Every successful strategic plan is framed by an organizational mission and strong leaders as the guidepost. However, delivering on these plans and fulfilling these missions has become more challenging for many hospital and health system leaders. Margins are razor thin and workforce challenges persist. In the current environment, bold leadership is a must.
Nationally recognized top 10 assurance, tax and advisory firm FORVIS, LLP recently worked with a large multi hospital system and its leaders on enhancing their margins. When FORVIS sees outsized margin gains in the market, the approach, culture, resources or source driving those results are all varied. Largely, the common denominator is leadership — particularly those leaders who are committed to their organization’s mission and adapt goals and efforts to market dynamics to stay on plan. This health system is a notable client for FORVIS, with an impressive executive team that embodies this concept of progressive, bold leadership, which led them to more than $100 million in margin turnaround in 18 months.
Several years ago, this health system developed a long-term strategic plan to upgrade its facilities, but then a series of unexpected events jeopardized this vision. First, in 2020 the COVID-19 pandemic erupted. Then, in July 2022, the region experienced an unprecedented flood.
Danielle Solomon, FORVIS’ national healthcare leader, reflected admirably on the health system’s leadership team sharing their process. “They believed in their strategic plan and thus, the health system’s leaders committed to fulfilling their goals and focused on improving margins to fund the plan,” she said. “The unwavering commitment and sense of urgency generated long-term benefits for the communities they serve and is a testament of model leadership.”
To learn more, Becker’s Healthcare spoke with other FORVIS leaders involved in the health system’s journey to enhance margins, which enabled the system to focus on improving the health of residents throughout all of the communities they serve:
- Eric Rogers, leading partner for FORVIS’ healthcare performance improvement practice unit
- Peter Stille, managing director for FORVIS’ healthcare performance improvement team, specializing in non-labor cost reduction
Organizational sustainability requires investment in the Triple Aim
To fully understand the extent of the health system’s challenges, it’s important to consider socioeconomic and population health factors within the communities this health system serves. The decline of the communities’ economic engine has gone hand-in-hand with increases in opioid abuse. Much of the region is a food desert, since the rugged topography makes access to fresh produce difficult.
The only demographic group that is growing is the 65-and-older population, and dependence on government payers for healthcare is considerable.
Yet in the face of these conditions, the health system’s leadership team remained steadfast on their mission to improve the health and well-being of their residents. “The health system’s mission is really ambitious, but also incredibly important for their strategic vision,” Mr. Rogers said. “This health system operates in one of the most challenging geographies in the United States. So it was essential the leadership team remained focused on their strategy.”
To make its mission a reality, the health system created a strategic plan organized around three pillars:
- Grow communities from within
- Provide a distinguished experience
- Curate high-value services that emphasize value-based care
“These pillars are laser focused on the Triple Aim: population health, patient experience and reducing healthcare costs,” Mr. Stille said. “The health system has limited human resources and financial capital to invest, but their leadership team understood that investment in those three pillars will be key to their sustainability moving forward. The leaders also recognized that without a positive patient experience and high quality care, they won’t be able to maintain sustainability.”
To deliver on strategic objectives, leaders must invest in key enablers
Given the labor shortages in healthcare, the health system had relied heavily on expensive contract labor to fill staffing gaps. One way the organization has addressed that issue is by taking a longterm view and allocating resources for workforce development.
“The health system’s leaders were cognizant of their need to build their talent pool for every type of position,” Mr. Stille said. “The health system strategically worked with local academic centers to build their recruitment pipeline to help meet patient needs and support future growth opportunities, as well as made investments that strengthened their organization’s ability to identify growth opportunities through data.”
Through these investments, the health system made great strides in their data-driven decision-making with new decision-support tools and a new cost-accounting system, as well as external benchmark data and key performance indicators. “When leaders make wise investments in data, they are better equipped to identify and quantify opportunities and really focus investment on the areas where they have the greatest chance for organizational success,” Mr. Rogers said.
A laser focus on margin management can generate funds for strategic investment
Over an 18-month period, the health system identified and achieved over $100 million in margin improvement. According to Mr. Rogers, it’s been a complete reboot for this health system.
