The five "S" levels of enterprise health. (Competing On the Edge).

KEY CONCEPTS

* Health Care System Viability

* Attaining Enterprise Health

* The Five "S" Levels of Enterprise Health

* Balanced Scorecard

* Health Value Model

IT IS REPORTED THAT IF one places a frog in a pot of tepid water and gradually increases the heat on a stove, the frog will boil to its demise without protest. (Of course, thrown into a pot of already boiling water, the frog will struggle mightily, if briefly, to escape.) For those intensely engaged--"heads down, in the trenches"--the implications of such gradual changes In ambient "temperature" are not always discernible, Whether pride, necessity, or inattention is at the root, some "slowly boiling" physicians find themselves working harder for fewer compensations of all sorts, and may not be fully cognizant of their circumstances. The following may help to diagnose and manage the health of their practices and/or related enterprises.

The five "S" levels of enterprise health

There are five levels of enterprise health, ranging from success (S-1) to shutdown (S-5), that serve as weather vanes about how the enterprise is adapting to changes in its environment. They are:

Whether pride, necessity, or inattention is at the root, some "slowly boiling" physicians find themselves working harder for fewer compensations of all sorts, and may nor be fully cognizant of their circumstances. This article helps to diagnose and manage the health of physicians' practices and/or related enterprises. There are five levels of enterprise health, ranging from success (S-1) to shutdown (S-5), that serve as weather vanes about how the enterprise is adapting to changes in its environment. How should physicians respond to chaos and the threats of deteriorating enterprise health? A five-step approach is offered: (1) Discern what is important; (2) place and keep your program in alignment with those patient interests that will enhance your enterprise viability; (3) keep score with an internal balanced scorecard; (4) manage and shepherd your resources in a manner that demonstrably adds value to patient care; and (5) know the score and use it.

S-1 = Success: Things are going well. There are the expected problems of life and activity, but they are manageable. Overall, progress is in hand.

S-2 = Subsistence: Things feel constrained. There are resources enough to get by, but few discretionary or developmental options may be considered. The problems that arise unexpectedly cause significant concern, and threaten your sense of stability and ability to function.

S-3 = Stress: Each day is a struggle, and you feel that there is nearly constant danger of foundering. You are developing systemic, even dysfunctional signs and symptoms that make you uncomfortable and contribute to your lack of effectiveness, even causing you to make errors as a consequence. Any unexpected problem seems to threaten your viability.

S-4 = Shock: You are unable to meet your obligations and must make choices to preserve "essential" activities and functions at the expense of cutting others. You make choices more or less continuously about who and what must go. You have little or no ability to respond in any other way.

S-5 = Shutdown: You have "cut" past the point of viability. You must cease.

Application to health care

Consider the application of this paradigm to contemporary health care, in which change, excess capacity, and limited resources are realities. There are multiple constituents, including patients, physician and hospital providers, employers/purchasers, payers, government/ regulators, lawyers/ enforcement, and industry delivering products and services (please see Figure 1). The lack of agreed upon common purpose and criteria for determining value create opportunity for the inappropriate exercise of power (economic, political, legal, etc.) over principle. The result is, at times and apparently increasingly, chaotic-indeed, downright unhealthy.

Derivative questions

The increasingly chaotic health care environment begs that the following questions be asked and answered:

* In a world of constrained resources, which parties or practices will or should thrive at the 'expense" of others, and how should these choices be made?

* How does one recognize degradation in practice or organizational health, and how should one respond?

* Will society tolerate a health care system that can fail (S-5), and if not, how should we prevent it from doing so? And,...

* How should physicians in particular respond to chaos and the threats of deteriorating enterprise health?

Principal characteristics of environmental change

From the accelerated pace of change to apparently limitless appetites and expectations, there are many idiosyncrasies that characterize modern life, as well as the health care environment:

The pace of change--is accelerating. Fueled by explosions in information, technologic innovation, economic unrest, social ambiguity, and other factors, modem life (and health care) is dizzyingly complex and constantly shifting.

Skating on the edge--has become more prevalent. As general societal memories of economic hardship recede and economic expansion and prosperity roll on, many behave as if the risks of life and enterprise have been "reengineered" away. On the other hand, many who are "in the trenches," particularly physicians (and now patients) are experiencing the darker side of change, through such phenomena as consolidation and the corporatization of health care, burdensome regulation and administrative complexity, corporate downsizing, and redefining social support structures. At a practice level, declining reimbursements combined with behaviors to maximize distribution of income result in low to negative retained enterprise value. Accordingly, for increasing numbers, "the edge" has become a way of life.

Ambivalence and oxymoronic responses-have become more common. For example. tension is created by attempts to make health care a market-based system in the face of antithetical regulation and control. Indeed, some dominantly successful market-based enterprises often will use regulation to shield against the effects of competition--a remarkably effective, if decidedly noncompetitive strategy. In any case, these are antipodal forces in a not-so "free" society and medical marketplace. Either can be lethal to an emerging or struggling enterprise.

