November 16, 2005
Integrated and strategic financial and capital planning and implementation processes, the focus of the latest Financing the Future II report, help organizations make capital decisions that maximize the mission-based benefits at effective costs. The report was developed by HFMA in partnership with GE Commercial Finance Healthcare Financial Services and Kaufman, Hall & Associates, Inc.
One of the strategies to align an organization's long-range strategic, financial, and related operating plans is to thoroughly assess industry trends affecting or likely to affect the organization now and into the future. Doing so enables the organization to clearly identify its market and strategic position and initiatives that will provide competitive differentiation.
Approaches to Environmental Assessment
In October through December of each year, leaders of Froedtert & Community Health, a Milwaukee-based partnership of 434-bed Froedtert Hospital (the academic medical center for the Medical College of Wisconsin) and 237-bed Community Memorial Hospital in Menomonee Falls, Wis., conduct a detailed environmental assessment that begins the planning for a five-year time frame that commences 15 months in the future.
"The assessment's objectives include creating a shared level of understanding of the competitive healthcare environment among the leadership team, establishing and maintaining a baseline against which to measure environmental changes and assess our initiatives, and identifying specific changes in the environment that may affect our ability to achieve our strategic objectives," says Blaine O'Connell, Froedtert's senior vice president of finance and CFO.
Market analysis at Froedtert & Community Health is both broad and deep in scope. "We use more than a dozen different software tools, services, and resources to perform analytics on a product line, and in some cases, procedural basis," notes O'Connell. The organization looks at demographics, utilization, competition, physician/medical group alignments or realignments, market share, payers, costs/charges, and patient satisfaction in primary, secondary, and tertiary services areas for Froedtert Hospital and Community Memorial Hospital individually and for the combined entity.
Structured planning also takes place at Catholic Health East, a large health system based in Newtown Square, Pa. According to Peter L. DeAngelis, Jr., Catholic Health East's executive vice president and CFO, "Components of strategic planning start at a local level by understanding and documenting community needs and conducting market-based analysis and modeling of future community demand. These data are used as a foundation for the development of the strategies and tactics to meet these needs."
OhioHealth, an eight-hospital system with headquarters in Columbus, Ohio, conducts detailed market analysis. Strategy, operations, and finance staff assess the organization's market and strategic position by service line, by institution, and by market. "We look at the trends in each area historically over time," says Michael W. Louge, OhioHealth's senior vice president and CFO. "Our planning people provide information on changes that are occurring in our markets, in the physician population that refers patients to our hospitals, and in our patient populations. We also review service delivery changes, such as the increasing use of outpatient facilities, and identify emerging trends likely to impact the care delivery setting for future services."
Need-to-Know Information Related to Market and Strategic Position
To define marketplace challenges and opportunities and where the organization might best achieve competitive advantage, healthcare organizations must collect and analyze the following data:
Patient origin: Proportion of business from primary and secondary service area and/or specific geographic market clusters
Demographics: Population, age, employment/unemployment rates, income (per capita and family)
Employers: Large employers coming/leaving, insurance provided
Market share: Inpatient and outpatient (often difficult to obtain), by service line
Hospital/nonhospital competitors: Overall, by service line, nontraditional competition from physicians and diagnostic facilities, competitive strategies (niche vs. full service)
Payer mix: Medicare/Medicaid, commercial insurers, self-payers, provider/insurer dynamic (leverage? profitability of payers?), terms of private insurance and managed care contracts, incentives offered by insurers (quality measures), proportion of bad debt and charity care
Business, program, and service mix: Unique niches, overall balance, performance and profitability by service line, secondary/tertiary/quaternary services
Physician staff: Age, primary/specialty mix, proportion of revenue by specialty/physician, quality of relationships in referral base, loyalty, satisfaction, employment model, recruitment, dependence on one service
Employees: Nurse and other employee retention strategies, turnover
Utilization/case mix: Growth of good utilization/case mix (paying; high acuity) or bad utilization (nonpaying; low acuity), demand projections
Competitive cost/charge position: Adjusted for outpatient volumes and case mix complexity, recent rate increases
Consumer preferences/opinions: Survey information, as available
SOURCE:
Essentials of Integrated Strategic Financial Planning and Capital Allocation, the third report in the Financing the Future II series. This article also contains excerpts from "What's Your Game Plan? Advice from the Capital Markets," by M.E. Grube and T.L. Wareham, November 2005 issue of hfm magazine.
Additional Resources
Financing the Future web site
If you have questions or comments about HFMA Wants You to Know, contact editor Laura Noble.
HFMA Wants You to Know ISSN: 1540-0697. Volume IV, Issue 22. Copyright 2005, Healthcare Financial Management Association. All rights reserved.