IMPROVING NURSING HOME PERFORMANCE IN TURBULENT TIMES

LEARNING FROM HOW SUCCESSFUL HOSPITALS MANAGE WITH THE BALANCED SCORECARD*
By Dennis Kodner and Arthur Y. Webb June 2011

TURBULENT TIMES FOR NURSING HOMES More than 3 million frail and disabled peopleprimarily the elderlyrely on nursing homes for their care in any given year. Roughly half of these individuals consider the long term care facility to be their permanent residence. Confronted with deep Medicare and Medicaid cuts and ever-present staff shortages, it is becoming more and more difficult to operate a high-quality, efficient nursing homeeven for best in class non-profit sponsors who now must dig deeper into their own pockets to make ends meet. It is also becoming tougher as a result to maintain a competitive edge in the growing long term care marketplace. What is clear is that traditional management and financial strategies will no long suffice during these turbulent times. New, more robust approaches are needed to creatively address the enormous day-to-day performance and productivity challenges involved in running a quality nursing home. Metrics-based tools, which have been increasingly used in the hospital industry over the past 15 years, offer an exciting opportunity for Americas nursing homes to take control of their future. The Balanced Scorecardthe method most frequently found in the countrys most successful acute care institutionsis especially well-suited for the nursing home setting. THE HOSPITAL METRICS MOVEMENT Over the years, the explosion of IT applications for financial reporting has made it easier for hospitals to analyze business performance. Other routinely collected data have enabled hospitals to identify quality concerns, measure patient satisfaction, and meet industry certification requirements. Despite the growing emphasis on reporting of all kinds, much of the collected data has traditionally remained locked up in information silos. And since relevant information is often missing, they also present a limited and often skewed picture of overall hospital operations and outcomes. Faced with a host of challengesspiraling medical costs, declining reimbursement rates, skilled staff shortages, rising healthcare utilization and increasing competitionthe hospital industry has been actively rethinking how to creatively use metrics, i.e., data-driven measures, in order to evoke greater efficiencies and better quality. This new direction has been inspired by growing realization that understanding service costs without understanding quality is meaningless; and, that management decisions based on costs alone are bound to be more expensive than necessary1. The Hospital Metrics Movement is focused on using proven, methodologically sound management tools to enhance performance and productivity with robust and timely performance metrics. Hospitals have increasingly turned to the Balanced Scorecard (BSC)pioneered by AT&T, Intel, 3M and other corporate giantsas their new management strategy for the information age. (Shutt, 2003)2.

1 Walter Stewart, a statistician at Bell Laboratories and early leader in the area of quality management, is credited with formulating this dictum (McLaughlin, 1999). 2 In addition to the Balanced Scorecard and various in-house approaches, some hospitals have adapted the Sixth Sigma model. Originally developed by Motorola in 1986 to remove errors and variability in manufacturing processes, it depends on statistical modeling and other quality management tools, as well as a special infrastructure of people to produce quality products or services within quantified financial targets.

