Healthcare Management

This essay considers healthcare management in the context of the complexities of healthcare delivery in the United States. A brief historical overview of the development of the modern-day hospital and its management functions is presented. An in-depth discussion of the issue of governance in today's health systems follows. The essay concludes with a brief consideration of transparency and future management challenges in healthcare.

Keywords Corporate Model; Governance; Healthcare Finance; Healthcare Marketing; Human Resources; Information Technology; MCOS; Medicaid; Medicare; Philanthropic Model; Risk Management; SCHIP; Third-party Payers

Healthcare Management > Healthcare Management

Overview

The hospital of the early twenty-first century bears little resemblance to the hospital of the previous century. With the exception of large teaching or research institutions, hospitals for most of the twentieth century were small local facilities with strong ties to the communities they served. The focus of these hospitals was inpatient care, surgery, and access to capital equipment such as x-ray machines and diagnostic laboratories that were beyond the means of local practicing physicians, who were, for the most part, primary care physicians.

The passage of Medicare in 1965 sparked an explosion of services and facilities within the healthcare delivery system. Physician specialty practices proliferated. Hospitals added more beds. These events, coupled with the rapid development of new technologies in diagnostics, imaging, and surgery, created a meteoric rise in healthcare costs. In 1983, Medicare's response to escalating prices was to institute a new system of financing based on prospective payment rather than cost reimbursement, as had been past practice. Physicians, who had been paid on a fee-for-service basis, were now being paid based on a resource-based relative value scale (RBRVS). These two changes in Medicare payment, followed by similar changes by other third-party payers, created a wave of cost consciousness throughout the healthcare system. Small hospitals (especially small rural hospitals) faced financial crises of unprecedented proportions, and many had to close their doors. Competition for patients in urban areas increased.

One response to these cost pressures was the development of integrated healthcare systems. Some systems were formed by horizontal integration as fiscally stronger hospitals bought up their weaker competitors. More often, systems were formed by the process of vertical integration. In vertical integration, hospitals purchased existing businesses, such as physician practices, or started new lines of business, such as home health equipment, home healthcare services, or specialized medical transport services. Hospitals have also been developing new service lines to compete for patients. Examples of these include women's health programs, heart hospitals, and sports medicine institutes (Litch, 2007).

Categories of Management in Modern Health Systems

As integrated health systems form and grow in complexity, their management grows in corresponding complexity. The traditional management functions of hospitals (human resources, finance, information technology, risk management, and marketing) all have to adjust and adapt to the complexities of integrated systems. In this section, a brief overview of the major management functions of health systems is presented. The section following considers the topic of governance and presents a more in-depth consideration of the governance challenges that health systems face.

Human Resources

Although acute care remains their prime function, health systems are adding services that provide a continuum of patient care, from prevention services through acute care to rehabilitative care and long-term care. As a result, human resource management has become increasingly complex, reflecting the diversity of employees required to provide staffing throughout the system. Hundreds of distinct job classifications can be identified in the healthcare industry (Wolper, 2004). Chief among these are the clinical support services. These include diagnostic and therapeutic services that are organized around particular medical specialties (Griffith, 1999), such as cardiac care (EKG technicians) or oncology (pathology, radiation therapy). Social services, patient education, and pastoral care are other services that have professional and specialized employment requirements.

A particular challenge in human resource management is keeping abreast of the education and certification requirements that accompany many of the most specialized jobs. Physical therapists, radiology technicians, medical technologists, registered nurses, licensed practical nurses, and certified nursing assistants, among many other professionals, are typically required to obtain certifications as well as pursue continuing education.

Most health systems divide their employees into functional departments, with authority coming from the respective department head. Some health systems have reorganized into line service arrangements with interdisciplinary teams of personnel assigned to specific patients within a specific patient population group, such as cardiac care or spine injury. Under this arrangement, the specialized employees are part of ongoing patient care and treatment rather than being called in on an as-needed basis. Under line service arrangement, patient care is unified and patient-focused as opposed to function focused. This approach has proven successful in terms of both increased patient satisfaction and employee satisfaction (Litch, 2007).

