Regardless of the way in which legal challenges to recent legislation are resolved, healthcare is an industry confronting dramatic change. Delivery organizations face growing pressure to raise quality, reduce costs and increase revenues in an environment of reimbursement constraints, demographic shifts and accelerating technological change. New types of competition are emerging, more nimbly developing better business models that "cherry pick" the highest margin business. And as patients bear more responsibility for the cost of care, they are demanding more transparency, more input in decision making and more value.
The answers to these challenges don't lie in Washington. Regardless of specific legislation, the mandate of healthcare reform is already clear and actionable: Healthcare delivery has to provide both better outcomes and lower cost. Tweaking how you deliver care won't cut it. Survivors in this market will need to adapt and implement new care models — models that provide evidence-based economic and clinical value and can serve as strategic growth platforms of the future. This is what service lines need to do.
Why service lines are created
Recognizing the need to generate profitable growth, many healthcare systems have been building a service line strategy into their plans. The common practice has been to bundle discreet, episodic procedures and services within a specialty area like cardiology or orthopedics, and designate them as "service lines." The choice of services for a strategic focus usually reflects practical considerations such as the profitability of the service, growth trends and the delivery organization's reputation as a center of excellence.
These service lines are expected to be growth platforms for the delivery system. They're supposed to drive increased patient volume and market share, and to attract medical staff. And they’re supposed to sustain financial viability by delivering margin that makes up for the unreimbursed care (and errors and inefficiencies) that go on elsewhere in the organization. To meet these expectations, though, service lines have to raise the ante and bring something better to the market. This is where the problems often start.
Failing to define a better value proposition — getting started on the wrong foot!
The business objective for a service line is to attract more patients with a specific need, as a means of growing revenues and improving operating margin. Like any business in any industry, this requires a better product. What does this mean in healthcare? The answer is clearly stated in the mandate of healthcare reform … provide both better care and at lower cost.
Establishing a successful service line, then, requires a new approach that predictably delivers measurable, superior quality outcomes for less. This is what's needed to support an evidence-based economic and clinical value proposition that is better than competitors' care offerings. This has several implications for the structure of the service line:
The rapid devolution of poorly defined service lines
Unfortunately, shortly after launch of a new service line, the operational reality too often devolves into something far less productive. What happens? The root of the problem is the implementation of a broad service line concept without defining a different care model that yields better value. In such cases, service line strategy is more of a marketing aspiration than a crisp statement of what needs to fundamentally change.
There are some classic symptoms of a service line built on a mushy definitional foundation. Usually a new "service line administrator" role is created to drive service line implementation. When the service line strategy and value proposition aren't well defined, the description of the SLA role, too, lacks clarity about accountability and decision-authority, contributing to overall ambiguity about responsibility and expected outcomes. In the absence of measurable strategic growth and profitability expectations — and a clear operational care path to create value in order to achieve them — it becomes easy for SLAs to default to a daily operational problem-fixer.
What's often lacking is a clear understanding of how the service line will achieve the value differentiation needed to attract patients. This implies very different work for the SLA than daily operational problem solving. The actual level of care in a service line remains frozen, in terms of outcomes or more affordable price, while the SLA through sheer force of effort tries to create 'better integrated care' — an enticing visionary expectation, but one that often lacks specificity. The energy intended for improving care gets bled off, becoming a band-aid to cover for accountability gaps of other operational leaders. The SLA winds up serving as an expeditor that manages daily glitches in communications and internal hand-offs of patients, and as a physician liaison who fields physician complaints in the moment and tries to respond to them.
In the end, the standard of care and value proposition hasn't changed, because a clear path to do this wasn’t specifically defined from the start. As a result, there's no competitive differentiation based on hard evidence of better care at lower cost. There's no basis for value-based reimbursement from payors, and no compelling basis for patients to choose your hospital, other than your reputation and that of the physicians you’ve been able to recruit.
In addition to the notable lack of a compelling value proposition there are other symptoms indicating that this devolution of strategy and implementation has occurred. Across the organization there’s general confusion as to what a service line is, what it isn't, and why. Correspondingly, there's a lack of resource and management focus on designated service lines in the face of demands from other parts of the organization.
Take your service lines to the next level
Shrinking reimbursement, increasing price sensitivity and demands for improved quality argue that it’s time to move to a new delivery model built around stakeholder value. Healthcare leaders need to be planning for this future now, because implementing a new business model — the right way — is neither easy nor quick. Service line organization, properly implemented, offers the potential for delivering greater value in a market where winners will be chosen based on their ability to deliver better care at lower cost. But if you’re going to do it, take the time to do it right.
3 Steps to Managing Variability in Cost and Quality
Ways to Improve Accountability for Care
The answers to these challenges don't lie in Washington. Regardless of specific legislation, the mandate of healthcare reform is already clear and actionable: Healthcare delivery has to provide both better outcomes and lower cost. Tweaking how you deliver care won't cut it. Survivors in this market will need to adapt and implement new care models — models that provide evidence-based economic and clinical value and can serve as strategic growth platforms of the future. This is what service lines need to do.
