Capitated contracting roles and relationships in healthcare

Capitated contracting of health providers has created substantial change in healthcare markets. This article assesses how capitation affects the roles and relationships of healthcare organizations. In-depth case studies were conducted of eight major hospital-led integrated health networks/systems and two large integrated medical groups. Types of capitated contracts employed, contract support capabilities developed, relationships among providers in the support services, and lessons learned about capitation were explored. The experiences of these organizations provide valuable guidance for health executives as they develop or refine capitated contracting strategies.     

Managed care arrangements of health networks and systems. A review of the 1999 experience

The 1990s witnessed various health provider efforts to integrate health care delivery with financing functions. Physician and hospital-led organizations developed their own insurance products and also contracted on a capitated or shared-risk basis with health maintenance organizations (HMOs). Several studies exist on the efforts of physician-led health organizations in these areas, but few studies exist on hospital-led organizations. We examined unique data on hospital-led health networks and systems for 1999 and found that about 60% had provider-owned insurance products and 50% held capitated contracts for their affiliates. In addition, these hospital-led organizations--especially health systems--had comparable levels of capitated contracting when compared to physician-led organizations. Although interest in capitation has waned, current economic realities may reignite interest in these arrangements given their potential for containing health expenditures without increasing consumer risk. In light of this, it is now a good time for physicians and medical group managers to reflect on their experiences in the 1990s and to assess the merits and shortcomings of different intermediary organizations with which they may align.     

The impact of health system membership on patient safety initiatives

BACKGROUND: Research in configurations and strategic groups has a rich history of revealing performance differences for hospitals and health care systems. PURPOSES: To assess the relationship between hospital-led health system configurations and the adoption of patient safety practices. In particular, the adoption of computerized physician order entry (CPOE) and intensive care unit physician staffing (IPS) is analyzed. METHODOLOGY: Analysis of variance was used to detect differences in patient safety measures based on health networks and systems' initial configuration clustering, and regression was used to assess group membership, controlling for hospital-level characteristics. The 2002 American Hospital Association survey and the first 3 years of the Leapfrog Group annual survey (2003-2005) are used for the analyses. RESULTS: There were significant differences in CPOE and IPS adoption and implementation levels based on health systems' configurations. Centralized physician/insurance health systems and moderately centralized health systems were the highest configurations in terms of CPOE adoption. Group membership was not positively related to the use of IPS relative to hospitals that are not classified using the taxonomy. In fact, there is a significant and negative adoption rate for both patient safety measures in facilities classified in the independent hospital systems category. CONCLUSION: There are systematic differences in the adoption of CPOE and IPS patient safety measures based on health system configurations. The configuration with an insurance company as part of its structure was more likely than other groups to be adopting CPOE. PRACTITIONER IMPLICATIONS: Given the durability of group membership, the Leapfrog Group and other patient safety initiatives could explicitly target configurations most likely to adopt and implement patient safety programs.     

Models for evolving community health information networks

Community stakeholders, from hospital systems to independent physicians, from self-insured employers to managed health plans, from government agencies to consumers, require access to health information across the continuum of care. As the information highways for organizations and communities, health information networks and community health information networks have become the vehicles to address this growing health information imperative. Research identified more than 500 health information networks in all 50 states and most metropolitan markets. Health information networks vary widely in their definition, strategy, and operational status. Despite tumultuous change with both successes and failures, health information networks are indeed affecting health care delivery within enterprises and local communities, across regions, and on a national scale.     