Nurses are the largest category of personnel within the health system (Bureau of Labor Statistics, 2020). Nurses are responsible for the coordination and administration of patient care services throughout the health system, starting with the patient's bedside and up through the hierarchy of hospital administration. Like many functions in modern health systems, the role of nursing services is changing and evolving beyond bedside care (Wolper, 2004). They manage patient care resources, participate in continuous care planning, and lead collaborative practice groups (Wolper, 2004). Nurses are also at the front line of quality improvement initiatives.

Finance

The finance department is responsible for all functions related to the financial management of a health system. These include accounting and financial reporting, capital finance, cost control, and financial performance.

The provision of patient services generates health system revenue. Unlike most industries, in which customers pay for their purchases with cash, check, or credit card, the majority of health system customers do not directly pay for their own care. A complicated web of government, insurance companies, and businesses known as managed care organizations are the intermediaries between the patient and the health system. As a group, these payers are often referred to as "third-party payers."

The federal government pays the largest bill for healthcare costs. Medicare is a federal program that pays for people aged sixty-five and over and for people with certain types of disability. Medicaid is a federal/state partnership program that pays for low-income persons as well as seniors and individuals with certain disabilities or conditions. The State Children's Health Insurance Program (SCHIP) is a federal/state partnership that pays healthcare costs for children and pregnant women whose families meet certain income qualifications. Each state has its own version of this insurance for pregnant mothers, babies, and older children as well. Government-sponsored affordable healthcare programs were expanded dramatically following the 2010 passage of the Patient Protection and Affordable Care Act.

Managed care organizations (MCOs) are companies that contract with employer groups to pay for healthcare services. The employer pays a fixed rate per employee to the MCO, which in turn pays the healthcare costs for that employee. An MCO faces the challenge of keeping costs within the rate paid by the employer.

A major concern for health systems finance directors is the number of patients with neither a form of third-party payment nor the means to self-pay. Finance departments handle this in different ways. Attempts to secure payment can be made through installment plans or liens on property. A number of states have laws regarding what hospitals can and cannot do to recover payment. From an accounting standpoint, outstanding balances in these situations are considered charity care or bad debt. If a patient does not have the means to pay and the debt is transferred to a collections agency, while the patient is still responsible for payment, the debt will be removed from a person’s credit report after seven years (Hinson et al., 2023).

There is increasing pressure from third-party payers to reduce the costs of healthcare. At the same time, costs in every health system department are rising. Further, health systems need to make huge capital investments in information technology, new clinical care technology, and, in many cases, replace or rehabilitate aging buildings or make other infrastructure improvements. It is no surprise that hospitals and health systems walk a fine line between financial success and failure. These are the challenges that the finance departments in health systems face on a daily basis ("More than half," 2006).

Risk Management

Risk management is defined as the prevention, monitoring, and control of areas that present potential liability exposure for a healthcare organization. These include medical malpractice, antitrust issues, physician credentialing risks, employment practice liabilities, and directors and officer liabilities. Boone (2000) argues that the number of affiliated organizations within a health system increases risk exposure and requires the development of a comprehensive risk management plan. Boone identifies numerous strategies for a successful risk management plan. Among them are:

• Identifying key economic incentives for participating provider organizations.
• Expanding health system choice for consumers and accurately gauging their preferences for delivery mechanisms.
• Partnering with an array of inpatient and ambulatory support services.
• Managing patients along a continuum of care.
• Providing strong operational management.
• Recruiting physician leaders.
• Identifying information exchange capabilities.
• Identifying and resolving culture clashes.
• Analyzing financial integrity.
• Keeping informed on new legislative developments.
• Developing and implementing quality of care and patient satisfaction measurements.

The importance of a sound risk management plan is underscored by the organizational complexity that a health system presents. Different organizations and businesses that come into the system have different motives for doing so. Many have existing governing boards with agendas that fall outside the health system's interests. Examples of these risks are issues of antitrust and self-referral for personal gain.

Another area of potential risk is medical malpractice and employee errors. Positions and personnel are frequently shifted, and job responsibilities are reassigned as the system grows and evolves. Without specific training and sufficient orientation to present and future changes, employees can become fearful and distrustful of new management. The potential for downsizing is also a negative effect of system development and leads to employee dissatisfaction.

