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Rural Hospital Flexibility Program Tracking Project Chapter 3F William N. Zelman, Ph.D., Andrew E. Cameron, Ph.D.,
Critical access hospitals (CAHs) operate in the classic environment that engenders defensive strategic positioning:
However, during the first year of our effort, there were numerous examples of CAHs that were responding with expansive, not defensive strategies. This report will focus on the strategic positioning efforts of CAHs. First, the extent of formal strategic planning efforts by CAHs will be described, and then information will be provided that gives insight into the nature of their major strengths, problem areas and initiatives.
Data presented in this study were gathered from two major sources:
The results of the pre-site visit questionnaire and the CAH telephone survey offer very different views of the major strengths, problem areas and initiatives of CAHs. The pre-site visit questionnaire provides a broad overview, for it allowed the CAHs to check all items that applied. On the other hand, the telephone survey asked the CAHs to identify only a single item, presumably the key item in that category. Since they provided only a single answer, there are a number of categories on the pre-site visit survey for which no item was identified on the telephone survey. The Balanced Scorecard is a perspective for strategic planning, strategic management and strategic control developed by Drs. Robert Kaplan and David Norton.1 It has been cited as one of the top management innovations of the last 25 years. Of particular relevance to this study is its emphasis on viewing organizational survival as the result of activities in four key areas: finance, customers, internal processes, and learning and growth (infrastructure). The focus in the Balanced Scorecard analysis is on whether an item was ever cited, not if it was cited as the primary item. Thus, the main data source for this section is the pre-site visit questionnaire. Corresponding percentages from the telephone survey are presented for reference purposes only. They represent our initial efforts to cross-classify the responses from the two data gathering undertakings. A more thorough cross-categorization of the thousands of responses on the telephone survey with those on the pre-site visit questionnaire will continue next year.
One of the major indications of the extent of an organization's strategic positioning efforts is its strategic plan. As noted on the 33 pre-site visit questionnaires from Years 01 and 02 of this project, two-thirds of the CAHs reported having a formal, written strategic plan (Table 1). Elements of a Strategic Plan
A formal strategic plan generally has the following essential elements: mission/vision, external environmental assessment, internal environmental assessment, goals and objectives, and measurable goals and objectives. Over 80 percent of the CAHs reported that their strategic plan had at least three of the five essential elements, while almost 60 percent reported that their strategic plan had all five (Table 1). Of particular interest are the relatively low percentages of formal plans having an internal environmental assessment. This may be due to the fact that because of the small size of the CAHs, the internal environment is well known. Also of note, over 80 percent of the CAHs that reported having a formal strategic plan indicated that the plan had measurable goals and objectives.
A hospital in Nebraska provides an excellent example of measurable goals and objectives. Its strategic plan begins with 11 strategic priorities. For each priority, there is a general goal. For each general goal, a measurable outcome has been identified, which is introduced with the statement: "Successful completion of this goal will result in…." Finally, to achieve the outcome, several clearly defined objectives are stated, along with target dates. Key Actors Who Played a Major Role in Developing the Strategic Plans The development of a strategic plan by a CAH appears to be carried out largely by the organization itself, with few using outside help (Table 2). Almost all of the site-visited CAHs reported that their strategic plan was developed primarily by the chief executive officer (CEO), management team, and the board. While half reported that their parent organization played a role, less than 30 percent reported that the state or outside consultants did so. These results were relatively consistent from year to year, though the sites studied in the second year reported less involvement by outside entities.
This section reports on the perception by CAHs of their major strengths, weaknesses, and the initiatives they are undertaking to position themselves. The remaining sections will provide a more in-depth analysis of each of these categories. Major Strengths The CAHs showed great diversity in their responses when asked to check which of the 47 items on the pre-site visit survey they considered to be "Major Strengths." In fact, less than a third of the 47 alternatives were selected by half or more of the CAHs (N=33). Considering both years of the survey, the most frequently cited strength in the pre-site visit survey was quality of care. Three of the remaining top four strengths related to the governance of the organization: the board, the CEO and administrative team/management staff. Following close behind were relations with the state office of rural health, ancillary services and relations with the state hospital association (Table 3). A number of these areas were also frequently cited on the telephone survey as primary areas of strength. The major strengths of CAHs are examined more closely in the Balanced Scorecard section below.
Major Problem Areas There was considerable consensus regarding the top problems faced by the CAHs. While inpatient census was the most frequently cited major problem with both cohorts of the site-visited CAHs, Medicare and Medicaid reimbursement, recruiting and retaining physicians, cash flows, and modernizing facilities and equipment were all cited by over two-thirds of the site-visited CAHs (Table 4).
Major Initiatives
There is a great deal of diversity among the CAHs in the major initiatives they are undertaking or plan to undertake in the next three years. Only one strategic initiative area was cited by 50 percent or more of the site-visited CAHs: modernizing facilities and equipment (Table 5). Over one-third of the site-visited CAHs are also undertaking strategic initiatives regarding cash flows, recruiting/retaining other clinical staff, recruiting/retaining/compensating physicians, inpatient census, Medicaid reimbursement, collections, and financial and/or information systems. Approximately half of the case study CAHs cited major problem areas that they are not likely to address in the next three years (data not shown). The telephone-surveyed CAHs also cited many of these same items as their top choice.
