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Executive Advisors

Turning Point Healthcare Advisors, Inc.
New Direction in Healthcare
Strategic Counselors and Consultants

Turning Point brings you the Executive Advisory series.

Among the titles in the series currently available:
33. Effective Prioritization of Human and Capital Resources
40. Service Line Management: When Is It Right for You?
42. Developing and Fine-Tuning a Business Plan
43. Holding a Successful Retreat
44. Analyzing Capacity
45. Medical Staff Development Planning
47. Alleviating Emergency Department Crowding Through Process Improvement
49. Effective Financial Analysis and Financial Forecasts
51. How to Best Evaluate Service Investments or Divestments
53. Strategic Master Facility Planning
54. Selecting a Management Consulting Firm
55. Employing Specialists
56. The Intelligent Market Analysis
57. Effective Communication of a CEO's Resignation
58. Special Challenges in Determining Physician Need - New Medicine Brings New Demands
59. Web Sites Are Not Just for Communication with External Audiences
60. How to Design an RFP That Gets Results
61. A Viable Alternative to a Neurosciences Center of Excellence
62. Calculating ROI for a da Vinci Surgical System
63. Designing a Conflict Management System for Hospitals
64. Medical Staff Engagement - Physician Supply and Demand
65. Medical Staff Engagement - Physician Retention

Up to five (5) Executive Advisors may be ordered at no charge. Click to Order Executive Advisors

Featured Titles

46. Strategies in Orthopedics

48. Strategic Planning

49. Effective Financial Analysis and Financial Forecasts

46. Strategies in Orthopedics

The orthopedic market is growing as the population ages and advances in treating “worn out” joints improve. Early projections indicate:

A slight increase in patient days as discharges increase but lengths of stay decrease.

Continued increases in outpatient surgery as procedures shift to this setting.

Increased demands on imaging for both diagnostic and treatment purposes.

Given the implications for surgery and imaging, as well as inpatient services and rehabilitation, a proactive orthopedic strategy could have a significant effect on hospital volume. Almost any hospital can benefit from a well-conceived plan, because orthopedics is a service provided by both large and small organizations.

Developing a strong orthopedic service line can be an offensive or defensive strategy, depending on the situation. Offensively, the strategy can result in increased market share and profits for the hospital. Defensively, the strategy can help prevent physicians from developing independent facilities that compete with the hospital.

Emerging opportunities
Opportunities for strengthening orthopedic services include pursuing new market segments and changing the traditional service delivery.

Market opportunities. Advances in medical technology are expanding the indications for orthopedic intervention and creating new demands for unmet needs. There are several situations that are creating opportunities.

Minimally invasive surgery (MIS) accounts for a rising percentage of orthopedic cases but has been limited because of the large implant size (presenting the problem of getting a hip through a keyhole opening). MIS will result in shorter inpatient stays, facilitate a shift to outpatient surgery, and expand the market as more patients qualify for surgical intervention. There are some indications that up to 70 percent of orthopedic procedures will be minimally invasive within 10 years.

Advancements in non-surgical interventions are also occurring. Nerve block injections for back pain, needle biopsies for arthritics, cartilage transplantation, and other procedures will expand this market considerably.

Joint-specific technology and procedural advances are creating new niche opportunities within orthopedics. Although hips and knees have historically dominated the surgical intervention market, the options and success rates for surgical treatment of shoulders, feet/ankles, and hands are increasing, creating new market segments.

Sports medicine is a mature market but remains a worthy investment, as this market segment will benefit most by advances in non-surgical care and minimally invasive surgery.

Orthopedics offers opportunities for new physician-hospital partnerships. Orthopedics has more stand-alone potential – limiting the need for involvement of other specialties and creating an easier environment in which to develop a relationship.

Service delivery opportunities. Orthopedics will continue to benefit from the growth of non-traditional delivery models.

The “joint camp,” a focused, patient-centered approach to orthopedics, is growing in popularity and visibility. This has met with tremendous success at most locations and is a way to increase market share through superior patient service.

Dedicated orthopedic wings and/or hospitals are also gaining momentum. These provide more flexibility than the joint camp concept. Providing dedicated space and staff can be very attractive to physicians and conveys a center of excellence image to the community.

Orthopedics can generate enough volume to justify independent ambulatory centers complete with imaging, rehabilitation, surgery, and physician offices, a fact that is often the driving force behind physician-owned orthopedic centers. Hospitals can be proactive in developing freestanding centers, independently or in partnership with physicians.

Provider challenges
The primary challenges facing providers include:

Profitability. Most providers assume orthopedics is profitable, but many find this is not the case when evaluated more closely. Long lengths of stay and high implant costs are the most frequent factors in losses associated with orthopedics. There have been many efforts to standardize procedures, but gaining medical staff support has been a consistent hurdle.

