Get Connected, Get Results, and Get Smarter.

IN 1996, I WAS appointed Chief Medical Director for Children's Services at Duke University Medical Center, and was responsible for all services associated with children less than 18 years of age. Duke Children's was in crisis and financial pressures were mounting. A decrease in Medicaid allowances and an increase in patients with capitated reimbursement were driving revenues down. Expenses were rising as cost per case for children's services ballooned from $10,500 in fiscal year (FY) 93 to $14,889 in FY96. This caused a dramatic reduction in the net margin from -$2 million in FY93 to -$11 million in FY96. Programs were slated to be eliminated and services were targeted for reduction. Staff productivity had fallen from the 80th to the 70th percentile range. In addition, patient and staff satisfaction was at an all time low.

The course of Duke Children's Hospital has been transformed dramatically. Costs were reduced by nearly $30 million in FY2000 (please see Figure 1). Net margin has increased by $15 million (please see Figure 2) and staff satisfaction is at a record high. In addition, Duke Children's Hospital received the "Best Practice" Award from the North American Balanced Scorecard Summit for excellence in business process.

Crisis or opportunity?

Physician executives need to understand what is driving the health care crisis. Only then can they realize how their unique skills can be used to bridge the gap between the business and quality of health care.

How did medicine become so "challenged?" It started with a shift in the drivers of health care. Previously the only real driver was clinical quality--it was all about quality clinical outcomes, quality clinical outcomes, and quality clinical outcomes. Physicians and other clinical staff were the key players in the health care process. As revenues decreased and expenses increased, there was a shift--financial performance became the dominant force.

Since medicine is the most passionate service-based industry, clinical outcomes cannot be separated from financial performance. There is, however, an obvious paradox in this philosophy. No matter how effective the CEO and COO are, they can only control a small component of the organization's financial performance. The rest is largely dependent upon clinical practice patterns and not typical business processes. Physicians determine when the patient leaves the hospital and, therefore, the patient's length of stay. In addition, they prescribe medicines, tests, and procedures that significantly impact cost, and accept referrals that increase revenue.

The paradox is that while clinicians can dramatically affect financial performance, they are primarily motivated by the need to provide quality clinical care. Even though health care is being driven by financial performance, administrators may have little impact on this area. To improve financial performance, administrators must engage physicians. This forced alliance can cause a gap and a potential conflict between hospital administrators and clinicians.

This gap can either be viewed as a conflict or an opportunity. Physician executives can bridge the gap with effective communication and by explaining the value proposition to both sides, linking clinicians and administrators to a strategic vision and team. To achieve these goals, physician executives must apply sound fundamental business principles using clinical insight. They must develop an intelligent performance management system that aligns administrators and clinicians into a single platform.

This platform must support an integrated matrix that fosters the ability to communicate critical information rapidly throughout the organization. The organization must learn how to identify the key drivers of performance and implement initiatives to optimize them. This approach will provide health care organizations with the business and quality intelligence needed to successfully compete in the turbulent marketplace.

Translating the vision--the power of information

In health care, there is a tremendous amount of data but very little useful information to make intelligent decisions. One reason is that there are several independent sources of data that are not linked, which makes it difficult to get the true picture of the organization's performance. Integrating these data sources is essential.

Delivering information to key stakeholders so that they can learn and make intelligent decisions is an essential step in creating knowledgeable stakeholders. While sharing information is a great opportunity to educate and empower staff, it also has risks. The information must be presented in a manner that fosters improvement, not finger pointing. All stakeholders, especially physicians, should be given information that is accurate, clear, appropriate for their level, and site specific to their individual performance.

This strategy forces groups to focus on their own performance and not be distracted by other departments. For example, physicians should be given information on their practice patterns and outcomes, but not on nursing productivity since they cannot effect change in this area. Nurses, however, should be focused on what they can control, such as nursing productivity and nursing-driven clinical outcomes. In this way, individuals are given the information they need to measure and improve their performance in an intelligent manner.

