Use strategic thinking to avoid unanticipated results
Use strategic thinking to avoid unanticipated results
Study indicates strategic framework is a must
Process improvement inevitably requires change, so it is no surprise that in the world of quality improvement, the concept of change is viewed in an overwhelmingly positive light. However, new research indicates that while changes are instituted for many good reasons, they often yield much more than the results that were intended — sometimes to the detriment of the institution.
"There may be certain strategies that you pursue as a manager or a policy-maker, but you become so single-minded that there are unintended effects," notes Stephen O’Connor, PhD, associate professor and director of the MS health administration program at the University of Alabama at Birmingham. "Be aware of the other unintended by-products of your strategy that can occur." O’Connor also is a scholar with the Lister Hill Center for Health Policy in Birmingham.
He refers to this approach as "strategic coordination." For example, "while more affiliations with managed care organizations may prove effective in maintaining patient volume, hospital performance will suffer if a parallel strategy to control costs is not also implemented. Hospitals must understand strategic coordination before instituting changes," he says.
O’Connor is co-author of the study "Helpful or harmful? The impact of strategic change on the performance of U.S. urban hospitals," which appeared in the February 2002 edition of Health Services Research.
"We wanted to look at performance change in urban hospitals between 1994 and 1996," he explains. The researchers examined market share, operating efficiency, and financial performance. "We wanted to see how different types of strategy changes influence performance," O’Connor says.
Examining data from 2,423 urban hospitals, they took into consideration environmental conditions (such as Medicare/HMO market penetration, the level of general competition, population density, and financial resources) and organizational characteristics (bed size, stringency of Medicare reimbursement, case-mix complexity, occupancy rate, and whether the facility was for profit).
The study found that both internal and external pressures affect urban hospitals’ strategic change initiatives. Market environmental characteristics had a greater influence on strategies aimed at enhancing HMO business, while organizational pressures influenced cost-control strategies. While both types of changes were focused on improving hospital performance, the results of the study suggested that the two strategies can be in conflict with one another.
"The environment may push you to have more contracts with HMOs," O’Connor observes, "but the outcomes in terms of performance were that it reduced revenue market share and patient- day market share. So the environment can seem to drive positive changes, but the outcomes are negative."
By the same token, both environmental and organizational realities can influence change in the discount rate offered to HMOs, but when this occurred, the study showed, there were significant decreases in financial performance.
The paradox of change was brought home in a positive way when nursing staff ratios were studied. "Higher nursing staff ratios and more support staff are supposed to result in better outcomes," O’Connor notes. "What we found here was that by increasing these ratios, hospitals ended up with better financial performance in terms of operating margin."
O’Connor concedes this is counter-intuitive. "There may be other things acting there to cause it," he admits. "But the point is that reducing nursing staff is often looked at as one way to control costs. But the only significant outcome we found was on operating performance, and it was positive."
Speaking of positive, the study noted several strategies used by participating hospitals to enhance HMO business and to control costs, some of which, the researchers argue, should be pursued in tandem.
Strategies to enhance HMO business include:
- change in affiliation with HMOs;
- change in HMO contracts;
- change in discount rate.
Strategies to control costs include:
- change in diversification of health services;
- change in ratio of nursing;
- change in average length of stay;
- change in shifting service to outpatient settings.
In other words, strategic conflicts are not inevitable; there are ways to avoid them. "Don’t make these decisions in a vacuum," O’Connor advises. "Hospital administrators may say they are in a highly competitive HMO market, and they can fill up beds by affiliating with HMOs. But if they don’t have a parallel strategy of controlling costs, you will go down the tubes."
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Need More Information?
For more information, contact:
- Stephen O’Connor, PhD, Associate Professor and Director, MSHA Program, Department of Health Services Administration, School of Health-Related Professions, Webb Building 508, 1530 Third Ave. S., University of Alabama at Birmingham, Birmingham, AL 35294-3361. Telephone: (205) 934-1735. Fax: (205) 975-6608. E-mail: [email protected].
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