Below you will find 2 DISCUSSIONS THAT'S DUE BY MIDNIGHT. THE DISCUSSIONS ARE DUE BY MIDNIGHT. DISCUSSION 1 Business and Strategic PlanningThe business plan of a healthcare organization describes
1 Planning and Marketing Perspectives Leobici/iStock/Thinkstock If you don’t know where you are going, any road will get you there. —Attributed apocryphally to Lewis Carroll in Alice’s Adventures in Wonderland Learning Objectives After reading this chapter, you should be able to do the following:
• Describe the importance of planning in healthcare organizations (HCOs).
• Delineate the use of strategic planning and marketing to develop and capitalize on solutions.
• Conceptualize the types of plans, the leadership involved in planning, and the advantages of strategic planning.
• Discuss factors that contribute to an HCO’s resistance to the planning process.
• Explain how planning within HCOs is affected by third-party revenue sources.
• Understand why strategic planning is a critical element in the success of an HCO. Section 1.1 Planning in Healthcare Organizations Introduction This chapter introduces the strategic planning and marketing process in healthcare organi - zations (HCOs) and stresses the importance of strategic planning and marketing planning as tools to chart the course of the organization over a long period of time. It also addresses the topics of who should be involved in the processes, the advantages and disadvantages of strategic planning, resistance to planning, and, finally, how external resources affect the planning process. According to a recent survey, healthcare executives and planners believe strategic planning practices provide focus and direction for their organizations (Zuckerman, 2006). 1.1 Planning in Healthcare Organizations Many organizations struggle with one or more of the following issues: confusion about what the organization is trying to accomplish, high employee turnover, services offered for which there is little demand, falling revenues, lack of organizational commitment and enthusiasm about the organization, or a poor image and a lack of understanding as to why the organiza - tion does what it does.
If a healthcare organization (HCO) suffers from these issues or problems, the underlying issue might be a lack of effective strategic planning. As the quote from Lewis Carroll indicates, you need to have a road map of where you want to go and that road map is the strategic plan.
The typical profit-seeking firm relies almost solely on the sale of its goods or services to the public for its revenue. While many HCOs share this fundamental characteristic, they tend to differ from the traditional business enterprise in several ways. This chapter will explore those differences.
HCOs provide services vital to society and to the individual at an immediate, fundamental level, often in non-postponable situations. They exist to meet basic human needs: health and vitality. Beyond this social good, they also provide an economic good (currently the health - care industry represents approximately $2.5 trillion or 18% of the U.S. gross domestic prod - uct). The social and economic priorities of these services often conflict, presenting dilemmas with ethical ramifications.
Physicians control the amount and quality of much of the work output in HCOs, yet they remain largely outside management’s control. In fact, healthcare in the United States has been described as a cottage industry with no set of national policies guiding the system. Patients and their families are required to steer themselves—without assistance—across different providers and models of delivery, often with poor communication and a lack of accountability among those providers.
In addition to physicians, other credentialed professionals deliver services that are highly interdependent on one another. These professionals often hold allegiances more to their pro - fession than to their employer, complicating managerial coordination efforts. The work prod - uct must be highly individualized, often confounding managerial attempts to improve effi - ciency, and the quality of the work performed is difficult to evaluate. Just defining quality here is challenging. Moreover, the governmental, economic, technological, and social environments Section 1.1 Planning in Healthcare Organizations within which HCOs operate generate dynamic, highly complex, and often conflicting demands on the provider.
While none of these factors, taken alone, is necessarily unique to HCOs, the confluence of all these characteristics makes HCOs among the most difficult to manage strategically. In no other industry is management faced with satisfying the needs of such a wide constituency of stakeholders. Marketing who we are, the services we offer, and the image we have created in the minds of our stakeholders is a critical element in the positioning of our organization for success in today’s environment and a key element in the strategic planning process.
According to the actuary at the Centers for Medicare & Medicaid Services (CMS) , health - care expenditures in the United States will grow at a 5.8% rate through 2020 and will exceed $4.5 trillion. These cost increases come at a time when the healthcare industry is experienc - ing more regulation, tighter budgets, an aging population, misaligned incentives, a shortage of providers, and information silos. One example of a provider shortage is in the area of regis - tered nurses. Table 1.1 illustrates the problem HCOs face in adequately staffing their facilities with qualified medical personnel.
Table 1.1: Registered nurse and nursing faculty shortages Projected shortage of nurses to meet healthcare demand by 2025 260,000 National nurse faculty vacancy rate 6.9% Percent of Nurse Educators 50 or older 60% Source: Adapted from http://nursingworld.org/Content/NNW-Archive/NationalNursesWeek/MediaKit/NursingbytheNumbers.pdf In recognition of these concerns, new forms of healthcare delivery sprang up in the 1980s, beginning with health maintenance organizations (HMOs) and then preferred provider organizations (PPOs) . While these forms of delivery still exist, new delivery models, such as health savings accounts (HSAs) , direct primary care , and accountable care organiza - tions (ACOs), have entered the market. The healthcare landscape is newly populated with an increasing variety of delivery mechanisms intent, at heart, on lowering the costs of care, primarily through efficient delivery and technology. Additionally, patients are taking more and more responsibility for their healthcare by participating in the decision-making process.