Risk managers can assist system executives in evaluating strengths and weaknesses and suggest interventions for limited liability exposure (Boone, 2006).

Information Technology (IT)

The development of new IT applications has resulted in the creation of standalone IT departments within most health systems, with the department head given the designation of Chief Information Officer.

One of the challenges faced by health system IT departments is linking the different components of the system into one virtually seamless entity that looks and operates the same despite the wide geographic area that a health system may span. In addition, system IT networks must be able to interact with other network systems, such as managed care organizations, physician practices or other provider networks, and government agencies.

Decision support systems and the implementation of electronic health records mean that IT is moving beyond administrative and financial applications and into clinical care operations. Decision support systems aid physicians in the diagnosis and the selection of treatment alternatives. Electronic health records bring together a series of linked databases that provide not only a patient's longitudinal history but also the ability to generate reminders and alerts for preventive services and customized health education materials that target a patient's diagnosis. Electronic health records also have the ability to connect physicians with reference materials in real-time. Electronic health records allow doctors who may not be familiar with the patient, for example, in an emergency room, to gain a comprehensive look into the patient’s medical history.

Advancements in IT on both the financial and clinical fronts make the IT department critical in meeting the two most pressing issues in healthcare: increasing the quality of care and reducing costs.

Marketing

The marketing function has lagged behind the development of other management functions in healthcare systems, largely because the marketing function was understood to mean sales and advertising. Sales or marketing of healthcare services was, by tradition, deemed unprofessional and unethical; any activity suggesting sales, advertising, or promotion was considered tantamount to selling and promoting sickness. People chose their doctor based on family tradition, word of mouth, or the doctor's reputation in the community. However, with the advent of healthcare systems and increasing competition for patients, marketing in healthcare has become increasingly sophisticated (Wolper, 2004).

The marketing department in a health system provides a variety of different functions, including market research, advertising, promotion and events, public affairs, and public relations. Clarke (Wolper, 2004) states that the traditional mission in healthcare marketing is shifting from an emphasis on attracting more patients to fill the beds to an emphasis on quality of care and the relationships between the system, its providers, and the patient. The impetus for this shift is in part due to the movement toward consumer-directed healthcare. With the advent of the Internet and sources of health information becoming increasingly available, consumers are becoming much more knowledgeable about not only the health services that are available but also the quality of those health services. In response, marketing departments are focusing on the patient experience as well as the technical quality of care that their health system can provide.

Governance

Just as the individual departments and their operations are impacted and challenged by developing health systems, the leadership of health systems and their governance arrangements are also challenged. In most organizations, governance is vested in the board, sometimes referred to as the board of directors or the board of trustees. The legal structure of the board depends on whether the organization is a non-profit (the philanthropic model) or a for-profit, investor-owned organization (the corporate model). In either case, it is the function of the board to maintain the viability and effectiveness of the organization, control the organization's assets, and exercise authority. In the case of an investor-owned organization, the board represents the interests of the shareholders of the corporation. In the case of a non-profit organization, the board represents the community the organization serves, its constituents, and recipients of the services it provides.

Responsibilities of a hospital board include defining the mission, vision, and goals; ensuring that executive management moves in the direction of those goals to fulfill the mission; monitoring executive performance and financial condition of the systems; and ensuring the quality of care. Under the traditional model of philanthropic governance, the hospital board delegates responsibility for all internal management to the hospital chief executive.

Non-profit Governance

Many local community hospitals are non-profit (sometimes referred to as not-for-profit, which is an equivalent term for non-profit), though some are investor-owned. Our discussion will focus on non-profit hospital organizations. This model of governance has worked well for community hospitals. However, with the shift to integrated delivery systems, some researchers and practitioners argue that the philanthropic model is no longer viable in today's health system environment.

Weiner (1993) conducted an empirical study of corporate and philanthropic governance in hospitals. He hypothesized:

• Hospitals with a greater number of competitors in their market area were more likely to exhibit the corporate model of governance than hospitals with fewer competitors.
• Hospitals located in urban environments were more likely to exhibit the corporate model of governance than hospitals located in rural environments.
• Private, not-for-profit hospitals were more likely to exhibit the corporate model of governance than publicly owned (government) hospitals.

