MAT/543 MAT543 MAT 543 WEEK 10 Homework

MAT 543 WEEK 10 Homework

Week 10 Homework

·         Homework

o        Chapter 15: Exercises 15-1 through 15-3 (page 314 of the text)

Chapter 15 Quantitative Analysis in Strategic Planning Healthcare organizations must evolve to thrive, and this evolution is more likely to succeed if guided by a strategic plan. Quantitative analysis is essential for strategic planning. In this chapter, examples of the application of quantitative tools will be discussed in the context of creating a strategic plan for a healthcare organization. LEARNING OBJECTIVES 1. To differentiate and define various types of planning. 2. To define the service area for an organization. 3. To identify key elements of a strategic plan, and to use quantitative analytic techniques to develop a useful strategic planning database. REAL WORLD SCENARIO Groveland Clinic is an independent group practice comprised of 27 physicians in several specialties, including internal medicine, pediatrics, obstetrics/gynecology, cardiology, endocrinology, neurology, and sports medicine, as well as three physician assistants, and numerous ancillary health services. The clinic was incorporated approximately 15 years ago and is currently the largest independent practice association in the state. Facing substantial changes in the community as well as increased competition from other providers locally, Brent Callcraft, the administrator of the clinic, has been charged by the board of directors to develop a strategy for the organization to enhance its competitive position for the next 5 to 10 years. Callcraft knows that he must consider many factors to devise such a strategy, and that it will be a significant undertaking. Meeting with Dr. Wanda Wells, the clinic’s medical director, Callcraft is asked to assemble a small working group to identify critical data elements that must be compiled, and to undertake the analysis. LEARNING OBJECTIVE 1: TO DIFFERENTIATE AND DEFINE VARIOUS TYPES OF PLANNING Planning is a systematic approach to achieving predetermined targeted future results or outcomes by making resource allocation decisions and identifying activities or actions to be completed. There are different types of planning, including community, operational, business, master or facility/space, and strategic, which differ in terms of their objective, unit of analysis, and time horizon. Community planning is oriented toward identifying strategies and programs for communities or population groups. Generally speaking, this type of planning has a relatively long time horizon (10 years), because a lot of community programs take many years to evolve and become sustainable. Operational planning is oriented toward the organizational or even suborganizational level (e.g., a department within a hospital). This type of planning has a short time frame, usually less than 1 year, and is focused on the day-to-day activities that must be completed to implement strategy. Business planning can be thought of as a blueprint designed to guide a program, initiative, or business through a period of about 5 years. Typically, business plans are developed to frame a startup activity, outlining its purpose and objective, as well as marketing and financial strategies. Business plans include statements, known as pro forma statements, which project the expected financial results for the activity over the plan’s time horizon. Business plans should be developed for all startup activities and are typically required when seeking capital investment from outside the organization (e.g., obtaining a business loan). Planning that focuses on the physical space, such as buildings, is known as master, facility, or space planning. This type of planning takes into account the amount and type of space required for particular activities, and also deals with issues related to proximity among physical spaces. For example, a master plan would consider how much space is needed for an emergency department within a hospital, what special equipment or physical capabilities might be required in that space, and where that space should be located in the hospital (e.g., first floor, relatively proximate to the radiology department, with easy access to the surgical suite, etc.). The time horizon for this type of planning is governed by the length of time the space is likely to be useful; in many cases this can be quite long (e.g., 10–20 years), although updated master plans will certainly be required. Strategic planning is used to articulate an organization’s mission, goals, and objectives, and to define a set of activities to achieve these goals and objectives, over a time horizon of approximately 5 to 10 years. The activities are based on a reasoned, evidence-based approach to allocating resources. If an organization is fortunate enough to have unlimited resources, strategic planning decisions would not need to be made. Obviously, such an organization does not exist. A simple way of defining strategic planning is to think of it as answering three questions: 1. Where do we want to be? 2. Where are we now? 3. What’s the best way of getting from where we are to where we want to be? Table 15-1 Major Types of Planning Type of Planning Major Focus Time Horizon Community Community or population group 10 years Operational Organization or sub-organization—day-to-day 1 year Business Organization or sub-organization—assess sustainability and use to acquire external funding 5 years Master Space issues, including proximity among units in facility 10–20 years Strategic Organization or sub-organization resource allocation decisions to achieve goals, objectives 5 years This chapter deals primarily with strategic planning, although aspects of the other types of planning are also touched upon. Table 15-1 differentiates among the essential types of planning. LEARNING OBJECTIVE 2: TO DEFINE THE SERVICE AREA FOR AN ORGANIZATION It is particularly important for a healthcare organization to identify who uses or might potentially use the organization’s services in the future. This process is known as defining the service area. Many attributes can be used to define a service area for a healthcare organization. For example, a pediatric practice typically serves patients under the age of 18, obstetrics/gynecology specialists provide care for women, cardiologists focus on conditions pertaining to the heart, etc. In each of these instances the principal population served by the clinician is defined by the patient’s age (pediatrics), gender (obstetrics/gynecology), or body system (cardiology). However, in a more general sense the service area of a healthcare organization, program, or service may be defined geographically. For most organizations or services, the majority of clients or patients come from a definable area. This area includes those communities that are important to the healthcare organization in that they account for a substantial portion of the organization’s business, as well