A major problem associated with healthcare delivery is the misalignment of physician and other healthcare providers’ incentives with quality care. Often physicians and allied health professionals are reimbursed based on the number of procedures performed with no link to the quality of those procedures. The Affordable Care Act is intended to correct this by focus - ing on outcomes rather than fee-for-service. However, there will be a five-year transition to this method of payment, causing doctors to live in two worlds for that period—some reim - bursements will be fee-for-service while others will be based on outcomes (Page, 2013).
To be competitive in the future, many believe HCOs must move from a volume focus to a value focus. Thus, infection and readmission rates need to be reduced and the preventive care that keeps patients out of the hospital needs to be increased ( Forbes Insights, 2013). Rising healthcare costs and the inherent inefficiencies of the delivery models have a negative impact on the total U.S. economy. These increased costs aid in the growth of the healthcare industry but drain resources that could be used for investment in other areas of the economy. Section 1.2 The Importance of Strategic Planning and Marketing Some believe the higher taxes needed to support Medicare , Medicaid , and the Affordable Care Act have the potential to suppress economic growth. Finally, with healthcare taking a larger portion of an individual’s disposable income, people have less to spend on other goods and services that, in large part, drive the U.S. economy. The message for healthcare profes - sionals is that this is a dynamic and fast-changing industry. To be successful, and possibly even to survive, healthcare providers, administrators, and marketers will need to invest sig - nificant resources of time, energy, and capital.
This textbook is designed specifically to aid today’s HCO executives in developing strategic planning and marketing programs for charting a successful course through a turbulent indus - try that is experiencing a sea change in its ways of doing business. Healthcare executives need to use strategic planning in developing solutions and then use effective marketing strategies to position the organization to capitalize on those solutions.
1.2 The Importance of Strategic Planning and Marketing Strategic planning as part of the management process is a crucial piece of the “success puz - zle” of any organization. This is especially true given the nature of HCOs in particular. The increasing volatility of the environments in which all organizations, and especially HCOs, must function has forced major changes in the scope of the planning process. No longer will it suffice simply to lay plans for internal operations. To adapt to ever-changing environ - mental forces, organizations have moved to strategic planning, with its greater emphasis on stretching the organization to maintain a proper fit between it and the demands of its environment.
Out of a large number of decisions made by an organization or an individual HCO executive, a handful of critical ones can significantly impact the future of the organization and its leader - ship. These strategic decisions affect the organization over a long period of time, as opposed to tactical decisions, which are short-term decisions that can be altered monthly, quarterly, or annually.
The Designer Approach Strategic thinking perspectives can be illustrated with this question: Who are the two most important persons responsible for the success of an airplane’s flight? A typical response might include one of the following: • The pilot and the navigator • The pilot and the maintenance supervisor • The pilot and the air traffic controller • The pilot and the flight engineer All of these responses recognize the day-to-day, hands-on importance of the pilot. They all introduce one of several other important support or auxiliary functionaries into the answer. Section 1.2 The Importance of Strategic Planning and Marketing However, each of these responses ignores the one person who is perhaps the single most important individual contributing to the ultimate success of an airplane’s flight: the designer.
Perhaps both the pilot and the designer are the two most important individuals contributing to the success of an airplane’s flight—the pilot because of the day-to-day responsibilities in commanding the airplane, and the designer because of the ability to create a concept that can be economically constructed, easily operated by any, normally competent flight crew, and maintained safely by the ground crew.
Many administrators perceive themselves as the “pilots” of their organizations: taking off, landing, conferring with the navigator, and communicating with the air traffic controller.
That is, as the pilots of their organizations, they generally view themselves as the chief hands-on operational managers. However, many organizations have not shown an appre - ciation for the value in designing a strategic viewpoint. The operation of an HCO needs to emphasize the inclusion of this “designer” approach for developing a strategic plan, and an administrator can succeed in this by means of instituting a well-conceived strategic plan - ning process.
An HCO without a strategic planning perspective faces a tough situation. Instead of mov - ing steadily toward its goals, the organization will continually swerve off course because of the endless supply of distractions that can prevent an HCO from pursuing its purpose and vision. As one of the keys to success of any undertaking, strategic planning can act as a guiding star to keep an organization on track, particularly when the way seems hard to find. Perhaps nowhere is strategic planning more important than in HCOs, many of which face questions of survival.
Strategic Planning Process Overview Another piece of the success puzzle is an effective marketing plan to supplement the strate - gic plan of the organization. The marketing plan should give the organization a road map to effectively evaluate markets, select specific markets to serve, and attract and retain patients and clients. Marketing becomes the arm of the organization that reaches out to interface with the various stakeholders or constituents of the HCO. Marketing’s focus is to build and enhance the image and reputation of the organization as well as to provide information to the various constituent groups on what services are provided, how to access the services, and ensure that what is delivered meets expectations.
