Bon Secours Health System's South Division launched a
multitude of performance improvement projects in 2004 even
though it boasted a 9% margin. Why? Officials at the Catholic
healthcare system wanted to increase the amount of money
available for its nationwide charitable commitments as well
as to invest in capital projects critical to its mission. In
this installment of Straight talk, we look at the
performance-improvement initiatives of the South Division of
Bon Secours Health System, Inc., which saved $8 million in
just five months and expects to gain a total of $41 million
after it completes all projects. Modern
Healthcare and PricewaterhouseCoopers present Straight talk
The session on performance improvement was held on
March 22, 2005 at Modern Healthcare's Chicago
headquarters. Fawn Lopez, publisher of Modern
Healthcare, was the moderator.
Lopez: To begin, will you tell us a little bit about the
Bon Secours Health System?
McCutcheon: We are a faith-based, Catholic healthcare
system located in nine states with 24 hospitals, 25,000 employees
and $2.4 billion in net patient revenues. The South Division of
the Bon Secours Health System was created in March 2004. It
includes ministries in South Carolina, Virginia, and Kentucky.
Our objective at Bon Secours Health System is to preserve and
enhance our ministry of serving people and local communities. We
call this, "Good Help to Those in Need." Programs such as this
next phase of knowledge transfer are a tribute to Peter, Valinda
and our other CEOs and their teams. The Sisters of Bon Secours
expect that we will thrive, building on their first 181 years of
ministry. We are excited because our accomplishment of this type
of endeavor will allow our ministry to thrive.
Lopez: Why did you undertake this performance-improvement
engagement?
Bernard: We have expectations of meeting what we refer to
as community commitment services. We have ministries where we
provide safety-net care in inner city locations that are
financially stressed. Our profitable organizations help support
those ministries. Our operating profit margin in the South
Division was 9% in fiscal year 2004 (Sept. 1-Aug. 31). We want to
increase that to between 13%-15% by FY 2006 to meet the needs of
all of our ministries. At Bon Secours, we have a true belief that
we need to give back more to the community.
Lopez: So many providers have a negative bottom line and
are in a reactionary mode. Is it unusual for a health system to
implement performance-improvement initiatives when it is doing
well financially?
Osborne: It is somewhat uncommon for clients to approach
us for cost reduction and efficiency initiatives when they have a
strong bottom line; however, hospitals in all sorts of financial
situations ask for assistance for growth and revenue related
initiatives. Bon Secours South Division wanted to look at all
improvement opportunities.
Luallen: If health systems aren't in crisis, there is
usually some other factor that motivates them to utilize outside
resources. Sometimes it is a consolidation in which two or more
organizations are coming together. Sometimes, it is a major
expansion or competitive reaction. For instance, if they feared
half of their heart program was planning to move to a competitor,
they would call us. So, performance improvement encompasses
growth, revenue, cost reduction and efficiency.
Lopez: What are the benefits and challenges of taking on a
performance improvement process when starting with a healthy
bottom line?
Osborne: On the positive side: When you are an
organization that is doing well financially, you are able to
spend time redesigning activities rather than just focusing on
achieving quick cost reductions, which is often what happens in a
crisis mode. You have time to do it right. The reason they are
doing well is because they have strong management and the entire
organization is used to being held accountable to performance
levels. Employees are used to taking on assignments and projects
and getting them done. From the consultant's perspective, it is
enlightening to work with people who are proactive and result
oriented.
However, on the other side, it can be difficult to get a sense of
urgency in place -- to get people to rally around a cause. When
you interact with the department heads, they say initially, "Why
are we doing this? We are doing fine. We have a good bottom
line."
Luallen: The biggest challenge is getting the buy-in at
the department level. If the health system or hospital leadership
states the need for finding more cost extractions from the
budget, the department heads realize the need for their
contribution and become more motivated.
Lopez: What types of projects were included in this
initiative?