as those communities that are especially dependent upon the healthcare organization for services. Identifying this service area is important for an organization, because it must make sure that the needs and interests of the population comprising the service area are met. In the next several paragraphs an approach for defining a service area is presented. Determine the Relative Importance of Each Community to Your Organization Healthcare organizations must determine where their patients or clients are coming from, a process known as patient origin analysis. For example, suppose you are completing a patient origin analysis for a physician group, Gladwell Medicine. In this case, you would analyze where the patients who utilize the group reside, for example, by zip code. Table 15-2 displays the number and percentage of total patient visits using Gladwell Medicine, arrayed by zip code in descending order. According to these data, more than 22% of Gladwell’s patients come from XXXX1, nearly 19% from XXXX2, etc. Using the setting of a physician practice, the formula for computing patient origin is: Patient Origin for Community A = Patient Visits to Your Organization from Community A Total Patient Visits to Your Practice Obviously, it is critical for Gladwell to know where its patients are coming from and to identify and serve the needs of this group. There is no percentage that is used strictly to define an organization’s service area. However, generally the service area is considered to account for 60% to 75% of the total patient activity. For Gladwell, four zip codes account for more than 70% of patient visits. In addition, notice that there is a relatively large dropoff in percentage between zip codes XXXX4 and XXXX5. This drop–off, or natural “breakpoint,” frequently occurs in patient origin analyses. This suggests that there is a notable difference between these two zip codes in terms of the percentage of patients contributed. By convention, we would include the zip codes above the breakpoint in the service area. Taken as a whole, the patient origin analysis suggests that the first four zip codes represent a substantially more important area to Gladwell than the others. Table 15-2 Patient Origin Analysis for Gladwell Medicine, by Zip Code (FY 2007–2008) Zip Code Number of Patient Visits Percentage of Total Patient Visits Cumulative Percent of Total Patient Visits XXXX1  234  22.4% 22.4% XXXX2  196  18.7  41.1  XXXX3  174  16.6  57.7  XXXX4  129  12.3  70.0  XXXX5   80   7.6  77.6  XXXX6   74   7.1  84.7  XXXX7   41   3.9  88.6  XXXX8   19   1.8  90.4  XXXX9   14   1.3  91.7  OTHER   85   8.1  99.8  TOTAL 1046 100     Determine the Relative Importance of Your Organization to Each Community Not only is it essential to assess how important each community is to your organization, but it is also important to assess your organization’s relative importance to the communities. For example, a zip code with a relatively low population may contribute a small percentage of your business; however, the majority of the population may look to you for care. This analysis is known as market share analysis. Again using the example of the Gladwell practice, the formula for computing market share for community A is: Market Share of Community A = Patient Visits to Your Organization from Community A Patient Visits to All Organizations of Your Type from Community A Table 15-3 displays the utilization data of the main zip codes from which Gladwell patients are drawn. Note: the XXX in columns for providers A, B, and C indicate that these providers treat patients from other zip codes beyond the nine being analyzed. However, these data are not pertinent to completing a market share analysis for Gladwell. Evaluating Table 15-3, we see that residents of zip code XXXX1 made 528 visits to physician offices in the last fiscal year. Of this total, 234 or 44.3% were to Gladwell. We say that Gladwell’s market share of zip code XXXX1 is 44.3%. Table 15-4 displays the market share for Gladwell in each of the zip codes of interest. Based on these data it is apparent that Gladwell Medical is a very important healthcare resource for residents of zip code XXXX7, where it holds a market share of 44.6%. Table 15-3 Visits, by Provider and Zip Code (FY 2007–2008) Patient Visits Zip Code Gladwell Provider A Provider B Provider C Total XXXX1 234 119  65 110  528 XXXX2 196  28 145 682 1051 XXXX3 174 109  35  72  390 XXXX4 129  59 131   7  326 XXXX5  80 541 129  74  824 XXXX6  74  59 365 291  789 XXXX7  41  15   7  29   92 XXXX8  19  55 198 704  976 XXXX9  14  29 577 308  928 OTHER  85 XXX XXXXXX  XXX It is important for a healthcare organization to include in its service area those communities (or other population groupings) for which the organization’s services are important, as well as the communities that are important to the organization, both of which may be measured by utilization patterns. Typically there is substantial overlap between these categorizations. That is, organizations in which we are “important,” as reflected by a high market share, typically also account for relatively high percentages of our business. As with patient origin analysis, there is no minimum market share level above which a zip code would be included in the organization’s service area; however, it is generally wise to take a conservative approach to defining the area (i.e., it is more prudent, strategically, to err on the side of including more communities, rather than excluding them). As a general guideline, if the organization has a market share of more than 15% in a community, the community should be included in the service area. It should be noted that in urban areas with dense populations and multiple providers, market shares will be substantially lower than the levels shown in this example; this fact must be taken into account.

EXERCISES 15-1 Using the following data set on hospital admissions, define the service area for Hospital A, based only on quantitative factors (Table 15-5). 15-2 Compute the target bed capacity of Cheswick Community Hospital 10 years from now, based on the following information: Assume current population of Cheswick Community Hospital’s service area = 145,000 Assume projected population increase of 8% in service area over the next 10 years. Table 15-5 Hospital Admissions, by Community Community Hospital A Hospital B Hospital C Other Hospitals North  45  64  76 123 South 159 324  12 521 East  65  24 137 311 West 145  68  95 113 Central  32  56  78 159 Upper  29  84  45 814 Lower  37  14   8  57 Assume a future admission rate per 1000 of 102. Assume average length of stay of 4.7 days in 10 years. Assume a target occupancy rate of 78% in 10 years. 15-3 Newgroveton is a community of 445,000. In the most recent year, there were 750 new cases of disease A in the community. Assume the expected incidence rate for disease A is 245 per 100,000 people. Was the community’s experience better or worse than expected? Explain your answer.