effective cost modeling for service line planning - Wipfli

departmentally focused. To identify growthopportunities, the provider typically performs amarket assessment that looks at service demandprojections, competitor strength, and physiciandemographics. The provider then benchmarks itsperformance with a review of current marketshare, profitability, and costs, while assessing avariety of internal metrics around quality, physicianleadership, and customer service.Set provider organizational strategy. With theinsights gained from the first step, the provider’sexecutive team typically analyzes the potentialimpact of each service line on the provider organization’soverall performance and prioritizes theservice lines according to strategic objectives(e.g., “grow” or “protect” market share and, insome instances, even “exit the market”). Thisprocess allows the executive team to determinewhich service lines to pursue and in what order.The executive team can then begin to establishand communicate to management the strategicgoals and performance targets for the providerorganization.Implement the strategy. Management is chargedwith developing and enacting a plan to meet theidentified goals and targets. This effort mayrequire identifying specific improvement opportunitiesfor existing service lines or launching anew service line that ideally can rapidly achievebest practice performance levels. Typically, severalstrategic options are identified and theimpacts of these options are assessed prior toimplementation.For instance, consider a provider organizationthat is evaluating growth options for surgical services.Is growth limited by existing capacity andfacility constraints? If so, are there alternativesrelated to developing new surgical space or redeployingspace already existing in other parts of thefacility (e.g., relocating endoscopic services to anadjacent medical office building in order to freeup scheduling problems in the surgical suites)?Once the strategic choices are made, an importantfocus for management becomes implementingA significant advantage of PBC modelingis that it can be used to model theentire provider organization, makingit possible to evaluate virtually allbusiness (and service line) opportunitiesusing a single tool.and monitoring action items to ensure successfuloutcomes. In the surgical services example, thismay mean developing new or redeployed space,or the focus could be on process improvementopportunities such as improving turnaroundtimes, minimizing delays, and reducing case time.Manage and continuously improve service lineperformance. Once strategic options are implemented,success depends on the degree to whichthe provider organization continually strives forpeak performance in its service lines. Ideally,managers will select and manage to the rightbenchmarks and metrics, continually adjustingoperations to ensure performance targets arebeing met.In each one of these steps, PBC modeling cancontribute essential information in a wayunmatched by other tools and techniques, makingit an essential tool for successful service lineplanning.The Advantages of PBC ModelingA healthcare provider’s ability to accomplish thefour basic service line planning steps depends onhow well it delivers the right financial informationto understand the service line, and how wellit can perform accurate, real-time analyticalmodeling of strategies, strategic options, andperformance. Financial tools that healthcareproviders typically use for such efforts tend to beinadequate, often because information is lackingsufficient accuracy or precision, or modeling isnot in real time.II MAY 2010 healthcare financial management