BY: SR. TERESA A. MALTBY, RSM, DMin, and JOHN F. TISCORNIA, MBA, CPA
Sr. Maltby is a member of the Leadership Team, Sisters of Mercy of the Americas,
Regional Community of Chicago; Mr. Tiscornia is U.S. director of Andersen's
Healthcare Practice.
In closing her keynote address to last spring's conference on integrity
in the health care market, Ann Neale, PhD, challenged the health care community
"to make of the market a graced instrument through which we advance the
noble ends of health care." Earlier in her address, Neale named some of
the fundamental differences between the approaches of a pure market economy
driven by self-interest and the classic concerns for human need and the common
good that have traditionally guided a member of the medical profession.
On one hand, Neale noted, is the pure market philosophy, which holds that "all
goods and services, including health care, are fungible products that can be
bought and sold. Nothing has intrinsic value." On the other hand, she observed,
medical people have a "calling, a quasi-religious commitment" to their
profession. Self-interest and material advancement take second place to the
concerns of patients and community, social concerns with intrinsic value.
Within Catholic health care, the distinction between the two approaches has
often been cast in terms of a tension between profession/ministry and margin/market.
Given the fundamental differences in perspective, Neale said, tension between
ministry and market is inevitable in the health care setting — but there
should be no question which is dominant. The teachings of the Catholic Church
make it clear that "the economy and production are for the good of the
person and the community, and not the other way around."
To better serve the community, Neale said, Catholic health care must develop
new models for managing its business. The ministry needs approaches that, first,
open the way for more productive dialogue between ministry and the market and,
second, reshape the way Catholic health care organizations allocate their time
and money. As an example of such an approach, she cited the new "Value
Dynamics" economic model developed by Andersen Worldwide SC.*
*Value Dynamics is a registered trademark of Andersen Worldwide SC.
Like any other business, a health care organization creates value by making
the most of its assets. Fundamentally, the value of a business is the value
of its assets, both tangible and intangible. This value is determined by the
marketplace and reflected in a for-profit's stock price and in the cost
of borrowing for a not-for-profit.
The balance sheet — the traditional way of measuring and accounting for
assets — lists only tangible assets, that is, physical and financial assets.
In the new economy, Andersen suggests, the most important assets are intangible
assets such as leadership, systems and processes, structure, and relationships
with employees, suppliers, and customers. These assets, however, are absent
from the balance sheet, and leaders frequently consider them difficult to measure
and, thus, to manage effectively. The Value Dynamics model is an alternative
framework that provides for measuring the impact of both tangible and intangible
assets on the organization's market value. As such, it may be a particularly
useful tool for transforming the debate between margin/market and profession/ministry
into a dialogue that results in strategies that leverage all the assets to create
value and express ministry values.
The Value Dynamics Approach
Managers are not unaware of intangible assets. In an Andersen survey of over
700 top-level executives, those involved in health care emphasized, first, customer
relationships and, second, hiring and retaining the right employees as the top
two elements of business success. Most of these same executives also reported
that the measurements and management of these critical sources of success in
their companies are not yet in place.1
The tendency to rely on the balance sheet and ignore the increasingly important
role of intangible assets has very practical implications, especially when it
comes to resource allocations.
Many health care organizations continue to invest heavily in such physical
assets as hospitals, ambulatory clinics, and medical offices. These assets are
tangible — they can be seen and touched and are thought to be stable and
durable. These investments are perceived to be less risky than investments in
such intangibles as people, ideas, and relationships. However, some of today's
most successful companies are creating new business models; these models allocate
resources for precisely those intangible assets that health care organizations
have often discussed but seldom put to maximum use. These companies realize
that the real risk in today's economy is to be too heavily invested
in tangible assets.
The Value Dynamics model can help health care leaders see how using the full
range of their assets can improve both the way they create value and the way
they express their values. The Value Dynamics approach demonstrates how intangible
assets are sources of economic value and how physical and financial assets are
tools for expressing the organization's ministry values.
The Value Dynamics approach focuses on the interaction of five asset categories
(see figure below):
- Physical
- Financial
- Employee and Supplier
- Customer
- Organization
The approach is designed to create strategy that leverages the full portfolio
of assets and relationships, owned and not owned, and to capture the value created
by the entire portfolio, not only those reflected on the balance sheet.
Some of the organizations cited in the following examples were familiar with
the Value Dynamics model and some were not. However, all of the examples demonstrate
how both tangible and intangible assets are used to increase market value.
Physical Assets
Physical assets, including land, buildings, equipment, and inventory, are tangible
evidence of value. All can be found on the balance sheet.
For many health care organizations, the value of their land and buildings is
the foundation of their financial structure. In a time of lower inpatient census
and changing physical plant needs, the goal of such organizations is to maximize
the use of these assets in ways that contribute to financial success. Some health
care facilities have gained additional revenues by renting out unneeded space
to commercial tenants.
