Change Management at CHLA

"Failure is not fatal," noted legendary coach John Wooden, "but failure to change might be." While almost all industries are undergoing significant change in today's dynamic world, healthcare in particular faces technological disruptions, government regulation, and numerous other pressures.

Children's Hospital Los Angeles (CHLA) is a nonprofit pediatric care and teaching hospital serving more than 100,000 children each year. It is also home to The Saban Research Institute, one of the largest and most productive pediatric research facilities in the United States.

CHLA invests in technology due to practices mandated by the Affordable Care Act -- such as electronic medical records -- and due to other innovations that have the potential to improve health outcomes and financial performance.

For instance, advances in telemedicine provide CHLA with opportunities to develop a hub-and-spoke model to reduce patient costs and hospitalization times by providing more preventative care that improves patient outcomes while keeping beds open for the most specialized cases.

The Affordable Care Act bases payments on the procedure rather than length of stay; if a patient is readmitted in a certain amount of time, CHLA would not receive additional money for the new visit.

Guest-lecturing in my "CFO Lens" class at the USC Marshall School of Business, CHLA CFO Lannie Tonnu explained that her hospital's priorities of customer satisfaction, low costs, high quality, and speed are all congruent with each other.

She also made it clear that what's good for the patient is what CHLA does first. This has led the hospital to invest in care managers who know patients and their families. All changes -- both high-tech and low-tech -- should align overarching goals.

Even with bed occupancy constituting a major financial driver for the hospital, reducing patient stay times is not necessarily a tradeoff between mission and margin. Indeed CHLA has made this into a virtuous cycle: by relentlessly making little tweaks to its operations, CHLA has reduced length of stay by more than 20 percent while improving satisfaction survey results, which boosts measurements of quality.

Such measurements are the primary drivers of hospital rankings. CHLA is rated among the nation's top five pediatric care hospitals for several specialties according to the prestigious U.S. News & World Report.

These rankings matter -- especially for international patients. Many of CHLA's most profitable clients are foreign patients who travel to the U.S. specifically to receive top treatment. With CHLA's margins facing increasing pressure, foreign patients can boost its revenues and cash.

In fundraising, CHLA is trying to move its donors from traditional brick-and-mortar projects towards funding unrestricted and often less-tangible initiatives. This was on display in its recent "Live L.A. Give L.A." fundraising campaign.

And in pursuing financial flexibility through debt issuance, CHLA must work with bond rating agencies to explain the organization's robust financial health despite the volatility that shows up in its accounting due to revenue recognition rules. Part of the challenge is that government is a huge but at times fickle payer due to political fights and sequestrations.

The healthcare industry's transformation is also complicated by "coopetition" relationships among hospitals. CHLA benefits from the research of others while contributing to shared medical knowledge and best practices used by its rivals.

While CHLA seeks to win top-paying clientele and donors in a somewhat zero-sum game for lightly restricted funding, it ultimately wants all hospitals to succeed because of the greater social mission that medical institutions serve.

In closing, many organizations can learn from CHLA's strategies and practices to capitalize on the opportunities and minimize the threats of significant industry transformation. CHLA balances many currencies in its operations: financial performance, community health outcomes, and prestige.

While Ms. Tonnu admits that no implementation is pain-free, launching new technologies efficiently and effectively is crucial for CHLA to continue meeting its goals. With its clear focus on outcomes, the organizations' investments in technology are means to greater ends.

New technologies and new policies are just part of the constellation of considerations that go into the actions doctors, researchers, and other staff at CHLA take to achieve the hospital's forefront mission of helping kids survive and thrive.