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How Change Management Can Make Financial Impact in a Community Hospital

Community hospitals are fighting some of the biggest problems in healthcare, with little access to the resources and support they need to achieve healthy margins and drive better care for their patients.

To fulfill the critical need to plan, community hospitals take on the traditional budget—a remnant of the early days of manufacturing—but find that it becomes a drain on what support they do have. It eats up their time. It monopolizes their resources. Finally, it’s quickly out of date due to the ever-changing healthcare landscape. Faced with the obstacles inherent to their traditional budgeting process, leaders at Davis Health System began to think critically about the value being added by the current approach. This two-hospital system—comprised of two community hospitals in West Virginia—began to reevaluate how they could execute a budgeting process that drove more value and efficiency within their organization.

This challenge is not uncommon in the world of hospital finance, especially at the community level where margins are razor thin. Traditional budgets tend to require months of preparation and a great amount of the team’s attention but become out of date almost immediately after they’ve been finalized. The constantly shifting healthcare environment, paired with internal changes like new acquisitions or reorganizations, can result in a budget with inevitable variances. In the end, users end up explaining variances in the budget, rather than focusing on opportunities that arise when you evaluate variances in performance.

With these considerations in mind, leaders at Davis Health System took it upon themselves to shift their approach to a more efficient, sustainable budgeting process. CFO and Vice President for Finance Melanie Dempsey and Controller William Koch knew they would need to engage leaders from across functions to gain buy-in for a new mindset and methodology: Dynamic Planning.

At first, Dempsey and Koch were utilizing a phased implementation to ease the shift to a better budgeting process. But after attending Strata Decision Technology’s Lift18 – The Strata Decision Summit, and hearing from a number of organizations implementing a full transition to Dynamic Planning, the two realized it was time to take the plunge.

They pulled the plug on traditional budgeting— and made a full transition to Dynamic Planning in preparation for the upcoming FY20 plan.

 

Leveraging Strata Decision Technology’s Professional Services, Dempsey and Koch implemented proven metrics and forecasting processes based on their unique culture and needs. They teamed up with other leaders to drive this cross-functional shift to Dynamic Planning, with big results.

“Our Health system’s budgeting process had become obsolete; we found that our leadership team was continuing the process for comfort rather than usefulness,” says Dempsey. “Our leadership team consists of 60+ management team members that were spending from 4-5 months preparing and discussing budget plans, only to tell us 2-3 months into the year that the budget wasn’t accurate because so many factors in our business had changed.

Changing a process that is engrained in management is never easy—we’ve had challenges. It has served as a catalyst for more meaningful conversation within our team. Instead of asking for a new FTE ‘because it’s in my budget,’ managers are first looking at their volumes and unit of service metrics to evaluate if their business supports an additional FTE based on data. While we are still early in our journey, we’ve found benefits in the flexibility and ability to respond more quickly to business changes, physicians coming and going, payer changes and utilization.”

While community hospitals lack some of the resources that their larger peer systems operate with, leaders can still leverage forward-thinking mindsets, skillsets, and even toolsets to drive efficiencies and take advantage of opportunities to make a financial impact within their organization.

At Davis Health System, the shift to a new financial planning approach helped reduce the immense lift required by the traditional budgeting process and free up time and energy to tackle other ongoing challenges.