Strategic Finance for Service Lines: Finding Opportunities for Growth

Healthcare providers are always seeking innovations and evaluating strategic alternatives to meet growing demand while healthcare legislation is adding challenges to an already complex industry. As the population continues to age and development increases the demand for high quality healthcare, providers must put themselves in the optimal financial position to deliver the best care to the communities that depend on them.

To do this, many are turning to a service line model so that they can identify profitable areas of their organization that will generate future growth and capture market share.  In order to identify the strategic value of each service line, organizations need to have a long-range planning tool that will enable them to quickly forecast each of their service lines over the next 3-5 years and evaluate growth areas so that investments can be made in the service lines that will generate the greatest long-term economic value for the organization.

Utilizing Oracle’s Hyperion Strategic Finance, Edgewater Ranzal has helped many organizations chart a realistic financial plan to achieve their long-range goals and vision.  Some of the ways that we have helped organizations are as follows:

  • Forecast detailed P&Ls  for each service line using revenue and cost drivers such as number of patients, revenue per procedure, FTE’s, and payer mix to accurately forecast profit levels of each service line.
  • Easily consolidate the forecasted service line P&Ls to view the expected financial results at a care center level or for the Healthcare organization as a whole.
  • Layer into the consolidation structure potential new service lines that are being evaluated to understand the incremental financial impact of adding this new service line.
  • Run scenarios on the key business drivers of each service line to understand how sensitive profitability, EPS, and other key metrics are to changes in variables like number of patients, payer mix, FTE’s and salary levels.
  • Compare multiple scenarios side by side to evaluate the risks and benefits of specific strategies.
  • Evaluate the economic value of large capital projects needed to grow specific service lines beyond their current capacity.  Compare the NPV and IRR of various projects to determine which ones should be funded.
  • Layer into the consolidation structure specific capital projects and view their incremental impact on revenue growth and profitability at the service line level as well as the healthcare organization as a whole.
  • Use the built in funding routine of HSF to allocate cash surpluses to new investments and to analyze at what point in time the organization is going to need to secure more debt financing to fund its operations and its capital investments in specific service lines.

Regardless of where you are in your understanding, analysis, or implementation of service lines, a viable long-term strategy must include a critical evaluation of how will you identify the market drivers for growth, measure sustainable financial success, and adjust to changing economic, regulatory, and financial conditions.

Implementing Healthcare Service Lines – Inherent Data Management Challenges and How to Overcome Them

Service Line management provides the healthcare industry the ability to determine which of its diverse services are profitable and how the market share of a given service compares to competing providers.  Service Lines are typically limited to a handful of well defined, mutually exclusive categories or groupings of individual services or interventions.  For example, a provider may choose to categorize clinical transactions (encounters, ambulatory or hospital visits, episodes, longitudinal courses of care) into Service Lines such as Oncology, Cardiovascular and Orthopedics.  Since no such Service Line designation exists in standard transactional encoding systems or taxonomies, Service Line assignment are derived based on attributes such as primary diagnosis codes, procedure codes, and other patient attributes such as age, gender or genetic characteristics, to name a few.

From a data management perspective, Service Line management presents a number of interesting challenges.  To illustrate these challenges, consider a large, multi–hospital, multi-specialty, multi-care-setting health system servicing millions of patients annually as they attempt to gain a single, consistent view of Service Lines across all facilities and settings.  Then consider the typical data management obstacles that arise in any one of these settings such as poor data quality, potentially caused by inconsistent coding practices or lack of validation within and across the various source systems in use.  It turns out that for such a provider, the challenges are not insurmountable if the solution adheres to the proper architectural approach and design principles.

Here are some challenges to consider when implementing Service Lines within your healthcare organization:

