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Achieving
Asset Optimization
A Strategic Approach To Aligning
Assets With Mission and
Market Imperatives
Learning Objectives
 Attending this session will enable participants to…
– Strategically align an organization’s program ...
Agenda
 Introductions
 Overview
 Asset Optimization Defined
 Organizing Framework
 Governance Imperatives
 Four Step...
Four Ways Hospital Performance Declined in 2012
 Margins Dropped: Median operating cash flow margin declined to 8.9% in F...
Business Imperative:
Growing Profits in a Market of Declining Revenue
―Fitch expects that while a number of efficiencies h...
Market Demands 20%–40% Performance Improvement
HEALTHCARE TRANSFORMATION STRATEGY
• Establish a strategy that leverages
or...
Market Demands 20%–40% Performance Improvement
SCALE AND INTEGRATION
• Establish deep operational and data
integration to ...
Asset Optimization Defined
8
A Strategic Continuum
9
ASSET
RATIONALIZATION
ASSET
OPTIMIZATION
Asset Optimization Defined
10
• Marked by rushed and reactive
decisions to raise operating capital which
are usually not a...
Programmatic & Facility Asset Optimization Defined
Programmatic Asset Optimization
• Merging, consolidating, starting,
mod...
Audience Questions
12
 Has your organization executed
programmatic asset optimization?
Are you considering it in the next...
 A strategic, proactive evaluation of the value of all
programs and facility assets in relation to mission and
market nee...
Organizing Framework For
Approaching Asset Optimization
14
Key Focus Areas Strategic Framework
Key Focus Areas Scenario-Based
Short-Term Impact
(1-3 years)
Scenario-Based
Long-Term ...
Key Stakeholder Communications Strategic Framework
Key
Stakeholders
Direct Impact and
Action Imperatives
Short-Term
Direct...
Governance Imperatives
For Achieving Asset Optimization
17
Unprecedented Governance Complexity To Begin With
―Even small healthcare institutions are
complex, barely manageable place...
Unprecedented Governance Complexity —
Now Magnified By:
 Fundamental restructuring of health care
 Movement from cost-ba...
Governance Transformation Required
 The quality of governance that was sufficient to get your
organization where it is to...
Audience Questions
21
How many of you would see
your boards being comfortable
with the concept of asset
optimization?
How ...
Most Boards Are:
 Institutionally loyal as opposed to mission loyal
 Unfamiliar with asset optimization, and regard it a...
Boards Must Adopt a New Mindset
Innovations and practices that…
 Change culture, behavior, and the organization
 Create ...
Six Practical Steps To Evolve Governance to Facilitate
Asset Optimization
1. Assess the structures, dynamics, and cultures...
Six Practical Steps To Evolve Governance to Facilitate
Asset Optimization (continued)
4. Develop clear delineation of rela...
Four Steps for Planning & Executing
Asset Optimization
26
Asset Optimization: Four Steps
Understand the Changing Market
Understand How Your Organization's
Programmatic Assets Meet ...
Asset Optimization: Questions To Ask
• Who are our competitors?
• How will emerging provider groups be
positioned in our m...
Asset Optimization: Questions To Ask
• Which population groups do we serve?
Are there unmet needs or excess
capacity/ineff...
Asset Optimization: Questions To Ask
• What are the most attractive locations for
our inpatient and outpatient programs?
•...
Asset Optimization: Questions To Ask
• What asset distribution options better serve
our population in the most cost-effici...
Discussion Examples:
Rationalization vs. Optimization
32
Example: Reactive Rationalization
―We fought the good fight as long as we could."
 Independent community hospital experie...
Example: Proactive Optimization
Successful consolidation with improved services
to the community.
 Leaders at a municipal...
Practical Next Steps
35
TRANSFORMATIONAL
MINDSET
STRATEGIC
FRAMEWORK
PLANNING
AND EXECUTION
Overcoming Obstacles and Common Mistakes
Understand th...
Overcoming Obstacles to Asset Optimization
 Avoid being institutionally loyal, placing emphasis on preservation of
facili...