The marketing planning process is a critical support activity for the development and imple - mentation of the strategic plan. While marketing personnel should be involved in the devel - opment of the strategic plan to provide a marketing perspective, the strategic plan for an organization should precede the development of the marketing plan and other types of plans that may be developed (such as an operations plan, human resources plan, financial plan, and so forth). All of these functional plans must support and be tightly integrated with the over - all strategic plan of the organization to ensure that the strategic plan is successfully imple - mented. Figure 1.1 illustrates the relationship between the HCO’s overall strategic plan and the plans of specific units of the HCO. As shown, each unit’s plan needs to coordinate with the overall strategic plan. Section 1.3 The Concept of Strategic Planning Figure 1.1: Relationship of overall strategic plan to business unit plans Each functional plan is based on the overall strategic plan; the overall strategic plan requires input from each functional area. f01.01_MHA 626.ai Overall strategic plan Human resources staf ng plan Financial plan Chief Financial Of cer Director of Safety and Risk Management Director of Human Resources Chief Marketing Of cer Chief Information Of cer Director of Community Relations Director of PurchasingRisk management plan Vendor management plan Information technology plan Governmentalrelationsplan Marketing plan Note that the arrows in Figure 1.1 point in both directions. Each of these functional plans is based on the overall strategic plan. At the same time, each functional area is also involved in crafting the strategic plan. Input from the various departments shown is critical for two reasons. One: Input from the departments increases ownership of the plan, which aides in implementation. Two: Each department needs to inform senior management of its specific capabilities and resource needs in implementing the plan. For example, suppose a hospital’s senior management and board of trustees decides to increase the hospital’s mental health offerings. Human resources will need to implement the recruitment of psychiatrists, trained psychiatric nurses, and other support personnel. In the other direction, the director of human resources will inform senior management of the department’s ability to implement this plan and the resources that will be needed. 1.3 The Concept of Strategic Planning Strategic planning is a managerial activity that involves determining an organization’s vision and mission, analyzing the operating environment, setting objectives, and crafting a strategy to reach those objectives. The implementation of the chosen strategy and the evaluation of Section 1.3 The Concept of Strategic Planning results based on feedback of the results complete the process known as strategic manage - ment . This planning process should be distinguished from the plan itself, which is a written document containing the results of the planning process. The plan is a written statement of what is to be done and how it is to be done. Planning is a continuous process that both pre - cedes and follows other functions. Plans are made and executed, and results are used to make new plans as the process continues.
Types of Plans Many types of plans exist, but most can be categorized as either strategic or tactical . Strate - gic plans are broad in scope and basically answer the question of how an organization will commit its resources over the next three to five, possibly even ten, years. Strategic plans are altered on an infrequent basis to reflect changes in the environment or overall direction of the organization. Strategic decisions outline the overall game plan or approach, while tacti - cal decisions involve implementing various activities that are needed to carry out the larger strategy. For example, a service organization that decides to change locations because of shift - ing population trends and industrial development around the present location is making a set of strategic decisions. Then, many other decisions must be made about exact location, size of the building, parking facilities, and other major details. These all have long-term implications and are therefore strategic in nature.
Tactical plans cover a short time period, usually a year or less. They are often referred to as short-term or operational plans. They specify what is to be done in a given year to move the organization toward its strategic objectives. In other words, what we do this year (short- term) needs to be tied to where we want to be five to ten years in the future (strategic). Deci - sions such as those pertaining to wall colors, decor, and air conditioning are part of a tacti - cal plan. These tactical decisions carry out or implement the strategic decision previously made. Thus, strategic decisions provide the overall framework within which the tactical deci - sions are made. It is critically important that leaders of HCOs be able to differentiate between these types of decisions so as to identify whether the decision has short-term or long-term implications.
Traditionally, many HCOs that have been involved in planning have focused on short-term rather than strategic planning. Short-term planning is better than no planning at all, but it also means that each year’s plan is not related to anything strategic and usually falls short of moving the organization to where it wants to be in the future. Each major program or division within an HCO should have a strategic plan in place to provide a blueprint for the program over time.
Programs and events also require planning. A program is a large set of activities, involving a specific area of an HCO’s capabilities, such as planning for a new outpatient surgery service or a new managed-care system. Planning for programs involves the following: • Dividing the total set of activities into meaningful parts. • Assigning planning responsibility for each part to appropriate people. • Assigning target dates for completion of specific parts of the plan. • Determining and allocating the resources needed for each part of the plan. Section 1.3 The Concept of Strategic Planning An event is generally a project of less scope and complexity. It is also not likely to be repeated on a regular basis. An event may be part of a broader program, such as the grand opening of a day-surgery service, or it may be self-contained, such as an annual health fair at the local mall.
Even for a onetime event, planning is an essential element for accomplishing the objectives of the project and coordinating the activities that make up the event.
Who Should Be Involved in Crafting the Strategic Plan All leaders engage in planning to some degree. As a general rule, the larger the HCO becomes, the more the primary planning activities become associated with groups of people as opposed to individuals.
