Health Care and the Networked Virtual Organization
Over the past decade, the Internet has allowed entire industries to incrementally
transform how they conduct business. The next wave of business innovation appears
to be that of the networked virtual organization (NVO), where companies evolve
their core competencies and outsource remaining activities to improve productivity,
cash flow, and profitability. An NVO is more efficient, effective, and adaptable
to changes in the market. NVO practices are being adapted across various industries,
including financial services (Schwab), public sector (governments of Singapore
and Ontario), retail (Wal-Mart), energy (British Petroleum), and high-tech (Cisco
and Dell).
Will the health care industry adopt the NVO business model? This white paper provides further background on the NVO concept and suggests that the health care provider community is in fact beginning to adopt some of these principles — and experiencing tangible benefits.
Emergence of the Networked Virtual Organization
Over the past several years, the health care industry, has experienced waves of business innovation using the Internet to maximize business benefit. The first wave of innovation in the late 1990s transferred disparate business functions (driving directions, dictation, newsletters, time and expense reporting, and so on) to the Internet without real process modification. Business benefit was measured in terms of "soft" metrics such as Web site "hits" or unique visits.
The second wave involved rethinking the lower-level business processes, such as e-learning for CME credentialing, to take advantage of the new, pervasive communication medium. Benefits certainly were more tangible (transcription cycle times were reduced from days to hours; clinical reports could be viewed from anywhere at reduced costs), but required more sponsorship from the business to secure end-user adoption.
The third wave of innovation involved providers integrating capabilities across business functions, streamlining processes to remove duplication and to improve overall enterprise efficiency. Most health care systems have either completed or are beginning enterprise resource planning (ERP) or computerized physician order entry (CPOE) initiatives. Cross-functional initiatives often provide the most benefit, although they are often the most complex and time-consuming.
Today most providers are experiencing this third wave of innovation. A recent business impact study (See Figure 1) shows the primary focus has been on internal business processes such as human resources, finance, marketing, and some customer support. Better integrating external processes with customers and partners (such as e-commerce band procurement) appear to be the next opportunity for the industry.
The Internet offers one-click decision-making, and consumers are demanding similar access to important health care services. Providing such an offering requires services that extend beyond those provided by a single company. A patient who wants to schedule a test at a hospital and receive instant confirmation doesn't need to know about physician schedules and pre-certifications. To the customer, these services are expected to be interoperable.
The NVO is the emerging fourth wave of business transformation. Companies that are moving toward an NVO business model are focused on three critical areas:
- Customer centricity: A culture and structure singularly focused
on improving the end-customer experience.
- Continuous standardization: Aggressively standardizing business
operations, data, and information technology systems. This standardization
leads to greater efficiencies in internal operations, as well as better management
of external interfaces with partners and customers.
- Separating core from context: Focusing on strategic business functions where the company can excel, and relying on partners for the tasks that do not differentiate the company.
There are notable world-class companies in other industries that collectively demonstrate these NVO principles. Wal-Mart's revenue growth is 20 percent above the retail industry average. Lockheed Martin has reduced design costs on its new fighter aircraft by 50 percent. Dell Computer's return on invested capital is triple the industry average.1
NVO could eventually provide many of the benefits promised by the failed community health information network concepts of the early 1990s, although the business models are very different. NVOs are much more organic in nature, where business relationships are dynamically forged and dissolved as appropriate. Community health information networks were politically doomed because of complex business models. NVO uses standards-based communication offerings of the Internet where community health information networks were challenged by the need for costly proprietary technology networks.
There are many examples of U.S. health care organizations that are adopting characteristics of the NVO. Although many health care organizations have deployed various elements of the NVO model, no provider would yet be considered an NVO. However, the business model is beginning to provide tangible benefits.
Customer Centricity
NVO customer centricity has three essential elements:
- Customers have robust access to information
- Partners have a common view of the customer
- The customer interacts with the NVO as one enterprise
For providers, NVO is discovering how to build integrated offerings with payers, suppliers, private physician practices, and its own care facilities to deliver more effective and efficient services.
Robust Information Access
At Kaiser Permanente, customers today have a broad range of services available through an online information portal, including interacting with their caregivers. The portal allows patients to access vital information such as their files, laboratory tests, or physician orders, giving them greater control of their health care management. Patients can also learn about diet and exercise, chronic conditions such as diabetes, asthma, and congestive heart failure, and engage in live chat sessions with caregivers through the portal. Use of the patient portal has been cited in the reduction of emergency room visits by 5 percent. For physicians, having patient prescription information online has reduced incorrect drug dispensing and reduced overall drug costs by 20 percent.