Organizational design consistency: the PennCARE and Henry Ford Health System experiences

There has been much discussion of the appropriateness of various organizational strategies for today's healthcare industry. This article presents case studies of two healthcare organizations that have pursued very different configurations. PennCARE uses a virtually integrated, loose contract-based arrangement, while Henry Ford Health System employs a vertically integrated, tight ownership model. Despite these different approaches, their overall designs are strikingly similar. In essence both systems demonstrate a property called organizational design consistency; they simply approach it from different ends of the spectrum. This article presents the notion of organizational design consistency and defines it as the steady pursuit of a single preferred configuration strategy across key elements of organizational design. To illustrate the framework the case studies target four key elements of organizational design (governance structure, organizational culture, strategic planning processes, and decision-making procedures) and explain how consistency across these components adds value to both of these differently configured healthcare systems. There is room enough for diverse configurations of organizations in the current healthcare environment. Consistency does not mandate conformity; value can be derived from both tight and loose models. Furthermore, when fashioning organizational design consistency strategies, healthcare systems should carefully choose tightly or loosely modeled configurations to appropriately suit their aims, their markets, and the capabilities and resources available to them.     

The component alignment model: a new approach to health care information technology strategic planning

The evolving health care environment demands that health care organizations fully utilize information technologies (ITs). The effective deployment of IT requires the development and implementation of a comprehensive IT strategic plan. A number of approaches to health care IT strategic planning exist, but they are outdated or incomplete. The component alignment model (CAM) introduced here recognizes the complexity of today's health care environment, emphasizing continuous assessment and realignment of seven basic components: external environment, emerging ITs, organizational infrastructure, mission, IT infrastructure, business strategy, and IT strategy. The article provides a framework by which health care organizations can develop an effective IT strategic planning process.     

Examining the scope of multibusiness health care firms: implications for strategy and financial performance

OBJECTIVE: Use theory and data to examine the scope of corporate strategies for multibusiness health care firms, also known as organized or integrated health care delivery systems. DATA SOURCES: Data are from the 2000 HIMSS Analytics Annual Survey of integrated health care delivery systems (IHDS), which provides complete information on businesses owned by IHDS. STUDY DESIGN: Scope defined as the breadth and type of businesses in which a firm chooses to compete is measured across seven separate business areas: (1) health plans, (2) ambulatory, (3) acute, (4) subacute, (5) home health, (6) other related nonpatient care businesses, and (7) external collaborations. Theories on strategy and organizational configurations along with measures of scope and a novel dataset were used to classify 796 firms into five mutually exclusive groups. The bases for classification were two competitive dimensions of scope: (1) breadth of businesses and (2) mix of existing core businesses versus new noncore businesses. Data Extraction METHODS: Unit of analysis is the multibusiness health care firm. Sample consists of 796 firms, defined as nonprofit organizations that own two or more direct patient care businesses in two or more separate areas across the health care value chain. Firms were clustered into five mutually exclusive organizational configurations with unique scope characteristics revealing a new taxonomy of corporate strategies. PRINCIPAL FINDINGS: Analysis of the scope variables revealed five strategic types (along with the number of firms and distinguishing features of each strategy) defined as follows: (1) Core Service Provider (340 firms with the smallest scope providing core set of patient care services), (2) Mission Based (52 firms with the next smallest scope offering core set of services to underserved populations), (3) Contractor (266 firms with medium scope and contracting with physician groups), (4) Health Plan Focus (83 firms with large scope and providing health plans), and (5) Entrepreneur (55 firms with the largest scope offering both a core set of services and investing in a variety of new noncore business opportunities including many for-profit ventures). Significant differences in financial performance among the strategies were found when controlling for payer reimbursement conditions. Specifically, in an unfavorable condition with high Medicaid and low commercial insurance, the Mission Based strategy performs significantly worse while the Entrepreneur strategy performs surprisingly well, in comparison with the other strategies. CONCLUSIONS: Findings suggest: (a) scope can be used to classify a large number of multibusiness health care firms into a taxonomy representing a small group of distinct corporate strategies, which are recognizable by senior management in the health care industry, (b) no single strategy dominates in performance across different payer profiles, instead there appears to be complementarities or fit between strategy and payer profiles that determines which firms perform well and which do not under different conditions, and (c) senior management of nonprofit health care firms are cross-subsidizing unprofitable patient care through ownership of nonpatient care businesses including for-profit ventures.     

