Pdf Implementing Organized Delivery Systems an Integration Scorecard Health Care Management Review
Each twelvemonth, more than than 100 large mergers and acquisitions (One thousand&A) occur between large U.Due south. health care providers, with additional mergers occurring betwixt hospital systems and contained md practices, and between payers and providers. 1 , 2 The usual rationale is that manufacture consolidation enables the combined institution to deliver better-integrated care across the many products and services that patients require and as well to create scale economies to reduce costs. Only bigger has not proved to be better. Despite the noble sentiments expressed to justify health care K&A activity, contained research has been unable to detect benefits for patients or payers. A leading health care economist summarized, "… substantial academic literature finds horizontal mergers of competing health intendance providers tends to raise prices, and very limited evidence to suggest there are offsetting benefits to patients in the form of improved quality." 3 Indeed, researchers suggest that health intendance Grand&A activity serves mainly to reduce competition and increase hospitals' bargaining power with payers. Additionally, employees, peculiarly those who have been "acquired," are frequently dissatisfied and demoralized.
Some of the reason, nonetheless, for the lack of tangible improvements from wellness care M&A activity tin can be attributed to the difficulty of realizing the potential benefits from such transactions. Even in the for-profit private sector, all-encompassing show, accumulated over decades, shows that most M&A transactions neglect to add together value to the acquiring company. iv - 6 To overcome this challenge, companies in the private sector take applied a management tool chosen the Balanced Scorecard (BSC) to reach cultural and strategy alignment across the merging institutions. The BSC, introduced in 1992 past the author and David P. Norton, showed how an organization's performance could exist measured not just with financial metrics, but with metrics about customers, internal processes, and employees, information, and culture (Effigy i). 7 , viii It expanded the viewpoint of CEOs and CFOs beyond backward-looking financial metrics to include measures that predict time to come operation: satisfied and loyal customers, high-quality processes, innovation, motivated and skilled employees, and an aligned culture.
Effigy 1 .
The Unique Aspects of the Health Care Organization
The client focus of the BSC is especially meaning for health intendance institutions, which have many different types of customers. Customers of most companies perform iii distinct functions: They select which production or service to purchase, they pay for the production or service, and they receive the production or service. In health care, however, the three customer functions are performed by three different groups. Physicians, especially primary care physicians, select (or strongly influence) the infirmary or clinical exercise where their patients volition receive care; private health plans or the government pay the provider for the intendance; and patients receive the care. All iii groups — referring physicians, payers, and patients — are customers of the provider system, and the strategy of the provider organization should explicitly recognize and measure how it creates value for all iii customer types. An academic medical middle has additional customer types: interns and residents for its educational function, and bookish scholars and practicing physicians for its research function. If five customer groups were not complicated enough, all hospitals likewise have responsibleness for the health and well-beingness of residents in the communities where they operate. Table one shows examples of performance metrics for the diverse customers of wellness care providers.
Table i.
Operation Metrics for Diverse Health Care Customers
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| Customer Type | Customer Objectives | Potential Metrics |
|---|---|---|
| Patient | "Provide me with the highest quality of intendance in a rubber and respectful environment that is like shooting fish in a barrel to navigate" | • Index of Patient Outcomes • Incidence of complications or readmissions • Patient Net Promoter Score |
| Referring Physician | "Provide like shooting fish in a barrel access to excellent service for my patients" | • Lead time to schedule appointment • Quality of communication |
| Payer | "Provide Competitively Priced Health Services" "Offer low administrative burden" | • Price index relative to regional competitors • Cost of invoice processing |
| Community | "Understand our community'due south health intendance needs and piece of work to address them" | • Rating of hospital past customs advocacy groups and local government health agencies • Number of collaborative customs health care initiatives |
| Academic Doctor | "Provide me with an splendid learning environment that enhances my evolution as a health intendance professional." | • Number of manufactures published in acme-tier journals • Impact factor of published articles • Quality of applying residents and fellows • Placement of residents in top-rated bookish medical centers |
The Demand for Attentive Leadership
Companies use the BSC measurement system to overcome several significant barriers to strategy execution. Almost employees in large organizations do not know what their organisation's strategy is or how to translate it into day-to-twenty-four hour period actions that would contribute to the strategy's success. Even managers aware of the strategy have incentives based but on short-term financial performance, not successful execution of a multi-yr strategy. Not surprisingly, brusk-term cost-cutting actions drive out long-term strategy implementation. Without the guidance of a BSC, the ascendant management system is the almanac budget, prepared and monitored by the finance office. The i-year operational budget leaves little leeway for initiatives that raise customer relationships, generate innovation, and invest in systems and employee development. Such initiatives cost money in the short term simply are necessary to deliver the value from a multi-twelvemonth strategy. As reported to me in correspondence with Thomas H. Lee, Physician, "many heart direction and frontline clinicians say that their organizations have grown so fast and and then large and are so complicated that people don't know what the organizations are about. They recollect the CEO and other C-suite folks focus but on the numbers and non on the values. There is real angst as a side upshot of growth."
