The Business of Healthcare Three Volumes (Praeger Perspectives)

Praise for The Business of Healthcare

“The editors and writers of The Business of Healthcare have created a compelling and highly informative set of books that merge various disciplines and perspectives to create a comprehensive look at the challenges facing the healthcare industry. These books should prompt valuable discussion and, hopefully, action that will strengthen and advance the U.S. health system.” Craig E. Holm, FACHE, CHE Health Strategies & Solutions Inc. Philadelphia “Thoughtful and provocative, The Business of Healthcare is a clearly articulated exploration of critical issues facing healthcare leaders today.” C. Duane Dauner President, California Hospital Association

“Just when the pressures and challenges on healthcare practitioners and organizations seem unbearable, Cohn and Hough have skillfully assembled this work which offers advice and comfort, not only on how to cope with today’s climate, but how also to take advantage of the opportunities that abound while not abandoning the call to serve humanity.” Robert A. Reid, M.D. Director of Medical Affairs, Cottage Health System, Santa Barbara, California Past President, California Medical Association “Now, more than ever, this three-volume set is necessary and important. The format and breadth of content is impressive; rather than a prescriptive set of how-tos, I come away with an expanded vision of ‘want to’ and ‘able to.’ ” Leonard H. Friedman, Ph.D., MPH Professor and Coordinator Department of Public Health, Oregon State University

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Editorial Advisory Board Murray Brennan, MD Benno C. Schmidt Chair in Clinical Oncology Memorial Sloan-Kettering Cancer Center R. Lawton Burns, PhD James Joo-Jin Kim Professor of Health Care Systems and Management The Wharton School of Business University of Pennsylvania Terry Hammons, MD Senior Vice President, Research and Information Medical Group Management Association Jack Matloff, MD

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The Business of Healthcare Volume 1: Practice Management

EDITED BY KENNETH H. COHN, MD DOUGLAS E. HOUGH, PHD

PRAEGER PERSPECTIVES

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Library of Congress Cataloging-in-Publication Data The business of healthcare / edited by Kenneth H. Cohn, Douglas E. Hough. p. cm.—(Praeger perspectives) Includes bibliographical references and index. ISBN 978–0–275–99235–4 (set : alk. paper) ISBN 978–0–275–99236–1 (v. 1 : alk. paper) ISBN 978–0–275–99237–8 (v. 2 : alk. paper) ISBN 978–0–275–99238–5 (v. 3 : alk. paper) 1. Medical care—United States. 2. Medical offices— United States—Management. 3. Medical care—United States—Quality control. 4. Health services administration—United States. 5. Health care reform—United States. I. Cohn, Kenneth H. II. Hough, Douglas E. III. Series. [DNLM: 1. Delivery of Health Care—organization & administration— United States. 2. Leadership—United States. 3. Practice Management, Medical—United States. 4. Quality of Health Care—United States. W 84 AA1 B969 2007] RA395.A3B875 2008 362.1068—dc22 2007031135 British Library Cataloguing in Publication Data is available. Copyright © 2008 by Kenneth H. Cohn and Douglas E. Hough All rights reserved. No portion of this book may be reproduced, by any process or technique, without the express written consent of the publisher. Library of Congress Catalog Card Number: 2007031135 ISBN: 978–0–275–99235–4 (Set) 978–0–275–99236–1 (Vol. 1) 978–0–275–99237–8 (Vol. 2) 978–0–275–99238–5 (Vol. 3) First published in 2008 Praeger Publishers, 88 Post Road West, Westport, CT 06881 An imprint of Greenwood Publishing Group, Inc. www.praeger.com Printed in the United States of America

The paper used in this book complies with the Permanent Paper Standard issued by the National Information Standards Organization (Z39.48–1984). 10 9 8 7 6 5 4 3 2 1

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Contents Preface by Kenneth H. Cohn and Douglas E. Hough Chapter 1

The Solo Practitioner: Opportunities and Challenges

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William L. Doss Chapter 2

The Logistics of Joining and Leaving a Physician Practice

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Nicholas J. Giampetro Chapter 3

Measuring Performance in a Medical Practice

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William S. Reiser Chapter 4

Building a Culture of Accountability in Physician Practices

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Marc D. Halley Chapter 5

Managing Difficult and Disruptive Physicians

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Larry Harmon and Susan Lapenta Chapter 6

Developing and Promoting a Physician Practice

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Marc D. Halley Chapter 7

Creating a Simplified, Integrated, Practice Marketing Plan

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Debra R. Murphy Chapter 8

Revenue Cycle Management

Brian K. Morton

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Chapter 9

Contents

The Future of the Physician Practice

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Severine Brocki and Kathleen Henrichs Chapter 10

Can Pay-for-Performance Really Pay for Performance?

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Douglas E. Hough About the Editors and Contributors

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Index

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Preface

T

he healthcare system in the United States is a mass of paradoxes. We lead the world in the creation and application of technology for the clinical practice of medicine; yet the United States lags behind the rest of the developed world in basic health indicators (e.g., infant mortality rate, life expectancy). We provide some of the highest quality care in some of the premier health institutions that are the envy of the world; yet 45 million Americans cannot take advantage of these benefits because they lack health insurance. We outspend every other country on healthcare; yet almost no one is satisfied with the results: patients may get unparalleled quality care, but they pay a lot for that care and access can be erratic; payers are frustrated that they (and their customers) are not receiving good value for their growing outlays; and providers are feeling harassed by payers and regulators and unappreciated by patients. Some claim that healthcare is being ruined by the intrusion of business interests, which put the bottom line ahead of the appropriate care of patients and denigrate the professionalism of those sworn to care for the sick. They worry that these interests are making healthcare no different than any other “industry” in this country. Others argue that the problems of inconsistent quality, sporadic access, and high and rising costs can only be solved by imposing the discipline of the market. To these observers it is business thinking and processes that can transform the current system. The editors of The Business of Healthcare believe that the issue is not professionalism or business in healthcare, but professionalism and business. We believe that the healthcare system in the United States needs the perspectives and expertise of physicians and economists, nurses and accountants, technicians and strategists. We have organized this three-volume set for Praeger Perspectives to demonstrate

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how these mutual viewpoints can yield innovative solutions to our healthcare conundrum. In designing The Business of Healthcare, the editors recognized that the solutions to the challenges facing the U.S. healthcare system will not come from one source. Rather, the solutions must address both the micro and the macro aspects of the system. Individual medical practices, as the foundation of healthcare delivery, must be operated as efficiently as possible. Healthcare organizations of all types must be led in ways to maximize the effectiveness of both human and financial resources. Finally, attention must be paid to the systems currently in place that affect all aspects of the healthcare sector. To that end, we have organized The Business of Healthcare into three volumes that address each of these levels of the healthcare system in the United States. Volume 1 ( Practice Management) focuses on those areas critical to the successful operation of physician practices: the process of joining and leaving a practice; promoting a practice; and managing the human and financial resources of a practice. It addresses the current structure of physician practices (including the continuing viability of solo practice) as well as the very future of the physician practice itself. Volume 2 (Leading Healthcare Organizations) shifts the focus to the complex tasks of leading in healthcare. The chapters in this volume illustrate that leadership involves the integration of relationship management (such as the appropriate involvement of physicians in healthcare organizations), new modes of care (including such disparate areas as biotechnology, complementary and alternative medicine, and pastoral care), and operations (informatics, clinical supplies, liability risk management). Volume 3 (Improving Systems of Care) widens the lens to consider how systems in healthcare can be transformed to resolve the paradoxes that we noted above. The chapters in this volume address systems to improve clinical quality and safety, development systems (e.g., for moving scientific ideas from the lab to the market, for developing medical technologies), operational systems (e.g., disaster response, information technology, and end-of-life care), and financial systems (such as the new “Massachusetts Plan” to cover all members of society). The volume also includes the voice of the patient in improving systems of care. We are grateful to all of our chapter authors who volunteered scarce time to write about aspects of healthcare about which they are passionate. Our goal has been to provide works by experts that will engage stakeholders in discussions of issues important to our nation’s health and economy. We hope that we have succeeded.

VOLUME 1: PRACTICE MANAGEMENT It used to be that physicians could graduate from medical school, complete a residency, and be confident that they could start a practice that was financially and professionally successful almost from the first day. Those halcyon days are long

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gone, with the advent of constrained reimbursements, increased regulation, and real competition for patients. Today, physicians must run their practice as if it was a business—because it is. Although many physicians may be accidental business people, they must pay attention to the most critical operational aspects of their practice if they are to achieve their professional goals. To that end, we asked our authors to bring forward the issues that they see from their experience as those most critical to the operational success of the medical practice. They responded with eight focused and insightful chapters on how to: • • • • • • • •

Manage the continuing opportunities and challenges of solo practice Join and leave a practice Measure performance in a medical practice Build a culture of accountability in a practice Manage difficult physicians Promote a practice Create a practice marketing plan Manage the revenue cycle

In addition, two authors took a broader look at the environment of medicine, one exploring the potential and realities of the new pay-for-performance and the other considering the future of the medical practice. In all, these chapters should provide physicians and practice administrators with the most up-to-date practical thinking on the effective management of physician practices.

VOLUME 2: LEADING HEALTHCARE ORGANIZATIONS Leadership is the art of instilling in people the desire to strive together to create a better future. Leaders listen, observe, provide direction and meaning, generate and sustain trust, convey hope, and obtain results through their influence on other employees. The challenge is to energize people to push themselves beyond what they thought they could do (Cohn, Cannon, and Boswell 2006). Nowhere are these principles more evident than in the chapters in Volume 2, where nationally known authors discuss the need for and evidence of leadership in healthcare. Diane Dixon begins this volume with an analysis of six healthcare leaders who embraced a positive, can-do mindset that enabled them to transform their institutions. Drs. Waldman and Cohn describe ways to transcend the adversarial relations that traditionally accompany physician-hospital relations and the dividends to patient care of engaging physicians in clinical priority setting, which Jayne Oliva and Mary Totten build on by describing the dual opportunity and responsibility of physicians serving on hospital boards. The final six chapters highlight the need for and benefits of leadership in specific sectors of healthcare, including biotechnology, informatics, complementary and alternative medicine, supply costs, risk management, and pastoral care.

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In healthcare, as in other fields that serve the public welfare, dedicated professionals prefer being inspired to being supervised. Through their influence on business strategy and especially on organizational culture, effective leaders: • Create a safe environment for reflection and learning • Improve the practice environment and hence practice outcomes • Help people reconnect with the values that attracted them to healthcare in the first place The purpose of this series and of Volume 2 in particular is to create a nurturing environment that stimulates further reflection, discussion, and action, resulting in improved healthcare for our communities. Only then can we consider our efforts successful.

VOLUME 3: IMPROVING SYSTEMS OF CARE The imperative for improvement is clear for everyone who works in healthcare. Through breakthrough studies championed by the Institute of Medicine, we have learned that inadequate systems of care jeopardize the health and recovery of hundreds of thousands of patients annually, adding billions of dollars of expense to an unsustainable healthcare budget. For people inside and outside the nonsystem of fragmented U.S. healthcare, the complexity can be overwhelming. A framework that treats a patient or healthcare processes as a number of mechanical parts, without paying attention to interactions of human beings with other human beings, is likely to fail. We are fortunate in Volume 3 to have chapters written by experts who have created a platform for learning and discussion that can inform the healthcare debate, point out the choices we need to make, and help us maintain optimism about our future. Carl Taylor provides practical and organizational insights that can guide us in meeting the needs of patients, families, and healthcare workers during the next man-made or natural disaster. Michael Doonan and Stuart Altman use the recently enacted Massachusetts health plan to discuss a way forward for dealing with the needs of the uninsured and underinsured. Philip Buttell, Robert Hendler, and Jennifer Daley define quality and safety in operational metrics that permit tracking, improvement, and cultural change. Jack Barker and Greg Madonna analyze the similarities and differences between aviation and healthcare and offer promise that simple practical steps like briefing, debriefing, coaching, and team training can enhance skill sets in communication and improve safety outcomes, as they did in aviation nearly three decades ago. Hospitals’ success increasingly relies on sharing information to prevent adverse outcomes in medication administration and proactive disease management, as seen in the next three chapters on informational technology solutions, medical technology, and improving outcomes and reimbursement. In the final four chapters, Donald McDaniel, Anirban Basu, David Kovel, and Ian Batstone argue that despite the expense of our poorly coordinated (non)system of care, healthcare creates

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high-wage, high-tech, and high-touch jobs that form the backbone of the American economy. Rudy Wilson Galdonik, who has been a caretaker and a patient, offers practical suggestions for improvement of systems of care from a humanistic perspective. Lynn Johnson Langer notes the rapid uptake that accrues when scientists translate the results of their research to the business community to serve the interests and needs of society. Finally, Kenneth Fisher and Lindsay Rockwell point out the tremendous cost of care in the last year of life and the billions of dollars that could be freed to support systems improvement if we instituted practical changes in the way that we provided terminal care. Although change may feel like failure when we are in the middle of it, we have reached a critical time when we can move from individual “blame-storming” to ways to ameliorate systems of care. This volume and indeed the entire threevolume series will only be successful if the insights contributed by our authors inspire us to create an environment conducive to questioning our past assumptions and learning new ways to study and improve patient care. Kenneth H. Cohn, MD, MBA Douglas E. Hough, PhD

REFERENCE Cohn, Kenneth H., S. Cannon, and C. Boswell. 2006. “Let’s Do Something: A CuttingEdge Collaboration Strategy.” In Collaborate for Success! Breakthrough Strategies for Engaging Physicians, Nurses, and Hospital Executives, ed. Kenneth H. Cohn, 76–77. Chicago: Health Administration Press.

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CHAPTER 1

The Solo Practitioner: Opportunities and Challenges William L. Doss

GROUP DYNAMICS: THE SEED FOR THE SOLO PRACTITIONER What might lead you as a physician to strike out on your own? Is it ego? Is it rebellion against authority? Is it the challenge of sailing into unchartered territory? Is it the need to achieve financial freedom? For the emerging solo practitioner, it may be all of these factors as well as a few others. The group model has its attractions. As you emerge from residency, you may feel a need for comfort and security, both professionally as well as financially. Why this need? Perhaps the simplest answer is that as a premedical student, medical student, intern, and resident, you have competed within, sweated through, and survived the gauntlet of a medical education, and quite honestly, you are fatigued. You need a break. You need the nurturing of a practice that has already fought the battles and that can give you a refuge to lick the wounds that all physicians encounter in this journey. You also need the cash. You have denied your financial needs for at least 12 years, and the need to make a salary as well as to pay off your student loans makes the prospect of going into solo practice immediately out of residency foolhardy at best. Ironically, it is the very qualities that propelled you through and allowed you to succeed in medical school that provide the impetus to pursue a career as a solo practitioner. Let’s first look at the group model. The process of joining a group starts during your last year in residency. You attend a specialty meeting (whether the meeting is the Digestive Disease Workshop for gastroenterologists or the American

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Academy of Pediatrics for pediatricians) and come in contact with either physician headhunters or actual representatives of the practice. As in many other professions, there is an exchange of curriculum vitae, followed by a meeting with the headhunter or partners in the practice. Afterwards, there is dinner sponsored by the partner, and if all goes well, a flight out to the practice location for you to meet the other partners and practice personnel. This is followed by a tour of the hospital with which this practice is affiliated. Throughout this process, you hear little mention of the negative aspects of the practice for which you are interviewing, or of the different personalities within the practice. To mention these negative, but honest, aspects might kill any desire for a graduating resident to join. Any practice, whether law or medicine, wants to represent itself favorably. While the positive attributes of the practice are being extolled to you, the significant aspect of the contract makes its appearance. Depending on the numbers written into the contract, and the favorability of the oncall schedule, you may sign the contract regardless of any uneasiness you may have experienced during the recruiting process. It is the naïve journey by the young physician into the jungle of private practice that sows the seeds of the desire for solo practice. While the prospect of group practice is seductive for obvious reasons, that is, a favorable on-call schedule, shared overhead, and inroads into referral sources, the individual personalities of each physician in the group still have to mesh. Communication is the key and all the members of the group must be in continual accord as to goals and procedures. Maintaining this accord is easier said than done. An example of a potentially disagreeable issue is the on-call schedule. Typically a favorable schedule would be at the very least 1 in 4, meaning that each physician would be on call for one out of every four weeks to handle phone calls, answering service, and hospital coverage. This is fine as long as everyone agrees to it. However, let’s say the senior partner who may have started the group decides he does not want to retire, but he wants to have less call because he feels that he has paid his dues and wants to be on call 1 in 8. This one request can lead to total upheaval within the practice, because now the other three physicians will now be on call 1 in 3. Depending on the time of the month, one of them may be on call twice within the month. This is much different than the previous 1 in 4 call schedule. As physicians, we all have been on call as residents, so this concept is not new, and you know that call is necessary for emergency patient care; however, this is one issue that can lead to discord because most physicians want to do less call, not more. The issue of call is compounded when the physician is married and compounded further when there are children are involved. Rightfully, every physician feels that his or her family is of greater importance than all other issues that may arise in life, and that includes on-call dynamics within a practice. Any infringement by a practice on the time that a physician spends with family will eventually lead to bitterness on the part of that physician toward that practice.

The Solo Practitioner

3

We have examined how such a simple thing as an on-call schedule can cause disharmony with a group. Now, let’s look at another aspect of a group practice, that is, its direction. When you join a practice, you are only seeing a snapshot of what that practice is about. You have little idea of what direction the practice wants to go and little knowledge of the group’s standing within the local medical community. This knowledge will only become apparent after you have joined the group. Unfortunately, this limited knowledge can become a huge problem, and again put fertilizer on the seed of desire to go into solo practice. Let’s say, for example, that you are an internal medicine specialist who has a strong interest in geriatric medicine. You enjoy the patient interaction, and you are fascinated with how an elderly person presents differently with infection by not mounting a febrile response. You may also be intrigued by how certain over-the-counter medications like Benadryl can have a significant effect on the cognitive status of an 80-year-old patient. These and other nuances of elderly patients pique your specialist’s interest. Of course, most of the elderly have Medicare as their primary insurance with Blue Cross/Blue Shield or other private carrier as their secondary insurance. Now let’s add the wrinkle. The group you joined has decided that because of declining Medicare reimbursement, they will no longer accept Medicare patients. Although you may have dissented with this vote, you have been outvoted by other members of the practice, and this directly impacts your preference for geriatric patients. You, the new physician, now have a dilemma with which you must come to terms: Accept the group’s decision and thus change focus to younger internal medicine patients? Or strike out solo, and begin a practice where you can focus on seeing the geriatric population? Again, this is only one example of potential difficulties with group practice. However, it illustrates how a change in direction of the group can significantly negatively impact the physician within the group even when a particular decision may fiscally be the right move for the practice. Now, the seed has been planted, and fertilizer has been added. The next aspect in growing the solo practice fruit is making the soil stronger by adding limestone. This comes as a direct result of you having been outvoted by other members of the group. You now have the feeling that the other members of the group do not appreciate your unique quality of serving the geriatric population. This feeling may be in direct opposition to the group’s actual opinion of either you or of the elderly; nevertheless, the perception has been created by the group’s decision to not accept Medicare patients and the collateral damage of this decision is that you now are questioning your role within the group. To this wonderful budding fruit of solo practice, let’s add water. You have performed well within the group despite the group’s decision to not accept Medicare patients, and the issue of contract extension and partnership has come to the forefront. Despite your great performance, the other members of the group are hesitant to increase your salary because of some other financial obligations; also because of

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your continued desire to see elderly patients, and your reluctance to see younger patients. But you have had good billings and collections, and you feel that a salary increase is in order regardless of the group’s feelings. You feel that three years is sufficient payment of dues. Again, the issue of money and who shares and who doesn’t is always very delicate, and what is said or implied can go a long way to determine whether an individual stays within the group or leaves. In our example, you see the hesitancy of the group as a lack of confidence in you and you start considering options. Now, let’s see the fruit of solo practice ripen and be ready for harvest by adding sunlight. You, the individual physician, are considering other options and one of these options is going solo. You talks with other colleagues who are solo reveal that although they work hard, they are generally content with their practice. They are able to see the type of patients they want to see. They do not have to worry about being outvoted; they do accept Medicare patients and enjoy working with them. This is the impetus that motivates you, the individual physician within the internal medicine practice, to strike out in solo practice. You like the adrenaline charge of charting your own course for success or failure. The fruit of the solo practice has been harvested, not owing to major flaws with the group or you the individual, but to circumstances that have compounded and led the individual and the group to part ways. Although this is only one scenario, it demonstrates how little subtleties can lead an individual to the challenging opportunity of becoming a solo practitioner.

DESIGNING THE GARDEN OF SOLO PRACTICE The fruit of the solo practice concept has been picked. Now comes the moment of truth: deciding what kind of practitioner you want to become. Do you want a mixture of outpatient and inpatient practice? Or do you want to be solely outpatient, and designate a hospitalist to care for your patients in the hospital? Obviously, there are advantages and disadvantages to each pathway of practice. Let’s look at a mixture of inpatient/outpatient practice. As practitioner, you will have your own set of well patients, and those who are less healthy will need to be admitted and followed in the hospital. This requires rounding on these patients, and also being on call for these patients if, for example, medication orders need to be clarified or an emergency arises. The downside is that rounding on these patients takes time away from your outpatients, and being on call requires you to be available every night unless you share call with another practitioner. The upside to this mixture is that you maintain continuity of care with your patient; you do not lose the patient to another practitioner; and the reimbursement is higher for inpatients than for outpatients. Conversely, the strict outpatient model allows you to see more patients in the office without the hassle of being on call, as the hospitalist will take care of on-call responsibilities as well as emergencies. This is especially appealing for those who do not enjoy doing inpatient medicine.

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The negative side of this scenario is that you lose contact with your patient and thus are out of the loop with any change in her medical status. Also, once that patient is discharged, there is no guarantee that patient will be referred back to your office. Unfortunately, the hospitalist is now the gatekeeper, and depending on the mandates set forth by his or her employer, the hospital, he or she may have to refer the patient to another physician. This is where you, the budding solo practitioner, need to make an honest self-evaluation of your practice preference in order to set up the practice accordingly. In the first example, your office staff will need to allow breaks in the office schedule for rounding. In the second model, you have to maintain constant communication with the hospitalist and the inpatient nursing staff regarding your patient’s progress. The next order of business is location. The physical setup of your practice is most important because patients need access to your office. Richard Tanner, a member of the American College of Osteopathic Family Physicians’ Practice Committee, advises that proximity to the hospital provides a distinct advantage, because it provides the patient with a reference point for your office location (Tanner 2003). If you cannot be near a hospital, proximity to a pharmacy is good because your patients frequently access it not only for medicines, but also nonmedical items. The helpfulness of proximity to a pharmacy cannot be overstated, as it allows you the practitioner to provide referrals to the pharmacist, and also allows you to articulate your prescription writing patterns to the pharmacist and create a harmonious relationship. The proximity to the pharmacist also allows you to enlist the pharmacist’s assistance in patient education. Also, parking access is very important. A patient will frequently use inadequate parking as an excuse for not seeing you, the particular physician. When this happens, you not only may have lost that patient to a competitor, but also to any type of care. The latter loss can be particularly devastating, because that patient may have presented to you initially healthy, but later may re-present in far worse health, and would have come to you if your troublesome parking had not led that patient to seek out another physician.

