Strategic Planning Initiatives for Healthcare Systems

While strategic plans require a long view, they need to be monitored and revised as needed.

This article first appeared in the April 2016 issue of HealthLeaders magazine.

To thrive, or at least survive, the revolutionary shift away from fee-for-service healthcare to value-based models, health systems, hospitals, and physician practices need to have a strategy.

"It's a very interesting time in healthcare, but the complexity has really ramped up in the last five years," says John DiCola, executive vice president of enterprise strategic development at Englewood, Colorado–based Catholic Health Initiatives, which operates in 19 states with 103 hospitals, and generated operating revenues of $15.2 billion in fiscal 2015.

At the same time, CHI is trying to operate with a five-year "planning horizon," DiCola says, noting "we certainly revise the strategy more than that." In 2011, he says the health system set three primary strategic goals that remain in play: achieving clinical and operational excellence, creating clinically integrated networks with population health capabilities, and unlocking the value associated with the new CINs.

At CHI, there are several key elements to "closing the loop on strategic planning with financial planning," DiCola says, including assessing the capital requirements linked to strategic objectives, allocating capacities, making sure the organization has a multi-year financial plan aligned with its strategic plan, and remaining open to course corrections. "Strategic planning is not set in stone—it's a living thing."

Over the past five years, CHI has had to adapt the health system's strategic planning efforts to accommodate the shift to value-based healthcare service contracts, changing market dynamics such as commercial insurance mergers, and growth opportunities through mergers, acquisitions, and clinical affiliations, DiCola says. "We consciously identified the need to move into a more urban direction for growth."

The 2013 acquisition of Houston-based St. Luke's Episcopal Health System is a prime example of CHI utilizing a merger-and-acquisition strategy to establish a significant presence in a new urban market. "Because of its size, it created a new region," he says, noting the impact of the St. Luke's acquisition on the parent health system's organizational structure. CHI St. Luke's Health features six acute care hospitals, a cancer center, and several health clinics in the Houston metropolitan area.

M&A as growth strategy

Growth through mergers and acquisitions has been a keystone of strategic planning for more than a decade at Phoenix-based Banner Health, says Dan Weinman, vice president of strategy and planning of the seven-state system that operates 29 acute care hospitals and reported net revenue of $7 billion in 2015.

"Banner has a comprehensive strategic planning process and corresponding core principles that include strategic growth, quality, service excellence, consumer engagement, and health management. We have had a '2020 Vision' that has been our long-term strategic plan for over 15 years. That has been our road map, and we only recently revised this as we have evolved our vision with a commitment to population health management and improving the health of the communities we serve through consumer-oriented, affordable delivery models and products," Weinman says.

"Banner Health was created in 1999 from a merger between Samaritan Health System and Lutheran Health Network, and our 2015 expansions involved the acquisition of the University of Arizona Health Network in Tucson, and Payson [AZ] Regional Medical Center, so it would be fair to say that mergers and acquisitions have played a critical role in Banner Health's existence and evolution, and support our strategic growth agenda. M&A has been and continues to be instrumental in expanding and enhancing our geographic footprint, care continuum delivery, and health management opportunities. We also use M&A to complement or develop needed competencies or expertise," Weinman says.

Banner has been developing an "M&A Playbook" since 2008, when the health system acquired Sun City, Arizona–based Sun Health in a deal that featured the acquisition of two acute care hospitals and a research institute. "The Playbook is infrastructure for change," says Bryce Carder, Banner's system vice president for information technology business services.

Banner's M&A Playbook is a collection of electronic documents that helps guide the health system's "integration teams" as they focus on key areas such as information technology and human resources, Carder says. "It's not a three-ring binder on someone's desk."

The M&A Playbook's "Handoff Document" for the HR integration team has more than 40 line items that require descriptions or explanations from the team's leaders. About half of the HR Handoff Document is focused on basic facts and figures, such as the HR team's point of contact at the entity targeted in an M&A deal and the number of employees at that entity. The other half of the Handoff Document is broken into categories, including talent acquisition, HR operations, benefits, compensation, and cultural discovery. Each category has multiple elements. In the case of cultural discovery, the Banner HR integration team is responsible for assessing previously conducted employee surveys and determining whether the targeted entity has an operational culture that is compatible with Banner's operational culture.

Banner's M&A Playbook has been designed to promote standardization, but there is flexibility that allows for the integration teams to craft deal-specific solutions, says Beth Stiner, divisional vice president of human resources for Banner-University Medicine. "The Playbook is agnostic so that it can evolve to every situation," she says.

