Case Study SMDC

Best Practices Conference
Mobilizing Strategic Change

Using the Balanced Scorecard
(videotaped presentation)
Mary A. Johnson
Chief Operating Officer
St. Marys / Duluth Clinic Health System
April 10-11, 2002 Cambridge, MA

Balanced Scorecard Collaborative, Inc. 55 Old Bedford Road Lincoln, MA 01773 Tel: 781.259.3737 Fax: 781.259.3389 bscol.com
Todays Presentation
SMDC overview
Pre-BSC Strategic Planning
Beginnings, evolution of BSC process and
results
A new era of accountability
Judge the results
2
Health System Overview
St. Marys Medical Center- 380 beds

Miller Dwan Medical Center - 166 beds
St. Marys Hospital of Superior - 55 beds
Pine Medical Center- 30 acute beds, 86 skilled nursing
beds
More than 6,000 employees
352 employed physicians representing 40 medical
specialties
25 community clinics throughout northern Minnesota,
Wisconsin, and Upper Michigan
3
Strategic Planning Before BSC

As a newly merged organization, we
engaged a well-respected, national strategic
planning firm to help develop our first
strategic plan.
Resulted In...
A very comprehensive plan -- 350+ initiatives!
Contained no real accountability for implementation.
An essentially political process. Anyone who had an
agenda got their item in the plan.
Consequently...
The Board of Directors remained unfocused
and confused about their role.
Management and employees had no clue about
the strategic direction of the organization.
Gradual decline of margin in a 2% world
because the organization had no strategic
focus.
Other factors at play:

Changes in the external healthcare
environment, such as the Balanced Budget
Act.
Coupled with the instability of a newly merged
organization.
How we discovered the BSC

CEO read Harvard Business Review article
Executive team embarks on first BSC
1st Year Progress and Pitfalls

Progress
Began tracking organizational performance on more
than a financial basis.
Pitfalls
Functioned primarily as a new kind of dashboard
report.
Rather than a new way of running the organization, was
simply one more thing to do every month.
No connectivity of the measures to drive organizational
success.
10
FY1999 CORPORATE LEVEL BALANCED SCORECARD

Financial
Customer
Operational
People
Technical
Indicator
Target
FY99
Final
Indicator
Target
Stat
-us
Indicator
Target
Stat
-us
Indicator
Target
Stat
-us
Indicator
Target
Status
Adjusted
Discharges
23,890
23,592
Patient
Satisfaction
Arranging
Care
Determine outpatient
phone model,
conduct pilots
Cultural
Development
Complete
communications
strategy
Quality
Improvement
Implement
system-wide
governance
structure
Encounters
912,188
892,243
Employer
Satisfaction
Determine outpatient
model for
registration &
scheduling
Complete
physician
survey
Complete
external quality
report in CY
1999
CY
Cost per
Adjusted
Discharge
6,964
7,535
HEDIS
Indicators
Determine model for

patient delivery
system for clinical
divisions
Complete
employee
survey
Meet or exceed
standards for
SMDC
accreditation
Cost per
Encounter
215
252
Community
Service
Choose key
focus areas
for
improvement
Complete
survey
development in CY
1999
Select
indicators
for
development plan
Complete
reporting
process and
inventory
Complete system
strategy for
ambulatory surgery
Complete IT
strategic plan
in CY 1999
CY
Operating
Margin
2.0
1.3
Community Awareness
Complete
survey in
CY 1999
CY
Complete plan for

decentralized coding
and charge entry
Complete
plan to
maintain
Catholicity
Accomplish pay
equity
Complete Y2K
compliance by
12/99
CY
Excess
Margin
3.8
3.3
Market
Share
Complete
baseline
Complete feasibility
study for a womens
health center
Synchronize
employee
benefits
Medical
Education
& Research
Complete
report of
funded grants
and
publications
Days Cash
on Hand
103.6
108.6
Complete plan for a

geriatrics program
Facilities
Planning
Complete
Perkins & Will
plan
Days in
Accounts
Receivable
Return on
Investment
77.7
82.8
3.4
2.9
CY
Providing
Care
Documenting
and
Tracking
Care
Innovation and
Program
Development
Employee
Relations
Strategy
Information
Technology
C = task completed; CY = Calendar Year 1999 task; M = task modified

Finance section: Target met; Target not met
Robert\h\Marketing\Balanced Scorecard\BSC Summary 4 Clean
11
The Problem
We were trying to work with a performance
measurement tool in advance of crafting a
focused business strategy.
12
The Organization was Ready for

a New Approach
Old healthcare strategy formulation didnt work
and we needed to look outside the healthcare
industry.
The Senior Team attended a Balanced Scorecard
Collaborative conference, then spent time studying
and discussing the principles.
Decision was made to take a different approach to
strategy development.
Engage the BSC Collaborative to work with us to
create a strategy map.
13
The New Strategy Design Process;