Many larger HCOs develop a planning committee or staff. Organizations set up such a plan - ning team for one or more of the following reasons: • Planning takes time. A planning team can reduce the workload of individual staff or members. • Planning takes coordination. A planning team can help integrate and coordinate the planning activities of individual staff. • Planning takes expertise. A planning team can bring to a particular problem more tools and techniques than any single individual. • Planning takes objectivity. A planning team can take a broader view than one indi - vidual and go beyond specific projects and particular organizational departments. A planning team generally has three basic areas of responsibility. First, it assists the chief executive in developing goals, strategies, and policies for the organization. The planning team facilitates this process by scanning and monitoring the organization’s environment. A second major responsibility of the planning team is to coordinate the planning of different levels and units within the HCO. Finally, the planning team acts as an organizational resource for middle managers, who may lack expertise in planning.
In smaller HCOs, planning and execution must usually be carried out by the same people.
Certainly this is a challenge due to a lack of experience in strategic planning and adequate support staff. Often the greatest challenge is setting aside time for planning in the midst of all the other activities required on a day-to-day basis.
Regardless of the chosen method of planning—a planning team, current executive staff, an outside consultant—it is critical that senior management be totally committed to the process.
If this commitment does not exist, employees will reasonably question why they should be committed to the plan.
Advantages of Planning Planning has many advantages. First, and most importantly, it provides a tool to give every - one in the organization a sense of direction and awareness of what the organization is trying to accomplish. Tactical plans, meanwhile, identify what everyone in the organization is sup - posed to do and what is expected of them. Other advantages of planning include adapting Section 1.3 The Concept of Strategic Planning to changing environments, taking advantage of opportunities created by change, reaching agreement on major issues, and assigning responsibility more precisely. Planning also gives staff members a basis for their commitment. The sense of vision that a well-written plan can provide also instills a sense of loyalty in organization members or constituents.
The specific benefits of a systematic, continuous planning process for an HCO allow it to do the following: • Assess its market position. This involves what is termed a SWOT analysis: examining the healthcare entity’s internal strengths and weaknesses and external opportuni - ties and threats. Without explicit planning, these elements may go unrecognized.
SWOT analyses will be discussed in more detail later in this textbook. • Establish goals, objectives, priorities, and strategies to be completed within specified time periods. Planning will enable the HCO to assess the success of set goals and will help motivate administrative staff and professional constituencies to work together to achieve shared goals. • Achieve greater staff and employee commitment and teamwork aimed at meeting chal - lenges and solving problems presented by changing conditions. • Muster its resources to meet these changes through anticipation and preparation.
“Adapt or die” is a very accurate admonition. Healthcare executives exert only limited control over their organizations’ futures. This lim - ited control is because of third-party payers (such as insurance companies and the govern - ment), increasing regulation, and the fact that physicians, who are an integral part of health - care delivery, are often independent contractors and not employees. However, healthcare executives can and should attempt to identify and isolate present actions and forecast how results can be expected to influence the future. The primary purpose of planning, then, is to ensure that current programs and findings can be used to increase the chances of achieving future objectives and goals; that is, to increase the chances of making decisions today that will enhance performance tomorrow.
Unless planning leads to improved performance, it is not worthwhile. Thus, to have an HCO that looks forward to the future and tries to stay alive and prosper in a changing environment, there must be active, vigorous, continuous, and creative planning. Otherwise, the HCO will only react to its environment.
Planning is done for two very basic reasons: (a) protective benefits, resulting from reduced chances for error in decision-making and (b) positive benefits in the form of increased suc - cess in reaching organizational objectives. Noted management theorist Peter Drucker (1994) challenged businesses to practice what he called abandonment to remain competitive under rapidly changing conditions. Every three years, according to Drucker (1994), management needs to review every policy, every product, every service, every distribution channel, and every vendor. Drucker (1994) argues that the question management needs to ask is, If we were not already involved in this activity with these people/organizations, would we do it now?
Some HCOs and their leaders who plan poorly, if at all, constantly devote their energies to solving problems that would not have existed, or at least would be much less serious, had they planned better. They spend their time fighting fires rather than practicing fire prevention.
For example, many HCOs have become a collection of fiefdoms with medical practitioners Section 1.4 Resistance to the Planning Process concerned about patient care but not costs while administrators attempt to control costs with minimum trade-offs to quality of care (Meliones, 2000). Without proper planning, this con - flict can drain management’s time and energy.
In many small HCOs, administrators may object to planning, thinking that it makes no sense for them. Because their organization is only a small organization, everyone associated with it knows what happened in the past year and what is likely to happen in the coming year.
Another objection often voiced is that there is no time for planning. A third objection is that there are not enough resources or qualified people to allow for planning.
All of these objections actually point out the necessity for planning, even in a small healthcare firm. Such an organization may actually have a sizable budget, making it imperative to plan where the organization is heading. The lack of time for planning may be a plausible argument, but this feeling probably reflects the fact that a lack of planning in the past has left insufficient time for attention to such necessities. Finally, the argument that current resources are insuffi - cient to allow for planning should actually justify the role of planning to obtain the maximum benefit from those resources being used in the organization. In summary, planning is a critical element in any HCO’s success.
