Development and Implementation of a Rural Hospital Strategic Plan: Moving the Performance Needle

1. Development and Implementation of a Rural Hospital Strategic Plan: Moving the Performance Needle IRHA Annual Meeting 12th Annual Rural Health Conference June 11, 2009 Scott W. Goodspeed, DHA, FACHE Principal Performance Management Institute 50 Sewall Street, Suite 102 Portland, Maine 04102 (207) 221-8262 sgoodspeed@pmi-healthcare.com www.pmi-healthcare.com

2. The Perfect Storm: The Need for a Strategy Objectives of a Rural Hospital Strategic Plan Strategic Planning Helps Institutionalize a Language What is Strategic Planning? Developing a Strategy Vision Options Strategy Implementation The Management Challenge Development of a Rural Hospital Strategic Plan Market Assessment Outline Competing on Analytics Strategy Implementation Introducing Change in Healthcare Organizations Some Preliminary Research Becoming a Strategy-Focused Hospital: Five Steps Overview

3. The Perfect Storm • Investment Income: the cushion is gone • Capital Needs: growing aging plants, aging population, population growth, capital needs for IT and physician recruitment • Reserves: depleted with decline in investments • Operating Income: reduced due to higher debt costs, more uninsured, deferred procedures • Philanthropy: difficult in the current economy

4. Here is the Problem THE ENVIRONMENT IS CHANGING THE FUTURE IS UNCERTAIN/RISKY HOW DO WE ADAPT AND THRIVE?

5. Create a framework for the design and articulation of the hospital’s vision and strategy Utilize a methodology to ensure alignment and execution of the hospital’s strategy across the organization Create a valid and logical approach to look at and learn from the hospital’s strategic measures in an integrated, causally linked manner Provide an objective framework to evaluate and prioritize strategic initiatives quickly and efficiently Create guidelines to assess performance on a regular, proactive and iterative basis rather than during one-time strategic plan development events Institutionalize a “language” to communicate and build a common foundation for the understanding and execution of the hospital’s strategy and strategic plan at all levels Objectives of the Rural Hospital Strategic Plan

6. Strategy Execution Terminology Perspectives A general area or category of performance used to divide the Strategy Map into four or more horizontal bands. The Strategy Map has generally has four perspectives: Customer; Clinical and Business Processes; Learning and Support; and Growth and Development. Strategic Themes Strategic themes represent the broad categories of a hospital’s strategic direction. Strategic themes may include: Quality and Service; Information System Solutions; Workforce Retention and Recruitment; Financial Health; Growth and Provider Relations; Service Excellence; Patient Safety and Clinical Excellence; Innovation; Operational Improvement; Best Place to Work; Organizational Culture; Physician Relations; Financial Strength and Growth; and Community Stewardship. Objectives A specific, action-oriented goal that states a desired effect from an activity or project. Objectives are located within Strategies and provide a discrete area of performance to which a performance indicator can be linked. Most objectives involve an action statement structures as verb-adjective-noun. Strategic Planning Helps Institutionalize a Language

7. Strategy Execution Terminology Indicators Specific performance measures that involve numbers/calculations. For example, Operating Profit Margin, which is expressed as a percentage (3.0%). All indicators on the Balanced Scorecard are linked to objectives. Targets A specific number (or range of numbers) developed and agreed to internally that describe the desired level of performance. For example, the target for the indicator Operating Profit Margin may be 4.0%. Benchmarks External, publicly available numbers, often used to develop or inform targets. Benchmarks are commonly available for financial indicators (e.g. Bond rating), clinical indicators (CMS Core Measure scores) or satisfaction indicators. Benchmarks and targets are similar, but targets are internal and are used to manage performance while benchmarks are external and are used to validate or compare performance. Strategic Planning Helps Institutionalize a Language

8. Strategic Planning Is: PLANING IS FUTURE ORIENTED PLANNING IS DEFINING DIRECTION PLANNING IS MORE THAN A STEP PLANNING IS ABOUT INTENTION PLANNING IS “CHANGE” TO MEET FUTURE NEEDS PLANNING IS UNDERSTANDING THE DYNAMICS OF THE HEALTH CARE ENVIRONMENT

