Using simple rules to achieve strategic objectives - Nuts and Bolts of Business

Physician Executive, May-June, 2003 by David P. Tarantino

Your hospital or medical school delivers its strategic plan to all faculty members. The planning involved a multitude of physicians and administrators. It is more than 10 pages long and took several months to prepare.

Everyone involved is very proud of the accomplishments. But, after reading through this document, you ask yourself, "Does this plan accomplish what it was set out to do? Does it convey the strategy of the hospital or the school of medicine?"

To answer this question, I once performed a little experiment. I randomly stopped 10 faculty members in a hospital who were not members of the hospital's strategic planning committee and asked them if they had received and, more importantly, read the plan. All 10 acknowledged having received it.

Of the three who claimed to have read it, I asked if they could give me a brief summary of the strategy and what role they believed they played in implementing the strategy.

None could summarize the strategy, nor did any of them feel that they had a direct role in the implementation. They all stated that is was too long, too broad in its concepts and loaded with non-specifics, like "increase revenue."

If any of this sounds familiar, you certainly are not alone. Why is it then, that all of this hard work fails to achieve what I believe is the desired result-namely a strategy that can be easily understood by anyone who picks it up and reads it?

To attempt to answer this, let me tell you a story about one group's strategic plan.

It is a very short story.

They don't have one.

At least not in the way most of us think about strategic plans. This doesn't mean they run around without any direction in their business.

On the contrary, they began by deciding on four critical factors for success for their group. Not broad concepts like "maintain revenue," but specific factors such as "we must collect no less than $11.5 million in all forms of revenue to meet our obligations."

They then decided what specific strategic processes they needed to implement to achieve those success factors. Finally, they developed simple rules to follow. This took less than two days to achieve.

Keep it simple

Let me give an example to show you how they accomplished this. Remember, one of their critical success factors was to collect no less than $11.5 million in revenue.

A strategic process related to this critical success factor was the strategy to prevent un-billables. Their objective for this strategic process was to keep un-billables, caused by factors such as inappropriate documentation, lack of appropriate patient registration and no insurance clearance, less than 2.5 percent.

With billings of approximately $27 million each year, that amounted to keeping un-billables under $67,500. How did they implement that kind of strategic objective?

They used simple rules. Here they are:

1. All elective surgical cases must have insurance approval or will be canceled

2. Attending surgeons must dictate and code all operative notes within 24 hours

3. Billing templates are used for all evaluation and management and procedures

4. Each service can design its own templates provided they meet compliance rules

What did they achieve with these simple rules? Their un-billables are consistently less than 1 percent of all billings-that is less than $27,000 on $27 million of annual billing.

Another critical success factor was that expenses could not exceed $8.7 million per year. Why $8.7 million? The school of medicine takes 20 percent of their revenue or $2.3 million on $11.5 million. That left them with $9.2 million.

With expenses of $8.7 million, that would provide a $500,000 cushion. A strategic process related to this critical success factor was the control of discretionary spending. Their objective was to keep discretionary spending under $250,000. Here are the simple rules.

1. The amount in each departments discretionary spending budget is allocated 50 percent on billing productivity (weighted %) and 50 percent on the number of clinicians in that department (weighted %).

2. Everything that a department wishes to purchase, including all furniture, equipment and supplies comes out of its allocation.

3. They can spend their allocation on anything that they wish to, as long as it is legal and doesn't violate IRS rules.

4. If they run out of money, they get no more. No exceptions.

5. Each department gets to keep 75 percent of whatever is left over at the end of the fiscal year.

The result: They always get the 25 percent savings!

While this may sound good, you still must communicate it, so that everyone in the organization understands it and knows his or her role. The worst way is to present your objectives and rules as a series of bullet points in a report.

Think about your typical war movie. Does the commander elucidate the strategy to the troops by handing them a report of bullet points? Of course he doesn't. He shows a map, describes what each company or division must do and how each part of the strategy achieves the desired objective. The troops know the rules of engagement.