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The BSC and other metrics-driven approaches share three common features: First, they recognize organizational interdependencies. Second, they depend on a comprehensive and integrated set of financial and non-financial performance measures to present a balanced or holistic picture. Third, they strive to provide easy access to the most relevant and upto-date information, frequently on a real-time basis. BALANCED SCORECARD BASICS The BSC has been referred to as the most important management innovation of the 20th century (Zelman, Pink & Mathias, 2003). It has been adopted by over half of Fortune 1000 companies in North America, as well as a growing number of government agencies and hospitals. The popularity of the BSC among hospitals is related to its history as a universal application regardless of industry or organization. As a result, it has been increasingly embraced by healthcare managers on the business side and clinical leaders on the quality of care side. Developed by Professors Kaplan and Norton in a series of Harvard Business Review articles published between 1992 and 1996, the BSC is fundamentally a customized, systems-oriented performance measurement and management tool that is designed to enhance the strategic value of information in the management process. BSCs include traditional financial measures and non-financial metrics to give executives and managers alike a more balanced view of those key attributes that really affect an organizations performance. Dashboards are increasingly used to graphically display metrics on various performance subsets, including regular alerts for immediate action. In addition to an overall picture of the organization, the BSC can also be structured to report performance via the dashboard on a cascaded basis, i.e., by division or department. In their original formulation of the BSC, Kaplan and Norton proposed that organizations should be viewed and measured from four perspectives: X Learning and Growth: How well an organization sustains its ability to change and improve; X Business Processes: How well the business is running, and whether its products and services meet customer requirements. X Customer: How well the customer is satisfied; and, X Financial: How well the organization is doing financially By examining performance in these four broad, cross-cutting areas, management and board members can measure current and past performance, monitor progress toward future goals, and identify the tangible and intangible factors and interdependencies that underlie these trendspro or con. The potential of the BSC, however, goes well beyond its function as a performance measurement system. It can also drive the organizations strategic management process by: 1) maintaining focus on organizational priorities by strengthening the connection between strategies and financial/human resources; 2) communicating these priorities to staff members and helping to clarify the role they play in their achievement; 3) encouraging continuous quality improvement by creating measurable targets; and, 4) improving efforts to evaluate, shape and adapt strategies. Figure 1 shows the BSC dashboard of key indicators for a large university hospital system in New Jersey. Note that indicators reflect the organizations mission, vision and values; are keyed to five pillars of excellence (people, service, quality, finance, and growth); and report performance at various intervals (daily/weekly/bi-weekly, monthly, quarterly, annually, and bi-annually)depending on the indicators involved.
*Arthur Webb has been involved in health and human services since 1971, with over 20 years of experience as a provider of a wide range of health and human services and almost 18 years as public official in New York State government. His government experience includes responsibility for Medicaid budgets in the budget division; commissioner or director of four government agencies including Department of Social Services (the welfare, Medicaid and social services agency); Office of Mental Retardation and Developmental Disabilities; Office of Substance Abuse Services; and Health Planning Commission. As a provider, Mr. Webb was president & chief executive officer of Village Care of New York and, most recently, chief operating officer of St. Vincents Catholic Medical Centers in New York. The Arthur Webb Group provides advice and consultation to health care providers, health plans, disease and utilization management companies and government officials. The group specializes in offering innovative solutions in the post-acute world.

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Dashboard for Balanced Scorecard of key performance indicators Robert Wood Johnson University Hospital at Hamilton
MISSION, VISION, VALUES Service Quality Finance Growth

Pillars of Excellence

People

CSFs
Be recognized as a Center for Healththe consumers choice for hospital services, health information, and support. Distinguish the hospital from competitors by emphasizing excellence in clinical outcomes and service. Provide superior operating margins to allow for capital reinvestment and growth based on community needs. Develop partnerships with physicians, communities, and organizations and maximize the strategic relationship with RWJ Health System and Network.

Distinguish the hospital as an outstanding employer.

Daily/ weekly/ biweekly Voice of the customer Overall satisfaction (IP, ED, OP, SDS) Overall room and food Overall satisfaction by unit Core measures (CHF, AMI, CAP, SIP, Pneum) Medical denials Medication errors/incident reports JCAHO safety indicators CHF readmission rate Lawsuits per admission Priority indices Loyalty indices Outpatient cycle time Outpatient service Commitment Hours in divert Community ed satisfaction All payor length of stay Medicare length of stay % ALOS > 10 days

Voice of the customer Productivity Overtime expenses $ Temporary help $ FTE utilization Productivity Sick hours

POS cash Patient cash Total DNFB (discharge not final billed)

Outpatient volume Cath lab volume ED volume per bed Direct admission

Monthly

Vacancy rate (fill rates) Turnover rates Human capital value added OSHA employee injuries/sharps Bright stuff referrals Time per hire Retention rates HR dept Team Talk score (monthly feedback)

Administrative denials Operating margins by service Days in accounts receivable Net revenue Inpatient/outpatient revenue split Days cash on hand Debt service coverage Cost per adj patient day Cost per adj discharge Charity care % of total revenue Bond covenant compliance Average age of PP&E (property, plant & equipment)

New cancer med oncology cases Transfers to hospital Community ed volume Physician-specific volume Volunteer hours Market segmentation and Patient origin

Quarterly

Diversity prof/mgt positions Invest in empl development Training hours per FTE Cost of turnover Quarterly satisfaction survey

Inpatient perception of safety Qtrly supplier report cards IP satis w/ nursing courtesy

Mortality Qrtly supplier report cards Pneumoccocal infection rate OPI report

Health risk assessments Community health improvement process (CHIP)

Annually

Performance appraisal scores Employee satisfaction survey

Market share

Biannually

Community survey Physician survey

Source: Robert Wood Johnson University Hospital at Hamilton. Reprinted with permission.

