Key Questions for the Board What is our value proposition for differentiating our organization with clinicians, patients, and other constituents over the next decade? How can we tactically execute our strategic and financial plan to support the enterprise strategy over the next three years? What are the potential future financial scenarios we should prepare for? What are the metrics that will help monitor our progress? How can we build a culture of transformation and innovation that can flexibly adapt to changing conditions in pursuit of our goals?

Health system executive leaders and boards have recently weathered numerous existential—and unexpected—challenges, from COVID-19 to cyberattacks to the looming financial threats from the One Big Beautiful Bill (OBBB). In our conversations with healthcare leaders, we have noticed that these events have stoked the fear of future crises, which in turn has led some organizations to deprioritize focused strategic planning efforts.

However, health system boards should expect their executive leaders to face these concerns head-on and identify a forward-looking, viable strategic and financial path regardless of the current operating environment and future bumps in the road. Further, developing a long-range enterprise strategy to inform future planning is a critical step for any organization seeking to maintain or improve its market position. And with the OBBB’s healthcare provisions in place, organizations can move past the uncertainty of the first half of 2025 and forge a more proactive response.

A long-range enterprise strategy should determine an organization’s value proposition and how it will differentiate itself with clinicians, patients, and other key constituents over a 10-year horizon. From there, a three-year integrated strategic and financial plan can help the board and leadership team execute the plan tactically in the near term. While the management team is responsible for developing and implementing the strategic plan, the board plays a central role in advising on the overall enterprise strategy and setting the agenda for the organization’s future direction.

Organizations should then use that strategic framework to inform a financial plan that articulates the ramifications of implementing specific strategies and tactics. During periods of relative stability, financial planning might simply project historical trends forward. In the current climate, however, a nimbler approach grounded in data and analytics is critical. This flexibility also allows an alternative to decision paralysis and can help organizations resist the notion that unexpected challenges are a reason not to plan ahead.

Ideally, organizations will focus their efforts on translating their points of view into critical success factors with related strategic and financial ramifications, and less on precisely predicting the future. Boards should create the expectation that their management team will build decision-making competencies that can capture directional shifts in performance and enable the flexibility required to adapt to changing conditions.

This approach can help forge a culture of transformation and innovation, which is essential for successfully executing enterprise strategy. Ideally, these efforts will lead to new opportunities and ideas that can advance the system’s overall vision and value proposition.

Monitoring Metrics and Adjusting Accordingly

The bottom-line metrics that have historically characterized financial stewardship for not-for-profit healthcare providers remain vital and include:

• Liquidity metrics: days cash on hand
• Profitability metrics: operating EBIDA margin
• Leverage metrics: debt service coverage and/or cash to long-term debt

These metrics create guardrails for execution—what success looks like and how much flexibility is available for new investments or tactical shifts—and simultaneously shift the organizational focus from being right across all assumptions and strategies underlying the plan to being flexible as inevitable changes in market and competitive conditions occur.

Leveraging Sensitivity and Scenario Analyses

For healthcare leaders facing volatile and uncertain times, utilizing the plan to assess risks and alternative future possibilities and translating those risks into financial impacts and potential management responses is increasingly important. Sensitivity and scenario analyses can play a major role in these efforts.

Traditionally, a sensitivity analysis is characterized by a single variable adjustment to a given assumption in the plan. For example, this might mean assessing the impact of commercial rates at 1 percent lower than predicted. A sensitivity analysis is helpful to assess the magnitude of assumptions and identify the critical variables in the plan, but it is not often tied to an alternative or specific viewpoint on the future for which the sensitivity might occur.

Scenario analysis, by contrast, can impact several critical assumptions or strategies underlying the plan and most importantly is tied to an alternative point of view of the future. This alternative view helps management and boards explain why the risk (or opportunity) may occur and adds the context for discussions around mitigation or management interventions should that alternative future manifest itself. For example, a key scenario in many boardrooms today is a future with a site-neutral payment system, which would have a cascading impact on reimbursement, cost structure, and investment assumptions and priorities.

Scenario plans should help leaders explore both downside and upside possibilities, and not just variations of the base case (see exhibit). By preparing a range of future scenarios, boards and senior leadership are better equipped to determine how to pivot if initial assumptions for a specific initiative or broader strategic effort are off track.

A Range of Scenarios Can Help Illustrate the Achievement of Strategic and Operational Plans

Click to enlarge

Closing Thoughts

While no organization can perfectly predict the future, boards can expect their management teams to build toward their enterprise strategy and create planning structures that ensure their organization can react to changing market conditions.

In the current environment, the integration of the strategy and financial plan can help leaders examine assumptions that are implicit within organizational strategies and make them explicit within the context of the financial ramifications for resource allocation.

Organizations should leverage not only sensitivity analyses but also scenario analyses to consider a multitude of potential outcomes and build the flexibility to pivot under different futures.

Strategic and financial plans that can help organizations weather both current market conditions and unexpected crisis are not simply handed down as finished products—they emerge from an engaged dialogue between the leadership team and the board at every step of development.