9. Developing a Strategy Internal Environment External Environment Organizational Values & Culture Wants To Do Should Do Can Do Strategy of Community Hospital

10. VISION Our Preferred Future “Best Bet” or Breakthrough MISSION Organization’s Distinctiveness and Fundamental Purpose STRATEGIC THEMES STRATEGIC OBJECTIVES VALUES Our Uncompromised Guiding Principles From Mission to Strategic Objectives

11. Vision Options Our Clear Bet Future Our Range of Predictability Future Our Breakthrough Future Exercise I: Our Clear Bet Future. What our future looks like is some version of the past. When thinking about our future what would the clear bet look like? Exercise II: Our Breakthrough Future. If you want to create a breakthrough, what would our future look like? Which of the two futures would you choose? Exercise I or II? What would you need to do to achieve the preferred future? Vision Options

12. Assume you get in a time machine, what will our community hospital look like in 5 years? What would the “clear bet” future look like? Don’t write down what you hope for or what you would like your organization to be in 5 years but where you would bet it would be in 5 years. List your predictions and don’t interpret your answers. Read the predictions and think of them as a mosaic. What picture starts to emerge? What do you see? Now ask where did the predictions come from? From immediate experiences and the past. Today’s problems solved. Today’s problems continued. Today's problems extended into the future. So our predictions are based on our past and what our future looks like is some version of the past. Exercise I: Our “Clear Bet” Future

13. For this exercise if you put the past in the past you get possibility. Look at one future that is discontinuous from the past. What would a breakthrough future look like? This is not a pipe dream. Don’t react to the past, just let it be. When you design something you need design criteria. Consider the following criteria when designing the breakthrough future: Inspiring Exciting Challenging Moving Touching Makes a difference Calls to you Unpredictable yet doable Assume you get in a time machine, what would our community hospital look like in 5 years if you were to cause a breakthrough? Exercise II: Our Breakthrough Future

14. Strategy Implementation What internal changes are required to accomplish the strategy? • Set Objectives • Develop Action Plans • Develop Budgets • Assign Responsibilities • Change the Culture • Specify Timelines • Create Accountability

15. Research Has Identified Four Barriers to Strategic Implementation The Management Challenge The Vision Barrier Only 5% of the work force understands the strategy The People Barrier The Management Barrier 9 of 10 companies fail to execute strategy Only 25% of managers have incentives linked to strategy 85% of executive teams spend less than one hour per month discussing strategy 60% of organizations don’t link budgets to strategy The Resource Barrier You Can’t Manage Strategy With a System Designed for Tactics Kaplan and Norton’s The Strategy Focused Organization

16. Development of a Rural Hospital Strategic Plan • Overview of the Service Area • Service Area Demographics • Hospital Utilization and Market Share • Medical Staff Analysis • Hospital Analysis • Financial Results and Trends • Hospital Strategy Map • Planning Calendar • Mission, Vision Values and Competitive Position • 6 Key Strategies • Intense market focus to expand market share • Medical staff alignment • Clinical and service excellence • Information systems solutions • Workforce • Financial health

17. Market Assessment Outline Market Assessment Outline • Service Area Definition • Contiguous ZIP Codes representing 70%-90% of Hospital Inpatient Discharges • Minimum market share threshold applied to eliminate most populous ZIP Codes from skewing service area definition when hospital market share is minimal • Once defined, look for potential sector breakouts or Primary (where hospital is dominant provider) or secondary (where hospital is not the dominant competitor) breakout • Once defined, map the service area. Include: • Hospitals • Other notable healthcare providers • Major road network • Major geographic features (lakes, rivers, etc)

18. Market Assessment Outline • Demographic Analysis (Tables and Maps) • Population by age cohort by ZIP • Projected population growth for 5 and 10 year horizons by ZIP (% and absolute) • Projected population growth by age cohort by ZIP (% and absolute) • Median Household Income by ZIP • Population density • Market Analysis (Tables and Maps) • Market share by ZIP • Change in market share by ZIP (period of time TBD) • Out migration by ZIP • Patient origin by ZIP • Market share by Service Line • Competitor profiles • Proximity to Competitors • Drive Time Map with Drive Time Overlays