Weiner found that there was considerable variation among the 1577 hospitals in his survey sample and that there were few pure forms of governance. Most hospitals in his sample had a hybrid of corporate and philanthropic elements in their governance structures. Weiner and others observe that this variation exists due to prevailing market forces that pressure hospitals into aligning with other organizations that are both profit and non-profit in order to form integrated systems.

Health Networks

The issue of governance is further blurred by the emergence of health networks. Health networks are voluntary associations of health-related organizations in a given community that affiliate to achieve common goals in healthcare delivery. The principle difference between health systems and health networks is that health systems are structured within a hierarchy to provide control and clear lines of authority. Health systems have centralized administrative and governing authorities. Health networks are decentralized, with each participating organization retaining its autonomy within the network.

Alexander, Lee, and Bazzioli (2003) studied governance forms in health systems and health networks. In their study, they investigated two questions:

• Do hospital-based health systems and health networks differ systematically in their governance forms?
• Do hospital-based systems and health networks differ systematically in their governance forms as a function of system or network type?

Data from two sources, the 1999 American Hospital Association (AHA) Integrated Health Delivery Network database and the AHA Annual Survey of Hospitals were used in this study. Four measures of governance were utilized to correspond with the dimensions of structure, composition, control, and administrative intensity. Results showed little difference between health systems and health networks on the dimensions of board structure and composition. Although the researchers hypothesized that health networks would have more decentralized authority structures and informal arrangements, the governing boards of networks were remarkably similar to health systems. The data showed that decision-making authority reflected the degree of centralization in both health systems and health networks. The authors concluded that the mission to provide quality care in a coordinated, cost-effective manner dictated the governance structure. The structure was also influenced by the unique mix of providers and organizations that exist within the geographic reach of the system or network.

Chief Governance Officers

The complexities of governance, be it of a standalone hospital, a health system, or a health network, have prompted some boards to create a new executive position—the Chief Governance Officer (CGO). Typically, the system's general counsel handles issues related to governance. A CGO often works hand-in-hand with the general counsel but reports directly to the board. The precedent for creating a CGO position has been well-established in the corporate world (Dube & Slattery, 2007).

The COVID-19 Pandemic and Healthcare Management

The COVID-19 pandemic of 2020 caused a large disruption to healthcare systems in the United States and put stress on already-tenuous existing conditions. The pandemic created stress for the healthcare workforce, which saw an increase in the importance of some healthcare jobs, such as those in hospitals, while other non-urgent medical workers declined, leaving workers out of jobs. The COVID-19 pandemic affected every facet of the healthcare management system (ASPE, 2022).

Conclusion

This essay illustrates some of the complexities inherent in contemporary healthcare delivery. However, the information presented is only a small tip of the iceberg that is the healthcare industry in the United States. The essay focuses on management issues within healthcare systems—in particular, systems that evolved from local community hospitals. Outside of these systems, centered on acute and primary care health delivery, are rehabilitation hospitals, psychiatric hospitals, specialty hospitals, and numerous government-operated health systems such as the Veterans Administration hospitals.

It is easy to lose track in this complex and tangled web of health delivery systems that originally operated under the charitable mission of providing healing and comfort to the sick, the diseased, and the afflicted. Alden Solovy, in his article "Humble Beginnings" (Solovy, 2003), reminded us that we should not forget the legacy of the original community hospitals built on the highest ideals of compassion and altruism for those in need. In an era of competing priorities in healthcare delivery (high-tech care, cost controls, financial pressures, quality of care indicators, and others), the true mission of healthcare systems remains as relevant as ever.

Terms & Concepts

Corporate Model: Model of governance used by for-profit, investor-owned organizations.

MCOS: Managed care organizations—companies that contract with employers to pay for and manage healthcare costs for a company's employees.

Medicare: Federal program that funds the healthcare for persons over the age of sixty-five as well as individuals with certain disabilities or medical conditions.

Medicaid: Federal/state program that funds healthcare for low-income families and individuals.

Philanthropic Model: Model of governance used by nonprofit organizations.