The lens from the Balanced Scorecard helps u.s. empathize that the problem is not with using numbers to run an institution; rather, the problem is using the incorrect numbers, those that measure only short-term financial results instead of the numbers that quantify the benefits to the establishment'due south multiple customers. The sustaining success of the BSC has been its ability to allow managers to continue their focus on brusque-term financial savings while besides investing in the drivers of long-term value cosmos for their customers. This cannot be overstated: The Number 1 reason for lack of success when using the BSC is lack of leadership. The BSC is a measurement tool that enables visionary leaders to communicate and implement a strategy.
The Development of the BSC for M&A
Initially, the BSC was used by individual business organization units in a corporation. Soon, however, executives of diversified companies, such as the FMC Corporation ix and large energy and financial services companies, extended the BSC'south scope by using it to marshal and monitor the strategies of their multiple, decentralized concern units. From aligning diverse business units to an overall corporate strategy, it was a logical next step for executives to employ the BSC to align the mission and strategy for newly merging organizations. Companies that announce their intention to merge form a pre-merger integration team of senior executives from the two companies. The team, even prior to the official consummation of the merger, co-creates a Balanced Scorecard for the strategy of the new company. Without use of this direction tool, a merger is likely to neglect considering of the difficulty of overcoming the quite dissimilar cultures, strategies, and growth models in the merging entities. Typically, such differences become obvious only after the 2 companies have combined, leading to friction and failure to reach predictable synergies. When merged health care institutions encounter such conflicts, they cope past assuasive each institution to operate mostly equally it did before, other than in negotiations with payers. It should not come as a surprise, therefore, that the merged entity is incapable of delivering either lower total costs or meliorate patient outcomes. In dissimilarity, private-sector companies that implement a BSC for the new entity are able to intermission down the cultural barriers that cause almost other mergers to fail, enabling them to deliver better value to their customers.
The BSC enables the merging companies to translate the new corporate strategy into a balanced set of performance metrics. Senior executives can use the scorecard to (ane) better communicate the new strategy to all employees, (2) align employees' daily work to strategic priorities, and (3) monitor, evaluate, and advantage employee performance. It also provides the information for regular strategy review management meetings that keep the organization focused on effective strategy implementation during the critical post-merger years.
Senior executives of merging wellness care providers should consider whether the BSC might play a similar role for them. As health intendance leaders begin to recognize that a "good merger" 10 will be measured by reduced costs to payers or better patient outcomes, eleven they may notice that a BSC could also help persuade regulators about the benefits from a proposed merger. With the BSC, managers from merging institutions can achieve clarity on their shared goals and anticipated synergies that will help them translate their good intentions into actual practice.
Health care institutions confront a distinctively difficult challenge to strategy and cultural alignment afterwards an Chiliad&A transaction. In improver to attempting to integrate and marshal different institutions, they must also align the physicians employed by or affiliated with each institution. Physicians play two vitally important roles in the success of any hospital system. First, every bit already noted, they act equally customers when they refer their patients for care at the hospital. 2nd, they are the hospital's key supplier by providing the nigh important services during the patient'due south episode of care at the establishment. Physicians have long-established roots in the civilization of their existing establishment, including implicit understandings of their autonomy, accountability, working relationships, and professional status for the work they perform. For the merger to be successful, the physician groups from the merging institutions should be actively involved in developing and implementing the new strategy.
Co-creating the BSC for a wellness care merger would, ideally, have senior managers and clinicians reach consensus on the new set of objectives for its multiple customers and how to improve cardinal clinical processes. It would help identify where redundant processes could be consolidated and how to optimize patients' treatment cycles. The resulting scorecard would provide unambiguous, measurable targets for the new entity to achieve. The metrics can be communicated to all clinicians and other employees of the new company, enabling everyone to meet and sympathize the expected functioning and how operation volition be achieved in the combined entity. The metrics could too provide the explicit accountability for the entity with its board, its regulators, and its local communities.
Even more important, the process creates understanding and trust among the managers and clinicians from the previously separate organizations. The many collaborative meetings to discuss the new strategy for the new organisation requires that the participants contend and decide on its strategic objectives and functioning metrics, and to identify the portfolio of initiatives designed to close performance gaps. The dialogue establishes a new culture for how clinicians, administrators, and staff volition work together to achieve mutual objectives and metrics. As one highly successful adopter of the Balanced Scorecard stated, "You could have our scorecard and requite it to a competitor and information technology wouldn't work. You had to take sweated through the hours and hours of piece of work and effort that went behind the card to become the benefits from the measures. That'south what brings information technology to life. It's got to become part of the company's conventionalities organisation, nearly a religion." xi Civilisation is deep and difficult to change. But visionary leadership and new management processes and measurement systems, aligned to a mutual strategy, can transform ii separate cultures into a new, integrated ane.
