In late 2010, San Diego-based Scripps Health restructured, overlaying a systemwide horizontal management structure on the vertical arrangement that was already in place at its five hospital campuses and 23 outpatient centers. The goal is to improve care and cut costs by reducing the variation in clinical and administrative functions-without eliminating jobs.
The restructuring creates a matrix management model (see the exhibit below). Each operating unit still reports through the traditional chain of command within its own campus or facility. However, each unit also reports to one of four Scripps-wide divisions:
Early results? Scripps Health had its best fiscal year ever in terms of quality, patient satisfaction, and financial terms-and the system improved employee satisfaction at the same time.What inspired you to restructure Scripps Health?Van Gorder: One of the things that I've been concerned about for many years is the fragmentation in the delivery system. That fragmentation is obviously expensive, and it brings quality and safety issues because it introduces risks to the patient in the hand-off from one part of a fragmented system to another.
A key point for me was when I had our medical response team in Haiti. We were fortunate to be able to stay in the Papal Nuncio's compound in Haiti on Mount Calvary, which is a big rock mountain. So we were in a safe, secure environment at night and then drove down to the hospital where we worked during the daytime.
It struck me one morning before we went down to the hospital how beautiful it looked there. We were looking down on the city and we could see the Caribbean in the distance. It didn't look like an environment that was absolutely devastated. However, when we drove down and went horizontally across the city, our team had never seen such death, devastation, and destruction in our lives. It struck me then that we needed to really look at our organizations differently.How did you change the way you looked at the Scripps system?Van Gorder: Organizations are very often structured to get the results we get, and the results we were getting here at Scripps, like a lot of other hospitals, were good from a silo perspective. Each one of the hospitals was doing very well. But all of them were operating very differently based on the desires of a vertical management team-that is, the CEO, COO, CNO, and the rest of the traditional team.
It struck me that if we looked at our organization horizontally-slicing it sideways, as it were-we would probably see a very different picture.Did Scripps conduct any type of analysis to help support this structure change?Van Gorder: Looking at this from a financial perspective, our internal consulting arm conducted an analysis and discovered $150 million in variation in the way we operated within our hospitals.
This variation ranges from things that seem trivial-for example, we had lots of different coffee vendors and we can save up to $200,000 by using one vendor-to really serious matters, such as employing different methodologies for clinical laboratory tests and selecting different cardiac implants.
Many experts will tell you that if you cannot at least break even taking care of Medicare patients, then your organization is headed toward a future financial crisis. In the entire Scripps system, we were losing $160 million a year taking care of Medicare patients. So, if we can take out $150 million in variation by 2016, we can achieve our goal of getting to breakeven on Medicare. The decision to change the structure of the organization seemed pretty obvious to me when I looked at it from that perspective.How does the new model encourage cost savings, revenue increases, and quality improvements?Van Gorder: We had placed COOs in our hospitals about three years earlier. So I thought, "There are my horizontal executives. They have been in the silos now for three years, and they understand how the hospitals work."
In the past, when we had a performance improvement at a campus, it would stay at that campus and it would not be replicated elsewhere in the system. That, in and of itself, created variation in the way things are done.
Now, under horizontal management, if one hospital has a successful pilot, it's mandatory for all the other campuses to adopt the new process so that we can have a standardized process. The assumption is that there can only be one evidence-based best practice.
The emergency department redesign is a good example of how this works. We had as many as 15 percent of our ED patients leaving without being seen because of the long wait, which is a huge quality issue. And we had significant hours on diversion, which meant ambulances couldn't come to the hospital.
So we redesigned one of our hospital's EDs into two paths-an acute path and a less acute path-and created two separate teams to take care of those patients. That hospital ED reduced the waiting time to less than 30 minutes, and it was rarely on ambulance bypass any longer. Given how well the redesign went, we made this change at the EDs at our other campuses. All in all, we ended up with about $9 million more revenue to the bottom line as a result of seeing more patients. Patient satisfaction also went up dramatically because of the wait time reduction.
Here's another example: When we showed our cardiac surgeons data on the variation in clinical practices across the system, they realized that the very same surgeons were doing procedures differently at the different campuses, based on different care maps that were followed in surgery and post-surgery. For example, we had a physician at one hospital giving ICU patients nitrous oxide therapy after coronary artery bypass graphs, but physicians at a second hospital were not using nitrous oxide. The cost of the nitrous oxide therapy was $400,000 a year, and we were able to identify that there was no difference in outcome between the two sites. So the surgeon said, "Obviously I don't need to be using nitrous oxide," and that cost was eliminated.What's the biggest way in which reducing variation can save costs?Van Gorder: Part of what we're trying to do here is to create a more stable environment for our employees. At any one time in our health system, one hospital may be very busy and another hospital less busy. Until recently, nurses and other employees used to have to take unpaid or paid time off when the hospital they worked at wasn't busy-even when another Scripps hospital was so busy that it was hiring nurse travelers at premium pay.
Our nursing executives and others didn't believe it was safe to transfer an employee from one campus to another, even on a temporary basis, because the practices at all the hospitals were so different. They felt it was a safety and quality issue.
By standardizing our practices as a system, we now have the opportunity to float our employees-if they want, we don't require them to do it-to another campus so that they can stabilize their own work time. That has turned out to be a huge motivator for our employees. It has also lowered our labor costs because we are not going outside and paying premium pay for travelers.How is the restructuring working out so far?Van Gorder: The results for the year were exceptional. We had a goal of increasing revenue by $18 million, and we increased it by $29 million. We also had aimed for $39 million in expense reductions, and we achieved $48 million.
So the performance improvement budget was $57 million, and we achieved $77 million.
Of that, the horizontal executives had been charged with getting $15 million in cost reduction, and they achieved $21 million in cost reduction-just by standardizing some things and starting the process of nonvalue-added variation reduction.
We ended up with the best year we have ever had in the history of Scripps in everything from financial measures to quality to patient satisfaction. We were listed as one of Fortune magazine's 100 Best Companies to Work For in 2011. We were rated No. 1 in the country by AARP as an employer in 2011. So we didn't do this at the expense of our people. Actually, our employee satisfaction went up at the very same time, which is not something you would have expected.What challenges does this management model bring?Van Gorder: It has not been easy. It's a huge change, and the biggest thing that our managers struggle with is the concept of matrix management and the question of "who is the boss?"
In the old model, the chain of command is pretty easy to understand. In this new model, staff members report to an on-site leader, such as a nursing unit manager or pharmacy director, because that is where the care is delivered, and we need to make sure that the care is being delivered efficiently and safely.
But staff also report to a horizontal executive (the job title is corporate vice president) whose job is to identify all the nonvalue-added variation in everything from cost to quality to staffing to supply use to physician use-and to question why it's being done differently in one hospital from the next. I have often said that this is designed to create constructive tension between the horizontal and the vertical with the goal of getting the best result for our patients and, in the end, the organization.
Chris Van Gorder is president and CEO, Scripps Health, San Diego.
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