Health Care and the Networked Virtual Organization

Cisco Systems® White Paper

The Networked Virtual Organization (NVO) represents a new business model made possible by the Internet. Separating an organization’s core competencies from its general business operations and linking all components online may lead to greater health care efficiencies and customer satisfaction. Internet Business Solutions Group, Cisco Systems

Over the past decade, the Internet has advantage of the new, pervasive communication medium. allowed entire industries to incrementally Benefits certainly were more tangible (online courses could transform how they conduct business. The be completed faster and at lower cost), but required more next wave of business innovation appears sponsorship from the business to secure end-user adoption. to be that of the networked virtual organi- Most providers are now undertaking a third wave of innova- zation (NVO), where companies evolve tion, namely the integration of capabilities across business func- their core competencies and outsource tions to improve overall efficiency. Most health care systems have remaining activities to improve productivity, cash flow, and either completed or are beginning enterprise resource planning profitability. An NVO is more efficient, effective, and adapt- (ERP) or computerized physician order entry (CPOE) initiatives. able to changes in the market. NVO practices are being Cross-functional initiatives often provide the most benefit, adapted across various industries, including financial services although they are often the most complex and time-consuming. (Schwab), public sector (governments of Singapore and Today most providers are experiencing this third wave Ontario), retail (Wal-Mart), energy (British Petroleum), and of innovation. A recent business impact study (See Figure 1, high-tech (Cisco and Dell). below) shows the primary focus has been on internal business Will the health care industry adopt the NVO business processes such as human resources, finance, marketing, and some model? This white paper provides further background on the customer support. Better integrating external processes with cus- NVO concept and suggests that the health care provider com- tomers and partners (such as e-commerce band procurement) munity is in fact beginning to adopt some of these principles appear to be the next opportunity for the industry. – and experiencing tangible benefits.

Wholesale/ Financial SP/ All Other Health Care MFG. Emergence of the Networked Retail Trade Services Telecom Industries Virtual Organization Over the past several years, the health care E-Marketing 60% 59% 73% 71% 74% 71% industry, has experienced waves of business Customer Service 60% 73% 64% 78% 86% 73% innovation using the Internet to maximize and Support business benefit. The first wave of innovation E-Commerce 37% 62% 50% 50% 69% 50%

in the late 1990s transferred disparate busi- Finance and 57% 39% 23% 61% 42% 35% ness functions (driving directions, dictation, Accounting Human newsletters, time and expense reporting, and 63% 23% 24% 27% 37% 43% so on) to the Internet without real process Resources Procurement 34% 36% 32% 23% 44% 32% modification. Business benefit was measured /MRO in terms of “soft” metrics such as Web site Sales Force 13% 46% 27% 22% 50% 28% “hits” or unique visits. Automation Supply Chain The second wave involved rethinking the 31% 31% 31% 15% 27% 29% lower-level business processes, such as Management Figure 1 U.S. Adoption of Internet-Based Solutions by Market Source: Net Impact Study, 2002 e-learning for CME credentialing, to take

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The Internet offers one-click decision-making, and model, no provider would yet be considered an NVO. However, consumers are demanding similar access to important health the business model is beginning to provide tangible benefits. care services thas is provided by multuple organizations. A patient who wants to schedule a test at a hospital and receive Customer Centricity instant confirmation doesn’t need to know about physician NVO customer centricity has three essential elements: schedules and pre-certifications. To the customer, these • Customers have robust access to information services are expected • Partners have a common view of the customer to be interoperable. • The customer interacts with the NVO as one enterprise The NVO is the emerging fourth wave of business transformation. Companies that are moving toward an For providers, NVO is discovering how to build integrated offer- NVO business model are focused on three critical areas: ings with payers, suppliers, private physician practices, and its • Customer centricity: A culture and structure singularly own care facilities to deliver more effective and efficient services. focused on improving the end-customer experience. • Continuous standardization: Aggressively standardizing Broad Information Access business operations, data, and information technology At Kaiser Permanente, customers today have a broad range systems. This standardization leads to greater efficiencies of services available through an online information portal, in internal operations, as well as better management of including interacting with their caregivers. The portal allows external interfaces with partners and customers. patients to access vital information such as their files, • Separating core from context: Focusing on strategic busi- laboratory tests, or physician orders, giving them greater ness functions where the company can excel, and relying on control of their health care management. Patients can also partners for the tasks that do not differentiate the company. learn about diet and exercise, chronic conditions such as diabetes, asthma, and congestive heart failure, and engage in There are notable world-class companies in other industries live chat sessions with caregivers through the portal. Use of that collectively demonstrate these NVO principles. Wal-Mart’s the patient portal has been cited in the reduction of emergency revenue growth is 20 percent above the retail industry average. room visits by 5 percent. For physicians, having patient 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.

