Your Health System Is Ready for the Future—But Is Your Leadership Structure?

Over the past several years, health systems have become much larger, more complex organizations. This evolution is the result of myriad changes across the industry, including the ongoing movement toward risk-based payment, dramatic shifts in sites of care from inpatient to outpatient, and massive consolidation in the provider marketplace. 

The diverse entities that now make up the typical health system—including physician practices, outpatient surgery centers, and post-acute facilities—are no longer minor satellites in the orbit of inpatient hospitals. Rather, they play an increasingly important role, not only in serving the care needs of the community, but also in ensuring the long-term viability of the health system.

Looking ahead, health system leaders face what promises to be a difficult and sustained challenge to margins, as revenue and volume continue to move out of the hospital and into these nonhospital entities. Health systems will need to align leaders from all parts of the organization around a shared vision for clinical practice, operations, and financial sustainability, and then equip their leadership teams to actualize that vision—year over year over year. They also will need to know how to hold these aligned leaders accountable and develop the right infrastructure to enable these leaders to collaborate in driving high performance across all parts of the system.

Accountability and Alignment for Business Units

Many health systems now structure their leadership around key business units: hospitals, long-term care, ambulatory facilities, and physician networks. Larger systems may have a regional structure in which the various entities in a region are led by a regional leadership team. In either case, leaders must be held accountable not only for the performance of their own individual business unit or region, but also for systemwide results. 

It is critical that all goals be clearly communicated and specific, measurable, and time sensitive—one such goal, for example, might be “to achieve the top decile in a federally reported metric by year end.” Leaders must be responsible for their individual entity’s margin, growth, quality, and outcomes performance. It is equally important to align leaders to overall performance through risks and rewards at the system level. For example, all business unit leaders have a performance goal of 5 percent operating margin at the system level—which can be achieved only through their collective efforts.

Effective Oversight and Support

A leadership structure with clear accountability for performance is important, but it is only part of the equation for successful performance. Leaders need to understand not only what they must achieve, but also how they can work together to do so. A highly focused performance oversight process can address both considerations.

Some organizations institute a system operating calendar to collect performance data, actualize it into meaningful results, and share it. With such a tool, everyone has clear visibility into organizational expectations and knows his or her own role, as well as the goals and corresponding risks/rewards. A schedule of routine business reviews, whether monthly or quarterly, offers an especially effective means for monitoring business unit results with an eye on the year-end number. Some institutions even schedule the dates for the quarterly reviews a full year in advance so that they are firmly embedded into the overall leadership agenda.

These business review meetings bring together front-line business unit leaders with critical system leadership, typically the CEO, CFO, COO, CMO (and sometimes the CNO and vice president of HR). Having all these leaders in the room allows problems to be brought to the surface, understood, and addressed in the moment, before they escalate. These meetings also serve to break down silos across the system and enable business unit leaders to share information and work together on effective solutions.

As an example, at a southern health system, the director of a successful wound care center recently had received seed money to open a second location. After two quarterly reviews, the site was 20 percent below its targets for volume and revenue. In response to questions from the CMO, the site director noted that vascular surgeons from the system’s multispecialty group simply were not referring there. The CMO took ownership of diagnosing the situation, and soon visited with the surgeons in question. Following several conversations, the CMO offered one of the surgeons a position as a codirector of the center. The surgeon then felt she had some stake in the site and input, and she and her colleagues began referring patients there. The site soon met its goals. 

A leadership model centered around high-performing business units aligned to system financial imperatives creates a results-oriented environment. And an infrastructure for top leadership to communicate regularly, evaluate quarterly, and reward outstanding performance provides support and an incentive for motivated leaders to execute on their goals. Together, these mechanisms enable organizations to achieve and sustain high performance for the future.

John Johnston, CPA, MHA, is a client partner at Optum Advisory Services, Nashville, Tenn.

Vincent Joseph, MHA, FACHE, is a senior advisor at Optum Advisory Services, Nashville, Tenn., and a healthcare executive with more than 30 years of system leadership experience.