Planning for Healthcare Reform: Using the Balanced Scorecard Approach to Strategic Planning
Planning for Healthcare Reform: Using the Balanced Scorecard Approach to Strategic Planning
Hospital Planning for Healthcare Reform
Philip Weintraub, MSc Public Health, DLSHTM
University of London, London School of Hygiene & Tropical Medicine
Original Submitted: May 24, 2010
Emerging from the recent global recession, the US healthcare industry remains dynamic and highly competitive. Hospitals, which represent approximately 31% of US healthcare expenditures according to the Institute for Health & Socio-Economic Policy, saw their industry operating margins and sources of capital decline in 2008 and 2009. However, if any hospital CEO or board member believes their toughest challenges are behind them, they are clearly on the wrong side of history. The healthcare reform legislation recently signed into law by President Obama known as the “Patient Protection and Affordable Care Act ’’as amended by “The Health Care and Education Reconciliation Act” (“PPACA”) will completely transform the US healthcare industry in the twenty-first century. We are not only discussing the most significant healthcare legislation since the creation of Medicare in 1965, but the most comprehensive transformation of healthcare in the US in over 200 years.
PPACA will change: 1.) how all healthcare industry providers will be paid by the federal government; 2.) the accountability of healthcare providers and other stakeholders to the federal government; and 3.) healthcare systems including: a.) implementing statewide health insurance exchanges for individuals and small businesses; b.) increasing health insurance coverage to more than 32 million Americans which will result in hospitals more heavily relying on Medicaid reimbursement rates and reduced disproportionate share payments; and c.) creating Accountable Care Organizations (“ACOs”) and Medicaid medical homes which will afford unprecedented opportunities for partnering and sharing cost savings among different providers and payers.
The American Hospital Association (“AHA”) reported there are 5,815 hospitals in the US, of which 5,010 are classified as community hospitals. Community hospitals may be for-profit organizations controlled by private or publicly-held corporate entities or non-profit organizations controlled by government, religious organizations or community boards of trustees. The community hospital, as a non-profit organization, has additional operational constraints required by the rules and regulations of the Internal Revenue Service, but has less access to financial capital (e.g., cannot issue equity securities) and human capital (e.g., cannot offer compensation packages including stock options to attract executive talent).
These non-profit community hospitals should immediately revisit their strategic plans to consider the implications of PPACA to their organization. Given the significance of the changes in healthcare beginning in 2010 and continuing through the decade providers should immediately evaluate how their organization’s strengths and weaknesses are impacted by the opportunities and threats found in PPACA. This article proposes the use of the Balanced Scorecard Approach (“BSC”) as a means of updating a provider’s 2010 strategic plan for PPACA with an emphasis on the implications of PPACA to non-profit community hospitals. Because the BSC is based on the linking of four perspectives: (1) customers; (2) financial; (3) internal processes; and (4) learning and innovation through participant ownership and communication, it is particularly appropriate for effecting change in the healthcare industry.
The Balanced Scorecard Approach
The BSC is a management system to convert an organization’s mission, vision and overall strategy into a plan that links strategies to measurable targets and actions. The provider’s management, board and staff ownership of the BSC, communication, and accountability are the centerpiece of this approach. The provider’s management must set measurable actions fairly to ensure the responsible parties held accountable are able to control the outcome.
The BSC also requires advance management planning. The provider should have completed a relevant strategic plan which sets out its mission, vision and strategy. The provider can anticipate considerable data collection and the expenditure of the time of management and staff to integrate PPACA. A full implementation of BSC could take one to two years and require the use of outside resources. However, the BSC can be implemented in a logical order and not every goal needs to be improved at the same time. For example, since the provider’s purpose is to integrate the opportunities and threats due to PPACA, whose provisions are being implemented over the next decade, goals (e.g., continued financial viability) can be introduced in a logical and sequential order. In this manner, a non-profit community hospital or other provider can use the BSC process to best position itself in advance of the effective date of the various provisions of PPACA. This will enable a provider to have the resources and time to work on other goals.
A non-profit community hospital’s BSC undertaking is briefly outlined below:
- Prepare the senior management and board of trustees for BSC (i.e., a top down approach) integrating PPACA.
- Select the core and supporting teams. Provide an orientation to the BSC by senior management and arrange for ongoing training and support.
- Use the core and supporting group to identify the key drivers that support the hospital’s strategy.
- For each driver or objective identified for a goal (e.g., continued financial viability) list the identified objectives on a ‘scorecard’ and develop financial and non-financial measures for monitoring progress.
- For each selected measure, establish targets for the next three years or more based on internal and external data.
- Set out the actions necessary to achieve the targets and assign accountability.
