The Senate has passed a six-month extension of the so-called Medicare "doc fix" after Democrats agreed to a Republican requirement that the extension not add to the deficit. The Senate's late action only gets the bill a third of the way into law, but should enable the federal government to stall the payment cut. The measure is expected to be taken up in the House of Representatives June 21.
With the signing of the Patient Protection and Affordable Care Act, along with the Health Care and Education Affordability Reconciliation Act, major change will be coming to the way healthcare is organized, delivered, and managed in the United States. While some information about the impact of the law is known, and some of the regulations are still being written, all healthcare leaders know one thing for certain: there will be less money to take care of more people. Healthcare leaders have been dealing with constant change for the past 30 years, but now the rate of change will need to accelerate in order to achieve success in a reformed healthcare environment.
In talking with healthcare leaders throughout the country I've come to the conclusion that organizations that move quickly and decisively to implement the changes needed will be best positioned to succeed.
The following are a baker's dozen ideas to be considered in order to position your healthcare organization for the future:
1. Strengthen your boards: Nonprofit organizations have a history of recruiting people for their boards for a variety of reasons—philanthropic, religious, community leadership—but often those reasons do not include healthcare industry expertise or business acumen from relevant industries. As a result, many healthcare organizations have missed an opportunity for these valuable business perspectives especially during a time of major change and challenge. Recommendation: Enhance the skill set of the board to include individuals with experience in innovation, venture capital/merger and acquisition, and healthcare to strengthen the overall knowledge capital of the board. Also, consider recruiting board members from outside of your geographic area to bring new ideas and experiences into your organization. Major change may be needed for your organization and having a strong, innovative and provocative board will be an asset.
2. Change your leadership style: Leading in a stable business environment is very different than leading in a situation which requires transformational change. No matter how stable your organization is, you will need to lead it as if it were in a situation where your business and service delivery model needs to change. Recommendation: Laser focus will be needed on three or less strategic priorities (not the 10 or so we normally try to accomplish); decisions will need to be made quicker and with less information; and an innovative/entrepreneurial leadership style will be needed to change the fundamental way business is done. Healthcare leaders at all levels should invest in such skill development—drawing from both inside and outside of the industry.
3. Make the necessary leadership changes now: Healthcare has become too insular and needs individuals from other industries to help question the status quo and move organizations forward. Recommendation: If there are individuals on your executive and management team that are not A or strong B players, now is the time to make changes in order to recruit the necessary skills needed to move the organization forward. This creates an opportunity to recruit individuals with entrepreneurial and innovative experience, and from outside of the healthcare industry.
4. Flatten your organization: Healthcare organizations have become too hierarchical, which has led to increased costs, diffuse communication, slow pace of change. When Jack Welch was reinventing General Electric he went to great efforts to reduce layers of management in the organization. He felt that every layer was a problem that resulted in poor communication, delayed action, and increased costs. Sound familiar? Recommendation: Remove as many layers as possible between the CEO and the employee to decrease costs and to increase organizational efficiency.
5. We cannot be all things to all people: Historically healthcare organizations were founded to meet the needs of the community. Over the years this mission translated into many communities having duplicative services, such as open-heart surgery, obstetrics, bariatric surgery, etc.
Recommendation: If a service is available to the community (locally or regionally) from another healthcare organization and if the service in your organization is underperforming in quality and finance, then the service should be eliminated. For example, 12 hospitals have closed their obstetrical services in the past decade in the Philadelphia region due to poor reimbursement, increased malpractice expense and decreasing volume. The result is more deliveries are done at fewer facilities which has ultimately increased the quality of obstetrical care.
6. You are getting too heavy: Many hospitals are part of regional and national health systems which have been developed over the past 25 years. The original premise for joining a health system was to increase intellectual capital, to reduce overhead expenses and increase the ability to negotiate favorable supply and insurance contracts. While many of these objectives continue to be met, many of the member hospitals will not be able to sustain heavy funding for corporate support. Recommendation: Health systems need to rethink their models and services to focus on where they most add value with a goal of reducing the cost needed to support corporate functions.
