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Becoming a "Great Healthcare Organization" to weather the next industry shakeout


Louis Pavia Jr.

Healthcare 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.

Market trends, challenges

Ten trends are changing the very dimensions and characteristics of healthcare, and have profound implications for providers, both positive and negative.

Trend 1: Genetics, proteinomics, and the customization of care

Trend 2: Accelerated drug development and approval

Trend 3: Advances in imaging speed and resolution

Trend 4: Aging population, increasing consumer expectations, and longer lifespans

Trend 5: Implantable devices and remote/self testing capabilities

Trend 6: New medical and surgical procedures and techniques

Trend 7: Computer-assisted decision support and disease management

Trend 8: Improvements in communication and information systems

Trend 9: Redesigned, customer driven benefits and insurance coverage

Trend 10: Widespread availability of detailed health and clinical performance information.

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.

Innovative 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 investments.

Great Healthcare 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 stack up?

Strong and effective leadership

Great Healthcare 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?


Clear and 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 vitality.


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.

Organizational and clinical vision

Peter Drucker, 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 should expect.


Strategy, simply, 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 application.

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?

Trust and cooperation

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 achieve greatness.

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?

Business discipline

Great Organizations are efficient and effective, and consistently well managed.

Healthcare is 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.

Business discipline 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 guidelines

• 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.

Most quality 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 to it?

• 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 unexplained variation?

• 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 quality improvement?


Community responsiveness

Great Organizations 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 service.

Customer 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.

Understanding the 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 upon?

• Are your services selected, organized, and delivered to best meet the needs of target customers?

• Do you understand the trends in your market and plan accordingly?

Patient and employee satisfaction

Satisfaction is 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.

And satisfied 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 their experience.

• Is your organization a desirable place to work?

• Do employees feel valued?

• Are customers loyal?

• Are your employee and patient satisfaction rates in the top quartile nationally?

• Do you identify and rectify obstacles to satisfaction?

Effective care management

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.

Payer-published 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 available.

The opportunity is clear:

• 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 not available

• 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

Clinical 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 used appropriately?

• Is there strong endorsement of and compliance with best practices?

• Do you provide disease management information, tools, and techniques for at risk patients?

• Are you consistently providing above average outcomes?

Brand equity

A positive 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.

Healthcare 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?

Financial stability

Strong financial 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 greatness.

• 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 verge

Many organizations are “on the verge of greatness,” but only a few will actually achieve it.

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 objective measures.

Strategies and initiatives can then be formulated to get the organization beyond the verge.

Lou Pavia is president of CareCompanion, a McLean, VA-based healthcare strategy consulting firm. He can be reached at 703/409-2054 or

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