Physician relationships. Although developing a partnership with physicians is an opportunity for growth, it also represents a challenge for most institutions.

Many surgeons have already recognized the market potential for orthopedics and are developing their own facilities or working with for-profit companies to build specialty hospitals.

It is getting increasingly difficult to find surgeons to cover trauma/ER because of poor payer mix, extensive hours, and rising mal-practice costs.

Most orthopedic practices are busy, and physicians may not see any reason to partner with a hospital. If physicians are not interested in developing their own centers, it may be difficult to garner interest in partnering with the hospital.

Differentiating orthopedics. Orthopedics is a bread-and-butter service for most hospitals, and differentiating one service from another is needed to move market share. The need to differentiate this service has been a driving force behind the popularity of prepackaged marketing products.

A focused service line strategy can help capitalize on the growing opportunities and address the above challenges. Turning Point sees three broad strategies for orthopedic service line development.

1. The “cutting-edge” strategy is for organizations that are willing and able to commit to leading-edge technology, being the first to the market with new products and services. These centers may be test sites for new products, have research capabilities, and serve as referral centers for the most difficult cases. Centers typically have a full complement of orthopedic subspecialists, many with national reputations. Although this type of center is often associated with an academic medical center, several providers have shown that this strategy can be achieved in a non-academic setting.

2. The “leg up” strategy is the most common approach used and focuses on developing the service as a market leader, a step above or “leg up” on the competition. It is exemplified by high volume but not necessarily more difficult or visible cases. The strategy focuses on providing the best quality of care in the market and positioning the service as a center of excellence. The medical staff may have substantial breadth of subspecialists, but depth is limited.

3. The “focused joint” strategy is a more targeted approach to orthopedics. Rather than focusing on all orthopedics, this approach seeks to target one or two areas in which the provider can gain market dominance. This strategy may be best when there is considerable competition and differentiation is key or when the orthopedic staff is not large enough to justify a full center of excellence. Spine centers and joint camps are examples of this strategy.

The checklist below will help identify which strategy is most appropriate for your organization and market characteristics. It can also be used to determine areas of focus that will take your service to the next level.

Circle the response to each criterion that best describes your organization.

	Cutting Edge	Leg Up	Focused Joint
Orthopedic Medical Staff
Physician Loyalty	Exclusive	Mostly exclusive	Only a few exclusive, many split among hospitals
Physician Reputation	One or more national experts	Strong regional reputation	Strong but no standouts
Staff Composition	Breadth and depth of subspecialties	A few key subspecialty physicians, but limited depth in each	Mostly general orthopedics
Market Characteristics
Market area	National draw for complex cases	Regional draw, consistent with other key service lines	Consistent with hospital service area
Competition	Academic medical centers and large tertiary centers	Mature in service line "institutes"	Mature service line market differentiation key
Historical Performance
Strategic Intent	Differentiation strategy to position hospital as market leader	Increase service line market share and broaden market reach	Increase inpatient market share of profitable service
Service Line Capabilities	Strong track record with service line implementation	Some service line experience	No service line experience
Continuum of Care	Full continuum of services	Full continuum of services	Most components of continuum but services fragmented
Surgical Suite	Dedicated ORs and surgical team	Block time for orthopedics	Block time for orthopedics
Current Market Position	Medium – strong	Medium – strong	Weak

The strategy with the most circles is likely the best fit for your organization.
Any of the above strategies can result in considerable growth for your service line. Selecting the strategy that best fits your market and organizational capabilities will be more acceptable to clinical and medical staff and thus more attainable.
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48. Strategic Planning

Strategic planning is the process of assessing an organization’s environment and position within that environment and identifying ways to improve the organization’s position.

The planning process
The table below illustrates a basic strategic planning process. This process will be refined and carried out in light of an organization’s culture, structure, resources, and objectives for the process. Planning committee composition, if and when to hold a planning retreat, and extent of the interview process will need to be addressed on a case-by-case basis.

Assessment

Vision

Direction

Action

Environmental
…Forces
…Trends

Internal
…Performance
…Capabilities
…Resources

Synthesis
(SWOT)

Mission review/
validation
Articulate vision

Future assumptions

Identify options

Establish priorities

Set goals/ objectives

Evaluate and refine

Approval

Implementation
…Resources
…Responsibilities

Characteristics of effective strategic planning
Although approaches to strategic planning may differ by organization
and situation, an effective process will be characterized by:

Discipline, so that the process doesn’t become an end in itself and that the organization’s leaders are supported in making potentially difficult choices.

A blend of art and science, recognizing that analysis is both indispensable and insufficient for strategy development.

Creativity, so that the process is open to new things and to new thinking about old things. To paraphrase Albert Einstein, “Problems cannot be solved at the same level of thinking that created them.”

A view to implementation, realizing that planning only matters when it is confirmed by action.