Appetites and expectations--seem to be limitless. People assume good health. They are steadfastly reluctant to take personal responsibility for their own circumstances, and are often quick to place fault on someone or some other. They have unrealistic expectations of modern health care (fed by the promotional machinery of health care payers, systems, and providers), and are apparently indisposed to accept limits on their demands for services or the consequent costs (unless, of course, the funds are "Out of pocket"). And they are aided and abetted in seeking access to and support of "state-of-the-art" care and/or compensations for their problems by politicians, lawyers, and others who (in one way or another) proffer their engagement in these matters.

How to measure enterprise health?

There are three ways to measure enterprise health. A balanced scorecard approach is a method to continuously monitor the enterprises internal functions. "Product," including services, ma' be measured with a health value model, this is particularly important where there are potentially competing forces and interests, as indicated in Figure 1. And these complementary methods must be in alignment for effective market-based responses to challenge.

1. Internal functions--with a balanced scorecard to represent a comprehensive audit and continuous monitoring view of the enterprise. While there are many standard accounting packages and practices, replete with ratios and internal checks and balances, the concept of a balanced scorecard is particularly suited to health care. Health care enterprises are first and foremost dependent on and reflective of the people, processes, and services (all included in the "assets" reflected in a balanced scorecard) that both comprise and define health care enterprises. Among the elements of the scorecard and its application should be:

* Comprehensive cost analytical tools to provide timely Indicators of performance;

* An early warning system to discern and quantify indicators out of alignment with the plan, particularly as they relate to people and processes;

* Early response methodologies to manage alignment of critical business functions such as quality, innovation, marketing, service, and price.

2. Value-based product management--is one method for driving internal functions to health through "transfusions" of innovation that are responsive to market and patient (customer) interests. Figure 1 depicts the Interests and possible value-based responses for seven constituencies in health care. (Caution: when any one constituency acts in its own limited self interest through the exercise of power rather than principle, discontinuities in patient care are likely to occur.) In effect, one is creating a balanced scorecard for products and services, which is an essential method for quality and value analysis, coupled to effective response methods. Among the value-based elements central to such methods:

* Market-sensitive pricing

* Disease specific, market, and value responsive product development supported by a health value model

* Patient (customer) responsive marketing

* Patient (customer)-centered product and service responses

3. Alignment of value-based product management with internal functions--internal functions are designed to deliver the promised value-based (and valued) products and services to patients. Value-based product management, supported by a disease-specific health value model, forms a constant connection and response method to the patient individually and collectively to the marketplace. This connection should substantially dictate the nature, organization, and responses of internal functions measured by the balanced scorecard. Functioning properly, this alignment acts as both early response to and correction for enterprise health challenges.

What are the answers?

Having posed certain questions that derive from apparent chaos in the U.S. health care system, we should attempt to answer them to the end that enterprises entrusted with the opportunity to provide patient care services may do so responsibly, responsively, effectively, and sustainably. Where providers are sequestered from the interests of their patients, and the patients from them, both are at substantial risk. The approaches suggested are intended to provide a framework for aligning the interests of patients and providers. And the marketplace will, left to its own forces, take care of the rest.

Question: In a world of constrained resources, which parties or practices will or should thrive at the expense of others and how should these choices be made?

Answer: Those parties and/or practices that directly benefit patients and/or those that benefit providers who directly benefit patients should thrive. The measuring stick" or scorecard should be based on value and values. And the criteria should be based on principle, rather than power.

What products and services are beneficial and how can they be measured?

* Two jobs: there are perhaps only two beneficial (value-added or essential) jobs in health care-(l) Taking care of patients, and (2) taking care of someone who is taking care of patients.

* Health value model: a scorecard for products and services, particularly disease-specific services. Such a methodology can help to resolve potential conflicts in the interests of parties depicted in Figure 1.

* Workflow enhancement and cost analysis methodologies, as part of a balanced scorecard for internal operations.

Question: How does one recognize degradation in practice or organizational health, and how should one respond?

Answer: Include a criterion in the monitoring of organizational health (balanced scorecard) that addresses the "S" level of the enterprise. Observe constantly and respond quickly to indications of deterioration. And trust your instincts as well as the numbers; some of the most important indications are culture-based and derived and they may not show up consistently on the report card.

How to manage as enterprise health deteriorates:

* Diagnose/discern not only the problem, but its impact on your overall health.

* Respond quickly to challenges based on value and values in patient care:

* Know what you are foregoing and its relevance to the value of your products and services;

* Cut only those activities that do not directly apply to adding value to patient care and/or the provider's ability to do so.