Building the Strategy Map
We began to view ourselves as a business and
identified our high margin, market opportunities,
which shaped the financial dimension of our
strategy map.
This increased margin opportunity would then
allow us to reinvest in the non-growth areas of the
organization.
This intentional growth strategy would help us be
more honest internally about where the
organization needed to grow.
14
Customer Dimension
Value propositions provided clarity
Primary Care
Patients
Specialty Care
Patients
Referring
Providers
Payers
Customer
Intimacy
Product
Leadership
Operational
Excellence
15
Cause and Effect Relationships

Implement
Managed Growth
Specialty Care Patients

Who Value
Leading Edge Technology

and Expertise
Continually Develop
Clinical Excellence
Align
Research
Priorities
Provided the
jumping off point for
understanding the
strategic drivers that
deliver on customer
value and achieve
successful financial
performance.
Develop Leading
Programs/Techniques
16
FY 2002 Strategy Map

Vision:
SMDC is a values-driven, integrated organization which will be recognized for excellence in
customer service, quality patient care, financial strength, and
support of community health
Build a Strong Financial Base to Sustain our
Mission and Achieve our Vision
Implement Managed
Growth
FINANCIAL
To financially sustain our Mission,
on what must we focus?
Deliver Cost Efficient Care
Maximize High Margin,

Market Opportunities 1
Specialty Care Patients / Referring

Physicians
Primary Care Patients

CUSTOMER
To achieve our Vision,
how should we appear to
our customers?
Personal
relationships
Excellent service
Leading
edge technology
Leading
edge expertise
Innovative
programs
Continually Develop Clinical

Excellence
Provide Outstanding
Customer Service
Payers
Strive for Operational

Excellence
Clinical Practice
Management
INTERNAL
To satisfy our customers, at
which operational processes
must we excel?
Easy Access
Align research priorities with

targeted growth areas
On-Time
Service
Low cost
service
Optimize Staff Efficiency
Redesign operations for

efficiency and
effectiveness
Develop state of the art
techniques and programs
LEARNING &
GROWTH
How will we sustain
our ability to change
and improve?
Instill a Climate for Change

Clearly communicate expectations
and accountabilities aligned with
strategic priorities
Instill a climate of pride in

the organization &
commitment to the mission
Implement Technology
Implement technology to
support internal processes
Skill & Competency Development

Develop Critical
Staffing Resource
Plans
Develop a
Quality Mindset
17
SMDC
Balanced Scorecard Initiatives FY2002
Objectives
Financial
Build a Strong Financial Base
Implement Managed Growth
Customer
Targets
ROI on growth initiatives

Market Share (Acute/Ambulatory) (Annual)
44.8%
32.6% Acute
53.7% Ambulatory
Operating expense(cost)/adjusted discharge*
$4,676
Drug expense/encounter
$7.65
Drug expense/adjusted discharge*
$135
% compliance to formulary
80%
Supply expense/adjusted discharge*

Provider Patient Satisfaction (Semi-Annual)
Specialty Care Patients /

Referring Physicians
Growth area market share (Annual)

Acute care patient satisfaction (Quarterly)
Payers
% BC/BS member satisfaction
Establish baseline
Satisfaction with lobby wait times

% of providers that meet appointment access standard
Telephone access
% clinics with open access
% clinical depts with Quality Plans
29.3% excellent rating

70%
47% of clinics meet standard
50%
100%
% of patients on approved clinical pathways
70%
# of research grants & % in targeted growth areas

% sections meeting encounter targets/day
Diversion
Length of Stay
RVU/non-provider FTE
FTE/adjusted discharge*
Salary cost/adjusted discharge* (SMMC & SMHS)
Salary cost/Encounter
Days in Accounts Receivables;
Acute
Ambulatory
Bad Debt
Charitable Care (Semi-Annual)
60%
100%
5 hrs/month
4.32 days
849
4.97
$2,573
$69
Internal

Excellence

Excellence
Primary Care Market Share (Acute/Ambulatory) (Annual)
60 Acute
73 - Ambulatory
2.1%
$5.8 million
% of employees who can identify the organizations focus

areas (Quarterly)
90%
Employee/physician satisfaction
Performance to Values In Action Plan
Establish baseline
100% on track
Technology
Performance to EPIC plan
100% on track
Skill & Competency

Development
% growth areas strategic staffing positions filled (Quarterly)