Strategic planning can become a means of renewal in the life of an organization, as long as management remembers the following five significant points: 1. A unified purpose can be achieved only when all segments of the HCO see them - selves as part of a larger whole with a single goal. 2. Isolated individual decisions and commitments often influence future plans, even when they are not intended to do so. 3. When careful planning is lacking, groups within the HCO often become competitive with one another and duplicate one another’s work. 4. Without coordinated planning, organizational divisions within the HCO may come to feel that they are ends in themselves and lose their sense of perspective in relation to the organization. 5. The magnitude of the tasks facing an HCO demands long-range planning. 1.4 Resistance to the Planning Process In addition to a lack of time and resources, other factors contribute to resistance to the plan - ning process. One is resistance to change. Employees often oppose change because it dis - rupts power structures. Indeed, change initiatives often provoke what some have called the eight most spoken words in business: “But that’s the way we’ve always done it.” In the health - care industry, change can be especially difficult. For example, the United Kingdom’s National Health Service is a massive bureaucratic organization, which employs more than one million people. Attempts to improve quality, efficiency, and service over the years have often met strong resistance (Battilana & Casciaro, 2013).
Three main reasons why HCOs do not presently engage in planning include: (a) administra - tors lack training, (b) many perceive planning as irrelevant, and (c) problems can occur dur - ing implementation. Section 1.4 Resistance to the Planning Process Lack of Management Training Many HCOs are small and use a limited managerial force. The educational background and experience of the leaders of these organizations varies widely. Medical professionals are often promoted to managerial positions such as director of nursing or chief of staff, usually with little or no managerial training on the part of the medical professional. Those with previ - ous management experience often possess a proactive, can-do attitude and want to spend their time performing hands-on functions with which they are comfortable. Lost in the press of day-to-day concerns, setting objectives, developing strategies, and other planning func - tions are largely neglected. For example, Thomas Lee, a practicing physician, writes in the April 2010 Harvard Business Review that people like him, age 50-something doctors trained in medicine, now find themselves in charge of medical practices and other healthcare institu - tions where they need to understand finance and how to lead fragmented and disorganized organizations.
Planning Is Thought to Be Irrelevant Many HCOs largely neglect or purposely avoid developing objectives and strategies. The reluctance to plan stems from the fact that many view the application of strategic planning as irrelevant. Some feel that because the environment in which HCOs work changes so rapidly, laying out formal plans and objectives is a useless endeavor.
With this view, constantly shifting environmental demands outside an HCO’s control can make objectives obsolete before they become official doctrine for the organization. So why develop them at all? Unfortunately, the consequence of this perspective is a leadership doomed to reactionary, piecemeal approaches to environmental demands, often resulting in less-than- desirable performance.
Other strategic goal-setting challenges in HCOs may color attitudes against planning. Most HCOs are service-oriented organizations. Services, unlike products, are intangible and often difficult to separate from the provider of the service. This complicates specific goal-setting and the measurement of results against the goals. In addition, HCOs often employ profession - als to deliver their services. Professionals tend to be wed more to their profession and less to the organization’s goals and objectives. This is particularly evident when, in the professional’s view, the organization’s goals conflict with those of their profession.
Finally, HCOs face the daunting task of trying to serve the often-varying interests of their clients, service recipients, and funding sponsors. Some might say that setting official goals would serve only to please some constituencies while disaffecting others. Thus, they may believe it is better to be vague than risk losing participation and financial support.
Implementation Problems Although there is substantial academic and theoretical support for planning, the actual imple - mentation of a plan often runs aground on the shores of operational reality. Even among very progressive HCOs, significant resistance to planning can be found. Some of the most common arguments against planning include the following: Section 1.4 Resistance to the Planning Process • Planning is not action-oriented. • Planning takes too much time; we are too busy to plan. • Planning becomes an end, not just a means to an end. • Planning never ends up being carried out exactly as intended. Most of these arguments stem from the same kind of thinking that would say that the pilot is the most important person in the success of an airplane’s flight. Many frequently voice the sentiment that planning is not hands-on and it is not related to the important day-to- day operations of the HCO. However, this point of view is shortsighted in terms of long-run success. Planning is not just for dreamers; in fact, it allows the HCO’s administrative team to determine what can be done today to accomplish some future goal or avoid a potential, adverse circumstance.
In the minds of some, planning sometimes becomes an end in itself. This can happen, par - ticularly when planning is conceived solely as a committee responsibility within an organiza - tion. A committee can facilitate the strategic planning process, but the process will not be a dynamic lifeblood activity of the organization without the ongoing involvement of its senior administrator and staff members.
President Eisenhower has been widely quoted as saying, “Plans are worthless, but plan - ning is everything” ( ht tp://w w w.presidency.ucsb.edu , para. 3). The truth he expressed was that the actual plan was not the end in itself, but that the process of planning—develop - ing futuristic scenarios, evaluating the environment and competition, assessing internal strengths and capabilities, revising objectives and tactics—was the organizational dialogue that was most important. This dialogue ideally breaks down barriers to communication, exposes blind spots to the light of critical scrutiny, tests logic, measures the environment, and determines feasibility. The end result is a more effective and efficient implementation of organizational activities.