19. Market Assessment Outline • Utilization Projections • Inpatient by service line (days and discharges) • Total inpatient surgeries • Outpatient by functional area • ED • Outpatient surgery • Dx radiology • CT • MRI • Dx cath • Hospital Analysis • Service Volume Trends • Inpatient Admissions / Discharges • Deliveries • ED Visits • Inpatient surgeries • Outpatient surgeries • Patient Days • ALOS • % outpatient revenue • % of admits via ED

20. Medical Staff Analysis Age Board Certification Specialty Activity Admissions Revenue Procedures Group Affiliation Privilege status Office location Market Assessment Outline

21. Financial Results and Trends Operating margin EBIDA margin Total margin Days cash on hand Debt to total capitalization Payer mix Net revenue Debt Capacity S&P Median Ratio Analysis Market Assessment Outline

22. Competing on Analytics Utilization Trends Discharges by Physician Specialty Market Share Estimates (Outpatient)

23. Competing on Analytics Financial Trends

24. Competing on Analytics Utilization vs. 25/50/75/100% of Market

25. Competing on Analytics Discharges by Product Line Inpatient Market Share (Medical v. Surgical)

26. Demand Analytics Outpatient Source: Solucient

27. Demand Analytics Inpatient Source: Solucient

28. Strategy Implementation Disciplined Analysis Strategy Monitoring Strategy Formulation Strategy Implementation

29. “Strategy has never been more important” Business Week “Less than 10% of strategies effectively formulated are effectively executed” Fortune Magazine “The problem is that our age’s fascination with strategy and vision feeds the mistaken belief that developing the right strategy will enable a company to rocket past competitors. In reality, strategy is less than half the battle. .. In the majority of cases – we estimate 70% – the real problem isn’t [bad strategy]…. It’s bad execution.” Why CEO’s Fail Ram Charan and Geoffrey Colvin Fortune (6/21/99) Execution of Strategy Has Become the Corporate Challenge of Our Times! Implementation of a Rural Hospital Strategic Plan

30. Getting From A to B AB

31. Longer Term (3-5 year) View Shorter Term (Annual) View Vision Mission Themes Objectives Initiatives Milestones Accountable Targets Measures Resource Alloc. • ‘08 $xxx • ‘09 $xxx+ • New Net Revenue • High Margin Services Financial Customer • Attain Significant Growth • Operational Efficiency Purpose Desired Future State Internal Team Tactical Strategic Links Long Term Strategy and Measures to More Tactical Planning and Budgeting A Well Implemented Strategic Plan Links Long Term Strategy and Measures to More Tactical Planning and Budgeting

32. Enables Management to Focus Meeting Time on Strategic Issues The Key to Implementation of a Rural Hospital Strategic Plan PRESENT (Event-Driven Learning) FUTURE (Continuous Learning) • Provide input to strategic issues currently being worked • Dialog about performance • explain anomalies • suggest solutions • identify issues • Identify strategic issues for next discussion at next group meeting • Review performance data (available on-line) Review Strategic Issues (30%) Review Strategic Issues (60%) Discuss Implications (30%) Discuss Implications (30%) Review Past Performance (40%) Review Performance (10%) THE QUARTERLY STRATEGIC REVIEW MEETING THE QUARTERLY REVIEW MEETING BETWEEN THE MEETINGS The Balanced Scorecard Collaborative

33. Resistance Passiveness Convince Me Hope Involvement Advocacy Introducing Change in Healthcare Organizations

34. High performing hospitals have a clear and compelling vision that tells the story of where the hospital will be in 3-5 years. High performing hospitals have the right objectives to achieve the vision. High performing hospitals have the right metrics/indicators to achieve the objectives. High performing hospitals set the right targets to achieve your objectives. High performing hospitals develop action plans to achieve the objectives. High performing hospitals implement action plans. High performing hospitals monitor the results of the implementation. High performing hospitals communicate the results to the affected parties. Successfully Implementing the Strategic Plan and Some Preliminary Research 2000 2009

35. Becoming a Strategy-Focused Hospital: Five Steps

36. Thank you Scott W. Goodspeed, DHA, FACHE sgoodspeed@pmi-healthcare.com www.pmi-healthcare.com