Performance to Quality Education and Accountability Plan
(Quarterly)
100%
100% on track
Climate for Change and

Commitment
* Case mix adjusted
Initiatives
2%
9%
$693
48% excellent rating
31.5% Acute
52% Ambulatory
39.9% Acute
57.8% Ambulatory
44% excellent rating
Provide Outstanding Customer

Service
Learning & Growth
Measures
Operating Margin (Budget/Margin Improvement Goal)
Non-Operating Return (Budget)
Implement growth strategies in focused areas:

Cardiothoracic
Orthopedics
Neurosurgery
Cancer
Gastroenterology
Radiology
Surgery
Implement Virginia campus and business plan
Implement phase 2 Superior campus business plan
Implement regional economic model
Supply standardization & expense reduction
Formulary Expansion & Drug Cost reduction
Complete full development & implementation of perpetual inventory system
Develop & implement anesthesia care delivery model
Implement Quality Plans to improve overall patient satisfaction

Define SMDC value to the market and implement marketing plan
Develop & implement Duluth campus way finding plan

Continue implementation of open access
Develop & implement Duluth campus facilities refurbishing plan
Develop & implement new clinical pathways recommended by the IQC
Implement Primary Care Committee initiatives
Develop & implement patient safety program
Continue implementation of volume and schedule management system

Implement diversion avoidance plan
Implement hospital medicine service
Implement a consistent model of care for patients in critical care units
Develop & implement HIPAA compliance program
Continue development of BSC across all departments

Organization wide program regarding commitment & prideValues In Action
Implement Roots of Our Caring Program
Implement Employee & Physician Satisfaction survey
Create improved support structure for physicians and other providers
Implement Phase I of EPIC for practice management suite
Cost benefit analysis of time & attendance software; prepare for
implementation
Revise nursing structure and delivery model
Implement strategic staffing & recruitment plans
Implement quality education and accountability model
Develop information management department
18
Cascading the scorecard

methodology throughout
the organization
19
*1Surgery Growth Area - Strategy Map

Vision:
Maximize Operating Margins
Financial
Achieve Operational
Excellence
Manage Our Growth
Perspective
PRODUCT LEADERSHIP AND OPERATIONAL EXCELLENCE

Customer
Perspective
Build positive
relationships with
primary & referring
MDs
Provide full continuum

of care
Sustain superior
position in trauma
care
Improve care
across
continuum
Internal
Perspective
Provide state of
the art technology
and facilities
Deliver high quality,

timely care
OPERATIONAL PROCESSES
Increase
general surgery
in targeted
growth areas
Develop
surgical
critical care
Define general
surgery growth
opportunities
Develop outreach
& communication
processes
Redesign
operations for
efficiency and
effectiveness
Implement next
generation
surgical
techniques
Develop further
specialization
Design state of
the art facilities
Coordinate &
integrate
services
A MOTIVATED AND PREPARED WORKFORCE

Learning and
Growth
The right people with

the right skills
*1 Trauma & Surgical Care, Vascular, General Surgery
to provide state of the
art services and
efficient care delivery
20
Radiology Strategy Map

Vision:
Maximize Operating Margins
Financial
Target Growth
Opportunities
Perspective
Achieve Operational
Excellence
TECHNOLOGY LEADERSHIP AND OPERATIONAL EXCELLENCE

Customer
Perspective
Offer Full Range

of Imaging
Services
Deliver Fast High

Quality Service
Provide Timely
Access
OPERATIONAL PROCESSES
Demonstrate
Clinical
Excellence
Create State of
the Art
Technology
Internal
Perspective
Achieve
Accreditation for all
Specialized
Technologies
Improve Current
Throughput
Design State of
the Art Facilities
Develop
Coordinated/Integrated
Staff Coverage
Create State of the

Art Information
Management
A MOTIVATED AND PREPARED WORKFORCE

Learning and
Growth
Recruit & Retain

Professional &
Technical Staff
Invest in Learning for

Professional and
Technical Staff
Provide Access to
Latest Technology
Applications
Develop
Communication Plan
Imaging
21
Regional Clinics Strategy Map

and Balanced Scorecard
22
FY 2002 Strategy Map
= DC Deer River
Focused Objectives
Vision:
Implement Managed
Growth
FINANCIAL


Physicians

CUSTOMER
our customers?
Personal
relationships
Excellent service
Leading
edge technology
Leading
edge expertise

Excellence
Provide Outstanding
Customer Service

must we excel?
Easy Access
Low cost
service

efficiency and
effectiveness

On-Time
Service
Innovative
programs

Excellence
Clinical Practice
Management
INTERNAL
Payers

LEARNING &
GROWTH
How will we sustain
and improve?
Instill a Climate for Change and Commitment


the organization &

Develop Critical
Staffing Resource
Plans
Develop a
Quality Mindset
23
SMDC Deer River FY02