While the preceding section furnished an overview of the major strengths, problem areas and initiatives of CAHs, this section further analyzes each of these items from the point of view of a Balanced Scorecard. Traditionally, organizational success has been measured primarily by financial criteria. However, as Kaplan and Norton point out, ultimately success in the financial area is dependent upon success in the other areas. Though far from being a linear relationship, this approach suggests that financial success is dependent upon success with customers, which is dependent upon success in managing internal processes, which ultimately is dependent upon having a strong infrastructure to support the organization. These relationships are depicted in Figure 1 and form the basis for the remainder of this section. Table 6 presents the 47 items on the pre-site visit questionnaire re-categorized into the four major Balanced Scorecard perspectives. While a case can be made for placing an item in more than one category, the categorization scheme used here is useful in providing a general insight into the distribution of the CAH's major areas of strength, problem areas and initiatives among the four categories of the Balanced Scorecard. Figure 1. The Four Perspective of the Balanced Scorecard Used in this Study
General Overview of Results This section presents an overview of the relative distribution of major strengths, problem areas and initiatives in each of the four Balanced Scorecard perspectives. Within each of these sections, details regarding the items comprising financial, customer, internal processes, and infrastructure areas are analyzed in more depth. Table 7 shows the overall distribution of major strengths, problem areas, and initiatives cited by CAHs categorized by Balanced Scorecard area. Strengths Over 40 percent of the strengths cited were in the area of infrastructure, followed by internal process, customer, and financial factors. In fact, infrastructure and internal processes accounted for three-quarters of the strengths in site-visited CAHs and two-thirds of the strengths in the telephone-surveyed CAHs (Table 7).
Infrastructure: An organization's infrastructure is the foundation upon which the other parts of the organization rest. It provides a two-fold contribution. First, it supplies the basic capacity of the organization: governance, capital items, systems, and staffing. Second, it is the means through which the organization grows and innovates. Rather than being one-dimensional, it is an amalgamation of capabilities. Governance includes the board and management team as well as the corporate culture of the organization. Capital items include both buildings and equipment. Systems include financial, information and human resources. Relations with physicians and staff are included in this domain. The site-visited CAHs reported that the major strengths of their infrastructure rest with their governance (Table 8). All three items pertaining to governance -- the board, the CEO and the administrative team/management staff -- were cited as major strengths by over two-thirds of the site-visited CAHs. Internal Processes: By far the most frequently noted strength in the internal process area was the quality of care (Table 8). It was cited by 82 percent of the sites visited. Other internal process items noted as major strengths by over 50 percent of the CAHs in the site visit survey were average length of stay, ancillary services and Continuous Quality Improvement initiatives. Customer: The customer area ranked third of the four Balanced Scorecard perspectives in terms of the number of strengths cited (Table 7). From the Balanced Scorecard perspective, the term customers is defined quite broadly and includes relations with the community, governmental and professional organizations. In rank order, the site-visited CAHs felt that their major strengths in the customer area were their relations with the state office of rural health, relations with the state hospital association, and outpatient visits. Financial: The financial perspective of the Balanced Scorecard was reported as the lowest area of strength in both the site visit and telephone surveys (Table 7). The items classified here relate mainly to obtaining funds from various sources. One key component of any financial management strategy is building the financial and information systems necessary to do a better job of billing and collecting. Items related to such information systems are not classified in the financial perspective. Rather, they appear in the infrastructure perspective. None of the financial perspective items were identified as major strengths by more than a third of the site-visited CAHs. Of those items, donations and appropriations, and coding comprised almost 60 percent of the responses in this category (Table 8).
Approximately 40 percent of the problems cited by site-visited CAHs were in the area of finance, followed by infrastructure, internal process, and customer. In fact, over 70 percent of the problems fell into the infrastructure and financial areas (Table 7). Financial: Three items dominated the major financial problem areas cited by site-visited CAHs: Medicare reimbursement, Medicaid reimbursement and cash flows. Over 75 percent of all site-visited CAHs identified one of these items as a major problem area. Over 50 percent of the telephone-surveyed CAHs listed either collections or cash flows as their major financial problem (Table 9). Infrastructure: The second most frequently cited problem area was infrastructure. As noted above, infrastructure is an amalgamation of items, which includes governance, capital items, systems such as financial and information, and staffing. It is clear that a major problem faced by CAHs in regard to infrastructure is their labor force - both physicians/physician assistants and other clinical staff. Seventy-six percent of the site-visited CAHs cited a problem with recruiting/retaining/compensating physicians, while 52 percent cited a problem with recruiting/retaining other clinical staff (Table 9). The second most frequently cited infrastructure problem area by site-visited CAHs was modernizing facilities and equipment. As many of the facilities are at least 50 years old, it is not surprising to find that modernizing facilities and equipment is a major problem. Though it is not possible to ascertain the split between building and equipment modernization, the site visits revealed many examples of each. Internal Processes: The third most cited perspective of the Balanced Scorecard regarding major problem areas was internal processes. For the site-visited CAHs, four items tied for highest in this category: scope of services offered; sharing, coordinating services; outreach services; and, specialty clinics.