Planning does not depend on complete forecasting accuracy to be useful. In sports, even the very best game plans are often modified as play goes on. Yet coaches continue to develop game plans with each new opponent. They understand that the importance of planning is to keep the organization moving in the right direction, even if the finer points of the plan are constantly being adjusted to new circumstances. In making these adjust - ments, a variety of futuristic alternatives or scenarios can be very helpful in establishing planning parameters. Often, best case, most likely case, and worst case approaches are used. This three-level forecast gives dimension to the process of recognizing, anticipating, and “managing” change.
Figure 1.2 illustrates this three-level approach to forecasting. Note that the movement from worst case to best case is a continuum. That is, results can fall anywhere along this line, dem - onstrating the ambiguity inherent in strategic planning. Also, notice that the arrow points in both directions. This highlights the importance of proper implementation. A plan may ini - tially appear to be a success, yet failure to continue effective implementation may cause it to slip toward the left side of Figure 1.2. Using the same reasoning, a plan that seems to be stuck toward the worst case end of the continuum may be salvaged with a change in implementa - tion policy rather than starting over from the beginning. Section 1.5 Revenue-Source Influences on Planning Figure 1.2: Three-level approach to forecasting The forecasting continuum reflects the ambiguity inherent in strategic planning. A plan can easily slip from best case to worst case or become stuck anywhere in between. f01.02_MHA 626.ai Worstcase scenario Most likely case scenario Best case scenario In spite of these and other perceived negatives, the advantages of planning far outweigh any disadvantages. Planning not only should be done but must be done. Strategic planning forces an organization to constantly reflect on the following questions: 1. Where are we now? What is our current position—competitively, financially, and with regard to resources and competencies—in the changing environment of healthcare? 2. Where do we want to go? What is our vision for the future of the organization five to ten years from now? 3. How are we going to get to where we want to be in that time frame? What strategies will we use to move us toward our vision and the accomplishment of our objectives? Answering these questions means that an organization is thinking strategically and focusing on the future of the organization rather than continuing to operate in a status quo mode and reacting to changes in the operating environment. 1.5 Revenue-Source Influences on Planning Executives of any business enterprise must be concerned about continuing sources of rev - enue adequate for the survival of the business. Traditional businesses have a straightforward objective. They focus on pleasing the customer. For the executives of many HCOs, however, revenue concerns are more complex.
For many HCOs, the focus on exactly who the customer is may become blurred because the recipient of an HCO’s services may not be the same person who directly pays the bill. Medicare patients’ hospital charges are paid directly by an intervening party, the federal government.
The same is true for home healthcare agencies. Public hospitals are largely funded by state legislatures or local municipalities. For many HCOs, services may be funded by donations from individuals and organizations that may never be recipients of the service. Almost all Section 1.6 The Success Formula in Healthcare Organizations healthcare providers and HCOs are heavily dependent on patients’ private insurance to pay for care. Any organization—healthcare-oriented or not—tends to concentrate on the desires of those who foot the bill. And to the extent that there is a funding sponsor providing financial support for the client, the client’s influence over the HCO’s goals and performance may be weakened. As previously noted, healthcare is unique in that the consumer (patient) does not pay the majority of the bill for services rendered. Payment is provided by a third party, such as an insurance company or the government. Thus, the third-party payer often has more influ - ence on services provided than does the patient.
One consequence of intervening sources of funding for HCOs is the tendency for HCOs to ignore the patient’s or client’s needs in favor of the funding sponsor’s demands where the two conflict. In attempts to satisfy both parties, HCOs may avoid goal-setting or develop goals that are vague at best. For example, hospitals are reimbursed for Medicare patients according to diagnosis-related groups (DRGs) . DRGs are a patient classification system that allows certain payments for certain illnesses. If an HCO exceeds the amount allowed, it must absorb that cost. In contrast, if the HCO renders the treatment for less than the allowed payment, the excess is retained as profit. Note that the reimbursement is not based directly on the hospital’s cost to provide care for a particular patient but to the cost incurred by the hospital relating to all of the patients of a certain type that it treats. Thus, a hospital is in the position of treating a Medicare patient with only the money provided for that patient’s DRG. The nego - tiation of payment is between Medicare and the hospital—the patient is never consulted (3M Health Information Systems, 2003).
Unfortunately, highly generalized goals have their performance shortcomings. In contrast, plenty of evidence exists to show that goals that are relatively specific and measurable, wher - ever possible, support higher performance in organizations.
The message for HCOs is that the strategic planning process can provide the understandable goals they need. It does this by systematically considering the expectations of all those who hold a stake in the effectiveness of the HCO’s operation. Strategic planning, then, is the vehicle that can produce goals that are defined as clearly as possible toward the end of both meeting the clients’ needs and withstanding the scrutiny of the sponsor. 1.6 The Success Formula in Healthcare Organizations Many leaders of HCOs appear to believe strongly that strategic planning is important. Yet sim - ply acknowledging its importance is not enough for success. To put matters into perspective, consider translating HCO success into a formula: X = f (A, B, C, D, E, F, G, H, I … n) In this case X represents success, a dependent variable, and is on the left side of the equation. The equal (=) sign means a balance, or equal to what is on the other side; f means a function of, indicating on what that success depends. Following f, on the right side of the equation and enclosed by parentheses, are all the independent variables that affect success: Section 1.6 The Success Formula in Healthcare Organizations A = Chief executive as leader B = Chief executive as manager C = Planning system D = Organizational structure E = Control system F = Needs of constituencies met G = HCO network’s national influence H = HCO’s local influence I = Location . . . n The formula lists only a few independent variables, but the possibilities are in fact endless.