SCHIP: State Children's Health Insurance Program—a federal/state program to pay for the healthcare costs of children and pregnant women whose families meet specified income criteria.

Third-party Payers: Any government or corporate entity that acts as an intermediary between healthcare providers and patients to manage healthcare costs. Examples are insurance companies and managed care organizations.

Bibliography

Alexander, J.A., Lee, S., D. & Bazzioli, G.J. (2003). Governance forms in health systems and health networks. Health Care Management Review, 28(3), 228–242. Retrieved February 2, 2008, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=10461253&site=ehost-live

Béliveau, J. (2013). Middle managers' role in transferring person-centered management and care. Service Industries Journal, 33(13/14), 1345–1362. Retrieved November 22, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=91256052

Boone, B. (2000). Integrated health care delivery systems' challenges. Retrieved November 14, 2007, from http://www.irmi.com/Expert/Articles/2000/Boone06.aspx

DelliFraine, J. L., Zheng, W., McCaughey, D., Langabeer II, J. R., & Erwin, C. 0. (2013). The use of Six Sigma in health care management: Are we using it to its full potential? Quality Management in Health Care, 22(3), 210–223. Retrieved November 22, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=89445309

Dube, M. & Slattery, K. (2007). The chief governance officer: To have or have not? Trustee, 60(6), 34–36. Retrieved February 2, 2008, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=25474027&site=ehost-live

Hinson, K., O'Shea, B., & Barroso, A. (2023, April 11). Do medical bills affect your credit? NerdWallet. Retrieved June 12, 2023, from https://www.nerdwallet.com/article/finance/medical-bills-on-credit-report

Impact of the COVID-19 pandemic on the hospital and outpatient clinician workforce. (2022, May 1). ASPE. Retrieved June 12, 2023, from https://aspe.hhs.gov/sites/default/files/documents/9cc72124abd9ea25d58a22c7692dccb6/aspe-covid-workforce-report.pdf

Litch, B.K. (2007). The re-emergence of clinical service line management. Healthcare Executive, 22(4), 14–18. Retrieved February 1, 2008, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=25519285&site=ehost-live

More than half of all hospitals teeter between financial success and failure. (2006). H&HN: Hospitals and Health Networks, 80(11), 91. Retrieved February 2, 2008, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=23190293&site=ehost-live

Registered nurses made up 30 percent of hospital employment in May 2019: The Economics Daily: U.S. (2020, April 27). Bureau of Labor Statistics. Retrieved June 12, 2023, from https://www.bls.gov/opub/ted/2020/registered-nurses-made-up-30-percent-of-hospital-employment-in-may-2019.htm

Solovy, A. (2003). Humble beginnings. H&HN: Hospitals and Health Networks, 77(5), 34. Retrieved February 2, 2008, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=9811144&site=ehost-live

Weiner, B.J. (1993). Corporate and philanthropic models of hospital governance: A taxonomic evaluation. Health Services Research, 28(3).

Williams, J. (2013). A new model for care population management. Hfm (Healthcare Financial Management), 67(3), 68–76. Retrieved November 22, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=86047729

Wolper, L.F. (2004). Health care administration: Planning, implementing, and managing organized delivery systems. Sudbury, MA: Jones and Bartlett.

Suggested Reading

Cooper, P.D. (1985). Health care marketing: Issues and trends. Rockville, MD: Aspen.

Godden, S. (2008). Healthcare system-owned collection agencies. Healthcare Financial Management (Buyers Resource Guide), 48–52. Retrieved February 7, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=28096328&site=bsi-live

Margolis, J. (2008). Predictions for the health care payer market for 2008: The rise of integrated health care management. Managed Care Outlook, 21(2), 1–6. Retrieved February 7, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=28082798&site=bsi-live

Microsoft offers online health records. (2008). Information Management Journal, 42(1), 19. Retrieved February 7, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=28601244&site=bsi-live

Moreira, P. (2012). e-Health: Towards a new health management agenda? International Journal of Healthcare Management, 5(2), 67. Retrieved November 22, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=86217981

VanVactor, J. D. (2012). Collaborative leadership model in the management of health care. Journal of Business Research, 65(4), 555–561. Retrieved November 22, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=71908737