Guide to Service Line Structures in Healthcare Operations

Healthcare organizations must strategically structure their services and operate with an eye towards cost and resource availability. By utilizing a consolidated approach with a service line structure, organizations will garner benefits beyond just economies of scale through building up their stability for the future.

In healthcare contexts, the term “service line” is a way of defining a specific line of business, often inclusive of operational, financial, and strategic attributes, and organizing that line of business with a governance structure. In other industries outside of healthcare, this is known as a product line.

A service line focuses on a type of patient or disease group, with considerations for the location of service, diagnosis-related groups (DRGs), ICD-10 procedure codes, and other financial coding terminology.

In recent years with the expansion of population health research, additional variables can help define a service line, such as the social determinants of health, demographics, and other lifestyle factors. This concentrated focus allows for a service line to be defined internally and externally based on common clinical and operational factors. Since emerging in the 90s, service lines have grown far beyond simply being a basis for marketing an organization’s clinical services available at the local hospital.

Service lines also can be found in a variety of specialty care areas. Most often you’d find a service line approach to providing care in geriatrics, orthopedics, cardiology, oncology, neurosciences, as well as umbrella categories such as women’s health, chronic care management, and behavioral health.

There are several ways you can implement a service line approach. To edify the benefits of service lines, this article will cover two governance structures, to be implemented in larger, multi-facility organizations:

1. Direct management and operational oversight
2. Strategic and “Center of Excellence”-style leadership

Note that these two styles are distinct for this article, but many healthcare organizations combine traits of each to formulate their own model for a service line.

A bedrock service line governance structure has been the direct operational accountability and management of facilities within one clinical service pathway.

The UPMC Women’s Health Service Line operates in this fashion, with one line of business, including inpatient and outpatient operations to serve a patient’s unique needs. With services ranging from pregnancy and deliveries to breast care, the Women’s Health Service Line is able to accommodate patient care in four geographic regions across two states.

In a 2016 presentation at the Healthcare Analytics Summit, the UPMC Magee Women’s Hospital leadership discussed the formalization of the service line by building in activity-based costing and financial reporting support. By featuring the comprehensive service line’s expenses within one P&L statement, it displays visibility that the service line had not had in the past with traditional statements. The full picture of the service line’s direct expenses, both variable and full costing, allows for a greater understanding of operational performance drivers.

When considering this type of direct management service line structure for a large integrated healthcare delivery system, leaders can use standardization and pilots to test new innovative projects before spreading them across the enterprise, yielding cost savings should the pilot be successful. If a pilot is not worth spreading, the investment in the pilot is the only loss. The knowledge gained from that pilot will only further expand on the foundation for the next pilot. With direct operational oversight of the locations involved in the pilot, there is often less hesitation in using resources to test a new idea.

One of the most favorable aspects of this approach is the inclusivity of multiple locations with various services, populations covered, and clinical professionals and specialists. This variety ultimately offers the opportunity to create a hub-and-spoke model to drive further specialization and quality outcomes. With direct management of large “hub” community hospitals and small “spoke” rural facilities, delineation of where to invest in specialty care, technology, or external partnerships can be determined by regional operational leadership.

This can create advantages in developing specialized sites resulting in higher quality outcomes, but also could unintentionally develop challenges with access without appropriate planning.

To summarize, the direct oversight secured with this approach to service line governance allows for healthcare organizations to more effectively drive the following:

• Financial Performance: formalized reporting to understand and respond to performance drivers
• Standardization: economies of scale with multiple facilities
• Specialization: strategically hub services to develop higher quality outcomes

If holding the reins with operational oversight is not possible through direct management, an alternative approach can be taken with innovative service line leadership. An executive partner who can drive “Center of Excellence”-style thinking within a clinical service line can prove useful when considering strategies for the future.

According to an article by James Elrod and John Fortenberry, “A center of excellence is a program within a healthcare institution which is assembled to supply an exceptionally high concentration of expertise and related resources centered on a particular area of medicine, delivering associated care in a comprehensive, interdisciplinary fashion to afford the best patient outcomes possible.”

Service line leadership focused on developing Centers of Excellence in today’s healthcare environment will need to practice flexibility and innovation. This type of service line leadership exists as a strategic advisor to operational leadership, providing insights for hospital CEOs, health plan leaders, medical group executives, and other key decision-makers. Innovative service line leadership will be the keepers of data, ensuring solid strategy and business planning with analytical support for all decisions.

Being outside of the operational c-suite, the service line leader can provide focused—albeit, agnostic—business planning and proforma exercises to review potential business additions to the hospital’s service offerings. The service line itself is not accountable for everything under the hospital roof like the CEO and therefore can be a great partner for smarter growth or divestment decisions.

Industry resource Modern Healthcare suggests that service line analysis with invested leaders like hospital CEOs can set strategic direction for growth in priority areas. Tools that an innovative service line leader may use can include:

• Review of market share for a clinical service line
• Identify which services have most “drawing power” for the area
• Study market demographics to forecast volumes in various services for years ahead
• Review hospital’s case mix index (CMI) to understand the complexity of patients served
• Calculate the percentage of overall revenue that comes from the services within the service line
• Assess profitability of each service line
• Benchmark with external metrics for internal financial and operational performance

Due to the flexibility innate to a service line unencumbered by operations, the service line leadership role can be leveraged to eliminate inefficiencies in administrative processes and provide operational leaders a “50k foot level” perspective on consolidation and merger efforts. For example, maneuvering the often political challenge of meeting hospital licensure requirements for securing 340B drug savings programs for oncologic drugs can be navigated from an objective position of influence and backed by solid data.

Regardless of the governance structure or P&L approach selected, there are core responsibilities for managing a clinical service line. Attention to leadership structure, strategic assessments, and quality outcomes for a defined set of patients is key for a developed service line.

Once a service line’s scope has been defined (e.g., inpatient cardiovascular services), the leadership of the clinical service line can be set. Oftentimes, this takes the form of a dyad partnership with a physician leader and an administrative leader, but there is a singular voice that lends strategic direction.

Although identifying the initial clinical management structure for the service line is important, service line leaders must be agile in adjusting to emerging contracting models.

Service line leaders should review their place in the market regularly by updating previous analyses of all operations. Their role is the guidepost for many in the organization on strategic moves for their programs. This operating review should include performance metrics for measuring the success of prior standardization and quality initiatives. This ongoing review of performance, coupled with situational modeling of federal and state laws affecting services provided, will help shape the investments and future planning for the clinical service line.

In the fullest iteration of a clinical service line, the structure should be built on the values of population health, providing quality health outcomes for a set group of people in their service area.

As seen in burgeoning service line approaches to care delivery in chronic care management and behavioral health, service line leaders should expand their thinking across care sites, external partners, internal policies, and federally sponsored programs to deliver top quality services in their community: to the patients who walk through their doors.

There is no one solution to the perfect clinical service line structure. Both structures discussed in this article have their clear advantages, but without careful consideration for the organization’s current environment, financial status, and vision for care delivery in their community, service line leaders will be challenged with a lack of commitment from their colleagues and stakeholders.

Leaders who recognize existing relationships and understand the historical decisions of their service lines will be successful in formulating the direction for the future.