The building blocks of a data-driven organization

Performance scorecards drive significant and sustainable improvements across all functions of a healthcare organization. They use metrics called key performance indicators (KPIs) to measure performance on factors considered to be critical to organizational success. Goals are established for each KPI with performance improvement achieved by closing the gaps between goals and actual performance.

The following building blocks will help you institute a performance scorecard in your organization.

1. Establish a culture of excellence. Communicate the pursuit of excellence as an expectation for everyone in the organization and consistently restate this expectation in meetings and organizational literature. For example, you may integrate a culture of excellence into your brand by adopting a tag line such as “Medical excellence” to accompany your logo. You might also adopt a working statement to reflect your constant pursuit of excellence. The following quote from Vince Lombardi, the famous football coach, provides a good example of this statement: “We will chase perfection and we will chase it relentlessly all the while knowing we will not attain it. But along the way we will catch excellence.” Place the working statement on employee orientation documents and on all performance reports to ensure all employees know you take the pursuit of excellence seriously.

Adopt key operating principles (see Exhibit 1 for an example of seven key operating principles) to set behavioral expectations for all members of the organization. Consistent demonstration of professionally mature behaviors (listed in Exhibit 1) forms the foundation for a culture of excellence. These principles should serve as the basis for all staff decision-making and lead to greater organizational reliability and trust.

2. Establish quantitative measures of excellence (metrics).

The five pillars of excellence (service, people, quality, growth and finance) developed by Quint Studor in his book Hardwiring Excellence is a very good source for this process. Building the performance scorecard requires the identification of key functions within each pillar that truly determine organizational excellence. The following functions are examples of key performance indicators (KPIs) that may be adopted by a medical group:

a.    Service:

• Patient satisfaction scores: This factor is the key indicator of service success. A target of the top 10% of nationally recognized scores for each specialty is appropriate.
• Telephone service: Although patient portals are now being used by some patients, the telephone still represents the primary connection with patients and referring physicians. While some calls, such as prescription refills, might be appropriate for the answering machine, other missed calls represent a patient inconvenience and might interrupt the continuity of care. The percentage of phone calls answered by a person is an indicator of success for this function. If you remove calls for prescription refills from the equation, an 80% target answer rate is appropriate.

b.    People:

• Physician staffing levels: The organization should establish rolling five-year physician staffing plans based on its growth goals and the demand for medical services in its market. These five-year plans should be converted to monthly staffing plans to serve as a KPI for each specialty. Organizations should expect to achieve 100% of their physician staffing goals.
• Employee retention: Expect to be the employer of choice for the region. The employee retention rate is a key indicator of your effectiveness in employee management. This KPI also reflects your effectiveness in screening and recruiting the right employees. Aim for a 12-month retention rate goal of 90%, which allows for the departure of some employees who leave the area or have grown above their positions.
• Employee utilization: While employees are considered the most valuable asset in an organization, they are also the most expensive. Failing to prudently manage the cost of this vital resource will lead to financial stress for the organization. Employee overtime costs are considered a KPI that reflects prudent management of human resources. Setting an overtime maximum of not more than 2% of the organization’s total base pay for all nonexempt employees is a starting point.

c.    Quality:

Unfortunately there is limited use of true outcome measures on healthcare services due to the complexity of medical conditions and the difficulties with data capture. In the absence of outcome measures, the following process management measures can be used to reflect service quality:

• Chart completion rate serves as a measure for continuity of care. Gaps in care are expected to be reduced by ensuring all tasks, such as reporting lab results and sending notes to referring physicians, are completed in a timely manner. A 90% chart completion rate within 14 days is a good goal for this performance indicator.
• The Centers for Medicare & Medicaid Services’ meaningful use goals can serve as a measure of quality. All physicians are expected to meet these requirements in order to avoid financial penalties. The KPI on this function would be the percent of physicians meeting meaningful use requirements.
• Service recovery effectiveness and incident-related problem resolution is the final KPI for quality. This indicator has two components:
  • i.    First, patients directly affected by the incident should be satisfied by a service recovery effort.
  • ii.    Next, the applicable department manager is expected to conduct an analysis of the incident to determine and correct the underlying cause. While you might not expect to eliminate all incidents, you should expect to prevent recurrence of the same incidents.