- Develop a monitoring plan and a communications plan that includes frequent group discussions. Consider initiating an electronic dashboard to allow ‘real time’ access to information and color coding the levels of progress to enhance the visual presentation.
An excerpt of a BSC for a non-profit community hospital is illustrated in Table 1 below.
Table 1 BSC: Financial Viability (Dollars in Thousands)
Under Section 3001 of PPACA, the Secretary of Health & Human Services (“HHS”) will establish a Value-Based Purchasing Program (the “Program”). The Program will provide incentive based payments (and penalties for failure to meet standards) to hospitals. Beginning in fiscal year 2013, “for value-based incentive payments made with respect to discharges, the Secretary shall ensure the following … Measures are selected … that cover at least the following 5 specific conditions or procedures: (aa) Acute myocardial infarction (AMI); (bb) Heart failure; (cc) Pneumonia; (dd) Surgeries, as measured by the Surgical Care Improvement Project… (ee) Healthcare-associated infections, as measured by the prevention metrics and targets established in the HHS Action Plan to Prevent Healthcare-Associated Infections.” However, it is likely the Program will consider a number of different measurements to include in-patient accidents and satisfaction with emergency department services.
Table 1 BSC: Financial Viability (Dollars in Thousands) -continued
Under PPACA, Section 2706, “An ACO that meets the performance guidelines established by the Secretary of HHS… and achieves savings greater than the annual minimal savings level established by the State under subsection (c)(2) shall receive an incentive payment for such year equal to a portion (as determined appropriate by the Secretary) of the amount of such excess savings…”
Under PPACA, Section 3021, the Secretary of HHS “shall promote broad payment and practice reform in primary care, including patient-centered medical home models for high-need applicable individuals, medical homes that address women’s unique health care needs, and models that transition primary care practices away from fee-for-service based reimbursement and toward comprehensive payment or salary-based payment…”
As described in Sections 3025, 10309 and other sections under PPACA, the Secretary of HHS will establish rules and regulations regarding readmissions which will result in hospitals with excess rates being penalized. Under no circumstances will providers want to be ranked in the bottom 25% quartile of all providers and thereby subject to possible financial penalties, subject to certain exceptions, from the Secretary of HHS.
Table 1 BSC: Financial Viability (Dollars in Thousands -continued
Under PPACA, community involvement in healthcare delivery is discussed in many sections of the law. Stakeholders are broadly defined in PPACA to include physicians, nurses, hospital administrators, trustees, EMS workers, patients, consumer advocacy groups and agencies of the local, state and federal government, among others.
As depicted in Table 1, the non-profit community hospital’s goal of post-PPACA financial viability will not be attainable without consideration of the four BSC perspectives. A perspective focused on the customer is essential for continued financial viability of a provider under PPACA. For example, the hospital would be financially penalized by the Secretary of HHS if they were unable to control in-patient infection rates. The hospital’s financial perspective should include investigating partnerships with other providers and payers. The provisions of PPACA include incentives for hospitals to explore partnering with primary care physicians and forming alliances with other providers and payers in ACOs and Medicaid medical homes. Continued financial viability would not likely be possible without a focus on the hospital’s internal processes. For example, a hospital’s inability to eliminate excess patient readmission rates would be financially penalized under PPACA further impeding management’s efforts to sustain operating profitability. Finally, learning and innovation through participant ownership and communication by encouraging stakeholder involvement could increase the likelihood the hospital would be successful in reducing the exposure of patients to infections or accidents and improving patient emergency room experiences. The BSC is just what it says; it is a balanced approach enabling continuous quality improvement to meet the challenges presented by PPACA.
About the Author
Philip Weintraub was recently awarded an MSc in Public Health from the University of London and a DLSHTM from the London School of Hygiene and Tropical Medicine. Since 2001, Mr. Weintraub has focused on the delivery of quality public healthcare including serving as a trustee, member of the executive and finance committees and the treasurer of a medical center. He subsequently served as a member of a county’s healthcare district’s finance committee and as a member of selected task groups. In 2010, he served as a manuscript reviewer for the Annals of Internal Medicine, American College of Physicians.
His prior experience includes high-level leadership positions in business and the federal government. Mr. Weintraub’s prior business experience includes serving as president and chief executive officer of companies in the computer information services, investment banking, and financial services industry as well as an audit partner with the international public accounting firm of Deloitte. In 1983 to 1984, he served as the Special Assistant to the Vice-Chairman of the Board of Governors of the Federal Reserve System. Mr. Weintraub received an award recognizing his service to the federal government by President Reagan. In 1983, he received a CPCU Designation, from the American Institute of Property and Liability Underwriters, Inc. He is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants and the Ohio Society of Certified Public Accountants.