An exploratory study of healthcare strategic planning in two metropolitan areas

Little is known about empirical variation in the extent to which healthcare organizations conduct formal strategic planning or the extent to which strategic planning affects performance. Structural contingency and complexity science theory offer differing interpretations of the value of strategic planning. Structural contingency theory emphasizes adaptation to achieve organizational fit with a changing environment and views strategic planning as a way to chart the organization's path. Complexity science argues that planning is largely futile in changing environments. Interviews of leaders in 20 healthcare organizations in the metropolitan areas of Minneapolis/St. Paul, Minnesota, and San Antonio, Texas, reveal that strategic planning is a common and valued function in healthcare organizations. Respondents emphasized the need to continuously update strategic plans, involve physicians and the governing board, and integrate strategic plans with other organizational plans. Most leaders expressed that strategic planning contributes to organizational focus, fosters stakeholder participation and commitment, and leads to achievement of strategic goals. Because the widespread belief in strategic planning is based largely on experience, intuition, and faith, we present recommendations for developing an evidence base for healthcare strategic planning.     

Crossing the strategic synapse: aligning hospital strategy with shared system priorities in ontario, Canada

The dominant system-level strategic priorities facing Ontario hospitals were elicited and validated. Researchers employed a multi-stage survey and focus group process to solicit the opinions of senior hospital managers and other healthcare stakeholders. Four shared, system-level priorities emerged: (i) improved clinical and staff recruitment; (ii) stronger inter-hospital partnership and vertical integration along the continuum of care; (iii) improved patient safety; and (iv) the implementation of decision support systems. A subsequent CEO validation survey showed strong endorsement of these system priorities. The authors conclude that a survey, focus group, and validation process can reveal shared system priorities and can highlight emergent organizational strategies designed to resolve them. This process, in which a hospital learns of the priorities facing other hospitals in a system, is a potentially useful managerial tool to promote "strategic synapse"-whereby management can adjust internal organizational strategy and local scorecards to align with shared system priorities.     

Advancing the state of the art in healthcare strategic planning

A recent survey of the state of strategic planning among healthcare organizations indicates that planners and executives believe that healthcare strategic planning practices are effective and provide the appropriate focus and direction for their organizations. When compared to strategic planning practices employed outside of the healthcare field, however, most healthcare strategic planning processes have not evolved to the more advanced, state-of-the-art levels of planning being used successfully outside of healthcare. While organizations that operate in stable markets may be able to survive using basic strategic planning practices, the volatile healthcare market demands that providers be nimble competitors with advanced, ongoing planning processes that drive growth and organizational effectiveness. What should healthcare organizations do to increase the rigor and sophistication of their strategic planning practices? This article identifies ten current healthcare strategic planning best practices and recommends five additional innovative approaches from pathbreaking companies outside of healthcare that have used advanced strategic planning practices to attain high levels of organizational success.     

The impact of visit frequency on the relationship between service quality and outpatient satisfaction: a South Korean study

OBJECTIVE: To examine the relative impact of four service quality dimensions on outpatient satisfaction and to test the invariance of the structural relationships between the service quality dimensions and satisfaction across three patient groups of varying numbers of prior visits to the same hospital as outpatients. DATA SOURCES/STUDY SETTING: Survey of 557 outpatients using a self-administered questionnaire over a 10-day period at a general hospital in Sungnam, South Korea. DATA COLLECTION: Patients answered questions related to two main constructs, patient satisfaction and health care service quality. The health care service quality measures (30 items) were developed based on the results of three focus group interviews and the SERVQUAL scale, while satisfaction (3 items) was measured using a previously validated scale. STUDY DESIGN: Confirmatory factor analysis was used to assess the construct validity of the service quality scale by testing convergent and divergent validity. A structural equation model specifying the four service quality dimensions as exogenous variables and patient satisfaction as an endogenous variable was estimated to assess the relative impact of each of the service quality dimensions on satisfaction. This was followed by a multigroup LISREL analysis that tested the invariance of structural coefficients across three groups with different frequencies of outpatient visits to the hospital. PRINCIPAL FINDINGS: Findings support the causal relationship between service quality and satisfaction in the context of the South Korean health care environment. The four service quality dimensions showed varying patterns of impact on patient satisfaction across the three different outpatient groups. CONCLUSION: The hospital management needs to be aware of the relative importance of each of the service quality dimensions in satisfaction formation of outpatients, which varies across different hospital utilization groups, and use this in strategic considerations.     