Success is not necessarily equated with size. Success can also be defined in broader terms than the number of employees, the size of the budget, and so forth. For example, smaller HCOs often have the advantage of flexibility to make decisions quickly and to react to market forces with less bureaucratic decision making.
Untapped leadership exists in many HCOs. Some of the greatest problems that hold back these leaders, and the organizations they serve, involve some combination of independent variables C, D, and E. Management, planning, organization, and control are some of the great - est needs of HCOs today.
All HCO administrators are leaders to some degree, or they could not remain in their execu - tive positions. Without training and knowledge in the area of planning and management, an HCO places a ceiling on success. No organization can get any bigger than the capacity of its managers to manage. The hindrance is not the needs of the constituents, because the needs are always there. Nor are the HCO’s reputation or location hindrances; rather, the key to suc - cess for HCOs of any size is effective management, planning, organization, and control.
Improvement in each of these areas leads to a disproportionate level of success. Planning helps drastically reduce obvious errors in direction, false starts, dissipated efforts, staff frus - tration, and waste. Reduction in these areas has the added benefit of challenging widespread criticism of waste and inefficiency in the healthcare system. Further, a failure to act will exac - erbate the criticism already aimed at healthcare. The implementation of accountable care organizations (ACOs) and other initiatives designed to improve the quality of patient care are steps many HCOs are undertaking to become more effective in carrying out their missions.
While strategic planning is widely accepted and practiced in healthcare, there are some inno - vations in the art of strategic planning that firms outside of healthcare have used and that HCOs might find beneficial. Alan Zuckerman (2006) has identified five of these: knowledge management, innovation and creativity in strategic approaches, bottom-up versus top-down planning, continuous improvement, and a shift from static to dynamic strategic planning.
According to Zuckerman (2006), strategic planning is best done when the organization has a formal, structured system for collecting data. Data collection requires planning to gather the information needed on a regular basis. Many HCOs continue to use simplistic statistical mod - els such as correlation while more progressive firms outside of healthcare are using more sophisticated modeling. Summary & Resources A second area of planning improvement involves innovation and creativity. Zuckerman (2006) notes that the healthcare industry is risk averse and many firms are willing to be followers rather than leaders. To counter this, he suggests that ideas be accepted from all parts of the organization and that a climate of creativity be encouraged.
Third, HCOs tend to have a top-down view of strategic planning. Senior management and the institution’s board of directors not only take the lead, but make virtually all of the planning decisions (Walker, 2009). This causes business units to react to directives from above rather than solving problems. Engaging subsidiary units in the planning process allows for a broader approach to common problems and leads to greater implementation success.
Continuous improvement is a fourth area adopted by many industries but lacking in health - care. Indeed, HCOs tend to follow processes that have worked in the past with little regard to current patient needs. Continuous improvement not only meets patient demands but allows the organization to react to the changing healthcare environment. Additionally, a focus on continuous improvement keeps the strategic planning process alive for those responsible for implementation.
Finally, HCOs need to take continuous improvement to the next level and make the strategic planning process dynamic. The primary concept here is that strategic planning is everyone’s job. Planning is driven down and into the organization with mission and vision statements that inspire employees. Summary & Resources Chapter Summary This chapter has shown that (a) the demands of a volatile environment for HCOs support, overall, a growing urgency for the planning concept; (b) many of the identifiable HCO failures cannot be blamed solely on unforeseen and uncontrollable factors; (c) despite these factors, many leaders do not believe that a need exists for planning; (d) there is, however, a critical place for better planning and management; and (e) strategic planning methods used success - fully in other industries are applicable to HCOs.
The philosophy of this textbook is that for everyone in an HCO—the board of directors, the executive staff, the employees—to be successful, a strategic plan is desperately needed. If we examine the mistakes of the past, it is obvious that many HCOs floundered because they lacked strategic direction. This textbook aims to help students establish the following goals in HCO management: • A sense of enthusiasm within the organization. • A five-year plan, in writing, to which everyone is committed. • A sense of commitment by the entire organization to its overall direction. • Clearly defined job duties and responsibilities. • Time for the leaders to do what they need to do. • Clear and evident improvement in the health and vitality of every member of the organization’s staff. Summary & Resources • Measurable improvement in the personal lives of all those in management positions, with time for vacations, family, and personal pursuits. • The ability to measure, very specifically, the growth and contributions made by executives at the close of their careers. • More effective leadership of the HCO because a plan is in place, in writing, and fully understood—even more important, a management team and philosophy are in place to guide the organization into its next era of growth. The next chapter presents an overview of the entire strategic planning process. Subsequent chapters discuss each step of the planning process. The text explains the theory behind each step and offers real-world examples to help readers understand that step. Make notes on your own situation as you read.