Why service lines are created
Recognizing the need to generate profitable growth, many healthcare systems have been building a service line strategy into their plans. The common practice has been to bundle discreet, episodic procedures and services within a specialty area like cardiology or orthopedics, and designate them as "service lines." The choice of services for a strategic focus usually reflects practical considerations such as the profitability of the service, growth trends and the delivery organization's reputation as a center of excellence.
These service lines are expected to be growth platforms for the delivery system. They're supposed to drive increased patient volume and market share, and to attract medical staff. And they’re supposed to sustain financial viability by delivering margin that makes up for the unreimbursed care (and errors and inefficiencies) that go on elsewhere in the organization. To meet these expectations, though, service lines have to raise the ante and bring something better to the market. This is where the problems often start.
Failing to define a better value proposition — getting started on the wrong foot!
The business objective for a service line is to attract more patients with a specific need, as a means of growing revenues and improving operating margin. Like any business in any industry, this requires a better product. What does this mean in healthcare? The answer is clearly stated in the mandate of healthcare reform … provide both better care and at lower cost.
Establishing a successful service line, then, requires a new approach that predictably delivers measurable, superior quality outcomes for less. This is what's needed to support an evidence-based economic and clinical value proposition that is better than competitors' care offerings. This has several implications for the structure of the service line:
- Quality and outcome metrics should be defined and understood as part of the service line. This is the "better care" component of a more competitive value proposition. These metrics need to go beyond traditional mortality and morbidity metrics that aren't meeting the emerging demand for "better care."
- Process metrics such as cost and inpatient cycle time should be defined and understood from start-up. This is the "lower cost" component of a more competitive value proposition. Efficiency and appropriate utilization of resources has to be part of the design of a better care model.
- A "product profit & loss" and financial model should be in place at service line start-up if the service line is to be managed to deliver on the business objective of profitable revenue growth.
- A care model needs to be developed that manages the whole patient over a continuum, in sharp contrast to the episodic, procedural care typically provided today. The model needs the right infrastructure in place to truly integrate and coordinate care in order to deliver better economic and clinical value. Managing health, rather than fixing sickness, is what "better care at lower cost" really means.
The rapid devolution of poorly defined service lines
Unfortunately, shortly after launch of a new service line, the operational reality too often devolves into something far less productive. What happens? The root of the problem is the implementation of a broad service line concept without defining a different care model that yields better value. In such cases, service line strategy is more of a marketing aspiration than a crisp statement of what needs to fundamentally change.
There are some classic symptoms of a service line built on a mushy definitional foundation. Usually a new "service line administrator" role is created to drive service line implementation. When the service line strategy and value proposition aren't well defined, the description of the SLA role, too, lacks clarity about accountability and decision-authority, contributing to overall ambiguity about responsibility and expected outcomes. In the absence of measurable strategic growth and profitability expectations — and a clear operational care path to create value in order to achieve them — it becomes easy for SLAs to default to a daily operational problem-fixer.
What's often lacking is a clear understanding of how the service line will achieve the value differentiation needed to attract patients. This implies very different work for the SLA than daily operational problem solving. The actual level of care in a service line remains frozen, in terms of outcomes or more affordable price, while the SLA through sheer force of effort tries to create 'better integrated care' — an enticing visionary expectation, but one that often lacks specificity. The energy intended for improving care gets bled off, becoming a band-aid to cover for accountability gaps of other operational leaders. The SLA winds up serving as an expeditor that manages daily glitches in communications and internal hand-offs of patients, and as a physician liaison who fields physician complaints in the moment and tries to respond to them.
In the end, the standard of care and value proposition hasn't changed, because a clear path to do this wasn’t specifically defined from the start. As a result, there's no competitive differentiation based on hard evidence of better care at lower cost. There's no basis for value-based reimbursement from payors, and no compelling basis for patients to choose your hospital, other than your reputation and that of the physicians you’ve been able to recruit.
In addition to the notable lack of a compelling value proposition there are other symptoms indicating that this devolution of strategy and implementation has occurred. Across the organization there’s general confusion as to what a service line is, what it isn't, and why. Correspondingly, there's a lack of resource and management focus on designated service lines in the face of demands from other parts of the organization.
Take your service lines to the next level
Shrinking reimbursement, increasing price sensitivity and demands for improved quality argue that it’s time to move to a new delivery model built around stakeholder value. Healthcare leaders need to be planning for this future now, because implementing a new business model — the right way — is neither easy nor quick. Service line organization, properly implemented, offers the potential for delivering greater value in a market where winners will be chosen based on their ability to deliver better care at lower cost. But if you’re going to do it, take the time to do it right.
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