When your ability to provide current products and services decreases to the point of degradation of value, consider early adoption of alternative strategies, such as:

* New product/service lines;

* Carefully, the infusion of new capital (if available), but only after comprehensive analysis;

* Carefully, merger with (or acquisition by) a successful similar venture that requires/would benefit from your capacities, assets;

* Early and orderly disposition of resources while there is some retained value.

Question: Will society tolerate a health care system that can fail (S-5), and if not, how should we prevent It from doing so?

Answer: Almost certainly not--health care is too critical a societal concern to permit an apocalypse. However, It is possible that certain points of view could hold that a near meltdown would facilitate change of one or another sort. (The justification for the obliteration of the village of My Lai, Viet Nam comes to mind: "It became necessary to destroy the village in order to save it.") That perspective would likely emanate from extraneous (to the actual provision of health care services) perspectives and motivations.

The most constructive and defensible strategies in chaotic circumstances are patient and patient-care centered. The criteria should be value and values-based in the terms and context of the patient-doctor relationship. Performance must be accountable--for if it Is not, non-values based and nonpatient care criteria may assume undue influence or primacy. Ultimately, society is likely to hold some parties accountable for failure. If recent history is any judge, physicians will be visible and vulnerable targets for blame. So...

Question: How should physicians respond to chaos and the threat of deteriorating enterprise health?

Answer: Try this five-step approach:

1. discern what is important, meaning valuable, to patient interests, patient care, and your enterprise/practice;

2. place and keep your program in alignment with those patient interests that will enhance your enterprise viability;

3. keep score, with an internal balanced scorecard aligned with value-based product management that is supported by a disease-specific health value model;

4. manage and shepherd your resources in a manner that demonstrably adds value to patient care and builds internal value to act as a buffer in times of challenge; and

5. know the score and use it. To wit...

Among the valuable things that physicians possess--knowledge, capacities, skills, caring attitudes, ethical values, experience--many are intangible, at risk, and under siege from multiple quarters, including within. At least one--data and derivative information about actual clinical practice--is highly valuable internally (for management purposes) and externally, for a broad range of market-based leverages. While others are systematically commandeering this data, physicians would be well advised to take charge of it. Shortterm Faustian bargains with these critical and valuable assets are neither wise nor necessary. Conclusion

Many have commented on the chaos in health care, and some seem to "feed" on the uncertainty that accompanies it. Yet chaos and the forces of change are not random. We do have the capacity to respond constructively. Placing the patients and their interest at the core of both strategy and delivery will position health care providers for success. However, we should be neither deluded nor sanguine about the current environment. Many physicians are living their professional lives in stages S-2 to S-4; the pace of change is rapid, and the general direction of change is toward "S" level degradation. To respond effectively requires particular vigilance and proper tools. A value model (for product) and balanced scorecard (for operations) should provide the framework for effective management, Including appraisal of and response to enterprise health status.

FIGURE 1

MARKET CONSTITUENT INTERESTS AND VALUE MARKERS

Constituent         Interests

Patient             Wellness, quality care,
                    person-centered caring,
                    privacy, accessibility


Physician and       Ability to respond, tools,
hospital providers  accountability, sustainable
                    activity, good relationships,
                    information


Employers/          Fair price, quality product,
purchasers          provider accountability,
                    productive employees

Payers              Fair premiums, meaningful
                    information, responsive
                    and effective systems/
                    infrastructure


Government/         Effectively represent
regulators          public interest, high value
                    when a purchaser, minimal
                    regulatory burden

Lawyers/            Compensation for value-
enforcement         added services, minimal
                    enforcement burden


Industry            Responsive purchasers of
                    goods and services, means
                    to assess value adds to
                    patient care and/or
                    provider services, good
                    relationships


Constituent         Value Markers

Patient             Affordability, prevention,
                    functional beneflt,
                    satisfaction, well-being,
                    security, responsiveness

Physician and       Fair compensation, reliable
hospital providers  quality indicators, effective
                    cost analysis measures,
                    professional respect,
                    cultural clarity, and peace

Employers/          Value appraisal tools and
purchasers          methods, meaningful reports,
                    healthy employees

Payers              Timely provision of data/
                    information and reports (both
                    directions), payer value-
                    added indicators and reports,
                    performance measures

Government/         Community health, meaningful
regulators          value reports, constituent
                    satisfaction


Lawyers/            Legal and enforcement value-
enforcement         added indicators, meaningful
                    reports, reasonable process,
                    performance measures

Industry            Enterprise indicators,
                    responsive data/information
                    from providers to improve
                    products/services, cooperative
                    provider community
                    responding to patient/
                    community interests

George R. Beauchamp, MD, is a pediatric ophthalmologist In Dallas, Texas and President of the Healthcare Values Alliance. He can be reached by calling 214/369-6434 or via email at [e-mail].