The Implementation of BSC in a Wellness Care Merger
To illustrate how co-creating a strategy map and Balanced Scorecard can overcome the multiple barriers for successful merger integration, we look at St. Mary's Duluth Clinic (SMDC). St. Mary's Infirmary was a 350 bed Catholic third hospital with a top-downwardly hierarchical culture. It merged in 1997 with the Duluth Clinic, a secular 390-physician multi-specialty group practice, operating 25 clinics in northeastern Minnesota and northwestern Wisconsin. Duluth Clinic, equally in many physician practices, had a decentralized and bottoms-up management civilisation. Apart from the expected toll savings from eliminating indistinguishable administrative functions, the merger offered the promise of more seamless, integrated treat patients from primary care through complex medical treatments; its new mission statement was "Bring the Soul and Science of Healing to the People we Serve." But neither the new CEO, Peter Person, MD, nor the lath members drawn from the ii merging organizations had any experience with integrated health care commitment systems. Person struggled for 12 months to come up with a strategic plan for SMDC. In 1998, he decided to have his executive team, drawn from leaders of both St. Mary's and the Duluth Clinic, co-create a new strategy, a strategy map, and accompanying Balanced Scorecard of metrics for SMDC.
The strategy map clearly illustrated SMDC's new value propositions to its 3 types of customers: client intimacy for primary care; production leadership for specialty care; and operational excellence and innovative programs for private health program payers. Metrics for the customer intimacy strategy included primary care market share and patient satisfaction. Product leadership was measured past market share in the targeted specialties and acute care patient satisfaction. Success with payers was measured by revenue growth with SMDC'due south major wellness plans. Person communicated the strategy map and scorecard to every employee at SMDC through in-person presentations, videos, newsletters, and Q&A sessions.
Three years after implementation of the BSC, at the finish of Fiscal Twelvemonth 2001, the organization had accomplished financial and not-fiscal results 12 , thirteen :
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A $23 1000000 increase in profitability, including an $xviii million turnaround in the commencement twelvemonth of implementation (from negative $7 million to positive $eleven meg);
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Stabilization of costs per adapted belch and cost per encounter despite increasing drug and salary costs;
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A connected decrease in length of stay: x days for clinics and 8 days for its hospitals;
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A thirteen% comeback on engagement access availability for chief care clinics;
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A 15% improvement in overall hospital patient satisfaction; and
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An 11% improvement in overall clinic patient satisfaction.
SMDC'southward initial success led to another merger, with Benedictine Wellness System, and a new name, Essentia Wellness. Person connected to grow Essentia with more acquisitions and used the annual update of the strategy, strategy map, and Balanced Scorecard to reflect the opportunities from the newly acquired hospitals and clinics. Project leader Barbara Possin, RN, was appointed to a new position, vice president of strategic alignment, where she facilitated the execution of the system'south strategy at each hospital and clinic. In this role, Possin helped the leadership team of each hospital and clinic develop its ain strategy map and scorecard to reverberate its item part within the big integrated system. Person retired in 2015, leaving an organization that by 2019 had more than $two billion in full revenue and 14,000 employees, including more than two,000 physicians and avant-garde practitioners, serving patients at 15 hospitals, 74 clinics, and seven long-term intendance facilities in Minnesota, Wisconsin, North Dakota, and Idaho.
Taking on the Claiming
Successful merger integration is a claiming for all companies. It is especially difficult for hospital systems given their multiple and various customers, and the imperative to align physicians to the entity'southward new culture and strategy. Senior executives of merging institutions tin increase their odds of success by deploying the management tool of a BSC to provide focus for discussion and debate about strategic priorities. The dialogue concludes with an integrated set of metrics that communicate the strategy and help guide and monitor its successful implementation. The co-creation of the BSC breaks down cultural barriers between the management teams of the merging institutions and between the institutions and their clinicians, allowing the synergistic benefits to be realized from the merger: ameliorate and more than integrated patient care, and lower costs to evangelize superior patient outcomes.
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Disclosures
Robert Kaplan is a consultant and Idea Leader for The Palladium Group, which helps individual and public sector organizations implement the Balanced Scorecard and associated strategy execution arrangement.
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Acknowledgements
The author acknowledges Thomas H. Lee, MD, and Michael Nurok, Dr., for contributing insights on physicians' concerns subsequently an G&A event.
Source: https://catalyst.nejm.org/doi/full/10.1056/CAT.20.0286
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