Bridging the gap

In 1996 Duke Children's developed an integrated scorecard that linked the business and quality clinical outcomes into a single platform. This approach was fundamental to our success--it promoted balance in the organization and aligned all disciplines around a focused strategic agenda. Kaplan and Norton have described the balanced scorecard approach in detail and have seen its effectiveness in more than 500 organizations, including almost 50 percent of the Fortune 1000 companies. [1]

The scorecard looks at four perspectives that are balanced to achieve desired outcomes: (1) financial, (2) customer, (3) learning and growth, and (4) internal business. The best way to understand the concept is to use a specific example, such as how the organization's financial performance could be improved by reducing staff. If the reduction in staff results in a decrease in the quality of care, the internal business perspective would demonstrate a low performance and this strategy would not be balanced. Our methodology supports developing strategies and initiatives that provide organizational balance across all perspectives.

The balanced scorecard methodology, while an excellent long-term solution, may require a significant amount of time before it is embraced by the entire organization. Therefore, as an initial step, organizations should rapidly develop scorecards that allow physician executives and administrators to align goals and to communicate and educate the team.

A tool kit for building a scorecard

The physician executive needs to develop a scorecard that is linked to the organization's strategic agenda. This will function as the brain for the organization and provide the opportunity for learning, growth, and developing intelligence. This should be accomplished in a short timeframe or team members will lose interest. The three steps of our proven rapid-fire approach are to: (1) Get connected, (2) get results, and (3) get smarter (please see Figure 3).

I. Get connected--establishing key linkages

The primary goal is to quickly deliver an integrated, comprehensive scorecard that links the mission, strategy, objectives, targets, key performance indicators (KPIs), and initiatives across the organization (please see Figure 4). Key stakeholders should collaborate in mapping measurement strategies and defining objectives. They need to identify the key performance indicators that drive the organization and link them to the goals and strategy, determining the sources of these data and the required reporting frequency.

The scorecard is then aligned to the budget. It is essential to assign ownership of the key performance indicators to specific individuals to assure accountability. The deliverable is a linked scorecard that can support change and lets stakeholders diagnose opportunities for improvement by providing critical management information in a single, integrated, and consolidated source. This information can be shared rapidly throughout the organization.

The development of key performance indicators is a critical factor in successfully implementing the balanced scorecard. There are hundreds of metrics to consider, but only a few that drive a health care organization. Keep it simple! Physician executives are wise to limit the amount of time spent determining key metrics, otherwise momentum will be lost and progress halted. Use our motto: "If you can't measure it, don't do it."

Scorecards should address three vital areas:

* Performance indicators. Clearly define key performance indicators that link the business and clinical aspects of health care.

* Staff satisfaction. Physicians prescribe care, nurses and allied health professionals deliver the care, patients receive care, and the payers pay for the care. If any of these groups are dissatisfied with the organization's performance, there will be discontent that can result in reduced quality. Most organizations routinely measure patient and payer satisfaction, but often disregard staff satisfaction. Physicians, nurses, and other allied health professionals drive many aspects of health care--their ongoing education and satisfaction, as well as validating their impact on quality of care, must be measured and recognized.

* Regulatory arena. Maintain a focus that assures compliance since health care is highly regulated. By developing a comprehensive and aligned performance improvement strategy, the scorecard should facilitate regulatory compliance as a collateral benefit of routine clinical practice. This can be achieved by linking initiatives to the overall strategy, fostering interdisciplinary collaboration and demonstrating continuous improvement.

2. Get results--analyze performance

The next step is to turbo charge your scorecard by leveraging technology. Health care is the largest sector of the economy, yet less than 2 percent of expenses are earmarked for technology. Other industries devote 10 percent of expenses to this area. Although health care organizations spend a tremendous amount of money taking care of patients, they spend little investing in their own health.

In order to survive and take better care of patients, health care organizations need to enhance business process effectiveness by investing in technology that automates the scorecard and transforms tremendous amounts of data into useful information. The data should be reported and analyzed regularly to promote systematic evaluation of performance and move the organization from a "crisis intervention" mode to a "strategic solutions" approach. Automatic data collection and reporting allows an organization to transform its culture.

