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Evaluating Strategic Performance
Quantitative Measures and Qualitative Attributes
David C. Hoffman, Ph.D., and Davis D. Fansl
Having a strong strategic plan is not
enough to guarantee success. Organizations succeed based
on how well they execute their objectives; whether or
not the objectives they have chosen make a significant
difference to their business; and whether or not they
have successfully linked these objectives to their corporate
missions. Management-By-Objectives (MBO), and the Balanced
Scored Card are among the attempts to create mechanisms
that link corporate missions with objectives, and to
create measurable activities by which progress can be
evaluated. Too often, however, the "process"
becomes the "product." MBO and the Balanced
Scorecard may not work in all organizations. The sheer
task and time commitment required to put these processes
in motion may be too daunting for the resources of smaller
providers. Yet, every organization can benefit by using
a combination of solid quantitative and qualitative
indicators to measure progress. The trick is picking
the "right stuff."
To ensure that strategic objectives are being met, successful
organizations constantly monitor and evaluate the effect
of their strategies on overall performance. But, measurement
for the sake of measurement is not a universal remedy.
Careful consideration must be given to measurement and
evaluation of the specific areas that are most critical
to the success of a healthcare organization, whether
it is a hospital or physician practice. Effective planning
identifies overall business direction and opportunities,
and concomitantly establishes indicators and targets
for the organization to move towards.
This article provides an overview of some of the measures
and attributes that governing boards and executives
should consider when they evaluate performance. These
measures can also be helpful in supporting or refuting
key decisions and making mid-course corrections to strategic
plans.
Why Measure Performance?
Whether an organization is in the formative stages of
strategic planning or just "tweaking" current
business strategies, its boards and executives need
to:
Examine current organizational "health status"
Understand what's working and what's not
Get beyond opinions and hunches
Benchmark specific areas of concern
Make minor changes or perform a major overhaul of business
strategies.
Business opportunities are usually fleeting.
So itís important to be able to rapidly focus,
and when necessary, re-direct efforts and resources
to the strategies that have the highest probability
of success. Focusing on measurable standards of performance
can help determine what to do, and when and where to
do it. Performance measures can also be helpful in determining
if the resources dedicated to certain strategic initiatives
are generating a sufficient return, and if the resources
are being deployed and managed effectively. Qualitative
organizational attributes that cannot always be numerically
expressed can be equally important. These attributes
speak to the values and "business behavior"
of the organization and touch on critical issues such
as how decisions are made, how the organization treats
its customers, and whether or not the organization fosters
a risk-taking culture.
Key Quantitative Measures
The normative, quantitative tools, listed below, have
a measurable end-point, usually driven by numerical
statistics or ratios. And while organizations should
strive to meet or exceed the performance of comparable
"peer" organizations, normative data must
also be used as a reference point from which organizations
can measure their improvement. These data provide a
useful checklist for zeroing in on key issues that may
need either immediate attention or more in-depth analysis.
They also can provide a quick assessment for supporting
major decisions or to taking corrective action to put
plans back on track.
Financial
A sampling of some key financial measures to track for
both hospitals and physician practices can be found
in Figures 1 and 2.
Figure 1. HOSPITAL INDICATORS
|
1. Profitability and Liquidity
|
2000 HCIA |
| Operating
Margin |
1.6% |
| Net Margin |
3.3% |
|
Current Ratio
|
2.0 |
| Net Days in Accounts
Receivable |
66.5 |
| |
|
|
2. Capital Structure Ratios
|
| Average
Age of Plant |
9.9 years |
| Long-term Debt to Capitalization |
31.0% |
| Debt Service
Coverage |
4.2 |
| |
|
| 3. Operational
Efficiency Measurements* |
|
| Salaries
and Fringe benefits Expense as a percent o fOperating
Expense |
range 53-56% |
| Full-time
Equivalencies per Adjusted Occupied Bed (FTEs per
AOB) |
range: 3.9-5.0 |
Figure 2. PRIMARY
CARE PHYSICIAN PRACTICE INDICATORS
| 1. Physician Productivity
and Production |
| Work RVUs per FTE PCP
ñMean Range: |
4,200-4,400 |
| Ambulatory Encounters
per FTE PCP ñ Mean Range: |
4,700-5,000 |
| Gross
Production per FTE PCP ñ Mean Range: |
$400,000-425,000 |
| Provider
Compensation/Work RVU ñ Mean Range: |
$33-36 |
| Net
Revenue/Work RVU ñ Mean Range: |
$70-73
|
| Current
Ratio |
2.0 |
| Net
Days in Accounts Receivable |
66.5 |
| |
|
| 2.
Operational Efficiency Measurements |
|
| Full-time
Equivalencies (FTEs) per FTE Provider - Mean Range: |
3.9-4.2 |
|
Primary Care Physician Cash Compensation
and Fringe Benefits Expense as a % of Net Revenue
- Mean Range:
|
33-35% |
| Days
Gross FFS Charges in Accounts Receivable- Mean Range: |
70-75 days |
| Target
EBITDA/Capital Retention Plan: |
5-7% of Net Revenue |
( The Sourcebook: HCIA and Deloitte
& Touche, 1998; and The 2000 Almanac of Financial
& Quality Indicators, Ingenix.Primary Care Physician
Practice Indicators
Physician Productivity and Production
Annual industry
norms and ratios are published and available through
such sources as HCIA, HFMA, MGMA, Standard & Poor,
Moodyís, and the state hospital associations.
Not all of these measures are of equal importance, but
when taken as a whole they provide a valuable framework
for deciding if an organization is on target for achieving
its objectives.