A 100% achievement goal should be established for both components of this KPI.

d.    Growth

• Total work RVU: This KPI identifies the growth of total organizational workload. The goal can be established by using industry benchmarks from MGMA surveys, historical performance and department growth expectations. Growth expectations should be based on the number of providers and workload per provider in each department.
• New patient visits: A strong emphasis should be placed on new patient visit volume as a measure of growth in market share. Goals should be established for each department based on historical values and annual growth expectations.
• Contract revenue: To capture a larger percentage of the healthcare dollar, medical groups should seek to diversify income streams through professional and management service contracts as well as shared savings agreements. The target for this KPI should be each department’s annual contract growth goal included in the strategic plan.

e.    Finance

• The pre-provider compensation cost-to-revenue ratio is the primary indicator of an organization’s financial success. This KPI identifies the cost for every dollar of revenue collected and it acts as a measure of effective revenue and cost management. The actual goal for this ratio is specific to each specialty based on industry standards pulled from MGMA survey reports. Initial goals may be based on industry means depending on an organization’s starting point. However, the goal should be moved to the top 75% as the organization improves. [Read more about this cost-to-revenue ratio:  mgma.org/analyzing-cost-revenue.]
• The following three measures indicate accounts receivable (A/R) management effectiveness:
  • i.    True insurance net collection rate is calculated 180 days after the claim posting date: This KPI is identified by matching actual collections to corresponding net charges. Varying goals ranging from 95% to 98.5% may be selected for each department based on each specialty’s payer and service mix.
  • ii.    True personal pay net collection rate: This KPI has the same basis as the insurance net collection rate. Goals from 70% to 80% may be established for each specialty depending on service mix.
  • iii. Denial rate: Reducing denials optimizes cash flow and reduces the rework involved in resubmitting claims. This KPI should range from 4% to 6% of claims submitted.

3. Establish a scoring system.

a.    The challenge in using a variety of measures in the KPI system is finding a way to establish a uniform scoring system to achieve an apples-to-apples comparison. The indexing process, which involves assigning percentage scores for different levels of achievement compared with goals, can help you with this challenge. The following patient satisfaction index (with numbers for illustration purposes only) provides an example of how indexing works.

Base actual values on industry benchmarks per specialty and the relative maturity of your performance improvement efforts. The indexing process provides a system for continuous improvement and allows you to reduce negative variation from the goal each year by resetting the index. The subsequent year’s indexing for the above illustration might be as follows:

b.    Weights should be used to set priorities: Set a weight for each indicator. With five pillars of excellence, the total potential point earnings of 5 would equal 100%. Each pillar is given a weight of 1 with the distribution of weights on specific KPIs within that pillar based on the relative priority of each indicator. For example, the financial KPIs might have the following weights assigned:

4. Staff for success.

A primary key to success in building a data- driven culture is obtaining the right staff to manage KPIs. The business analysts, who manage KPI reporting, ensure accuracy of the data and maintain integrity of the scoring system, play a critical role. These analysts must have strong quantitative and analytical skills and completely buy in to the pursuit of excellence. Organizations must also have subject matter experts for each KPI, who understand what drives the numbers and can work with line managers to identify ways to improve their scores. Examples of subject matter experts include:

• Human resources director for the people pillar
• Chief financial officer and A/R director for the finance pillar
• Operations and information services directors for the service and quality pillars
• Marketing/development director for the growth pillars

Line managers are equally critical to the KPI system’s success. They must be committed to continuous learning and improvement, tenacious in their effort to improve their scores, and they must consistently lead employees toward activities and behaviors that drive success.

5. Align interests through an employee bonus system.

Peer pressure, consistent monthly reporting and integration of KPI scores into the performance evaluation system are essential elements for driving continuous improvement. The performance improvement process is accelerated when KPIs are integrated with the employee bonus system.

A key element of the employee bonus system is a pre-physician compensation cost-to-revenue target that serves as the trigger for bonus payments. It is based on industry benchmarks and should be set so that physician compensation meets or exceeds that of their peers. Once the actual cost-to-revenue falls below the target, a percentage of savings represented by the actual-to-target differential goes to the employee bonus pool. The percentage of the pool that is distributed depends on KPI scores. The following example provides a simple illustration of the bonus system:

This robust bonus system complements a culture that recognizes and rewards performance. Rather than establishing automatic annual employee pay increases, consider offering pay increases to ensure that salaries are competitive in the market. Once market equity is achieved, your compensation system should emphasize pay for performance. Employees must be shown that improvements in organizational efficiency and effectiveness will lead to tangible increases in quarterly bonus payments. Each manager should explain the connection between individual performance and the department’s KPI scores. Once employees see the connection between organizational performance and the level of their bonuses, you achieve employee alignment with organizational goals.

6. Maintain a disciplined and relentless pursuit of excellence.

KPI scores (Exhibit 2) must be published in consolidated, one-page reports. These reports that serve as the primary focus in monthly KPI improvement meetings. During these meetings each manager is expected to assess the effects of actions taken to improve KPI scores and identify the next steps he or she will take to close the gap between actual performance and the goals. Three disciplines that lead to continual improvement include:

The application of these building blocks should allow you to develop an effective performance scorecard system for your organization. The following three disciplines will help you develop a continual improvement process:

• Tenaciously seek ways to improve when past efforts have not been totally successful.
• Resist pressure to set goals that are good but not excellent.
• Annually raise the performance bar by tightening score bands around negative variations from the target. The scoring system in Exhibit 2 illustrates this process.