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What does the experience with the BSC tell us about best practices? First, while the BSC can be developed in different ways, organizations usually begin by answering the following four questions: X What is most important to an organizations success? X What are the critical drivers that influence performance in these areas? X What are the most relevant measures of these drivers of performance? X What relevant data are available to assess performance? Second, results of a survey reported by Lawson, Stratton & Hatch (2005) suggest that successful implementation of a BSC is related to three main factors: X It has a well-grounded strategic and tactical rationale; X It is broadly supported by the organization, especially in terms of management and employee buy-in; and, X It was carefully designed and implemented. Third, hospitals and other organizations cannot simply take Kaplan and Nortons original BSC framework and apply it as is. They must invest considerable thought and effort in customizing the framework to their unique mission, vision, and values. DOES THE BALANCED SCORECARD WORK? According to widely reported anecdotal evidence from North Americas top-performing hospitals, their growing operational and clinical success is due in part to a shift to management by metrics via the popular BSC strategy. This positive experience is backed-up by the findings from a survey conducted by Lawson, Stratton & Hatch in 2002 of 150 service, manufacturing and government organizations; almost two-thirds of the respondents agreed that significant benefits had been achieved with the BSC. The bottom line is that organizations of all kinds have increasingly discovered that the BSC is a responsive management tool capable of balancing the demands for quality and customer service with performance, cost and strategic goals. BUILDING A NURSING HOME BALANCED SCORECARD The Centers for Medicare and Medicaid Services (CMS) have been providing consumers with detailed information about current and past performance of Medicare and Medicaid certified facilities since 1992 as part of its 5-Star Nursing Home Compare Quality Rating System. In an effort to make CMS nursing home data more consumer-friendly, state agencies (e.g., California, Florida, Indiana, Massachusetts and New Jersey) and private vendors (e.g., CarePathways, Ganett, and HealthGrades) have also developed report card-like rating systems to compare and rank nursing facilities. These products are not designed to be management tools, and largely depend on survey deficiencies received as a quality proxy. At the same time, an enormous amount of energy is being devoted by national quality initiatives such as Advancing Excellence in Americas Nursing Homes Campaign, QualityFirst, the Nursing Home Quality of Care Initiative, the Culture Change Movement, National Quality Forum, and the Quality Improvement Organization (9th Scope of Work) to advance quality-enhancing practices in the nursing home. Thanks to these initiatives, progress is being made in the nursing home quality arena. Finally, a variety of vendors offer bellweather analytic tools related to various aspects of nursing home operations, e.g., on financial performance, as well as on customer and employee satisfaction. Despite these activities and resources, Americas nursing homes still find themselves without a complete and reliable management tool to measure and analyze performance in all of the critical areas. As suggested by the hospital experi-