Balanced Scorecard
Customer
Financial
Objective
Measure
Build a Strong Financial Base
Contribution Margin
Salary Costs/Encounter
Salary Costs =/< $35 per Enc.
Supply Costs/Encounter
Supply Cost =/< $8 per Enc. FY02
Excellent Service
Customer Satisfaction with

Telephone Access
Provide Outstanding Customer

Service
% of Providers on Open
Access
Internal
Telephone Access
Learning & Growth
Full Year Target
Improve margin >/= 10% over FY01
Initiatives
Recruitment of an MD/Provider. Initiate services at Remer 5 days /

week. Evaluate new or growth service lines and outer ring revenue
resources. Explore opportunities for radiology revenue sharing.
Scheduling Initiative
Supply Initiative
End
40%
70%
No trunk line busy mins.
Advanced Access Initiative

ACD Initiatives
Strive for Operational Excellence
Encounter Targets Met
100%
Volume Management Initiative
Clinical Practice Management
% Diabetic Flow Sheet

Utilized
60%
Clinical Pathway Initiative
Instill a Climate for Change and

Commitment
Team Meetings
% Employees completing
Annual Competency
Requirements
50%
Develop and Implement Competency Plan
% Employees / Providers
Participating in IT Initiatives
90%
Thin Client Initiative

Epic Preparation
14
Create & follow meeting schedule. Keep staff appraised of new

developments, practice management data & new operational
models through meetings, informal comm. & memos.
24
Relationship of the Map to

Annual Initiatives
Annually, at budget time, we revisit the
strategy map to reaffirm strategic objectives
or make minor changes
review measures to assure they are truly
informing us of performance
set targets for next fiscal year
develop initiatives to deliver the targets
25
A New Era Of Accountability

Monthly executive leadership Strategic
Operating Review meetings:
review monthly performance indicators
discuss measures that are not meeting target and
course correction plans
majority of the meeting spent discussing strategic
issues within the context of our strategy map
VP-level bi-weekly initiative progress

meetings
26
A New Era Of Accountability

Line management and employees
Organizational performance, strategic direction
meetings held quarterly
Weekly 1/2 hour management briefings
Bi-annual employee forums
All meetings use the framework of the

strategy map and scorecard to communicate
priorities and report on performance
Monthly results reported to the whole
organization via the intranet
27
FY 2002 Strategy Map with Measures

Vision:
Implement Managed
Operating Margin
Growth
FINANCIAL

Market Share
ROI on growth initiatives
CUSTOMER
our customers?
Personal
relationships
Excellent service
Leading
edge technology
Leading
edge expertise
Growth area market

share
Acute care patient
satisfaction
Primary care market

share
Provider patient
satisfaction
% Clinical Depts with Quality

Plans
INTERNAL
Appt. access
% Clinics with
open access
LEARNING &
GROWTH
How will we sustain
and improve?

On-Time
Service
# Research grants and

% in targeted growth areas
Phone access
Satisfaction with
wait times
%Employees who can identify

organizations focus areas
1 Cardiothoracic,

the organization &
Employee/Physician satisfaction
Orthopedics, Neurosurgery, Cancer, Gastroenterology, Surgery/Trauma, Radiology
Innovative
programs
Low cost
service

Excellence
Clinical Practice
Management
% patients on
approved clinical
pathways
Strategic Program
Development
Instill a Climate for Change and Commitment

Payers
% BC/BS Member Satisfaction

Excellence
Provide Outstanding
Customer Service

must we excel?
Easy Access
Non-Operating Return

Physicians
Cost/adjusted discharge
Drug cost/encounter
Drug cost/adj. dischg.
% Formulary Compliance
Supply cost/adj. Dischg.
FTE/adjusted discharge
Salary cost/Adjusted
discharge
% sections meeting encounter targets/day
Hours on diversion
LOS
Days in A/R Acute & Ambulatory
Bad debt
Charitable care $ spent

efficiency and
effectiveness

Develop Critical
Staffing Resource
Plans
% Growth areas
strategic staffing
positions filled
Develop a
Quality Mindset
Performance to
Quality Education and
accountability plan 28
SMDC Balanced Scorecard