In the Value Dynamics framework, physical assets can also be used to create
value as an expression of the values of the organization. Some hospitals with
unused space have developed innovative ways to use their buildings to improve
community health status by offering education programs, health screenings, and
fitness activities. Others have contributed to community projects, such as lending
land for a neighborhood garden.
Financial Assets
The balance sheet also lists financial assets, including cash, receivables,
and investments. Historically, financial assets have added value in themselves.
In the Values Dynamics model, however, they not only add value in themselves,
but are also a tool for creating intangible assets that increase the organization's
overall value. In the project we are about to describe, it may appear that financial
assets are being converted to physical assets in the form of houses. In fact,
the houses are part of a reconstructed neighborhood — an intangible but very
real asset for the hospital the neighborhood surrounds.
St. Bernard Hospital and Health Care Center, Chicago, has found an innovative
way to use its financial assets to advance both its ministry and its margin.
Founded in 1904, St. Bernard serves an impoverished neighborhood called Englewood.
Twenty-five percent of Englewood's population is unemployed; 40 percent
of its families live in poverty. Over the last four decades, the neighborhood
has lost a third of its housing, and what remains is run down and often owned
by absentee landlords.
St. Bernard and its partners have invested $15.5 million in the construction
of affordable housing on abandoned property adjacent to the hospital. The development
encompasses 90 single-family and duplex homes, selling for as low as $130,000
and $180,000 respectively.
"We believe the strength of a hospital has a direct correlation with the
vitality and well-being of its surrounding community," says Sr. Elizabeth
Van Straten, St. Bernard's president and CEO. "And, in turn, this
reestablishment of homeowners and commitment to an improved community helps
our patients through their own healing processes."
Many of the health problems the hospital treats — ranging from rat bites
to pulmonary disease — can be traced to the lack of heat, inadequate ventilation,
and unsanitary conditions that typically accompany substandard housing. The
new housing will help alleviate those problems. St. Bernard's leaders also
believe that, by encouraging home ownership, the project will help stabilize
the neighborhood economy and attract further investment to it.
The hospital has reached out to public and private groups in the city to gain
support for the project. Neighborhood Housing Services of Chicago, for example,
is providing home-buyer education and counseling (the project's would-be
buyers are required to enroll in the education program). A city program called
New Homes for Chicago is providing up to $30,000 in assistance to interested
families.
By mobilizing the community and spending a portion of its financial assets
on affordable housing, St. Bernard has fulfilled part of its ministry of serving
its community. In the words of Cardinal Francis George, the project is "helping
to recreate a healthy neighborhood where families can live with dignity and
pride." At the same time, the hospital has improved its own long-term economic
prospects.
Employee Assets
This category recognizes that an organization's intangible assets include
employees and other people and processes not necessarily owned by the organization.
In the Value Dynamics model, virtually everyone at every level of a health
care organization is an asset — including part-time employees, contingent
workers, and independent contractors. From this perspective, position, tenure,
and salary level are not dependable indicators of an individual's ability
to create organizational value. The newest nurse may come up with a better way
to treat burn victims; the lowest-ranking pharmaceutical line employee may devise
a better way to package pills.
Recognition of every employee's potential for contributing to market value
is the impetus behind the "Spirit at Work" initiative at Franciscan
Health System (FHS), Tacoma, WA. In the winter of 1998, FHS developed a strategic
plan based on the realization that the system needed to regain its traditional
reputation for compassionate care. The plan had four primary areas of focus:
workplace culture, growth and performance, systems of care, and advocacy
and community health.
Although all four areas were important, CEO Joe Wilczek saw the creation of
a distinctive FHS culture as especially important. "Successfully implementing
the strategic plan depends on the quality, satisfaction, and engagement of staff
and physicians," he_noted. In the South Puget Sound area, staffing shortages
(and resulting wage increases because of overtime and employment agency use)
underscored FHS's need to become the employer of choice. The Spirit at
Work initiative, focusing on what has been callnd the "employee-customer
profit chain," has proven to be the key strategy for accomplishing the
overall plan.2
Spirit at Work is led by a "Guiding Coalition" comprising employees,
from all levels of the organization, who are informal leaders among their peers.
"Champion Groups," which are multidisciplinary teams representing
all levels of the organization, and "Service Excellence Teams," focused
at the department level, complete the initiative's structure. The initiative
involves extensive training, development of tools and resources, the integration
of "service excellence behaviors" into job descriptions, performance
reviews, compensation plans, and recognition programs — all of which requires
significant investments of dollars, time, and energy. But they are investments
in the development of intangible assets, a means of increasing overall market
value.
