Seventh Edition
This edition draws on the experiences of high-performing and Malcolm Baldrige
Award-winning organizations. It describes the key drivers of success:
A culture of empowerment and responsive leadership that promotes teamwork among
physicians, nurses, and other staff
A system for continuous improvement that emphasizes process analysis, negotiated
goal setting, measurement, benchmarking, and rewards
John R. Griffith, MBA, FACHE, is the Andrew Pattullo Collegiate Professor in the Department
of Health Management and Policy at the School of Public Health at The University
of Michigan, Ann Arbor. He has received the Gold Medal Award and won multiple
publication awards from the American College of Healthcare Executives.
The first edition of The Well-Managed Healthcare Organization won the American College
of Healthcare Executive’s James A. Hamilton Book of the Year Award.
One North Franklin Street, Suite 1700
Chicago, Illinois 60606-3529
Phone: (301) 362-6905, Fax: (301) 206-9789
ache.org/hap
ISBN: 978-1-56793-357-4
Order no.: 2156
John R. Griffith
About the Authors
Kenneth R. White, PhD, FACHE, is a professor in Virginia Commonwealth University’s
Department of Health Administration in Richmond, Virginia. He has more than 35 years
of experience in healthcare organizations in clinical, administrative, governance, and
consulting capacities, as well as academic experience in program development
and leadership.
Kenneth R. White
This edition also includes:
A new chapter on building a culture of shared values, empowerment,
communication, and service excellence
A new chapter on the organizational infrastructure that sustains
continuous improvement
Strategies for building clinical processes that delight not only physicians and nurses
with effective protocols but also patients with responsive, individualized care
Best practices for various operational functions, including comprehensive
performance measures and organizational models
Strategies for retaining and increasing the contribution of clinical and
administrative staff
Reader-friendly aids, such as on-the-page definitions of terminology, synopses of
chapter contents, and questions for reflection or discussion
The Well-Managed Healthcare Organization
The Well-Managed Healthcare Organization continues its position as the most
comprehensive resource on healthcare management.
The
Well-Managed
Healthcare
Organization
Kenneth R. White
John R. Griffith
The
Well-Managed
healThcare
OrganizaTiOn
AUPHA
Editorial Board for Graduate Studies
HAP
Christy H. Lemak, PhD, Chairman
University of Michigan
Mark Allan
Boston University
John Baker, PhD
University of Arkansas For Medical Sciences
M. Nicholas Coppola, PhD, FACHE
Texas Tech University
Connie J. Evashwick, ScD, FACHE
St. Louis University
Diane M. Howard, PhD, FACHE
Rush University
Ana Maria T. Lomperis, PhD
St. Louis University
John M. Lowe III, PhD
Simmons College
Michael R. Meacham
The Pennsylvania State University
Lydia Middleton
AUPHA
Mark Pauly, PhD
University of Pennsylvania
Bernardo Ramirez, MD
University of Central Florida
Andrew T. Sumner, ScD, FACHE
Georgia State University
Andrea W. White, PhD
Medical University of South Carolina
Lesly Wilson, PhD
University of South Carolina
LT Suzanne J. Wood, PhD, FACHE
Army-Baylor University
The
Well-Managed
healThcare
OrganizaTiOn
S e Sv ee vn et hn t Eh d Ei td ii ot ni o n
KEnnEth
R. WhitE
KEnnEth
R. WhitE
John
R. GRiffith
John
R. GRiffith
Chicago, Illinois
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official positions of the American College of Healthcare Executives, of the Foundation of the American College
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Copyright © 2010 by the Foundation of the American College of Healthcare Executives. Printed in the United
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Library of Congress Cataloging-in-Publication Data
White, Kenneth R. (Kenneth Ray), 1956€The well-managed healthcare organization / Kenneth R. White, John R. Griffith. -- 7th ed.
€ € € p. ; cm.
€Griffith’s name appears first on the earlier ed.
€Includes bibliographical references and index.
€ISBN 978-1-56793-357-4 (alk. paper)
€1. €Health services administration. €I. Griffith, John R. II. Title.
€[DNLM: 1. €Health Services Administration--United States. €W 84 AA1 W585w 2010]
€RA971.G77 2010
€362.1068--dc22
€ € € € € € € € € € € € € € € € € €尓 € € € € € € € € € € € €2010014186
The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI Z39.48-1984.∞ ™
Project manager and editor: Jane Calayag; Acquisitions editor: Janet Davis; Book design: Scott Miller; Cover
design: Gloria Chantell; Layout: BookComp, Inc.
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Association of University Programs
in Health Administration
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Arlington, VA 22201
(703) 894-0940
CONTENTS
List of Exhibits.........................................................................................xvii
Preface
..........................................................................................xxiii
Chapter 1
Foundations of High-Performing Healthcare
Organizations......................................................................1
Chapter 2 Cultural Leadership..............................................................39
Chapter 3
Operational Leadership.........................................................69
Chapter 4
Strategic Leadership: Governance.......................................103
Chapter 5
Foundations of Clinical Performance..................................141
Chapter 6
The Physician Organization................................................182
Chapter 7
Nursing..............................................................................219
Chapter 8
Clinical Support Services.....................................................250
Chapter 9
Beyond Acute Care to Community Health..........................281
Chapter 10
Knowledge Management....................................................317
Chapter 11
Human Resources Management.........................................346
Chapter 12
Environment-of-Care Management.....................................383
Chapter 13
Financial Management........................................................417
Chapter 14
Internal Consulting............................................................459
Chapter 15
Marketing and Strategy.......................................................491
Glossary
..........................................................................................527
Index
..........................................................................................537
About the Authors...................................................................................553
v
DETAILED CONTENTS
List of Exhibits.........................................................................................xvii
Preface...................................................................................................xxiii
Chapter 1
Foundations of High-Performing Healthcare Organizations 1
In a Few Words......................................................................1
Critical Issues.........................................................................1
Questions for Discussion.........................................................2
Activities.................................................................................3
Contribution..........................................................................4
Stakeholders...........................................................................5
Customer Partners.............................................................6
Provider Partners...............................................................9
Sources of Stakeholder Influence......................................11
Ownership............................................................................13
Not-for-Profit, For-Profit, and Government Owners........13
Healthcare Systems..........................................................13
Designing Excellence in an HCO..........................................14
Cultural Foundation of Excellence: Transformational .
Management...............................................................16
Operational Foundation of Excellence: Evidence-Based .
Management...............................................................23
Strategic Foundation of Excellence: Positioning and .
