This article was originally published in the spring 2012 issue of B. Magazine.
In 2011, two Opus College of Business faculty members launched a study of more than 70 health care organizations. The outcome will assist these organizations in meeting the demands and challenges of a new, more transparent and more competitive market.
By Jack Militello, Ph.D., and Mick Sheppeck, Ph.D.
On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act. On March 30, 2010, the Health Care and Education Reconciliation Act of 2010 was signed into law. The two laws are collectively referred to as the Affordable Care Act (ACA). The ACA includes a wide variety of provisions designed to provide more health care choices, to enhance the affordability and quality of health care for all Americans, to hold insurance companies more accountable and to lower care costs; however, the ACA does not give direction to health care-related organizations as to how to implement its legislation. Implementation is the strategic challenge of every health care provider.
Two strategic theories underlie the expectations set by the ACA. The first is that, with the proper incentives in place, costs can be contained as better service is provided. The second is that a fully functioning and competitive market for health services will achieve the goals of the legislation. Any strategic responses to these theories of funds-flow and markets have to be taken in relationship to each other and in the context of the broader health care system.
A discrete response to the administrative-pricing directive of the ACA is quite simple: cut costs and retrench to meet pricing constraints while seeking new venues to gain revenue. The former is currently undertaken through a number of initiatives accepted within the industry. These include analytically based cost containment, operational-improvement protocols and employee-motivation programs. These initiatives are necessary but not sufficient to strategically succeed in the reform environment urged by the ACA and must be teamed with revenue-generating initiatives. The latter demands the application of each of these tools with the addition of an engagement with competing business models, potential partnerships, community and governmental relationships, generational-culture differences, and the power of the consumer. In short, it demands a systems perspective on a cash-flow strategy that addresses both costs and markets.
The health care delivery system offers myriad business models, ranging from nonprofit services through return-on-investment models for publicly traded companies. The core of the health care delivery system is the patient-provider relationship, but it then takes in all the suppliers of goods and services that support the core interaction. Each model is driven by a mission that aligns itself to the health care system as a whole. But first an internal organizational alignment of mission to the management of costs and markets has to occur.
An organization’s purpose should express its vision, either implicitly in its goals or explicitly in a statement of mission. Mission statements are often high-minded but lacking in connection to the actual operational management of the organization’s assets. A good mission should state long-term goals and determine how to measure progress toward reaching them, as well as providing the organization with a business model that defines a distinct competitive advantage. That advantage should be expressed in the value it provides to its customers, patients and stakeholders. An analysis of the alignment of mission with organizational operating factors would equip any health care provider with insight as to how to approach its markets. (more…)