Clustered and distinct: a taxonomy of local multihospital systems

Despite their prevalence and power in markets throughout the United States, local multihospital systems (LMSs)—also referred to as hospital-based “clusters”—remain an understudied organizational form, with studies instead primarily focusing either upon individual hospitals or viewing hospital systems collectively without distinguishing the local “sub-systems” that comprise larger regional or national hospital chains. To better understand these organizational forms, we develop a taxonomy specifically devoted to LMSs, applying taxonomic analysis methods to a sample of LMSs in six U.S. states while accounting for LMSs’ geographic arrangements and non-hospital-based service locations. Our analysis identifies five distinct LMS categories, with forms clearly distinguished according to their varying degrees of differentiation and integration. The study’s results accentuate the importance of accounting for hospital systems’ activities and arrangements in local markets—including their non-hospital-based sites—and highlight differences in systems’ achievement of integration and coordination across services and locations, providing considerations in light of U.S. health system reform as well as international patterns of regional system formation.     

Calendar of Meetings

For healthcare organizations to survive in these increasingly challenging times, leadership and management must face mounting interpersonal concerns. The authors present the boundaries of internal and external social networks with respect to leadership and managerial functions: Social networks within the organization are stretched by reductions in available resources and structural ambiguity, whereas external social networks are stressed by interorganizational competitive pressures. The authors present the development of emotional intelligence skills in employees as a strategic training objective that can strengthen the internal and external social networks of healthcare organizations. The authors delineate the unique functions of leadership and management with respect to the application of emotional intelligence skills and discuss training and future research implications for emotional intelligence skill sets and social networks.     

Classifying health networks and systems: managerial and policy implications

This article illustrates how a new approach to classifying health networks and systems can be used to evaluate the readiness of health care organizations to accept risk. Examples are provided from the Harris-Methodist, Henry Ford, and SSM Health Care Systems. The classification system can also be used to assist executives and physician leaders in making decisions involving the centralization of services, the number of different services to offer, and decisions to enter into various strategic alliances. The classification system can be updated to help track the evolution of the U.S. health care system over time.     

Understanding the Organization of Public Health Delivery Systems: An Empirical Typology

Context: Policy discussions about improving the U.S. health care system increasingly recognize the need to strengthen its capacities for delivering public health services. A better understanding of how public health delivery systems are organized across the United States is critical to improvement. To facilitate the development of such evidence, this article presents an empirical method of classifying and comparing public health delivery systems based on key elements of their organizational structure.
Methods: This analysis uses data collected through a national longitudinal survey of local public health agencies serving communities with at least 100,000 residents. The survey measured the availability of twenty core public health activities in local communities and the types of organizations contributing to each activity. Cluster analysis differentiated local delivery systems based on the scope of activities delivered, the range of organizations contributing, and the distribution of effort within the system.
Findings: Public health delivery systems varied widely in organizational structure, but the observed patterns of variation suggested that systems adhere to one of seven distinct configurations. Systems frequently migrated from one configuration to another over time, with an overall trend toward offering a broader scope of services and engaging a wider range of organizations.
Conclusions: Public health delivery systems exhibit important structural differences that may influence their operations and outcomes. The typology developed through this analysis can facilitate comparative studies to identify which delivery system configurations perform best in which contexts.     

Emotional intelligence skills for maintaining social networks in healthcare organizations

For healthcare organizations to survive in these increasingly challenging times, leadership and management must face mounting interpersonal concerns. The authors present the boundaries of internal and external social networks with respect to leadership and managerial functions: Social networks within the organization are stretched by reductions in available resources and structural ambiguity, whereas external social networks are stressed by interorganizational competitive pressures. The authors present the development of emotional intelligence skills in employees as a strategic training objective that can strengthen the internal and external social networks of healthcare organizations. The authors delineate the unique functions of leadership and management with respect to the application of emotional intelligence skills and discuss training and future research implications for emotional intelligence skill sets and social networks.     