7. You can't shrink your way to greatness: A senior human resource executive shared this phrase with me as she was trying to convince the executive leadership of an international investment firm that cutting costs would not make the organization sustainable. The same is true in healthcare, where we also need to be thinking of growth of existing and new business opportunities. An organization well-known for its innovation, 3M, has had a goal that over a five-year period 30 percent of all revenue must come from new products and services. Recommendation: Growing the revenue line with new ways of providing existing services and innovative new services will be the path to future success.
8. Become experts in chronic care: It is estimated that a significant percent of the healthcare dollar in this country is spent on chronic care. Under the old rules this was a good for hospital revenue since readmissions and diagnostic workups for conditions like congestive heart failure, diabetes etc. would be paid on a per-occurrence basis. That will change under healthcare reform and organizations that become experts in managing chronic illness outside of the costly inpatient environment will become clinically and financially successful. Recommendation: Prepare and position your organization to explore opportunities to partner with health insurance companies and self-insured employers to share the savings of caring for chronic illness in a more clinically effective and cost-effective manner.
9. Get the Right Diagnosis: A high percentage of the healthcare dollar is spent on trying to identify the primary and secondary diagnosis of a patient's illness. Getting the right diagnosis earlier will not only improve the quality of care but also reduce the cost of providing that care. Recommendation: There is an opportunity to improve the clinical and cost effectiveness of diagnosing illnesses by consulting with national and international experts. With the acceleration of information technology and new capabilities for interfaces, organizations both large and small can connect with "centers of excellence" for diagnosing specific diseases and illnesses.
10. The patient is the customer: Over the years the patient has lost some of the focus in healthcare, often competing with the needs of physicians, employees, health systems, etc. In every service industry the path to success is focusing on the customer–in healthcare the patient is the customer and the sole reason for providing services. Physicians, employees, health systems etc. are not our customers but our most important assets. There is a distinct difference between a customer and an asset and we in healthcare need to have strong assets in order to focus on the patient/customer. Recommendation: Your organization must develop ways of becoming more patient-centric and establish ongoing means of tracking and using patient feedback in your planning. Suggest real-time patient satisfaction monitoring via daily patient/family satisfaction logs which can be done manually or electronically. It would be better to solve a patient issue or hear positive feedback before they are discharged.
11. Become more transparent: In order to navigate through all of the healthcare reform changes, organizations will need to become effective and transparent in all of their communications. Recommendation: Become more proactive with your patients, employees, physicians, and your communities regarding your performance, strategic directions, and activities. Share information on clinical outcomes, financial results in order to become more transparent in preparing for and dealing with healthcare reform.
12. Electronic Medical Records are NOT the Silver Bullet: There is a tremendous need and opportunity to expand the utilization of the electronic medical record in order to provide effective and efficient quality of care. Unfortunately the availability of funding opportunities is leading many organizations to "computerize" existing poor practices. Recommendation: Before electronic medical records are purchased and installed, organizations need to spend the time to correct flawed current practices and address the culture changes needed for the benefits to be realized.
13. Go forth and recruit: Healthcare organizations typically recruit leadership and employees from their existing healthcare market for obvious reasons but this practice often limits the infusion of new ideas. For example, Temple University hospital recently experienced a strike with its nursing and professional unions and had to recruit hundreds of replacement workers from across the country. One of the surprising outcomes of this recruitment effort was that these replacement workers brought new ideas and practices into the organization resulting in improved operational performance. Talk about an unintended benefit!
Recommendation: Consider recruiting individuals—whether they are physicians, nurses, or radiology technicians—from parts of the country that have a track record of being innovative in healthcare. This will enable new ideas to come into the organization and increase the chances of having innovation stimulated from within the culture of the organization.
Some of these ideas may be new; some may be a confirmation of things already known and some may be seen as radical. The key is that we as healthcare leaders need to become more innovative and willing to make significant changes in order to be successful in a post reform healthcare environment.
It is time to act.
