I’m a big fan of metrics-based service line analysis and the portfolio management framework that it provides for executive teams. I think it is the best way for provider organizations to manage their present financial performance and their future market positioning.
However, portfolio management in a crisis is an essential, but completely different exercise. Service line metrics are needed to make crucial decisions. In crisis planning, I have four service line questions. First, given the newly changed environment, what service lines have a positive margin or are at least break even? Second, what service lines have a negative margin and will draw down on available cash? Third, what service lines are critical to success after the crisis and need stabilization and investment? Lastly, when you put these service lines together and look at the entirety of organizational financial performance, if no changes are made, does the organization have enough cash to make it through the crisis period?
If the answer to the last question is “no,” service line portfolio management is the key to crisis recovery strategy. But while the concept of portfolio management sounds benign, the real-world consequences are many. In a meeting last week, I recommended that a chief executive officer close one of their organization’s most historic (and beautiful) service locations—at least until the end of the pandemic crisis when (hopefully) service demand will increase. The losses at that service location were too high for the organization to sustain any longer. But the result is more employees on furlough and a town without services.
Another example is my recent discussion with Howard Snyder, director of business development at ActiveDay, a provider organization offering adult day services through more than 115 centers in 12 states. He explained their dilemma—as they reopen centers, they find that adhering to social distancing in the facilities and in vehicles providing transportation has limited maximum capacity to approximately 50%. While this may be close to breakeven in larger centers, programs serving 30 or fewer members are unsustainable. Mr. Snyder lamented, “We have already made the terrible decision to permanently close a number of such smaller centers. It’s crushing to walk away from these smaller communities where there are often few alternatives for members.” And he pointed out that most states have provided minimal, if any, support in the form of retainer payments, grants, or fees for remote wellness services. “Allowing vocational rehabilitation provider organizations to suddenly offer in-home care is not a viable pivot, the rates do not support a facility-based infrastructure and a transportation fleet of vehicles,” he noted.
These are just a couple examples of what is happening across the country (see The Sound Of Closing Doors and 68% Of I/DD Provider Organizations Closed One Or More Service Lines Due To The COVID-19 Pandemic). Some of our recent coverage of decisions to close include:
- University Of Washington Medicine To Permanently Close Psychiatric Facility
- Hallworth House Rehabilitation & Nursing Center To Close, Citing Financial Losses From COVID-19
- Minnesota Health Action Group Announces Intent To Dissolve Organization
- HealthPartners Closing Seven Clinics Due To Pandemic
- Trinity Health To Terminate Psychiatric Beds In Massachusetts
- Holyoke Medical Center To Close Maternity Services Unit
- Rock Prairie Behavioral Health To Permanently Close
- Joseph’s Health To Close 2 Urgent Care Centers
- Saint Luke’s Health System Announces Closure Of Cushing Hospital
- Rose Haven Assisted Living To Close Facility
And there is a bigger issue in portfolio management in a crisis. I am big believer that a crisis is the time to invest in the service lines that are key to an organization’s recovery strategy, even if this means increasing the losses in those particular service lines. Executive teams need to assure that their organization is ready to perform in the “new normal” when the crisis period is over (we’re currently using February 2021 as that likely date, based on vaccination availability information). For many organizations, that means new investments. The pain in making this decision is that it may require taking resources from other programs.
As we look ahead to the continuing pandemic crisis and (hopefully) an end in the new year, executive teams can use service line analysis (I like weekly statistics) and portfolio management to guide their recovery plan. My colleague and OPEN MINDS Senior Associate George Braunstein recently did a deep dive into this topic in his web briefing, Service Line Portfolio Management In Crisis Recovery Planning – Making The Tough Decisions. And there are a wealth of resources and examples on managing service line portfolios in our OPEN MINDS Industry Library:
- Diversification As A Financial Sustainability Strategy
- New Service Line Development: The OPEN MINDS Step-By-Step Approach To Developing Innovative Programs
- Building & Executing Strategy In A Complex Market—A Three-Phase Best Practice Model For Success
- Revenue Maximization During Times Of Disruption – Building Top Line To Sustain Margins – An Overview
- How To Develop A Strategic Plan: An OPEN MINDS Executive Seminar On Best Practices In Strategy, Portfolio Management & Scenario-Based Planning
- Building A Value-Based Sustainability Strategy: How To Develop Innovative Programs & Manage Your Service Line Portfolio
- Do Something Different, “Differently” – A Specialist Provider Organization Guide To Building A New Strategy For Service Line Sustainability
- For Crisis Recovery, The Best Defense Is A Good Offense
- The Pandemic Provides A New Urgency For The Integrated Care Issue
- Paddling Four Canoes To Steer Through The Crisis
Elite-level members of OPEN MINDS Circle can get a virtual meeting with one of our senior advisors to review their service line analysis and portfolio management practice through our new QuickConsult program. To schedule a complimentary session, call 855-559-6827 or email firstname.lastname@example.org for more information.
And for more on crisis recovery strategy, join OPEN MINDS Senior Associate Paul Duck on August 13 at 1:00 pm EDT for the web briefing, Planning For Revenue Expansion By Expanding Your Service Area – From Market Analysis To Launch.