Key Points 1. Strategic planning is a critical element in the success of an HCO. Today’s HCO execu - tives must use a strategic plan to chart a successful course through a turbulent industry, which is experiencing a sea change in its ways of doing business. Health - care executives need to use strategic planning in developing solutions and then use effective marketing strategies to position the organization to capitalize on those solutions. 2. There are many types of plans, but most can be categorized as either strategic or tactical. Strategic plans cover a long period of time , are broad in scope, and basi - cally answer the question of how an organization is to commit its resources over the next three to five, possibly even ten, years. Tactical plans cover a short time period, usually a year or less. They are often referred to as short-term or operational plans. They specify what is to be done in a given year to move the organization toward its strategic objectives. In other words, what we do this year (short term) needs to be tied to where we want to be five to ten years in the future (strategic). 3. All leaders engage in planning to some degree. As a general rule, the larger the HCO becomes, the more the primary planning activities become associated with groups of people as opposed to individuals. Many larger HCOs develop a planning commit - tee or staff. 4. Planning has many advantages. One of the most important is that it provides a tool so that everyone in the organization has a sense of direction and knows what the organization is trying to accomplish. Furthermore, the tactical plans should identify what everyone in the organization is supposed to do and what is expected of them.
Other advantages to planning include the creation of an organizational environment suitable for adapting to changing environments, taking advantage of opportunities created by change, reaching agreement on major issues, and placing responsibil - ity more precisely. Disadvantages may include: (a) administrators lack training, (b) planning takes time, and (c) short-term problems may overshadow planning activities. These disadvantages may lead to a resistance to planning efforts. 5. Unlike other business enterprises, an HCO’s planning is strongly affected by third- party revenue sources such as Medicare and Medicaid and private insurance com - panies. One consequence of intervening sources of funding for HCOs is the tendency for HCOs to ignore a patient’s or client’s needs in favor of the funding sponsor’s demands, where the two conflict. The strategic planning process clarifies the goals Summary & Resources that an HCO must attain to be successful. Strategic planning does this by systemati - cally considering the expectations of all those who hold a stake in the effectiveness of the HCO’s operation. Strategic planning, then, is the vehicle that can produce understandable goals that are defined as clearly as possible toward the end of both meeting the clients’ needs and withstanding the scrutiny of the funding sponsor. Key Terms accountable care organizations (ACOs) Organizations that comprise physicians, healthcare providers, and hospitals. These organizations come together to give high- quality care to Medicare patients.
Affordable Care Act (ACA) Also known as the Patient Protection and Affordable Care Act, the ACA is a federal statute signed into law in March 2010. The law includes multi - ple provisions that take effect over a number of years, including the expansion of Medic - aid eligibility, the establishment of health insurance exchanges, and the prohibiting of health insurers from denying coverage because of preexisting conditions.
Centers for Medicare & Medicaid Services (CMS) An agency within the U.S. Depart - ment of Health & Human Services that is responsible for the administration of Medi - care, Medicaid, and several other federal healthcare programs.
diagnosis-related groups (DRGs) A patient classification system that bases Medicare reimbursement on a number of patient attributes, including severity of ill - ness, prognosis, and resources needed to treat the patient.
direct primary care Healthcare offered directly to the consumer without insurance administration. It is an umbrella term, incor - porating various healthcare delivery systems that involve direct financial relationships between patients and healthcare providers.
event A project of less scope and com - plexity that is not likely to be repeated on a regular basis. An event may be part of a broader program, such as the grand opening of a day-surgery service, or it may be self- contained, such as an annual health fair at the local mall.
health maintenance organization (HMO) A form of health insurance association to which members pay a set fee to receive various medical services from doctors and healthcare workers listed in those associations.
health savings accounts (HSAs) Savings accounts combined with high-deductible health insurance policies that enable patients to reduce medical-expense bills.
Medicaid A state government program that offers medical services to low-income fami - lies and people with limited resources.
Medicare A federal government program that offers health-associated services to par - ticular groups of people (primarily people on disability and those over age 65) in the United States.
preferred provider organization (PPO) A form of health insurance association that allows its members to select, from a preap - proved list, the physicians and hospitals they would like to visit.
program A large set of activities involving a specific area of an HCO’s capabilities, such as planning for a new outpatient surgery service or a new managed-care system.
strategic management The process of identifying and pursing an organiza - tion’s strategic plan by aligning internal Summary & Resources capabilities with environmental demands and ensuring that the plan is properly executed.
strategic plan An organization’s long- term plan that is broad in scope and entails developing vision and mission statements along with objectives and strategy. This type of plan answers the question of how the organization is to commit its resources over the next three to five years.
strategic planning A managerial activity that involves determining an organization’s vision and mission, analyzing the operating environment, setting objectives, and crafting a strategy to reach those objectives. strategy A plan of action designed to attract and please customers, compete successfully, respond to changing market and regulatory environments, and achieve organizational performance objectives.
tactical plan A plan that covers a short period—usually a year or less. Tactical plans specify what is to be done in a given year to move the organization toward its strategic objectives. Critical Thinking Questions 1. What are the issues that make HCOs among the most difficult to manage strategically? 2. How would the administrator of a hospital communicate to his or her stakeholders (e.g., employees, board of trustees, investors) the differences between strategic and tactical plans? 3. Discuss some of the reasons for resistance to planning in an HCO.