Protection....................................................................30
Suggested Readings..............................................................36
Chapter 2
Cultural Leadership
39
In a Few Words....................................................................39
Critical Issues.......................................................................39
Questions for Discussion.......................................................40
Purpose................................................................................41
Functions.............................................................................41
Promoting Shared Values.................................................43
Empowering Associates....................................................44
Communicating with Associates.......................................45
vii
viii
The Well-Managed Healthcare Organization
Supporting Service Excellence.........................................47
Encouraging, Rewarding, and Celebrating Success...........51
Improving the Transformational Culture.........................52
People..................................................................................52
Sources of Leaders...........................................................52
Qualifications for Leaders................................................53
Leadership Development Programs..................................55
Paths for Beginners..........................................................56
Measures..............................................................................57
The Culture and Leadership Functions............................57
Assessing Leaders as Individuals.......................................60
Ensuring Leadership Continuity.......................................61
Managerial Issues..................................................................62
Starting the Path to Transformational Culture.................63
Maintaining the Ethical Foundation.................................64
Resolving Fundamental Disagreements............................66
Protecting Against Destructive Behavior..........................67
Suggested Readings..............................................................67
Chapter 3
Operational Leadership
69
In a Few Words....................................................................69
Critical Issues.......................................................................69
Questions for Discussion.......................................................70
Purpose................................................................................71
Functions.............................................................................72
Boundary Spanning.........................................................72
Knowledge Management.................................................79
Accountability and Corporate Design...............................82
Continuous Improvement................................................88
Sustaining and Improving the Operational Structure........90
People..................................................................................93
Measures..............................................................................93
Managerial Issues..................................................................94
Starting the Path to Evidence-Based Management...........94
Understanding the Risk Factors of the Model..................97
Suggested Readings............................................................100
Chapter 4
Strategic Leadership: Governance
103
In a Few Words..................................................................103
Critical Issues.....................................................................103
Questions for Discussion.....................................................104
Purpose..............................................................................105
Functions...........................................................................106
Detailed Contents
Maintaining Management Capability..............................108
Establishing the Mission, Vision, and Values..................110
Approving the Corporate Strategy and Annual
Implementation ........................................................110
Ensuring Quality of Clinical Care...................................115
Monitoring Performance Against Plans and Budgets......116
Improving Board Performance.......................................119
People................................................................................122
Board Membership........................................................122
Membership Qualifications ...........................................122
Board Selection.............................................................124
Board Organization ......................................................127
Education and Information Support for Board Members....131
Measures............................................................................132
Managerial Issues................................................................133
Operating Discipline......................................................133
Legal and Ethical Issues of Board Membership...............135
Suggested Readings............................................................137
Chapter 5
Foundations of Clinical Performance
141
In a Few Words..................................................................141
Critical Issues.....................................................................141
Questions for Discussion.....................................................142
Purpose..............................................................................143
Functions...........................................................................144
Ensuring Accurate Diagnosis..........................................144
Ensuring Excellent Care................................................146
Implementing Protocols................................................148
Individualizing Patient Care Planning and Treatment.....162
Improving Community Health......................................163
Improving Clinical Performance....................................165
People................................................................................167
Organization.................................................................167
Measures............................................................................168
Demand and Output.....................................................169
Quality Assessment........................................................169
Patient and Associate Satisfaction...................................172
Managerial Issues................................................................175
Sustaining a Culture of Teamwork and Respect..............175
Credentialing and Ensuring Continued Competence......175
Minimizing and Responding to Unexpected Clinical
Events.......................................................................176
Resolving Interprofessional Rivalries..............................176
Suggested Readings............................................................177
ix
x
The Well-Managed Healthcare Organization
Chapter 6
The Physician Organization
182
In a Few Words..................................................................182
Critical Issues.....................................................................182
Questions for Discussion.....................................................183
Purpose..............................................................................184
Functions...........................................................................184
Achieving Excellent Care...............................................185
Credentialing and Delineating Privileges........................187
Planning and Implementing Physician Recruitment........194
Providing Clinical Education.........................................200
Communicating and Resolving Unmet Needs................203
Negotiating and Maintaining Compensation
Arrangements................................................................206
People................................................................................210
Physician Leadership......................................................210
Organization of Physicians.............................................211
Measures............................................................................211
Managerial Issues................................................................211
Managing Conflicting Values.........................................212
Maintaining Adequate Physician Supply.........................214
Negotiating Compensation Arrangements......................214
Suggested Readings............................................................215
Chapter 7
Nursing
219
In a Few Words..................................................................219
Critical Issues.....................................................................219
Questions for Discussion.....................................................220
Purpose..............................................................................221
Functions...........................................................................222
Delivering Excellent Care..............................................222
Coordinating and Monitoring Interdisciplinary Care......228
Educating Patients, Families, and Communities.............230
Maintaining the Nursing Organization...........................231
Improving Nursing Performance....................................234
People................................................................................236
Team Members..............................................................236
Organization.................................................................241
Measures............................................................................241
Managerial Issues................................................................242
Recruitment and Retention............................................244
Improve Nursing’s Effectiveness....................................244
Suggested Readings............................................................246
Detailed Contents
Chapter 8
Clinical Support Services
250
In a Few Words..................................................................250
Critical Issues.....................................................................250
Questions for Discussion.....................................................251
Purpose..............................................................................252
Functions...........................................................................253
Providing Excellent Care...............................................254
Maintaining Patient Relationships..................................255
Maintaining Consultative Relationships..........................257
Planning and Managing Operations ..............................259
Promoting Continuous Improvement............................262
People................................................................................269
Team Members..............................................................269
CSS Management..........................................................270
The HCO Manager.......................................................270
Organization.................................................................271
HCO–CSS Relationships...............................................271
Measures............................................................................272
Managerial Issues................................................................274
Should the HCO Offer the Service?...............................275
How Big Should the CSS Be?........................................275
What Are the Standards of Performance?.......................276
What Form of Affiliation Best Meets the HCO’s
Needs?.......................................................................276
Does the CSS Have the Coordination It Needs?............277
Are CSS Activities Correctly Assigned to Professional and
Nonprofessional Associates?.......................................277
What Are the Continuous Improvement Goals?.............278
What Are the Long-Term Trends?.................................278
Suggested Readings............................................................279
Chapter 9
Beyond Acute Care to Community Health
281
In a Few Words..................................................................281
Critical Issues.....................................................................281
Questions for Discussion.....................................................282
Purpose..............................................................................286
Functions...........................................................................286
Understanding and Promoting Community Health........286
Establishing a Community Health Strategy....................294
Operationalizing a Community Health Strategy.............302
Improving Performance.................................................304
People................................................................................304
Measures............................................................................305
xi
xii
The Well-Managed Healthcare Organization
Operational ..................................................................305
Strategic........................................................................307
Managerial Issues................................................................307
Promoting and Teaching Community Health.................309
Extending Management Concepts to Community
Healthcare Teams......................................................310
Expanding and Integrating Primary Care.......................310
Maintaining the Infrastructure for Community Health...311
Suggested Readings............................................................312
Chapter 10
Knowledge Management
317
In a Few Words..................................................................317
Critical Issues.....................................................................317
Questions for Discussion.....................................................318
Purpose..............................................................................319
Functions...........................................................................320
Ensuring the Reliability and Validity of Data..................320
Maintaining Communications for Daily Operations ......327
Supporting Information Retrieval for Continuous
Improvement.............................................................329
Ensuring the Appropriate Use and Security of Data........332
Improving Knowledge Management Services
Continuously.............................................................333
People................................................................................336
Chief Information Officer..............................................336
KM Planning Committee...............................................336
Organization.................................................................337
Measures............................................................................337
Managerial Issues................................................................339