  • It’s not likely that a single set of attributes will provide the flexibility, or for that matter, the consistency across an enterprise that will be needed to define a Service Line.  The approach will have to take into account that business users will almost reflexively define Service Lines on the basis of one or more complex clinical conditions, including the primary treatment modalities.  For example, Oncology = DRG codes BETWEEN 140.00 and 239.99 OR Service IN (RAD, ONC) OR Physician IN (Frankenstein, Zhivago) OR …
  • Service Lines will likely overlap on any given healthcare transaction, either within the Service Line or across Service Lines, as a consequence both of the inherently multi-disciplinary care that is delivered, and the traditional department or specialty alignment of critical staff.  A patient that has a primary diagnosis code of lung cancer may be discharged after having a lung transplant procedure by a cardiovascular or thoracic surgeon. The patient transaction is arguably a candidate for both Service Lines, but by definition, only one Service Line may prevail, depending upon the analytic objectives and context.
  • Given the often unavoidable Service Line overlap, the need to resolve conflicts within and across Service Lines exists to meet the ultimate requirement that a transaction (case, episode, etc.) is ultimately assigned to one and only one Service Line.  However, there is value in capturing all Service Lines that apply to a given transaction, and specifically giving users visibility into the reality that, given current operating definitions, overlap exists.  This both informs the end-user and enables him/her to take this into consideration appropriately for the analytic objectives at hand.
  • Various models are possible for explicitly revealing and managing these important overlaps.  For example, the reporting structure might consider a three level hierarchy that explicitly represents and manages this overlap as a multi-level model:  level 1 resolves conflicts at the health system across all Service Lines; level 2 resolves conflicts between sub-categories within a Service Line; and level 3 allows overlap and may even accommodate multiple counting in well-circumscribed and special analytic contexts.
  • Organizations in the early stages of measuring performance by Service Lines might be motivated to influence the definition of any given Service Line to extend its reach by attaching to transactions currently falling into the ‘Other Service Line’; or by providing a more granular view (e.g. categories and sub-categories) of existing Service Lines.  To support the inevitable evolution of these definitions, Service Line definitions and specifications should be implemented as adaptable business rules, capable of being changed on a frequent basis.

To address these challenges, listed below are some technical implementation techniques you may want to consider:

  • Business rules should be implemented using a data model that allows for data-driven evaluation of rules, and should never be implemented as part of static code or ETL (extract, transformation, load).  Given the volume of data that will be processed, rule evaluation should be done within the database engine as a Join operation, rather than iterating record by record.
  • Complexity of the business rules and the frequency with which they change could drive a decision to use an off-the-shelf business rule tool.  Finding a tool that meets your implementation timeline and budget will enhance the users’ experience; typically the financial planners and analysts that will create and modify the rules.  The key is to find a business rule tool that does not require rule processing to be programmatic or iterative.
  • When evaluation of any business rule applies to a specific transaction, tag the transaction explicitly.  While the ultimate goal of the rules is to assign one and only one Service Line, tagging as a first step allows rules to be evaluated in isolation of one another and provides visibility to the level 2 and level 3 Service Line assignments described above.  A tag is equivalent to a provisional Service Line designation, although the ultimate Service Line assignment cannot occur until overlap conflict is resolved.
  • With individual transactions specifically tagged, conflicts that occur can be resolved at each level of the Service Line assignment hierarchy.  To achieve the desirable level 1, 2 and 3 hierarchy behavior, conflict is resolved in terms of the competing individual precedence assigned to each of the relevant business rules.  For example, a simple business rule precedence scheme for level 1 may be to state that where Oncology and Cardiovascular overlap, Cardiovascular always takes precedence.  Other strategies and specifications for resolving such conflicts can implemented using a consistent representation.

In summary, the key requirement for Service Line implementation is adaptability.  Implementing a data-driven platform capable of evaluating the complex business rules and supporting the different behaviors of Service Line tags by explicit representation within the relevant reporting hierarchies will allow your healthcare organization to constantly evolve and gain new insights on the performance and improvement opportunities of your services lines.  In the final analysis, that’s what it’s all about.

Implementing Healthcare Service Lines – Gaining Competitive Advantage by Focusing and Optimizing the Enterprise Mission

Many hospitals and health systems are exploring integrated Service Lines as a novel organizational model to help bring focus to the diverse services they provide to patients and the various resources (labor, facilities, equipment, materials) they must manage in their relentless striving for ever higher quality and lower cost.

The notion of a Service Line is certainly not new, and there are countless examples from other industries where firms have made the transition from a “vertical” functional model, where resources are organized according to individual professional disciplines, to a more “horizontal” service line or product line model, where resources are directly aligned with the “outputs” that are produced and delivered.  Any one of us can easily call to mind large enterprises in many different industries whose product lines have a stronger identity than the overall firm itself.  However, to be clear, the primary emphasis in our present context is on the manner in which the diverse resources of the firm are organized to most effectively and efficiently deliver the products and services of the enterprise.  Identity and/or brand equity are simply one of the assets that is managed.

