources may be needed in marketing. It is important to create a budget for each initiative, detailing the costs and timeline. Then incorporate these costs into the current budget, shifting resources from lower-priority areas to where they are needed to accomplish the strategic plan.
For a strategic plan to be successful, the plan and the budget—including both revenue targets and resource allocation—must be in alignment.
Strategy Implementation
The key to implementation is accountability. Even if everyone in the practice understands the strategic goals, if a decision is based on the goals but goes against personal incentives, staff will likely not make the strategic decision. Therefore, it is important to look at financial and personal (e.g., time or effort it takes to do something, efficiency) incentives to make decisions and adjust them to be in alignment with the new strategic plan.
It is also important to assign accountability for completion of a specific initiative to one person. That point person is responsible for ensuring that his or her specific initiative is accomplished on time and on budget. When accountability is assigned to a team, it can muddy the waters; so, if a team is responsible, appoint one team leader who is ultimately accountable.
Finally, for implementation to succeed throughout the practice or hospital, the plan must be communicated at all levels, and leaders within the practice must model how to act in line with the plan. What is expected of each team member must be made clear. It is then important to have everyone agree to the plan and agree to their role in seeing the strategic plan implemented.
Monitoring, Reviewing, and Updating the Plan
The purpose of planning is not just to create a strategic plan, but to accomplish the objectives. One way to know whether you have achieved your plan is to measure performance. Creating solid measures is just as important as developing a performance scorecard. Measures must include quantifiable performance statements.
Some of the different types of measures to consider for your strategic plan include the following:
Efficiency measures: Efficiency measures include productivity and cost effectiveness, measured as ratio of outputs per inputs. Examples of efficiency measures might be how long patients wait in the reception area on average before being taken to the exam room, or how long patients wait to be seen by the doctor.
Outcome measures: Outcome measures are the end result of whether services meet proposed targets or standards. They demonstrate impact and benefit of activities. One example would be the percentage of patients who use the nutritionist in the practice and have achieved their ideal weight.
Quality measures: Quality measures gauge the effectiveness of expectations and generally show trends in accuracy, reliability, courtesy, competence, responsiveness, and compliance. Examples of quality measures include the number of patient “redo’s” after surgery within a specified time period, or the average number of days a patient waits to obtain an appointment for an urgent versus a routine appointment.
Project measures: Project measures show progress against an initiative that has a deadline. The measure is usually stated as the percentage complete.
Sometimes the measures are obvious, such as:
Number of new patients;
Number of procedures performed on a monthly basis;
Percentage of patients discharged from the hospital that have to readmitted within 90 days;
Percentage improvement in patient satisfaction surveys;
Percentage of claims denied by insurance companies;
Percent reduction in employee turnover; and
Percent reduction in account receivables (particularly in those accounts that are more than 120 days old, because those are not likely to be collectable).
Other times, the measures are less obvious, such as calculating a return on investment (ROI). This can be done in advance by looking at the budget and understanding how much an initiative is expected to cost and then calculating either how much additional revenue or cost savings are expected. The ROI is then calculated as the gain from the investment, minus the cost of investment, divided by the difference in the cost of investment. For example, if a marketing plan is expected to cost $10,000 and bring in an additional $30,000 in revenue from a new target audience over the next three years, the ROI is calculated as:
In this scenario the expected ROI is 2× over three years, and the practice or hospital can measure its progress on this initiative by comparing it with this expected rate. ROIs can also be useful to help prioritize initiatives; those initiatives with higher ROIs can be sequenced before initiatives with lower ROIs.
Summary
Strategic planning in healthcare is essential for successful operations, expansions, and profitability. Shifts and changes in the healthcare industry affect virtually every sector, including private medical practices, hospital outpatient clinics, acute care or outpatient emergency centers, urgent care centers, and long-term-care facilities. In order to succeed, it is critical to have a strategic plan. A successful strategic plan allows physicians and other leaders to establish a roadmap for the future and gives those involved in caring for patients a direction to follow. It can also breathe new life and energy into organizations that have been like that proverbial duck, paddling like hell to make ends meet.
Reference
Obamacare Forcing Rural Hospitals to Close. Newsmax.com . March 15, 2015. www.newsmax.com/Newsfront/obamacare-rural-hospitals-close/2015/03/15/id/630246/ . Accessed July 7, 2016.
Topics
Governance
People Management
Differentiation
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