Exploiting the KM Planning Committee........................339
Promoting the Use of Knowledge . ...............................340
Using Outside Contractors and Vendors........................341
Suggested Readings............................................................343
Chapter 11
Human Resources Management.........................................346
In a Few Words..................................................................346
Critical Issues.....................................................................346
Questions for Discussion.....................................................347
Purpose..............................................................................349
Functions...........................................................................349
Workforce Planning.......................................................349
Workforce Development................................................353
Workforce Maintenance.................................................356
Detailed Contents
Empowerment, Transformation, and Service Excellence.363
Compensation and Benefits Management.......................365
Collective Bargaining.....................................................371
Continuous Improvement..............................................372
People................................................................................372
Human Resources Professionals.....................................372
Organization of the Human Resources Department.......372
Measures............................................................................374
Managerial Issues................................................................375
Adequate Funding.........................................................375
Consistent Senior Leadership.........................................377
Perceived Fairness..........................................................377
Strategic Achievement....................................................378
Suggested Readings............................................................378
Chapter 12
Environment-of-Care Management
383
In a Few Words..................................................................383
Critical Issues.....................................................................383
Questions for Discussion.....................................................384
Purpose..............................................................................385
Functions...........................................................................385
Facilities Design, Planning, and Space Allocation...........386
Facilities Maintenance....................................................393
Guest Services...............................................................396
Materials Management Services......................................399
Enhanced Environmental Management..........................400
Performance Improvement and Budgeting.....................405
People................................................................................406
Managers and Professional Personnel ............................406
Outside Contractors......................................................407
Training Needs..............................................................407
Incentives and Rewards..................................................408
Organization.................................................................408
Measures............................................................................408
Output and Demand.....................................................409
Resource Consumption and Effectiveness......................410
Quality..........................................................................411
Managerial Issues................................................................412
Facilities Planning and Space Allocation.........................413
Selection and Management of Outsourcing Contracts....413
Integration of Facilities Operations with Other
Activities . .................................................................414
Suggested Readings............................................................414
xiii
xiv
The Well-Managed Healthcare Organization
Chapter 13
Financial Management........................................................417
In a Few Words..................................................................417
Critical Issues.....................................................................417
Questions for Discussion.....................................................418
Purpose..............................................................................419
Controllership Functions....................................................419
Transaction Accounting.................................................419
Financial Accounting.....................................................422
Managerial Accounting..................................................425
Goal Setting and Budgeting . ........................................427
Financial Management Functions . .....................................434
Financial Planning.........................................................434
Pricing Clinical Services.................................................437
Securing and Managing Liquid Assets............................440
Managing Multicorporate Accounting...........................444
Auditing Functions.............................................................445
Internal Audits..............................................................445
External Audits..............................................................448
Continuous Improvement of the Accounting and Finance
Functions..................................................................449
People................................................................................449
Chief Financial Officer...................................................449
Other Professional Personnel.........................................450
Organization of the Finance System...............................450
Measures............................................................................452
Quantitative Performance Measures...............................452
Subjective Quality Assessment........................................452
Managerial Issues................................................................454
Supporting Integrity in All Financial Areas.....................454
Maintaining a Collegial, Blame-Free Culture..................454
Managing Areas at Risk for Conflict...............................454
Suggested Readings............................................................457
Chapter 14
Internal Consulting
459
In a Few Words..................................................................459
Critical Issues.....................................................................459
Questions for Discussion.....................................................460
Purpose..............................................................................461
Functions...........................................................................461
Supporting the Organization as a Whole........................464
Supporting Improvement Projects.................................472
Supporting the Capital Investment Review.....................475
Implementing and Integrating ......................................481
Responding to Any Other Factual Concern....................481
Detailed Contents
Improving Internal Consulting......................................482
People................................................................................482
Team Members..............................................................482
Organization.................................................................482
Measures............................................................................484
Managerial Issues................................................................484
Ensuring Quality of Work..............................................486
Sizing Internal Consulting ............................................486
Protecting Associates’ Empowerment............................487
Suggested Readings............................................................488
Chapter 15
Marketing and Strategy
491
In a Few Words..................................................................491
Critical Issues.....................................................................491
Questions for Discussion.....................................................492
Purpose..............................................................................493
Marketing Functions...........................................................494
Identifying and Segmenting Markets..............................496
Listening to Stakeholder Needs......................................497
Developing Brand and Media Relations.........................501
Convincing Potential Customers....................................502
Attracting and Motivating Associates.............................505
Managing Other Stakeholder Relationships....................505
Improving the Marketing Activity..................................508
Strategic Functions.............................................................509
Maintaining the Mission, Vision, and Values..................509
Defining the Strategic Position.......................................509
Implementing the Strategic Position..............................515
People................................................................................515
Associates......................................................................515
Organization.................................................................516
Measures............................................................................516
Strategic Activity............................................................517
Operational Measures....................................................518
Managerial Issues................................................................519
Skills for Successful Strategy...........................................520
Strategic Leadership Requirements ...............................520
Multihospital System Contribution ...............................521
Suggested Readings ...........................................................522
Glossary.................................................................................................527
Index......................................................................................................537
About the Authors...................................................................................553
xv
EXHIBITS
Chapter 1
1.1
Components of Healthcare Organizations...............................4
1.2
General Model of Stakeholder–Organization Interaction.........5
1.3
Model of Stakeholder–HCO Interaction.................................7
1.4
Ownership and Size of U.S. Community and Federal
Hospitals...........................................................................14
1.5
System Affiliations of U.S. Hospitals.....................................15
1.6
Foundations of Excellence in Healthcare Organizations........16
1.7
Mission, Vision, and Values Baldrige Award Recipients,
2002–2009........................................................................19
1.8
Bronson Methodist Hospital: Mechanisms for
Communication, Skill Sharing, and Knowledge Transfer....21
1.9
Mercy Health System Award/Incentive Programs and
Objectives.............................................................................24
1.10
Template of Operational Performance Measures for Individual .
Teams and Activities..........................................................27
1.11
Template of Strategic Measures of HCO Performance...........28
1.12
Process Analysis: Translating OFIs to Improved
Performance......................................................................31
1.13
Competitive Tests for Investment Opportunities...................32
1.14
Strategic Positioning and Monitoring Processes....................33
1.15
Foundations Reinforcing the Agency/Accountability
Relationships.....................................................................35
Chapter 2
2.1
2.2
Functions of Cultural Leadership..........................................42
The Service Excellence Chain in Healthcare..........................48
xvii
xviii
The Well-Managed Healthcare Organization
2.3
2.4
2.5
2.6
Frequently Negotiated Issues and Solution Paths for
Excellent HCOs................................................................50
Measures of Leadership Functions.........................................59
Relating Leadership and Culture to Mission Achievement.....60
A Comprehensive Leadership Management Program.............62
Chapter 3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
Functions That Sustain Operational Infrastructure................73
Boundary Spanning Activities of HCOs................................75
Elements of the Epidemiologic Planning Model....................76
Leadership Structure, Communications, and
Accountability...................................................................83
Tests of Successful Leadership Accountability........................85
Traditional Types of HCOs .................................................86
Mercy Health System’s Annual Planning Calendar................89
Qualitative Indicators of OFIs for Maintaining the
Cultural and Operational Infrastructure.............................91
Performance Measures for Infrastructure Functions..............92
Chapter 4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Functions of the Governing Board .....................................107
Strategic Scenario Questions for Healthcare
Organizations..................................................................112
Saint Luke’s Hospital Strategic Scorecard............................114
Ten Measures of Board Effectiveness...................................120
Typical Standing Committees of the Governing Board........128
Henry Ford Health System Governance Structure...............131
Board Member Orientation Subjects...................................133
Chapter 5
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
5.10
Functions of the Clinical Organization................................145
Simplified Diagnostic Process..............................................147
Average Cost for Alternative Prostate Cancer Treatments....148
HCO Contribution to Excellent Care.................................149
Example of a Functional Protocol for Medication Order
and Fulfillment................................................................151
Example of a Patient Management Protocol for Acute Chest
Pain.................................................................................155
Core Values of High-Performing HCOs ............................166
Organization of Clinical Services.........................................169
Profile of Service Line Operational Scorecard......................170
HCAHPS® Hospital Patient Survey Questions....................173
Exhibits
Chapter 6
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
6.10
Functions of the Physician Organization.............................185
Flowchart of Physician Credentialing..................................189
Critical Volumes for Specialty Services.................................198