TGI thanks Gavin McDermott, a Managing Director and Co-leader of the Financial Planning & Data Analytics practice, and Amanda Steele, a Managing Director and Co-leader of the Strategy & Business Transformation practice, at Kaufman Hall, a Vizient company, for contributing this article. They can be reached at gavin.mcdermott@kaufmanhall.com and amanda.steele@kaufmanhall.com.

Key Questions for the Board Is our organization improving key metrics at the right pace? Does our board have the right mix of members to bring diverse professional and lived experiences? Does our board have the right level of engagement in key areas like strategy, key improvement metrics, risk assessment, and decision making? Is our board and management team stuck in a passive mode? How can we generate and show momentum to our staff and community?

Three years ago, I retired from a 40-year career in healthcare. Over those years, I had the opportunity to work with a lot of great people who have dedicated their lives to improving healthcare in their communities. Anyone who has worked in healthcare can cite the numerous challenges facing the American healthcare system. COVID was indeed one of those lifetime events that one will never forget. Overnight, the radical change that was thrust on people around the world—especially our healthcare workers and first responders—was remarkable and the impact on individual and organizational lives continues to be felt.

My transition out of healthcare was fueled by the talents of those around me, their readiness to lead, and my strong interest in longevity. For years prior to my retirement, I had shared with others my passion for the future of longevity medicine and my desire to work with startup companies that could radically impact people’s healthspan. Given the way healthcare moves, I expected it would take decades, if not longer, before it was integrated alongside traditional medicine.

I had the good fortune to be involved in a startup venture capital fund that had high hopes but saw limited success. To say the least, it’s a challenging endeavor! While we successfully raised funds and invested in a couple of great companies, the outcome wasn’t quite what we dreamed would happen. The whole process was a great learning opportunity and one of the most interesting things I have ever done in my life. What was surprising was that other investors asked me to talk to new startups about breaking into healthcare. These companies had a typical story. They were convinced they had an amazing product that would revolutionize healthcare and believed their company was worth millions of dollars, even though they were not yet profitable. They were also extremely frustrated by their inability to get anyone in a health system to take a meeting and by the slow pace of decision making.

One of the biggest frustrations was their perception that healthcare was stuck in a status quo mode. Their view of healthcare was that it was anchored in the past, shrouded in bureaucracy, and unwilling to change. In many of these discussions, I tried to convince these entrepreneurs about the need for healthcare to be methodical and deliberate as they thought about change and the established processes that guided their decisions. Since these organizations are complex and must involve numerous parties, who have spent their careers evaluating various products and services, it was going to take time. I stressed that this is exactly what they would want from people making decisions about clinical care. But I think I did little to change their views.

The question all healthcare leaders and boards should be asking is this: are we stuck in a status quo mindset or are we continually identifying areas in need of change? For example, our organization was an early adopter of screening for the social determinants of health, and many of our colleagues initially expressed confusion and lack of support for such an idea. During a presentation to a group of large-system CEOs, a well-known health system leader passionately argued that healthcare had no business working in the social determinant space—a clear example of status quo thinking at its best.

COVID had significant, and sometimes severe, financial implications for American hospitals and health systems and required them to make major changes to their operations and focus. For many, it shifted their attention almost entirely inward. Given what happened, an internal focus was completely understandable, but the concern is that the experience may cause organizations to minimize risk and adopt a mode of not wanting to change anything. The worry is that an overly conservative approach could last too long and keep organizations from evolving and making the necessary changes to respond to the environment.

The management term “VUCA” was first introduced by the U.S. Army War College to describe the more complex multilateral world that evolved at the end of the Cold War. The concept—which stands for volatile, uncertain, complex, and ambiguous—has since been widely adopted in business and healthcare to capture the reality that we no longer operate in a static world.

The question is how should leaders balance maintaining the status quo with leading necessary change? And how should we think about change given the pressures facing healthcare today?

In one of my favorite books, Leading Change, John Kotter lists eight simple steps:

1. Establish a sense of urgency.
2. Create the guiding coalition.
3. Develop a vision and strategy.
4. Communicate the change vision.
5. Empower broad-based action.
6. Generate short-term wins.
7. Consolidate gains and produce more change.
8. Anchor new approaches in the culture.

When people asked me how I successfully led change, my answer was often that I “create urgency and then tell people it will be okay.” The idea was that every day we get up and try to make things better. And that’s really the point: how do we balance the need to focus, minimize risk, and stabilize, while also leading change in a responsible manner?

Creating urgency is essential, and it is the work of leadership to continually drive what’s next—the next strategy, the next area for improvement, the next set of key metrics to meet. In practice, this meant identifying one or two areas each year that truly needed focus. One year it might be enterprise growth, another year strengthening IT capabilities, advancing human resources strategy, or improving physician office operations. The question we asked ourselves was: where do we most need to improve, and what hasn’t received attention recently? In any area, the key is to create healthy urgency, develop a clear plan, and establish metrics to monitor progress. In my experience, organizations and people need to be continually challenged to push for more, and it’s amazing how often people rise to that challenge when the focus is clear.