Luallen: It was truly "all-inclusive." We looked at
revenue enhancement opportunities with respect to billing and the
revenue-cycle process, such as reducing days in A/R, processing
denials, and charge capture. We also looked at cost reductions
that result from process improvement on the labor expense side --
or the efficiency side, as we call it. We looked at supply chain
cost savings related to physician preference items as well as
inventory reduction. We also looked at growth related
initiatives, such as creating new revenue streams and improving
market share.
Osborne: We identified more than 200 opportunities for a
total of $65 million in annualized improvement across the South
Division. We did this in a three-week assessment process
followed up by another three weeks of reviewing, validating, and
prioritizing the initiatives with the local system CEOs and their
executive teams. We worked with them to translate these
initiatives into business cases for implementation.
Bernard: We thought we could increase our financial
performance to generate desperately needed capital for the local
systems in our national ministry. We also felt that some of the
hospitals in certain geographic locations were not performing
like they could, and that this might help create some traction by
standardizing matrices to measure against. Everybody had
different standards. We wanted to get to standardization. We
created benchmarks and we agreed to various norms that we wanted
to reach.
Lopez: How did you decide what projects to do?
Osborne: Peter let the CEOs decide which initiatives would
be implemented as well as to identify the expected dates of
implementation. From there, the CEOs were responsible for
implementing all of the initiatives and deciding if they wanted
the PwC advisors to assist with implementation or to go it alone.
Rutledge: I focused on initiatives that had a return of
$50,000 or more or that had a strong quality-of-care component.
Luallen: These initiatives cannot be successful without
CEO involvement. Valinda was "hands on" from the start with her
executive team for the Greenville location. The executive team
identified the goals. The directors developed the most effective
methods to achieve these goals.
Bernard: PwC assisted with implementation of 25% of the
200 possible projects. But the other 75% didn't go away; the
individual hospitals were still responsible for completing those
initiatives. We tracked all of the initiative.through our PMO
(Project Management Office) portal, which helped measure the
results.
Lopez: Let's talk a bit about results. What dollar savings
or growth did you realize for the South Division?
Osborne: They achieved $8 million in the first five
months, from September 2004 through January 2005. It's a mix of
both cost savings and revenue improvement. That's a great
accomplishment. The first month we focused on timing and depth
of the implementation, and not a whole lot hit the bottom
line. Then in months two and three, the results began to fall to
the bottom line and it escalated from there. By the end of the
fiscal year (August 31) that $8 million should be about $29
million. When all of the planned projects are in place, Bon
Secours should add a total of $41 million annually to the bottom
line.
Bernard: There were intangible and "system" benefits as
well. It validated management leadership -- where it was strong
and were it was soft. It helped validate for the CEOS where their
problem areas were located.
Lopez: Will you tell us about some of the specific
projects?
Bernard: We made some impressive improvements in our
laboratory services that serve our Richmond hospitals. We
consolidated some programs, flattened our management structure,
and reduced expenses related to courier services and lab-test
send outs. Another piece of this that is still maturing: We are
expanding our reference lab. In the past, we sent out certain
tests to other providers. By integrating of all of our labs under
one organizational structure and bringing in new instrumentation,
we developed critical mass. So we have been able to increase our
panel of testing. All of the changes -- reducing expenses in
labor, send outs and inventory while increasing reference lab
work -- captured $1.3 million of cost reductions.
Another multi-million dollar savings occurred in the central
billing offices throughout Virginia. We centralized our billing
office. We didn't go to one site, but we consolidated some of
sites. We utilized best practices among the sites. If somebody
was strong in a particular activity, we rolled all of that
activity under that one office. This included all of the various
components of the revenue cycle -- documentation, coding, and
denials.