Lockheed Martin has reduced design costs on its new fighter prescription information online has reduced incorrect drug aircraft by 50 percent. Dell Computer’s return on invested dispensing and reduced overall drug costs by 20 percent. capital is triple the industry average.1 NVO could eventually provide many of the benefits promised Common View of the Customer by the failed community health information network concepts of The Indianapolis health care community realized that the the early 1990s, although the business models are very different. patient medical record paradigm was fundamentally changing NVOs are much more organic in nature, where business relation- from organization-centric to patient-centric. To improve serv- ships are dynamically forged and dissolved as appropriate. ices and patient treatment, Indianapolis health care leaders cre- Community health information networks were politically doomed ated the Indianapolis Network for Patient Care (INPC), a com- because of complex business models. NVO uses standards-based munity-wide electronic medical record system linking clinical communication offerings of the Internet where community health and public health activities through a health network informa- information networks were challenged by the need for costly pro- tion infrastructure and standardized data and software applica- prietary technology networks. tions. All institutions report laboratory data and hospital emer- There are many examples of U.S. health care organizations that gency room encounters. Over time, reporting will include are adopting characteristics of the NVO. Although many health admission and discharge summaries, procedure notes, reports care organizations have deployed various elements of the NVO for radiology and pathology, and inpatient medications.

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This shared network infrastructure enables patients to receive tion networks, multiple workstations, and remote billing systems. reliable, real-time delivery of care because the providers now have With 2 hospitals and 120 remote sites, TriHealth realized that access to all vital information. If a patient checks into an emergency migration to a standard corporate technology platform was essen- room, a message is immediately sent to the INPC. The INPC then tial to building a cohesive health care delivery system capable of provides a merged clinical abstract of results, received from all par- sharing patient information over an extended regional network. ticipating institutions, allowing for the best possible treatment.3 TriHealth began by standardizing on its security systems The effect on the community is enabling partners (such as physi- and implemented a secure virtual private network (VPN) cians, nurses, social workers, or pharmacists) to create a common solution for 50 of its remote offices. Today, this VPN solution view of the customer, resulting in improved quality of care. is the core of its entire system, including its affiliated physician groups and remote transcriptionists. The system-wide Customer View security solution now enables secure remote access by its cus- Studies have indicated that the average doctor knows only tomers, which has contributed to quality-of-life enhance- about six out of ten prescriptions a patient takes, and one of ments for those it serves while better positioning the organi- ten admissions to a hospital. The majority of health care zation to meet the Health Insurance Portability and providers in Santa Barbara County, California, established a Accountability Act regulations.

Today’s health care organizations must deliver value to customers faster than the five- to seven-year service cycles they have traditionally undertaken.