Asset Optimization Imperatives for Success
 Make asset optimization reviews ―standard‖ components of every health system
...
Questions
39
Curt Whelan, Managing Director, Huron Healthcare | cwhelan@huronconsultinggroup.com
Curt is an Executive Leadership Team m...
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Achieving Asset Optimization: A Strategic Approach To Aligning Assets With Mission and Market Imperatives

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Huron Healthcare managing director Curt Whelan and Advisory Council member Jamie Orlikoff present new tools, processes, frameworks, and data points to enable healthcare executives to strategically align their assets to their mission and market needs. This resource, from the 2014 ACHE Congress on Healthcare Leadership, utilizes recent statistics and the presenters’ years of experience to advise on how to implement a strategic framework shift, leverage board support, and avoid asset rationalization in favor of asset optimization.

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Transcript of "Achieving Asset Optimization: A Strategic Approach To Aligning Assets With Mission and Market Imperatives"

  1. 1. Achieving Asset Optimization A Strategic Approach To Aligning Assets With Mission and Market Imperatives
  2. 2. Learning Objectives  Attending this session will enable participants to… – Strategically align an organization’s program and facility assets to their mission and market needs through asset optimization. – Use new tools, processes, frameworks, and data points to better understand a provider organization’s cost position and strategic imperatives. 2
  3. 3. Agenda  Introductions  Overview  Asset Optimization Defined  Organizing Framework  Governance Imperatives  Four Steps for Planning & Executing Asset Optimization  Discussion Examples: Rationalization vs. Optimization  Practical Next Steps  Questions 3
  4. 4. Four Ways Hospital Performance Declined in 2012  Margins Dropped: Median operating cash flow margin declined to 8.9% in FY 2012, compared with 9.2% in FY 2010 and 2011.  Growth in Expenses Outpaced Revenues: For the first time since FY 2008, expense growth outpaced revenue growth. Median operating revenue growth declined from 5.4% in FY 2011 to 5.2% in FY 2012, while median expense growth increased from 5.0% to 5.5%.  Patient Revenue Dipped: Median net patient revenue growth rate slowed from 5.3% in FY 2011 to 4.7% in FY 2012.  Volumes Declined: Inpatient volumes declined by 0.6% in FY 2012 after flat growth in FY 2011. Meanwhile, observation stay growth rate increased from 8.8% in FY 2011 to 9% in FY 2012. Source: Moody’s Investors Service Report, ―US Not-for-Profit Hospital 2012 Medians Show Balance Sheet Stability Despite Weaker Performance,‖ Aug 21, 2013. http://moodys.alacra.com/research/moodys-global-credit-research---PBM_PBM157417#sthash.8fbboyGB.dpuf 4
  5. 5. Business Imperative: Growing Profits in a Market of Declining Revenue ―Fitch expects that while a number of efficiencies have been already implemented and benefits realized, management will need to find opportunities for further expense savings that will likely require clinical care redesign and a rationalization of certain clinical services, which can take longer to implement.‖ Source: Fitch Ratings' Report: 2014 Outlook: U.S. Nonprofit Hospitals and Healthcare Systems http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726237 5
  6. 6. Market Demands 20%–40% Performance Improvement HEALTHCARE TRANSFORMATION STRATEGY • Establish a strategy that leverages organizational strengths and local market dynamics, and delivers measurable value • Use the healthcare transformation strategy to inform and integrate change across the enterprise • Continuously evaluate organizational and market factors to calibrate the priorities and timing of the strategy • Target annual improvement of 6% –10% 6
  7. 7. Market Demands 20%–40% Performance Improvement SCALE AND INTEGRATION • Establish deep operational and data integration to improve quality, efficiency and coordination • Optimize assets —people and facilities — to align with the revenue transition and clinical transformation • Align incentives within the enterprise and with key partners to remove barriers and sustain improvements 7
  8. 8. Asset Optimization Defined 8
  9. 9. A Strategic Continuum 9 ASSET RATIONALIZATION ASSET OPTIMIZATION
  10. 10. Asset Optimization Defined 10 • Marked by rushed and reactive decisions to raise operating capital which are usually not aligned with the organization’s mission. • Trapped in financial crisis with ―backs against the wall‖ • Painful. • Marked by strategic, proactive and thoughtful decisions that evaluate the economic and strategic appropriateness of all assets in relation to mission and market needs. • Proactive evaluation of assets in relation to mission and market needs • Planful. ASSET OPTIMIZATIONASSET RATIONALIZATION
  11. 11. Programmatic & Facility Asset Optimization Defined Programmatic Asset Optimization • Merging, consolidating, starting, modifying or discontinuing programs and service lines to fulfill an organization’s mission and address market demand. • An organization can do programmatic change without doing facility change. Facility Asset Optimization • Modifying, consolidating, or selling physical facilities to fulfill an organization’s mission and address market demand. • An organization cannot do facility change without also doing programmatic change. 11
  12. 12. Audience Questions 12  Has your organization executed programmatic asset optimization? Are you considering it in the next 1-3 years?  Has your organization executed facility asset optimization? Are you considering it in the next 1-3 years?