Osborne: Another example is Our Lady of Bellefonte
Hospital in Ashland, KY. This is a hospital which was not
realizing its full potential due significantly to excessive
overhead. Obviously, growth is important, but first you have to
get the bottom line in shape. They had to go in and implement
some cost reductions. This is one of the projects we did right
off the bat. The original savings target was $1.5 million. They
actually achieved $2.5 million in cost savings. They made major
improvements in productivity in a range of departments throughout
the hospital. They also focused on flattening and streamlining
the management structure. They were able to save money and
develop a more effective organizational structure.
Bernard: We are seeing improvement at that hospital. Our
Lady of Bellefonte Hospital lost about $3 million year-to-date,
but the months of February and March have been profitable.
Lopez: How did you track progress in these projects?
Osborne: We used what we call a Realization Schedule. We
put all the initiatives in the schedule: what the initiative is,
when it should be implemented, what the expected improvement
should be, and what metrics are used for tracking purposes. Every
month we updated it. It is color-coded. We use green if they hit
their target, yellow if they are within 10% of their target, and
red if they are off by more than 10%. We reviewed it in
conference calls with all of the CEOS every Friday. If you have
20 initiatives and 10 of them are red, you had to explain what is
going on. This motivated people.
Rutledge: We keep measuring even after we reach our
goals. That helps. In one monthly report for orthopedic surgical
supplies, the supply costs hit the roof. I wanted to know if we
were sliding backwards or if there was a new problem. I called
Paul and he came in and actually drilled down to those orthopedic
supplies all the way to the physician level. When we started in
September, we worked at a high level and got a lot of good
contract terms with our suppliers. PwC recommended that we go in
and renegotiate some different terms and we did that. Our costs
were then at an acceptable level, but I saw it spike up in
December. I called Paul and I said to him, "It's coming back up
again." So he figured out what the next step was. We developed a
strategy. Our physicians agreed to standardize orthopedic
purchases.
Lopez: Besides the financial accomplishments, was there a
cultural shift as a result of this program?
Rutledge: Yes. We were a new division together. We didn't
know each other very well. This initiative allowed us to get to
know each other because all CEOs, CFOs and advisors from PwC
participated in weekly conference calls.
Luallen: Peter set the tone from the beginning. It was a
"we" tone throughout the organization. All of a sudden, within a
week or two of reorganizing into the South Division, we were
working on this program with Peter. He didn't wait. He just
jumped in and made it happen. His leadership team responded
fairly quickly. The weekly accountability calls had a major
impact on achieving implementation results. Peter's ability to
discuss the initiatives at a granular level on the calls was a
motivating factor.
Osborne: I think what happened is that everyone realized
that the engagement was something that was going to happen. It
wasn't going to go away. There were deadlines and timelines that
were monitored.
Lopez: The title of our last session on performance
improvement (January 15, 2003) was: Quality Care + Efficient Care
= Profitable Care. What have you done to ensure that you are
providing high-quality care in a safe environment?
Osborne: I have been working with a lot of the hospitals
in the division on a number of growth initiatives. We are looking
at opportunities that will improve the quality of the services
that we bring into the market. We tend to focus on initiatives
that we think can only be done jointly with our physicians. We
want to work with them on an equal footing and partner with
them. We have been working with a number of locations within the
division. We are trying to improve the overall quality of the
services that Bon Secours provides in the communities it
services. What we often see is this: If hospital administrators
try to improve quality by themselves, they often reach a plateau.
They need to work with physicians. By working with physicians, we
are trying to get to that next level -- to be among the top 100,
top 25 or top 10 hospitals in the country for a given service
line. Bon Secours is working with its physicians jointly to
improve quality through growth initiatives.
Rutledge: We feel to really excel in quality care, we have
to do it in a partnership with physicians.
Osborne: We are trying to develop formal relationships
with our physicians. To do this, we develop a legal structure to
align incentives and efforts between the hospital and its
physicians. We want them to agree to quality benchmarks and then
to achieve those goals. To us, the quality component is by far
the most important reason for going forward with some of these
growth initiatives.
