Is it common knowledge among your management team which service lines are the most and least profitable? Do they know which service lines hold the greatest opportunity for future growth? How about which service lines provide the greatest community benefit?
Gone are the days when a hospital can successfully be all things to all people. Mounting industry pressures and competitive markets now require hospitals to systematically evaluate the services they offer. Service line portfolio analysis is one tool that can assist organizations in objectively reviewing their service offerings--and ultimately help make those hard decisions.
Five steps to service line portfolio analysis
Conducting a service line portfolio analysis includes five major steps:
- Defining the service lines
- Identifying and weighting service line evaluation criteria
- Developing the information set to be used in scoring
- Scoring the service lines against the evaluation criteria
- Discussing the results and, ultimately, making service line decisions
The entire process should be supported with ample process facilitation and discussion. The first step, defining the service lines, sets the foundation for the portfolio analysis. Though seemingly straightforward, defining one's service lines can actually be more complicated (and political) than one might think. Yet without a clear and common understanding of how each service line is defined, interpreting the results of the portfolio analysis will prove both difficult and controversial.
The following recommendations will help ensure a smooth first step in service line portfolio analysis:
- Use service line definitions that are easy to understand and facilitate data collection. Complex definitions hinder data collection and may inhibit future use of the evaluation tool.
- Vet service line definitions with key constituents--including physician leadership--throughout the organization. Without buy-in on service line definitions, hospital leaders and decision-makers are unlikely to agree with or utilize the results of the portfolio analysis process.
- Avoid double-counting, which may occur when the same services are included within multiple definitions. This can be a tricky proposition as it is common for many services to make contributions to multiple service lines. Nonetheless, a sound allocation of services to individual services lines is necessary to ensure both accuracy and buy-in of the portfolio analysis process.
- Finally, do not forget to include outpatient services. Even though outpatient service line definitions often present data collection challenges, their inclusion is well worth the effort.
The second step, identifying and weighting service line evaluation criteria, focuses on determining which service line characteristics are most important to your particular organization. Potential criteria might include financial performance, market competition and growth potential, physician or other professional staff availability, technological advances, and the like. Again, potential evaluation criteria should be vetted by stakeholders to ensure buy-in.
Good evaluation criteria have the following characteristics:
- They are clear, straightforward, and easily understood (i.e., not subject to creative interpretation).
- They reflect all major organizational objectives without "double counting" or overlapping.
- They focus on the "critical few" criteria that reveal what is truly important to the organization (i.e., developing 20 different criteria will hinder, not help, the process).
- They are measurable and objective (to the extent possible).
- They help to differentiate alternatives (i.e., do not result in the same score for all projects).
After service line criteria have been developed, the next step is to assign each criterion a weight. We find it helpful to start with a pool of potential points and allocate to the criterion based on organizational priority. The third and fourth steps--creating the service line information set and scoring the services lines based on the criteria and weights--are a relatively simple process. As detailed in this graph (PDF), each service line is scored against each of the criterion based on the information collected in the information set.
Based on the results of the scoring, each service line can be ranked. Since simple scoring can be misleading, it is often helpful to plot each service line on a graph (PDF). This additional step illuminates where each service line excels or falters relative to each type of criteria.
The fifth and final step, discussing the results and making planning decisions, is where it all comes together (or falls apart). As shown in the graphic below, decisions about service lines often fall into four distinct categories: invest or grow, divest or shrink, reposition, or maintain. Open discussion of the portfolio analysis is critical to ensure that stakeholders buy into the decisions that are made. If stakeholders are not allowed to view and discuss the results, it is likely they will feel decisions have been made behind closed doors.
Service line options
| Option | Description |
| Invest or Grow | These services should be top priorities for resource allocation and program development (in other words, areas for extraordinary attention). |
| Divest or Shrink | In selected cases, an organization might decide to downsize or divest services in order to free up resources that would be better used in support of other strategic initiatives or services. |
| Reposition | Services in this category need to be fundamentally changed in order to improve their performance. Could include, but should not be limited to, growth strategies. |
| Maintain | Focus should be on maintaining, but not necessarily growing, these services. |
Steps to ensure success
Like any potentially controversial course of action, there are steps that can be taken to smooth the process. These steps include the following:
- Develop a core (no more than 10) set of evaluation criteria that truly focus on what is important to the organization.
- Obtain agreement up-front on the service line definitions, criteria, and criteria weighting to limit the amount of post-analysis gaming that occurs.
- Keep the process open with continual communication throughout the steps.
- Get physicians involved early in the decision-making steps.
- Remember, "No Margin, No Mission" when confronted with difficult decisions like service line divesture.
- Use common sense. Portfolio analysis should not trump prudence and experience.
Service line planning has never been more necessary than in today's turbulent healthcare environment. Following a logical and largely data-driven process such as the one outlined in this article can help ensure that timely and appropriate planning decisions are made substantially free of the emotions and politicking that are often associated with decisions to expand, divest, reposition, or maintain service lines.
Francine Machisko is a senior principal with the Noblis Center for Health Innovation and can be reached at Francine.machisko@noblis.org. Aaron DeBoer is a senior consultant with the Noblis Center for Health Innovation and can be reached at aaron.deboer@noblis.org.