providers have weathered dramatic and traumatic changes, and there
is more turmoil on the horizon. Many of the weak and poorly
managed organizations have been shaken out by a decade-long trend
of managed care-induced flat or declining hospital utilization and
payments, dramatic losses from owned physician practices and
health plans, operating cost increases, competition from niche
challengers, and other factors.
But even the best
crew with the latest maps must have a seaworthy ship to accomplish
the treacherous journey that still lies ahead.
Those who want to
continue fulfilling their missions must become “Great Healthcare
Organizations” to maneuver the challenges that remain. The changes
are generally clear, though their management implications are not.
Ten trends are
changing the very dimensions and characteristics of healthcare,
and have profound implications for providers, both positive and
Genetics, proteinomics, and the customization of care
Accelerated drug development and approval
Advances in imaging speed and resolution
Aging population, increasing consumer expectations, and longer
devices and remote/self testing capabilities
New medical and surgical procedures and techniques
Computer-assisted decision support and disease management
Improvements in communication and information systems
Redesigned, customer driven benefits and insurance coverage
Widespread availability of detailed health and clinical
Rising demand for inpatient care since 1998,
double-digit increases in premiums over the past three years, and
government budget crunches have payers developing new strategies
to rein in costs.
diagnostic and therapeutic technologies and techniques are
creating opportunities for new inpatient and outpatient services.
New drugs and technology are also changing treatment approaches
and reducing inpatient demand or adding a significant supply
component to the cost structure. A focus on quality and care
management could eliminate $400 billion in unnecessary or
inappropriate care costs and create new opportunities to enhance
and expand healthcare services, but not without significant
Organizations will not only survive these challenges, but will
become stronger and more effective as a result. As Seneca, the
Roman philosopher, said, “It is a rough road that leads to the
heights of greatness.” What, then, are the characteristics of a
Great Healthcare Organization, and how does your organization
Organizations receive strong and effective leadership not only
from management, at all levels, but also from physicians and the
board. This means they have identified and put in place both the
appropriate management structures and the right people.
Leaders must have
the courage to make decisions that are in the best interest of the
organization, balancing both the short- and long-term
implications, with limited time and imperfect information.
Questions to ask of
your organization’s leadership efforts include:
• Are our
governance structure and process streamlined and focused?
• Is our management
open with the organization’s board, and do managers use the board
as a resource?
• Do our board
members have the necessary expertise, and use it?
• Does management
inspire confidence and motivate employees?
• Does management
innovate, challenge sacred cows, and stretch the organization?
• Do our physicians
take their elected and natural leadership positions seriously, and
do they have the skills and tools they need to lead?
• Do our physician
leaders have appropriate responsibility and authority?
• Do these leaders
put facts and evidence ahead of politics and expediency?
• Is our culture an
open and transparent one that facilitates good decisionmaking?
compelling mission, vision, strategy, and values
These terms are
often confused, or used interchangeably. Most organizations have
them, but few realize their power. They are the foundation of a
Great Organization, and provide valuable focus, inspiration, and
The mission is the
fundamental purpose of the organization. It rarely changes and it
is similar in most healthcare organizations—improve health and/or
provide quality healthcare compassionately. It is the relentless
commitment to that mission that distinguishes Great Organizations.
author of Management Challenges for the 21st Century, has
identified a fundamental shift in the way we should view
organizations and the value chain, from a focus on ownership—on
the organization and how we deliver services—to strategy—on
the customer and the healthcare we deliver.
This view starts
with the vision. The vision is an articulation of the organization
in an ideal future—what the organization might be like if it were
accomplishing its mission. ThedaCare, a Great Healthcare
Organization in the Midwest, has a true customer-oriented vision:
“We will be the BEST at giving our customers the care they want
and need, when they want and need it.”
In addition to an
organizational vision, healthcare organizations should also have a
clinical vision. This provides an understanding of the actual
“product” that will be delivered from a patient perspective and
provides a framework for consistency and quality. This is an
element that is missing in most organizations. It requires a
mutual understanding among the hospital (the board, management and
staff), physicians and the community of the scope of services,
clinical processes, access, outcomes and service that the patient
is the road map and directions for reaching the vision and
accomplishing the mission.
Values are the core
principles that guide the behavior of everyone in the healthcare
organization. These are relatively easy to imagine, but can only
be ingrained by consistent and unwavering expectation and
Questions to ask:
• Is the focus of
the organization on the patient?
• Are your
stakeholders passionate about the mission and vision?
• Does your
strategy incorporate the best thinking from the entire
organization? Are the goals, objectives, responsibilities, and
timeframes clearly established and tracked?
• Are your values
consistently demonstrated throughout the organization?
The unique model
and competitive dynamic that typify most provider organizations
require a special level of trust and cooperation between the
hospital and physicians, and among physicians, if they are to
This trust and
cooperation is often built through consistent demonstration of
concern, an understanding and consideration of partners’
perspectives, and open, collaborative decisionmaking that puts the
patient first. It is difficult to achieve and easy to lose.