Market Share, Physician Availability, and Patient
Satisfaction Measures
1. Market share by primary and secondary service areas
- Target: the organization is the market
leader in its primary service area in 2-3 key clinical
areas (e.g., primary care, cardiology, orthopedics),
at a minimum.
- Target: the organization holds at
least a 40% inpatient market share (rural benchmark
is typically 60%) in the primary service area.
2. Physician Availability
and Access
- Waiting times for appointments for
all specialties are no longer than two weeks; stat
"same-day" appointments are available when
necessary.
- A quantitative analysis has been
made of the number and mix of specialists and sub-specialists
(either indigenous or on a visiting basis), which
is sized to service area population and age demographics
(e.g., use of the Weiner/Johns 1994 Hopkins Study
as the basis for medical staff planning).
A significant percentage of
all physicians practice a full "scope of practice"
as defined per specialty and by local standards (target:
80-90% of all physicians).
3. Measurements of Patient Satisfaction
Hospital patient satisfaction goals are consistently
met using databases and measurement tools such as
the Parkside Patient Satisfaction Survey2, or equivalent
measurement systems, which posted an overall Composite
Quality Score (CQS) of 86.81 in 1999. The CQS is a
weighted average of seven categories (e.g., nursing,
physician care, cleanliness, etc.).
4. Employee Staff and Executive Turnover
Low turnover is an indicator of a stable workforce
and continuity of leadership. The Bureau of National
Affairs3 is a useful source for comparing employee
staff and executive turnover. For 1999, average turnover
rate for healthcare employees was 20.4%. In 2000,
the hospital CEO turnover rate was 17% nationally
(Minnesota=13%; Wisconsin = 9%).
Key Qualitative Attributes
Although not readily reduced to a numerical measurement,
the behaviors, attitudes, and knowledge characteristics
of the organization are critical to its success. Here
are some key characteristics to monitor and evaluate
through periodic surveys of the board, executive team,
and physicians. These attributes tend to be intangible
measurements of performance, related to relationships
between people and organizations, ideas, impressions,
and mindsets.
In High-Performance Organizations
- Executives, board, and physicians
have broad market knowledge of competitors and consumer
needs.
- Senior management is continually
aware of those key employee concerns without asking
them.
- Key strategies and organizational
energies are externally oriented and market-focused.
- There is an intense commitment to
excellence in customer service; it transcends the
tokenism sometimes seen in organizations that embrace
customer service as a fad.
- Physicians and their primary admitting
hospital see their futures as being closely linked
and seek out business opportunities together. There
is a shared goal of being a "best partner."
- The physician practice "platform"ó
both within the community and individual practices
ó is stable; characterized by low physician
turnover; a wide age-range for practicing physicians;
multiple practice options (i.e., group and solo practice
settings; and independent and health system-sponsored).
- The data that physicians and hospitals
use to support business decisions are current, relevant,
reliable, and frequently shared and discussed.
- Information is efficiently gathered
and analyzed and appropriate conclusions are reached
in a timely manner to take advantage of market opportunities.
- The organization has a bias for action.
It performs high-quality analysis and then moves quickly
to make a decision.
- There is an underlying corporate
attitude that seeks to affect the future rather than
merely respond to change.
- The organizational culture supports
entrepreneurial behaviors and encourages appropriate
business risks.
- A well-defined capital retention
plan is in place that properly connects to the current
strategic and business plan of the organization.
- High-level strategic alliances (i.e.,
oriented to significant activities with adequate capitalization)
are in place with key partners and have meaningful
objectives and results.
1 Partners Healthcare Consulting, LLC, Client database,
2001.
2 Parkside Associates, Park Ridge, Illinois, 1999.
3 Bureau of National Affairs, Second Quarterly Report,
1999.
4 American College of Healthcare Executives, 2001.
Summary
Maintaining high-performance in healthcare organizations
requires a continual alignment of strategies to market
needs and on-going evaluation of whether or not these
strategies are working. But, strategies alone do not
make successful organizations. High- performance physician
practices and hospitals live by the maxim "analyze
the situation, decide, and act." They have decisive
leaders that understand their markets, who are able
to assess both risk and potential benefits quickly,
and they flawlessly execute their strategies. About
the Authors:
David C. Hoffman, Ph.D. is President of Hoffman &
Associates, Ltd., a Wisconsin-based healthcare consulting
firm that specializes in strategic business solutions
for hospitals and physicians. Dr. Hoffman specializes
in health care business planning and physician-hospital
alliances. He can be reached at 608/437-7440 or dhoffman@mhtc.net
.Davis D. Fansler is a Principal and Director of Partners
Healthcare Consulting, LLC. He specializes in ambulatory
healthcare finance and health care management. His background
includes commercial lending, medical group administration,
and venture capital formation. He can be reached at
970/728-0375 or dfansler@partnershc.com
Hoffman & Associates, Ltd. ( Health Care Consulting
Strategy Letter)
A publication of Hoffman & Associates, Ltd. Health
Care Consulting
Hoffman & Associates, Ltd., is a Wisconsin-based
consulting firm that serves as business and strategic
advisers exclusively for health care clients. The firm
provides business planning services to hospitals, hospital
systems, physician groups, and health care associations.
For more information, contact:
Hoffman & Associates, Ltd.
1406 Business Highway 18-151 East, Suite #105
Mount Horeb, Wisconsin 53572
Tel. 608.437.7440
Fax 068.437.8617
Website: davidhoffmanconsulting.com
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