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ence presented earlier, the BSC is a solution that makes most sense for todays nursing homeparticularly during these turbulent times. If properly designed and implemented, the BSC will not only enable the nursing home to access the right information, but also to align policies, practices and processes with the facilitys key strategic, quality and financial objectives. This is a prescription for success. As already pointed out, the BSC framework must be carefully adapted to the unique nursing home environment as well as the particular facilitys mission, vision and values. The metrics that are ultimately selected must be relevant, simple to understand, readily available, and actionable. Equally important, attention should be paid to the number of measures; an unrealistically large data set should be avoided. MAKING THIS REAL FOR THE NURSING HOME ADMINISTRATOR Nursing homes in most states but particularly in New York have taken a major licking. Millions of Medicaid dollars have been cut from the nursing home budget. It is well understood that Medicaid rates in most states do not cover basic operating costs. If it were not for other revenue sourcesMedicare sub-acute care, managed care and private paymaking up the difference, many nursing homes would be at the brink of bankruptcy. Consequently, every dollar derived from productivity gains and cost-control efforts help to secure the nursing homes business model and overall mission. In many cases, increases in efficiency coming from small incremental changes in operations can generate significant cost-savings. For example, in a typical 200-bed nursing home with over 80 percent of its revenues from Medicaid, a single $1.00 of savings on meal costs can generate over $200,000 per year without jeopardizing quality or customer satisfaction. We have often heard that you cannot manage what cannot be measured. The BSC provides administrators with the measurement tool they need. As pointed out earlier, each facility will have to develop a measurement set that fits their unique mission, environment, and business strategy. The measures ultimately chosen must be relevant, reliable, and easy to use. Equally as important, measures or indicators must reported at the correct time intervals, e.g., daily (overtime), monthly or quarterly (staff productivity), and annual (liquidity). A fundamental aspect of the BSC is the dashboard. Your cars dashboard tells you about how fast you are going, how much fuel you have, the engine temperature, etc. In a similar manner, the BSC dashboard might be telling you, for example, that overtime is increasing, thus suggesting the need to examine its cause. For every measure or indictor, an administrator has to take action by asking a fundamental question: Why is this happening? Some measures will be specific to a particular facility; an indication that something is out of line with budget, staffing, etc. Other measures will be relative, i.e, they must be compared with other (similar) facilities, market conditions, or even industry standards. For instance, what is the best practice for staffing short-term rehabilitation units, or what are the typical costs for food and laundry? Most trade associations provide these comparative measures. Still others are available from vendors and group purchasing services. When a facility is part of a union environment, many of the costs of doing business are dictated by labor contracts. In New York City, almost all nursing homes are governed by union contracts. Consequently, measuring staff productivity requires well thought out strategies, including good labor-management relationships. With labor costs consuming close to 75 percent of total costs, the opportunities to increase productivity become paramount but are not easy to accomplish. With heightened concern about consumer preferences and expectations, designing effective measures of customer satisfaction is another imperative. While there are national efforts to improve quality of care, each facility has to make a concerted effort to measure satisfaction on an ongoing basis. Indeed, there is a growing consensus that consumer satisfaction is as important as labor costs. As the nursing home quality movement matures, we can expect to see more and more standardized measures that can be factored into the BSC. It is not the intent of this paper to provide a detailed BSC for the nursing home. However, we do want to suggest a general framework and then some of the more important metrics. First, the BSC should at least be structured to measure performance in the following key areas: revenue and utilization; staffing; budget/costs; workforce productivity; clinical quality; resident/family satisfaction; employee satisfaction; and, investments in infrastructure like IT and training.

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In terms of workforce, here are some suggested measures: X Total staff hours per patient day (PPD) X Total nursing hours PPD X Productivity of rehab staff: Percentage of direct careOvertime across the board Key cost measures include: X Total cost of nursing PPD X Total cost of therapy PPD The metrics above will help the administrator to identify where staff is most needed. And also identify labor substitution where it is most appropriate. Finally, the emerging picture could suggest further staff training to respond to patient needs. With hospitals discharging their patients quicker, many nursing home patients are also being admitted with higher levels of acuity. Therefore, the tracking of medication costs, food supplements, wound care, etc. are also becoming critical to cost measurement and control. Most nursing homes do not have the cost-accounting resources at the patient level. Nonetheless, getting a better handle on the operating margin by payor source is a major business factor. An administrator needs to know whether there is a profit margin and where it is coming from. The BSC can helpful here too. Regarding clinical quality, the following indicators (derived from national standards and best practices for long-stay residents) are most relevant to monitor: daily activities (decreasing), physical restraints; pressure ulcers (high-risk), influenza vaccination, pain (severe/ moderate), depression/anxiety, incontinence, catheters, time in bed/chair, mobility (decreased), urinary infections, and weight loss. SUMMING UP The nursing home industry has become a big target for federal and state budget cutters. The difference between surviving and thriving in these challenging times will depend on whether the facility embraces the new management, i.e., managing by metrics. The hospital experience sketched above tells us that the BSC approach can also put nursing homes on a sound and successful footing by helping to effectively balance costs, quality and satisfaction all around.

This paper was prepared for the ArthurWebbGroup. Dennis Kodner is the primary author with Arthur Webb, the principal and president of the AWG, providing input and direction. I thank Dennis for his usual brilliance in thinking and exploring new ways to improve the field. This paper is available on the ArthurWebbGroup website: www.arthurwebbgroup.com. For those wishing more information or consultation, please write to arthur@arthurwebbgroup.com