BUILDING THE FRAME OF THE GARDEN Next, let’s look at setting up the financial foundation of the practice. In malefemale relationships, there is an old saying, “Romance, without finance, has no chance.” The same is true in the field of solo practice. The romance is your solo practice and the relationship is the one you develop with the patients. Strong financial building blocks are required to make this relationship possible. Significant missteps here will prevent you from setting up a viable practice that you can enjoy both professionally and fiscally. When setting up the financial structure of the practice, look at the church model as a good way to set up the practice. When new churches begin, they do not have large arenas or assembly halls. The pastor may have the first sermons in his house with two or three members. Expansion to bigger facilities only takes place when

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membership exceeds the capacity of the initial location. As a physician, you want to provide the best care; however, you equate best care with the best facilities. As a beginning solo practitioner, you are not in an adequate fiscal position to provide the finest facilities, but you still can provide excellent care. Your first step in laying the foundation of the practice is to develop a relationship with a commercial or community-based bank. This relationship has usually been established when you were part of a group practice. Another option is to enlist an accountant. Most other practices or other solo practitioners have developed a long-term relationship with accountants in the area, and the accountants in turn usually know bank professionals with whom to begin a business partnership. Next is to establish an organizational structure. At the very least, you have to obtain an employer identification number (EIN) (also called the tax identification number), which will allow you to bill for your services and receive payments. My personal preference is to form an S-corporation. As an S-corporation, owners must be U.S. citizens, and the ownership is based on one class of stock. Unlike a sole proprietorship, there is only limited liability to the assets of the practice (which exclude the physician’s personal property). Also, the solo practitioner is treated as an employee, and is paid like one. The sole proprietor takes draws from the practice, and is subject to estimated taxes. Table 1.1 points out the major differences between a sole proprietorship and a solo practice set up as an S-corporation. Either a bank or an attorney can set up the corporation for you. Financial institutions usually charge a fee of $150 to $300. An attorney will charge in excess of $500. Once the incorporation has been established, your accountant can set up the S-corporation. Now, the corporation and the accountant have been established. What’s next in building the financial foundation is obtaining a line of credit. This seems much harder than it is. Physicians are good financial risks because of their earning potential and the fact that they will be a fixture in the community. Thus, banks are eager to lend to physicians. However, one must provide a track record of earnings. Your accountant can prepare a personal financial statement, which will include your earnings through your previous practice. This statement will also disclose debts

Table 1.1 Sole Proprietorship vs. S Corporation Sole Proprietorship Liability

S Corporation

Unlimited

Limited

Federal level of taxation

Single

Same

Number of owners

One

Up to 75

Necessary documentation

Minimal

Articles of incorporation must comply with subchapter S requirements

Permitted class of owners

Individual

One class of stock

Centralized management

N/A

Board of directors

The Solo Practitioner

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including school loans and credit cards. (This is one reason why having little credit card debt is important.) The next order of business is setting up the office space via a rental agreement or via the purchase office space with the intent of a mortgage. My preference is to purchase space if at all possible. One will usually come out with lower costs by doing this, as interest rates for mortgages and the corresponding monthly note are usually less than entering a lease agreement. In my initial setup of my practice, my financial institution was willing to provide 100 percent financing for my office space. This insured that I would be in relationship with that institution for at least 10 years and possibly for the duration of the mortgage (15 to 30 years). Leasing does not cement that relationship, as most practitioners will not sign longer than a three-year agreement. Office equipment will also need to be obtained. Furniture should be purchased outright. This will be a one-time purchase and will cut down on your monthly bills. For equipment that is in use every day, and is subject to wear and tear such as fax machines, copiers, and printers, a lease agreement is best. Why? Leasing equipment usually involves a corresponding service agreement, so these items can be repaired on an ongoing basis. Also, loaner equipment can be provided under a lease with a service agreement. However, if you purchase office equipment, there is no corresponding service agreement, and obtaining service for these items can be problematic.

CARETAKERS FOR THE GARDEN Let us shift gears and talk about the execution of the solo model. You have all of the logistical items in place: incorporation, office space, and equipment. Now, it is time for hiring your personnel. The hiring of the right personnel is paramount for the smooth running of the practice. Mistakes here can be devastating, and more importantly, adversely affect your reputation in the community. Fairly or unfairly, a lot of your reputation as a physician is connected to how your staff treats patients or other practitioners. Now, my personal preference for office personnel is to hire older employees. There are basically three reasons for this preference: 1. Older personnel have an established work ethic. They work either because they want to and enjoy it or because they have to in order to support their households. This makes them either less stressed because they enjoy working or more receptive to instruction because they cannot afford to lose a steady job. Either way works in your favor. 2. Older office staff are usually empty nesters and don’t have the childcarerelated problems that may create issues in the office. 3. Older office staff often have established health insurance coverage through their spouses. Two particular qualities that are vital in your office staff are the ability to multitask, and attention to detail. A solo practice rarely has more than five employees. You do not have several different physicians to get used to; however,

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The Business of Healthcare

you, the one physician, will have plenty of work volume that needs to be divided among the employees. Also, every staff person should be well versed in the duties of everyone else. This is of particular importance if one staff person is on vacation or sick. In a large group, there are many employees with one specific job. If one employee is absent this does not significantly impact the practitioners. However, in your solo practice, if a nurse is absent and there is no other person who can obtain vital signs, then you are giving suboptimal care to your patients. So everyone in the office needs to be able to answer phones, take vital signs, do daily deposits, and so forth, because of the enormous impact that one staff person’s absence has on the day-to-day operation of the practice. Whereas multitasking for the employees is important, attention to detail on the part of the employees cannot be overemphasized. Even though you, the solo practitioner, have your own practice, the medical record has to be accessible to other parties, such as other practitioners, attorneys, patients, case managers, and even auditors. A medical record that is not current with progress notes, lab reports, or patient correspondences will put you as solo practitioner at risk for tort claims, auditing, or worse—damage to your reputation. I will illustrate how important this is with an example. If a patient, say Ms. Jones, was seen for an office visit in 2003, and was not seen again for four years, the physician is still responsible for that record. Now, let us add a wrinkle: a progress note from the initial encounter with Ms. Jones was not placed on the chart. Let us add another wrinkle and state that the transcription service only keeps old transcriptions for 90 days, and has purged its system and thus Ms. Jones’s progress note. Now, suppose Medicare conducts an audit of the practice. Medicare wants this particular chart. Its progress note cannot be accounted for. You know you have dictated the note; your staff have seen the note; however, the note never made the chart and you have billed for the services. Medicare now decides that you have been billing for services that you have never provided. Next, Medicare not only requests Ms. Jones’s chart, but also requests all the charts of the new patients you saw in 2003, which is over 150 new encounters. Therefore, what started out as a misfiling has now led to a Medicare audit, and may result in money being paid back to Medicare with penalties and interest. This is not the kind of working knowledge of Medicare one wants to acquire. This lesson is best learned through other practitioners’ experience and not your own. It is for this reason that you as solo practitioner should have checklists on what the chart should have; should do a monthly or quarterly internal audit of the charts to make sure that the medical record is complete; and should employ staff who can pay attention to the details that keep you out of trouble. Your management style is also paramount to your relationships with your employees. In The One Minute Manager, Kenneth Blanchard and Spencer Johnson (1993) discuss the autocratic manager who is hard-nosed, bottom-lined, profitminded; and conversely, the democratic manager who is participative, nice, and humanistic. They then write about the effective manager who says, “How can I get results if not through people? I care about people and results. They go hand in

The Solo Practitioner

9

hand.” This latter approach is probably the best management style for a physician’s office. It falls in the realm of benevolent dictatorship. You are willing to listen to other opinions and suggestions, but your word is final. As a solo practitioner, you want to trust your staff to work independently, but also give them the direction that you want for the practice. Also, if your management style is more hands-off with few rules, you have to be willing to strongly enforce these rules or you will lose control of your staff. Everything is now in place with your office: financing, location, equipment, and staff. Now you are ready to open your practice for patients. One of the things that you may want to consider when starting out is alternative office hours. Remember you are starting your practice with zero patients and you are in competition with other colleagues with similar ability, age, and ambition. You have to market yourself in a way that differentiates you from your colleagues, and this differentiation is an attraction for patients to seek you out. One of the ways to do this is to provide alternative office hours. Physician office hours are typically from 9 A.M. to 5 P.M. This corresponds to most people’s work schedules and unless they request sick or vacation time for their physician visits, they will not be able to see you. Most patients do not want to take this time for physician visits. One way to avoid this potential conflict with patients is to extend your office hours. Instead of providing only 9 A.M. until 5 P.M. as your office hours, you can extend the end of your office day until 6 or 6:30 P.M. This extra 90 minutes will allow patients to see you after work, and avoid their having to take any vacation time to see you. This may not be feasible for your staff, as you have changed the workday from 8 hours to 9.5 hours. However, this change can be handled by opening the office at 10 A.M. instead of 9 A.M. or by staggering the hour when staff members arrive. One staff person can arrive at 9 A.M. and leave at 5 P.M., and the other can come in at 10 A.M. and leave at 6 P.M. Another option is to provide Saturday office hours. For example, you can provide office hours from 9 A.M. until 12 noon. This will allow patients who cannot see you Monday through Friday to have access to you on Saturday. Furthermore, you can allow a staff person to have Friday off with the stipulation that he or she will come in on Saturday morning with you. These alternative hours do not need to be long-term, but the hours allow you to attract patients, thereby building up your clientele quickly and establishing a firm patient base. Referring physicians will know that they can send their patients to you on off hours, which will endear you to them.

PRUNING AND WATERING THE GARDEN OF SUCCESS The elements necessary for success are in place. Now, it is time to see patients, bill their insurance, and wait for payment. This sounds good, but a few common-sense strategies should guide you in this next area. Understanding the next point is crucial in maintaining the well-oiled machine of private practice. Cash flow as defined by www.investorwords.com (2007) is “a

10

The Business of Healthcare

measure of a company’s financial health. Equals cash receipts minus cash payments over a given period of time.” This is key to the operation of the practice. This does not mean how much your practice is collecting or whether all of your expenses are paid in full. It simply means how much cash does one have in one’s operating account at any given time. Remember, as a solo practitioner, you do not have the luxury of having other members of the practice generating revenue. You are it. Anything that prevents you from generating revenue directly impacts cash flow. This is one area where vigilance is desirable. Another factor that impacts a physician’s cash flow is the lag time between when a physician bills the insurance company and when he receives payment. Unfortunately, this is the albatross of medicine. Medicine is the only profession where the practitioner does not directly contract with the consumer (patient). By contrast, in law, one directly pays a lawyer a retainer fee. In accounting, the accountant is billed for services rendered and the customer, not an insurance company, is expected to pay. Even a plumber or electrician expects and receives payment once services are rendered. Patients pay a copayment at the time of service, but this is minuscule compared to the rest of the service we have billed to the insurance company, and you may wait anywhere from two weeks to two months for payment—assuming that there are no denials! In order to manage cash flow properly, one must understand the golden rule of investment: “Pay yourself first!” Remember, your practice is you and if you do not take care of yourself first, then you cannot take care of anything else. What does this mean? The easiest example is to assume that you have $1,000 in the operating account. Your payroll is $500, and you have outstanding expenses for transcription of $500. You have the decision either to make payroll and keep your employees happy, or to pay your outstanding transcription cost in full and keep your creditors happy. Given this choice, it is probably wise to keep your employees happy and keep your creditors partially happy. That is, take care of your payroll completely, and afterward pay your creditors. This may not seem fair to your creditors, but you have an obligation to your practice first, and everyone else is secondary. This does not mean that you don’t pay anything on your transcription costs. You pay half of the costs, that is, $250, and not the full $500. Obviously, your creditors would be happy with full payment, but they will not refuse half of the amount. It is this method that I recommend in bill paying. Pay half of the amount of the outstanding balance so that service can continue, that is, medical supplies, and pharmaceuticals. This method does not apply to all creditors. There are some essential bills that must be met or the practice cannot operate, namely: 1. rent/mortgage 2. medical billing service

11

The Solo Practitioner

3. 4. 5. 6. 7.

utilities taxes (payroll and property) licenses insurances (malpractice, health, property) payroll

These are the essential expenses that must be met in order to keep the practice running smoothly. Let us look at the aforementioned model of paying half of the bills, thus maintaining positive cash flow, and how this can be useful. In Table 1.2, by paying all of the expenses in full, the practitioner’s cash flow is zero; and if any emergency expenses arise, such as a plumbing problem in the bathroom that costs $200, one has to wait until the next business day for more cash to come in before this problem can be addressed. In Table 1.3, this practitioner has chosen to pay half of the expenses, has maintained a positive cash flow of $500, and now can pay an emergency plumbing expense the same day. This seems very logical, but most people are fearful of debt, want to maintain a zero balance at all costs, and frequently run into cash flow problems. Another effective method for maintaining cash flow is to take advantage of the float system of the banks and mail. Remember, when you personally deposit

Table 1.2 Neutral Cash Flow Creditors

Cash in Operating Account

Expenses

Payment

Transcription

$150

$150

$850

Pharmaceuticals

$400

$400

$450

Copying paper

$100

$100

$350

Advertisement

$350

$350

$0

$1,000.00

Table 1.3 Positive Cash Flow Creditors

Expenses

Payment

Cash in Operating Account $1,000.00

Transcription

$150

$75

$925

Pharmaceuticals

$400

$200

$725

Copying paper

$100

$50

$675

Advertisement

$350

$175

$500

12

The Business of Healthcare

money into your checking account, it takes a couple of days for that cash to be available for use. When you have an expense that has to be paid immediately, this works against you, but in solo practice this works for you. One has to know the business day of the bank in order to use the float system to one’s advantage in maintaining positive cash flow. For example, listed below are some financial institutions and their banking days.

Financial Institution

Lobby Hours

Banking Day Begins

Banking Day Ends

Wachovia SunTrust Virginia Company Bank

0900–1600 0900–1700 0900–1700

0900 hours 0900 hours 0900 hours

1400 hours 1700 hours 1400 hours

What does this mean? Even though the lobby hours for these institutions end at 4:00 and 5:00 P.M., the banking day for Wachovia and Virginia Company Bank ends at 2:00 P.M. and at SunTrust, it ends at 5:00 P.M. This means that any deposits into the account or checks written against the account that appear by 2:00 P.M. will be reflected on that day’s statement. Any deposits or checks that appear after 2:00 P.M. will be reflected on the next day’s statement. Why is this nuance so important and how does this impact cash flow? Well, the significance of this banking feature is that it allows you to maintain your liquidity on any given business day. Take the payroll for example. Let’s assume that your total payroll for September 15 is $1,500. In your operating account, your balance is only $1,000.00, and you have one check in the amount of $350.00 that has yet to post to your account. The morning mail run reveals that you have a

Table 1.4 Float (optimal) Balance in Operating Account 9/15@ 0900 hrs.

Deposits Before 1400 Hours

Outstanding Checks Posted by 1400 hrs.

Payroll Done After 1400 hrs.

Balance in Operating Account 9/15@1700 hrs

$750.00

$350.00

$1,500.00

$1,400.00

$1,000.00

Table 1.5 Float (not optimal) Balance in Operating Account 9/15@ 0900 hrs. $1,000.00

Payroll Done Before 1400 Hours

Outstanding Checks Posted by 1400 hrs.

Deposits After 1400 hrs.

Balance in Operating Account 9/15@1700 hrs

$1,500.00

$350.00

$1,500.00

($850.00)

The Solo Practitioner

13

total of $750.00 to deposit. Now, by doing the math you will have a total of $1,750 in the account, but your expenses (payroll of $1,500.00 plus the outstanding check of $350.00 totaling $1,850.00) will put your operating account in the red by $100. However, let us put the bank’s float system to work. If our financial institution is Wachovia and we can post the $750.00 in checks before 1400 hours (2:00 P.M.) we have an operating balance of $1,750.00 for that day, say September 15. At the same time, we conduct our payroll for after 1400 hours. Even if all of the employees deposit their checks at the same time, because it is after 1400 hours, these checks will not count against our operating balance until the next business day, September 16. So in fact, we still have an operating balance of $1,750.00 for September 15, and if our outstanding check is posted, we still have a positive balance of $1,400.00 for September 15. As long as the deposits for September 16 are $100.00 or greater, we maintain a positive cash flow position in our operating account. Had the opposite situation occurred and we did our payroll before 1400 hours and our deposits after 1400 hours, this would have put the operating account in the red by $500.00, and we would still have had the worry of the outstanding check posting by 1400 hours, which would have put us further in the red by another $350.00 for a total of $850. This one nuance can make the difference between keeping your creditors and employees happy, and having the creditors knocking at your door and your employees walking out. This is one of the main reasons why employers do not give employees their checks before 1400 hours on payday. Another practical tip for employee relations is to maximize your bill paying after payday, and to minimize it before payday. One sure way to lose employees is to bounce a payroll check or tell them that they will not receive a paycheck. Remember, a lot of the workforce does not have the luxury of significant cash reserves and lives check to check. So, a missed or bounced check can be particularly devastating. If you are having cash flow difficulties, it is better to tell your employees that their checks may be a day late than to give them their paycheck on time knowing that it will not clear. Minimizing bill paying on the week of payday and implementing the “pay half ” strategy on bill paying can reduce this stressor and assure your employees that you will have enough in the operating account to meet payroll. It is imperative that your office manager understands this detail, to save you unpleasant embarrassment.

ALTERNATIVE SOLO PRACTICE MODEL There are many ways to prepare an omelet. Developing a solo practice is no different. There are numerous workable solo practice models. Ken Zonies in the September 2006 issue of the Physician Executive illustrates such a model, which contains inherent aspects of group practice. One of the features is the economic principle of economies of scale. Simply put, economies of scale as a principle states

14

The Business of Healthcare

that the costs of a business operation decline as the size of the operation (or in this case, the number of physicians) increases. With multiple practitioners, the cost of the running each practice is cheaper because the costs are spread across each of the practitioners. Also, it becomes easier to do large-volume tasks, such as copying documents for all members of the group rather than doing copying for each individual separately. In his model, Zonies and the other solo practitioners have collaborated to form a “management services organization” that operates all the nonclinical aspects of each practice. These services include staff hiring, purchasing of supplies, and leasing of office space. Each solo practitioner still maintains autonomy as each one has a separate EIN number, and separate billing. Another helpful aspect of this setup is that the group of solo practitioners has developed a cost-sharing system that does not penalize each individual’s practice style or productivity. They have determined that certain fixed expenses are divided equally among all the physicians. Also, they have determined that each member of the group is responsible his or her portion of the variable expenses based on the amount of usage. This particular method of cost sharing does not punish the physician who does not have a lot of variable costs. It also gives comfort to the physician who does have a lot of variable costs because other members of the group will share some at least of his or her overall expenses. Table 1.6 illustrates the fixed expenses that are shared by all practitioners, and the variable expenses that are allocated according to the usage of each practitioner.

Table 1.6 Expense Chart Fixed Expenses (Unrelated to Patient Encounters)

Variable Expenses (Related to Patient Encounters)

Accounting

Insurance, health, dental

Computer

Office supplies

Employment services

Payroll

Furnishings

Postage

Insurance, business

Records

Legal

Temp help

Maintenance-building

Waste removal

Equipment

Management fee

Manager-salary/benefits/payroll taxes Payroll administration Property insurance Rent Subscriptions Telephone

The Solo Practitioner

15

NO MEDICARE: SHOULD I OR SHOULDN’T I? Many physicians are considering opting out of Medicare because of the decrease in Medicare reimbursement. In the November 5, 2006, edition of the Daily Press, Cyndi Cho reported on several practices in the Hampton Roads, Virginia, area that have shut down because they could no longer afford to provide care. These practices consisted of 80 percent Medicare patients. This shutdown is not surprising because the costs of caring for Medicare patients have increased significantly over the last five years, whereas Medicare care physician payments have remained the same and were set to decrease by another 5 percent starting in January 2007. Furthermore, the Daily Press contacted 11 primary care physicians in the Hampton, Newport News, and Williamsburg, Virginia, areas, and 4 out of the 11 responded that they are no longer accepting any new Medicare patients. This situation appears to be very bleak, but the first thing that you the solo practitioner need to consider is what kind of physician you are going to be. In my practice, I have three staff and about 750–1,000 patients. My practice is manageable. However, I cannot afford to turn down any insurance because in my patient mix no one insurance carrier predominates. In addition, by accepting some of the insurance that other providers will not, I have access to those patients that I normally would not have. I do have to be cognizant of the number of patients with low-paying insurance I accept. Another factor that influences me to accept Medicare patients is the fact that I am a physiatrist. By definition, physiatrists see a lot of elderly patients, including those with long-standing osteoarthritis, cerebrovascular accidents (CVAs), and spinal cord injuries. If I declined to see those patients with Medicare, I would not be practicing my craft. I would therefore see only those patients with acute musculoskeletal problems and would mirror an urgent care physician practice. By serving my Medicare patients, I build a loyal patient base that is very grateful for the services that I provide, and they in turn have referred other patients to me, some of whom who are younger and well insured. Another thing to consider is the socioeconomic environment in your geographic area. Hampton Roads, Virginia, has Norfolk and Virginia Beach as its hub cities. Norfolk is a military town with many Tricare/Champus patients, and Virginia Beach is a retirement community. In addition, there is also the naval shipyard. What this means is an area with a lot of military dependents, retirees, and blue-collar employees who will not pay for services if their insurance does not cover it. Refusing to see Medicare or insurance patients in this geographic area would be devastating for a practice. On the other hand, there are some advantages to having a cash-only practice. The main advantage is that the middleman, the insurance company, is eliminated. Remember, medicine is the only profession where the provider (physician) does not directly contract with the consumer (patient). Eliminating the insurance component ensures that the direct contract with the patient is restored. Another clear advantage is cash flow. There is no three- to four-week wait for Medicare or insurance checks to arrive, and there is no day that revenue will not be generated unless patients are not seen that day. The overhead is also lowered because the billing company that services your insurance claims is eliminated. Not

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The Business of Healthcare

having a billing company restores about 7 to 10 percent of your revenue to your practice as this is the typical fee that billing companies will charge. In order to start a cash-only practice, you have to opt out of Medicare. This means that you have to agree not to reapply for Medicare provider status for at least two years. Also, a Medicare beneficiary is prohibited from submitting claims for reimbursement for services provided by the opting out provider. Despite its advantages, I see three main drawbacks in a cash-only practice: damage to reputation of the physician; temptation of embezzlement by staff; and Medicare-related problems. In medicine, unlike other professions, reputation is everything. It can take years to build a good reputation, and only days to tear it down. The physician needs to know his patients to determine if they would patronize a cash-only practice. Some patients may actually react with offense, as though by not taking their Medicare or private insurance, you are rejecting them as patients. A succinct discussion needs to take place with the provider and patient before the provider embarks on a cash-only practice. Like any other business where a lot of cash changes hands, such as fast-food restaurants and check-cashing stores, in a cash-only physician practice, the temptation for theft is always there. For the solo practitioner, this may not present as great a problem because one’s staff is small and the soloist is hands-on; however, the temptation is still present. If you start a cash-only practice, you need to make sure that your staff have clear guidelines on how financial transactions are conducted in the office. Lastly, Medicare is a peculiar entity in itself. Once you opt out of Medicare, you are out of the Medicare loop for two years. If the cash-only plan is unsuccessful, you cannot see Medicare patients for at least two years. Insurance companies may follow Medicare’s lead and institute the same policy toward you. Another potential problem with leaving Medicare is inquiry. Medicare may question why a physician has opted out of Medicare. Was it because the provider had something to hide? Was there fraud involved? These questions may lead to a formal audit under which the practitioner will be required to allow Medicare to have access to all charts for the last three years. If there are any irregularities, it may result in repayment of fees received from Medicare plus penalties and interest. This is a problem particularly burdensome for the soloist to have. Below is a sample Medicare Opt-Out Notice that has to be sent by the practitioner to get out of the Medicare system.

Medicare Opt-Out Notice Medicare carrier address: __________________________________________________________________ _______________________________________________________________________________________________________________________________ __________________________________________________________________ Attn: Provider Enrollment

The Solo Practitioner

17

I, ____________________________________________________ , declare under penalty of perjury that the following is true and correct to the best of my knowledge, information and belief: 1. I am a physician licensed to practice medicine in the state of___________. My address is at __________________________________________________________ _______________ , my telephone number is_______________________ , and my uniform provider identification number is _________________________________ _______. I promise that, for a period of two years beginning on the date that this affidavit is signed (the “Opt-Out Period”), I will be bound by the terms of both this affidavit and the private contracts that I enter into pursuant to this affidavit. 2. I have entered or intend to enter into a private contract with a patient who is a beneficiary of Medicare (“Medicare Beneficiary”) pursuant to Section 4507 of the Balanced Budget Act of 1997 for the provision of medical services covered by Medicare Part B. Regardless of any payment arrangements I may make, this affidavit applies to all Medicare-covered items and services that I furnish to Medicare Beneficiaries during the Opt-Out Period, except for emergency or urgent care services furnished to Beneficiaries with whom I had not previously privately contracted. I will not ask a Medicare Beneficiary who has not entered into a private contract and who requires emergency or urgent care services to enter into a private contract with respect to receiving such services, and I will comply with 42 C.F.R. § 405.440 for such services. 3. I hereby confirm that I will not submit, nor permit any entity acting on my behalf to submit, a claim to Medicare for any Medicare Part B item or service provided to any Medicare Beneficiary during the Opt-Out Period, except for items or services provided in an emergency or urgent care situation for which I am required to submit a claim under Medicare on behalf of a Medicare Beneficiary, and I will provide Medicare-covered services to Medicare Beneficiaries only through private contracts that satisfy 42 C.F.R. § 405.415 for such services. 4. I hereby confirm that I will not receive any direct or indirect Medicare payment for Medicare Part B items or services that I furnish to Medicare Beneficiaries with whom I have privately contracted, whether as an individual, as an employee of an organization, as a partner in a partnership, under a reassignment of benefits, or as payment for a service furnished to a Medicare Beneficiary under a Medicare+Choice plan, during the Opt-Out Period, except for items or services provided in an emergency or urgent care situation. I acknowledge that, during the Opt-Out Period, my services are not covered under Medicare Part B and that no Medicare Part B payment may be made to any entity for my services, directly or on a capitated basis, except for items or services provided in an emergency or urgent care situation. 5. A copy of this affidavit is being filed with ______________________________ ___________________________________________________, the designated agent of the Secretary of the Department of Health and Human Services, no later than 10 days after the first contract to which this affidavit applies is entered into.

