Tips on transforming an organization: one of the new buzz words in health care is "transformation." This word often is preceded by the words clinical cycle, revenue cycle, or supply chain - Leadership and Management

Healthcare Financial Management, June, 2003 by Bruce Hallowell

What does transforming an organization mean? How does transforming an organization differ from process improvement, total quality management, management by objectives, two-way communication, or change management? Transforming an organization is changing the way it supplies services to its customers. The purpose of transforming an organization is to establish high-quality outcomes in a low-cost service model. Once an organization has been transformed, the cost of services will be reduced through process and technology while utilizing standards and technology to improve the outcomes for the customer.

Taking Care of Business

Before undertaking an organizational transformation initiative, healthcare organizations need to understand and respond to four critical business pressures in the current marketplace:

* Bring a low-cost, high-value product to the marketplace

* Hold people accountable for results

* Create key metric indicators

* Understand the return on investment (ROT) for the initiative

Bring a low-cost, high-value product to the marketplace. Organizational transformation is a major initiative that will require significant investment. Healthcare organizations cannot afford to spend this sum on projects that offer only short-term benefits. They need to ensure that the initiative will deliver results. With the payment amounts being reduced not only by managed care, but also the governmental payers, healthcare organizations cannot spend the money if they do not achieve the results. With the future changes to the payment methodologies, which are heading toward outcome-based instead of service-based, the need to transform becomes an urgent matter to deliver a low-cost model with high-quality outcomes.

Hold people accountable for results. Healthcare organizations need to set standards for the results they want to achieve. All service-line managers and above should be expected to meet those standards and be held accountable for the results of the transformation.

Create key metric indicators. Change cannot be measured without having benchmarks in place. Key metric indicators, such as adverse drug events (ADEs) by unit, along with medical necessity denials by unit are essential to determining when a transformation has occurred.

Measurement of agreed-upon standards or outcomes requires taking a snapshot of the organization's current state, which may meet with resistance. Human nature tends to defend the status quo and resist change, claiming best practices already are being used. It is important to remember, and to reinforce to everyone in the organization, that improvement is always possible. That basic belief is the foundation of organizational transformation.

Understand the ROI for the initiative. Organizational transformation should result in a four-to-one payback to the cost of organizational transformation and the financial condition of most healthcare organizations. The days when the clinical care cycle was separate from the revenue cycle are over. With payment being tied to services, the two cycles must be in sync to achieve the goal. Determining the dollar value of a transformation project involves an assessment that identifies agreed-upon cost savings and includes buy-in for senior executives. If the assessment does not find that the initiative would result in reduced costs, an influx of cash, and/or an increase in net revenues, and if it does not prevent or correct future or current risk to the patient's outcome or governmental or contract compliance that results in large fines or loss of contracts, the transformation initiative should not proceed.

Observing the Domino Effect

Many attempts to transform specific areas such as clinical care, revenue cycle, or supply chain have failed or fallen short of expectations because healthcare organizations ignored their interdependence. Organizations should avoid changing one area without evaluating the impact that change would have on other areas. For example, changing the clinical cycle will affect the revenue cycle and the supply chain. Even if an organization achieves the best clinical cycle possible, it can suffer decreased payment and be noncompliant with both the government regulations and payer contracts.

Organizations may save time and money by undertaking a transformation simultaneously with another business initiative, such as installing a new information system. The installation of a new information system alone, however, will not bring about transformation. Organizations also need to address desired outcomes and accountability. No process should be regarded in a vacuum. By and large, organizational transformation failures occur at the linkages between departments or functional areas.

Choosing Partners Wisely

Healthcare organizations may find that partnering with firms that offer professional expertise in business transformation would be helpful. In that case, organizations should ensure that their partners possess the necessary knowledge and change-management skills to achieve the desired results. In addition, a successful partnership must be rooted in mutual trust and respect. True partners will assume responsibility for results.