Nonfinancial Performance Measures in the Healthcare Industry
Ballou, Brian, Heitger, Dan L., Tabor, Richard, Management Accounting Quarterly
HOW EAST ALABAMA MEDICAL CENTER EMPLOYS NONFINANCIAL PERFORMANCE MEASURES TO IMPROVE AND MAINTAIN A HIGH LEVEL OF CUSTOMER SERVICE, OPERATIONAL, AND FINANCIAL SUCCESS.
EXECUTIVE SUMMARY Many companies increasingly incorporate nonfinancial performance measurement into performance evaluation. Typically, the main objective of using nonfinancial performance measures is to understand and improve subsequent financial results. Within the healthcare industry, however, nonfinancial performance measurement is increasingly being relied upon to address both financial and nonfinancial objectives. In this article, we show how East Alabama Medical Center-a not-for-profit community hospital-depends extensively on nonfinancial performance measures to improve the quality of clinical services, improve patient service, attract nurses and other healthcare professionals, and qualify for accreditation from the Joint Commission on Accreditation of Healthcare Organizations.
The 2002 edition of Hospital Statistics reports that there are 5,810 registered hospitals in the United States, with a majority being notforprofit institutions. East Alabama Medical Center (EAMC), which primarily serves the Auburn-Opelika, Alabama, metropolitan area (population of approximately 100,000), is a regional community hospital with no direct competition for most of its services, yet it dedicates extensive resources to nonfinancial performance measurement and benefits greatly from their use. We will look at EAMC's objectives for nonfinancial performance measurement, examples of its nonfinancial performance measures, and the uses for which the measures are employed. Finally, we offer some general guidelines for healthcare providers that are considering an increased emphasis on nonfinancial performance measurement.
OBJECTIVES OF NONFINANCIAL PERFORMANCE MEASUREMENT AT EAMC
EAMC has outlined clearly its goals for tracking nonfinancial performance measurements.
Maintain and Improve the Quality of Clinical Services
A primary objective in capturing nonfinancial measures is to maintain and improve the quality of clinical services. Providing high-quality clinical services is the most important overall business objective for the hospital because it views quality services as its lifeblood. Effective use of nonfinancial performance measures must begin with developing appropriate measures for clinical services. As we will see in the following section, EAMC collects numerous nonfinancial measures of the quality of clinical services that also are useful for various planning issues. Being a regional hospital that offers most medical services (with the exception of neurosurgical procedures) and having no major competitor within 45 miles, EAMC does not focus on enhancing clinical services to gain a competitive advantage. Instead, EAMC emphasizes quality of services to faithfully achieve its mission of being a top healthcare provider compared to other regional hospitals around the country.
Improve Patient Service
Understanding and improving its patient (customer) service enables EAMC to know its perceived strengths and target particular aspects of customer service that may need improvement. As the only hospital in its community, EAMC has no direct competitors for providing most elective procedures. By utilizing nonfinancial measures to better understand effectiveness in improving patient satisfaction, however, hospital managers help prevent potential patients from traveling outside the region. By improving its patient service in a quantifiable manner that can be communicated to current and potential patients, EAMC believes it is able to maintain and increase its market share.
Enhance Employee Recruitment and Retention
A third objective of nonfinancial performance measurement is to aid in employee recruitment. The workforce at the hospital consists of nurses, technicians, and other healthcare professionals (physicians are not employed by the hospital-all services are billed to patients separately by the hospital and physicians). …