Cardiac Surgery as an Example of Combined Strategic,
Service, and Physician Planning...........................................199
Advantages of Physician Supply Planning............................200
Physician Representation on Decision Processes..................204
Compensation Relationships Between HCOs and Individual
Physicians .......................................................................208
Types of Physician Compensation for Patient Care..............209
Institutional Clinical Organization Structure.......................212
Operational Measures of Physician Organization
Performance....................................................................213
Chapter 7
7.1
7.2
7.3
7.4
7.5
7.6
7.7
7.8
7.9
Nursing Functions..............................................................223
Nursing and the Goals of Excellent Care.............................224
Nursing Process Example for Airway Management . ...........225
Example of a Nurse Staffing Model for an Inpatient Unit....233
Assistance Available to Nursing Teams................................235
Educational Levels of Nursing Associates............................237
Nursing Practice Specialties in HCOs..................................240
Nursing Team Support Structure........................................242
Nursing Performance Measures...........................................243
Chapter 8
8.1
8.2
8.3
8.4
8.5
8.6
Clinical Support Services in a Large HCO...........................253
Functions of the CSS, Showing Service and HCO
Contributions..................................................................254
Conceptual Model of a Sophisticated Scheduling
Process............................................................................257
Improvement Initiatives in Two CSSs.................................265
Core Organization of the CSS............................................272
Performance Measures for the CSS.....................................273
Chapter 9
9.1
9.2
9.3
Conceptual Model of Personal Services for Community
Health.............................................................................284
Functions That Implement a Community Health
Mission............................................................................287
Grouping of Disease and Prevention Forecasts, by Prevention
xix
xx
The Well-Managed Healthcare Organization
9.4
9.5
9.6
Level, Population at Risk, and Service Program................289
Goals of a Comprehensive Community Health Program.....296
Examples of Operational Measures for Community Health
Programs.........................................................................300
Community Health Scorecard.............................................308
Chapter 10
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Functions of Knowledge Management Services...................321
Common Patient Specification Taxonomies.........................324
Age-Specific, Crude, and Adjusted Rates: Utah Versus
Florida.............................................................................325
Examples of Internal Data Feeding the Data Warehouse ....330
Common Uses of Information in High-Performing
HCOs.............................................................................331
Knowledge Management Planning Process.........................335
Accountability Structure for the Communications
Function..........................................................................337
Measures of Knowledge Management Performance.............338
Chapter 11
11.1
11.2
11.3
11.4
11.5
11.6
11.7
11.8
Functions of Human Resources Management.....................350
Illustration of Workforce Plan Content...............................352
Core Files of HRM Knowledge Management......................362
Typical Improvements for Human Resources
Management...................................................................373
Organization of a Large Human Resources
Department.....................................................................374
Measures of the Human Resource.......................................375
Measures of Human Resources Management......................376
Human Resources and the Service Excellence Dynamic.......377
Chapter 12
12.1
12.2
12.3
12.4
12.5
12.6
12.7
12.8
12.9
12.10
Environment-of-Care-Management Requirements..............386
Functions of Environment-of-Care Services........................387
Facilities Planning Process...................................................389
Facilities Maintenance Services............................................394
Guest Services: Workforce, Patient, and Visitor Support .....397
Functions of Materials Management...................................400
Enhanced Environmental Management Requirements.........401
Environment-of-Care Organization for Large HCOs..........409
Examples of Demand Measures for Environment-of-Care
Functions........................................................................410
Implications of Cost Accounting on Environmental
Exhibits
12.11
Services...........................................................................411
Measures of Quality for Environment-of-Care Services........412
Chapter 13
13.1
13.2
13.3
13.4
13.5
13.6
13.7
13.8
13.9
13.10
13.11
Functions of the Finance System.........................................420
Availability of External Price Information, by Type of
Transaction and Level of Aggregate.................................423
Integrating Strategic and Operational Goal Setting.............428
Major Budgets and Their Relation to Strategic Goals..........429
Annual Goal-Setting Cycle..................................................430
Major Steps in Developing Operations Budgets...................431
Tests and Adjustments in Financial Planning.......................437
Pricing Structures for Healthcare Contracts........................439
Implications of Alternative Funding Sources for an
Ambulatory Care Project.................................................441
Organization of the Finance System....................................451
Operational Measures of Finance and Accounting...............453
Chapter 14
14.1
14.2
14.3
14.4
14.5
14.6
14.7
14.8
14.9
14.10
Functions of Internal Consulting .......................................462
Internal Consulting as a Clearinghouse...............................464
Patient-Oriented Specification Taxonomies.........................468
Insurance Intermediary and Employer Specification
Taxonomies.....................................................................468
Healthcare Provider Specification Taxonomies....................469
Run Charts and Control Charts..........................................471
Checklist for Evaluating Improvement Proposals.................477
Examples of Programmatic Proposals..................................478
Programmatic Capital Review Process.................................479
Operational Performance Measures for Internal
Consulting.......................................................................485
Chapter 15
15.1
15.2
15.3
15.4
15.5
15.6
15.7
15.8
15.9
Functions of Marketing and Strategy...................................495
Illustration of Marketing Functions.....................................497
Major Listening Activities ..................................................499
Examples of Alternative Collaborative Structures for HCO
Services...........................................................................507
Spectrum of Potential Relationships with Organizations......508
Matrix of Market Attractiveness and Advantage...................512
Miles and Snow Typology of Strategic Types.......................513
Formal Hierarchy for a Large Marketing Operation............517
Measures for Specific Campaigns.........................................519
xxi
PREFACE
The Well-Managed Healthcare Organization, now in its 7th edition, is a text
for students pursuing professional careers in managing healthcare organizations (HCOs). It describes actual practices that lead to high performance,
based on our careful analysis of a small but reasonably representative set of
HCOs that have been studied by competent peers and have produced auditable evidence of excellence. We believe the evidence of the superiority of these
practices passes both academic and professional challenge. The footnotes in
each chapter support our belief. There may be other ways to achieve excellence, but they have not been documented and quite possibly have not been
discovered. Healthcare organizations that follow the methods we describe
are well-prepared for health reform. We expect them to continue to thrive.
Indirectly, health reform initiatives reinforce our message and are consistent
with managing and leading excellent HCOs on the basis of evidence, best
practices, benchmarks, and a culture of continuous improvement.
The common theme in these organizations is that a specific culture
(transformational and evidence-based management) and certain management activities (listening, measurement, benchmarking, negotiated goal
setting, and continuous improvement) are essential to high performance.
Specialized teams must complete specified tasks correctly to measured
standards. These teams include not only those involved in patient care but
also clinical support (e.g., laboratory, pharmacy, imaging), logistics (e.g.,
information, personnel, training, supplies), or strategic (e.g., finance, internal consulting, enterprise level goals). Each chapter, after Chapter 1,
has the following structure: Purpose, Functions, People, Measures, and
Managerial Issues. The Functions section describes the unit’s essential
contribution to the whole, and the Measures section identifies opportunities to improve that contribution.
The challenge in managing HCOs is to sustain excellence over all the
teams, and the solution to this challenge lies in two core thrusts:
1. Maintaining a culture that empowers each associate (transformational
management)
2. Supporting continuous improvement with measurement, process analysis, negotiated goals, and rewards (evidence-based management)
xxiii
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The Well-Managed Healthcare Organization
In excellent HCOs, measurement is central, improvement is constant,
leaders respond to associates and patients, professionals communicate as
equals, everyone is treated with respect, and authority is derived from knowledge rather than rank. These are the foundations of high performance. The
record of excellent HCOs shows quite clearly that the new management approach produces excellence in all the sites that now constitute the healthcare industry. High-performing HCOs successfully operate the full gamut of
healthcare, including doctors’ offices, general and special hospitals, continuing care, home care, and hospices.
Using The Well-Managed Healthcare Organization
Any organization is a collaboration to do what an individual alone cannot do.
This collaboration succeeds by division of labor—assigning tasks for individuals and small teams to complete to achieve the goals of collaboration. The
text begins (chapters 1 and 2) with a description of the collaborators, called
stakeholders.
Performance excellence is built on a comprehensive and well-supported theory of management (Chapter 2). The elements of that theory are
as follows:
1. An HCO is supported by many stakeholders who, in turn, benefit from its success. In general, stakeholders are either “customers” or “providers,” and a key
organizational issue is balancing and optimizing the rewards to each group.
2. The goals of the HCO are stated in its mission. Missions of HCOs are similar
because all stakeholders share a common purpose of extending the length and
quality of life and providing safe, effective, patient-centered, timely, efficient, and
equitable care.
3. Goal achievement is evidence-based, using objective measures of performance,
comparison to competitors and best practices, goal setting, and continuous
improvement.
4. The rewards of improvement are shared among the stakeholders so that both
customer and provider stakeholders view the organization as their preferred
affiliation.
These elements constitute cross-cutting themes that recur throughout
the text.
From chapter 3 to 15, the text describes the activities of an HCO
in three divisions—corporate, clinical, and technical/logistic. Each chapter
identifies an activity and the functions it must perform for the whole to succeed, its organization structures and personnel, its measures of performance,
and some of the critical areas in which it needs managerial support. Each
chapter addresses (1) “what this activity must do well for the whole to succeed” and (2) “how this activity measures and improves its performance.”
Preface
Each chapter begins with In a Few Words, a précis of the activity addressed in
the chapter; Critical Issues, an outline that emphasizes the distinctions associated with excellence; and Questions for Discussion, five important and easily
misunderstood application topics.
Chapter 2 describes leadership and the activities required of senior management to build and sustain the HCO’s cultural foundations. Chapter 3 expands the discussion on the operational foundation, exploring the activities
that identify opportunities for improvement (OFIs) and lead to improved
work processes. Chapter 4 addresses governance, the strategic decision making that provides effective long-term response to stakeholder needs. Chapters 5 through 9 describe the operation of the various clinical and clinical
support teams. Chapters 10 through 15 discuss the logistic and strategic
support activities.
Each chapter addresses purpose, functions, people, measures, and managerial issues associated with the activity. The content of these chapters gives the
student the ability to engage in meaningful dialogue with members of any activity or team, to understand how well a team or activity is currently performing
and what its current OFIs are, and to assist in translating those OFIs to actual
improvement. That pattern of listening, learning, and supporting improvement
is what twenty-first century healthcare managers do for a living.
HCO managers build excellent organizations by ensuring that the
functions are carried out as a whole. The theory demands comprehensiveness, as failure in one activity contributes to failure in another. The three
divisions must all perform; an HCO cannot have clinical excellence without
corporate excellence and logistic excellence. The learning manager, therefore,
must grasp the totality and interdependence of the HCO as well as the contributions expected of each activity. He or she must also understand the application of the cross-cutting themes—the role of the mission, evidence-based
decisions, measured performance, continuous improvement, and reward. The
test of learning is the ability to explain these issues to others, such as customer
stakeholders, beginning supervisors, and new employees.
We believe one effective path to mastery is to use the book partly as a text
and partly as a reference. Some of the detail should be memorized, for immediate
recall in conversations with others. The functions of the governing board (Chapter 4), the way budgets are developed (primarily chapters 3, 4, 7, and 12), and the
use of the epidemiologic planning model (every chapter from 4 to 15) are prime
examples. Other matters are not unimportant, but when they arise, they can be
reviewed through the index and the table of contents.