  13. 13.  A strategic, proactive evaluation of the value of all programs and facility assets in relation to mission and market needs  Leverage clinical transformation, operational excellence, scale and integration for peak clinical and financial performance  Create balance between capacity and demand  Avoid rushed, painful asset rationalization decisions  Achieve financial and clinical health in the long term What can asset optimization do for your organization? Benefits of Asset Optimization 13
  14. 14. Organizing Framework For Approaching Asset Optimization 14
  15. 15. Key Focus Areas Strategic Framework Key Focus Areas Scenario-Based Short-Term Impact (1-3 years) Scenario-Based Long-Term Impact (3-5 years) Mission Impact Market Strategy Operations Strategy Financial Strategy Political/Community Need Strategy 15
  16. 16. Key Stakeholder Communications Strategic Framework Key Stakeholders Direct Impact and Action Imperatives Short-Term Direct Impact and Action Imperatives Long-Term Organizational Mission Impact Long-Term Organizational Economic Viability Impact Governance/ Boards Patients Staff Medical Staff Legislators Community Leaders Donors Other (Specific to Your Organization) 16
  17. 17. Governance Imperatives For Achieving Asset Optimization 17
  18. 18. Unprecedented Governance Complexity To Begin With ―Even small healthcare institutions are complex, barely manageable places…large healthcare institutions may be the most complex organizations in human history.‖ — Peter Drucker 18
  19. 19. Unprecedented Governance Complexity — Now Magnified By:  Fundamental restructuring of health care  Movement from cost-based pricing to price-based costing  Movement from 50 years of expanding market to contracting market 19
  20. 20. Governance Transformation Required  The quality of governance that was sufficient to get your organization where it is today will be insufficient to get it where it needs to be tomorrow.  Governance must change to facilitate effective asset optimization. 20
  21. 21. Audience Questions 21 How many of you would see your boards being comfortable with the concept of asset optimization? How many of you would anticipate your board would resist the concept of asset optimization?