Without it, no provider organization can achieve greatness.
• Is there open and
honest communication between the physicians and the hospital?
• Are the interests
of the patient paramount?
• Can tradeoffs and
accommodations be made when conflicts arise?
• Once decisions
are made, are they supported or subverted?
• Do disagreements
or divergence of interests result in retaliation?
• Is there mutual
respect and empathy?
are efficient and effective, and consistently well managed.
shifting from cost-driven pricing to price-driven costing—where
what customers are willing to pay determines what the product can
cost. Changes in reimbursement methodologies may also reward
better outcomes and more effective processes. This requires
attention to detail and consistency. Which in turn calls for an
environment that attracts talent and gives people clear objectives
and the leeway to accomplish them.
also means constant measurement and continuous improvement. The
result is high productivity, an efficient supply chain, and
well-utilized facilities and equipment.
• Are your goals,
objectives, and budgets set and met?
• Are decisions
made and implemented at the lowest possible level, meaning as
close to the customer as possible?
• Are operations
efficient and cost effective?
• Are there
effective systems in place to collect and analyze data and make
operating decisions accordingly?
Culture of quality
The evidence of the
quality failure in healthcare is compelling. The Institute of
Medicine and others have documented the challenge:
• 50% of physicians
do not adhere to documented and accepted clinical practice
• 45% of general
surgical patients are victims of inappropriate decisions
• 2.6% of all
hospital patients are injured by errors
• ICUs average two
errors per patient day
• The average is 15
to 20 errors per physician per year in the Family Practice office
setting, 25% of these with patient health consequences
• Out of 750,000
patients hospitalized for heart attack each year, 18,000
preventable deaths occur. That’s 2,000 times the death rate for
U.S. airline passengers.
Much of this stems
from culture. Physicians value their independence and unique
practice approach. Medicine is considered more art than science.
There is a lack of trust in data and the ways it might be used.
Liability concerns and ego result in cover-ups rather than lessons
learned from mistakes.
failures result from system errors or knowledge gaps, rather than
bad people or bad intentions. So a true culture shift is necessary
before we can close the “quality chasm.” This process starts with
a clinical vision and a set of expectations.
• Does your
organization tolerate errors or mediocrity?
• Do all members of
the organization understand that they are responsible for
improving quality, and that their performance evaluation is tied
• Of the 30 safe
practices that the National Quality Forum has indicated every
hospital should follow, how many do you do?
• Are there
non-judgmental systems in place to identify all errors and near
misses, and processes to learn from them?
• Is there a
passion in the organization for measurement and elimination of
• Is there
receptivity to change and a willingness to implement proven
clinical systems, tools, and techniques?
• Is there
appropriate credentialing and privileging?
• Is there
appropriate clinical leadership and peer pressure to facilitate
understand their market and their customers, and strive to meet or
exceed their needs. The market is not simply a generic geography
for the organization, but rather a sophisticated segmentation of
the population for each service line and level of care within that
expectations and demographics for cancer care, for example, are
much different than those for pediatric care. Customer financial
and lifestyle characteristics for plastic surgery or a heart scan
are different than for neurosurgery. The geographic sphere of
influence for CABG is very different than that for diagnostic
catheterization. Service and access standards for routine
diagnostic tests may be different than those for unique or
specialized care. The way patients choose and evaluate care is
different for different services.
market and customers is necessary but not sufficient for
greatness. The organization must also anticipate change and
respond by aligning its products and services with those needs and
expectations, and by delivering them in a way that is useful to
the target customer.
• Does your
organization segment and stratify its market by clinical,
demographic, and geographic factors?
• Are customer
attitudes and perceptions monitored and changes or anomalies acted
• Are your services
selected, organized, and delivered to best meet the needs of
• Do you understand
the trends in your market and plan accordingly?
both a requirement and a result of a Great Organization.
Satisfaction leads to retention. Employee retention reduces cost
and improves productivity. Low turnover correlates most highly
with good job design and positive relations with managers and
other workers. Employees who understand and buy into the mission,
vision, strategy, and values have higher job satisfaction.
Studies show that
removing barriers and providing tools to improve job performance
are far more effective strategies for increasing satisfaction than
a focus on morale improvement or attempts to make employees happy.
In an era of nurse and technician scarcity, the organizations that
retain good employees will have a significant advantage. Satisfied
employees also lead to satisfied customers.
customers are crucial assets. They are likely both to continue
using existing services and to try other services you provide as
well. Studies also show that the dissatisfied customer tells 10
others about it, on average. One key aspect of satisfying
customers is understanding and eliminating the dissatisfiers in
• Is your
organization a desirable place to work?
• Do employees feel
• Are customers
• Are your employee
and patient satisfaction rates in the top quartile nationally?
• Do you identify
and rectify obstacles to satisfaction?