In health care, the emphasis has been on the bottom line--and cuts in staff. This approach, while having an initial upswing, has a short life span and often results in reduced quality. Innovators need to focus on improving productivity by providing tools that teach staff how to improve their performance while enhancing quality. Other methods to manage costs and improve quality will be identified as the scorecard information is evaluated. Determining what drives practice patterns and reducing variability can greatly reduce costs. Opportunities in pharmacy, laboratory, diagnostics, or supplies can be targeted for improvement initiatives. These multi-disciplinary initiatives should be supported by technology and their outcomes carefully linked to key performance indicators.

When organizations are not performing intelligently, they live from crisis to crisis. Strategic thinking is absent and money is spent unwisely. Money and time are allocated to initiatives that are not linked to strategy and have little impact on organizational performance. Frequently, there is no direct link between strategy, initiatives, and key metrics and, therefore, no data to determine if the initiatives are successful. This lack of focus creates confusion, frustration, and redundancy. If the organization fails to achieve its goals, the mission and vision become blurred, staff become disconnected, and a crisis mentality develops. As the margin falls, the mission becomes threatened and programs and services are targeted for elimination.

When organizations are performing intelligently, they focus on the key drivers of their business and invest in strategies to improve them. They develop metrics to measure and link organizational performance to these drivers. They learn what is and what is not working, and knowledge transfer transforms the culture, creating a learning organization.

Another role for the physician executive is to be a facilitator of education and communication. The scorecard supports this effort by providing a framework for discussion and education. Feedback can be used to improve performance and make the organization smarter.

3. Get smarter--gaining knowledge and strategic control of your organization

Management information, tools, and solutions allow the organization to effectively operate with a strategic focus. Consistent, systematic review and revision of the scorecard allows the organization to transform itself into a learning center. Drill downs, modeling, and analysis uncover new strategies to improve business effectiveness and clinical quality. As opportunities for improvement are revealed, strategies are developed that require new ideas and approaches, resulting in the need to make new connections, get results, and get smarter. The process repeats itself, assuring continuous strategic improvement.

The business and quality intelligence that develops from this methodology fosters strategic control in all perspectives and assures that the organization evolves to meet challenges. This performance management system supports the transfer of knowledge--clinicians and administrators learn about clinical and financial drivers and how they affect organizational performance.

The innovators in health care

While dramatic changes are inevitable, developing a strategic focus and examining the business and quality of health care in a measurable and repeatable manner is each organization's opportunity. Organizations need to bridge the gap between the financial and clinical drivers of health care, partnering with physician executives who can communicate the value proposition to both clinicians and administrators and provide the key link to a single strategic vision. To be successful, physician executives must help develop the brain for the organization: the integrated scorecard. This scorecard allows the organization to diagnose, treat, and perform preventive measures on the business and quality of health care.

By becoming healthier, organizations will be in a better position to excel at patient care, increase staff and physician satisfaction, and provide an environment in which learning and growth are fostered. Physician executives need to be innovative, while utilizing performance management systems to unleash the information necessary to transform the industry and improve health care for all.

Jon N. Meliones, MD, MS, FCCM, CPE, is a Professor of Pediatrics and Anesthesia and Chief Medical Director of Children's Services at Duke University Medical Center in Durham, North Carolina. He is also CEO of PracticingSmarter (www.Practicingsmarter.net), a company that focuses on teaching health care leaders how to utilize business intelligence performance systems so that they can achieve their mission.

Reference

(1.) Kaplan, R.S., Norton, D.P. The Strategy-Focused Organization. Boston: Harvard Business School Press, 2000.

                               Cost per Case
'93 10,500
'94 11,600
'95 12,890
'96 14,889
'97 13,411
'98 12,550
'99 12,440
'00 10,500
Cost/case for children [less than] 18 years old is
graphed versus fiscal year. There was a
significant reduction in cost per case after
implementing the scorecard methodoloy in FY96.
Before scorecard is depicted in red, after
scorecard is depicted in yellow.
                           Financial: Net Margin
'94  -6
'95  -8
'96 -11
'97  -9
'98  -8
'99  -6
'00   4
Net margin is graphed versus fiscal year.
A significant improvement in net
margin was achieved.