  22. 22. Most Boards Are:  Institutionally loyal as opposed to mission loyal  Unfamiliar with asset optimization, and regard it as a ―retreat‖ or a ―defeat.‖  Suspicious of CEOs who suggest it out of context 22
  23. 23. Boards Must Adopt a New Mindset Innovations and practices that…  Change culture, behavior, and the organization  Create a collective body of knowledge and a new set of habits 23
  24. 24. Six Practical Steps To Evolve Governance to Facilitate Asset Optimization 1. Assess the structures, dynamics, and cultures of current governance and leadership models to identify vestiges of old models and necessary attributes to succeed in the new model. 2. Develop the board through a multifaceted strategy including education; competency-based selection; governance restructuring; and involving the board earlier in strategic planning processes 3. Develop a set of conceptual principles to guide the practical restructuring of governance and leadership. Examples: non-representational governance at system/parent board, but some representational governance at subsidiary boards. Continued… 24
  25. 25. Six Practical Steps To Evolve Governance to Facilitate Asset Optimization (continued) 4. Develop clear delineation of relative roles, responsibility, and authority of different boards and clinical leadership groups. Codify this with Authority Matrices, and then use them! 5. Centralize authority, decentralize decision-making. Ensure ultimate responsibility and accountability for system rests clearly with the system/parent board. Subsidiary and physician boards are provided specific, accountable goals for clinical transformation that focus on clinical quality, cost, and population health metrics. Each subsidiary board and clinical leadership group is held accountable to specific metrics. 6. Nimbleness is key! Governance and leadership structures cannot be set in stone. Leaders must be able to change and adapt as circumstances warrant. 25
  26. 26. Four Steps for Planning & Executing Asset Optimization 26
  27. 27. Asset Optimization: Four Steps Understand the Changing Market Understand How Your Organization's Programmatic Assets Meet the Needs of the Market Understand How Your Facility assets Meet the Needs of the Market Understand the Gaps and Opportunities in Achieving Asset Optimization Understand the Changing Market Understand How Your Organization's Programmatic Assets Meet the Needs of the Market Understand How Your Facility assets Meet the Needs of the Market 27
  28. 28. Asset Optimization: Questions To Ask • Who are our competitors? • How will emerging provider groups be positioned in our market? • What are our profits and losses in the markets we serve? • Are patient volumes declining or growing? • Which competitors could potentially be our partners? • Which competitors will have the most attractive networks (i.e., locations and services)? Understand the Changing Market Understand How Your Organization's Programmatic Assets Meet the Needs of the Market Understand How Your Facility assets Meet the Needs of the Market Understand the Gaps and Opportunities in Achieving Asset Optimization Understand the Changing Market Understand How Your Organization's Programmatic Assets Meet the Needs of the Market Understand How Your Facility Assets Meet the Needs of the Market 28
  29. 29. Asset Optimization: Questions To Ask • Which population groups do we serve? Are there unmet needs or excess capacity/inefficiencies? • Are there service lines not currently provided in the areas we serve? What might be the return on investment to build, expand or partner to offer these services? • What programs and services might our communities not support? Who would provide these programs and services if our organization does not? Understand the Changing Market Understand How Your Organization's Programmatic Assets Meet the Needs of the Market Understand How Your Facility assets Meet the Needs of the Market Understand the Gaps and Opportunities in Achieving Asset Optimization Understand the Changing Market Understand How Your Organization's Programmatic Assets Meet the Needs of the Market Understand How Your Facility Assets Meet the Needs of the Market 29
  30. 30. Asset Optimization: Questions To Ask • What are the most attractive locations for our inpatient and outpatient programs? • Are our current locations the best or might they be provided more efficiently in alternative settings? • How should our facilities and real estate be reconfigured to best support asset delivery? • Where should our major medical equipment assets be deployed to optimize patient access? Understand the Changing Market Understand How Your Organization's Programmatic Assets Meet the Needs of the Market Understand How Your Facility assets Meet the Needs of the Market Understand the Gaps and Opportunities in Achieving Asset Optimization Understand the Changing Market Understand How Your Organization's Programmatic Assets Meet the Needs of the Market Understand How Your Facility Assets Meet the Needs of the Market 30
  31. 31. Asset Optimization: Questions To Ask • What asset distribution options better serve our population in the most cost-efficient manner? • What options eliminate duplication and create more favorable variable and fixed cost structures? • What are the projected profit and loss and capital implications of each asset optimization option? Understand the Changing Market Understand How Your Organization's Programmatic Assets Meet the Needs of the Market Understand How Your Facility assets Meet the Needs of the Market Understand the Gaps and Opportunities in Achieving Asset Optimization Understand the Changing Market Understand How Your Organization's Programmatic Assets Meet the Needs of the Market Understand How Your Facility Assets Meet the Needs of the Market 31