Common View of the Customer
The Indianapolis health care community realized that the patient medical record paradigm was fundamentally changing from organization-centric to patient-centric. To improve services and patient treatment, Indianapolis health care leaders created the Indianapolis Network for Patient Care (INPC), a community-wide electronic medical record system linking clinical and public health activities through a health network information infrastructure and standardized data and software applications. All institutions report laboratory data and hospital emergency room encounters. Over time, reporting will include admission and discharge summaries, operative notes, reports for radiology and pathology, and inpatient medications.
This shared network infrastructure enables patients to receive reliable, real-time delivery of care because the providers now have access to all vital information. If a patient checks into an emergency room, a message is immediately sent to the INPC. The INPC then provides a merged clinical abstract of results, received from all participating institutions, allowing for the best possible treatment.3 The effect on the community is enabling partners (such as physicians, nurses, social workers, or pharmacists) to create a common view of the customer, resulting in improved quality of care.
Customer View
Studies have indicated that the average doctor knows only about six out of ten prescriptions a patient takes, and one of ten admissions to a hospital. The majority of health care providers in Santa Barbara County, California, established a community-wide program called the Santa Barbara County Care Data Exchange to reduce these types of issues by aggregating data about the patient's care and treatments. Patient data is accessed from various partners within and without the program. This integrated information system is transparent to patients, and enhances their care and experience.
In addition to this common customer view of information and experience, other benefits of this integrated health care network are fewer emergency room admissions, fewer re-admissions, fewer medical errors, shortened hospital stays, enhanced revenue from proper coding, test-duplication avoidance, and staff efficiencies (minimizing the time spent requesting information, payer transaction costs, radiology, and lab savings).4
Continuous Standardization
Companies using the NVO business model rely on continuous standardization to accelerate innovation and to gain business economies of sale. Continuous standardization for the typical NVO is defined as:
- Strict adherence to standards
- Emphasis on incremental innovation
- Unrelenting focus on technology deployment
Strict Adherence to Standards
Like many health care organizations, TriHealth of Cincinnati, Ohio, was an organization with disparate physician communication networks, multiple workstations, and remote billing systems. With two hospitals and one hundred and twenty remote sites, TriHealth realized that migration to a standard corporate technology platform was essential to building a cohesive health care delivery system capable of sharing patient information over an extended regional network.
TriHealth began by standardizing on its security systems and implemented a secure virtual private network (VPN) solution for 50 of its remote offices. Today, this VPN solution is the core of its entire system, including its affiliated physician groups and remote transcriptionists. The system-wide security solution now enables secure remote access by its customers, which has contributed to quality-of-life enhancements for those it serves while better positioning the organization to meet the Health Insurance Portability and Accountability Act regulations.
Emphasis on Incremental Innovation
Today's health care organizations must deliver value to customers faster than the five- to seven-year service cycles they have traditionally undertaken. For an NVO, the focus is less on the destination (such as a single ERP implementation) and more on the journey (integrated order status reporting in year one, integrated order entry in year two).
Springhill Medical Center in Mobile, Alabama, is an organization that has focused on the migration with regard to its communication capabilities. Springhill is rapidly expanding its service offerings, including the recent addition of a 100,000-square-foot heart center. When it came to the facility communication requirements, Springhill chose to invest in a technology platform that would support the introduction of future business capabilities as well as meet current financial and performance requirements. Springhill implemented a voice-over-IP communication system that allowed the computers as well as more than 700 phones to use the same technology platform, reducing overall operating costs by 18 percent.5
One of the first incremental additions to use the converged network is a new patient-tracking system. With traditional PC-based access, the converged network also allows health care professionals to track patients using the console from any IP-based phone. Over time, Springhill can incrementally add capabilities such as integrated nurse paging or IP-based medical-device monitoring.
Unrelenting Focus on Technology Deployment
Based in Nashville, Tennessee, HCA is a leading provider of health care services, with more than 200 hospitals and 70 outpatient centers in 24 states. For HCA, business success relies upon combining technology with corporate strategy. HCA's CIO has designated five so-called alignment "solution leaders" to help close the gap between business and IT. For example, a senior executive from the information technology and services department was reassigned to the contracts and operations support department that monitors HCA's $3.2 billion annual supplies purchase of everything from bandages to heart-monitoring equipment.