In the transition to a Service Line orientation, healthcare providers will very often move through a sequence of inquiries as they incrementally define and implement the emerging model, tailoring it to their unique and specific circumstances, challenges and opportunities.

Motivation –

  • Why would we want to move to a Service Line model?
  • What is it about our specific circumstances that suggest a Service Line model would be superior?
  • What advantages would it bring?  What difficulties would it cause, or exacerbate?
  • What are our unique opportunities or capacities in terms of clinical, operational or financial excellence, or challenge, that suggest Service Lines as a way to proceed strategically?
  • Do we have best-in-industry care models, or process excellence, or evidence of best results?
  • What other organizations are like us, what have they done, and what can we learn from them?
  • What differentiates our particular strengths, weaknesses, opportunities or threats from existing experiences or illustrations?

Definition –

  • What is the logical and most motivating model for defining our Service Lines?
  • Can we best approach the universe of patient needs by primary disease type?
  • Are we best aligned by major service or treatment modality, facilities, differentiating equipment or other assets?
  • Is a combination of these best; aligned and integrated for each patient in a context of personalized medical care?
  • Are there specific populations of patients, defined along some useful dimensions, to inform our service delivery or resource deployment?

Specification –

  • How do we explicitly assign or allocate individual delivery events into one or another Service Line?
  • What is the fundamental unit of assignment (e.g. a single case; a single encounter; an episode spanning admissions; longitudinal courses of care)?
  • How do we address conflicts or overlap, where multi-disciplinary care or complex cases suggest more than one Service Line has a legitimate claim?
  •  How are the resource and financial alignments defined and measured?

Metrics –

  • What specific metrics do we use to direct our investments and measure the performance of those resources and the return on those assets?
  • How do we devise a metrics strategy that integrates and leverages the complementary perspectives of clinical, operational, financial and administrative objectives?
  • How does our metrics structure address and accommodate the structure of our enterprise (e.g. health system, hospitals, ambulatory groups, key stakeholders)?
  • How do we assess comparative analysis and performance, both internally and externally?
  • What are appropriate and useful benchmarks?

Organization –

  • How do we organize our Service Lines?
  • What model do we adopt (formal divisional, matrix, task force, hybrid)?
  • How, in what form and to whom do we institute roles, authority, and accountabilities, and for what scope of mission and resources?
  • How do we ensure clinical, operational and fiscal perspectives and guidance?
  • What differences are necessary within or between facilities and other entities?
  • What communications and information systems are needed?
  • What incentive structures and programs are needed?

Change Management –

  •  Where and in what form will we encounter resistance?
  • What obstacles does our plan anticipate, and how will we overcome them?
  • What limitations exist within our existing enterprise structure or resource base, and how must we address them?
  • What forces are working in favor of the needed change, and how can we invigorate those efforts?

Ongoing Management –

  • How will or must the focus, structures, resources and metrics change over time, and how do we anticipate and facilitate these challenges and opportunities in an evolutionary manner?
  • How should we characterize the various individual Service Lines from a portfolio perspective; and how do we establish and implement appropriate investment strategies and accountabilities for individual Service Lines at their position in their life cycle and in the overall portfolio?
  • What benchmarks or metrics can we adopt to enable an appropriate comparative assessment, both within the overall enterprise portfolio, and in our specific competitive context?

Building out integrated Service Lines is more than simply clarifying the operations of existing departments and specialty-focused medical services.  Trying to do better with a traditional alignment by professional specialty or discipline will likely not provoke the kinds of challenges to existing authority structures, realignment of complex multi-tiered cost allocations, and performance incentives needed to bring transformational improvements in quality and financial return.  The process must begin with a laser focus on patient outcomes and experience, and propagate backward to the fresh look that is required to evaluate the needed investments in the full context of distinctive strengths and competencies, competitive threats, market position, evidence of superior (actual or prospective) performance, demonstrable resources and capacity, and the strategic commitment to make it happen.

Implementing advanced analytics positions healthcare organizations to pursue a vision to:

  • Facilitate measureable excellence in service delivery
  • Provide insights and identify opportunities for market growth, business performance improvement, competitive advantage and return on investment
  • Foster innovation in the design and pursuit of service lines and the efficient alignment of resources
  • Promote the intelligent and proactive use of existing and emerging information assets from diverse sources
  • Inform and empower leaders, strategists and decision makers at every level: enterprise, hospital, service line, care setting, department.