An organizational field approach to resource environments in healthcare: comparing entries of hospitals and home health agencies in the San Francisco Bay region.

OBJECTIVE: To draw together insights from three perspectives (health economics, organizational ecology, and institutional theory) in order to clarify the factors that influence entries of providers into healthcare markets. A model centered on the concept of an organizational field is advanced as the level of analysis best suited to examining the assortment and interdependence of organizational populations and the institutional forces that shape this co-evolution. In particular, the model argues that: (1) different populations of healthcare providers partition fiscal, geographic, and demographic resource environments in order to ameliorate competition and introduce service complementarities; and (2) competitive barriers to entry within populations of providers vary systematically with regulatory regimens. DATA SOURCES: County-level entries of hospitals and home health agencies in the San Francisco Bay Area using data from the American Hospital Association (1945-1991) and California's Office of Statewide Health Planning and Development (1976-1991). Characteristics of the resource environment are derived from the Area Resource File (ARF) and selected government censuses. METHODS OF ANALYSIS: A comparative design is applied to contrast influences on hospital and home health agency entries during the post-World War II period. Empirical estimates are obtained using Poisson and negative binomial regression models. RESULTS: Hospital and HHA markets are partitioned primarily by the age and education of consumers and, to a lesser extent, by urbanization levels and public funding expenditures. Such resource partitioning allows independent HHAs to exist comfortably in concentrated hospital markets. For both hospitals and HHAs, the barriers to entry once generated by oligopolistic concentration have declined noticeably with the market-oriented reforms of the past 15 years. CONCLUSION: A field-level perspective demonstrates that characteristics of local resource environments interact with interdependencies of provider populations and broader regulatory regimes to affect significantly the types of provider organizations likely to enter a given healthcare market.     

Rethinking schools of public health: a strategic alliance model

Canada is in the midst of rejuvenation of public health organizations, mandates and infrastructure. Major planning exercises are underway regarding public health human resources, where academic institutions have a key role to play. To what extent could schools of public health be part of the solution? Many universities across Canada are considering or in the process of implementing MPH programs (some 17 programs planned and/or underway) and possible schools of public health. However, concerns are raised about critical mass, quality and standards. We encourage innovation and debate about ways to enhance collaborative and structural arrangements for education programs. A school of public health model might emerge from this, but so too might other models. Also, novel types of organizational structure need consideration. One example is a "strategic alliance" model that is broad-based, integrative and adaptive--building on the interdisciplinary focus needed for addressing public health concerns in the 21st century. From our perspective, the central question is: what (new) types of organizational structures and, equally important, collaborative networks will enable Canada to strengthen its public health workforce so that it may better address local and global challenges to public health?     

Sustaining the edge: factors influencing strategy selection in academic health centers

Competition within the acute care sector as well as increased penetration by managed care organizations has influenced the structure and role of academic health centers during the past decade. The market factors confronting academic health centers are not dissimilar from conditions that confront other organizations competing in mature industries characterized by declining profitability and intense rivalry for market share. When confronted with intense competition or adverse external events, organizations in other industries have responded to potential threats by forming alliances, developing joint ventures, or merging with another firm to maintain their competitive advantage. Although mergers and acquisitions dominated the strategic landscape in the healthcare industry during the past decade, recent evidence suggests that other types of strategic ventures may offer similar economic and contracting benefits to member organizations. Academic health centers have traditionally been involved in network relationships with multiple partners via their shared technology, collaborative research, and joint educational endeavors. These quasi-organizational relationships appear to have provided a framework for strategic decisions and allowed executives of academic health centers to select strategies that were competitive yet closely aligned with their organizational mission. The analysis of factors that influenced strategy selection by executives of academic health centers suggests a deliberate and methodical approach to achieving market share objectives, expanding managed care contracts, and developing physician networks.