A beginning student might best master the text, not by reading from
page 1 to page 600 but rather by interacting with each chapter:
1. Read In a Few Words to focus on the contribution of the activity.
2. Study the Critical Issues, making an effort to relate them to her prior
experience.
xxv
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The Well-Managed Healthcare Organization
Online Learning System
The text offers a two-part online learning system
designed to help students and instructors.
The Companion Website is designed for students
and is available at ache.org/books/Well-Managed7.
It contains the following:
• An overview of how to use the text to become an
effective healthcare organization manager
• A glossary of all the technical terms identified in
the text
• A folder for each chapter that contains (1) a onepage guide to mastering the chapter; (2) “Chapter Learning Goals and Milestones,” a list of
the questions a professional should be able to
answer and guides to where in the chapter the
answers can be found; and (3) “Additional Questions for Discussion” to supplement the questions in the text. The questions are in addition
to the five given in each chapter. They illustrate
the issues managers must think about as they respond to associates’ questions and opportunities
3. Review the details of the functions to understand how each element contributes to the
whole and how each is best implemented.
4. Study the exhibit that shows the performance
measures, and review the Measures section to
understand how the measures are defined and
used.
5. Check the Managerial Issues section for
important elements that relate the activity to
management in the organization as a whole
and to sustaining high performance.
6. Review the Questions for Discussion in relation to her or his prior experience, striving
to understand both the importance of the
question and the best way it can be answered
in real HCOs.
7. Consider how the material in the chapter can
be effectively conveyed to the right people in
an HCO—that is, how can it be best summarized in formal policies and procedures,
in training programs, and in day-to-day
interactions.
The text can certainly be mastered in
self-study. We believe a class or discussion
group and a mentor or teacher can help substantially, particularly in the latter steps.
for improvement.
Instructor Resources are available only to qualified instructors. They contain all the Companion
Acknowledgments
As the editions of The Well-Managed Healthcare Organization mount, keeping track of
tips, guides for leading the Questions for Discusall who have contributed to this text by their
sion, slides for classroom presentations, and gradexamples becomes difficult. The applications
able questions with answer rubrics. (For access,
of the HCO recipients of the Malcolm Baldrige National Quality Award are the most
please apply at hap1@ache.org and include your
comprehensive documentation of the transcourse, university, and department names.)
formational and evidence-based approach.
Our visits to Catholic Health Initiatives,
Henry Ford Health System, Intermountain Healthcare, Legacy Health System, Medicorp Health System, MedStar Health, Moses Cone Health System,
and Sentara Healthcare have helped us understand how leading practices are
designed and implemented.
Website elements plus chapter-by-chapter teaching
Preface
Over a period of time, both of us have worked with specific organizations, including Summa Health System in Akron, Ohio; Allegiance Corporation (a physician hospital organization) in Ann Arbor, Michigan; Mercy
Health Center in Oklahoma City, Oklahoma; Mercy International Health
Services in Farmington Hills, Michigan; and Bon Secours Health System in
Marriottsville, Maryland. We are grateful to these HCOs. We are also grateful
for the assistance of our colleagues at the University of Michigan and Virginia
Commonwealth University.
Kenneth R. White, PhD, FACHE
Virginia Commonwealth University
Richmond, Virginia
John R. Griffith, MBA, FACHE
The University of Michigan
Ann Arbor, Michigan
xxvii
1
CHAPTER
1
FOUNDATIONS OF HIGH-PERFORMING
HEALTHCARE ORGANIZATIONS
In a Few Words
Healthcare organizations (HCOs) include all organizations that provide healthcare.
The Well-Managed Healthcare Organization focuses on excellent HCOs—those that
delight their patients, families, caregivers, and other associates and that provide
care that is safe, effective, patient-centered, timely, efficient, and equitable. To
achieve excellence, HCOs build a culture around their mission, vision, and values.
They empower their associates, encourage them to meet patient and customer
needs, measure their performance, and reward them for improvement. They use
evidence-based medicine and systematic analysis of work processes. Extensive
boundary-spanning and strong internal relationships allow them to meet strategic
challenges. They carefully protect their organizational resources from any kind of
loss or diversion.
Critical Issues in Excellence
1. Emphasizing mission, vision, and values. Make the contribution and importance of care
itself a shared value.
2. Building a culture that listens, empowers, trains, and rewards. Begin a program that identifies what people see as barriers to their work and remove them.
3. Measuring performance, seeking benchmarks, and negotiating realistic goals. Add quality,
customer satisfaction, and associated satisfaction measures for every work unit.
4. Maintaining close relations with all stakeholders. Extend the listening activities so that
every major affiliate has a point of contact and is assured of fairness and responsiveness.
1
QUESTIONS FOR DISCUSSION
Consider these questions as you read the chapter.
1. This chapter outlines a transformational style of management, emphasizing values, empowerment, communication, trust/accountability, and rewards. Why do
high-performing HCOs strive for transformational styles? Some people say that
transformational is completely unrealistic; you must enforce order, they say, to have
accountability. How is accountability achieved in high-performing, transformational
HCOs? How comfortable would you be working in a high-performing, transformational
organization?
2. The history and current activities of HCOs are strongly oriented to healing the sick.
The first word of this chapter—“patients”—is consistent with that tradition. Some
say that the real role of HCOs is community health, including but going well beyond
healing the sick. (Contrast the missions of SSM, Bronson, and Saint Luke’s with those
of Baptist, Robert Wood Johnson, and North Mississippi in Exhibit 1.7.) Should the
text have started with, “Building healthy communities is the focus of HCOs, including
patient care but going well beyond”?
3. Systematic change (page 29) is a four-step process: identify, analyze, test, evaluate.
What is new about that? Could you achieve systematic change without measurement
and benchmarking? Think of your last encounter with a service organization (e.g.,
HCO, university, restaurant). What would be different if the organization practiced
continuous improvement and systematic change?
4. What happens to an organization that fails in its strategic positioning (see Exhibit
1.14)? Can you name an example or two, and then identify with hindsight where they
failed?
5. Ben Franklin founded The Pennsylvania Hospital in 1760, before the American Revolution. His fund-raising arguments were as follows:49
• We need a refuge for the unfortunate, and Christianity will reward you for your
generosity to this cause. (Although Franklin did not say so, Islam, Buddhism, and
Judaism also praise charitable behavior.)
• You might need it yourself this very night.
• Among other things, we can keep contagious people off the streets.
• We can certainly handle this better as a community than as individuals.
• Grants from the Crown and the Commonwealth will lower the out-of-pocket costs.
(He might have added that the grants were “new money” that would eventually
end up in Philadelphians’ purses.)
2
Chapter 1: Foundations of High-Performing Healthcare Organizations
P
3
atients are the focus of healthcare, and in the twenty-first century patients are commonly treated by teams. A single caregiver working alone
soon must seek support for clinical needs like laboratory, imaging, and
pharmacy, or for logistic ones, like information, facilities, and supplies. For a
serious problem, such as heart surgery or recovery from stroke, several different caregiving teams will be required. Cure will result from the coordinated
efforts of close to 100 people bringing highly specialized skills and using an
array of diverse equipment and an extensive set of drugs and supplies. Continuing management of the underlying cardiovascular disease will require a
different team that will support the patient for months or years. The healthcare organization (HCO) creates, supports, and coordinates those teams. It is a formal legal entity that Healthcare organization (HCO)
reaches across the panorama of medicine, other clini- A formal legal entity that reaches across the panorama of medicine, other clinical disciplines, and
cal disciplines, and business to identify and deliver
business to identify and deliver care to its community
care to its community.
Activities
An HCO supports individualized patient care with an array of teams, as shown
in Exhibit 1.1. The caregiving teams differ according to patients’ needs. They
are backed by three levels of support—clinical, logistic, and strategic—that
are themselves composed of specialized teams. Each patient care team performs an activity that is essential to a specific group of patients, and each
support team performs an activity that is essential to the work of some or all
patient care teams. A small HCO has few patient care activities and contracts
with other organizations for support; a large one has a broad array of patient
care and support. A healthcare system has many patient care activities in several geographic locations.
Teams are usually housed in purpose-built spaces (e.g., clinics, operating rooms, business offices) so that HCO facilities reflect the activities
depicted in Exhibit 1.1. With the growth of electronic communication, however, many teams can be geographically remote. A primary care team needs a
process that yields timely laboratory results, but that might be a centralized
laboratory. All care teams require strategic capability, but it might be provided
from the system headquarters in another state.