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The Business of Healthcare

Executed on ____________________ [date] by ____________________________________________ [Physician name] ___________________________________ [Physician signature] From Shane J. Kraus, M.D. 2006. “Medicare Opt-Out Notice: A New Future with an Old Business Model.” Family Practice Management 13 (2): 75. Used with permission.

MAINTAINING RELATIONSHIPS You are a solo practitioner who has left the nest of group practice. You are on your own. You used to have the benefit of constant interaction with colleagues and as a result had an inside track to referrals. Obviously, as a soloist, this instant access changes. There are a couple of ways to maintain relationship with your referral sources. One way is to set aside some time to mingle in the physician’s lounge. Most of the doctors on a hospital’s medical staff pass through the physician’s lounge for various reasons—to get a morning cup of coffee; to take time to relax and read a paper or catch up on news events; or to do research in the medical library (which is often located next to the physician’s lounge). In this setting, you the soloist can approach your colleagues in a relaxed manner, and do subtle marketing for referrals without hard sell for patients. Another approach is to attend the monthly staff meetings at the hospital that physicians are required to attend. In this setting, meals are generally served, which again allows you the soloist to approach your colleagues in a nonthreatening manner at an appropriate social gathering. Lastly, many pharmaceutical companies sponsor dinners at local restaurants and encourage attendance by physicians in order to promote their products. The unique aspect of this medium is that the pharmaceutical representatives try to bring in new physicians to these dinners, or physicians that they do not see often, to convince them to begin using their product. This provides you, the soloist, with another opportunity to make a positive first impression with new physicians in the community, and establish potentially long-term relationships.

THE HARVEST Once these aspects of personnel, cash flow, and bill-paying strategies have been initiated and done successfully, financial planning for your practice can begin. As mentioned earlier, the golden rule for investing is to pay yourself first. One of the ways to ensure self-payment is to protect yourself as well as your practice. As a physician, you are at high risk for disability. You may contract bloodborne diseases such as HIV or Hepatitis B; skin contact diseases such as herpes zoster or staph aureus; and airborne diseases such as tuberculosis. If you are a surgeon, you depend on your hands for income and injury to your hands is a real

The Solo Practitioner

19

threat. Any of these problems can derail a promising career and force a physician to pursue other career options. Doing so may seem fairly straightforward, as a lot of professionals make career changes. However, the transition for the physician is much more difficult because he has spent so many years in medical training, and also because medicine is so different from any other field. The training in medicine does not emphasize business, and salesmanship and marketing of medical services are still frowned upon by the community at large. In addition, other areas of employment will not likely be as enjoyable as medicine, and may not be as lucrative because medicine, unlike other professions, does not translate well into other fields. This makes the acquisition of disability insurance paramount for the physician. There are two things to remember about disability: Obtain enough coverage to replace at least two-thirds of your practice gross income; and maintain good health at the time of acquisition of insurance, to ensure being underwritten for a policy. Unlike term or whole life insurance, the scrutiny for disability insurance is harsh. Even minor health issues will disqualify an individual from a policy to be underwritten. In particular, weight is highly scrutinized even if the individual has no other health-related issues such as diabetes and hypertension. The other key point to remember about disability is to select a longer waiting period. Most policies are underwritten for a waiting period of 60 days; however, the longer the waiting period the higher the coverage can be obtained. Usually, a waiting period of 90 days allows for the best policy. The waiting period refers to the time you have to wait before you can start receiving payments. For example, if you were injured and unable to work on January 15, 2007, you would not be able to receive any disability payments until at least April 15, 2007 for a 90-day waiting period. The next type of insurance to consider is mortgage insurance. A lot of practices do not obtain this, but it can be helpful. This type of insurance covers the mortgage of your practice (as well as your employees’ salaries) if you are disabled or unable to practice for another reason, say because of military obligation, for a prolonged period of time. It keeps one’s mortgage paid and one’s staff intact while one recuperates. The next area is to set up investing within the practice. There are essentially two options here: 401K plan and profit-sharing plan. There are other plans such as SEP and simple IRA plans, but the profit sharing and the 401K plans are the ones that most employees desire. The two basic differences between the two is that the 401K is deducted from employees’ gross wages and deposited in an investment account, and allows the employee to invest a desired percentage of their wages into the account. A profit-sharing plan does not require the employee to deduct wages for investment, the employer controls the amount to be invested, and the employee’s portion of the profits is determined by a vesting schedule. The amount is determined by the length of service the employee has with the employer. For example, an employee with one year of service with an employer would be 20 percent vested, meaning he would be entitled to 20 percent of his share of the profits that the practice has invested. An employee with 5 years of service would

20

The Business of Healthcare

be entitled to 100 percent of his share of the practice profits. Table 1.7 illustrates the major differences between the two plans. As reimbursement for physicians has decreased, practitioners have had to be more innovative in either increasing or maintaining their income. It has also compelled physicians to enlist skills—which previously were unnecessary—in marketing. As a solo practitioner, one of the ways to increase revenue for your practice is to take your show on the road. What do I mean by this? Those services that you provide in the office can be provided to other providers outside of the office. For example, as a physiatrist, I usually perform about five electrodiagnostic studies in the office per week. In addition, I provide the same service to an orthopedic surgeon who orders about 15 to 20 per week. His staff does the billing and I take home a percentage of the collections per month. The range of collections is anywhere from $8,500 to $16,000 per month. Other services that can provide income outside the office are employment physicals, ultrasounds, or independent medical evaluations.

PROTECTING THE CROP You have set up your solo practice, taken advantage of the opportunities, and met the fiscal challenges of the practice. Now you must take care of the home front. All of the hard work put into developing the practice is for naught if the psychological well-being of the provider is not maintained. Table 1.7 Differences between 401(k) and Profit-sharing Plans 401(k) Plan

Profit Sharing

Eligibility

Any employee with 1,000 hrs. of service in a year

Same

Maximum annual combined contribution the employer can deduct

25% of eligible payroll (maximum eligible pay per employee is $220,000)

Same

Up to $15,000 year

No employee contributions allowed

Required employer contribution

One of the following • Basic match formula • Enhanced match formula

Flexible contribution allowed each year (no preset amount required) but employer must make “substantial and recurring” contributions

Vesting schedule

100% at the time of contribution

20% per year and 100% after 5 years of service

Advantages

Employee deferral of current income taxes available

Flexible contributions

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One of the unique challenges of the solo practice is that, unlike large group practices with many providers, the solo provider has to be hands-on to be able to ensure that the practice is run properly. The provider can only delegate so much to an office manager, and this need to keep a finger on the pulse of the practice takes time, often at the expense of a marriage and family. One strategy to combat this conflict is to schedule specific administrative time as part of the weekly schedule. This can be a half-day per week or a full day every two weeks. This schedule enables you the solo provider to catch up on important paperwork during regular hours, and thus allows you to get home to your family. Another strategy to maintain good mental hygiene is leave work at work. Any discussion of medicine at home limits quality time that is spent with spouses or children. Even though we physicians may feel that our field is exciting every day, our spouses and family may not share that sentiment. It is important to adhere to the philosophy of leaving work at work as much as possible. One creative way to reduce burnout is to perform locum tenens work. Locum tenens is an arrangement for you to provide coverage for physicians who are on leave from their practice for various reasons such as maternity leave, vacation, or illness. It reduces burnout for you because it gives you a mental break from the practice and at the same time allows you to give patient care without the administrative or political headaches that were present at your home practice. The salaries are good, in the range of $600 per day for physiatry and up to $1,200 per day for a gastroenterologist.

REFLECTION The last most reasonable question one may ask is, “Why become a solo practitioner? It appears to be a lot of work. Where is the reward?” This is a legitimate question that needs to be addressed by anyone espousing the joys of solo practice. I would first like to mention that most physicians who go through 12-plus years of training have had a long time to view how things operate. They see the things that work and do not work, but have little ability to influence the operations of a hospital, a school, or a clinic because they are in training. After years of having limited authority in decision making, it is very hard for most of us to continue to hand the reins of this responsibility to others, especially when decisions made by others in a group practice setting will have a direct impact on how we practice and on our livelihood. The only way to insure that decisions made about your livelihood positively impact you is to be that provider making that decision. You make any decision, good or bad, and you and your staff deal with the consequences. The full impact of such decisions cannot be understood unless you are the one making them. The reward for good decisions that you make is you a euphoria that few experiences can provide, and it is that so-called rush that makes solo practice so exhilarating.

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Another dynamic to understand about the physician of 2007 is that medicine is no longer practiced in a vacuum, and in order to understand this change, one needs a historical perspective. In the 1960s and 1970s, physicians could practice medicine without major concern about diagnostic-related groups (DRGs), managed care, or rising malpractice costs. Reimbursement by insurance was nearly 100 percent. Marketing by word of mouth was the standard, and one could quite literally “hang up a shingle” and begin a practice. This modus operandi has long since been bypassed by the current medical climate. With Medicare and overall insurance reimbursement declining, the twenty-first-century physician is getting both a formal and an informal education in the tumultuous healthcare business; and those who choose to ignore rather than adapt will be swept away by the tide. The fiscal pie of healthcare is smaller, and one has to make good business decisions to insure that his piece is secure, and also be creative enough to generate other revenue streams to secure the kind of livelihood that we seek as physicians. Solo practice allows one to be on the forefront of the changes that occur in healthcare, and by being in front, allows the practitioner to forecast and prepare for the future. One of the methods to assist this is to conduct a SWOT analysis, that is, Strengths, Weaknesses, Opportunities, and Threats. As a physician, and in my case a specialist, I need to ask myself, What do I have to offer? What are my skill sets? In my case, in addition to my general physiatric skills, I offer opioid pain management and electro diagnostic services. With the emphasis by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) on pain as the fifth vital sign, I am in a good position to market myself. I also understand that many physicians, especially in primary care, do not understand how to prescribe opioids and do not want patients who may need them. Again, this puts me in advantageous position in obtaining patients. I understand how to prescribe opioids, which is a strength, and I am willing to accept patients who need this service. I also need to understand that in accepting these patients, I always have the threat of being under heavier scrutiny by the Drug Enforcement Agency (DEA) in prescribing these medicines. Moreover, accepting too many of these patients can be a weakness because it can potentially brand me as only a pain management physician, and decrease the perception of the diversity of services I offer. I also perform electrodiagnostic services outside of the office. Other physiatrists as well as neurologists perform this same service. There is always a constant threat that any contract I hold in providing these services can be terminated and given to a competitor, so I always have to be on top of my game. Understanding these basic marketing principles can only assist the twenty-first-century physician in surviving today’s healthcare market.

CONCLUSION As a solo provider, I hope I have given the aspiring soloist insight on the incredible journey of solo practice. It does require a lot of cultivation and nurturing, but

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the fruit of this labor is sweet and rewarding. The only way to appreciate this fully is to follow your heart and embark on the journey. Good luck on your mission!

REFERENCES Blanchard, K., and S. Johnson. 1993. The One-Minute Manager. New York: Berkley Publishing Group. Investorwords.com. 2007. Definition of “cash flow.” [On-line]. Available at: http:// www.investorwords.com/768/cash_flow.html. Kraus, S. 2006. “A New Future with An Old Business Model.” Family Practice Management [On-line]. Available at: http://www.aafp.org/fpm/20060200/74anew. html. Tanner, R. 2003. “Going It Alone: Solo Practice.” In Is a Group Practice or Solo Practice in Your Future? American College of Osteopathic Family Physicians [On-line]. Available at: http://www.acofp.org/member_publications/0803_3.html. Zonies, K. 2006. “Going Solo in a Group.” The Physician Executive (September– October): 44–47.

FURTHER READING Backer, L. 2006. “2500 Cash-Paying Patients and Growing.” Family Practice Management [On-line]. Available at: http://www.aafp.org/fpm/20060200/642500.html. “Characteristics of Different Business Entities.” [On-line]. Available at: http://www. start-a-business.com/inc-category/cbe/subs.html. Cohn, K. 2005. Better Communication for Better Care: Mastering Physician-Administrator Collaboration. Westport, CT: Greenwood Praeger. “Comparing Retirement Plans.” 2006. American Funds [Brochure]. 1–6. American Funds Service Company. Corinaldi, R. Financial Security Group. [Brochure. On-line]. Available at: http://www. gofsg.com. Ekelund, R. B., and R. D. Tollison. 1997. Economics: Private Markets and Public Choice (5th ed.). New York: Harper Collins. “Higher Morale Ground: Groups Work to Build Physician Satisfaction.” 2003. Recruiting Physicians Today 11 (3): 1–4. Mitchell, E. R. 2006. “Sensitive” Questions. [On-line]. Available at: http://prodigy.net/ lizmitchell/volksware/aa060401a.htm. Oswald, S. 2001. “Business Course 7136: Strategic Management.” Course taught at Auburn University College of Business, Physician Executive MBA Program. Smith, S. 2006. “Illegal Job Interview Questions.” The Sideroad. [On-line]. Available at: http://www.sideroad.com/Human_Resource/illegal-job-interview_questions. html. Stone, T. 2006. “Cash-Only Practice: Could It Work for You?” Family Practice Management [On-line]. Available at: http://www.aafp.org/fpm/20060200/61cash.html. U.S. Dept. of Health and Human Services. Centers for Medicare and Medicaid Services (CMS) [On-line]. Available at http://www.cms.hhs.gov/MedicareEnrpts/.

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CHAPTER 2

The Logistics of Joining and Leaving a Physician Practice Nicholas J. Giampetro

A

s our population ages and medical technology advances, the demand for physicians’ services grows. Whether or not we are facing an impending physician shortage, the following facts remain: (a) baby boomer physicians are beginning to retire; (b) there are lengthy training requirements for new physicians; (c) reimbursement levels for physician services are under constant pressure; (d) medical malpractice risk and expenses are material concerns; (e) college graduates have opportunities at least as lucrative in other segments of our economy; and (f ) there is a general disenchantment with our healthcare system. Permanency of the relationship between the associate physician and the medical practice is beneficial to all stakeholders in the healthcare process under the best of market conditions. It is even more imperative today. This chapter deals with the various issues and methodologies regarding acquiring an ownership interest in a private medical practice (“buy-ins”) that may be considered by associate physicians1 and the private medical practices that they intend to join; and the issues considered and methodologies used for redeeming the interest of owners who voluntarily or involuntarily terminate their relationships with the practice2 (“buy-outs”). The chapter will discuss, among other issues, preliminary matters such as due diligence by the medical practice and the associate, various buy-in and buy-out strategies, and valuation techniques. Throughout the process—from becoming an associate to buying in and buying out—all parties should be adequately represented. Representation of each party should include an attorney and an accountant and/or an appraiser who have experience with physician transactional matters, including regulatory issues3 and practice valuation techniques.

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THE ASSOCIATE PHASE Most physicians who seek employment in a private practice upon completion of their training and the practices that they join do so with an eye toward ownership and permanency. It goes without saying that the associate physician’s initial employment with a practice provides an opportunity for the associate and the owners of the practice to evaluate whether the ownership opportunity should be offered and whether it should be accepted. Consider the following provision in the new associate’s employment agreement with an existing practice,4 which contains a list of several criteria that both parties may consider during the courtship: • The Employee’s initial employment period represents a trial period. During this period, the Employee will be evaluating the medical practice and its personnel. The Employer will be evaluating the Employee’s skills as well as the dynamics of the Employee’s working relationship with the Employer. • In addition to the Employee’s clinical competence, the following specific items are essential to the Employee’s overall success: (a) the Employee’s acceptance by patients, staff physicians, and hospital personnel; (b) the commitment of the Employee’s time; (c) the Employee’s productivity and efficiency in handling patient matters; (d) the Employee’s willingness and effectiveness in promoting the practice and the Employee; (e) the Employee’s acceptance in the practice from an entrepreneurial standpoint; (f ) a clearly demonstrated ability for the Employee and the Employer to work together with good rapport and understanding; and (g) the Employee’s participation in medical staff activities at the Hospital • Although nonbinding, it is the Employer’s current intentions that, after approximately ______ years of employment, the Employee may be offered the opportunity to become an owner in the Employer on such terms and conditions as mutually agreed, provided the Employee enter into an Ownership Purchase Agreement and the Owners Agreement and Employment Agreement then in force and effect for owners of the Employer. Although this is a good starting point, with each party acknowledging the desire for permanency, the parties should consider going further. Both the practice and the associate would be wise to consider fleshing out as many terms as possible regarding the buy-in while negotiating the associate’s initial employment, and consider including them in a nonbinding letter of intent. The letter of intent would be subject to the definitive documents that are described in the above provisions that are signed at the time of the buy-in. Aspects of the associate phase may affect the buy-in. For example, an associate may accept a lower compensation package in consideration of a shorter period of time before being offered an ownership interest. Alternatively, the owner may

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reduce the amount expected to be paid for the ownership interest depending upon the amount of compensation paid to the associate or the length of time the associate phase continues. Further, there is no reason why the associate phase cannot be dynamic. For example, with physicians in short supply and demand increasing, owners may consider shortening the time to buy-in or offsetting expected buy-in amounts if associate collections substantially exceed the associate physician’s incremental expenses; or the associate is an exceptional clinician, meets critical practice needs, or is difficult to replace. The predicate for this type of effective decision-making is an understanding by both parties of what will be paid for the ownership interest (or how it will be computed), and the arrangement regarding income, equity, and management after the buy-in is complete. In order for each party to make an informed decision, due diligence is required. From the practice’s point of view, owners may make inquiry of colleagues regarding the associate’s clinical skills, professionalism, and integrity from preceptors and others who have supervised the associate during training. Meetings and site visits with the prospective associate and the associate’s spouse are important. From the associate’s point of view, due diligence at this stage is also important. In addition to getting comfortable with the clinical and cultural match, the associate may request financial information regarding the practice. Historically, medical practices have been reticent about sharing the level of information that is described below. In today’s climate it is a matter of the market, and the extent to which the parties have other options will drive each party’s decision regarding the level of information provided and accepted. The associate should consider gathering information regarding the following: • Practice Entity: The medical practice entity may take the form of a professional corporation, a partnership, or a limited liability entity. Corporations and limited liability entities provide protection against personal liability to owners from medical malpractice claims asserted against other practitioners in the practice, whereas general partnerships impose unlimited liability upon all owners. The type of entity will also affect the state and federal income tax consequences to the medical practice and its owners. For example, entities that elect to be taxed as partnerships and limited liability entities are not taxed on their income; the income and losses are passed through to their owners. On the other hand, corporations subject to tax under Subchapter C of the Internal Revenue Code (IRC) are taxable on their income. Corporations may elect to be taxed as passthrough entities under Subchapter S of the IRC, similar to partnerships and limited liability entities.5 The use of S corporations may provide less flexibility regarding the design of compensation packages. • Purchase Price: The price and purchase methodology, together with timing of the prospective purchase, should be disclosed. If the medical practice will be valued, the date of the valuation is important.6

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• Income: Do the members of the medical practice share income equally, based upon production,7 or utilize a hybrid approach? What do owners consider as components of compensation versus overhead; said another way, what expenses are directly charged against owners’ compensation?8 How is overhead shared? Are fixed expenses shared equally even though compensation is shared based upon production? Is income expected from ancillary services or other associates, and if so, how is that income divided? • Liabilities: Having the medical practice’s financial statements reviewed is a beginning (including the medical practice’s payer mix). Associates should ask for explanations of loans from owners or working capital loans. Further, since most medical practices use unaudited financial statements that are not maintained in accordance with generally accepted accounting principles (GAAP), there may be off-balance sheet liabilities, which will require further inquiry. For example, depending upon the age of the owners there may be current or future unfunded buy-out liabilities, including obligations to purchase extended reporting endorsements (tails)9 for professional liability coverage for owners who leave the practice. This type of information can be obtained tactfully by learning the ages of the owners, or inquiring about tail obligations if a similar provision is included in the associate’s employment agreement. • Management: Does the practice have an owner or representative management structure? Many progressive midsize medical practices have moved from all owners managing the practice to forms of representative management arrangements. These arrangements may include more frequent meetings of the management team and further diversification of specific management functions, and should include requirements regarding keeping other owners informed of decision making by the management team. Representative management is a good indicator of the level of trust that exists between the owners. • Outside Interests: It is not uncommon for a medical practice entity to lease space from an entity that is owned in whole or part by the owners of the medical practice. Information requested about the owners’ expectation regarding associate acquisition of an interest in such real estate is entirely reasonable at this stage.10

THE BUY-IN ARRANGEMENT We assume that the owners and the associate physician have had a successful courtship, and the parties wish to proceed to a permanent relationship. Several of the issues that are discussed in this section may have been addressed prior to the commencement of the associate phase or may have been postponed until this point.

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Purchase Price The inquiry begins with how the medical practice is valued, and how the purchase price is determined. The type of practice and the nature of the practice’s assets may drive the valuation method. For example, hospital-based practices such as anesthesia or pathology, and radiology practices that do not have office locations, have little or no tangible assets.11 They also may have no ascertainable intangible assets12 if their “going concern value” is predominantly based upon a short-term coverage arrangement with one hospital. Since the associate was paid less than the practice collected on account of the associate’s services during the associate phase, the owners may feel adequately compensated for the transfer of an ownership interest. Medical practices may be valued based upon the value of each asset, the assets valued as a whole by using a capitalization of earnings approach, selection of a fixed value, or a combination of approaches. Even if a fixed value approach is selected, it should either be based upon a valid valuation methodology or proven accurate by the use of recognized methodology. A rudimentary understanding of the types of assets that are owned by a medical practice, and how assets are treated taxwise together with accounting and financial principles, will be necessary. Notwithstanding what approach is taken to valuation, federal and state laws and regulations applicable to medical practices must be considered. Generally, the purchase price should result from arm’s-length negotiations between the associate and the owners, in a manner that does not take into account the volume or value of referrals or business that otherwise may be generated. The purchase price must be consistent with fair market value. The laws that have the received the most attention are the cadre of laws regarding remuneration for referrals and selfreferral laws.13 Furniture, fixtures, and equipment are considered tangible assets. From an income tax point of view they are considered capital in nature, which means that they are acquired with after-tax dollars. The tax basis is the amount paid for the asset less the amount of depreciation deducted for tax purposes. These assets are customarily depreciated rapidly, or written off, in order to accelerate tax deductions. These assets can be valued based upon an appraisal, which is the most accurate measure but also the most costly. Alternatively, they may be valued based upon their tax basis, which is cost less depreciation. This method is the least accurate, although simple and the least costly. A compromise would be to restate the basis of the asset by using a longer life, that is, 10 years subject to a floor, that is, 25 percent of cost. Accounts receivable represents amounts billed for services rendered but not paid. Work in progress represents amounts unbilled for services rendered. Since most medical practices are on the cash basis of accounting, accounts receivable (and work in progress) are not included in income, and have no tax basis. However, for purposes of the buy-in, accounts receivable may be treated as a “capital” asset or an “ordinary income” asset. The sale of a capital asset results in capital that

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is normally lower than the tax on ordinary income.14 For example, if the associate purchases an interest in the practice, and accounts receivable are a component of the value, the accounts receivable are being treated as capital assets (being purchased with after-tax dollars) even though the receivables will result in ordinary income to the practice when collected or to the new owner when paid as compensation. It is for this reason that accounts receivable should be handled differently in most buy-in contexts.15 Unexpected tax consequences of a buy-in amount may result from the purchase of an interest in a partnership or a limited liability entity that is taxed as a partnership with regard to accounts receivable. Whereas one would expect that a purchase of an interest would have capital gain consequences to the existing owner, if the underlying entity is a partnership-type entity which has “unrealized receivables,” the IRC characterizes a portion of the purchase price as ordinary income.16 Goodwill is an intangible asset. It has no book value for financial accounting or tax purposes unless it was purchased as a capital asset. Goodwill represents the going concern value of a business. For medical practices, relationships with patients and referral sources, practice location, favorable payer agreements, payer mix, infrastructure, and workforce in place are components of this asset. Comparables, percentages of collections, or calculations based upon compensation paid to owners are types of methods that are used for valuation purposes. An understanding of the accounting equation is important: assets minus liabilities equals equity. For buy-in valuation purposes, the assets of the balance sheet are restated to present a more realistic picture of the value of the practice. One approach to restatement of the balance sheet is to value each asset separately. Alternatively, if one considers an investment in a medical practice as a way to increase one’s income, an approach that capitalizes earnings may be indicated; that is, a consideration of how all of the assets of the medical practice are working together to produce earnings. Consider the following provision from a medical practice’s purchase agreement: The Purchase Price shall be the Weighted Average of the EBITDA of the Practice multiplied by ______________. The “Weighted Average” shall be computed as the sum of: (i) three (3) times the EBITDA of the Practice for the most recently completed twelve (12) month period; plus (ii) two (2) times the EBITDA of the Practice for the second most recently completed twelve (12) month period plus (iii) one (1) times the EBITDA of the Practice for the third most recently completed twelve (12) month period; and then divided by six (6). “EBITDA” means the earnings of the Practice, before the deduction of interest, taxes, depreciation and amortization, as calculated by the Practice’s regularly employed accountant in accordance with the Practice’s past practices, which calculation shall be binding on the parties absent manifest error.