Rutledge: I think all of us at Bon Secours feel that it
has to be a partnership. PwC is working with all the hospitals in
the South Division to identify growth strategies that will allow
us to improve our clinical processes. I think what we are doing
is very unique.
Osborne: But these initiatives take time. First, we have
to identify the opportunity. It takes a while not only to work
through the numbers but also to develop a legal structure. We
structure it to align incentives between the hospital and its
physicians. We identify quality benchmarks and get everyone to
buy in to those benchmarks. We have identified more than one
opportunity in every market. We have started the analysis phase
for many of the projects. In some cases, we have started
discussions with physicians. We have tried to focus on Bon
Secours' strengths. You can't be good at everything. We focus on
opportunities where we can make a significant impact on the
quality of a specific service line. We look for something that is
a little unique or something that the community might not have
yet.
Rutledge: Another way in which we at St. Francis are
working with our physicians on quality: We have set up teams to
improve our quality scores for the CMS (Centers of Medicare and
Medicaid Services) demonstration program (Hospital Quality
Alliance Initiative) on quality reporting. I think most of the
hospitals in the United States are participating in this
program. CMS has measures for heart failure, heart attack,
community-acquired pneumonia and hip and knee replacement. We
review those on a monthly basis. We have seen a significant
increase in our scores just by working together as a team with
our physicians. CMS posts everybody's scores on a web site, which
I think is superb. I firmly believe in public reporting of the
quality of care in
hospitals. (www.medicare.gov/Hospital/Home.asp)
Lopez: What is phase two of your performance improvement
process? From what you've said, it sounds like you are now
focusing on growth initiatives.
Rutledge: I think we will always work on a balance of
growth and efficiency initiatives. You monitor constantly so you
know if a new problem comes up. You want to have efficiencies,
but you also want to have growth. You can't take your eye off
either one of them.
Bernard: We have quarterly divisional meetings and this
will be an agenda item with the CEOs. What is the next step? What
is phase two? We will be looking primarily at the growth side
and pursuing initiatives around growth, which is a longer-term
play than we had with this initial phase, which was focused on
payroll and non-payroll expense.
Rutledge: We are going to do one growth opportunity at a
time because I think you have to focus. If you are doing too many
at once, you are not able to do them at the level I would expect
with the attention to detail I want. I always say, "We are not in
a sprint. We are in a marathon."
Steps to a successful performance improvement program:
- The optimal time to begin is when your organization is
strong financially;
- Encourage people from different hospitals to share
experiences and learn from each other;
- Give local CEOs autonomy to pick their projects;
- Concentrate on cost cutting and process redesign first and
then on long-term growth initiatives;
- Celebrate successes;
- Implement a monthly tracking tool to monitor progress and
share results with everyone. Continue to track monthly
even after the initial project is complete.
Want to learn more about performance improvement?
Contact: Bill
Luallen, partner for healthcare performance improvement at (317) 860-2102, or click here to send him an email, or visit PricewaterhouseCoopers on the web at pwc.com/healthcare.
Participants:
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Stephanie S. McCutcheon
Chief Operating Officer
Bon Secours Health
System, Inc.
Marriottsville, MD
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Valinda Rutledge
Chief Executive Officer
Bon Secours St. Francis
Health System
Greenville, SC
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Bill Luallen
Partner and Healthcare
Performance
Improvement Leader
PricewaterhouseCoopers
Indianapolis, IN
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Peter Bernard
Senior Vice President
South Division
Bon Secours Health
System, Inc.
Richmond, VA
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Paul Osborne
Director Healthcare
Performance
Improvement Practice
PricewaterhouseCoopers
Miami, FL
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The views expressed by Straight Talk participants are not
necessarily the views of Modern Healthcare, Crain
Communications Inc. or PricewaterhouseCoopers. Special
advertising supplement and educational session provided by
PricewaterhouseCoopers.
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