Managing for Value Through Focused Factories

Michael Porter defines value in healthcare as health outcomes achieved per dollar spent. So our goals are to maximize the numerator by achieving optimal outcomes and minimize the denominator by better managing resources.  These goals are best accomplished simultaneously; options to do so include:

  • Improving case management.
  • Optimizing care delivery teams.
  • Enhancing outcomes measurement.
  • Providing clinicians with real-time access to information.
  • Implementing bundled payment systems.

Easier said than done. And the financial implications of improving value are not always clear-cut. CFOs are left to figure out how to make money when collecting fee-for-service payments from some payers and value-based payments from others. But regardless of the pace at which your organization’s payment may move from volume-based to value-based, outcomes can be improved and resources better managed when those involved in the delivery of care and utilization of resources are focused. They may be focused on a certain type of patient (e.g., a children’s hospital), a type of illness (e.g., an oncology Center of Excellence), or a type of treatment facility (e.g., an ambulatory surgery center).

Nearly every hospital’s strategic plan identifies specific clinical areas/specialties that will receive a greater focus and investment than others. Hospital administrators are increasingly focusing their attention on the development of service lines or Centers of Excellence that will allow them to gain a competitive advantage. “Focused factories” (first envisioned for healthcare by Regina Herzlinger in the 1990s) extend the service line concept and require organizations to restructure to provide the management attention and effective decision making needed to maximize the value of their clinical services or of the focused factories that they could become.

Focused factories are managed as profit centers of the hospital with their own profit and loss statements and reports that allow for effective financial budgeting and management. All services-inpatient and outpatient-related to a specific service line should be allocated to the focused factory to which the patient belongs.

But the key to successfully using focused factories to manage value is the integration with the physicians who actually control the level of success that will be achieved by the focused factory.  Physician leaders are best prepared to ensure quality and safety, achieve pay-for-performance goals, pursue service development opportunities, and foster relationships with employed physicians and independent medical staff members.

Managing value requires a new approach to healthcare delivery. Reorganizing your hospital to function as a system of focused factories will optimize outcomes and improve the management of resources.

This post was initially featured, December 17, 2012, on the hfm Healthcare Finance Blog.

This entry was posted in Financial Performance, Outcomes Measures, Service Line Planning, Strategic Planning and tagged , , by John Fink. Bookmark the permalink.

About John Fink

John assists healthcare provider organizations with strategic and business planning, hospital/physician alignment, new business ventures, and mergers and acquisitions. He uses his experience to effectively package communications to stakeholders and efficiently guide diverse groups of individuals as they make complex decisions. Over the last several years, he has focused on helping hospitals and physicians develop mutually beneficial financial relationships. John is certified as a Project Management Professional (PMP) by the Project Management Institute, Inc. (PMI) and received both a master of business administration degree and a bachelor of science degree in finance from Indiana University.

One thought on “Managing for Value Through Focused Factories

  1. Pingback: Six Common Misunderstandings About the Value of HIT | ECG Management Consultants, Inc.

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