The Five Pillars of Performance Improvement for Health Care Providers

The recent economic downturn has spared few industries or institutions. The notion that health care is immune to fluctuations in the broader economy has fallen by the wayside. Over the last 18 months, health care providers have been feeling the effects of the recession and the fallout of the credit crisis in their margins. The average total margin for hospitals fell to -7.8 percent in the fourth quarter of 2008 from 4.6 percent in Q4 of 2007. Margins are under increasing pressure as a result of a number of trends that have combined to create a perfect storm for providers:

• Demand for elective services has decreased as employers have shifted more costs to employees, and consumers, as a result, have become more cost-conscious and price-sensitive;
• Levels of bad debt and charity care are growing rapidly as the ranks of the unemployed and uninsured are increasing;
• Increases in the Medicaid population are shifting the payor mix to lower (or negative) margin payors;
• Decreasing income from non-operating sources (investments and donations) and limited access to credit have removed the bottom-line ‘buffer’ providers historically relied on to close their operating gaps.

Even amidst this turmoil, we believe there are opportunities for health care providers to look ahead, take action and plan for the future. To counter these challenges, providers should consider adopting a cross-functional approach to operations management that encompasses five specific focus areas, or “Pillars.”

The Five Pillars of Performance Improvement:

1. Lead by example
2. Tighten the core
3. Drive ‘fixed’ costs to become more variable
4. Leverage shared services in traditional and non-traditional ways
5. Manage your demand, not just your costs

We believe a multi-dimensional approach that incorporates these Five Pillars of Performance Improvement can provide a sustainable path forward to help promote long-term operational enhancements, revenue growth and asset efficiency.

This white paper describes each of these five pillars in further detail and identifies key strategies health care providers can use for each pillar. In addition, the article showcases the five pillars in action at St. Vincent’s Health (SVH). With Deloitte’s help, the SVH executive team began its Opportunity Assessment Initiative (OAI) by benchmarking its administrative and support services and hospital-specific clinical operations against national peers. The gap between baseline and target performance was then used to drive the identification of financial and operational improvement opportunities. After weeks of brainstorming and research on effective practices, the teams ultimately developed a plan that, in total, comprised 156 different initiatives that could drive an increase in margin of almost two percent. The proposed initiatives ranged from relatively simple changes in staffing practices to more complex changes in the way departments fundamentally operated. Incorporating the fundamental tenets of the Five Pillars into the planning and execution of the process, St. Vincent Health was able to identify and implement sustainable improvements to the organization that they expect will have a net benefit to both the bottom line and the future operational infrastructure of the system.

Finally, there is a scorecard to help organizations prioritize their focus as it endeavors to maximize its potential relative to the Five Pillars of Performance Improvement.

Download the full article below.

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