The Ireland Report on Succeeding in Women's Health, 1999
© The Ireland Corporation, 1999. All Rights Reserved.

Introduction

With the ongoing transformation of healthcare markets into more sophisticated managed care stages, hospitals and healthcare systems are realizing the benefits of fully coordinated service lines. With this increased sophistication has come the need to see service line development as an operational function, not just marketing or program development. In addition, hospital Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) are experiencing increased pressures to allocate financial resources sparingly. The result of all this is that more hospitals are mandating that service lines be fully developed prior to committing funds for needed capital or operational improvements. This development process can best be accomplished by preparing a service line business plan.

What is a Business Plan?

A business plan is a process, culminating in a document wherein a service line's viability is evaluated, required resources are identified, and implementation processes are outlined. In conventional planning situations, an organization develops a strategic plan to state overall direction and define the parameters of that direction. Strategic plans then drive the

development of business plans and marketing plans. Business plans answer key strategic questions and assess the market in more specificity, with the main purpose being that of identifying resource requirements and financial viability. Marketing plans provide the road map for service introduction and promotion.

Because service lines cut across all hospital disciplines (operations, physicians, marketing, etc.), service line business plans incorporate many of the elements of strategic and marketing plans. Service line business plans, however, should not take the place of carefully developed strategic direction for the organization.

The size, content, and overall look of a service line business plan depend on the hospital's requirements, the purpose of evaluation, and historical precedence. Some hospitals have business plan formats, others have no detailed formats, but do have expectations for financial return, market penetration, or capital requirements. Although someone is principally

responsible for preparing the business plan (usually the service line director), most plans involve considerable hospital resources. For women's services, the departments usually involved in the planning process are obstetrics (labor & delivery and postpartum), women's outpatient services, surgery, NICU, finance, marketing, planning, development, MIS, and operations. These departments will be very involved in gathering data for the plan, and may even prepare portions of the document.

Before beginning the business planning process, the service line director should discuss the expectations, format, etc., with the hospital's CEO, CFO, or planning department.

Recognizing that some institutions have their own formats, most service line business plans address six major topics:

1. Service Line Definition

2. Customer Identification

3. Competitive Analysis

4. Financial Analysis

5. Resource Requirement Identification

6. Financial Contribution and Performance Assessments

Each of these sections will be considered below through a series of questions.

SERVICE LINE DEFINITION

The first three questions define the service line.

1. What is the service line? Although seemingly basic, this question helps identify what the service line is all about. This is particularly important with women's services, where service lines vary from only obstetrics, to an all-encompassing women's health program including non-reproductive services. Without a clear definition of the service line, and which programs and services it will offer, it is impossible to continue with the planning process.

2. Why should it be developed and what will it accomplish? This question addresses how the service line fits with the hospital's mission, strategic direction, competitive position, and overall service line commitment. It also includes a statement of the goals and objectives for the service line, and how those goals fit with the overall strategic plan of the organization.

3. How will the women's service line benefit the organization? It is important to address the contributions of the service line to other hospital services. For women's health, a strong service line serves as a gateway to other services within the hospital or system. Those benefits should be identified in the plan.

4. What is the scope of services to be provided? Once the service line is defined, the scope of services should be identified. The scope might include some or all women's services along the continuum of care, including obstetrics, outpatient gynecological surgery, inpatient gynecological surgery, mammography, newborn but not NICU, newborn and NICU, outreach programs, education, etc.

CUSTOMER IDENTIFICATION

Once the service line is defined, the next three questions provide insight into the customer base.

5. Who are the customers? The business plan identifies the customers who will utilize the identified women's services. Customer identification should include every stakeholder group that can positively impact the service line. Customers include much more than just patients, however. Physicians, other healthcare providers, other hospitals, community health centers, employees, insurers, third party payors, and area businesses are examples of customers impacting women's services.

6. What do the customers want? Finding out what each customer group wants is as important as identifying the customers. Market research is the vehicle for determining customer needs. Market research can be quantitative or qualitative. Quantitative research provides statistically valid results, and usually requires that a large number of people respond to questions. Large

community and patient surveys are examples of quantitative research. Qualitative research is the non statistically valid "soft" research. This type of research provides vital information on how stakeholders feel about the service, and what helps them make decisions. Focus groups and one-to-one interviews are qualitative research examples. Identifying customer needs should include both quantitative and qualitative research.

7. Where will the customers come from? Once the customers and their needs have been determined, the business plan identifies from where they will come. This may include new geographic areas, new demographic populations, new physicians, new referral sources, and relationships with hospitals outside the service area. Since women make the majority of healthcare decisions for their families, the business plan should further define this customer base by categories such as life stages, occupations, socio-economic status, etc.

COMPETITIVE ANALYSIS

Following customer identification, the business plan addresses the competitive environment to determine the opportunities for achieving the anticipated volumes, and the potential threats of expanding in the marketplace.

8. Who are the competitors? Business plans identify all competitors and assess their strengths and weaknesses. For women's services, competitors would not only include other hospitals, but might also include physicians (such as radiologists for mammography services), and ambulatory surgery center owners for gynecological surgery, etc.

