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Research by Lee Ann Jarousse

Forthcoming changes in hospital payment will require significant transformations in care delivery from hospitals and health systems. The shift to value-based payment mandates that hospitals and health systems do more with less. To be successful, organizations will need to cut costs, enhance operational efficiencies and improve quality and outcomes.

The scope of the transformation places greater importance on strategic planning, although not in its current configuration. To begin, hospitals and health systems must do a detailed assessment of their competencies and weaknesses. This will determine the organization's readiness for change and help identify critical success factors to achieve future goals and objectives. The focus should be less about what's going on in the marketplace and more about what's going on inside the organization, says Brian Fuller, senior vice president, Kaufman Hall. "The self-evaluation is a key function of the strategic planning process and has never been more critical," he says. "It provides a clear understanding of where you are as an organization, identifying strengths and deficiencies to help set the organization's future direction."

Identifying gaps and deficiencies is an important component of the operational assessment, says Brian Channon, senior vice president of Kaufman Hall. This process will help pinpoint what needs to be in place to achieve the organization's strategic objectives. "If need is identified first, it's easier to get support and establish context," says Channon. Another critical component of the operational assessment is conducting a thorough review of the organization's service offerings to determine relevance. "By reducing organizational complexity, organizations can focus on what's important today and in the near future," says Channon. "The products and services should relate to the organization's strategy and mission."

This gatefold explores the role of the operational assessment in the strategic planning process.

Five Key steps in the operational assessment process

The operational assessment provides an opportunity for the organization to reassess many aspects of the its operations and future plans. The process should be thoughtful and deliberate, to ensure an accurate appraisal of the organization's performance and needs.

1.Gather information

A thorough review of data will help executives get a handle on the organization's operations, strategy, strengths and weaknesses. The focus should be on financial performance, human resources, strategy and service offerings, as well as outcomes and results.

2.Get Feedback

Feedback from senior leadership, the board and medical staff is critical and can be obtained in a number of ways, including one-on-one interviews, focus groups, surveys and workshops. "The process will not work if you only have the senior management's perspective," says Kaufman Hall's Brian Fuller.

3.Build a consensus

Once all of the relevant data and information are compiled, it's important to hold a series of meetingswith stakeholders to formulate a consensuson the organization's strengths and weaknesses. This step also shouldexplore barriers to long-term goals and how the organization can take advantage of its opportunities.

4.Create an action plan

The board, senior leaders, medical staff and other key stakeholders should develop a plan to strengthen the organization's infrastructure, specifically what improvements need to be in place before the organization can move forward effectively with its action plan. This process should help to identify top- priority items to focus on to meet its objectives.

5.Monitor performance

It's important to monitor the organization's performance consistently in achieving its goals and objectives. This should identify any deficiencies in the action plan and help to allocate resources appropriately to areas of need.

Operational Assessment

While the makeup of an operational assessment — how long it lasts, which stakeholders are involved — will vary from organization to organization, some basic structural elements are essential. For instance, the initial step of gathering a baseline of information should focus on key strategic and operational areas and provide a view of how well-positioned the organization is for the future. Areas to be examined include:

1.Operations and Expense Management

  • Profitability
  • Capital spending and capital capacity
  • Liquidity
  • Debt capacity
  • Relationship with payers

2.Business Development and Strategy

  • Governance and management model
  • Openness to risk
  • Strategic plan
  • Mission, vision and values
  • Organizational awareness

3.Clinical Services

  • Efficiency and throughput
  • Accessibility and utilization
  • Patient safety and quality indicators
  • Service distribution
  • Staffing

4.Supply Chain

  • GPO contracts
  • Logistics and distribution
  • Supply expense as a percentage of net revenue
  • Supply expense per adjusted patient day
  • Standardization

5.Revenue Cycle

  • Payer mix
  • Bad debt
  • Percentage of preregistered patients
  • Net days in accounts receivable
  • Case-mix index

6.Medical Staff

  • Physician integration
  • Clinical integration
  • Physician satisfaction
  • Relationship with other community providers
  • Physician leadership

7.Information Technology

  • IT infrastructure
  • Information sharing and coordination of care capabilities
  • IT master plan
  • EHR adoption rate
  • Data capabilities


Ted Townsend
President and CEO
St. Luke's Hospital, Cedar Rapids, Iowa

The operational assessment is a starting point, an essential building block for where you are heading. We have done it on a systemwide basis, an individual hospital basis and even on a departmental basis. The operational assessment is part of our annual planning cycle. We review it every summer, prior to developing our action plan. It's important because it requires us to step back and see what we need to do. It's not about incremental improvement, it's about the big picture. The key is to use the operational assessment to determine where we are in relation to where the market is going. We can't assume that what we are doing is a recipe for success.

Glenn Robinson
President and CEO
Hillcrest Baptist Medical Center, Waco, Texas

In 2007, Hillcrest Baptist Medical Center sought outside help to analyze its strategic direction. That's the same year I came on board. The move followed several years of declining volume and revenues. The board recognized that dramatic changes were needed. Expenses were eating up revenue beyond an acceptable rate. The operational assessment included a review of the organization's operations, revenue cycle, staffing and supply chain to identify opportunities for potential savings and cost-reduction. In 2007, for example, we averaged 6.0 full-time employees per staffed bed. Changes in our staffing dropped the average FTE per staffed bed to between 3.8 and 4.1. Another one of the results of the assessment was a decision to seek an outside partner to ensure our ongoing success. After a thorough assessment, we partnered with Scott & White Healthcare. This past year, we had our best financial performance in 16 years. Volume has grown, although we did not achieve our target. We achieved our results largely through expense control.

How We Did It:

This gatefold was produced by researching published studies and articles and conducting interviews with hospital and industry executives.

Research: Lee Ann Jarousse,
Design: Chuck Lazar,