Payers and patients
are just beginning to reward outcomes, but Great Organizations
recognize the intrinsic value of publicizing outcomes. A recent
Wall Street Journal/Harris Interactive poll found that 20% of
adults surveyed believed their physician had not prescribed the
appropriate treatment, and 14% felt their physician was not
knowledgeable and competent, though only half of these respondents
had changed doctors.
outcomes data, such as PacifiCare’s hospital and physician
indexes, have produced some migration of patients to
high-performing providers, but the change is slow. Similarly, only
a few payers provide a financial reward for providers that achieve
specific quality thresholds—such as Blue Cross Blue Shield of
Michigan’s 4% incentive payment.
There is, however,
a strong push in this direction. Medicare is experimenting with
severity-adjusted reimbursement and pay for performance
demonstration projects. Payers and providers are coming together
in developing consistent outcome indicators such as the 39
condition-specific hospital performance measures published by the
National Quality Forum. Several health plans and private services
are publishing report cards on doctors and hospitals. And patients
are beginning to pay attention to these factors as they become
more financially involved, and as more information becomes
The opportunity is
• 45% to 75% of
patients don’t follow doctors’ directions
• 20% of labs and
X-rays are done because prior results are unavailable
• One in seven
hospitalizations occurs because information about the patient is
• Fewer than 30% of
hypertensives have their blood pressure under control
• The average
mortality rate for CABG procedures in the lowest-quartile
hospitals is four times that of facilities in the highest quartile
performance is the ultimate measure of the healthcare enterprise.
Therefore, it’s crucial to ask:
• Does your
organization have evidence-based pathways or protocols that are
monitored and updated routinely?
• Are specialists
• Is there strong
endorsement of and compliance with best practices?
• Do you provide
disease management information, tools, and techniques for at risk
• Are you
consistently providing above average outcomes?
image/valued product creates both financial and intangible
benefits. Such “brand equity” is a particularly effective tool for
differentiation in the provider market, owing both to the complex
nature of the product and the consumer’s relative price
insensitivity. It is also important in the “wholesale” market,
where strong brand equity may facilitate higher reimbursement.
But the greatest
value of brand equity may be in attracting customers to new
products or services, and in situations where the organization
must defend against entry of new niche competitors.
providers generally have a relatively strong image in the minds of
local consumers. The Wall Street Journal/Harris Interactive
poll cited above found that 65% of adults are somewhat or very
confident that doctors are ethical and honest, and 50% feel that
way about hospitals, versus only 24% for health insurance
companies. But the brand equity of individual hospitals and
doctors may vary widely, and must be managed for maximum value.
Brand equity is
built, or destroyed, in every interaction with a customer or
potential customer. These interactions include not only public
relations-type activities such as advertising, screening events,
or news stories, but also all the elements of a customer’s
encounters with the provider. And perceptions of quality of care
are based on many factors, including convenience, accessibility,
and value-added aspects of the care “product,” such as
information. Every person associated with the organization,
including independent physicians, contributes to or detracts from
brand equity in every encounter with every patient.
• Are your services
and capabilities well known?
• Do patients and
physicians speak highly of the organization?
• Are you the
provider of choice for patients and doctors?
performance is often a benefit of the foregoing aspects of Great
Organizations. It must, however, be a conscious objective and
include a long-term perspective on both the income statement and
the balance sheet. Margins must be sufficient to support requisite
investments in operations, people, technology, facilities, and
development. Financial decisions must be based on priorities and
criteria linked to the vision and strategy.
Some key advantages
of Great Organizations include the effective use of assets, as
measured by high occupancy, quick turnaround times, and efficient
scheduling; strong cash management, as evidenced by good margins,
low receivables, and high cash on hand; and effective
“fund-raising” activities, which may generate cash, in kind
services, or volunteer support. Financial stability enables you to
weather the inevitable crises without threatening key elements of
• How does your
organization stack up against “A” rated facilities?
• Are budgeting and
capital planning integrated with strategic planning?
• Do you have a
strong income statement and balance sheet?
Getting beyond the
are “on the verge of greatness,” but only a few will actually
In the second
quarter of 2002, hospital operating margins reached their highest
levels since the implementation of the Balanced Budget Act of
1997. We are, however, only in the eye of a terrible hurricane
that is once again starting to pummel the industry. As this next
shakeout begins, Great Healthcare Organizations will be much more
likely to weather the storm.
Like any worthy
goal, the plan to become a Great Organization requires a champion
with focus and determination. The board chair or CEO is frequently
the one who leads an organization to greatness. Do you know where
your organization stands today and what needs to be done to get
beyond the verge?
A good place to
start is with an objective assessment of how your organization
measures up on each of the dimensions of greatness. This should
include qualitative information, such as the perceptions of
patients, management, employees, physicians, board members, and
key community leaders; as well as quantitative information from
initiatives can then be formulated to get the organization beyond
Lou Pavia is
president of CareCompanion, a McLean, VA-based healthcare strategy
consulting firm. He can be reached at 703/409-2054 or email@example.com