Duke Children’s Hospital is a part of large Duke University Health System: it belongs to the facility named Duke University Hospital, and represents a cluster with 135 beds (Meliones, Ballard, Liekweg & Burton, 2001). Duke Children’s Hospital employs 800 people, and has about 30,000 outpatients and 6,000 inpatients every year (Meliones, Ballard, Liekweg & Burton, 2001). In 1996, financial situation at Duke Children’s Hospital was critical, as net margin significantly decreased, and many programs could be stopped or eliminated. Medicaid allowances have decreased, while the number of patients has grown, and the costs per case have increased by almost 1.5 times during three years (in the 1993-1996 period) (Meliones, Ballard, Liekweg & Burton, 2001). In addition to that, the level of satisfaction for staff and patients was quite low, and productivity has dramatically decreased.
These challenges led to the decision of managers of Duke Children’s Hospital to create a balanced scorecard (BSC) for the organization, and to transform Duke Children’s Hospital into a strategy-focused organization.
The process of balanced scorecard development in Duke Children’s Hospital was based on three-step circular approach: getting connected, getting results and getting smarter (Meliones, Ballard, Liekweg & Burton, 2001). At the first step, key linkages between stakeholders and key performance indicators were identified; at the second step, performance analysis was done; at the third step, organizational knowledge and control was enhanced using the improvement opportunities obtained during the previous two steps.
Strategic management in health care (and in Duke Children’s Hospital in particular) could be characterized by intensive attention to clinical quality and to patient satisfaction, and lack of attention to financial performance and staff satisfaction. The management of Duke Children’s Hospital focused also on internal processes ”“ operational issues, business processes, regulatory issues and especially on the level of staff satisfaction. As a result of balanced scorecard implementation, physician satisfaction increased from 1.5 to 4.0 points on a 5-point scale, and the productivity of nursing units rose from 71% to 100% during four year (in the 1996-2000 period) (Meliones, Ballard, Liekweg & Burton, 2001). These results show the effectiveness of BSC implementation at Duke Children’s Hospital.
The primary focus of strategic changes at Duke Children’s Hospital was on internal processes. According to Niven (n.d.), the internal process perspective includes the following dimensions: operations management, customer management, innovation, regulatory and social perspective. At Duke Children’s Hospital, operations management was addressed in the first place (Meliones, Ballard, Liekweg & Burton, 2001). This process was chosen because of rapidly increasing costs per case. Key measures used for BSC were monthly productivity, cost information; such characteristics as volume trends, actual and target staffing levels, cost per patient day, and labor variances were analyzed for evaluating operational efficiency (Meliones, Ballard, Liekweg & Burton, 2001). Trends of cost, revenue, volume and operating margin related to the patient perspective have been analyzed. A new performance management system was introduced, and. as a result, the cost per case reduced by approximately 1.5 times during the 1996-2000 period (Meliones, Ballard, Liekweg & Burton, 2001), and net margins have significantly improved as well.
Balanced scorecard approach allows to take into account the needs of all groups of stakeholders. In the case of Duke Children’s Hospital, it is possible to identify the following groups of stakeholders: patients, staff (physicians, nurses, allied health care professionals), payers, management, and the society as an institution. The changes in business processes have resulted in positive outcomes for all stakeholders. Staff satisfaction increased from 1.5 to 4.0 at the 5-point scale, and performance of nursing units grew from 71% to 100% (Meliones, Ballard, Liekweg & Burton, 2001). Patient satisfaction also increased, from 4.3 to 4.7, morbidity rates have improved, and readmission rates fell from 7% to 3% (Meliones, Ballard, Liekweg & Burton, 2001). Therefore, for patients and staff the implementation of BSC was highly beneficial. With regard to management, BSC also brought important improvements, as costs reduced by $30 million, and net margin improved by $15 million (Kaplan & Norton, 2000), therefore making the organization financially viable. From the perspective of payers, the organization has become more healthy, and the management of reports and claims has improved. Finally, for the society as a whole the use of BSC in Duke Children’s Hospital resulted in better healthcare for children in the area and in the improved use of taxpayers’ funds.
Duke Children’s Hospital did a good and highly effective job in designing and using the balanced scorecard. The outcomes for all categories of stakeholders have improved after the implementation of BSC in Duke Children’s Hospital. The team of Duke Children’s Hospital has performed several valuable decisions and discoveries in the process of designing and implementing the balanced scorecard.
First of all, the managers of Duke Children’s Hospital have identified the gap between financial and clinical performance, and instead of viewing these two perspectives as conflicting ones, the managers brought them into balance and developed an effective system of performance management. Secondly, the team included the interests of all stakeholders and created a connection between them, which led to the effective design of the scorecard. Finally, important factor in healthcare ”“ the lack of attention towards staff satisfaction ”“ was identified. The changes in internal operations have been done in an effective way, and the use of technology for process improvement allowed for dramatic changes in operational effectiveness and the satisfaction of all stakeholders. Therefore, the implementation of BSC at Duke Children’s Hospital can be evaluated as successful