FY02 YTD
Acountable
Sr VP
Freq
Operating Margin $
Non-Operating Return $
Cost/adjusted discharge *
Drug cost/encounter
Drug cost/adjusted discharge *
Supply cost/adjusted discharge *
THK
THK
MAJ
MAJ
MAJ
MAJ
M
M
M
M
M
M
Acute Care Patient Satisfaction SMMC
MAJ
Acute Care Patient Satisfaction SMHS
MAJ
Appointment Access
Phone Access
% Patients on Approved Clinical Pathways
FTE's Per 100 Adjusted Discharge*
Salary cost/Adjusted discharge*
% Sections meeting encounter targets/day
Hours on Diversion
Length of Stay
Days in accounts receivable; ambulatory
Days in accounts receivable; acute
Bad debt
Charitable care $ spent
MAJ
MAJ
MAJ
MAJ
MAJ
MAJ
MAJ
TCN
MAJ
MAJ
THK
THK
THK
THK
M
M
M
M
M
M
M
M
M
M
M
M
M
M
MAJ
THK
LEARNING
INTERNAL
CUSTOMER
FINANCIAL
Measure
Performance to Quality Education and

Accountability Plan
MAJ
Actual
July
Actual
Aug
Actual
Sep
Actual
Oct
Actual
Nov
Actual
YTD
Target
YTD
49.2%
49.2%
44%
56.5%
56.5%
44%
Proprietary Information
50%
25%
N/A
5.25
58%
12%
78%
4.84
69%
25%
87%
4.83
74%
28%
75%
4.93
66%
34%
72%
5.11
66%
34%
72%
5.01
70%(Q2 Target)
37%(Q2 Target)
55% (Q2 Target)
5.50
814
N/A
58
4.75
59.67
50.57
2.17%
733
N/A
117
4.45
59.85
53.52
2.08%
836
N/A
28
4.70
65.77
59.64
2.55%
1,014
803
65
4.60
59.02
54.10
2.11%
11
4.44
60.24
55.60
1.33%
836
N/A
11
4.59
60.24
55.60
2.06%
830
TBD
20(Q2 Target)
4.32
73
60
2.08%
Milestone met
Milestone met
Milestone met
Milestone met Milestone met
Milestone met
On plan
Milestone met
Milestone met
Milestone met
On plan
Milestone met
Milestone met

Milestone met
Milestone met
Milestone met
On plan
Status
* Case Mix Adjusted

Status On Plan
Progress toward Plan
Off Plan
29
Judging the Results

A complete paradigm shift for developing and implementing
organizational strategy.
Increased executive, management, and physician/staff
accountability, but now with clearly defined targets.
Aligning the entire organization through a common set of well
understood objectives.
Platform for developing a single organizational culture.
Effective communication tool for governance, administration,
management, and employees.
Consistency of message.
$18 million dollar financial turnaround and return to
profitability.
Growth strategy success leading to sustained financial
performance at a level to fund new facilities
Improve patient satisfaction results
30

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What were the issues with the organization's initial strategic plan?

What were the issues with the organization's initial strategic plan?

How did the organization discover and begin implementing the Balanced Scorecard approach?

How did the organization discover and begin implementing the Balanced Scorecard approach?

Best Practices Conference

Mobilizing Strategic Change

April 10-11, 2002 Cambridge, MA

Health System Overview

St. Marys Medical Center- 380 beds

Strategic Planning Before BSC

Other factors at play:

How we discovered the BSC

1st Year Progress and Pitfalls

FY1999 CORPORATE LEVEL BALANCED SCORECARD

Determine model for

Complete plan for

Complete plan for a

C = task completed; CY = Calendar Year 1999 task; M = task modified

The Organization was Ready for

The New Strategy Design Process;

Cause and Effect Relationships

Specialty Care Patients

Leading Edge Technology

FY 2002 Strategy Map

Deliver Cost Efficient Care

Maximize High Margin,

Specialty Care Patients / Referring

Primary Care Patients

Continually Develop Clinical

Strive for Operational

Align research priorities with

Optimize Staff Efficiency

Redesign operations for

Instill a Climate for Change

Instill a climate of pride in

Skill & Competency Development

Build a Strong Financial Base

Implement Managed Growth

Deliver Cost Efficient Care

ROI on growth initiatives

Operating expense(cost)/adjusted discharge*

Drug expense/adjusted discharge*

Supply expense/adjusted discharge*

Specialty Care Patients /

Growth area market share (Annual)

% BC/BS member satisfaction

Satisfaction with lobby wait times

29.3% excellent rating

% of patients on approved clinical pathways

# of research grants & % in targeted growth areas

Primary Care Patients

Continually Develop Clinical

Strive for Operational

Primary Care Market Share (Acute/Ambulatory) (Annual)

% of employees who can identify the organizations focus

Performance to EPIC plan

Skill & Competency

% growth areas strategic staffing positions filled (Quarterly)