A critical success factor is patient, staff, and physician satisfaction. Guided
by the Gallup Organization, FHS now measures employee "engagement" — which
blends job satisfaction with productivity and profitability — instead of
simple "satisfaction." In Gallup's first survey, FHS ranked in
the 60th percentile of the consultant's health care clients. Gallup plans
to survey again this fall. Meanwhile, patient satisfaction scores have steadily
increased over the past three years; physician satisfaction monitoring has begun.
Increased market share growth and recent awards and recognition attest to the
success of the Spirit at Work initiative. In 1999, one FHS member, St. Joseph
Medical Center, Tacoma, WA, received two Consumer Choice Awards, one for overall
quality and image and one for cardiac care services.* In 2000 another FHS program,
"Improving Care Through the End of Life," earned national recognition
from the American Hospital Association. In the same year, HCIA-Sachs named FHS's
St. Francis Hospital, Federal Way, WA, one of the nation's top 100 hospitals
for high value to customers through effective use of resources, efficient care,
and high-quality outcomes.†
*Consumer Choice Awards, sponsored by the National Research Corporation,
Lincoln, NE, are announced annually in Modern Healthcare.
†HCIA-Sachs is now Solucient LLC, a company specializing in "benchmarking"
information for health care organizations.
Customer Assets
In this category, the source of value is the customer. "Customers"
include not only those who receive health-related service but also those who
provide the services and products that are part of the overall delivery system.
None of these is treated as an asset by traditional accounting systems. As a
result, such systems fail to recognize customers as assets that can be used
to help guide decisions about investments and customer-related opportunities
for creating market value and expressing ministry values.
However, UnitedHealth Group, a health and well-being company based in Minnetonka,
MN, is an organization that is making the most of its customer assets. In the
late 1990s, physicians and their professional groups were attacking the long-standing
HMO policy under which treating physicians had to secure an insurer's approval
before sending patients to a hospital or for specialized treatment. Patients
were increasingly angry about and frustrated by the policy. Class-action lawsuits
blamed HMOs, rather than doctors, for poor medical results. Congress was considering
legislation that would give patients the right to sue HMOs for malpractice.
UnitedHealth Group responded to this situation by announcing that it would
no longer require physicians to clear treatment decisions. Doctors could treat
their patients without having to get preauthorization.
According to the organization's leaders, their decision was based on several
factors:
- Both physicians and patients had become more aware of the need to limit
costs, so the policy was unnecessary.
- The HMO had found itself placed uncomfortably in the middle of patient-doctor
relationships.
- Substantial savings could be realized in processing referral and procedure
requests.
The chief factor, however, was UnitedHealth's belief that the policy change
would differentiate the company from its competitors, thereby winning public
approval. By making it easier for its customers to get better care, the organization
increased the likelihood that they would remain in the UnitedHealth fold. The
policy change was also likely to attract new customers. The organization was
thus able to create new value with its customer assets while improving health
care for its customers. As William W. McGuire, MD, chairman and CEO of UnitedHealth
Group, put it, "Our view of value in the marketplace has included not just
the measurement of the price of services, but also their convenience, quality,
and consistency with the underlying values of the customer."
Organization Assets
In the Value Dynamics framework, organization assets include its leadership,
structure, processes, systems, culture and values, brands, and intellectual
property. Together these operate as the organization's nervous system,
connecting all the other assets into an effective whole. Organization assets
are not found on a typical balance sheet, though they obviously would affect
any effort to judge an organization's worth.
Consider, for example, organizational structure, typically represented on a
chart and indicating the organization's chain of accountability and responsibility.
To the degree that it provides a clear road map for the human interactions that
deliver margin and uphold the ministry's values, structure is a critical
factor in any organization's future.
In 1999, the cosponsorship of the Daughters of Charity National Health System,
St. Louis, and the Sisters of St. Joseph Health System, Ann Arbor, MI, created
Ascension Health, the nation's largest Catholic health care system. While
the sponsors were developing a new mission and vision, Ascension's leaders
saw that they must also change the structure and function of the new system's
national office in relation to its local health ministries.
To increase both the tangible and intangible value of Ascension's structure
asset, the system's leaders put in place what they termed a "distributed
leadership model" and identified five "distinguishing characteristics"
that would serve as the model's strategic direction. The five distinguishing
characteristics are clinical excellence, well-run organization, work-life
community, innovation, and voice for the voiceless.
With the new leadership structure, Ascension's leaders were not encouraging
decision making by consensus but hoping to tap a wide range of experiences and
viewpoints from among all ranks of the system's leaders. They intended
it to be flexible enough to allow leaders having the appropriate knowledge to
make high-quality decisions. Ascension's leaders believed that, by tapping
into the leadership talent existing throughout the system, they could reduce
the number of high-level executive posts at headquarters.
