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 The Newsletter for Hospital Strategists

Volume 20, Number 4, April 2002

 Market Memo:

Hospital competition is being elevated to clinical performance

by Louis Pavia, Jr.

Competition in the healthcare industry is being elevated to another level, Clinical Performance. Clinical performance is emerging as the factor that will distinguish great hospitals from mediocre ones. Reimbursement declines, complex regulatory requirements, physicians as competitors, rapidly changing technology, even rising customer service expectations are challenges that pale in comparison in terms of scope and complexity. The recent incredibly difficult period where the keys to success were image, convenient access, effective managed care contracting and relatively low costs may soon be viewed as the good old days for healthcare organizations.

Traditional managed care is declining (HMO enrollment declined nearly 1 million lives in 2000 and insurers have stopped  performing certain precertification and other utilization management activities) but, with healthcare costs again increasing at double digit rates, payers are looking for new ways to rein in costs. Provider networks and discounts remain a key element of payer strategies and are now combined with defined contribution type benefit structures that shift financial responsibility and accountability to the employee. Employer groups like Leapfrog and Pacific Business Group on Health (representing over 50 million covered lives) are turning their attention to helping members choose hospitals and physicians with the best clinical performance. Pharmaceutical and device companies are strengthening their direct relationships with patients. New, technology enabled companies are building trust relationships with patients providing not only information but also decision support and direct care. At the same time, the media, Congress and the regulators are focused on medical errors and clinical quality.

Providers must understand this new competitive dynamic and adjust their strategic thinking and strategies to reflect both new forms of competition and new competitors. This is a great opportunity for those organizations that recognize this new environment to differentiate and gain a sustainable competitive advantage. 

What Hospitals should do

Any shift in the competitive landscape creates winners and losers. A clear vision, well defined assumptions and measurable goals and objectives are necessary to enable an organization to assess its strategy as the market changes. Strong and effective leadership will be necessary to reposition an organization in this dynamic environment. Leaders must evaluate their existing strategy in light of these changes in the market and determine if they are positioned for continued success. The top five steps to test your strategy for this new competitive environment are:

  1. Reassess your customers and markets
  2. Refocus your clinical services
  3. Rethink physician integration
  4. Redesign customer relationships
  5. Reinforce clinical performance

Traditional requirements such as information infrastructure, branding, geographic expansion and physician recruitment remain important but must be considered and designed in light of this new business reality. Strategies must also be more strategic. Too often strategies are either so broad that they do not provide sufficient specificity to drive behavior or so narrow that they are merely an assembly of tactics without the force or leverage to dramatically improve the organization’s position. 

Customers and Markets

Hospitals and physicians must use their limited marketing resources and tools more effectively. Like every organization, providers must understand the characteristics of the markets and customers that they can serve most effectively and pursue them aggressively. While this does not necessarily limit the population served by the organization or conflict with a community mission, it does focus the resources used to attract and retain customers.

There are a number of dimensions that should be considered when assessing target customers including geography, demographics and health status. These factors can be evaluated independently and used to create a three dimensional matrix with thousands of target market cells. For example, it is not enough to simply understand your overall market share in specific zip codes. You should know what your relative share is for each service line and within each service line your share for routine services versus secondary and tertiary services and for specific services. The financial impact of improving share in weak areas can then be prioritized and barriers to achieving that share delineated. A similar analysis can be done based on selected patient demographics such as age, income, buying habits and other characteristics. Finally, market share analyses can be done based on certain chronic conditions, risk factors or other health consideration. Recognizing that good market information is limited, survey research and creative analyses are required to get a good understanding of your current and potential market. These data and insights can then be used to define those customers with the greatest potential for the organization and the strategies required to capture them.

Service Lines

Consumer appreciation of specialization, accelerating technological and clinical advances and payer focus on quality and its association with volume will increasingly require focus on a core bundle of services. Good customer and market analysis will inevitably lead to tough questions about what services should be emphasized and how they should be organized. Brutally honest internal assessments of clinical strengths and weaknesses as well as obstacles to improved performance and the potential for overcoming them is equally crucial in determining where to focus.

This does not necessarily require exiting all other services, although it may be appropriate to discontinue offering some. It does require an emphasis on specific services in positioning the organization in the mind of certain consumers, structuring the organization to capitalize on the advantages of specialization and prioritizing the allocation of resources. It must also be accomplished without losing the advantages of being a comprehensive provider that can effectively handle co-morbidities and complications. Properly designed, a strategy that includes areas of clinical focus can facilitate growth in other service lines as well. This type of strategic shift has dramatic, although not necessarily negative, implications for physician and community relations.

Physician Integration

Hospitals continue to struggle with the concept of physician integration. Physician practice acquisition and management have failed in many organizations while succeeding in others. PHOs have led to improved managed care contracts for many organizations but few have achieved their full promise for increased market share and enhanced care management. Attempts at gain-sharing and joint venturing have been whipsawed by the regulators.  Most hospitals have medical directorships for key clinical services but few have structures where physicians have the responsibility, authority and accountability to provide leadership for the growth and development of a service. If it were easy, everyone would be doing it.

Every hospital has a business vision but now must establish a Clinical Vision with the same passion, process and commitment. In some cases the Medical Staff is the appropriate vehicle to work with to create the clinical vision, in other cases it may be the PHO, but in most cases a new organization of physicians with a common interest, or enlightened self interest in the success of the hospital may be needed to establish and implement this vision.