Daniel J. Sinnott is the Chief Executive Officer of Sinnott Executive Consulting, in Wilmington, DE, and is a lecturer at the Wharton School of the University of Pennsylvania. He may be reached at dan@sinnottexecutiveconsulting.com
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It's like we say "po-tay-to," and they say "po-tah-to." When sourcing high-complexity physician preference products, it certainly feels that we are not speaking the same language. By forcing the manufacturers to say "po-tay-to," or define their price tier buckets, we regularly leave money on the table. And in today's economy, that is simply no longer acceptable. We have to get smart about our sourcing tactics for high-complexity and physician preference categories.
You cannot use the same approach when sourcing patient slippers as you do when sourcing orthopedic implants. Forcing all suppliers to put their proposals into the same buckets leads to similar-looking, or at best average, bids. In reality, we are sourcing those two very different categories the same way. Why is that? Well, it's much easier to compare bids that have the same attributes, that's for sure.
It's kind of like not being able to see the forest for all the trees. We all know there has to be a better sourcing method for physician preference categories; the problem is we just aren't sure how to do it. With the cost of physician preference items outpacing Medicare reimbursements by more than five times in the past 20 years, we need to find a solution for these difficult contracting categories.
I have certainly seen my share of bid proposals that were about as ugly as a mud fence. For example, we've received proposals with 14-page responses to a single question, and value adds so complex it takes nearly a month to negotiate. In instances like this, it's clear that there was no collaboration involved. Yet another reason they turn out so badly is the constricting components typically found in most of our healthcare RFPs. We imitate previous bids that may not have any relevance to the products in today's market.
The best sourcing practice in the future for highly-complex, physician preference categories will contain collaborative sourcing as one of its most important components. It is what allows you to receive the proposal in the way that the suppliers offer best value. Providing suppliers this flexibility lowers prices, plus you get the bonus of making lifetime friends with your CFO.
How about if I told you that you can accurately score bids by comparing apples to oranges, oranges to bananas, bananas to apples, or any combination thereof? Now hold on just a minute. I know what you're thinking. And, no, using the standard healthcare sourcing approach will not work. You have to think outside the box and to be quite honest, outside the building.
So, how does collaborative sourcing really work? It works by allowing suppliers the flexibility to submit proposals in the structure that permits them to express their unique pricing configurations, while letting you compare across different bids. For example, supplier A can submit five standard price tiers, six price value adds for conversions, two discount freight options, and three prepaid delivery discounts. Let's call this bid proposal "apples." Supplier B can submit three standard price tiers, two volume aggregation tiers, two hospital behavior change discounts, and an additional discount for early payment. Let's call this response "oranges."
The collaborative sourcing tool takes into account all the possible scenarios of the apples and oranges and breaks them down into an overall value that allows you to compare total value per option to be compared among RFP participants. Now, you can award based upon overall value that includes an analysis of every option offered by the suppliers.
This type of collaborative sourcing still doesn't address the preference that some physicians have toward particular suppliers. However, by being able to provide detailed scenario analysis supplemented with business and clinical requirements, collaborative sourcing quickly demonstrates the financial and the clinical impact of the purchasing choices. What's even better is that clinical effectiveness and clinical outcomes data can easily be incorporated into the event to help identify viable alternative functional equivalents.
Wouldn't it be great if once the contract was signed our work was done? Au contraire, contraire. Physician preference item pricing can be about as varied as airline ticket prices. The multitude of pricing options such as complex discount structures as well as commitment requirements make ongoing price visibility an absolute must for complicated categories.
To answer the call for price transparency, business centers will be created to capture the proposals and compare them against current buying patterns. You will then be able to identify new buying patterns that might require a category or portion of a category to be re-negotiated. Using the data in the business center as a template for your sourcing events will help to speed up that process. The best part is that this business center will be a collaborative one, one that shares data, clinical outcomes, utilization, benchmarks, and a wealth of additional information. When we work together, we truly can make a difference in this tough sourcing area.
Bill King is manager, Healthcare at BravoSolution, a supply chain solutions company based in Malvern, PA.For information on how you can contribute to HealthLeaders Media online, please read our Editorial Guidelines.