KEY CONCEPTS

* Balanced Scorecard Approach

* Integrating the Business and Quality of Health Care

* Developing a Strategic Management System

* Creating Knowledgeable Stakeholders

* Improving Organizational Performance

* Developing Key Performance Indicators (KPIs)

What methodology did Duke Children's Hospital use to achieve a dramatic turnaround? What techniques do health care organizations use when they act intelligently? They practice smarter by integrating the business with the clinical quality of health care along strategic themes. Physician executives have the unique skills necessary to be the key drivers in linking business and quality measures into a single performance system. This article outlines a systematic approach to performance improvement--one that provides physician executives with the tools they need to help shape their organization's future. It describes how Duke Children's developed an integrated scorecard that linked the business and quality clinical outcomes into a single platform. This approach promoted balance in the organization and aligned all disciplines around a focused strategic agenda.

Advancing Margin and Mission

By integrating the clinical and business aspects of health care Bat Duke Children's, we achieved a significant improvement in all perspectives--financial, customer, learning and growth, and internal business. Our cost per case was reduced from $14,889 in FY96 to $10,500 for FY2000 (please see Figure 1), nearly a $30 million reduction in cost. In addition, our net margin improved from -$11 million in FY96 to +$4 million in FY2000 (please see Figure 2).

Before we started this performance management system, programs and services were slated for reduction or elimination. Now, strategic investments are being made that will assure the future success of Children's Services. Our patient satisfaction increased from 4.3 to 4.7 on a 5.0 scale, as did our referring physician satisfaction. The productivity on our nursing units increased from 71 percent in FY96 to 100 percent in FY2000. Staff satisfaction significantly increased from 1.5 to 4.0 on a 5.0 scale. In addition, morbidity improved as our readmission rate fell from 7 to 3 percent. The health of our organization has dramatically improved since we implemented a scorecard methodology and our mission has been advanced.

Jon N. Meliones, MD, MS, FCCM, CPE

Tools to Implement the Scorecard

Utilizing the technology power and knowledge of the applications service provider (ASP) allows rapid implementation of the scorecard and instantaneous upgrades. In an ASP model, the software resides on a server and is used through a browser. Physician executives can provide mission critical information to "everyone-everywhere," as team members can view the scorecard on their desktop. This approach reduces hardware and software expenses, decreases maintenance costs, and eliminates IT costs. It also reduces the amount of errors related to programming and improves the accuracy of the information.

The ASP model is attractive because of the multiple, non-integrated, legacy systems that are prevalent in health care organizations. By using the power of the Internet, these stand-alone information systems can be brought into a single, integrated platform. The extraction, transformation, and loading (ETL) processes keep data relevant and available. First, a single intuitive interface is used to extract data from multiple, non-integrated sources. The transformation phase converts the data into useful information that is tailored to the organization, and allows for aggregation, value translation, filed derivation, and cleansing. The information is then loaded and written to the new integrated platform and further analysis is possible.

Consider an organization that is interested in increasing nursing productivity. As initiatives are introduced, the organization needs to be aware that they could also lead to an increase in errors. Physician executives should examine nursing productivity as it relates to medical errors by bringing data from two independent sources into a single database, reflecting the same time period and location. The physician executive can perform an analysis to determine if there is a correlation between nursing productivity and errors. The hypothesis is that despite an increase in nursing productivity in the pediatric ICU from 82 percent to 100 percent, there is no increase in errors. The data reveal that there is no corresponding increase in errors as productivity increases.

This type of information is invaluable in understanding the relationship between the business and quality key performance indicators. Physician executives can then transfer, analyze, and communicate mission critical information that enhances the organization's knowledge.

Jon N. Meliones, MD, MS, FCCM, CPE