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Arroyo Fresco Health Care CaseEssay

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Healthcare Management Project

Arroyo Fresco (AF) faces a challenging operating environment. The organization has, as part of its longstanding mission, a mandate to serve the entire community, regardless of ability to pay. This bumps AF up against fiscal constraints, including flat funding levels from different governments. AF management has only minimal control over the funding levels, if any at all, so it has to manage profitability in other ways. Its business can be broken down into segments that are unlikely to generate profits -- the poor, rural areas -- and areas that are more likely to be profitable, such as the Lake Havasu corridor. Management also has to look at the cost side of the business. Understanding the drivers of excellent performance will be critical.

New Strategy

There are certain elements of the original strategy that will need to be maintained. The mandate to serve the poor, rural communities and to serve customers regardless of ability to pay, for example, are mandates that will still be upheld. The new strategy, then, will focus on two key elements. One is to place more emphasis on the potentially profitable Lake Havasu corridor and thus to compete for business there from retirees and vacationers. The other is to focus on cutting costs without a corresponding reduction in service.

Lowering the cost base is challenging for a few reasons, but there are some good long-term approaches that the organization will implement. First, investing in training and equipment is a means by which the overall quality standards can be improved. One cost factor is the needless cost associated with legal defense, particularly for malpractice. Taking steps to avoid such costly distractions, by investing in staff, is a means by which we can succeed.

HR Policies

Human resources plays a role in a few other ways as well. Recruiting and retention strategies will be altered. We know that it is easier to recruit for urban areas than rural, but areas like Lake Havasu are an exception. Nurses and doctors who are nearing retirement can be drawn to the area, and other professionals can also be drawn by the promise of steady work and a great climate. Having an attractive area should help us get more people, and better people, especially when combined with strategies that provide career paths for talented people, and the training to pursue their dreams.

The investment in infrastructure in the "retirement zone" around Lake Havasu is going to also target new revenue streams. Grants and Medicaid account for almost all of the revenue for AF at present, with 49% and 33% respectively. Medicare is only 6%, which means that AF is not capturing a proportional amount of the seniors' business in the area. Moreover, self-pay and private insurance are only 6%. This means that AF has tremendous opportunity to build out services that cater more to seniors, but also to private insurers, in order to increase the share of these different payer categories. From 18% currently, the long-run target for these payers should be more in the range of 30%, in order to offset the flatlining or decreasing revenue from grants and Medicaid. The long-run sustainability of the organization depends on having new revenue streams, and it is clear that AF is not presently attracting a large enough share of the more lucrative payer groups in the area.

Some of the other elements of the new strategy will involve building on things already in place. For example, the informal rewards system that AF currently employees can be formalized. Means can be found to quantify outcomes, and then rewards based on that. With that approach, the organization can motivate workers towards specific behaviors and outcomes with rewards that are understood ahead of time -- performance targets are more effective than ad hoc rewards. These rewards can be instituted at all levels of the organization. For nurses and other medical staff, the rewards can be focused on patient care and satisfaction. Sales personnel and senior management should have targets related to the strategic focus on attracting more lucrative payer groups. Human resources personnel can be rewarded for recruitment and retention targets.

The FOCUS Objectives

What some of the new strategy will do is to put more clear targets to the FOCUS objectives. The FOCUS objectives are good in terms of setting a general direction, but they are also generic in the sense that every health care provider will have similar objectives. Ultimately, in order to compete, AF has to have more specific objectives. The ideas and ideals outlined in FOCUS need to be operationalized in a way that specifically drives behavior. That is where the specific targets and rewards related to those targets comes into play.

As one example, a tactic related to strategy is to "improve collection rates." This is great, but there are two things missing. One is the current and target state. The A/R team needs to understand where it wants to be with respect to collection rates. The other thing missing is an explanation of how this will be achieved. Stating a generic objective, especially one that is obvious, does not help to motivate creative problem-solving. There is a difference between how the organization would handle a lousy collection rate that needs to be improved dramatically and a good collection rate that only requires incremental improvement. Further, if the collection rates are poor, then this needs to have a higher order of responsibility than just one department. More important items need to have oversight higher up the organizational chart.

One change that will be made to FOCUS is to shift away from the idea that some elements of strategy only have one or two stakeholders. This makes sense when analyzed in a superficial manner, for example that improving volunteer happiness has volunteers as a stakeholder. In truth, strategy is broad, and it affects everybody. Staff, patients and management are all affected by the satisfaction and performance levels of volunteers. A shift in the mindset with respect to strategy is necessary, in that all elements of strategy inherently affect all stakeholders. A total stakeholder approach to strategy, one that reflects the interconnectedness of the different stakeholders through the organization, will allow for everybody at AF to realize that everything they do affects the outcomes of everybody else. This will allow for everybody to realize that they are pulling in the same direction -- satisfying one element of strategy should not be mutually exclusive to satisfying another.

Analysis of Results

Overall, AF has been successful in the past several years. Working with more refined metrics, and a clearer sense of focus, the organization has delivered improvements in several areas. Financially, the organization was not profitable in 2001, and has built itself into a profitable entity by 2005. AF's revenues have increased significantly, and it looks to be collecting a slightly better percentage of those revenues. The growth in revenues has been slightly faster than the growth in expenses. While there is definitely some room for improvement, AF is getting closer to the state-best levels for revenues. This indicates that the system is on the upswing. However, its financial fortunes do appear to have been cyclical -- worst in 2001 during recession and best in 2005 during boom. The coming years, and changes in the economic cycle, will be revealing, in particular to see where collections end up in the next economic slowdown.

Growing market share, particularly in Mohave, has been one of the most important elements of strategy for AF. This area was targeted because it is wealthier than the other counties and represents an opportunity to shift the payer base of the organization as a whole. While AF still has a lower market share in Mohave than it does in the other two counties, its share in Mohave is now over 10%, and still growing, which means that AF is moving in the right direction in the market.

Other metrics have also seen improvement. Staff assessment of leadership, teamwork and other elements of the workplace have generally improved across the system in the past several years. This should have positive outcomes with respect to things like recruitment and retention over time. Cost savings have been substantial, and this relates to many of the tactics that have been undertaken to improve the quality of staff and the work environment.

On many other measures, ranging from community climate to information availability to wait times, improvements have been made across the board. In the strongest areas, AF significantly outperforms the national average. There are very few if any metrics where AF has not improved its performance on the basis of implementing its strategy. Over the past several years, the focus on both staff and patients has started to get the organization trending in the right direction. Confidence in leadership is higher, and that has helped with the implementation of the different strategy elements.

Recommendations for the Future

The current performance trends are almost entirely positive, so the core of the recommendations for the future… [END OF PREVIEW]

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