The first question is, how does one calculate earnings in a medical practice when the normal practice is to distribute all income to owners in the form of salary and benefits? The answer is that earnings must be normalized: that is, to the extent that the salary and benefits of the owners exceed recognized surveys of mean and median

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physician income,17 the excess constitutes earnings. The second question is, how much is the new owner willing to invest to generate earnings that exceed the mean or median compensation that he would otherwise derive? The answer is based upon a concept of the weighted average cost of capital (WACC). The cost of capital is based upon the discount rate. The discount rate determines the level of risk of the investment in the medical practice. The capitalization rate is the inverse of the discount rate. Either of the two rates determines what the new owner expects as a return if he invests in the practice. Consider the following example: A medical practice is financed with a combination of debt and equity. The cost of debt is determined by using the interest rate applicable to the practice’s borrowing. The cost of equity is the sum of the following: (a) the current risk-free rate of return (for example, the Treasury bond rate); (b) the equity risk premium multiplied by a Beta (volatility); and (c) the small stock risk premium. Suppose the risk-free rate is 7 percent; the market risk, which is approximately 8 percent times a Beta (between 1.1 and 1.4 for investment in the health care segment); plus small stock premium (between 4 percent and 8 percent). Hence, a medical practice’s cost of equity might be: 7% + (8% × 1.2) + 6% = 22.6%. If the medical practice’s debt comprises 12% of its asset value, after adjustment for accounts receivable, the calculation would be as follows:

.07 × 12% = .84%; .226 × 88% = 19.88%; .84% + 19.88% = 20.3% What this means from a valuation perspective is that the new owner should expect a 20 percent rate of return to invest in this medical practice, which also means that earnings should be capitalized approximately 5 times to determine value. A fine point in this process is the determination date. The new owner may feel that a purchase of value that was added during the associate phase is unfair, and may wish to negotiate an alternative determination date that is closer to the date that the associate phase began. Under these circumstances, the associate should be mindful of the volatility of the health care segment of our economy. For example, it is virtually impossible to predict what Medicare and the commercial payers may do with regard to reimbursement.18 One suggestion is the use of a call option, which would permit the associate to lock in the price at a prior date in consideration of paying the owners an amount to hold the price at the prior date; if on the buy-in date (strike date), the value of the medical practice has declined, the associate may elect not to exercise the option, then may renegotiate the price and forfeit the amount paid for the option.19 Whether the individual asset or the earnings approach is used, accounts receivable deserve further attention. These assets have no tax basis and will result in ordinary income to either the medical practice or to the owners in the form of salary. In order to assure that the new owner is getting the benefit of the bargain, certain representations, warranties, and disclosures by the medical practice and perhaps the owners are indicated, such as:

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• The Practice has furnished to the Purchaser the balance sheets of the Practice and the related statements of operations as of and for the fiscal years ended December 31, 200_ and December 31, 200_ (collectively, the “Financial Statements”). The Financial Statements represent the financial position and results of operations of the Practice as of the indicated dates and for the indicated periods and have been prepared in accordance with generally accepted accounting principles consistently applied. • The Practice does not have any liability or obligation of any nature or kind (absolute, accrued, contingent, or otherwise) that may have a material adverse effect on the Practice after the closing date that is not disclosed or that is in excess of the amounts shown on the Financial Statements of the Practice. • The Practice has good, clear, and marketable title to all assets free and clear of all mortgages, claims, charges, liens, security interests, easements, rights of way, pledges, restrictions, or encumbrances of any nature. • The Practice has complied and is in compliance in all respects with all Federal and state laws, ordinances, regulations, rules, requirements, and orders of all governmental entities applicable to Practice and the Practice has not received any notice of any asserted violation of and has no other basis to believe it is not in compliance in all respects with any such laws, ordinances, regulations, rules, requirements, or orders. No investigation or review by any governmental entity with respect to the Practice is pending or, to the knowledge of the Practice, has been threatened, nor has any governmental entity indicated an intention to conduct any such investigation or review. • The Practice has correctly filed all Tax Returns required to be filed by the Practice and has paid or provided for all Taxes shown to be due on such returns. No action or proceeding for the assessment or collection of any Taxes is pending against the Practice. No deficiency, assessment or other claim for any Taxes has been asserted or made against the Practice that has not been fully paid or finally settled. No issue has been raised by any taxing authority in connection with an audit or examination of any return of Taxes of the Practice. • Set forth on Schedule_____ hereto is a complete and accurate list of all Contracts to which any “Insider” is a party. Insider means any owner, manager, director, or officer of the Practice, and any Affiliate or Relative of any of the foregoing. • Schedule_____ sets forth a complete list of all interests in real property used by the Practice in connection with its business. All leases set forth thereon are valid and, to the Practice’s knowledge, without any default under such lease by the Practice or by the lessor beyond the applicable notice and cure period. • Schedule_____ sets forth a list and brief description of all pending and, to the knowledge of the Practice, threatened suits, actions, investigations,

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grievances, and proceedings affecting the Practice since _____ 20__. Except as set forth in Schedule____, there is no suit, action, investigation, grievance, or proceeding pending or, to the knowledge of the Practice, threatened against, by, or affecting the Practice. • Schedule_____ is a list of all malpractice, casualty, liability, business interruption, and other insurance policies held by the Practice, together with a list of all parties listed (or required by any contract to be listed) as additional insureds under such policies. All such policies are in full force and effect and there is no threat, to the knowledge of the Practice, by any of the insurers to terminate, or increase the premiums payable under, any of such policies. The Practice is in full compliance with the conditions contained in such policies. • In connection with the conduct of the business of the Practice, to the Practice’s knowledge, (i) the Practice is in compliance with all applicable Environmental Laws and has obtained and is in compliance with all permits, licenses and other authorizations required under any such Environmental Law for the conduct of the Practice; (ii) there is no past or present event, condition, or circumstance caused by the Practice that is likely to interfere with the conduct of the Practice in the manner now conducted or which would interfere with the compliance with any Environmental Law or constitute a violation thereof, and (iii) the Practice has not leased, operated, or owned any facilities in connection with the business with respect to which the Practice is subject to any actual or potential proceeding under any Environmental Law. • Set forth on Schedule___ is a list of all accounts receivable, promissory notes, contract rights, commercial paper, debt securities, and other rights to receive money reflected as assets of the Practice in the Financial Statements or otherwise related to the Practice (the “Receivables”), in each case showing the name of the account debtor, maker, or obligor, the unpaid balance, the age of the receivable, and, if applicable, the maturity date, the interest rate, and the collateral securing the obligation. All Receivables are legal, valid, and binding obligations of the obligors and are collectible in accordance with their terms. The following is a type of provision that protects the new owner from a breach of any of the representations or warranties that surface after the closing of the sale: • From and after the Closing, the Practice shall protect, defend, indemnify, and hold harmless the Purchaser from and against all losses, liabilities, indebtedness, damages, actions, causes of action, debts, dues, judgments, penalties, fines, costs, obligations, taxes, expenses, and fees, including all reasonable attorneys’ fees, and the reasonable fees of any experts, contractors and consultants, and court costs, incurred by the Purchaser resulting from, arising out of, relating to, or caused by any inaccuracy or

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misrepresentation in or breach of any of the representations, warranties, and covenants to the Purchaser set forth herein by the Practice.

Compensation The primary purpose of a compensation sharing methodology is to align the individual physician with the practice’s compensation philosophy—maximize income, reduce expense, and provide quality outcomes. Owners may share compensation equally, base compensation on production, or elect a hybrid approach. No matter which approach is utilized, the first step in computing compensation is to determine the aggregate component of compensation that will be shared among the owners of the practice during the relevant computation period. In order to do so in a fair and equitable fashion, the owners need to decide what expenses are directly charged against each owner’s share of compensation and which expenses are considered to be overhead of the practice. Generally, expenses that directly benefit the owners, and are susceptible to variability in amount between owners during the computation period, are charged back against the owners’ share of the compensation component. What is important is that the owners reach an understanding on which expenses will be charged back. For purposes of determining how the aggregate component of compensation will be divided among the owners, overhead expenses may be characterized as fixed or variable expenses. In lieu of reviewing individual expenses and deciding which are fixed and which are variable, some practices assume that a certain percentage of expenses are characterized as one or the other. Even if the compensation component is divided based upon production, fixed expenses could be divided equally; conversely, if the compensation component is divided equally, variable expenses could be divided based upon production. Finally, if any portion of the compensation component will be divided based upon production, the owners need to decide upon the measure of productivity they will use to develop the production fraction. • Charges have the advantage of being easy to track. However, if charges are based upon a hypothetical, outdated fee schedule, they may be an unrealistic measure of production. • Collections have the advantage of administrative ease, and are probably the most prevalent form of measurement in most medical practices. Collections have the advantage of directly correlating to income. The disadvantage of collections is that they will vary based upon payer mix and the level of reimbursement. • Encounters measure work effort and are easy to track. Encounters fail to measure the time and intensity involved in the delivery of care, and they are useless when comparing specialties and subspecialties. • Relative value units (RVUs) are the standard applied by Medicare and most commercial payers. RVUs are based on the level and intensity of physician work, and thus are not as subject to variability as collections.

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The RVU value for a particular service is standardized and dependent on the intensity and time involved in furnishing the service. The disadvantages of RVUs are that they are not connected to cash flow, and are more complicated to administer than charges (which explains in part why they are not used more frequently by practices). RVUs deserve more attention. The Medicare fee schedule for physician services is based upon the Resource Based Relative Value System (RBRVS).20 The RBRVS determines the relative value of physician services and the resources consumed. The RBRVS will permit the medical practice to compare physician services across payers and physician specialties; for example, evaluation and management services and surgical procedures can be compared using this system. There are three types of RVUs for each CPT (Common Procedure Terminology) code:21 physician work level, practice expense, and medical malpractice expense. The number of RVUs for each RVU component is multiplied by a Geographic Practice Cost Index (GPCI). A conversion factor, which is the perceived cost of 1 RVU, is multiplied by the total number of RVUs for the service to calculate an allowed fee.22 Owners who share income based upon production may consider it more equitable to share income or loss from associates23 equally. Consider the following example: The associate’s collections are $200,000 and the associate’s incremental expenses are $150,000 within a computation period. The practice’s total collections are $1,000,000 and practice expenses (including associate incremental expenses) are $600,000. Owner A’s collections are $500,000 and Owner B’s collections are $300,000. Owner A’s and Owner B’s compensation method is entirely production based.

• Associate’s Profit Shared Based Upon Owner Production: $1,000,000 − $600,000 = $400,000

• Owner A’s share: 5/8 × $400,000 = $ 250,000; • Owner B’s share: 3/8 × $400,000 = $ 150,000 • Associate’s Profit Shared Equally: $800,000 − $450,000 = $350,000

• Owner A’s share: 5/8 × $350,000 = $218,750 + $25,000 = $243,750 • Owner B’s share: 3/8 × $350,000 = $131,250 + $25,000 = $156,250 The owners may desire to share the income from ancillary services based upon the physician who ordered the service. Stark24 and state self-referral laws place significant limitations on the ability to benefit directly the physician who referred certain ancillary services. Many medical practices will qualify for the in-office ancillary service

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exception to Stark,25 which allows intragroup referrals of Stark services. However, even if the medical practice qualifies for the exception, Stark does not allow income from Stark services to be divided among the physicians in the group practice based upon the volume or value of referrals. The regulations under Stark provide that the income from these services may be paid as productivity bonuses based upon: (a) total RVUs; (b) allocation of revenue from non-Stark services; or (c) a profit share based upon: (i) per capita; or (ii) revenues from non-Stark services. Income paid to owners from pharmaceuticals, ancillary services, or associate physicians (including physician extenders) could cause adverse federal income tax consequences depending upon the type of entity that provides the medical services. In Pediatric Surgical Associates v. CIR,26 a medical practice provided pediatric surgical services. It employed four shareholder physicians and two associate physicians on fixed salaries. The practice entity was a corporation taxed under Subchapter C of the Internal Revenue Code and operated on the cash basis of accounting. At the end of each fiscal year, the medical practice distributed the remaining net income of the corporation equally as additional salary to its shareholders. The IRS took the position that the salary of the shareholders, to the extent that it represented profit from the personal services of the associates, represented dividends to the shareholders and was not deductible to the corporation as salary expense. This determination caused the income to be subject to a 35 percent rate at the corporate level and a second tax was imposed at the shareholders level for the dividends—together with interest and penalties. This is a very bad result. The Court’s rationale was based upon Section 162(a) (1) of the Internal Revenue Code, which provides that salary is deductible if it is reasonable and is payment solely for services rendered. This decision was based on the theory that a portion of the distribution to the owners was a return for their entrepreneurial efforts, that is, a dividend. This result would not have occurred if the corporation had elected to be taxed under Subchapter S of the Internal Revenue Code. As mentioned earlier in this chapter, S corporations are pass-through entities, and not subject to tax.27

MANAGEMENT AND GOVERNANCE The types of governing documents for a medical practice depend upon the practice entity. If the practice entity is a corporation, the governing documents will be found in the bylaws, the employment agreements between the owners and the practice entity, and the shareholders agreement. If the practice entity is a partnership, the partnership agreement will control the actions of the members; the analog in the limited liability entity is referred to as the operating agreement. The new owner should become familiar with her voting rights and requirements, and what is required for a quorum. Some buy-ins postpone equal voting rights until the purchase price is fully paid if paid over time or some arbitrary period. More and more medium to large physician practices are moving toward

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representative types of governance arrangements, to streamline decision making and respond efficiently to changes in the health care climate. A technique that will tend to assure continuity in governance is a board with staggered terms. As mentioned earlier, using representative governance requires the trust of the nonparticipating owners, which can only be maintained by effective communication of board actions to the other owners. Under these representative arrangements, certain decisions may require supermajority approval by the governing board, or require that the ownership at large approve the decision. For example, many practice entities permit associate physicians and owners to be terminated without cause. Who is permitted to take this action, and what is required to take it, are obviously very important issues. Other actions that may require approval by more than a majority of the governing board or by the owners at large are organic changes to the practice entity, large expenditures, long-term commitments, or payer agreements that are outside certain reimbursement corridors. Smaller practices face different problems. The biggest hurdle is what is done if irreconcilable differences arise between the owners, resulting in a deadlock. If the owners are unable to resolve their differences, they may end up using a costly judicial dissolution procedure.28 Alternatives include agreeing on what occurs in the event of a deadlock,29 having the senior owner make the ultimate decision, or using a technique referred to as “Russian roulette.”30

THE BUY-OUT The same principles that apply to the valuation and purchase price for purposes of the buy-in will likewise apply to the buy-out. These issues should be addressed prior to the associate becoming a new owner, if not discussed before the associate phase began. Off-balance sheet liabilities that were discussed earlier should be considered, such as medical malpractice tails. If the new owner is required personally to guarantee debts or other liabilities such as leases of the medical practice, the practice and the new owner should address release or indemnification upon departure. Differences in the amount paid to a departing owner may be attributable to the event that gives rise to the buy-out—the trigger event. The trigger event is most times something that results in a termination of employment: death, disability, retirement, voluntary separation from service, or termination with or without cause. Today, with the physician population aging, many older physicians are relinquishing their ownership and management rights and re-engaging with the practice in an associate role.31 If the trigger event results in a hardship to the practice, some practices reduce the purchase price. For example, if the physician voluntarily terminates employment and leaves the practice without affording the practice adequate notice to replace the lost production or is terminated for cause upon short notice, the remaining physicians are forced to incur a larger portion of the fixed expenses.

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Also, with regard to multiple simultaneous buy-outs, total yearly payouts may be capped, with amounts payable in excess of the cap postponed.

OTHER BUY-OUT CONSIDERATIONS Practice Location, and Practice Telephone Numbers In practices where the departing physician will continue to practice in the area, it is normal for the senior physician to retain the practice location and telephone numbers. These issues should also be addressed if a potential for deadlock exists.

Custody of Medical Records The departing physician should have rights to access the medical records in the event of claims of professional malpractice or erroneous billing. The methodology for transferring medical records if a patient requests that the departing physician continue her care should be clear (for example, who keeps the records, and who pays the copying charges). State and federal confidentiality laws need to be considered. In some jurisdictions, patients are required to be notified when a treating physician leaves the practice.

Patient Abandonment The physician-patient relationship may be terminated without cause or for reasons related to retirement, or separation of service with the medical practice, with sufficient notice to allow the patient to identify another provider. The practice and the departing physician may consider sending neutral/nonsolicitous letters to patients, advising them that the physician has left the practice; if the physician is continuing in practice, the letters should advise the patient of the departing physician’s location or telephone number, and include a statement that the practice is able to continue the patient’s care, if that is so. The patient should also be advised of the location of her medical records.

Posttermination Restrictions If state law permits, posttermination restrictions regarding practice location and solicitation of patients are typical in buy-outs. Even in jurisdictions that permit these types of restrictions, the courts do not favor them, and generally any ambiguity will be construed against the party seeking to enforce the restrictions. Some states permit the court to rewrite the provision if it is overly broad; others will completely invalidate the restriction if any aspect is deemed unreasonable. The general rule for posttermination restrictions is reasonableness with regard to the medical practice, the departing physician, and the public. With regard

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to the medical practice, the proprietary interest of the medical practice is considered. The medical practice has the right to protect relationships with patients, referral sources, and employees. The restriction should not impose undue hardship on the ability of the departing physician to earn a living; hence, any restrictions should be reasonable as to time and geographic scope. In addition, the restrictions cannot impede the ability of the public to access health care services. For example, shortages of medical professionals or vital services may be considered by a court to determine enforceability of posttermination restrictions. Prohibitions against treating a patient and geographic limitations that may affect the ability of the patient to use the services of the physician at a hospital are not favored. Finally, nonsolicitation provisions may conflict with legal and ethical requirements to notify a patient when a physician leaves a practice.

CONCLUSION In conclusion, there are numerous issues attendant to buy-ins and buy-outs in physician practices. Valuable time and money will be wasted by the associate physician and the medical practice—and patient relationships may be disrupted— with a bad match. Full disclosure and consideration of as many buy-in issues as possible at the time the associate phase commences will increase the chances that the relationship will be permanent. It would be unfortunate and expensive for each party if after a successful courtship a contentious negotiation ensues regarding ownership and results in the parties going their separate ways.

NOTES 1. This chapter will refer to a physician as an associate until such time as the physician becomes an owner of the practice, at which time the physician will be referred to as a new owner. The physicians who have an ownership interest in the practice other than the new owner will be referred to as owners. 2. The term owner may take different forms depending upon the type of medical practice entity, that is, shareholders of professional associations, partners of partnerships, or members of limited liability entities. However, the bundle of rights that are included in “ownership” are generally the same—income, the value of the owner’s interest, and the owner ’s right to manage and control the practice entity. 3. The American Health Lawyers Association is a source for attorneys who have experience in and who specialize in the representation of physicians and physician practices. 4. The author wishes to thank Michael Schaff, Esq., with the law firm of Wilentz, Goldman and Spitzer, P.A., in Woodbridge, New Jersey, for his permission to use the sample provisions in this chapter. Mr. Schaff is a past chair of the American Health Lawyers Association’s Physician Organization Committee. 5. Some of the tax differences for buy-ins and buy-outs depending upon the type of entity will be discussed later in this chapter. 6. The importance of the date that value is determined will be discussed later in this chapter.

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7. Production approaches include billings, collections, encounters, or relative value units. The differences between these approaches will be discussed later in the chapter. 8. To the extent that an associate’s production exceeds the associate’s incremental expenses (additional expenses that the practice incurs on account of employing the associate), the production reduces the fixed expenses of the practice. The reduction of fixed expense will increase the owner’s compensation. In a production-based model of compensation for the associate, the associate’s request to share collections in excess of incremental costs is legitimate. 9. Claims made professional liability insurance policies respond to claims asserted during the policy period. These policies typically require coverage for claims that are asserted after the physician’s relationship with the practice terminates. This is typically referred to as tail coverage. 10. This also includes interests in ambulatory care facilities. 11. Tangible assets are furniture, fixtures, and equipment, and will be discussed later in this section. 12. Goodwill, which is an intangible asset, will be discussed later in this section. 13. The Medicare Fraud and Abuse statute (42 U.S.C. Sections 1320a-7(b) (1), (2)) prohibits the offering/paying or receiving/soliciting of any remuneration to induce or in return for the referral of a person for an item or service payable by Medicare, Medicaid, or any other federal program. This is an intent-based statute, which if violated imposes both civil and criminal penalties on each party, including potential decertification from the federal programs. There are several statutory and regulatory safe harbors applicable to various transactions that fall within the scope of the proscription by the statute—none apply to the sale of an interest in a practice when the seller remains a participating owner. However, a technical violation of the statute with no safe harbor does not necessarily mean that the Office of Inspector General (OIG) will take enforcement action against the parties to the transaction. Certain letters from the OIG raise the OIG’s concerns regarding what is being paid for and the continuing compensation arrangement in connection with practice sales. What is clear from the letters is that the volume and value of referrals must be excluded from the valuation. Letter dated December 22, 1992, from D. McCarty Thornton (Associate General Counsel of the OIG) to T. J. Sullivan (Office of Associate Chief Counsel, Internal Revenue Service); and letter dated November 3, 1993, from D. McCarty Thornton to John E. Steiner, Jr., Esq. (Assistant General Counsel to the American Hospital Association). The parties also need to consider state self-referral laws. http://oig.hhs.gov/ fraud/docs/safeharborregulations/acquisition110293.htm; and 122292htm. 14. Conversely, one is required to use after-tax income to acquire a capital asset. 15. For example, the interest in accounts receivable may be acquired by the new owner deferring receipt of a share of compensation in an amount equal to the interest in accounts receivable for some mutually acceptable period. Alternatively, the new owner’s post buy-in compensation may exclude amounts collected by the practice on account of services rendered prior to the buy-in date. Even if the interest in the practice is based upon the value of the practice as a whole, the accounts receivable may be carved out and treated on a pretax basis. 16. This will also apply to certain depreciation deductions that the medical practice may have taken with regard to tangible assets. 17. For example, the Medical Group Management Association conducts annual physician compensation surveys, and publishes reports that include mean and median

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survey information. Other recognized physician compensation surveys are conducted by Sullivan, Cotter and Associates, Inc.; Hay Group; Hospital and Healthcare Compensation Services; ECS Watson Wyatt; and William M. Mercer. 18. Medicare is considered the “gold standard” with regard to reimbursement and reimbursement methodology. Commercial payers have a tendency to follow Medicare’s lead, and oftentimes they tie their reimbursement rates and methods of determining reimbursement to Medicare. 19. Martin, D. G., T. K. Ross, and F. Akinci. 2006. “Analyzing the Efficacy of Physician Practice Acquisition Using Real Option Theory.” Journal of Health Care Finance 32 (4): 46–54. 20. The RBRVS was developed by researchers at the Harvard University School of Public Health. The number of RVUs for each CPT code is relative to a patient visit of approximately 15 minutes (CPT code 99213), which was originally assigned one RVU. 21. Common Procedure Terminology or CPT codes are copyrighted by the American Medical Association. The American Society of Anesthesiologists has developed its own set of CPT codes, which are now used by Medicare. 22. RVUs can also be used to negotiate managed care agreements. By knowing the number of RVUs for a procedure, the medical practice can ascertain what a health plan is using as its conversion factor. By comparing the plan’s conversion factor with the medical practice’s “cost” per RVU, the medical practice can determine whether it will make or lose money on delivering the service. For a complete discussion of how RVUs can be used in a medical practice see: Kathryn P. Glass, RVUs Application for Medical Practice Success (Englewood, CO: Medical Group Management Association, 2003). 23. See footnote 8, infra, for a discussion regarding how associate collections may increase owner compensation. This issue also applies to physician extenders (such as physician assistants, nurse practitioners, and physical therapists) whose services may be billed either incident to the physician services or under their personal provider number. 24. Stark is a federal law that restricts referrals of certain designated health services with regard to beneficiaries of federal health programs—Medicare, Medicaid, and Tricare—to entities with which the referring physician has a financial relationship. Designated health services include radiology, clinical lab, pathology, and so forth. (Ethics in Patient Referral Act of 1989, Omnibus Budget and Reconciliation Act of 1989, codified at 42 U.S.C. Section 1395nn; amended by the Omnibus Budget and Reconciliation Act of 1993, codified at 42 U.S.C. 1395nn(a)(1)). 25. There is an in-office ancillary services exception under Stark for referrals of certain designated health services within a group practice. However, the exception does not permit the revenue from such services to be divided among the physicians within the group practice based upon the volume or value of referrals. Income from these services may be divided other than equally (42 C.F.R. Section 411.355(b)). The exception addresses who provided the service; where the service is performed, and who billed for the service. Who?—The referring physician, another physician in the same group practice as the referring physician or a person supervised by the referring physician or a physician in the group. Where?—The same building as the location of the group practice. Who bills?—The group practice. 26. Pediatric Surgical Associates v. Commissioner of Internal Revenue, 81 TCM (CCH) Dec. 54,296 (M) (2001). 27. A conversion from a C corporation to an S corporation is possible, but the methodology is beyond the scope of this chapter.