While for many, the idea of change automatically brings to mind major organizational moves, more often it simply means getting better. Making changes to improve performance is something we can all agree on. Whether it’s clinical, financial, or administrative metrics, tax-exempt status, growth plans, management and staff development, or the role we play in our communities, the two concepts—stability and improvement—can be perfectly integrated. It’s not either/or; rather, the discussion that boards and management need to regularly have is how we adapt to our changing world and ensure that we do so responsibly.

TGI thanks Randy Oostra, D.M., FACHE, Managing Partner at Blueprint N1, Global Strategic Advisor for iTCart, and Former President and CEO of ProMedica for contributing this article. He can be reached at randy@blueprintn1.com.

What A CMS measure released in August 2024 that requires hospitals to report on whether they prioritize patient safety across five domains. Why Despite past progress, patient harm still occurs at significant rates. Who The measure affects all acute care hospitals participating in Inpatient Hospital Quality Reporting and PPS-Exempt Cancer Hospital Quality Reporting programs. When The annual reporting period began January 1, 2025.

Despite years of effort to improve patient safety, preventable harm in hospitals remains widespread. While clinical teams work tirelessly to improve outcomes, the root causes of harm often stem from gaps in leadership, culture, and organizational structure—areas where boards have the greatest influence. And that influence is essential because improving patient quality isn’t something that can be done incrementally through projects or initiatives; it requires a cultural shift with dedicated resources and infrastructure.

The Centers for Medicare & Medicaid Services (CMS) are eyeing just such a shift with the new Patient Safety Structural Measure (PSSM). This measure aims to hold hospitals accountable for their foundational commitment to safety. Rather than focusing solely on clinical outcome measures, the PSSM directly links reimbursement to elements that fall under the board’s purview, including leadership engagement, strategic planning, transparency, and patient-centered culture.

The shift to structural, or leading, indicators reflects a proactive approach to preventing harm before it occurs. The required PSSM items help hospital leaders identify risks, determine what is not working well, and establish the culture and resources necessary to address root causes of patient harm.

How It Works

Under the PSSM, hospitals report on adherence to 25 structural quality and safety elements that, when put in place, facilitate standardization, prevention, and reduction of the clinical variation causing harm.

There are five PSSM domains:

1. Leadership Commitment to Preventing Harm
2. Strategic Planning and Organizational Policy
3. Culture of Safety
4. Accountability and Transparency
5. Patient and Family Engagement

Each of these domains contains five criteria to be met. Hospitals must attest to meeting all five items to earn the full one point for the domain; partial credit is not given.

Not reporting at all and receiving a score of zero, or reporting and having a score lower than five, may tarnish a hospital’s reputation—which can translate into reduced volume, lower revenue, and diminished community trust.

What’s at Stake

Hospitals face a reduction in the annual Medicare payment for FY 2027 if the PSSM data is not reported for 2025. This initial PSSM reporting year is focused on timeliness and compliance with reporting the attestation data; however, in future years, the reimbursement impact will be based on performance and content of the PSSM data itself—potentially even further decreasing CMS payments to those hospitals scoring lower on the zero-to-five scale.

In addition to financial penalties, every hospital’s PSSM score will be publicly reported on Care Compare starting in fall 2026. Not reporting at all and receiving a score of zero, or reporting and having a score lower than five, may tarnish a hospital’s reputation—which can translate into reduced volume, lower revenue, and diminished community trust.

Take Action Now

Readiness for PSSM reporting begins with a detailed gap assessment against the 25 required safety elements. This means more than cataloging current practices and checking boxes; it requires verifying that all five required actions in each domain are fully in place and functioning as intended.

Key Questions for the Board Have you identified and prioritized quality and safety goals for the hospital, and do you know the current performance levels? Do your hospital executives have a plan to report PSSM attestation for 2025? Are at least 20 percent of all hospital board meeting agendas devoted to reporting on patient and hospital workforce safety events? Are board members always notified within three business days of any confirmed safety events? Does the hospital use external benchmarks to monitor performance on safety events? Does your organization execute a hospital-wide culture of safety survey, and have those results been shared with the board and all staff? If you answer “no” to any of these questions, your hospital is likely not in compliance with the CMS PSSM requirements and may face reduced Medicare payments or reputational harm in the upcoming years.

When gaps are identified, executive sponsors should be assigned to own each gap and develop action plans with accountability and timelines to drive progress and avoid fragmented efforts. Board members need to receive regular updates on safety data, prioritize resources aligned with zero-harm goals, and integrate safety into strategic planning to drive patient safety as a top priority.

Rolling out projects or initiatives one after another will not sustainably reduce harm nor achieve high quality. Organizations that are moving the needle on quality and safety have governing boards that are fully committed to achieving zero harm and living high-reliability principles through every action and decision.

The governing board sets the tone for the organization. If quality and safety are listed toward the bottom of the board agenda, that’s exactly where they will fall on every leader’s priority list.

We want to hear from you: How is your board adjusting its agendas to comply with these PSSM requirements? Do you feel that these requirements will make a difference in the right direction? Email kpeisert@governanceinstitute.com with your thoughts.

TGI thanks Kim Adelman, Ph.D., FACHE, Principal, ECG Management Consultants, for contributing this article. She can be reached at ksadelman@ecgmc.com.