This heightened level of collaboration between IT and business executives has led them to aggressively roll out new solutions, such as RFID-enabled warehouse management technology, an application to let hospital workers and administrators share ideas on ways to cut supply costs, and a range of e-procurement systems. This strategy of alignment and ruthless execution has achieved significant benefits. In the last three years, the idea-sharing application has saved HCA $100 million. HCA's cost of supplies has been steady at 16 percent for several years, while Cap Gemini Ernst & Young estimates the typical cost of supplies for providers to be between 20 percent and 30 percent.6
Separating Core from Context
Health care executive boards across the country are rethinking their organization's core business competencies and how external partnerships may create additional business value. In a recent VHA Inc. survey, 46 percent of health care executives believe the industry's methods of doing business change completely every five years; 93 percent believe that the pace of change is accelerating. Only 26 percent of the companies polled feel their organizations regularly reengineer processes to accommodate change and achieve improvement.
NVO organizations candidly and periodically determine what business functions are truly mission-critical and what activities are core to business success (see Figure 2). NVOs then focus resources on business functions that are both mission-critical and core to the organization. Partners help fulfill remaining operations. The actual business relationship varies according to the category of the business function.
What will NVOs look like in health care within the next several years? Some suggested business relations are listed in Figure 3. Studies indicate there will be a continued interest in outsourcing non-mission-critical, non-core activities such as payroll, staffing, and housekeeping.
Physician credentialing, a business function not traditionally outsourced, now can be handled by a variety of third-party organizations, such as Credentials OnLine, that offer a 10- to 14-day time reduction for the typical credentialing process.7 The "medical mall" concept is perhaps the extreme example of the NVO business model, where health care systems unbundle virtually all services, with the possible exception of marketing and customer support.
An almost exclusive focus on core capabilities could free necessary resources available to pursue new business opportunities. The Mexican Health Education Outreach Program, funded by NAFTA, is an example of several organizations bringing their best core competencies to address complex health care issues that none of the parties could do individually. Monterrey Tech University is a satellite-linked, Internet-enabled education system enabled by translating Stanford University's consumer public health information from English into Spanish. Students in Monterrey (funded in part by Reuters) are customizing the information to be delivered to rural populations. Monterrey Tech, acting as an NVO, concentrates on the functions that add the most value, in this case a virtual education environment. Partners such as Cisco Systems, Stanford University, Reuters, and the Monterrey Medical School perform the remaining functions as part of a shared vision and common goal of increased quality of care and efficiency.
Moving Toward the Networked Virtual Organization
It is too soon to know how the NVO business model will look for the health care provider industry. Providers are increasingly directing their operating budgets toward outsourcing activities (some estimates place it as high as 50 percent within the next five years). If future providers move toward an NVO model, the following needs to occur:
1. Executive commitment to change the culture of the organization: Is the leadership ready to lead a virtual organization with diminished span of control, dynamic resourcing, and real-time decision-making?
2. Process standardization: A provider has to truly simplify and standardize its business processes to become an NVO. Without standardization, it is very difficult to outsource business processes to partners or gain internal efficiencies.
3. Build a robust IT infrastructure: A robust IT infrastructure that efficiently interact with those of its partners and customers is essential to becoming an NVO. Outsourcing is only effective if the organization can monitor and track partners' activities as if they were their own.
4. Emphasis on execution for achieving near-term results: To achieve incremental innovation, businesses must demand short-term results and accept the risk. This is a difficult, but not an impossible task for the regulated health care industry.
Endnotes
1 Sifonis, John. et al. "The Bridge," Making Money the NVO Way. Cisco Systems, 2003.
2 Pfeiffer, Eric W. "Shock Therapy at Kaiser Permanente." CIO Insight Magazine. www.cioinsight.com
3 Indiana Network for Patient Care (INPC), http://informatics.regenstrief.org and Indiana University School of Medicine. October 29, 2002.
4 Paulus, M.D., Ronald, Santa Barbara County Care Data Exchange. CareScience
5 Sucher, Randy. "Springhill Medical Center Finds IT Outsourcing Formula," Journal of Healthcare Information Management Vol. 17, No. 2. p 46. Spring 2003.
6 CIO Insight Magazine. www.cioinsight.com. July 1, 2002.
7 www.CredentialOnline.com. March 7, 2003.
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- Strict adherence to standards