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28. This might be the best alternative. Faced with this possibility, the owners may be more apt to resolve their differences. 29. For example, who remains in the practice location, retaining the phone numbers and work force in place. 30. Each owner submits a sealed bid to purchase the practice from the other owner. The highest bidder is required to buy and the lower bidder is required to sell. 31. This arrangement has its own set of problems, particularly where the older physician is slowing down and the practice is production-based, but all expenses are production-based as well.

CHAPTER 3

Measuring Performance in a Medical Practice William S. Reiser

T

he success of a medical practice is dependent on performance in four key areas, which may be termed business imperatives: clinical quality, service quality, physician productivity, and financial viability. For those medical practices intent on remaining successful over the long term, every decision, every investment, and every policy and procedure must increase, facilitate, or at very least not detract from these four imperatives. They are the filters that help physicians and managers stay within the bounds of correct operating principles for successful medical offices. Ideally, performance measurement and continuous performance improvement in each of these areas should form the foundation for strategy development and for daily operations. Unfortunately, the state of performance measurement in the areas of service quality and clinical quality, particularly in medical practices, is in its infancy, at best. Until recently, there has not even been a consistent set of clinical indicators for practices to measure. Several organizations offer measures of service quality (at least for patient satisfaction), but with little or no consistency and no national benchmarks. The current state of productivity and financial indicators is much more advanced, thanks to annual surveys that have become more sophisticated and reliable over the last decade. The Medical Group Management Association (MGMA) and the American Medical Group Association (AMGA) have made significant contributions to the industry in terms of national benchmarks, by publishing their annual surveys. The results are available for purchase by both members and nonmembers. The state of performance measurement in medical practices is the topic of this chapter. By some standards, the measures we will discuss are relatively unsophisticated, although many practices have not even implemented these simple

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approaches. We will discuss that current state of performance measurement for each of the four business imperatives.

CLINICAL QUALITY Good clinical quality is good business. Very few would argue the point. Appropriate medical practice yields appropriate outcomes, which is good for patients, reduces medical malpractice liability, and ultimately enhances financial viability. The challenge over the past few decades has been to define, measure, and improve clinical quality. That challenge is particularly acute in ambulatory settings, where physicians and staff scramble to address patient and referring physician demand for services while meeting a payroll in an environment of decreasing reimbursement. Daily operations pressures are often so intense that they crowd out anything more than rudimentary efforts at quality measurement and quality improvement. Several organizations have been involved in trying to define quality by developing clinical practice guidelines, sometimes supported by evidenced-based practice, sometimes supported by common sense, and sometimes simply supported by consensus among providers. These organizations include the following: • American Medical Association Physician Consortium for Performance Improvement • IPRO, Inc. • National Committee for Quality Assurance (NCQA) • Institute for Clinical Systems Improvement • The Centers for Medicare and Medicaid Services (CMS) The efforts of these and other organizations have yielded certain quality indicators that have been recently summarized as the “2007 Physician Quality Reporting Initiative (PQRI)—Physician Quality Measures” that have been promulgated by CMS. This list involves some 74 clinical quality measures across a variety of illnesses and chronic disease. CMS has also defined how these indicators will be measured in medical practice, which involves four steps:1 1. A patient is identified as eligible for reporting during the office visit based on the clinical condition. 2. The eligible professional (physician or other provider) documents the condition and the measurement requirements in the medical record. 3. The quality code associated with the measure is captured for claims submission. 4. The billing staff enters the codes as part of the coding and billing process. The CMS program is a “pay for reporting” initiative rather than a “pay for performance” effort at the present time. Physicians who are able to comply with the reporting process 80 percent of the time are paid a bonus or premium that is a

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percentage of the eligible revenue they received during the designated time period. (There are obvious exceptions, payment caps, and other factors that are detailed on the CMS web site, and will likely be modified.) This effort to pay for reporting creates the potential opportunity for significant revenue in those situations where physicians are able to track diagnoses, discipline themselves and their staff members to document properly, and organize their operating systems to institutionalize the measurement process. Obviously, as these clinical indicators are tracked more closely, physicians and their staffs will likely work not only to report, but to improve the management of patients according to the indicators. It would be a short leap, then, from reporting the findings to improving the indicators and implementing a true “pay for performance” approach. Still, as of this writing, the process of measuring and reporting performance remains challenging for those who are attempting to take advantage of the CMS initiative, let alone the challenge of changing behaviors and meeting the proposed criteria. Nevertheless, it is a victory to have a standard set of clinical indicators against which performance can now be measured. Given the busyness of most medical practices, success in measuring, reporting, and improving clinical quality will likely require two key elements. First, for a busy physician, seeing 20 or 30 or more patients a day, an electronic health record with appropriate flags or reminders is the likely solution to improvements in clinical quality measurement and reporting. Second, charging the clinical assistant with the responsibility to focus on the relevant indicators as she updates the clinical record during the patient workup is already proving successful at improving reporting in several busy medical practices. Engaging the clinical assistant in such activities appears to improve documentation, patient satisfaction, and employee satisfaction as nurses and medical assistants become more than traffic cops.2

SERVICE QUALITY While offering appropriate clinical quality is critical, it is not enough in competitive environments. In fact, clinical quality is assumed in most cases and is, therefore, not a differentiating factor among most physicians. It is the service experience that makes the difference in patient retention—and in most patient referral decisions made by primary care physicians and other providers. While a few specialists bristle to admit their dependence on primary care physicians, even fewer would want to survive only on the word-of-mouth referrals from the few patients who understand their specialty scope of services. Given the nature of medical practice, even the most sophisticated patients have a hard time discerning whether or not they experience quality clinical care—particularly cognitive care. Certainly, patients know when their pain has been assuaged, when their laceration is repaired, or when their screening test has been performed. But, rarely do they have the training and experience to understand clinical performance. Instead, they use surrogate measures to determine their satisfaction with most of the services that physicians provide. Those surrogate measures often have more to do with what patients “experience” in physician offices than with the

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technical competence of physicians and their clinical staff. That experience includes what happens at the appointment desk, at the reception desk, and in the reception room, as well as what happens in the examination room. Critically, specialty physicians must also consider the service quality they deliver to their referral sources. The days of a primary care physician (PCP) “scrubbing in” to assist a surgeon and personally witness her technical skill are long gone. In fact, new primary care physicians will often make their initial specialty referral decisions the same way Mrs. Smith selects her primary care physician—by word of mouth from a peer. They will approach an established partner or associate to ask where to refer a patient for orthopedics, ENT, and other services. Subsequent referrals are likely to be a function of the service experienced by the PCP, even more than technical competence, which is difficult to measure/prove. Otherwise, the most competent technician in town would have all the patients and others in her specialty would starve to death. Managing service quality provided to primary care physicians is so critical because patients rarely understand when they need a specialist, even if they understand the specialist’s scope of practice. Most patients are very (often totally) dependent on their PCP to recommend which physician to choose among those of the same specialty. When a choice is available, primary care physicians tend to refer to those specialists who provide access to their referred patients, who provide feedback to the PCP, and who are respectful of both.3 Obviously, a physician who is not technically competent will soon be discovered and shunned by referring physicians. In addition, a specialist who is not responsive or who is arrogant will lose referring physicians, even if he is the most technically competent provider in town, as soon as an alternative provider is available. Measuring service quality to patients can be as simple as a self-administered set of questions periodically mailed or distributed to patients as they exit after an appointment (see Figure 3.1), or it can be professionally administered by national firms such as Gallup or Press Ganey, with comparatives to their proprietary benchmarks by specialty. Several local/regional firms also develop and administer patient satisfaction surveys for medical practices. Medical Group Management Association, some professional associations, and others also make survey documents available for purchase by their members. Payers, including CMS, have been experimenting with ways to consistently measure patient satisfaction as part of pay-for-performance initiatives.4 Professionally administered surveys will likely be too expensive for smaller practices. Due to the challenge of processing large numbers of surveys, however, larger groups and networks will likely benefit from such vendors. Regardless of the method used, all practices should measure patient satisfaction and then act on the feedback they receive. We recommend that questions relate to specific components of the office visit, such as appointment scheduling, reception, wait time, clinical assistance, the physician’s services, and ancillary services provided as part of the visit. Even the cashier and billing activities might be surveyed profitably. Measuring referral source satisfaction is still woefully lacking in most specialty practices. Nevertheless, it is just as critical to the success of a specialty practice as

Figure 3.1 Patient Satisfaction Survey

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patient satisfaction. Our firm has developed a “Specialist of Choice” questionnaire to assist specialty physicians and their office staff members to identify the performance criteria necessary to meet the needs, wants, and priorities of primary care physicians and other referral sources. That questionnaire is presented with permission as Figure 3.2. The increasing use of hospitalists in many markets today creates a significant barrier for specialists trying to maintain relationships with PCPs whom they used to see in the medical staff lounge or in the hospital hallways. We encourage specialty physicians to maintain a profile on each referring physician detailing when (under what circumstances) and how (e.g., letter, fax, phone call) the PCP prefers to receive feedback on referred patients. Some PCPs are so busy that they prefer not to be bothered by phone calls unless they involve a significant untoward event while the patient is under the specialist’s care. Others are pleased to accept a telephone call from a specialist at any time. Asking the PCP how and when he prefers to be contacted demonstrates respect for this important customer. Periodically asking how the specialty practice is performing for the PCP and his patients is the best way to gather that critical intelligence—especially if the specialist is doing the asking.

Figure 3.2 Specialist of Choice Questionnaire

Specialist of Choice Practice Evaluation [Client Name] [City, State] [Date Conducted] Conducted by: [Team Member’s Name]

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Source: The Halley Consulting Group, LLC, used with permission.

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Surveying customers is only half the battle, perhaps even less than half. No survey is complete without an action plan to improve performance in areas identified by customers as failing to meet their expectations. A performance improvement action plan should include all the initiatives being pursued by the practice and they should remain active on the plan until they are resolved. As illustrated in Figure 3.3 each initiative should include the following: • Priority—because we cannot do everything at once. Focusing on a few priorities (as opposed to a lengthy, although impressive, list of issues to be addressed) is critical to performance improvement in any practice setting. • Person responsible—because every project needs one person to become the champion and to be held accountable, although many may be involved in its accomplishment. • Date added—to remind us that this issue will not go away until it is resolved, whether or not it is a priority at the current time. • Target completion date—to establish a commitment to accomplish the initiative. • Notes—to document barriers to performance and progress being made. The action plan should be formally reviewed at least monthly, by practice leadership with responsible parties expected to report on progress and barriers. Responsible parties should be held accountable weekly by their supervisors in order to ensure that these critical matters are not lost in the rush of operating urgencies.

Figure 3.3 Performance Improvement Action Plan

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PHYSICIAN PRODUCTIVITY The physician, or other provider, in a medical practice is the revenuegenerating engine. In most ambulatory settings, the physician(s) personally generates charges for the majority of the personal services rendered, and orders the ancillary services associated with those services. Physicians generate revenue when they are interacting with patients in the examination room, the procedure room, or the operating room. There is an opportunity cost associated with physician involvement in any other activity. Maximizing patient interactions and the efficient use of the time associated with those interactions should be the driving force behind measures of productivity. The most common productivity indicator used among primary care and internal medicine subspecialties has traditionally been visit volume. Private practice physicians knew how many patients they had to see in a morning in order to pay their share of the overhead, and how many patients they had to see in the afternoon to pay themselves. In recent years, this simple but effective measure has been enhanced by also measuring Work Relative Value Units (WRVUs) attached to each CPT code, which provide an indication of the intensity of each patient visit. The coding index (WRVUs divided by the number of office visits) provides justification for those physicians who claim that they see less visit volume because their patients are sicker. A family practitioner may see 25 to 30 patients per day and have an average coding index of 1.0 WRVUs per visit. A general internist may have a coding index of 1.10 WRVUs per visit, but only see 23 or 24 patients per day. The combination of measures enhances the manager’s understanding of the patient profile and the physician’s coding patterns as compared with others in his or her specialty. Failure to achieve appropriate levels of productivity according to these measures of noninvasive services may indicate inadequate new-patient volume, poor time management, or inappropriate coding. Low new-patient volume may be a function of inadequate promotion, poor customer service, or market saturation for the specialty. If patient volume is available, but access is inadequate due to poor time management, the physician, the clinical assistant, and the appointment scheduler must be engaged in the performance-improvement process. Once an appropriate number of appointment slots are made available and the scheduler is trained to schedule appropriately, the management of physician productivity falls largely to the clinical assistant. He or she must be authorized and held accountable to manage the physician’s time with each patient and to ensure that the workup and follow-up for each visit are handled appropriately. (In order to accomplish these tasks, clerical issues such as referral calls must be delegated elsewhere.) Finally, the physician must be disciplined to keep the visit to issues surrounding the chief complaint and the patient’s chief objective for the visit. Other issues must be scheduled for a subsequent visit (unless, of course, the patient is also complaining about chest pain and numbness in the left arm). The physician should always complete procedure coding and the accompanying appropriate documentation. Annual training for physicians and key personnel and periodic documentation audits are more than adequate to improve performance in most instances.

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For invasive specialists, the number of cases tends to head the list of productivity indicators. While admittedly not a measure of procedural efficiency, it is an indicator of how busy a physician is during a given month. A busy obstetrics practice, for example, may have 15 deliveries and another 15 surgical cases each month. A reasonably busy orthopedic surgeon specializing in total hip replacement may have 20 to 25 cases a month. Invasive specialists will also track WRVUs and visit volumes during clinic days. Again, these measures of productivity are limited and fairly unsophisticated, but they are effective management tools when comparing physicians within the same group or using national benchmarks (subject to the benchmark warnings discussed later in this chapter). Again, failure to achieve appropriate levels of productivity in terms of case volume may be a function of poor service quality to patients (which gets back to referring physicians), poor service quality to PCPs, or market saturation for the specialty. Assuming that the specialist is technically competent and has a desire to provide high-quality care and caring, even these challenges can be overcome. Market saturation is the most difficult issue to address and may require a move or involvement in a more regional market strategy. The efficiency of physicians in terms of time spent per encounter, time spent per work RVU, or other similar measures has not been a significant factor in measuring productivity. The variability in training and in personality, skill, style, and motivation of providers across this personal service industry makes comparisons a significant challenge. However, the combination of visit volumes, cases, WRVUs, and time available tend to identify productivity issues that must be addressed in order to ensure practice viability.

FINANCIAL INDICATORS OF PERFORMANCE A monthly income statement or profit and loss statement is fairly common for even the smallest of medical practices. A balance sheet listing assets and liabilities, common in many industries, on the other hand, is rarely part of the monthly reporting cycle for physician practices. If the income statement is based on an MGMA or AMGA general ledger footprint, it can be a very useful managerial tool. In our experience, the most useful statements provide managers with several comparative views detailing both dollars and ratios. Revenue factor ratios use gross charges as the denominator (assuming an accrual accounting model). Expense factor ratios use net patient revenue or collections (in a cash accounting environment) as the denominator. Effective income statement analysis includes the following comparisons (while the following factors may be simplistic, we find that many managers fail to carefully analyze income statements in this manner): • Current month dollar results are compared to average monthly results. This first analytical cut forces management to explain aberrations in revenues or expenses, potentially leading to corrective actions or additional emphasis related to positive variances.

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• Comparing current month ratios to year-to-date ratios also highlights significant variations from the annual norm. • Comparing current year-to-date dollars and ratios with prior year-todate dollars and ratios can also yield significant insights into the revenue profile (e.g., changes in gross revenues, net revenues, ancillary ratio, contractual write-off ratio, capitation contract performance) and changes in cost structure that might otherwise go unnoticed. • Dollar and ratio comparisons to budget, especially on a year-to-date basis, can be helpful, assuming that the budget was properly prepared. Unfortunately, many organizations manipulate the budgeting process with unrealistic demands to achieve arbitrary goals. This process is common in some hospital or health system-owned medical practices and shifts ownership for financial performance from those who must manage the budget to the finance department. Explaining the resulting budget variances then becomes management’s focus, rather than owning and meeting challenging but realistic performance objectives. This is not to say that stretch goals and performance improvement should not be part of every budgeting process. However, goals must be based on realistic objectives and clear tactics. In addition to a careful analysis of the income statement, we have found several useful performance indicators that should be observed on a monthly basis: • New Patient Ratio: This ratio is simply the number of new patients divided by the total number of patient visits, and is an indicator of the vitality of the practice. The new patient ratio for healthy established primary care practices may range between 5 percent and 10 percent depending on the specialty and patient profile. Since every primary care practice experiences attrition, every practice needs to add new patients to remain viable over time. A lower ratio may be an indication of poor customer service, lack of access, or market saturation and should be explored in more depth. • Surgical Cases: Since multiple procedures may be performed in each case, surgical cases are the most meaningful gross measure of performance in an invasive specialty practice. Comparing revenues per case and WRVUs per case are significant measures of performance within a practice across physicians of the same specialty, for the same physician over time, and for comparison with national benchmarks available for most specialties through AMGA or MGMA. • Scheduled Hours: Scheduled hours as a percentage of available hours are a measure that is available on some of the more sophisticated practice management and billing packages. The ratio provides a simple measure of the practice’s capacity utilization.

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• Labor Ratio: The labor ratio is simply nonprovider labor costs divided by net revenue. It is a more meaningful measure than the traditional full-time equivalent (FTE) support staff per physician because busier practices tend to require more support staff than others. Limiting staff based on an FTE ratio will limit the productivity of physicians who end up escorting their own patients because the clinical assistant is on the telephone or completing paperwork that could be completed by others and approved by the physician. A family practice physician with median productivity (as measured by visits or WRVUs) may require three staff members to accomplish the work associated with the practice. A busy family practitioner, functioning at the 75th percentile may require an additional staff member, but will likely have a lower overall cost of support staff as a percentage of net patient revenue. • Building Occupancy Ratio: The third most significant cost in most medical practices is the cost of space. Although it appears on the income statement, comparing this significant fixed cost to national benchmarks and striving to achieve those benchmarks is critical to the long-term success of the practice. In the case of long-term leases, adding providers or services per square foot may be the only interim performance improvement tactic. • Coding Index: It has been our experience that most physicians undercode and under-document relative to the level of service they actually provide. Sometimes this under-coding is a function of potential audit anxiety, sometimes it is lack of coding knowledge, and at other times it is simply unwillingness (or lack of motivation) to fully document for billing purposes. The coding index (mentioned earlier) is an indicator of trends in coding among physicians of the same specialty and over time. As training is implemented and documentation audits/education occur, the coding index will change quickly, particularly if the physician’s compensation is a function of revenues or of WRVUs. Although a balance sheet is not frequently produced in a medical practice, current assets and current liabilities are frequently reviewed. The most important current asset to manage for the success of a medical practice is accounts receivable. Billing, even in the smallest practices, is usually automated (using internal software, a web-based vendor, or a billing company) and most billing software on the market today provides common analytical tools to track days in accounts receivable and aging categories or “buckets.” Once again, these indicators of billing performance can be compared internally, over time, or with external benchmarks. In addition, we recommend the careful measurement of performance at the front desk to ensure verification of demographic and insurance data and to drive collection of required copayments, as well as measurement of cashier performance in terms of collecting patient due balances. Data verification can be monitored quite easily by the manager, who should examine the reasons for any claims that do not survive a claims “scrubber” found on many software packages, or claims that are

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rejected by carriers. We also recommend that the reception and cashier incumbents report their performance to the office manager on a daily basis in terms of dollars collected and the number of patients from whom copayments or balances were collected as a percentage of those who presented with copayments or balances. This focus on data verification and on point-of-service collections (both copayments and patient due balances) has a dramatic effect on the cost and success of receivables management efforts.

COMPARATIVE ANALYSIS: APPROPRIATE USE OF SURVEY DATA The term benchmark is often confused with the term best practice. Utilizing survey data as a reference point against which to compare practice performance is certainly an appropriate application of industry benchmarks. However, it is important for all users to understand that the survey data is not necessarily an indication of the best practice. Most survey documents are, in reality, a census of survey participants, who may or may not represent the practice ideal. Census data is useful to make sure that performance is within the ballpark for a specialty, but the benchmark may or may not be a useful performance target depending on a current practice situation. As valuable as external data can be in assessing relative performance on key indicators or ratios, it is never as relevant to a practice situation as the practice’s own internal data either across physicians of the same specialty or over time. Unfortunately, managers eager to “score” their practice performance in order to justify their current position often overlook this critical concept. External data is just that, external to the specifics of any particular practice and therefore it has no bearing on the actual performance of the practice. Any analysis or time spent modifying or seeking survey data to better fit a manager’s specific practice situation is a distraction that does nothing to improve the performance of a practice. By contrast, astute managers will assess the validity of comparative and benchmark data to their practice and will then utilize the comparative information to identify realistic gaps in performance that will help focus management decisions and efforts to effect operational change.

THE PITFALLS OF PERCENTILES Survey data is often reported in percentiles, which are extremely valuable if not overinterpreted. For example, each data element represented in the MGMA Physician and Compensation Survey reports the 25th percentile, mean, median, and 75th percentile of survey responses. Table 3.1 illustrates three common data elements reported within the MGMA Compensation and Production Survey report.5 Each of these data elements individually can provide management with valuable comparative data. These data elements, when inappropriately interpreted or correlated, can lead management to draw inaccurate conclusions with potentially devastating financial results. A common temptation of managers is to assume that

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Measuring Performance in a Medical Practice Table 3.1 MGMA Compensation and Production Survey—Family Practice Data Element PCPS Table 19.1 Physician Work RVUs (CMS RBVS Method) All Physicians

Providers

25th Percentile

Median

75th Percentile

2,737

3,354

4,053

4,844

$71.23

$79.66

$91.44

PCPS Table 21.1 1,524 Physician Collections per Work RVU (CMS RBVS Method) All Physicians

Source: Reprinted with permission from the Medical Group Management Association, 104 Inverness Terrace East, Englewood, Colorado 80112. Copyright 2006.

the percentiles for one data element (or table) correspond to and align with the data elements from another data element (or table). For example, a manager may have a physician who generates 4,000 work RVUs. Referencing the table above, this value corresponds closely to the median. A common misinterpretation of the data would be to then assume that the anticipated collections per RVU for those generating 4,000 RVUs would be about $80 per RVU, and that with increasingly higher levels of RVU productivity one should expect increasingly higher collections per unit. The appropriate interpretation of the data represented above is that each data element (or table) reports the percentiles for that data element only. The 25th percentile to the 75th percentile for work RVUS is reporting the percentile rankings for work RVUs, and the 25th percentile to 75th percentile for collections per work RVU is reporting the percentile rankings for collections per work RVU, not the percentile rankings of collections per work RVU at specific work RVU levels. Failure to comprehend this distinction has led many managers or physicians to inappropriate conclusions regarding performance, especially relating to compensation for high-producing physicians.