Exhibit 1.1 is static. Any real HCO is highly dynamic in three senses:
1. The HCO constantly responds to the changing array of patients and their
changing needs. This makes most HCOs a 24/7/365 operation.
2. The HCO evolves as medicine and management change, reflecting both the
latest scientifically proven treatments and new developments in management
practices and information technology.
3. The HCO adjusts to the changes in its community’s needs.
4
The Well-Managed Healthcare Organization
As the population grows, shrinks, and changes in age and ethnic diversity, the epidemiology of disease changes and the HCO must respond. One
function of the strategic activities is to manage these changes. While the focus
of the clinical and support activities is “this patient, now,” the strategic focus
is “all patients, into the future.”
Contribution
The mission HCOs fulfill is one of humanity’s highest callings: to assist others
in the “beginning of life, the end of life, and the shadows of life.”1 HCOs are
essential treatment resources for heart disease, cancer, stroke, obstetrics, major
trauma, and several hundred other conditions, providing preventive and episodic
care, emergency care, surgery, intensive care, rehabilitation, chronic disease maintenance, and end-of-life care. At least one large HCO exists in virtually every
county in the United States and is usually surrounded by several smaller ones
such as doctors’ offices. About 60 percent of Americans use HCOs in a given
year. Although most contacts are relatively simple office visits, one in ten Americans is hospitalized and about three in ten require major outpatient care.2 It is a
rare family who has not had recent contact with an HCO. That contact is often
lifesaving, but it is also often intimate, expensive, life threatening, and frightening.
EXHIBIT 1.1 Components of Healthcare Organizations
Caregiving Teams* provide care
to patients with similar needs.
Major caregiving groups are
Primary care (family
medicine, general internal
medicine, pediatrics,
obstetrics, psychiatry,
advanced care practitioners)
Acute care (by specialty)
Rehabilitation
Home care
Hospice
Continuing care
Caregiving
Teams
Clinical Support Teams
Logistic Support Teams
Clinical Support Teams* provide
specific clinical services to
Caregiving Teams. Important
examples are
Clinical laboratory
Pharmacy
Imaging
Cardiopulmonary
laboratory
Surgery/anesthesia/recovery
intensive care
Physical therapy
Social service
Strategic Support Teams
Logistic Support Teams* provide
trained personnel, information,
facilities, accounting, cash
management, and supplies.
Strategic Support Teams* provide
marketing, governance, internal
consulting, finance, stakeholder relations
management, and strategic positioning.
They protect the HCO’s culture and
tangible resources.
*HCOs have varying sets of clinical or clinical support activities. The logistic support and many strategic support activities are
required for any clinical activities.
Chapter 1: Foundations of High-Performing Healthcare Organizations
5
The nation’s HCOs are the point of implementation for a healthcare
system that has grown from its commitment to “promote the general welfare”
(as stated in the Preamble to the Constitution) to be one of America’s largest
collective endeavors. The U.S. per capita cost of healthcare is the highest in
the world, consuming about one-fifth of the gross domestic product. HCOs
and their physician affiliates consume about half of the cost. They justify their
cost by meeting powerful individual drives for health and longevity, by making a substantial direct contribution to their local economies, and by implementing a widespread commitment to Samaritanism and social justice. The
American healthcare system can be viewed as an investment, contributing to
national productivity by adding years of healthy life. Despite its cost, the investment is highly profitable.3 Much of the cost is returned to the community
through employment,4 as an HCO is often the community’s largest employer.
Stakeholders
Formal organizations exist because they fulfill a need
Stakeholders
that individuals working alone cannot meet,5 and they Individuals or groups (buyers, workers, suppliers,
thrive because they fulfill that need better than compet- regulators, and owners) who have a direct interest in
ing alternatives.6 By definition, any organization serves an organization’s success
many masters or stakeholders—individuals or groups
who have a direct interest in its success. Organizations
are economic entities shaped by stakeholder needs. Stakeholders are buyers,
workers, suppliers, regulators, and owners who cooperate through economic
exchanges as shown in Exhibit 1.2. In a free society, stakeholders can choose to
participate in the organization or not, and a shortage caused by some stakeholders
EXHIBIT 1.2 General Model of Stakeholder–Organization Interaction
Owners
Individuals or groups who have
contributed capital to the organization
Capital
Customers/Buyers
Individuals or groups
who have needs that
they want to fulfill
Returns
Services
Services
Organization
Compensation
Compensation
Laws, regulations, and
societal constraints
Suppliers/Workers
Individuals or groups
who have resources that
they want to contribute
6
The Well-Managed Healthcare Organization
selecting alternative sources is disabling for the organization. Organizational excellence begins with and is measured by stakeholder satisfaction.
Exhibit 1.2 reflects most of the world’s economic activity, but reality is
not a simple as it suggests. Stakeholders’ desires are inherently conflicting.
The buyer wants to buy inexpensively; the supplier to
sell dear. Each of us is a stakeholder in many organiCustomers
Patients and others who use the services of the organi- zations. Most of us are alternately buyer (i.e., cuszation and generally compensate the organization for
tomer) stakeholders and seller (i.e., provider)
those services; also, by extension, other units within
stakeholders, and we and our organizations exist in
the HCO that rely on a particular unit for service
networks of negotiated solutions to those conflicting
desires. The most fundamental element is neither our
Providers
organization nor our stakeholder desires; it is our
Institutional and personal caregivers such as physiability to negotiate. An important way to understand
cians, hospitals, and nurses
organizations is as devices to negotiate solutions.
Because of the cost, financing structure, importance, and the intimate and life-changing nature of healthcare services,
American HCOs represent one of the most complex applications of Exhibit
1.2. Several levels of complexity are added. The stakeholder environment for
HCOs is shown in Exhibit 1.3; the complexity of HCOs arises from the multiplicity of HCO stakeholders and from the nature of healthcare services.
Customer Partners
Patients and
Families
Patients are the most important stakeholders. They expect, and deserve, care
that meets the goals summarized in the Institute of Medicine’s report Crossing the Quality Chasm: safe, effective, patient-centered, timely, efficient, and
equitable.7 They also expect reasonably comfortable amenities and confidentiality. Friends and family accompany most patients, and many family members serve as informal caregivers, so HCOs must establish close and direct
relations with them.
Patients’ expectations include a major element of trust. Information
asymmetry—the organization and its caregivers possess substantially more
knowledge about the patient’s needs than the patient does—makes it impossible for many patients and families to articulate their needs. Instead, they expect the HCO to do that for them, thoroughly and fairly. Much of the failure
in patient relations comes from difficulties with managing that trust.
Health
Insurers and
Payment
Agencies
Patients rely on a variety of mechanisms to pay for care, which can easily
cost a large fraction of a family’s annual income. Health insurers and fiscal
intermediaries provide most of the revenue to HCOs, making them essential
exchange partners. Private health insurers are agents for buyers, which include governments, employers, and citizens at large. Two large governmental
insurance programs—Medicare and Medicaid—are exchange partners with
Chapter 1: Foundations of High-Performing Healthcare Organizations
most HCOs. The federal Medicare program deals
with HCOs through its intermediaries.8 Medicaid,
a combination state and federal program that finances care for the poor, is run by the state Medicaid
agency or an intermediary. Representing the buyers,
payment organizations use contractual requirements,
regulatory support, and incentive payments to improve the quality, safety, and cost of care.
7
Intermediary
A payment or management agent for healthcare
insurance (e.g., Medicare intermediaries that pay
providers as agents for CMS)
Medicaid agency
The state agency handling claims and payments for
Medicaid
Much health insurance is provided through employment, making employers
important exchange partners. Historically, unions played a major role in establishing health insurance as an employee benefit. Federal, state, and local governments purchase care for special groups of citizens and also buy insurance
as employers do. Buyers, who must meet the demands of their own exchange
networks, have taken action to restrict the growth of costs, acting principally
through payment organizations. Their pressure is likely to continue.