When to start, how to proceed
Health care organizations faced with a host of day-to-day challenges have little time, and perhaps little enthusiasm, for taking “the long view.” When internal staff and other planning resources have been cut, it may be difficult to organize for the strategic planning process. Over time, an organization may be operating without a strategic plan. The following chart shows some typical events and indicates if and how they should affect strategic planning.

Event	New Strategic Plan	Update Strategic Plan	Considerations
Three or more years since last plan	X
Plan implementation completed	X
Specialty hospital enters market		X	Service line planning may be needed
Financial deterioration	?		Cause could be operational
New CEO appointed		X
New data available (e.g., census)		X
Legislative/regulatory change		X

Tips for contemporary strategic planning

1. Set an aggressive time frame. Three or four months is an appropriate investment in developing a strategic plan with a useful life of two or three years. This time frame allows for deliberation and decision-making, while building momentum for approval and implementation.

2. Know the competition. Hospitals compete with hospitals, but so do other entities that are more likely to join the fray. The list of competitors might include physicians, specialty hospitals and other niche providers, pharmacies, social service agencies, nurses and therapists, and unlicensed providers such as acupuncturists.

3. Don’t let one issue overwhelm the process. Bed and staff shortages, deteriorating financial performance, emergency department crowding, the malpractice crisis, HIPAA, and Leapfrog are among the issues taking center stage at one organization or another. Remember strategic planning is about maintaining perspective and seeing the big picture.

4. Wrestle with technology. New technology is mind-boggling, and the prospect of coming to grips with its impact is daunting. Uncertain applications and results, along with huge price tags, may make a “wait and see” approach comfortable. Good strategic planning can be uncomfortable, and the process should consider the effect of emerging technology.

49. Effective Financial Analysis and Financial Forecasts

One of your hospital directors believes that purchasing a PET scanner will increase imaging volume. This $2 million purchase is a significant investment for any hospital, particularly for one venturing into a new service and without patient utilization data on which to base its decision.

If you’ve found yourself in this situation, the financial professional can be an excellent resource. Your hospital’s finance staff can help you prepare business plan information suitable for review by senior leadership, the board of directors, and others who have a say in authorizing funds for capital purchases.

Many key investment decisions rely heavily on the business plan’s financial analysis. An accurate, detailed financial assessment is critical to the survival of health care organizations. CEOs and other key decision makers must understand essential elements of financial analysis and financial forecasts.

Types of financial analysis and financial forecasts
Today’s health care professional is faced with preparing financial analyses and forecasts for a variety of situations, including:

Service line profitability

Equipment purchases and building projects

CON applications

Obtaining financing

Mergers and acquisitions

Managed care agreements

Physician and other contracts

Key elements of financial analysis and financial forecasts
The following elements are part of any financial analysis or forecast.

A description of the nature of the analysis or forecast.

The entity (organization, unit, or project) for which it is prepared.

The period of time for which it is prepared.

A description of the intended audience.

The factors that are basic to the entity’s operations and serve as the bases for the assumptions. Key factors include volumes, revenues, revenue deductions, direct costs of service, indirect costs, and financing costs.

Assumptions, which are the essence of and determine the quality of the analysis or forecast. Assumptions should reflect the entity’s condition and management’s expected course of action. They should be reasonable and supported by the entity’s existing operating history, trends, market surveys, and other indicators.

Presentation of the analysis or forecast itself. It can take the form of a simple profitability analysis or a detailed prospective financial statement including balance sheet, statement of operations, and cash flow.

Checklist
Each of the following should be answered “yes.” If your answer is “no” or a qualified “yes,” you may be compromising the reliability and usefulness of your financial analysis or forecast.

Have all the elements of a financial analysis or forecast listed above been included?

Are the assumptions appropriate? That is, were they prepared without either undue optimism or pessimism?

Is the analysis or forecast based on appropriate accounting principles?

Is the analysis consistent with actual operating results, and are forecasts consistent with the plans of the entity?

Have all significant factors and assumptions been disclosed?

Is there reasonable support for the majority of the assumptions?

Has a range of results been computed for those assumptions most likely to affect the analysis or forecast?

Has the analysis or forecast been reviewed by the appropriate responsible party?

Can someone not involved in the preparation make an informed judgment based on the information presented?

Can the forecast ultimately be compared with actual operations?

Tips for reviewing an analysis or forecast
If you have not been directly involved in the process, you should take into account the following in reviewing financial documents.

Be sure you understand the magnitude of the impact that changes to key assumptions can have on the bottom line.

Ask for back-up schedules if they are not included.

Test the reasonableness of key assumptions.

These Executive Advisors are brought to you by Turning Point
7535 E. Hampden Ave., Suite 520, Denver, CO 80231
303/752-1010 ... www.TPAdvisors.net