9. How do they compare? Once competitors are identified, the business plan should include an evaluation to determine how each one compares to the proposed service line services. Basic categories of comparisons might include:

a. Scope of services

b. Overall market share

c. Location of services

d. Price for services

e. Quality initiatives

f. Technology advances

g. Financial capabilities

h. Provider complement and support

One very critical element in comparing service lines is the understanding of how the above categories impact decision-making. Since all customers have different needs, each would rank the above categories differently. Market research (see #6 above) helps identify the choice attributes and provides insight into why the customers make the decisions they make.

FINANCIAL ANALYSIS

One of the most important aspects of a business plan is determining the financial viability of the service line. However, this section of the plan is often dictated by the hospital or healthcare system. Hospitals usually have specific forms and/or policies regarding financial pro forma statements, including format, number of planning years, return on investment requirements, etc. Before proceeding with this section, service line directors should contact the CFO for direction. Often, the CFO's department will provide technical support in developing the financial statements.

10. How many patient visits will result from service line development? For each service identified in the business plan, the number of patient visits should be projected. Projections take into account current volumes and anticipated growth trends, physician activity and capacity, market share projections, facility capacity, and competitive reaction, to name a few.

11. How much revenue will be generated by the service line? For each service identified in the business plan, revenues can be calculated using volumes and charges for each service. Revenues can be detailed or general, depending on need. Some of the elements to consider when developing revenue projections include:

a. Revenue per day or per case

b. Gross charges or net revenue

c. Payor discounts and contractual allowances

d. Anticipated price increases

12. How much will it cost to operate the service line services? As with the revenue side of the financial statement, the cost to operate each identified service will also vary in detail and concept. Generally, hospitals do not have very good costing capabilities, hence the methods for determining costs vary greatly. Examples of costing methods include costs per case or per day, direct and indirect costs, and costing by ratios.

The result of the financial analysis in the business plan is an operational financial statement.

RESOURCE REQUIREMENT IDENTIFICATION

Developing a service line requires many resources, some financial and some not. The business plan identifies those resources and determines the magnitude of time, money, and staff required.

13. What capital resources are required? Capital resources refer to the facility and equipment needs of the service line. Existing women's services, requiring only organizational changes, may need little or no capital. Service lines requiring facilities and equipment (developing women's centers, constructing new LDRP units, expanding existing programs, etc.), require

significant capital for both construction and equipment. Most hospitals have budgeting processes to approve capital needs, as well as capital expenditure processes to actually request and receive the funds. Service line directors should be aware of these processes prior to requesting capital.

14. What physician resources are required? Projected volumes for new and enhanced women's services require an assurance that there are sufficient physicians to provide the services. If projected volumes are higher than existing physician capacity, a medical staff development plan should be prepared to recruit the necessary physicians.

15. What human resources are required? Service lines expanding into new services, or anticipating significant growth, must consider the staffing implications. This is particularly true in those parts of the country experiencing shortages of key specialties, such as radiology technicians and registered nurses. The service line's organizational structure and integration with other hospital departments should also be addressed in the plan.

16. What start-up marketing resources are required? Starting a new service line, or redefining an existing one, requires considerable resources for new collateral, marketing, advertising, tours, open houses, ribbon cutting, education, and so forth. Service line directors should work closely with the hospital's marketing department on these issues.

FINANCIAL CONTRIBUTION AND PERFORMANCE ASSESSMENTS

After developing the financial statements and assessing the resource requirements, the business plan should address the financial contribution of the service line and monitor anticipated performance.

17. What will be the resulting financial contribution of the service line? The financial contribution of a service line is more than just the "bottom line" shown on the financial statement. In fact, women's services contribute to a hospital's financial viability in three different ways.

# Directly from the service line financial statements. For women's services, this would be the combined financial contribution of those departments directly related to the service and included in the business plan.

# Indirectly from the service line patients utilizing ancillary services. The typical obstetrical patient uses the labor and delivery and postpartum departments. She also uses the laboratory, pharmacy, radiology, and central supply departments. Yet on the financials of most hospitals, the revenue she generates in those departments shows up in those departments, not in women's services.

# Indirectly from the service line's impact on other service lines. Having strong women's services grows other service lines, such as medicine for pregnant women with diabetes, and pediatrics for children.

The total financial contribution of women's services to an organization is the sum of the three contributions outlined above.

18. How will the ongoing performance be monitored? Most business plans include performance indicators to determine at what downside point the service should be discontinued, as well as to monitor ongoing success. Performance indicators vary by institution, but usually have the following characteristics:

a. They tie to the hospital's goals, objectives, and critical success factors

b. They include a measurable base line, i.e. a starting point

c. They identify ways to track progress through data collection

d. They include a goal or a determinable outcome

e. They include a timing element to review progress.

A FINAL WORD

Women's service line business plans are an important part of any planning process. They require input from many departments, and can be time consuming. However, they provide strategic direction, financial ramifications, operational needs, and resource requirements. More importantly, business plans provide clarity of purpose and are invaluable tools in garnering support and commitment for women's services throughout the organization.

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© The Ireland Corporation, 1999. All Rights Reserved.

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