Buyers
EXHIBIT 1.3 Model of Stakeholder–HCO Interaction
Owners
Patients and families
differentiated by age,
gender, and clinical need
Health insurers and
payment agencies
differentiated by carrier
and kind of coverage
Buyers
differentiated by
individual, employer,
and government
Caregivers
differentiated by
professional credentials
HCO
Other employees
differentiated by job
description
Contract providers
differentiated by
purpose of contract
Local, state, and federal licenses, permits, and
certifications
Private certifications and accreditations
Healthcare-specific laws and regulations
General corporate laws and regulations
Trade associations, professional organizations, unions,
customer associations, lobbies,
and other collectives influencing healthcare transactions
Suppliers
Volunteers
Suppliers/Workers
Customers/Buyers
Not-for-profit corporations, for -profit
corporations, and government entities
8
The Well-Managed Healthcare Organization
Regulatory
Agencies
Most payment organizations mandate two outside audits of HCO performance—accreditation by The Joint Commission or its osteopathic counterpart the American Osteopathic Association and audit by a public accounting
firm of the HCO’s choice. Some insurance plans are
accredited by the National Commission on Quality
Government regulatory agencies
Assurance (NCQA), which also accredits ambulatory
Agencies with established authority over healthcare
activities; licensing agencies and rate-regulating com- care and disease management. Medicare and Medicmissions are examples
aid—contracts that are essential to most HCOs—are
monitored through deemed status, a determination of
Certificate of need (CON)
conformance usually established through the accrediCertificates or approvals for new services and
tation agencies.
construction or renovation of hospitals or related
Government regulatory agencies are exfacilities; issued by many states
change partners that at least nominally act on behalf
Quality improvement organizations (QIOs)
of the patient and buyer. State licensing agencies
External agencies that review the quality of care and
are common, not only for hospitals and healthcare
use of insurance benefits by individual physicians
professionals but sometimes also for other facilities
and patients for Medicare and other insurers
such as ambulatory care centers. Many states have
certificate-of-need laws, requiring HCOs to seek
Health Insurance Portability and Accountability Act
permission for construction or expansion. Quality
(HIPAA)
improvement organizations (QIOs) are external
A 1996 federal act that establishes standards of
privacy for patient information
agencies that review the quality of care and use of insurance benefits by individual physicians and patients
for Medicare and other insurers. HCOs are subject
to many consumer-protection laws, including the Health Insurance Portability and Accountability Act (HIPAA), which addresses major issues of
patient-record confidentiality.
HCOs require land-use and zoning permits; they use water, sewer,
traffic, electronic communications, fire protection, and police services and
thus are subject to environmental regulations. HCOs often present unique
needs in these areas that must be negotiated with their local government.
The courts can also be viewed as regulatory agencies. HCOs may be
sued for malpractice or negligence—harmful conduct that is unintentional
but avoidable with reasonable care. Suits are brought by individuals in specific
cases, but the court findings establish the rules of conduct for future actions.
Thus the courts can also be viewed as regulatory organizations.
Community
Groups
HCOs make numerous, varied, and far-reaching exchanges with community agencies and groups. They facilitate infant adoption; receive the victims
of accidents, violence, rape, and family abuse; and attract the homeless, the
mentally incompetent, and the chronically alcoholic. These activities draw
them into exchange relationships with law enforcement and social service
agencies.
Chapter 1: Foundations of High-Performing Healthcare Organizations
9
In addition, HCOs work with United Way charities. They facilitate
baptisms, ritual circumcisions, group religious observances, individual spiritual activity, and rites for the dying. They provide educational facilities for
caregivers and services to the community such as health education and disease prevention programs, assistance to support groups, and mobile clinics.
These activities often make HCOs partners of cultural, religious, educational,
and charitable organizations. Prevention and outreach activities draw HCOs
into alliances with governmental organizations, such as public health departments and school boards, and with local employers, churches, and civic
organizations.
Not-for-profit HCOs often occupy facilities that, if taxed, would add
noticeably to local tax revenues. The community may hold the organization
to certain conditions, such as a certain level of charity care, in return for
nonprofit status.9 As a result, the electorate and the local government are
stakeholders collectively, and the electorate contains many of the HCO’s
stakeholders individually. Communication with stakeholders often involves
the media—print, radio, television, and Internet coverage—and purchased
advertising. Web-based public sources such as HealthGrades and Why Not
the Best are increasingly influential in forming customer opinion, although
they do not give consistent results.10
Provider Partners
The second most fundamental exchange, next to patients, is between the Associates
HCO and its associates—people who give their time and energy to the organization. HCO associates are employees, trustees and other volunteers, and
medical staff members.
Employees are compensated by salary and
Associates
wages. Trustees and a great many others volunteer People (employees, trustees and other volunteers,
their time to the organization; their only compensa- and medical staff members) who give their time and
tion is the satisfaction they achieve from the work. energy to the HCO
Medical staff members receive monetary compensation from either patients and insurance intermediaries Primary care practitioners
or the HCO. Primary care practitioners—physi- Initial contact providers, including physicians in
cians in family practice, general internal medicine, pe- family practice, general internal medicine, pediatrics,
obstetrics, and psychiatry; nurse practitioners; and
diatrics, obstetrics, and psychiatry; nurse practitioners;
midwives
and midwives—are the most common initial contacts
for healthcare. Referral specialist physicians tend to Referral specialist physicians
see patients referred by primary care practitioners and Doctors who care for patients referred by primary
to care for these patients on a more limited and tran- care practitioners on a limited or transient basis;
sient basis. They are more likely to manage episodes likely to manage episodes of inpatient care
of inpatient hospital care. Hospitalists, a recently established referral specialty, accept relatively broad
10
The Well-Managed Healthcare Organization
Hospitalists
Physicians who manage broad categories of hospitalized patients
categories of patients and manage inpatient care
only. Other professional caregivers (e.g., dentists,
psychologists, podiatrists) may also be members of
the medical staff.
Associate
Organizations
Associates are often organized into groups that manage their exchanges to
varying extent. Unions, or collective bargaining units, sometimes represent
employed associates. Physicians often form professional associations and practice groups. Neurologists, for example, can become a group to represent their
interests to the organization as a whole. Group membership is itself an organization; individuals choose it because a group can meet some needs that
would otherwise go unmet. The success of the group depends on the exchanges that commit the individuals to the group.
Government agencies of various kinds monitor
Licensure
the rights of associate groups. Occupational safety,
Government approval to perform specified activities
professional licensure, and equal employment opportunity agencies are among those entitled access
Equal employment opportunity agencies
Government agencies that monitor the rights of asso- to the HCO and its records. The National Labor Reciate groups; these are among those entitled access
lations Board and various state agencies define which
to the HCO and its records
organizations are unions and establish rules for their
relations with employers. The HCO is obligated to
collect Social Security and income tax withholding.
Suppliers and
Financing
Agencies
HCOs use goods and services—from artificial implants to food to banking to utilities—purchased from outside suppliers. Financing partners help HCOs acquire
capital through a variety of equity, loan, and lease arrangements. HCOs often
enter into strategic partnerships with suppliers and other provider partners.
In the course of meeting patient needs, HCOs have considerable contact with
other providers, including organizations and agencies whose service lines may be
either competing or complementary, such as primary care clinics, mental health
and substance abuse services, home care agencies, hosStrategic partnerships
pices, and long-term-care facilities. Many large HCOs
Commitments with long-term obligations
have formal relationships with these organizations, such
as referral agreements, strategic partnerships, joint venJoint ventures
tures, and acquisition and ownership. It is not uncomFormal, long-term collaborative contracts usually
mon
for two HCOs to collaborate on some activities,
involving equity investment
such as medical education or care of the poor, and to
Hospice
compete on others. Even competitors with almost exA model of caregiving that assists with physical,
actly the same services negotiate contracts with each
emotional, spiritual, psychological, social, financial, and other. Federal and state antitrust laws regulate the nelegal needs of the dying patient and his family; the sergotiation between competitors, but these prohibitions
vice may be provided in the patient’s home or in an HCO
are specific and other communication is permitted.
Other
Providers
Chapter 1: Foundations of High-Performing Healthcare Organizations
11
Sources of Stakeholder Influence
The ultimate source of stakeholders’ power is the marketplace—their ability
to participate in the exchange. In reality, influence is exercised through ongoing negotiation rather than discontinued participation. Stakeholders form
coalitions and networks to enhance their influence and facilitate negotiation.
The results of negotiation are embedded in marketplace contracts and reinforced through government regulation. Ultimately, but rarely, the courts
resolve disputes in relationships.
Successful HCOs work steadily and systematically to increase the loyalty of Participation
their stakeholders. Their efforts are proactive and extensive. Their goal is to and Market
identify stakeholder needs and design effective responses before unmet needs Pressure
become points of contention.
Stakeholder participation is carefully meaLoyal/secure customers
sured. Customer participation is measured by market Customers whose opinions of the organization are
share, and provider participation is measured by re- so positive that they will return for further interactention and shortages. Satisfaction of participants is tion and will recommend or refer the organization to
also monitored. The goal here is to acquire and retain others
loyal or secure customers and associates.