GAP ANALYSIS In our early consulting experience, we made the mistake of assuming that we could cost control our way to success in the medical practice business. We were working with practices that were losing money, so we applied the ratio analysis described above. Table 3.2 illustrates a simplified analysis of key performance indicators for a primary care practice losing $150,000 per year. We used ratio analysis to identify key problem areas: We assumed that this table illustrated an expense control problem. The provider cost was 7 percentage points higher than our benchmark for the same specialty.

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Table 3.2 Key Expense Ratio Analysis

Net Revenue Provider Cost Staff Cost Building Occup. Clinical Supplies Other Expenses Total

Actual

% Revenue

% Revenue Benchmark

$1,234,805 595,706 395,138 123,481 $98,784 176,200 –$154,504

100 48 32 10 8

41 26 7 4

Our staff cost was high by 6 percentage points and our building occupancy and clinical supplies were both higher than our benchmark by 3 and 4 percentage points, respectively. We then calculated the dollar impact of these variances by subtracting the actual percentage from the benchmark percentage as illustrated in Table 3.3. Based on this interpretation of the data, it appeared that eliminating the $150,000 in losses would be an exercise in expense control. We began to reduce expenses by cutting hours, eliminating staff, and reducing inventory levels of clinical supplies. Much to our chagrin, the rate of financial losses in the practice increased. Our experience illustrates one of the potential pitfalls of a simple ratio analysis based only on expense ratios. We learned that while expenses must be managed in a medical practice, success or failure in our business is found on the revenue side of the income statement. Extending the gap analysis to view these expenses from the perspective of revenue illustrates the benefits of a ratio analysis based on appropriate income. The benchmark net revenue for this primary care practice, given the number of physicians, is $1,612,500. The current net revenue is $1,234,805, or more than $377,000 below the benchmark net revenue. Table 3.4 illustrates a more appropriate interpretation of the ratios, basing the gap analysis on benchmark net revenue. Table 3.4 will lead management to a very different interpretation of the underlying performance issues. If the practice Table 3.3 Key Expense Ratio Financial Impact

Net Revenue Provider Cost Staff Cost Building Occup. Clinical Supplies

Actual

% Revenue

% Revenue Benchmark

Impact

$1,234,805 595,706 395,138 123,481 $98,784

100 48 32 10 8

41 26 7 4

–$89,436 –74,089 –37,045 –$49,392

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Measuring Performance in a Medical Practice Table 3.4 Gap Analysis—Expense Ratios at Benchmark Revenue Actual Net Revenue Provider Cost Staff Cost Building Occup. Clinical Supplies

% Revenue

% Revenue Benchmark

$1,234,805

100

595,706

48

41

395,138 123,481

32 10

$98,784

8

Impact

Value at Benchmark

Difference to Actual

$1,612,500

–$377,695

–$89,436

661,125

65,419

26 7

–74,089 –37,045

419,250 112,875

24,112 –10,606

4

–$49,392

$64,500

–$34,284

net revenue were nearer the benchmark, we could potentially afford to pay our physicians more money and our support staff costs come right in line. Building occupancy would be much closer to reasonable levels. Our clinical supplies (our only short-term variable expense in the illustration) would still need some attention from a cost control standpoint compared to benchmark.

SUMMARY The success of a medical practice is ultimately based on high clinical quality, high service quality, and high physician productivity, all of which ultimately yield financial viability. As we analyze struggling practices, one or more of these business imperatives is always implicated. The solutions to poor performance always lie in the correction of aberrations in these business imperatives. Performance improvement starts with performance measurement in all four areas. In an era of consumer-driven healthcare, evidence-based medicine, and pay-for-performance, just having a medical degree will not be enough to demonstrate value. Providers of medical services will increasingly be held accountable to prove their value by measuring their performance against indicators or benchmarks identifying acceptable performance levels and then reporting that performance to payers and to the public. More importantly, the success of every practice in the face of reduced reimbursement and increasing costs depends on successful implementation of tactics for all four business imperatives. Incorporating the new PQRI indicators, patient service indicators, referral source satisfaction indicators, physician (and other provider) productivity indicators, and financial indicators into the normal reporting process will be critical for the successful medical practice of the future. These indicators do not have to be overly complex, but must be reported consistently and interpreted correctly, and poor performance must be addressed appropriately. Physician leaders and managers should use the four business imperatives as filters for every policy, every procedure, every capital investment, and every operating decision in the practice setting.

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NOTES 1. Centers for Medicare and Medicaid Services. April 5, 2007. 2007 Physician Quality Reporting Initiative (PQRI), National Clearinghouse Call. Available at: http://www.cms.hhs.gov/PQRI/30_EducationalResources.asp#TopOfPage. Accessed May 24, 2007. 2. Anderson, Peter B. 2005. Liberating the Family Physician: The Handbook of Team Care for 21st Century Family Medicine. Newport News, VA: Riverside Health System. 3. Halley, Marc D. 2007. The Primary Care—Market Share Connection: How Hospitals Achieve Competitive Advantage. Chicago, IL: Health Administration Press. 4. Guadagnino, Christopher. 2003. “Role of Patient Satisfaction.” Physician News Digest (December): 9. 5. Medical Group Management Association. 2006. Physician Compensation and Production Survey, 2006. Englewood, CO: Medical Group Management Association.

CHAPTER 4

Building a Culture of Accountability in Physician Practices Marc D. Halley

T

he challenges to a successful medical practice include lower reimbursement, shortages of qualified labor and the associated labor costs, higher malpractice premiums, an increasing administrative burden, and many others. These challenges are felt in solo settings, in small group practices, and in large multispecialty groups. Many practices struggle along, month after month, just to make payroll and to provide the physicians with a reasonable income. Few medical practices reserve enough excess cash to cover even their depreciation, let alone to invest in strategic opportunities. Many practices have difficulty funding retirement savings or providing competitive benefits for physicians and staff. Some practices succumb to these challenges. Others limp along, with physicians working harder and harder just to maintain past earnings levels. There are a few medical practices, however, that seem to weather these storms without losing ground. In fact, they are exceptional in terms of clinical performance, customer service, physician productivity, and financial outcomes. They may be located in the same communities, even in the same office buildings, and have the same specialty as their less successful peers. Nevertheless, there is something significant about these exceptional practices. After years of experience consulting with numerous practices we have found that the most significant factor influencing exceptional practices is what we call a culture of accountability.

WHAT IS A CULTURE OF ACCOUNTABILITY? Several factors that define a culture of accountability were discussed by this author in a 2005 article:1 • Effective sponsorship: Sponsorship is a term used by Daryl Conner to describe those organizational leaders who can support and push through organizational change.2 61

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• A common purpose: Exceptional medical groups have a very clear vision and purpose that is compelling enough to engage not only physicians, but also staff members despite potential differences of opinion around tactical implementation. • Clear performance targets, timelines, measurement, and consequences: A compelling vision is not enough without short-term targets, timelines, and measures. In turn, without consequences, targets, timelines, and measures are useless exercises. • An effective implementation team: In an effective practice, physician leaders set direction and approve policy. They then hire competent managers to implement (at a lower cost than a physician implementer). • “A” players: Exceptional practices hire and retain only “A” players. They hire deliberately to make sure they get the best-qualified staff for the dollars they can pay.3 • Frequent accountability: The most successful practices frequently hold people accountable to deliver the targeted results within the timeline. Without frequent accountability, important tactics leading toward the common purpose are lost in the myriad of urgencies and emergencies that burden all of us on a daily basis. These characteristics, indeed, do set exceptional organizations apart from their peers. The logical question, then, is how do practices become exceptional? This chapter further defines accountability, identifies common barriers to accountability in medical practices, and discusses implementation tactics.

ACCOUNTABILITY TO WHOM? We often think of accountability only in terms of “the boss,” a parent, or someone else in authority. Ultimately, however, all of us who offer products or services are accountable to our customers. In fact, successful individuals and organizations understand, intrinsically or otherwise, that meeting the needs, wants, and priorities of their customers is essential to their success in a competitive setting.4 For a primary care medical practice, the customer is usually the patient. If the patient requires a parent or guardian to participate in decision making, that individual is also a customer. Understanding and meeting not only the clinical needs of these customers, but also their reasonable wants and priorities, is the focus of effective customer service and should be the basis for building a culture of accountability. A specialty medical practice certainly has the same patient and parent or guardian as customers. In addition, the specialist is likely to have a referring physician whose needs, wants, and priorities must be acknowledged and consistently met if the practice is going to prosper in a competitive environment. We are ultimately accountable to our customer.

ACCOUNTABILITY COMPONENTS An accountability culture includes three major components: assigning responsibility, enabling, and an accounting. All three components must be focused on

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meeting the needs, wants, and priorities of customers in a successful medical practice.

Assigning Responsibility Allocating the work is one of the fundamental responsibilities of management. The way work is allocated has a great deal to do with the success of the incumbents. For example, certain tasks, such as greeting patients or answering the telephone, require repetitive, largely automatic actions on the part of staff members. Other activities, such as completing a performance appraisal form or researching a rejected insurance claim, require a level of focus, concentration, and thought. Mixing activities that require concentration with those that require an automatic response is likely to result in an inadequate response, reduced productivity, and a higher error rate. For example, a receptionist’s responsibility often includes greeting patients and answering the telephone. If we also assign that same receptionist a stack of rejected claims to research by day’s end we will likely end up with alienated patients and research errors—not to mention a frustrated staff member who is being asked to accomplish the impossible. Holding people accountable to accomplish impossible or conflicting tasks is a prescription for poor performance and low morale. It is the fault of management rather than the fault of the employee. Properly assigning tasks and responsibilities also requires an understanding of the primary and support roles found in a medical office. Primary roles are those that directly affect the patient’s treatment or experience in the office. Those roles are receptionist (or patient service representative), the physician, and the clinical assistant. All other roles, including the manager, are support to the primary roles. Jobs should be designed and tasks allocated in such a way as to promote the success of the primary roles. For example, a wise manager will keep the receptionist in a busy practice focused on greeting patients, verifying insurance information, completing paperwork, and monitoring the reception area. Tasks that can distract the receptionist from these duties are shifted, if possible, to other practice staff. As a primary role, the clinical assistant should be focused on greeting patients, taking vital signs, monitoring examination rooms, and managing the physician’s productivity. All other duties should be delegated where possible, including referral calls, which can each take several minutes to complete. Finally, the physician should do what only physicians can do and should delegate all other tasks to less expensive resources. With these three primary roles properly focused on the customer and on delivering quality service, the patient’s experience is enhanced, as is the productivity of the physician—the most expensive resource in the practice. Simply having the clinical assistant near the examination room each time a physician opens the door, rather than on the phone, has a very positive impact on patient flow and physician productivity. We call this process “highest and best use staffing.” Effective delegation of tasks and short-term assignments also falls under the responsibility component. Selecting appropriate tasks to delegate, matching the

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human resource to the task in terms of ability, properly assigning the task, engaging the delegate in defining the process of completing the project, and establishing timeframes are all essential components of delegation.

Enabling Enabling people to carry out their assigned responsibilities is another critical component of a culture of accountability. Enabling includes authorizing people or giving them the authority or permission to act. Authorizing is external to the job incumbent. Authorizing includes letting others know that the delegate has been assigned a particular task, which facilitates its accomplishment. Enabling also includes training to ensure that the delegate has the skills necessary to succeed. Enabling also includes empowerment, which is an overused term that connotes ownership of a task by the delegate. Empowerment comes from within: I am authorized by my boss, but I feel empowered to take ownership of a task. Of necessity, enabling usually requires a level of decentralization, placing the authority at the point of service. Enabling also includes performance tracking, which is best done and reported by the delegate.

An Accounting Accountability requires an accounting.5 Most often what passes for an accounting is merely “story telling”—an explanation of the variance between actual performance and the expected outcome, with precious little focus on corrective action. An accounting requires a defined outcome and a timeline. It may also require an accounting of process or activity. An accounting is facilitated by regular opportunities to return and report. More complex projects may require action plans and a formal reporting of one’s stewardship. An accounting asks, “If not, why not, and by when?” It records critical incidents of exceptional or inadequate performance, which ultimately contribute to the delegate’s performance appraisal, as well as to rewards or consequences for behavior and accomplishments.

BARRIERS TO ACCOUNTABILITY There are a number of common barriers to accountability in a medical practice setting. These barriers are often caused, intentionally or otherwise, by the physicians, support staff, or management. Common barriers include the following: • Short-term f inancial focus: The focus of many group practice administrators is maximizing the quarterly bonuses of the physician owners. Exceptional practices have the discipline to forego some short-term gratification in favor of pursuing their mutual purpose. A short-term financial focus can, and often does, keep physicians and management from identifying and pursuing the right vision and targets.

Building a Culture of Accountability in Physician Practices

• Playing favorites: Sometimes personal relationships undermine an accountability culture. Physicians may authorize managers to act until a favored employee complains or threatens to leave the practice. Then they undermine the manager and shatter morale of other staff members who are not so favored. Thereafter, it becomes very difficult for the manager to hold anyone else accountable for fear of reprisal. • Failure to act: A major barrier to accountability, particularly in larger practices, is failure to act. Fear of change, political fallout, or failure may prevent the timely implementation of strategies, tactics, new policies, procedures, or projects. Without action there are no targets, timelines, or meaningful measures. Failure to act among organizational leaders is often manifest in calls for additional analysis, more planning meetings, and endless debates over potential outcomes. Such “leaders” focus on aiming rather than pulling the trigger in order to avoid the risk of making a mistake. (Unfortunately, there are also consequences for failure to act.) • Political, financial, or administrative bullies: Organizational “bullies” are a major barrier to the accountability process in many types of organizations including medical practices. These bullies may have knowledge power, political power, or financial control, or they may have legal authority resulting from their position. Potential bullies include the surly surgeon who knows that he is responsible for putting millions of dollars on the practice and hospital books, which, in his mind, makes his opinion more important than his primary care peers who provide his patients. The list of bullies may also include the practice controller who depends on accrual accounting and control of the purse strings to support his preferred position. Bullies are sometimes so cantankerous that both physician peers (in the case of physician bullies) and managers (in the case of administration and support staff) are fearful of holding them accountable due to the emotional strain on the entire organization. Bullies stomp their way around organizations, killing innovation and driving out their talented peers. It is “their way or the highway” in meetings where little progress is made. Everyone, even the owners, is (or should be) accountable for his or her performance. • Data rich, information poor: Thanks to computers, some organizations have reams of paper with numbers, charts, and graphs containing little meaningful information. Some managers are so focused on multiple ways of measuring where the organization has been (including color slides) that they never get around to helping physicians and staff members measure and improve their current daily performance. • Unrealistic expectations: Closely related to the proper division of tasks and responsibilities is the barrier of unrealistic expectations. Physicians or managers who make unrealistic demands of their subordinates in terms of timeframes or who ask for performance miracles without providing resources violate the principles of a healthy accountability culture. This

65

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•

•

•

•

•

is not to say that leaders cannot occasionally ask staff members to rise to meet some significant challenge, but living a life of excessive demands and unrealistic expectations is disheartening and contributes to a culture of cynicism rather than accountability. Program of the month: Those who manage change in organizations often see employees and others hold out, hoping that the change will pass by with any accountability for implementation. Some physicians are the same way, ignoring the performance objectives, policies, and new procedures they approved in the last staff meeting. Some employees have become conditioned to give lip service to change initiatives while sabotaging their implementation by simply ignoring them. Consequently, potentially valuable initiatives like Total Quality Management or Six Sigma are simply forgotten once the initial training and hoopla are over. “C” Players: Bradford Smart discussed the concept of “C” players and the damage they cause in organizations.6 Many organizations harbor “C” players rather than implementing consequences for their failure to perform. Some “C” players make their way into management positions, further limiting the organization’s ability to develop a culture of accountability. “C” players don’t deliver because they are not capable of and/or not interested in delivering the desired result. Story telling—no rigor: Where there is no rigor, there is no accountability. An accountability culture is rigorous at setting objectives and measuring performance. While line managers we interview can usually tell us who holds them accountable (i.e., they can point to their “boss” on an organization chart), many cannot tell us what they are currently being held accountable to accomplish or specifically how they are held accountable. Our question about the what often elicits a response that includes reference to the budget and coming up with a better story to explain the variance each month, instead of specific actions to correct performance problems and timelines for accomplishment. Responses to our question about how managers are held accountable rarely includes a discussion of regular formal reporting process and almost never includes clear consequences for failure. Nice and fair (leniency bias): Some physicians and managers prefer to be liked or to be nice, and perceive that holding others accountable might offend. Most of us want to be viewed as fair, and we prefer to be lenient with others and ourselves. Holding people accountable does not require one to be mean or nasty. It does, however, require one to be intellectually honest and motivated by correct principles. Exceptional practices are full of nice doctors, managers, and staff who have high expectations of each other and who hold each other accountable to meet those expectations. No return or report: Holding people accountable takes time and effort. Many managers will not invest that time because they feel that they are too busy themselves. Consequently, those who receive assignments are not required to return and report on their stewardships. Without frequent

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and formal reporting there is no accountability—only disappointment when the task is not completed on time or at all. A key to holding people accountable is taking time to ask them for a report of their progress. Asking for the report helps managers understand the effort or lack thereof, the barriers being encountered, and the expected outcomes. Formal reporting is an investment in the future of the employee for the benefit of the manager and the organization. • No target timeline, or consequence: Failure to establish specific targets or clear timelines will undermine any form of accounting. Even if such targets and timelines are established, they are of little value if there is no consequence for failure to perform. • Conflict avoidance: A major barrier to accountability is conflict avoidance on the part of organizational leaders. Failure to discuss the elephant in the room or to question the emperor’s new wardrobe will contribute to lack of performance and lack of accountability.

CREATING THE CULTURE Overcoming the barriers and building a culture of accountability starts with the leadership in a medical practice setting. Those who lead and govern (or sponsor) within the organization must have the courage and integrity to govern well. They must articulate a vision that will be compelling enough to engage every physician, manager, and staff member. They must always make decisions based on correct operating principles rather than on whim or personal agenda. As leaders, their motives must be unquestionable, even on those occasions when they make tactical errors. If practice leadership is viewed as consistently trying to do the right thing for the practice and those it serves, it will be much easier for that commitment to filter down through the rest of the organizational hierarchy. Sponsors must be willing to ask the hard questions about tactics, policies, procedures, and direction. They must ensure that every decision improves or maintains quality clinical care, customer service, provider productivity, and financial viability. Fundamentally, sponsors must live the vision they articulate. Their personal actions and words must demonstrate their personal commitment to the direction and vision.

Case Study: Vision The four new physicians at County Internal Medicine have developed strong practices over the past five years. They are located in a developing area of the community and have a solid clinical reputation on the medical staff of their local hospital. During their first few years of practice their focus has been on growth and

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meeting payroll. Now that their practices are very busy, the challenges of continuing to provide high-quality care and caring have surfaced. Physicians and staff members are sometimes overwhelmed with the sheer volume of patients and paperwork. In recent months, the doctors have received several complaints about poor access, long waits, and grouchy staff members. They and their practice manager have emphasized the importance of “being nice” in every staff meeting, but the complaints continue. The manager recently reported several chart requests for patients who have transferred to the new hospital-owned internal medicine practice in the area. The doctors decide that it is time to take action to protect their future. County Internal Medicine has established a vision to capitalize on their reputation for clinical quality and to become the premier internal medicine practice in the community. They have defined their future in terms of practice size, locations, patient access, financial viability and, most importantly, customer experience. This vision has been documented in writing, and support staff have been asked to enhance the vision to ensure that their “fingerprints” are on the document. The physicians have been very clear about their commitment to the vision, with each other, with their manager, and with their support staff. They have expressed their commitment to leave no stone unturned in pursuit of that vision, including spending capital dollars to facilitate improved performance. They will examine policies, procedures, and processes to ensure that they are all supportive of their written vision. Every individual has been asked to personally contribute ideas and effort to the cause.

Once a compelling vision has been established and communicated, the entire organization, every department, and individual must consider their contribution to achieving that vision. The practice managers play a significant role to ensure that each individual and department defines and understands its contribution to the vision, and develops tactics as well as performance targets and timelines to support those tactics. Once targets and timelines have been developed, individuals and departments are asked to develop measures of their progress.

Case Study: Practice and Individual Objectives The physicians and office manager of County Internal Medicine have selected certain practice-wide initiatives they believe will help achieve the vision (e.g., opening the office at 8:00 A.M. rather than 8:30 A.M.). The office manager has been instructed to work with each individual to ensure that he or she understands the vision and the practice-wide initiatives, and has established one or more performance targets in his or her areas of responsibility in support of those objectives (e.g., the receptionist attempting to call each patient by name). Each target

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must be accompanied by a timeline and a clear method by which the employee will measure and report his or her own performance. The manager records the practice-wide initiatives and the individual commitments on an action plan for weekly review by the physicians. Fortunately, the front office staff members have a wonderful esprit de corps and are very excited about setting and achieving objectives to help their practice continue to prosper. The receptionist has set a goal to call each patient by name as he or she arrives at the front desk. This seems like a daunting task given the 80 to 100 patients who visit the practice each day. The manager and the front office staff members work together to discuss barriers to achieving this customer service objective. Recognizing the critical customer service role played by the receptionist, the switchboard operator, the cashier, the appointments specialist, and medical records clerk all offer suggestions to overcome the barriers, including removing certain tasks that distract the receptionist from her primary responsibility. The receptionist uses the appointment schedule to help determine the patient’s name and develops scripts to “apologize” when she makes a mistake (turning lemons into lemonade). The receptionist keeps track of her successes and reports them to the manager and to her front office peers at the end of each day. The patient suggestion box in the reception room also provides objective feedback on the results of her efforts.

We have found that weekly follow-up is a critical part of the accountability process. Why weekly? The answer is simple. We are all so busy reacting to the myriad of urgent activities, assignments, responsibilities, and challenges of the normal workday that we often fail to think about issues that are the most important to our future. Weekly accountability is a reminder of those important items and our commitments to make progress on critical initiatives to secure our future. It is also an opportunity for the manager to check on barriers being encountered by the incumbent and to help facilitate removal of those barriers to successful implementation. Importantly, it is also a critical opportunity to make sure that the employee is on the right track toward achieving the objectives he or she has selected.

Case Study: Weekly Accountability The County Internal Medicine physicians have decided to meet with their office manager on a weekly basis to ensure that the critical practice-wide and individual initiatives contained in their action plan remain on track. (Once they are confident that adequate progress is being made, they may choose to meet less often.) They have instructed their manager to visit with each staff member on a weekly basis to

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ensure that progress is being made on their individual contributions to the success of the whole. The manager is expected to report progress on each action item each week.

As the implementation process continues, progress is carefully monitored by the manager and the physicians. Accomplishments are openly celebrated in monthly staff meetings, with physicians expressing their thanks for the progress being made. Lack of progress and failures are carefully evaluated to determine whether the source is systemic (e.g., a policy/procedure, job design, or staffing), technical (e.g., facilities or equipment), a challenge with the human resource (e.g., training, capability, or motivation), or some combination of these barriers. Actions are identified to rectify the barriers encountered and recorded on the action plan along with a timeline and responsible party. Those actions may include changes in any or all of the factors involved, including the human resource.

Case Study: Action Orientation The manager of County Internal Medicine has determined that the person selected to manage the telephones for this busy office is struggling to keep up with this significant responsibility. Several programming changes have been made to ensure that the telephone system is efficient, user-friendly, and customer-friendly. It has been suggested that the office switch to an electronic attendant to help route the calls, but the physicians feel strongly that this option is in conflict with their vision of customer service. Even with training and system changes the incumbent is unable to keep up with the increasing pace of the office. Another receptionist is asked to try the switchboard role and proves to be much more effective than the incumbent. The roles are adjusted, correcting the telephone issues, but creating other performance concerns at the front desk. After careful consideration, it is determined that the former switchboard operator is no longer a good fit for the busy office and she is terminated according to practice human resource policies.