Today Ascension is organized around five strategy teams, one for each of the
distinguishing characteristics, all charged with moving the system's transformation
agenda forward. The changes sought by the teams involve some of the other organization
assets recognized in the Value Dynamics model.
Clinical Excellence Ascension's Clinical Excellence Team, having
borrowed a term from the field of finance, is dedicated to creating an "obligated
clinical group" that will continually improve clinical outcomes and patient
safety.
Well-Run Organization The Well-Run Organization Team works to improve
the performance of Ascension's process and system assets, both in the national
office and among the various hospitals and medical facilities (known internally
as the "health ministries"). A separate company is being created to
redesign the system's supply chain, and a new shared-services unit will
seek economies of scale and facilitate the transfer of information among the
ministries.
Work-Life The Work-Life Community Team is creating a work environment
that integrates spirituality, recognizes employees' changing needs, and
ensures that employees' feel the worth of their contributions to the mission.
Special initiatives also focus on creating a diverse and inclusive workplace.
Innovation The Innovation Team is dedicated to reinforcing Ascension's
culture and its commitment to pushing new ideas ahead rapidly, moving them throughout
the system, and learning from both successes and failures. This team will also
create new business opportunities to bring in additional revenue, thereby adding
to the system's ability to fund its mission imperatives.
Voice for the Voiceles Although some of Ascension's changes are
meant to improve the system's margin by improving efficiency and effectiveness,
all are intended to increase the common good. Ascension continues to seek policies
that will create a more just health care system in the nation. Indeed, the whole
transformation of the system's structure assets has been presented to employees
and the public as a reflection of its vision, "rooted in the loving ministry
of Jesus as healer," to serve all in need, but particularly those who are
poor and vulnerable.
Organization assets also include leadership. The Value Dynamics framework can
be a useful tool for a board of directors in its search for a key leadership
asset, a new chief executive officer. Board members might begin, for example,
by recognizing the immediate impact this person will have on the economic value
of the organization. Does the CEO candidate have a track record that will instill
confidence in the marketplace? Has he or she demonstrated recognition of the
importance the market now places on intangible assets? Is his or her experience
going to be transferable to this institution or system?
Does the CEO candidate have real insight into the operation of a hospital system?
Did he or she, in previous positions, demonstrate an ability to increase the
value of intangible assets as well as tangible ones? Has he or she increased
revenues, market share, and profits? Has he or she established closer connections
with customers, inspired employees to greater achievement, and developed closer
and mutually beneficial relationships with suppliers? Is he or she comfortable
with the new medical technologies?
The board will want to be sure that the new CEO has shown a capacity for changing
an organization, because change is the hallmark of the "Information Age."
It will ask whether the CEO:
- Has reengineered processes and systems
- Has altered corporate structures and shown skill at selecting high-performing
staff members
- Has built a top-notch medical staff
- Has firmly established or enhanced the cultures of his or her organizations
- Knows how to create the sense of challenge and urgency that is the essence
of true leadership
Above all, the board will want to be certain that the new leader supports the
organization's culture and values. The candidate's business skills
may be formidable, but his or her actions must also have demonstrated a commitment
to the ministry function. And because a leader's personal commitment
is not in itself sufficient, the candidate must also possess in abundance the
people skills, dedication, and charisma necessary to instill these values in
employees, thereby ensuring that those values are manifest in the institution's
every action. A CEO with these qualities can negotiate the current health care
marketplace with integrity as a Catholic health ministry leader.
A New Opportunity
The Value Dynamics approach is not the sole effort today to recognize and give
full value to intangible assets. Nor does the Value Dynamics model resolve the
inherent differences in the motivation of the market and the motivation of the
medical profession and the ministry. It does suggest, however, that there may
be a new way of framing the debate between margin and ministry. Indeed, it suggests
that that debate might better be understood as a dialogue through which the
market and the profession/ministry can work together to contribute to the margin
and provide faith-based health care.
NOTES
- Edward J. Giniat and Barry D. Libert, Value Rx: It's Time to Manage
and Measure What Matters in Healthcare, HarperBusiness, New York City,
2001, pp. 27-28.
- Steven P. Kirn, Richard T. Quinn, and Anthony J. Rucci, "The Employee-Customer-Profit
Chain at Sears," Harvard Business Review January-February 1998,
pp. 82-97. The "employee-customer profit chain" represents the cause-and-effect
relationship among an organization's various aspects. Effective leadership
that demands internal quality will lead to increased employee satisfaction,
loyalty, and productivity, which will in turn lead to increased customer satisfaction
and loyalty, resulting in profitability and growth.
Copyright © 2001 by the Catholic Health Association of the United States
For reprint permission, contact Betty Crosby or call (314) 253-3477.