Internal Strategy to Support Programs and Performance
By Andrew L. Epstein, MD

This paper is based upon Dr. Epstein's presentation at the ACHE 2008 Congress on Healthcare Leadership, "Redefining the Healthcare Landscape". See the original slides here.

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Page 1: The importance of internal strategy

The increasing focus on measurable and demonstrable outcomes in healthcare lends new weight to the management-theory notion that an organization is designed—whether deliberately or by happenstance—to produce exactly the results it gets. Where a hospital, health system, medical center, or practice is not achieving the outcomes it needs, it is essential to look for limitations in its organizational design.

How does organizational design influence outcomes? And more importantly, what organizational structures can improve outcomes?

Defining greatness in healthcare

James C. Collins, author of the groundbreaking 2001 management guide, Good to Great, came to realize the shortcomings of trying to apply conventional business theories to social-sector enterprises, including healthcare, and in 2005 published the 42-page monograph, Good to Great and the Social Sectors. In that addendum, he recognized that “business thinking is not the answer”, to many of the problems facing healthcare organizations. He wrote:

 

“The confusion between inputs and outputs stems from one of the primary differences between business and the social sectors. In business, money is both an input (a resource for achieving greatness) and an output (a measure of greatness). In the social sectors, money is only an input, and not a measure of greatness.”

 

Healthcare is different in other ways, too. Perhaps the most significant is that, although they are increasingly held to account for the performance of their organizations—financial and clinical—healthcare executives do not control all the inputs to that performance. The relationship between hospitals and their voluntary medical staff has fostered a history of competing interests, perverse incentives, and mistrust. But responding to the focus on outcomes requires a systemic approach—one in which all the constituencies work together. In healthcare, to achieve any strategy of response to external factors, you need to develop an internal strategy of increasing collaboration. And the vast majority of healthcare organizations need new structures to facilitate that collaboration.

Although hospital and healthcare executives must meet financial responsibilities, in healthcare, it is clinical results that make or break an institution—as it always has been. The difference now is that the financial pressures are greater, and the results are being measured and made public in ways that were inconceivable 30 years ago. Clinical and financial performance are linked as never before. As one CEO put it: “In a world of thin margins, clinical performance will drive financial success. It will also drive reputation and competitive advantage.” Achieving that level of clinical performance will require collaboration both among and between physicians, administrators and trustees.

• Culture of collaboration and shared destiny
• Collaboration in strategy and planning
• Collaboration in leadership and performance management
• Shared commitment to quality, safety, service, and business performance

In this environment, alignment is no longer a luxury, but a necessity.

What do hospitals need today?

To compete and survive in today’s marketplace, hospitals need:

Competitive advantage based on capabilities and outcomes, including:
• Market-leading programs of care with supporting facilities and technologies
• Demonstrably better quality, safety, access, efficiency, and service
• Patient- and family- centered care experience
• The best physicians, administrators, and staff

Capital to invest in the future, derived from sources including:
• Revenue growth from market share and volume
• Expense reduction from quality and cost performance
• Bottom line margin growth and AA bond rating

Most importantly, they need the deep commitment and collaboration of their affiliated physicians.

What do physicians need today?

Physicians seek both financial security and control of their own destiny. To achieve either one, they need hospital partners that can:

• Provide an efficient workshop
• Benefit from their contributions
• Give them leverage in contracting with payers and vendors
• Act as a capital partner
• Protect their local practice autonomy
• Give them a voice in the enterprise over operations and strategy

Ultimately, physicians need a committed and supportive hospital or system that they are proud to be associated with. Although our emphasis in this article is on meeting the organization’s needs, successful new structures offer substantial benefits to physicians as well:

• An organization that supports their personal mission and contribution to the community
• An organization that supports the financial success of physicians in the community
• A structure that gives them better tools to provide a great hospital for their families, friends, and the community at large
• A stake in the financial success of the hospital and its ability to provide the best facilities, technologies, staff, and programs
• A say in the hospital’s priorities and strategies
• Improved efficiency in the hospital to benefit our practice and patients
• Pride in providing the best care to our patients in the hospital and in the community

On to Page 2: Traditional organizational models and their limitations