“To protect revenues, the health system wanted to ensure appropriate reimbursement for their services,” Mr. Stille said. “One way the health system’s leadership team made this happen is through improved coding and documentation, prior authorization processes and denials management.”
On the expense side, the health system set its sights on decreasing contract labor and reducing non-labor related costs. To achieve its goals around contract labor, the health system’s leaders initiated efforts for implementing a new productivity model to help with staffing and took a close look at lowering patient length of stay. The leadership team benchmarked the organization’s performance against CMS length-of-stay data. They also established KPIs around utilization of post-acute assets.
“By doing things like moving patients from acute settings into swing beds in critical access hospitals, the health system reduced length of stay by over one day per acute admission,” Mr. Stille said. “That helped the system’s leaders to right-size their census, and they cut their dependency on contract labor by about a third. That equated to around $10 million a month during the last six months of their 2023 fiscal year.”
To address non-labor-related costs, the health system engaged with FORVIS. Together, the health system’s leaders and FORVIS intentionally launched initiatives designed for impact, which resulted in $40 million of savings for the health system. These projects ranged from implementing water conservation technology to revamping the health system’s group purchasing organization relationship; reinventing complex services like dietary and housekeeping; and examining employee benefits, pharmacy and more.
Though many healthcare organizations struggle to retain dietary and housekeeping staff, the health system’s leaders and FORVIS were committed to finding ways to reduce costs while increasing its FTEs and improving food quality. The team also found a new GPO and re-examined the 340B program.
“By working more closely with the GPO, the strategies that were incorporated saved millions of dollars,” Mr. Stille said. “That has turned out to be one of the biggest areas of savings for the health system. We did the same for 340B. Benchmarking and analytics provided needed visibility into opportunities for improvement. Data really drove executive decisions on where to invest time and provided stakeholders with the facts they needed to justify changes in their management approaches.”
Real lessons learned & best practices for healthcare leaders
“The healthcare environment is dynamic, with teams moving intentionally and in multiple directions concurrently,” Ms. Solomon said. “In that atmosphere, clarity and understanding of the level of change the organization can absorb and successfully implement is critical.”
Leadership needs the discipline to serve its mission through the strategic plan. “We saw that with this health system’s executive team,” Mr. Stille said. “They ensured that all of their decisions support the three pillars of the strategic plan.”
To survive and thrive, hospitals and health systems also must focus on continuous improvement and be adaptable enough to react to unexpected challenges. This requires practices, competencies and structures that support continual growth.
“We are seeing more organizations revisit their strategic plans on an annual basis and go after higher-margin improvement projects,” Mr. Rogers said. “There’s increased investment in analytics to evaluate the growth that may be possible through high-margin service lines, as well as the value of pruning service lines that aren’t providing the returns needed to serve their communities best.”
As evidenced with this health system, successful growth goes beyond strategic planning and requires a commitment to execution. “It’s not enough to just identify growth opportunities; hospital and health system leaders need the discipline to see them all the way through contract. You must get projects to paper to realize savings,” Mr. Stille said.
Partnering with external professionals can help amplify an organization’s ability to achieve financial and operational goals in the journey to realizing its vision.
“Our FORVIS team was able to quickly zero in and help the health system’s leaders identify what was possible in terms of savings above the usual suspects like product standardization and orthopedic implants,” Mr. Rogers said. “All of the margin improvement initiatives that the health system pursued could have been challenging for the system’s leaders to do on their own, especially with limited bandwidth and resources.”
In addition, the health system’s leaders realized margin improvements with very little change to operational practices. For example, the system’s GPO savings required no material changes in products, services or vendors, but produced a significantly decreased cost as a result of data-driven decisions in collaboration with its GPO partner.
Looking ahead, it will be critically important for hospitals’ and health systems’ leadership teams to control their financial health. Both margins and growth are inextricably linked, and investment in one will pay dividends exponentially in the other.
“Leading healthcare executives who operate with bold visions and strategic directions are thinking about their organizations as value-driving machines, and higher margins are a key concept for achieving success,” Mr. Stille said. “The executive team for this health system is a great illustration of that — they doubled and tripled down when they needed to and stayed focused.”