community-wide program called the Santa Barbara County Emphasis on Incremental Innovation Care Data Exchange to reduce these types of issues by aggregat- Health care organizations must deliver value faster than the 5- ing data about the patient’s care and treatments. Patient data is to 7-year implementation cycles. For an NVO, the focus is accessed from various partners within and without the pro- less on the destination (such as a single ERP implementation) gram. This information system is transparent to patients, and and more on the journey (integrated order status reporting in enhances their care and experience. year one, integrated order entry in year two). In addition to this common customer view of information Springhill Medical Center in Mobile, Alabama, is an and experience, other benefits of this integrated health care net- organization that has focused on the migration with regard work are fewer emergency room admissions, fewer re-admis- to its communication capabilities. Springhill is rapidly sions, fewer medical errors, shortened hospital stays, enhanced expanding its service offerings, including the recent addition revenue from proper coding, test-duplication avoidance, and of a 100,000-square-foot heart center. When it came to the staff efficiencies (minimizing the time spent requesting infor- facility communication requirements, Springhill chose to mation, payer transaction costs, radiology, and lab savings).4 invest in a technology platform that would support the introduction of future business capabilities as well as meet Continuous Standardization current financial and performance requirements. Springhill Companies using the NVO business model rely on continuous implemented a voice-over-IP communication system that standardization to accelerate innovation and to gain business allowed the computers as well as more than 700 phones to economies of sale. Continuous standardization for the typical use the same technology platform, reducing overall operating NVO is defined as: costs by 18 percent.5 • Strict adherence to standards One of the first incremental additions to the converged • Emphasis on incremental innovation network is a new patient-tracking system. Along with tradi- • Unrelenting focus on technology deployment tional PC-based access, the converged network also allows health care professionals to track patients using the console Strict Adherence to Standards from any IP-based phone. Over time, Springhill can incre- Like many health care organizations, TriHealth of Cincinnati, mentally add capabilities such as integrated nurse paging or Ohio, was an organization with disparate physician communica- IP-based medical-device monitoring.

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Unrelenting Focus on Technology CORE CONTEXT Deployment Any activity that contributes Any activity that does not Based in Nashville, Tennessee, HCA is a to competitive advantage contribute to competitive leading provider of health care services, with for the company advantage for the company more than 200 hospitals and 70 outpatient centers in 24 states. For HCA, business MISSION-CRITICAL success relies upon combining technology Any activity that, if • Engage and control • Disengage and enlist with corporate strategy. HCA’s CIO has performed poorly, would pose an • Continue in-house • Out-task and maintain designated five so-called alignment “solution immediate risk to a lot of control leaders” to help close the gap between the company business and IT. For example, a senior executive from the information technology NON-MISSION CRITICAL and services department was reassigned to the • Disengage and entrust • Disengage and entrust Any activity that, if contracts and operations support department performed poorly, • Out-task and maintain • Outsource and give that monitors HCA’s $3.2 billion annual would not pose an some control up control supplies purchase of everything from immediate risk to bandages to heart-monitoring equipment. the company This heightened level of collaboration Figure 2 Potential NVO Governance Model for Providers between IT and business executives has led them to aggressively roll out new solutions, CORE CONTEXT such as RFID-enabled warehouse manage- Any activity that contributes Any activity that does not ment technology, an application to let hos- to competitive advantage contribute to competitive pital workers and administrators share for the company advantage for the company ideas on ways to cut supply costs, and a MISSION-CRITICAL range of e-procurement systems. This strat- • Business services Any activity that, if • Radiology egy of alignment and ruthless execution • Surgery services • Procurement performed poorly, • Dietary • Patient registration • Transcription has achieved significant benefits. In the would pose an • HR • CQI / risk management • I/T • Credentialing last three years, the idea-sharing applica- immediate risk to • Facilities management tion has saved HCA $100 million. HCA’s the company cost of supplies has been steady at 16 per- NON-MISSION cent for several years, while Cap Gemini • Payroll CRITICAL Ernst & Young estimates the typical cost of • Credentialing • Staffing sgencies Any activity that, if • Pharmacy services • Food services supplies for providers to be between 20 performed poorly, • Marketing • Housekeeping 6 would not pose an percent and 30 percent. • ER services • Planet services immediate risk to • Physical therapy Separating Core from Context the company Health care executive boards across the Figure 3 Potential NVO Portfolio for Typical Provider country are rethinking their organization’s core business competencies and how external partnerships then focus resources on business functions that are both mis- may create additional business value. In a recent VHA Inc. sion-critical and core to the organization. Partners help fulfill survey, 46 percent of health care executives believe the indus- remaining operations. The actual business relationship varies try’s methods of doing business change completely every five according to the category of the business function. years; 93 percent believe that the pace of change is accelerat- What could NVOs look like in health care within the next ing. Only 26 percent of the companies polled feel their organ- several years? Some suggested business relations are listed in izations regularly reengineer processes to accommodate Figure 3. Studies indicate there will be a continued interest in change and achieve improvement. outsourcing non-mission-critical, non-core activities such as NVO organizations candidly and periodically determine payroll, staffing, and housekeeping. what business functions are truly mission-critical and what Physician credentialing, a business function not tradition- activities are core to business success (see Figure 2). NVOs ally outsourced, now can be handled by a variety of third-party