Major Initiatives Almost 40 percent of the initiatives listed were in the area of infrastructure, followed by financial, internal process, and customer areas. Approximately 70 percent of the major initiatives fell into the infrastructure and financial areas (Table 7). About one-half of the initiatives in site-visited CAHs addressed identified major problem areas in the same organization. (Data not shown.) Infrastructure: There is a high correspondence between the infrastructure problems being faced by CAHs and the major initiatives they are undertaking. The top four major initiatives cited in the site visit survey are in the areas of labor force, modernizing facilities and equipment, and financial systems and/or information systems (Table 10). While some sites were improving on their own, it was not uncommon to find sites that were working closely with their parent or network hospital to bring about improvements in their billing and collections systems. Financial: While infrastructure was the Balanced Scorecard category with the most major initiatives, the financial area was the second most frequently cited area (Table 7). As with the major problems, the major financial initiatives were in the areas of improving Medicare and Medicaid reimbursement and cash flows (Table 10). Almost 50 percent of the site-visited CAHs indicated that they have or will have a major initiative addressing cash flow problems, while other major areas cited by approximately a third of these CAHs were improving Medicare and Medicaid reimbursement and collections. Internal Processes: The major initiatives being undertaken in the internal processes domain were in the areas of expanding the general scope of services, outreach services and programs, and specialty clinics (Table 10).
Customer: The major customer-related initiatives being undertaken involve increasing volume. The site-visited CAHs indicated that their inpatient census and reputation in their communities are major foci of their strategic initiatives with their customers. In the site visit survey, over one-third of the CAHs had or will have major initiatives regarding inpatient census.
Key Findings Finding 1: Two-thirds of the Critical Access Hospitals (CAHs) have a formal, written strategic plan. Of the 33 case study sites used in the analysis, 67 percent noted they had a formal, written strategic plan. With regard to content, nearly 60 percent reported that their strategic plan had all of the most frequently included sections of a traditional strategic plan: Mission/Vision, External Environmental Assessment, Internal Environmental Assessment, Goals and Objectives, and Measurable Goals and Objectives. Over 80 percent reported having measurable goals and objectives. Of the sites with a written strategic plan, nearly all involved the board, CEO, and administrative team in its development. Less than one-third reported the involvement of consultants or outside stakeholders such as the state. Finding 2: Hospitals identified a wide range of areas of major strengths, major problem areas and areas in which major initiatives are or will be undertaken within the next three years.
Finding 3: Three-quarters of the strengths were in the infrastructure and internal processes areas. The major infrastructure strengths are in the area of governance. All three items pertaining to governance -- the board, the CEO and the administrative team/management staff -- were noted as major strengths by over two-thirds of the site-visited CAHs. By far the most frequently cited strength in the internal process area was the quality of care. Eighty-two percent of the site-visited CAHs indicated that their quality of care was a major strength. The site-visited CAHs felt that their major strengths in the customer area were the relations with the state office of rural health, relations with the state hospital association, and outpatient visits. None of the financial perspective items were identified as major strengths by more than a third of the site-visited CAHs. Of those items, donations and appropriations, and coding comprised almost 60 percent of the responses. Finding 4: Over 70 percent of the problems fell into the infrastructure and financial areas. Three areas dominated the major financial problem areas cited by site-visited CAHs: Medicare and Medicaid reimbursement and cash flows. It is clear that a major problem faced in regard to infrastructure is in recruiting/retaining/compensating their labor force - both physicians/physician assistants (PAs) and other clinical staff. At least 50 percent of the site visited CAHs cited a major problem with recruiting/retaining/compensating staff and physicians. The second most cited infrastructure problem area by site-visited CAHs was modernizing facilities and equipment. While the infrastructure and financial areas dominated the problems of CAHs, the customer and internal processes did comprise approximately 25 percent of the problems noted. In the site-visited CAHs, the dominant customer problems had to do with volume: reputation, inpatient census, and outpatient visits. The least cited perspective of the Balanced Scorecard regarding major problem areas was internal processes. The major problems in this area are: scope of services offered; sharing, coordinating services; outreach services; and specialty clinics. Finding 5. Approximately two-thirds of the major initiatives fell into the infrastructure and financial areas. The main initiatives in these two areas relate to modernizing facilities and equipment, recruiting and retaining staff and physicians, and improving cash flows. About one-half of the initiatives addressed major problem areas in the same organization.
Footnotes 1 Robert S. Kaplan and David P. Norton, The Balanced Scorecard, Harvard Business School Press, Boston, MA,
1996. RHFP
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