Weekly “stand-up” staff meetings are held for a few minutes once each week before the office opens. During these sessions support staff members literally stand in a hallway and raise any significant performance barriers or customer service issues that have surfaced. Stand-up staff meetings may take only a few minutes, and may only focus on one practice-wide initiative, but they can improve the performance of staff during the entire week. All-staff meetings are held at least monthly with the physicians, the manager, and support staff members all in attendance to review performance, action plan progress, and other critical issues that arise. There

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is a spirit of cooperation and mutual respect, with physicians and the manager listening carefully to the suggestions of even the least experienced staff member. The manager facilitates the meeting and all attendees participate without fear of reprisal for sharing a minority opinion.

Case Study: Communication The physicians and office manager of County Internal Medicine have established formal communication channels to keep the vision and objectives in front of all members of the team. Through weekly stand-up staff meetings, the manager listens to current feedback on performance and barriers to practice success. The manager is also sensitive to small irritations that often appear between departments, which, if unaddressed, can fester until they become very apparent to patients and damaging to productivity. At least once each month the physicians, the manager, and the staff meet for an hour-long session to openly celebrate successes and to discuss challenges and failures. The physicians and manager are introspective, each looking first at him or herself regarding his or her potential contribution to performance problems. The physicians and manager have also learned to listen carefully to those who do the work, realizing that the staff often have the answers to perplexing challenges in the medical office setting. No one is bullied or censored for expressing an opinion, especially if it varies from the majority thought. As the holders of knowledge power in the practice, the physicians are careful to protect the open communication they have fostered. The group openly reviews their successes and failures, identifying opportunities for individual and organization learning.

Success is always acknowledged and, where feasible, accompanied by rewards ranging from a simple “thank you” to small gifts such as movie tickets or gift cards, as well as occasional performance bonuses. Likewise, consequences (including termination) for consistent failure to perform are fairly and consistently administered.

Case Study: Rewards and Consequences As performance improves at County Internal Medicine the physicians are careful to express their gratitude to the group. They also acknowledge individuals for their contribution to the whole and for their individual achievements. The action plan document helps ensure that physicians recognize the contributors to their success. Acknowledgments include personal thanks, notes copied to the employee’s file (which reappear at appraisal time), movie tickets, gift cards, and other trinkets. The physicians have established a small bonus pool based on the success of the

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practice. The bonus pool target is $500 per employee. The pool is distributed just before the holidays as a special acknowledgement of group and individual effort. During years when the practice is extremely successful, the physicians may choose to increase the pool. Other years, the physician owners may reduce or eliminate the pool. The physicians always include their accountant (as an outside objective counselor) to help them determine the size of the bonus pool each year.

As illustrated earlier, the physicians and management are not unwilling to make the difficult decision to remove “C” players from the practice in order to protect their customers and their “A” players. These consequences are always carefully but consistently applied so they are perceived to be fair and equitable.

INDICATORS OF A CULTURE OF ACCOUNTABILITY A healthy accountability culture is not achieved quickly. Cultural change can take months or years, even in a small practice setting. Regardless, the practices that pursue a culture of accountability begin to benefit almost immediately from the effort. Figure 4.1 presents a Culture of Accountability Self-Assessment that we have applied to many of our physician practice clients. It focuses on 6 primary Figure 4.1 Culture of Accountability Self-Assessment

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Source: The Halley Consulting Group, LLC, used with permission.

indicators and 30 specific pieces of evidence by which a practice holds itself and its members accountable. Such a checklist can be useful in providing an initial baseline, as well as a measure of progress.

CONCLUSION A culture of accountability is achieved by the best-performing practices through consistent commitment to the effort. The results for customers, physicians, management, and staff members are well worth the effort in terms of clinical quality, service quality, provider productivity, and the resulting financial performance. In my experience, employee morale is higher in a busy top-performing office where staff members feel committed, are held accountable, and are appreciated for their performance.

NOTES 1. Halley, M. 2005. “A Culture of Accountability: What Distinguishes an Exceptional Medical Group.” Group Practice Journal 54 (3): 11–14. 2. Conner, D. R. 1992. Managing at the Speed of Change: How Resilient Managers Succeed and Prosper Where Others Fail. New York: Villard Books.

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3. Smart, B. D. 1999. TopGrading: How Leading Companies Win by Hiring, Coaching, and Keeping the Best People. New York: Prentice Hall. 4. Halley, M. 2005. “A Culture of Accountability: What Distinguishes an Exceptional Medical Group.” Group Practice Journal 54 (3): 11–14. 5. Ibid. 6. Smart, B. D. 1999. TopGrading: How Leading Companies Win by Hiring, Coaching, and Keeping the Best People. New York: Prentice Hall.

CHAPTER 5

Managing Difficult and Disruptive Physicians Larry Harmon and Susan Lapenta

Disruptive, intimidating, or abusive behavior may increase the likelihood of errors by leading nurses, residents, or colleagues to avoid the disruptive physician, to hesitate to ask for help or clarification of orders, and to hesitate to make suggestions about patient care. . . . Consequently, disruptive behavior by physicians not only threatens patient safety but has a corrosive effect on morale, making life miserable for the nurses and residents who work closely with these physicians.1

I

n a survey conducted by the American College of Physician Executives in 2004, 95 percent of the physician leaders who responded to the survey reported that they “routinely” have to deal with the behavior of disruptive practitioners.2 Physician leaders often identify disruptive behavior as a great distraction and a source of incredible frustration. In addition, these disruptive practitioners drive away valuable nurses and negatively affect both the operation of the organization and patient care.3 Physician and hospital leaders have long struggled with effective ways to turn around disruptive practitioners, frequently without any long-lasting success. This chapter describes pitfalls that physician leaders can avoid and reviews various approaches for managing and rehabilitating disruptive physicians, using a case presentation that follows. (See Table 5.1 for an overview.) Recommendations include the use of formal workplace assessment and annual physician feedback reports. These can also be used to provide behavioral education and monitoring.

WHO IS THE DISRUPTIVE PRACTITIONER? Behaviorally, disruptive practitioners have much in common.4 Irritable and snappy, they scream at health care staff and sometimes at colleagues. Arrogant

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Table 5.1 Top Six Steps for Dealing with Disruptive Physicians 1. Implement prevention programs a. Create a Code of Conduct b. Prepare annual physician survey feedback reports c. Train leaders on how to deal constructively with behavioral issues 2. Try informal intervention a. Review documentation and history of prior actions and incidents and actions taken b. Prepare for and perform a collegial intervention c. Consider taking progressive disciplinary measures 3. Perform a formal workplace assessment a. Interview complainants and witnesses; prepare investigative report b. Conduct structured workplace behavior assessment with team members and prepare report and recommendations c. Impose Personalized Code of Conduct with clearly articulated expectations and consequences 4. Require remedial action a. Basic educational program—physician feedback survey assessment and/or anger education program b. Group psycho-educational interactive program 5. Continue to monitor compliance with Personalized Code of Conduct a. Passive monitoring: watch and wait for complaints b. Active monitoring: ongoing, periodic physician survey feedback program 6. Take disciplinary action a. Follow bylaws in taking disciplinary action, including investigation, hearing, and appeal b. Personalized Code of Conduct may narrow rights c. Continue to review quality concerns raised by disruptive practitioner

and obnoxious, they often upset others with their bad manners and rudeness. They can be passive-aggressive when asked to do things such as returning a document or signing a letter. They are typically defensive about even the most constructive of criticism and can quickly overreact to a team member’s smallest mistake. They almost never admit to being wrong, frequently blame others for their own mistakes, and always think they are right. When the disruptive practitioner undergoes psychological personality testing, the findings often reveal a practitioner who has compulsive, histrionic, or narcissistic features.5 Some of the most common words to describe the disruptive practitioner are: arrogant, tenacious, energetic, controlling, charismatic, intimidating, and explosive. At the same time, the disruptive practitioner may be perceived as one of the best and brightest in the hospital, and may have one of the largest practices.6

PROBLEMS IN MANAGING DISRUPTIVE PHYSICIANS Rule No. 1: Do Not Treat the Disruptive Physician Like an Impaired Physician. Disruptive physicians differ from impaired physicians because their main problem is not caused by an underlying disorder but, rather, they display unacceptable

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workplace behavior.5 Therefore, instead of clinical evaluations, management of disruptive physicians involves assessing and addressing their behavior, both for prevention and for remediation. Two mistakes are often made when managing disruptive physicians. First, leaders treat the disruptive physician like an impaired physician without documentation of any specific disorder. Second, they use informal, undocumented means to address the problem. The first approach is followed because, historically, physician leaders used the impaired practitioner model to address concerns about disruptive conduct.6 This approach usually included requiring the disruptive physician to undergo a clinical mental health evaluation, typically performed by a psychiatrist in the community. The problem with this approach is that often the evaluator had only a few, if any, documented incident reports on which to rely. Therefore, the disruptive practitioner could easily counteract the evaluator’s limited background information by painting a distorted but persuasive picture of himself—minimizing disruptive conduct and presenting himself as a caring, but demanding, physician who just wanted the best for his patients. Even when the evaluation is more comprehensive (e.g., two to five days) and is performed at a well-established, specialized program, the program can still be handicapped without detailed documentation or a formal, objective workplace assessment. Thus, these programs are still vulnerable to being “snowed” by the bright, articulate, difficult, and disruptive practitioner. Even experienced evaluators may have difficulty finding a clinical diagnosis, or only vague subclinical levels of personality disorders, like narcissistic features. Thus, as a general rule, clinical evaluations are discouraged when dealing with a disruptive practitioner who presents no evidence of impairment such as psychiatric disorder, substance abuse, or physical health conditions.1 An exception to this general rule of avoiding clinical evaluations is when there is evidence of a disorder or when there are clear warning signs of acute impairment. Physical violence or threats are almost always associated with impairment. Other examples of possible impairment include rapid personality changes; bipolar disorder, which might be demonstrated by accelerated talking or extreme grandiosity, followed by sluggishness, depression, or tearfulness; and alcohol or drug abuse. These complaints can be handled initially through the medical staff ’s Practitioner Health Committee and are typically followed up by a referral to the state’s Physician Health Program. When in doubt about whether the issue is the result of conduct or condition, a discussion with corporate counsel or with your state’s physician health program may help determine the appropriate route to take. Rule No. 2: In Dealing with a Disruptive Physician, Remember to Document, Document, Document. The second mistake in managing disruptive physicians is failing to document both concerns and the progressive steps taken to address those concerns. Often, physician leaders ignore behavioral issues or handle them in such a way that the

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message to stop the bad behavior gets muffled and lost in the translation. Even when physician leaders do take appropriate action, they may be reluctant to document that action. When leadership turns over, the disruptive physician gets a new lease on life and often the cycle of difficult behavior repeats itself.

PREVENTING DISRUPTIVE BEHAVIOR: START WITH A CODE OF CONDUCT Traditionally, hospitals and medical staffs assumed that every physician appointed to the staff understood the culture of the organization and would play by the rules. Over time, it has become clear that even the most basic expectations about conduct are not universally shared.7 The Code of Conduct Policy is an effective way to define unacceptable behavior, and thus establish community expectations. As many organizations have discovered, it is easier to deal with behavioral issues when there is a policy in place. Then, a determination of whether conduct is unacceptable is less subjective, and thus less personal. No one gets singled out, and everyone is expected to conform to clearly articulated behavior standards. In addition to providing clear examples of behavior that is not acceptable, the Code of Conduct Policy addresses how incidents of disruptive behavior are reported, what is included in the report, and who receives the report. The Code of Conduct Policy also outlines the process for addressing reports of disruptive conduct.

PREVENTING DISRUPTIVE BEHAVIOR: AN ANNUAL “PHYSICIAN LEADERSHIP FEEDBACK REPORT” Once a Code of Conduct has been established, compliance with this code can be assessed and feedback given to physicians with a Physician Leadership Feedback Report. These report cards, generated by periodic 360-degree survey feedback assessments, provide an early warning system that enables both the physician and leadership to recognize and resolve conduct problems before more serious incidents occur, thus serving a preventative function. They also document any existing disruptive behavior problems. Feedback reports provide an additional benefit. Since it is often difficult to find methods to identify and the time to acknowledge the “delightful docs,” the feedback report validates those who exemplify positive teamwork and leadership skills that inspire and motivate others to do their best work. Formal physician feedback is an important tool to help identify what these physicians are doing right and motivate and encourage them to continue as facility role models. Through the use of behavioral surveys and feedback, these report cards provide a formal monitoring system. When generated on an annual or more frequent basis, they can serve preventative, educational, and assessment functions. There are a number of online survey companies that a facility may use to create a customized survey, administer it at low cost, and then use the results to help prevent, identify, and monitor disruptive behavior, as well as develop physician

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leadership and teamwork skills. Alternatively, some firms, for example, the Physicians Development Program with which one of the authors is associated (Larry Harmon), have developed an automated 360-degree protocol in which physicians are reminded annually to enroll online. The protocol updates their list of team members providing feedback, and surveys physicians and their team members, automatically generating a report and e-mailing it to the physician several weeks later.

TRAIN LEADERS TO DEAL WITH BEHAVIORAL PROBLEMS Physician leaders typically have an intuitive sense of how to deal with their colleagues who exhibit clinical problems. However, behavioral problems can be more challenging. As mentioned above, it is important to have an institutional Code of Conduct Policy to serve as a guide to leaders in defining disruptive behavior and providing steps to follow in addressing concerns. The use of a Physician Leadership Feedback Report will also make addressing behavioral concerns more routine and at least make behavior a factor to consider in granting reappointment and renewal of privileges.8

THE COLLEGIAL INTERVENTION The collegial intervention is typically the first step used to address a disruptive incident. These interventions can be difficult with the disruptive practitioner and are best conducted with planning and practice. The following format provides an overview of steps for you to consider as part of the collegial intervention. Preliminarily, it is helpful to interview the individual(s) who prepared the incident report or complaint. This will help you have a better understanding of what actually happened. It is also useful to review the physician’s file to determine if there have been previous complaints and what, if any, action was taken in regard to them. The next step is to review the record with the disruptive physician, describing the documented incidents, as well as any corrective efforts the facility has required as a consequence of these incidents. Expect defensiveness at this point. The physician is likely to vent her frustrations and blame others. Make a record of her complaints by writing them down at this time. Make an effort to restate her complaints, letting her know that you have heard her frustration and concerns by repeating a summary of the complaints from her perspective. For example, “You’re frustrated because x, and y, and z.” Reading from notes may be the most convenient way to mirror back the frustrations. It may also be helpful to ask if there are any more concerns. At this point, the physician leader should transition from the physician’s frustrations to the incident that, of course, is the primary focus of the meeting. The leader may want to indicate that the physician’s frustrations are important to the leader and that another meeting for that topic may be scheduled.

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In the meantime, it is important to refocus the conversation to the purpose of the meeting, which is the incident and the requirement that the physician alter behavior in the future. The leader must define this purpose, indicating that the leader and physician must come up with a plan of action to avoid any further complaints. Since the physician may still be defensive, it is important to reassure her that she is valued and that the goal is to keep her on staff, but without any additional complaints. Acknowledging the physician’s technical or professional strengths at this point can reduce tension. Overall, the success of the collegial intervention is often tied to the degree of planning and preparation, along with patience and support. It is important to remember that the physician’s initial reaction of defiant denial often gives way to a later response of reluctant compliance. To sum up: 1. Review the record. 2. Restate the physician’s complaints. 3. Focus on the purpose of the meeting, which is to encourage the physician to alter future behavior. 4. Reassure the physician. 5. Refer for assessment or educational intervention.

FORMAL INTERVENTIONS FOR THE CHRONIC DISRUPTIVE PHYSICIAN The collegial intervention process is typically repeated, sometimes involving other leaders within the organization, and may include an educational referral to an anger management program, a behavioral coach, or an educational group program for disruptive physicians. If the physician’s disruptive behavior continues, it is recommended that the facility follow a four-step model, including: (1) assessment; (2) feedback; (3) education; and (4) monitoring.

INDIVIDUAL ASSESSMENT PROTOCOL FOR PHYSICIANS DEMONSTRATING DISRUPTIVE BEHAVIOR One method for objectively intervening when a physician’s behavior continues to be disruptive is to enroll the physician in a physician feedback program (PFP). A good PFP will provide an objective survey assessment of both the disruptive behavior and its negative impact on the healthcare team. One example of a PFP is the P.U.L.S.E. (Physicians Universal Leadership-teamwork Skills Education) program, developed by one of the authors (Larry Harmon), which uses an assessment method similar to the 360-degree survey feedback approach widely used for management development. The survey’s feedback report was also designed to help the physician more clearly understand the nature and impact of her disruptive behavior, and to increase leadership and teamwork skills.

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The P.U.L.S.E. survey was developed and validated by having nurses, residents, physician assistants, and other health care staff identify and rate the behaviors of physicians and other leaders that motivate them to do their best work and behaviors that disrupt them in doing their best work. Their feedback generated a survey with 42 items that measures motivating (e.g., “Treats team members with respect”) and disruptive behavior patterns (e.g., “Gets sarcastic when asked important questions”) plus items that assess their impact on the healthcare team (e.g., “Discourages others from asking important questions”). The most common method to conduct the program for an individual physician is to use an on-line, three-phase process. The first step in the process is enrollment—the allegedly disruptive practitioner enrolls in the program, rates himself on the survey, and then creates an initial list of the names of nurses, supervisors, and colleagues with whom he works. The hospital and medical staff leadership then review and validate the list, adding any missing individuals to create a more representative sample of the physician’s work teams and supervisors. Second, surveys are e-mailed to the individuals on the final rater list, along with an explanation of the physician’s participation in a physician leadership development program. The raters are invited to provide honest feedback and the surveys are anonymous, which helps ensure candid responses. Third, all the surveys are scored compared to physician norms, and a detailed feedback report is prepared. The report graphically displays how the practitioner scores herself, comparing her score to how each group (for example, hospital staff and other physicians) collectively rates the physician in question. Individual behavior items are also color-coded for clarity and emphasis. For example, disruptive behaviors in critically high ranges are highlighted in red and behaviors in favorable ranges are highlighted in green. A more detailed interpretive report analyzes the degree of disruptive behavior and identifies which behaviors are creating a hostile work environment for the healthcare team. Specific recommendations can be offered to improve workplace conduct.

APPLICATION OF A PHYSICIAN ASSESSMENT REPORT: CREATING A PERSONALIZED CODE OF CONDUCT FOR THE DISRUPTIVE PHYSICIAN One of the tools that can be used to manage a disruptive physician is a Personalized Code of Conduct. The goal of the Personalized Code of Conduct is to outline and prohibit specific behaviors that have been problematic in the past. Since background documentation is often vague, unsystematically collected, or poorly written, the feedback report can provide a detailed evaluation. Using the language from the assessed behaviors listed in the feedback report, the practitioner can be placed on notice to stop the specific, measurable behaviors that are inappropriate and unacceptable. For example, Dr. Disruptive’s Personalized Code of Conduct included a requirement that he avoid any the following behaviors: Yelling and swearing at others, overreacting to small mistakes, threatening retaliation when angry, and insulting others over minor problems. In addition,

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any educational or other corrective actions, such as the ones described below, should be specified. It can also be helpful to build behavioral coaching or mentoring into the Personalized Code of Conduct, which should be scheduled from weekly to monthly at the beginning of the process and perhaps less frequently as sustained behavior improvement occurs. The frequency can be adjusted to help address any backsliding, reinforce positive changes, and provide feedback on the surveys. The goal is not to turn the physician into a charming or popular Dr. Delightful, but rather to teach the practitioner how to behave appropriately and stay, so to speak, under the radar. Another important component of the Personalized Code of Conduct is to identify for the practitioner the consequences if he fails to abide by the terms of the code. In all but the most extreme situations, the final discipline imposed following a breach of the Personalized Code of Conduct should be tailored to fit the “crime.” However, the Personalized Code of Conduct can identify a range of options that may result, including short-term suspension, long-term suspension, or termination of privileges. The Personalized Code of Conduct should also make it clear that any fair hearing and appeal that would follow a violation would be limited in scope to the particular violation at issue. Thus, the focus of any hearing would be on whether the current conduct in question breached the Personalized Code of Conduct. This kind of limited focus can help ensure that the hearing does not get off track and take on a life of its own.

EDUCATIONAL RECOMMENDATIONS It is important to articulate in the Personalized Code of Conduct or other corrective action any specific requirements for rehabilitation. For example, the practitioner may try to fulfill a vague requirement of “anger management” by finding a one-hour reading assignment on the Internet that provides a certificate of completion. It is generally recommended that the disruptive practitioner participate in a training program designed for physicians and which includes an examination component to ensure that the practitioner actually understood and learned the materials. Educational training to develop leadership, teamwork, anger management, and motivational management skills can be done remotely by the physician watching videotapes at home on evenings, weekends, or holidays. Some physicians prefer this approach because it avoids travel time, and that time can be applied to learning the materials more efficiently. One such program, developed by one of the authors, is called T.E.A.M. Training (Techniques for Emotional and Anger Management). Depending on the findings of the initial survey assessment, the T.E.A.M. Training may include: anger management, emotional self-discipline, skills for dealing with difficult people, and constructive management of medical mistakes. At the conclusion of the program, the physician can take a test on the

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Physicians Development Program Web site and provide the referring facility a certificate of completion.

OTHER FORMAL INTERVENTIONS The kind of training offered in a T.E.A.M. take-at-home educational format may be considered a first-line intervention because it does not involve the more interpersonal one-on-one contact that may be more intensive and necessary for some physicians to improve. If the remote survey assessment model has not worked, more intensive psycho-interactive programs as offered by some universities, like the three-day program for disruptive physicians at Vanderbilt’s Center for Professional Health and the Health for the Healer program at the University of Alabama School of Medicine, may be worth considering. If disruptive workplace behavior is severe enough to indicate the possibility of impairment, clinical evaluations may be warranted. Clinical evaluations are not recommended as a first-line intervention before attempts at behavioral assessment and education are made; however, behavior that may, for example, endanger patient safety should result in referral of the physician to the state’s Physician Health Program. Clinical evaluations could result in a recommendation for outpatient or inpatient treatment. Outpatient treatment options typically include psychotherapy, group therapy, and/or medication management, while inpatient treatment might include psychiatric hospitalization and/or residential treatment.

FOLLOW-UP MONITORING OF THE PHYSICIAN’S PROGRESS WITH THE P.U.L.S.E. SURVEY After the Personalized Code of Conduct is put in place, medical staff leaders often become distracted by other new and emerging problems and typically forget to monitor the practitioner’s compliance with the code on an ongoing basis. Passively waiting for additional complaints is a poor practice because it doesn’t ensure that the bad conduct has actually ceased, especially since staff often tire of reporting practitioners when they do not see any action being taken. Thus, without ongoing monitoring, while the situation may appear to have improved, the problem may still be simmering. One of the critical components of any physician survey feedback program is to ensure that after the anger management or related training, the practitioner’s compliance with the Personalized Code of Conduct is monitored by some active process, such as ongoing surveys. Healthcare team members can be asked to complete a survey on the practitioner periodically, a process called behavior monitoring or simply the physician’s feedback program. The ongoing monitoring through the use of surveys continues until the practitioner has achieved a sustained period of acceptable feedback reports. Acceptable is defined as a feedback report in which all significant behaviors have been within normal ranges with no significant disruptive behaviors or negative impact on others.