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organizations, such as Credentials OnLine, that offer a 10- to Without standardization, it is very difficult to outsource 14-day time reduction for the typical credentialing process.7 business processes to partners or gain internal efficiencies. The “medical mall” concept is perhaps the extreme example of 3. Build a robust IT infrastructure: A robust IT infrastructure the NVO business model, where health care systems unbundle that efficiently interact with those of its partners and cus- virtually all services, with the possible exception of marketing tomers is essential to becoming an NVO. Out-sourcing is and customer support. only effective if the organization can monitor and track An almost exclusive focus on core capabilities could free nec- partners’ activities as if they were their own. essary resources available to pursue new business opportunities. 4. Emphasis on execution for achieving near-term results: The Mexican Health Education Outreach Program, funded by To achieve incremental innovation, businesses must NAFTA, is an example of several organizations bringing their demand short-term results and accept the risk. This is a best core competencies to address complex health care issues difficult, but not an impossible task for the regulated that none of the parties could do individually. Monterrey health care industry. Institute of Technology and Higher Education is a satellite- linked, Internet-enabled education system enabled by translat- Endnotes ing Stanford University’s consumer public health information 1 Sifonis, John. et al. “The Bridge: Making Money the NVO Way”. Cisco from English into Spanish. Students in Monterrey (funded in Systems, 2003. part by Reuters) are customizing the information to be delivered 2 Pfeiffer, Eric W. “Shock Therapy at Kaiser Permanente.” CIO Insight Magazine. to rural populations. Monterrey Tech, acting as an NVO, con- www.cioinsight.com centrates on the functions that add the most value, in this case a 3 Indiana Network for Patient Care (INPC), http://informatics.regenstrief.org virtual education environment. Partners such as Cisco Systems, and Indiana University School of Medicine. October 29, 2002. Stanford University, Reuters, and the Monterrey Medical School 4 Paulus, M.D., Ronald, Santa Barbara County Care Data Exchange. CareScience perform the remaining functions as part of a shared vision and 5 Sucher, Randy. “Springhill Medical Center Finds IT Outsourcing Formula,” Journal common goal of increased quality of care and efficiency. of Healthcare Information Management Vol. 17, No. 2. p 46. Spring 2003. 6 CIO Insight Magazine. www.cioinsight.com. July 1, 2002. Moving Toward the Networked Virtual Organization 7 www.CredentialOnline.com. March 7, 2003. It is too soon to know how the NVO business model will look for the health care provider industry. Providers are increasingly Copyright 2003 Cisco Systems, Inc. All rights reserved. Cisco, Cisco Systems, and the Cisco Systems logo directing their operating budgets toward outsourcing activities are registered trademarks or trademarks of Cisco Systems, Inc. and/or its affiliates in the U.S. and certain (some estimates place it as high as 50 percent within the next other countries. All other trademarks mentioned in this document or Web site are the property of their five years). If future providers move toward an NVO model, respective owners. The use of the word partner does not imply a partnership relationship between Cisco. the following needs to occur:

1. Executive commitment to change the weblink culture of the organization: Is the leadership ready to lead a The Cisco Systems Internet Business Solutions Group (IBSG) accelerates customer success by using Internet virtual organization with diminished span of control, technology to help customers achieve a competitive dynamic resourcing, and real-time decision-making? business advantage. Read more about NVOs and 2. Process standardization: A provider has to truly simplify other business solutions at http://business.cisco.com and standardize its business processes to become an NVO.