Rather than discontinue their participation, stakeholders usually present
their concerns for negotiation. The stakeholders’ desires frequently conflict
and can easily become adversarial, as in the traditional relationship between
unions and management. Successful HCOs strive to minimize adversarial relationships by building a record of responsiveness and truth telling, making a
diligent effort to find and understand relevant facts, maintaining respect and
decorum in the debate, and searching diligently for solutions. The goal is to
have the stakeholders leave the discussion feeling that their concerns were
heard, that the decision was fair, and that no realistic opportunity to improve
the decision exists. “My (or our) concerns have been heard and met as well as
possible” is the feeling that results from successful negotiation.
Negotiation
Each exchange partner of the HCO has relationships with exchange partners of their own. Individuals and families affiliate with employers, businesses,
schools, churches, and community groups. Stakeholder coalitions form
among these relationships based on shared values or common needs. Many
are more or less permanent, while others are temporary alliances to forward
a specific goal.
Similar networks exist for other social issues. They are the essence of
“community” because they facilitate our living together harmoniously. Nurturing these networks is fundamental to the social fabric.11 HCOs that deal
effectively with these networks contribute to their communities in two ways:
(1) they provide and improve healthcare, and (2) they strengthen the social
fabric.
Networking
and Coalition
Building
12
The Well-Managed Healthcare Organization
A small group of essential caregivers, such as the obstetricians in the
community, can challenge how the HCO meets specific needs, such as the
care of low-income mothers. Unions or associations that represent doctors,
nurses, or patients are more permanent stakeholder coalitions. Buyer- and
consumer-oriented networks, such as the National Business Group on Health,
CalPERS, and AARP, are coalitions that allow stakeholders to address complicated social problems, such as healthcare’s uninsured and health promotion.
Many coalitions become permanent to forward their stakeholder agendas. An important example is The Joint Commission. A successful example
is the National Quality Forum (NQF), which was created in 1999 “to improve the quality of American healthcare by setting national priorities and
goals for performance improvement, endorsing national consensus standards
for measuring and publicly reporting on performance, and promoting the attainment of national goals through education and outreach.”12 NQF has a
board of 25 members, including 7 organizations that directly represent
healthcare providers and 18 that represent buyer coalitions. NQF has established a mechanism to evaluThe Joint Commission
ate and standardize measures of quality. These
A voluntary consortium of HCOs and professional
provider organizations that ensures a minimum level
measures are recorded for public use and posted on
of safety and quality in HCOs
the website by the Agency for Healthcare Research
and Quality (see www.qualitymeasures.ahrq.gov).13
Social Controls
Stakeholders can imbed their viewpoint into law, regulation, and contract. They
can also sue in courts. These actions are social controls on HCOs. They create
the various regulatory mechanisms. For example, The Joint Commission has
been given extraordinary power by Medicare and Medicaid, which withhold
payment unless its standards are met. As a result, it can effectively shut down any
HCO by denying accreditation. Medicare and private insurance programs now
use the NQF measures in pay-for-performance programs to improve quality,14
and The Joint Commission has added the measures to its criteria.15
Social controls almost always reflect good intentions—safety, quality,
individual rights, equity, and efficiency. Accomplishment is another matter. It
is fair to conclude that both the regulatory agencies dealing with healthcare
delivery and the contracts of the health insurers and intermediaries have generally fallen short of expectations. Safety, quality, healthcare disparities, and
cost remain problems despite decades of activity in these areas. In part, this
reflects the complexity of the goal and the difficulty of measurement. In part,
it reflects the limitations of the market and governmental systems.
The use of objective measures of performance may provide an improvement. Many observers agree that “The U.S. health care delivery system is in
need of overhaul. Care is fragmented, unsafe, and inefficient. . . . [S]tronger
organizational capabilities and supports are urgently needed to achieve high
levels of performance.”16 Pressures to build these capabilities and achieve
Chapter 1: Foundations of High-Performing Healthcare Organizations
13
performance are likely to mount. By the start of the Obama administration,
many experts argued that broad changes in the overall system of healthcare
are essential. One group of experts from 13 different stakeholder organizations advocated “to create a national center for effectiveness research, develop
models of accountable healthcare entities capable of providing integrated and
coordinated care, develop payment models to reward high-value care, develop
a national strategy for performance measurement, and pursue a multi-stakeholder approach to improving population health.”17 The model described in
this text is consistent with such a program. It is based on actual HCOs that
have documented their success in meeting multiple stakeholder needs.
Ownership
Not-for-Profit, For-Profit, and Government Owners
Acute care hospitals are the largest single group of HCOs. They are also
the largest and oldest components of most large HCOs. They are licensed
corporate entities and easily identified for statistics and therefore provide a
convenient, though incomplete, description of twenty-first century HCOs.
Most hospitals are community hospitals.18 Historically, they were controlled by either the local government or not-for-profit organizations owned by
the community and expected to fulfill community needs. The not-for-profit corporations were given substantial tax advantages, recognizing that their services would otherwise be required Community hospital
of government.19 In the 1970s, a movement to for- A short-stay general or specialty (e.g., women’s,
profit ownership quickly reached about 10 percent of all children’s, eye, orthopedic) hospital, excluding those
community hospitals, and increased sporadically there- owned by the federal government
after. As of 2007, the formal organization of hospitals,
shown in Exhibit 1.4, was dominated by not-for-profit corporations. The local
government and for-profit sectors were smaller in total, and concentrated among
smaller hospitals. In addition, a small number of federal hospitals serve military,
veterans, Native American, and federal prison needs. (Federal hospitals are excluded from counts of community hospitals.)
Healthcare Systems
As Exhibit 1.4 shows, most hospitals are relatively small HCOs. A hospital has
about eight full-time employees per million dollars in expenses. The median
hospital has only about 300 full-time employees. In the 1980s, HCOs began
to organize multiple hospitals and other healthcare activities into a healthcare
system. By 2007, more than half of all hospitals and
almost two-thirds of healthcare expenditures were in Healthcare system
Healthcare organizations that operate multiple
systems. Although many systems are large interstate
service units under a single ownership
operations that often include a broad spectrum of
14
The Well-Managed Healthcare Organization
EXHIBIT 1.4 Ownership and Size of U.S. Community and Federal Hospitals
Ownership
State and local
government
Religious not-forprofit
Number of
Hospitals
1,110
Median
Average
Expenditures Expenditures
Percent
Total
per Hospital per Hospital
of Total
Percent of All Expenditures
(in millions) Expenditures (in millions) (in millions)
Hospitals
22%
$ 77,914
14%
$ 70
$ 16
533
10
70,728
13
133
99
2,425
47
315,265
57
130
62
For-profit
868
17
51,833
9
60
36
Federal
226
4
36,830
7
163
141
5,161
100%
$ 107
$ 35
Other not-for-profit
Total
$ 552,570
100%
SOURCE: Data from American Hospital Association Annual Survey Database, Fiscal Year 2005.
care, the most common system structure is simply a few hospitals and related
patient care activities such as primary care operating with one management
structure within a single community. The median size of systems was about
$500 million expenses per year, or 4,000 employees.
Like the hospitals from which they arose, not-for-profit and governmental systems dominate the market. There are five federal systems, four large
for-profit systems, and a number of small for-profit systems. Although many
hospitals owned by local governments remain independent, many others have
joined not-for-profit or for-profit systems. Exhibit 1.5 shows the system affiliation of community hospitals.
Designing Excellence in an HCO
The better an HCO is managed, the greater the total advantages it produces.
Excellence is achieved when these needs of both customer and provider stakeholders are optimally met:
• Patient care is safe, effective, patient-centered, timely, efficient, and equitable.20
• The community’s health and healthcare needs are met.
• Caregivers and other associates are attracted to the HCO, and they are given
support to do their best.
• Expenditures are controlled so that the total cost is within the community’s
economic reach.
The Well-Managed Healthcare Organization describes how excellence
is achieved by large HCOs. It identifies the essential functions, their organization, and the measures that document their performance. It is based not
Chapter 1: Foundations of High-Performing Healthcare Organizations
15
EXHIBIT 1.5 System Affiliations of U.S. Hospitals
System
Affiliation*
Number of Hospitals
Ownership
Percent
Number
in
of
In
Not in
Systems Systems Systems Systems
Total Expenditures (in millions)
State and local
government
31
289
821
Religious notfor-profit
51
472
61
89
63,458
7,270
Other not-forprofit
211
1,190
1,235
49
179,009
For-profit
54
765
103
88
98
Federal
Total
5
226
4
352
2,...
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