Steve Ronstrom: Strategic Performance Improvement Amid Cost Cutting

No matter what happens with the current health reform legislation, hospitals in the coming decade will have less money and more demands upon them to improve efficiency, outcomes and safety. Since institutions will have to do more with less, strategic performance improvement will become even more important.

During more than 30 years in healthcare, I have seen how strategic performance improvement tends to be carried out. Hospitals hire an outside consultant to take a snapshot of their operations and tell them how they can do it better. Then a cadre of 15 to 20 consultants march in. Their presence is felt everywhere and people get nervous and defensive. Employees are worried about layoffs, doctors get upset and administrators have to calm a lot of frayed nerves.

When the hospital implements the recommendations of these consultants, some real changes take place — these are talented, insightful professionals — and we begin to see some real savings. The benefits, however, tend to be short-lived. Since employees were not part of the process, no one sees the improvisations as their improvisations. After the consultants leave, everybody goes back to their old ways. It's a little like yo-yo dieting. You can lose the weight quickly, but can you keep it off over the long term?

Strategic performance improvement at Sacred Heart Hospital
We didn't want this to happen at Sacred Heart Hospital when we initiated strategic performance improvement three years ago. We wanted our improvements to become part of our culture so that the changes would be lasting. We wanted our staff to help create the improvements. And we didn't want to spend a great deal of money. We got all three things we wished for, even though these goals might seem a little contradictory. How can you have fewer consultants and deliver more lasting change? It turns out that less is more in this case.

Rather than a cadre of consultants, we brought in just one single consultant — Michael Rindler, president of Integrity Hospital Company — a real professional who we value for his flexibility, openness and bright ideas. We then set him to work "training the trainers" — showing our managers how to do what the chain of outside consultants usually do, which is to identify the changes we wanted to make, develop strategies to carry them out and to make sure that they are really working.

The consultant was thoroughly transparent. When he met with our department managers, he said, "Here's the kind of scrutiny we need to have, for these reasons." Once our managers understood the reasons why, they no longer thought, "Some guy told me to do this." It became part of the way they — and their employees — went about doing their work.

Once the consultant helped us achieve clarity on what needed to be done, we set goals in a very concrete way, based on percentage of net revenue.

Organizing managers into teams
We organized management into seven teams that would plan the process and carry it out. Rather than set up homogenous teams — clinicians teamed with clinicians, for example — we intentionally shook things up. So we had the head of housekeeping paired with the head of the ICU, and the head of the OR with the head of pharmacy.

These are people who wouldn't normally have much to do with each other, which is precisely why they worked so well together. Someone who doesn't know a lot about what the other is doing has to ask a lot of basic questions, such as "Why does such-and-such a person need to be doing this work at this particular place?" Or, "Have you thought about negotiating a better price for such-and-such a supply?"

Rather than giving our managers a list of things that needed to be cut, we wanted them to think it through and tell us what needed to be cut. Everyone had to give up something, but it couldn't be anything that could affect the quality of patient care. Somebody asked the manager of the cardiology department, "Do you really need to have 10 cardiology journals?" Only a few of these publications were being read. So, with staff and physician input, he whittled the number down.

Another principle of the process was that while we wanted to evaluate the effectiveness of each position in the organization, we did not want to have layoffs. Instead, if a position is vacated, we analyze it and decide whether it is necessary to refill it. We cut positions by attrition, not layoffs.

Creating a new culture
Although our managers led the process, we aimed for transparency. Our entire staff knew what was happening — this was not some big secret going on behind closed doors. In fact, we engaged our staff in the process. We asked everyone, "What can we do more efficiently?" We were interested in the impact on the front line.

Getting our staff involved was, in fact, one of key reasons why we were able to sustain positive changes over a long period of time. We created a new culture among our employees, a culture of questioning. When staff members sit down with vendors, they engage in the process. "Is that the best price you can give me?" they'll ask. "We've been a loyal customer for 10 years." Because of the change in attitude, we continue to find money.

The Results
The return on investment on our work was 10 times what we paid the consultant. Three years later, the changes have been sustainable. We didn't revert to the old way of doing things after he left.

More recently, we initiated a three-month process to focus on expense reduction with defined targets. Beginning in Jan. 2009, we used the same principles and structure to eliminate nearly $1 million in expenses for the remainder of the fiscal year (which ended in July 2009). This was a good exercise for several reasons — not just the budget savings. Our leaders were once again able to engage in the effort and leaders new to the organization were able to immerse themselves in the process to gain the skills and discipline necessary for success. While it is great to meet budget targets, it's even more gratifying to know that people are learning and growing.

Stephen F. Ronstrom has more than 25 years of hospital leadership experience, having served for the past 11 years as an executive in the Hospital Sisters Health System. He is currently president and CEO of the Hospital Sisters' Western Wisconsin division, which includes 344-bed Sacred Heart Hospital in Eau Claire, Wis. Learn more about Hospital Sisters Health System.