A clinical vision should address the clinical experience a patient can expect to receive, and clinicians should expect to provide. This can encompass multiple dimensions:

§         Access (turnaround times, wait times, time until appointment/consult)

§         Process (consult/referral, care paths/guidelines, information transfer)

§         Communications (physician - patient, physician – physician, physician – care team, care team - patient)

§         Standard of care (credentialing, privileging, specialty coverage, Hospitalist/Intensivist)

§         Infrastructure (organization, information/evidence, systems support)

§         Measurement and reporting (what, how, who, when)

This clinical vision will serve as the foundation for the physician integration strategy. The physician integration strategy must address the hospital’s role in attracting and retaining physicians. This can take many forms from assistance in recruiting new physicians to host practices, to creating an incubator for physicians new to the community, to a hospital sponsored employment model. Any and all of these strategies have proven effective when structured appropriately.

Healthcare organizations must also determine how they are going to work with physicians to achieve the overall strategy, particularly as it relates to specific service lines. Physician participation is engendered by three basic factors:

§         Access/market share

§         Leadership/control

§         Ownership/income

Based on the requirements of the strategy and the motivations of a particular physician or physicians in a particular specialty, a variety of alternatives are available. For example, if capacity is the issue, physicians can work with the hospital to improve scheduling, restructure the hours a service is available, improve turnaround times and increase throughput. If growth is the challenge, communities of patients can be created through disease management type services, membership benefit clubs and information/experience sharing forums that can be channeled to participating physicians. These efforts can increase market share and profitability for both physicians and hospitals.

Hospitals that are going to compete on the basis of performance must also be prepared to more effectively integrate physicians into leadership roles. The traditional medical director position must be transformed into a true administrator-physician management partnership. This can be done on a single service line or enterprise wide basis. “Golden handcuffs” can also be created though access to information or support services that make taking/referring patients to other hospitals inconvenient for the physician.

Physicians, like hospitals, are faced with increasing economic pressure. The decentralization of services from the hospital to freestanding sites and physician offices does not have to result in adversarial competition. Hospitals can take this opportunity to shape the transition of the services and the development of new hospital based services through management services arrangements, near equity (e.g. physician participation bonds), joint ownership, ancillary space leases and performance based investment pools.

Demonstrating the benefit to physicians of maintaining and enhancing their practice with your hospital is key to being a position to improve clinical performance.

 Clinical Performance

Clinical Performance, including medical errors and near misses, patient safety, employee safety, health outcomes and total resources consumption, as criteria for selecting healthcare services has been avoided by a conspiracy of patriarchy and obfuscation. The excuses are rampant – “Patients are not knowledgeable enough to understand”, “no one knows what to measure”, “the tools are not available to measure accurately”, “benchmarks are unreliable”, “my patients are different”, “healthcare is more art than science”, “healthcare is too complex”, “cookbook medicine doesn’t work”.

The evidence of the need to focus on clinical performance is clear and compelling:

§         45% of general surgical patients victims of inappropriate decision (Andrews et al)

§         2.6% of all hospital patients injured by errors (Harvard)

§         7.6 serious medication errors per 1,000 patient days (Bates et al)

§         Adverse drug events cost $50+ per admission (Classen et al)

§         2 errors/patient day in Intensive Care Units (Donchin et al)

§         45% of patients with atrial fibrillation do not get anticoagulation (Jencks et al)

§         18,000 preventable heart attack deaths per year in 750,000 hospitalized heart attack victims, 2,000 times the US airline death rate (Chassin)

By establishing a clear clinical vision and using the physician integration tools, hospitals can significantly improve performance. Many hospitals already have initiatives underway to address clinical quality, but few have committed the organization to the transformation necessary to achieve the level of clinical performance that will be required to compete effectively in the emerging market.  Clinical performance improvement is not a tactic or short term undertaking but there are concrete steps that can and should be taken right now.

There is a hierarchy of clinical performance improvement opportunities. These include, from the most common to the least:

§         Knowledge – Best practices and proven processes

§         Systems – infrastructure that is in place (human and technical)

§         Processes – approaches used (care paths, guideline, standard operating procedures)

§         Human element – ability, training and commitment

Performance is a function of a combination of these factors with failures occurring by slipping through a maze created by holes or weaknesses in each of these factors.

The key to change is how near misses, mistakes and lost opportunities are handled. Only if they are routinely identified, analyzed, discussed and addressed, rather than ignored or covered up as is so often the case, can the organization move to a performance oriented culture. This is not just good medicine but it is also good business. Hospitals with the highest clinical performance should expect a decline in operating costs by an average of $600 per admission and an increase in market share. This is the source of funds to make the investments in people and systems that are necessary to achieve and sustain success.

There is substantial low hanging fruit in hospitals. Three areas in particular should receive attention.

1.      Known Process-of-care Breakdowns or failure to consistently utilize proven best practices for example:

§         Screening for pneumococcal immunization in pneumonia patients

§         Beta-blockers after acute MI

§         Medication errors

ü      Patient allergies

ü      Dangerous drug interactions and contra-indications

ü      Incorrect dosages

ü      Failure to dose at correct time

ü      Failure to stop medications at the proper time

§         Breaks in sterile technique and nosocomial infections

2.      Poor/variable outcomes, for example:

§         Appendicitis with perforation due to delay

§         Missed ectopic pregnancy

§         Missed fractures on ER x-ray

§         Emergency C-section

§         Length of stay

3.      Activities with high potential error rates not resulting in an adverse clinical event

§         Registration / billing mistakes

§         Prior authorization failures

§         Scheduling failures

§         Wrong meal or supplies delivered

§         Lost lab results

    An analysis of these key areas through the use of confidential and personal interviews with staff, statistical analyses of billing and medical records data, expert observation of processes, focused examination of policies and procedures and research on best practices and lessons learned can provide the baseline to define, quantify and prioritize opportunities. Solutions might range from simple changes in policies and practices to dramatic changes in information systems infrastructure and work flow.

Initially, these activities can complement and support exiting quality improvement and risk management efforts but eventually should be integrated into routine business planning and operations.

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Revised: 07/17/04