  32. 32. Discussion Examples: Rationalization vs. Optimization 32
  33. 33. Example: Reactive Rationalization ―We fought the good fight as long as we could."  Independent community hospital experienced deteriorating finances over many years  Major money-losing areas were psychiatric and obstetric services.  Board rejected senior leadership’s proposed changes to services, citing mission and personal reasons.  Finances continued to deteriorate; hospital was ultimately sold to a for- profit chain. 33
  34. 34. Example: Proactive Optimization Successful consolidation with improved services to the community.  Leaders at a municipally-owned hospital and a nonprofit Catholic hospital, located within a few miles of each other, saw benefits of a merger.  Engaged the board, executives and the community to examine all options.  Multi-year process required difficult decisions regarding which campus would absorb consolidated services, medical staff preferences, religious directives, reductions in force, and community reaction.  Merger and consolidation successful, with significant improvement in the system's cost structure, quality, patient access, and competitive position. 34
  35. 35. Practical Next Steps 35
  36. 36. TRANSFORMATIONAL MINDSET STRATEGIC FRAMEWORK PLANNING AND EXECUTION Overcoming Obstacles and Common Mistakes Understand the Changing Market Understand How Your Organization's Programmatic Assets Meet the Needs of the Market Understand How Your Facility assets Meet the Needs of the Market Understand the Gaps and Opportunities in Achieving Asset Optimization Understand the Changing Market Understand How Your Organization's Programmatic Assets Meet the Needs of the Market Understand How Your Facility assets Meet the Needs of the Market 36 20% – 40% Imperative Key Focus Areas and Stakeholder Communication Four-Step Planning and Execution
  37. 37. Overcoming Obstacles to Asset Optimization  Avoid being institutionally loyal, placing emphasis on preservation of facilities and programs over everything else.  Consider assets as they serve the mission, instead of assets being the mission.  Implement structural change based on an asset optimization plan with the organization’s assets as tools in service of the mission.  Do not underestimate organization resistance to programmatic/ facility asset optimization.  Do not underestimate the timeline required to successfully implement asset changes. 37
  38. 38. Asset Optimization Imperatives for Success  Make asset optimization reviews ―standard‖ components of every health system strategic planning cycle.  Spend significant time assembling diagnostic/planning tools to develop market, community impact, operations, clinical, medical staff, financial, facility/real estate baselines and scenario-based planning options.  Goals for asset optimization should be built into the management and board objectives and receive regular reviews and evaluations.  Assign people/roles/tasks for moving through asset optimization, establishing formal accountability and organizational discipline to manage through the planning and execution of asset optimization.  Ensure that stakeholders are continuously informed and engaged: communicate systematically and in a transparent manner over a long period of time. 38
  39. 39. Questions 39
  40. 40. Curt Whelan, Managing Director, Huron Healthcare | cwhelan@huronconsultinggroup.com Curt is an Executive Leadership Team member for Huron Healthcare. He leads the Integrated Project Leadership division and is responsible for Huron’s organic market growth plans. He brings more than 25 years of experience managing comprehensive healthcare consulting and performance improvement engagements. His expertise includes integrating and translating market-based demand analysis, physician alignment, operations improvement, facility asset distribution and financial planning into actionable plans. Curt is nationally recognized for his knowledge of emerging healthcare delivery models, coupled with his functional approach to project management and planning, provides the required expertise to build organizational consensus with management and governance to successfully implement strategic and cost repositioning plans. James E. Orlikoff, President, Orlikoff & Associates, Inc. | j.orlikoff@att.net James Orlikoff has been involved in leadership, quality, and strategy issues for more than 33 years and is president of Orlikoff & Associates, Inc., a consulting firm specializing in healthcare governance and leadership, strategy, quality, patient safety, and organizational development. He also serves as the senior consultant to the Center for Healthcare Governance and is the national advisor on governance and leadership to the American Hospital Association and Health Forum. Mr. Orlikoff is vice-chairman of the board of Virginia Mason Health System and serves on the board of the Virginia Mason Institute. Mr. Orlikoff has authored 15 books and more than 100 articles and has served on hospital, college, and civic boards. He has consulted with hospitals, health systems, and governments in 12 countries. Today’s Presenters 40
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