By David DiLoreto, M.D., MBA, Senior Vice President, GE Healthcare Camden Group
Empowered consumers/patients; outcomes-based reimbursement; quality, safety, and cost concerns; unwarranted clinical variation; and new digital technologies have all created conditions in which health systems confront a need to re-evaluate their clinical strategies and execution skills. Successful organizations realize that effective responses include not only the creation of new strategies and the development of new execution skills but then need to challenge existing mind-sets as well.
Bridging the gaps between strategy, execution, and culture often require evolving the clinical operating model. Our experience at GE Healthcare Camden Group proves that addressing operating model structures may be one of the smartest investments that an organization can make to achieve success.
The competitive advantage created by effectively matching strategy and operating models is well-recognized in many industries.1 Operating model assessments and re-design are important during periods when greater organizational clarity is needed, i.e. after mergers and major acquisitions, when entering new market segments, when new revenue models are introduced or during major changes in operations like digital transformation. Healthcare organizations finding themselves in these circumstances may carefully evaluate and design new operating models for non-clinical functions such as Finance, HR, and IT, but are often less likely or slower to effectively address operating models for their clinical services and clinical support services.
Too often health systems make one of two missteps. Some fail to evolve their clinical operations quickly enough to match a strategy shift. Consider the health system that entered a new market with new ambulatory service offerings including retail, urgent care, and mobile health but stifled growth by keeping clinical services highly integrated with their existing core acute care business which starved it of the resources, management focus, and flexibility needed to launch effectively.
Another misstep is to move ahead with a new organizational design that does not match how the organization will create value. A newly merged health system too quickly moved from multiple ambulatory physician groups to a more integrated model to encourage cost reduction and centralized patient scheduling. Centralizing so quickly to realize a modest opportunity underestimated how much front-line staff accountability would be lost, added complexity, slowed decision making, increased patient complaints, and distracted the organization from major growth opportunities in the individual physician groups.
So how do health systems avoid these mistakes and create stronger linkages between clinical strategy and clinical operating models? We have found that the following six steps enable an organization to articulate clear and specific design principles to serve as guardrails for the senior team as it evaluates clinical operating model options.
- Define What is Most Important: The first design principle is whether to assess the entire organization, a specific business unit, or an individual function specifying which clinical strategies are most important for the operating model to support. Most likely, a combination of clinical and business priorities will be identified. Often previous strategies which address the same issues may have been implemented with mixed results. It is important to discuss ways in which the organization must adapt to win. Identifying key operating model principles, sequencing priorities, and pacing their implementation depend on more than just organizational structure. All elements of the operating model—structure, governance, decision rights, behaviors, processes, and technology—will need to be considered when selecting the appropriate clinical operating model.
- Decide How Value Will Be Created: A U.S. health system realized that the growth of Medicare Advantage plans in its largest markets was occurring at the same time commercial insurers had successfully resisted increases in hospital reimbursement rates. It established clinical operating model design principles to "focus on the delivery of clinically effective ambulatory care for seniors" and "reduce unwarranted clinical variation in acute care" to "achieve Medicare break-even margins." The operating model it designed integrated key clinical support services, many clinical services, and its clinical leadership into regions that effectively served multiple hospitals. Increasing the span of control and standardizing key processes produced annual operating savings of 12 percent while improving key measures of clinical quality, physician satisfaction, and patient loyalty.
- Streamline Decision Rights: Once the key clinical strategies are identified, the right operating model should catalyze faster and more effective decisions. The design principles should point to the types of decisions that will be needed. Engaging key stakeholders and front-line leaders to pro-actively assign responsibility and accountability for key decisions as well as identifying who will serve as collaborators and who needs to be informed creates role clarity and sets performance expectations. A health system that integrated outpatient care management for its clinically integrated network and accountable care companies established a principle that "Operation decisions regarding staffing ratios and promotion decisions should be regionalized." This led to the selection of an operating model for care management that clarified the roles and responsibilities of hospital care managers, transition care managers, and key service lines as well as fostering a more collaborative environment.
- Establish and Communicate Boundaries: Operating models should be designed so that customer-facing best practices and capabilities-sharing processes are widely and quickly disseminated across organizational boundaries. As health systems provide more services further from their acute-care hospital core such as retail, post-acute care, mobile health and telemedicine, they need to carefully determine how clinical support services such as quality improvement, risk management, infection control, and care management will be designed and integrated into new operating models.
- Assess and Bolster Necessary Capabilities: Achieving growth targets requires clinical operating models that are designed using principles that must balance customer requirements, available capital, and technical capabilities. Managing commercially insured individuals, low-income persons, and seniors under risk contracts require different patient engagement, care management, and medical management processes and expertise. Operating model design principles for a clinically integrated network such as "Contracting, claims, network development, legal, and risk management will be managed globally" while "Beneficiary engagement, customer insight, care management, and medical management will be managed along insurance product-lines" points to adopting an operating model in which the hurdle for centralizing clinical support services across product lines is high, but capital investments and specialized non-clinical expertise can be leveraged across multiple patient populations.
- Be Clear About What Will Be Preserved: Among the clinical operating model design principles expressed by a health system that was rapidly acquiring established physician practices was "How we go to market and acquire will make it easy for our physicians to do business with us." Strong physician relations were a hallmark and competitive differentiator for the health system, and they wanted to preserve it as they deployed the new strategy. This statement guided many key elements of the new clinical operating model.
Putting it All Together
Our experience proves that using these six design principles greatly facilitates the creation and adoption of effective and sustainable clinical operating models. They provide fact-based context and key observations that are important solvents in what can be a charged process. They are specific enough to allow leaders to recognize and make trade-offs between competing priorities and decisions such as what functions to centralize and what should remain local. Ultimately they serve as a beacon for clinicians and employees as to what choices leaders have made about implementing the strategic priorities that matter most to the organization.
1. Enterprise Architecture as Strategy: Creating a foundation for business execution. Jean W Ross, Peter Weil and David C. Robertson. 2006. Harvard University Press
David DiLoreto, M.D., MBA Dr. DiLoreto, senior vice president at GE Healthcare Camden Group, is a physician-executive who is highly experienced in executive management, strategy and operations of healthcare delivery systems, and managed care companies. He has deep management expertise in community-based and academic health systems, large group medical practices, hospitals, and managed care organizations. His areas of specialty include clinical transformation, population health, business process improvement, leadership development, medical informatics, and data management and analytics. He may be reached at firstname.lastname@example.org.