Last year's agreement between Banner and University of Arizona Health Network includes an HR challenge that is not addressed in the M&A Playbook, Stiner says. "Physicians in Tucson are either employed by Banner or the university. As a result of this partnership, we have had to look at our benefits packages across both organizations to ensure that physicians practicing in a single medical group have comparable offerings."

Banner's IT integration team for the University of Arizona Health Network merger is also facing a challenge that requires thinking outside the M&A Playbook box, Carder says, noting the university uses Epic Systems Corporation software to manage electronic health records, and Banner uses EHR software developed by Cerner Corporation. "They had just made a significant investment implementing Epic. We are spending time to look at what they have and the impact of implementing our operational model and staying with Cerner," he says. "We're still in the planning phases. We've taken six to eight months for our internal leadership teams to see what we have … to make a decision on which path to take."

Banner has strategies to become a world-class health management company caring for whole communities through consumer platforms and an integrated delivery network, Weinman says. "While we still pursue traditional care delivery M&A opportunities through the merger and acquisition of health systems, hospitals, and medical groups, our focus on strategic partnerships that complement or support our population health management vision has resulted in expanding interests and relationships in the insurance, ambulatory, health management, telehealth, retail, and consumer sectors," he says.

Communicating complex plans

Downers Grove, Illinois–based DuPage Medical Group is implementing strategic planning initiatives on several fronts, CEO Michael Kasper says. With 2015 net revenue slated at $575 million and this year's net revenue expected to exceed $600 million, he says DuPage is reaping the benefits of not only setting successful strategies but also effectively communicating strategic goals to the physician practice's doctors, who hold a 100% ownership stake in the organization.

"To take an organization that is physician-owned and -directed, and move it in any direction, it takes time and effort. You need to make sure you are communicating early and often," Kasper says.

With a $250 million investment deal announced in December 2015 that is designed to expand DuPage's practice management company, DuPage Practice Management Solutions/Midwest Physician Administrative Services, and plans to accelerate delivery of telemedicine services, Kasper and his leadership team have faced a daunting internal communications challenge over the past year, he says. "If you don't communicate effectively, it could put the right answer at risk."

The growth-oriented investment deal that DuPage cut in December with Boston-based Summit Partners "is at the heart of our historic strategic planning process and the future of the practice," Kasper says.

DuPage has set two strategic goals for the infusion of $250 million in equity and debt from Summit Partners, he says: creating an "equity engine" financial model at the physician practice as opposed to a financial model pinned entirely on individualized compensation for physicians, and expanding the revenue streams at DuPage's practice management company.

Growing the practice management company's capabilities is a crucial element to sustaining broader organizational growth, Kasper says. "Our retained earnings model was not going to be enough to sustain the growth of the organization."

The equity boost from Summit Partners is designed to help DuPage shift away from the organization's "faux equity" financial model, he says. "Before this deal, partners put in $11,000 when they joined the practice, then partners got $11,000 when they left. … Expanding our medical services organization has created an opportunity for equity value."

DuPage has set an aggressive strategic goal for expansion of the practice's telemedicine services, Kasper says. "Our goal is to be the industry leader in virtual healthcare—not just in technology and tools but also leading the education of patients to accept the telehealth channel."

Patients had about 3,000 telemedicine visits with DuPage physicians in 2015, he says. "We would like to see that grow exponentially."

The biggest bang for physician practices seeking to increase telemedicine capabilities is in the area of follow-up visits with patients after a surgical procedure or other treatment at an acute care facility, Kasper says. "There has to be some level of oversight, and someone has to see the patient. In many cases, it is not feasible for doctors or patients to have 14 daily visits postdischarge from a hospital. I don't want a high-risk, fragile patient on the road driving to see the doctor."

The DuPage leadership team is well aware that achieving the practice's telemedicine strategic goal will take significant amounts of time, effort, and financial resources. "We have a long way to go. We're the only industry that still relies on pagers and facsimile machines. As long as we are using 1980s technology, we cannot call ourselves a technologically advanced industry," he says.

Ironically, one of the most difficult strategic planning obstacles at DuPage has been convincing the practice's physician owners to embrace innovations that will supplant healthcare service delivery models that have historically generated strong financial results, Kasper says. "It's always hard to change when you're successful, and this was a very successful organization. We did not have a burning platform, but we were able to convince our physicians that the burning platform was around the corner."