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GROUP PHYSICIAN FEEDBACK PROGRAMS Physician feedback programs can be conducted with several physicians, a healthcare team, a department, or with the entire facility. Annual feedback, for example, to physicians serves preventative, educational, and assessment functions. On the preventative end, it provides an objective, early warning system, identifying potential problematic physicians prior to their behavior becoming chronic and entrenched. Physicians and their leaders can be alerted to emerging difficult, discouraging, and disruptive behaviors. Educationally, it functions as an early intervention program identifying those physicians who could benefit from improved leadership skills, and providing target behaviors for educational tools and interventions. For assessment, it enables the chief of staff or other physician leader to conduct a collegial intervention with the support of objective documentation, thereby avoiding the typical “he said—she said” dilemma. If leadership wants to avoid singling out a particular physician, then a group or department can be surveyed. Once completed, a scatter plot can be prepared designating where each physician falls compared to his colleagues, thereby identifying the so-called bad apple. An additional benefit is that objective, formal feedback provides physician leaders with the ability to provide collegial acknowledgment. The chief of staff or hospital leader can contact physicians scoring in motivating or highly favorable ranges, and she can provide the always-important pat on the back, encouragement, or recognition for being a strong leader or team player. Physicians especially value this feedback because it can be peer-based. Ongoing annual use of a physician feedback program has further benefits. When the program is conducted over several years, it can provide a mechanism by which leadership can monitor improvement or backsliding, enabling leaders to either acknowledge the progress or warn the physician of chronic dysfunctional conduct or relapse. Finally, this kind of feedback program also educates and reinforces the Code of Conduct Policy, as well as communicates to each and every nurse, supervisor, and physician receiving the survey the set of behaviors this facility implicitly expects from its community members and healthcare team. There are a number of ways of initiating an annual feedback program. A hospital can begin with employed physicians and later expand to community doctors. Other protocols could include physicians first giving feedback to nurses, and then vice versa. For example, the P.U.L.S.E. program has been used with individual physicians, single departments, and multiple departments in the same facility. Physician feedback programs that do not require the physician to travel may be more user-friendly for the physician and the physician is probably more likely to agree to participate. For instance, nearly all physicians referred to the P.U.L.S.E. program survey assessment have agreed to participate. In spite of several collegial interventions, many physicians were genuinely unaware of the disruptiveness of their behavior. Either they believed the survey results would vindicate them or they were curious to find out what team members really think of them. If a physician is highly resistant, it may be because he has some questions or misconceptions

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about the protocol, and may first require some clarification about the mechanics before enrolling. However, even if the practitioner refuses to participate, a workplace assessment can be done without his involvement by identifying the relevant supervisors, staff, and physician colleagues and then surveying these individuals. The results of the survey can then be used as a tool to help gain the physician’s compliance with follow-up recommendations or could form the basis for a request for a more indepth investigation.

Case Study: Introduction Dr. Disruptive is an excellent cardiovascular surgeon with a stellar reputation for his clinical competency. He is also known for a history of disagreeable, discouraging, and difficult conduct over the past 10 years. Two or three times a year, the nurses and other health care staff either verbally complain or file written incident reports when Dr. Disruptive has outbursts of screaming and swearing. These behaviors often occur in situations where an “incompetent” nurse has supposedly overlooked a minor patient care task, when a lab result is “missing,” or when Dr. Disruptive has been awakened late at night for what he labels a “stupid reason.” He has never threatened or demonstrated physical aggression, but he can look flushed and red-faced, intimidating some nurses and technicians.

Over the years, Dr. Disruptive has had a number of informal collegial interventions with various chiefs of staff. His behavior typically improves for about two to three months. Almost always, this improvement is followed by a relatively minor incident, and then by a more serious one resulting in a formal incident report. On several occasions, Dr. Disruptive has been asked to make his complaints directly to the nurse manager or director of nursing. So far, he has been reluctant to comply with this request, perhaps since he had a screaming match with the last director of nursing after his second collegial intervention. Some nurses have reported that Dr. Disruptive becomes so intensely enraged that, on occasion, his hands shake during surgery. Over the years, Dr. Disruptive has been sent a letter of general warning and been called before the medical executive committee (MEC) several times to explain his behavior. The MEC also discussed referring him to the state’s physician health program, but no action was ultimately taken. Additionally, at one point, the MEC wrote Dr. Disruptive a letter requesting him to attend an anger management program; however, the request was polite and vague, and no effort was made to follow up on whether he had actually done so. The chief executive officer (CEO) has also had two documented discussions with him to no avail. There have been several consequences of Dr. Disruptive’s behavior. Many nurses have said they are nervous and intimidated working with him. Some of the top operating room (OR) nurses have apparently quit and sought employment

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at the competing hospital, citing in their exit interviews Dr. Disruptive’s abusive behavior as one of the chief reasons they left. Nurses have also said they have called in sick on the days Dr. Disruptive has cases. However, other, seasoned nurses brush off these complaints, saying, “That’s just the way he is and he’s never going to change. He does good work. Either accept him or get out.” When confronted with his behavior and the disruptive impact it has had on staffing and morale, Dr. Disruptive typically blames the nurses, defensively stating that if they were competent, he wouldn’t get so mad. He frequently changes the topic to veiled threats of reporting the nurses to the board of nursing or reporting the hospital to Medicare. When confronted with his yelling, he insists that he did not yell, but rather he “spoke firmly.” He denies that he has ever sworn, even though several nurses witnessed him saying “you stupid s***.” When threatened with suspension, Dr. Disruptive angrily and defiantly challenges, “Go ahead and suspend me. I’ll just go to the other hospital and I’ll see you in court.”

Case Study: Intervention The medical executive committee reviewed Dr. Disruptive’s history of inappropriate and abusive behavior toward nursing staff, and it decided that his behavior violated the hospital’s Code of Conduct and standards of physician professionalism. They agreed to refer him to a physician feedback program in order to conduct an objective assessment to determine the nature and extent of any disruptive behavior, as well as the disruptive impact of his behavior on the healthcare team. Surveys were sent out to all healthcare team members and a feedback report was prepared which indicated the behaviors in critically high ranges, such as yelling and swearing at others, overreacting to small mistakes, threatening retaliation when angry, and insulting others over minor problems. A “watch-at-home” series of videotape modules on anger management, emotional intelligence, managing difficult people, and handling medical mistakes constructively was suggested. In addition, it was recommended that he participate in ongoing survey feedback until he achieved sustained reports indicating minimally appropriate conduct.

Upon reviewing his feedback report with the chief of staff, Dr. Disruptive was surprised at its level of negativity and was defensive, stating, “I’m the best surgeon in the OR. All I really care about is patient care. Doesn’t anyone else think that’s important? I’m not there to hold people’s hands or sweet talk them. I’m there to save patients.” The chief of staff pointed out that the disruptive impact caused by his abusive behavior—such as making nurses afraid to ask important questions or making them avoid working with him—may be one of the reasons they are more prone to misunderstandings and mistakes. Dr. Disruptive began to see that his behavior had been causing the very problems that frustrated him, and he also began to realize that applying contemporary motivational tools, for which he got low

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scores in his feedback report, might actually help motivate his team to perform better for him. He slowly understood that treating team members with respect, for example, by pointing out mistakes in a helpful way and trying to work out conflicts in more productive ways, might actually improve his relationship with the healthcare team, as well as help him reach his stated goal of providing the best care for his patients. Dr. Disruptive grumbled about having to spend time watching videotapes, but appreciated that he could watch them at night and on weekends, and that he did not have to leave his practice to complete the training component. He decided to watch some of the videotapes with his wife, and she reinforced the importance of using the frustration management tool and the conflict techniques provided in the videotape modules. He said he found the tape on “managing medical mistakes constructively” very helpful and practical. By the time he received his first follow-up survey feedback report a few months later, his behavior had dramatically improved. For example, the number of disruptive behaviors in critical ranges decreased from 18 behaviors to 4. In large part, this was due to simply withholding some of his condescending or demeaning comments or stating requests in softer and more constructive ways, for example, by asking, “In the future, would you arrange my instruments this way?” He continued to be a somewhat negative and sour personality, but managed to suppress the more hostile and abusive behaviors that get him into trouble. His feedback report was full of comments from his healthcare team that he had been more calm and agreeable, as well as less hostile and demeaning. His numerical ratings improved by almost 100 percent. During subsequent survey follow-ups, his ratings did not improve much more, but he was able to achieve several acceptable feedback reports in a row and graduate from the program. When asked if he felt the program was valuable, he said, “It’s all common sense. It’s nothing I didn’t already know. In fact, I probably learned it all in elementary school. All I need to do is keep my mouth shut and remember, ‘If you don’t have anything nice to say, don’t say anything at all.’ ” He continues to think disparagingly about the state of nurses, hospitals, and managed care, but admits that he is happier these days with his healthcare team and that there is less turnover in the operating room. Follow-up one year after he graduated from the program with his chief of staff indicated that there was an occasional grumpy day, but that there have been no additional formal complaints.

HOW SUCCESSFUL HAS THE P.U.L.S.E. PROGRAM BEEN IN CHANGING BEHAVIOR? A data analysis of the administration of the P.U.L.S.E. program to 117 disruptive practitioners in hospitals and clinics in the United States and Canada demonstrated a 91 percent improvement in conduct as measured by Leadership Index changes between the baseline and first follow-up survey, about three to nine months later. The Leadership Index score is a calculation derived from the

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physician’s ratings on both motivating and disruptive behaviors. Improvement in a physician’s Leadership Index score reflects an increase in average motivating behavior ratings and a reduction in average disruptive behavior ratings. These improvements were generally sustained for all physicians over several follow-ups, with some physicians followed for as long as three and a half years. Many of the physicians were referred by their hospitals’ MEC, while others were required to participate by their state physician health programs. All but two of the physicians monitored by the P.U.L.S.E. Program improved. Additional analysis of the worst 25 percent of the physicians referred for disruptive conduct by both state physician health programs and community hospitals shows a 572 percent improvement over baseline after four P.U.L.S.E. survey administrations. Further, those disruptive physicians who received both P.U.L.S.E. feedback and the T.E.A.M. Training described above improved at a greater rate than those receiving the P.U.L.S.E. feedback alone (242 percent versus 75 percent improvement).

WHAT IF THE PRACTITIONER STILL DOESN’T IMPROVE? At some point—whether it is after a long history of informal attempts to improve behavior or after a physician feedback program such as the P.U.L.S.E. program—the facility leaders might reach the conclusion that there has been no sustained improvement and more formal disciplinary action needs to be taken. No matter what kind of discipline is imposed, it is essential, of course, that the applicable bylaws or policies be followed. It is helpful to keep in mind that disruptive practitioners are more likely than other physicians to sue, and courts are most likely to intervene if the bylaws have not been followed. There are two goals to keep in mind when considering disciplinary action for the disruptive practitioner. First and foremost, the goal is to get the practitioner’s attention and convince the practitioner to reform his behavior. A secondary goal is to create a record so that, in the event there is litigation, it will be clear that lesser sanctions were tried and were not successful in achieving the necessary change in behavior. In many instances, a letter of counsel or warning, followed by a letter of reprimand, would be the first disciplinary actions taken. These actions are typically followed by a short-term suspension and, if this is unsuccessful, a longer-term suspension. The final action is likely to be revocation of the practitioner’s appointment and clinical privileges. Depending on the applicable bylaws, these disciplinary actions may trigger a right to a hearing and appeal. It is important not to overreact to the disruptive practitioner. Instead make sure that the incident that leads to discipline adversely affects or has the potential to adversely affect patient care. Suspending a practitioner for stealing an envelope, parking in the chief of staff’s space, or raising a mild complaint in the medical record about broken equipment may not be compelling enough to convince a hearing panel or judge that suspension or revocation was reasonable.

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WHAT ARE THE LEGAL ISSUES FACING LEADERSHIP REGARDING THE DISRUPTIVE PRACTITIONER? Physician leaders face numerous legal pitfalls when they attempt to confront disruptive physicians. First, disruptive practitioners tend to be adept at diverting attention away from themselves and onto others. A common ploy of the disruptive practitioner is to deflect criticism by claiming that his actions are a response to quality problems. With this approach, the disruptive practitioner tries to shield himself from discipline by claiming to be a whistle-blower. It is critical to take this shield away from the disruptive practitioner by investigating, addressing, and resolving any legitimate quality of care concerns he might raise. It is important to remember that even the most disruptive practitioner can raise a legitimate quality concern.9 A legitimate quality concern should not be ignored because the messenger happens to be a disruptive force. A separate legal issue involves the use of mental health evaluations for the disruptive physician. In addition to the reasons mentioned above concerning the lack of workplace behavioral evidence to back up clinical findings, clinical evaluations are typically not recommended because many disruptive physicians do not have a diagnosable underlying condition. However, referring the physician for a clinical evaluation opens the door to allegations that leadership thought the physician was impaired, which in turn allows the physician to argue that any subsequent action was based on his or her disability. Thus, a good faith effort to detect an impairment is often turned around on leaders and they are left to defend a claim of discrimination under the Americans with Disabilities Act. Nevertheless, if there is any evidence of a psychiatric, substance abuse, or other medical disorder, it is recommended that a referral for a clinical evaluation be made. Most states have physician health programs that are knowledgeable and experienced in coordinating these evaluations. Due to these legal pitfalls, the need for proper documentation in dealing with a disruptive practitioner cannot be overstated. Documentation provides the institutional memory of what happened, when it happened, and what the response was. As with all peer review documents, documentation pertaining to a disruptive practitioner should be labeled “confidential, peer review” and should be maintained in the practitioner’s credentials or quality file. The practitioner’s response to any documentation generated by hospital or medical staff leadership should also be maintained in the file.

SUMMARY Disruptive practitioners present special challenges. They often strain everyone’s patience, persistence, and perseverance. Leaders must develop a well thought-out, progressive strategy for dealing with the disruptive practitioner. In developing that strategy, it is helpful to use currently available objective and structured approaches. Coupling a formal physician survey feedback program with the more familiar approach of a Personalized Code of Conduct provides the components of a

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win-win strategy—practitioner participation, feedback, documentation, ongoing monitoring, and clear communication of consequences. This approach is likely to either get the practitioner to change or provide all the necessary documentation to take disciplinary action. The first action physician leaders can take to manage disruptive physician behavior is to have preventative measures in place, like a written Code of Conduct. This creates community expectations of acceptable workplace behavior and provides the blueprint for the documentation of disruptive conduct. However, if disruptive physician behavior already exists and informal or collegial discussions with the physician have failed to result in sustained improvement, then a formal workplace assessment is recommended. A physician survey feedback program can provide objective documentation of unacceptable behaviors by involving the healthcare team in generating feedback for disruptive physicians. The finding can identify the behaviors that the physician needs to target and address, as well as the recommendations for specific educational interventions. Annual or follow-up feedback assessments enable ongoing monitoring of disruptive physicians’ conduct improvements and reinforce the improvement so that it can be sustained.

KEY POINTS • Disruptive physician behaviors are a problem for physician leaders because arrogant, bullying behavior disrupts teamwork and can potentially affect patient care. • A series of progressive interventions is required to manage and rehabilitate disruptive physicians. • Formal interventions like physician feedback programs and anger management training can be successful in assessing disruptive conduct, measuring its potential disruptive impact on the healthcare team, designing a customized anger-people management program with behavioral targets, and improving and maintaining more motivating behavior patterns.

REFERENCES 1. Leape, L. L., and J. A. Fromson. 2006. “Problem Doctors: Is There a Systemlevel Solution?” Annals of Internal Medicine 144: 107–15. 2. Weber, D. O. 2004. “For Safety’s Sake, Disruptive Behavior Must Be Tamed.” Physician Executive 30 (5): 16–17. 3. Rosenstein, A. H., H. Russell, and R. Lauve. 2002. “Disruptive Physician Behavior Contributes to Nursing Shortage: Study Links Bad Behavior by Doctors to Nurses Leaving the Profession—Doctors, Nurses, and Disruptive Behavior.” Physician Executive 6: 12–13. 4. Pfifferling, J. 1999. “The Disruptive Physician: A Quality of Professional Life Factor—Physician Anger.” Physician Executive 25 (2): 56–61. 5. Harmon, L., and R. Pomm. 2004. “Evaluation, Treatment, and Monitoring of Disruptive Physician Behavior.” Psychiatric Annals 34 (10): 770–74.

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6. Piper, L. E. 2003. “Addressing the Phenomenon of Disruptive Physician Behavior.” The Health Care Manager 22 (4): 335–39. 7. Thompson, R. E. 2004. “Misbehaving Physicians and Professional Ethics.” Physician Executive 30 (5): 32–36. 8. In the 2007 Joint Commission on Accreditation of Healthcare Organizations (JCAHO) Medical Staff Standards, special emphasis is placed on interpersonal and communication skills and the professional. See JCAHO MS.4.10. It is also important to keep in mind that physician leadership training programs, which all hospitals should provide, should include modules on disruptive behavior since these problems seem to be on the rise. 9. Linney, B. J. 1997. “Confronting the Disruptive Physician.” Physician Executive 23 (7): 55–58.

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CHAPTER 6

Developing and Promoting a Physician Practice Marc D. Halley

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ot so many years ago, physicians, like other professionals, would complete their professional training and hang out a shingle, letting their selected communities know that they were available to provide services. Most physicians practiced alone, sharing after-hours call with others in their specialty. In those days, physicians were paid 95 percent or more of what they charged for their services. Most used a pegboard and ledger cards to keep track of their accounts receivable. Beyond a simple newspaper announcement for new practices and a brief listing in the telephone book, there was very little in terms of advertising for medical practices, or any other profession for that matter. Other physicians were not viewed as competitors and most medical practices appeared to succeed financially and otherwise. Oh, the good old days . . . Today, the intensity of medical practice competition in many communities has dramatically changed the landscape. Long gone are the ledger cards and the 95 percent reimbursement. Solo practices have merged to become single-specialty or multispecialty groups, with many physicians preferring employment to entrepreneurship. Hospitals have entered the medical practice arena by employing physicians in many communities and competing with members of their own medical staffs. Physicians have returned the favor, capitalizing on new technology and capital to compete directly with hospitals for lucrative diagnostic and therapeutic services. The shingle has been replaced with billboards, television advertisements, Web pages, radio spots, direct mail, large Yellow Page ads, lighted signs, and more. In many communities, medical professionals “compete” for the attention of patients and referring physicians, whether they admit it or not. Building and maintaining a viable medical practice in competitive settings have become more difficult with each passing year.

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Thankfully, the fundamentals of growing a medical practice are still very much in place. The majority of new patients selecting a primary care practice come via word-of-mouth referral from a friend or relative. New physicians will often select the same specialty referral patterns as their more established partners—again, word-of-mouth. However, in today’s highly competitive markets, attracting and maintaining those word-of-mouth referrals and referral patterns have become increasingly difficult and cannot be left to chance. Having started and grown several practices over the last two decades, the author has discovered the value of applying fundamental marketing principles to the challenge of developing medical practices in competitive settings. This chapter identifies those marketing fundamentals and their application in primary care and specialty practices. The chapter will define the term marketing, document the development process for a new medical practice, and discuss ways in which promotional activities can facilitate practice growth. Finally, the chapter emphasizes the critical nature of understanding our medical practice “customers” and meeting their needs, wants, and priorities more effectively than our competitors.

TRADITIONAL VIEW OF MARKETING The traditional view of marketing taught in business schools has included what are often termed “the four Ps,” namely product, price, promotion, and place. All four of these components are so interrelated that it is difficult to discuss one without including the others. Products offered to a customer may be tangible goods, such as an automobile or a refrigerator. Products may also be less tangible, such as a radio signal or electronic information. Products include a variety of services, which may have both tangible and intangible components and benefits. Some products address necessities that ensure our comfort and survival. They are “must haves,” such as food and shelter (or video games for teens). Other products cater to our egos—to our wants and our priorities, such as the latest fashions or tickets to the opera. Businesses spend millions of dollars each year in research and development to create products and services that can compete effectively in the marketplace. In many situations, product also includes the packaging necessary to deliver the product to the ultimate consumer. The pricing of products and services affects, and is affected by, the other three marketing components. Ideally, the pricing strategy for a particular product or service is high enough to cover the costs of its development, production, promotion, and delivery, plus a reasonable profit, while still offering enough perceived value to enough customers to ensure its success in the marketplace. Some great ideas are so costly to develop and produce that they must be shelved because too few potential consumers can afford them. Other ideas that reach the market in the form of products or services are so inexpensive and easy to duplicate that they cannot generate enough profit to warrant their continuation. Successful products and services have enough customer-perceived value that they can be offered at a price that includes the profit necessary to attract the resources required (e.g., human resources, capital) to continue offering those products and services. Some

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products, such as gasoline, are so essential that prices can increase dramatically before customers reduce their consumption. This phenomenon is called low price elasticity. The slightest change in pricing of other products, such as commodities, can immediately cause customers to reduce their consumption or to change to a substitute product. Such inelasticity in pricing dramatically affects the potential pricing and profitability of the product or service being offered. Promotion is the process of educating our targeted customers about our product offering, our pricing, and our delivery options. It also involves the critical component of motivating behavior on the part of our targeted customers to seek out and purchase our product or service. Promotion includes a variety of tactics such as general advertising to establish an image, product-specific promotion, product packaging, product sales, pricing discounts, and rebates. It includes high-cost media buys, newspaper advertisements, and billboards. It even includes simple thank-you notes and phone calls. Most importantly, promotion includes the personal word-of-mouth referral—a testimonial of sorts—from one satisfied customer to another. Effective promotion places our product or service top-of-mind when a customer need or want arises. Effective promotion establishes our “brand” in the minds of current and potential customers. Effective promotion encourages action on the part of the customer to fill a need and to address a want or a priority. Place is broadly defined as not only where, but the way in which the product or service is delivered. In fact, sometimes the term delivery is used instead of the fourth P. Delivery may include the complexities of a product supply chain stretching from raw materials manufacturers, to end-product manufacturers, to wholesalers, to retailers and to thousands of customers. On the other hand, it may be as simple as a personal service provided by a professional to several dozen clients. Place strategies certainly include well-defined channels for distributing products nationwide or even worldwide. They also include access, timing, and customer service requirements. Successful distribution or place strategies focus on the point of service or product delivery and the needs, wants, and priorities of targeted customer(s). Consider the “C” store phenomenon with its focus on convenience for busy customers who work and live in a certain geographic area. Successful “C” stores in the right locations, offering a few key products, for extended hours 365 days a year, can even charge a premium price, which customers gladly pay for the convenience. Likewise, customer service is a critical place or delivery strategy driving (or driving away) repeat business. The four Ps provide a useful platform for exploring the development and promotion of a medical practice. Before launching into that discussion, however, we must first understand the target of our marketing efforts—the medical practice customer.

WHO IS MY CUSTOMER? Ideally, our products and services, our pricing, our promotion, and our delivery are driven by (or should be driven by) the needs, wants, and priorities of our targeted customers. As in most business ventures, it is critical to note that not all

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medical practice customers are created equal. Sometimes our customer is the recipient of our medical services. At other times, our customer may be the parent or guardian of our patient. Oftentimes the needs, wants, and priorities of close family members must be taken into account, making them customers, as well. Early in his or her practice development, a primary care provider recognizes the critical nature of these relationships and the powerful effect word-of-mouth referrals have on the growth and development of his or her practice. Specialists have the same challenges meeting the needs, wants, and priorities of multiple customers. In addition, specialists must pay particular attention to the needs, wants, and priorities of their referral sources. Even in settings where patients can select their own specialist, most are unprepared to do so. Experience indicates, and logic supports, the fact that most will depend on a trusted primary care provider (the “doctor” to most patients) to recommend when to see a specialist and which specialist to see. Invasive specialists, in particular, must have a constant flow of referrals in order to maintain a viable medical practice. A wise specialist understands that he or she must effectively meet the needs, wants, and priorities of the patient (or the patient’s parent or guardian). He or she also understands the importance of addressing the different needs, wants, and priorities of the referring physician. Failure to perform on either front risks the loss of the referral relationship and future business—the lifeblood of any medical practice. It is a well-documented fact that women use a majority of health care services and make the majority of health care purchasing decisions for their families.1 Women are, therefore, the critical target for medical practices in most communities. Obviously, the needs, wants, and priorities of women vary based upon a variety of factors such as life stage, employment status, children, marital status, household income, and education level. For example, experience indicates, and zip code analysis confirms, that a majority of patients selecting a family physician in an urban or suburban setting do so within a few miles of their homes.2 Naturally, these findings have tremendous implications for primary care physicians trying to develop and promote their medical practices. Expensive billboards across town are not likely to have the same impact as much less expensive flyers delivered to selected neighborhoods within a ten-minute drive of a new primary care practice. More importantly, the marginal cost of a referral from a satisfied patient is zero! Understanding our targeted customer and the fact that we may have more than one type of customer (multiple customer segments) is essential in designing effective promotional strategies.

DEFINING THE PRODUCT OR SERVICE Effective promotion of a product or service also requires a clear understanding of the product or service itself and those characteristics or features that are likely to be important to each of our customer segments. Automobile dealers have long understood the importance of product features in selling their wares to a variety of customer segments. Horsepower, paint colors, size, vehicle purpose (e.g., a pickup truck for a contractor), ease of use, safety, comfort, controls, and myriad

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other factors are considered in the design, packaging, and promotion of automobiles. Even fast food retailers boast of their ability to custom design their burgers, hot dogs, and sandwiches to meet the needs, wants, and priorities of a variety of customers. Purveyors of services, even professional services, should be just as cognizant of their “product” as automobile dealers and restaurateurs. Healthcare professionals, in particular, sometimes find it difficult to focus beyond clinical need to address the wants and priorities of their patients and referral sources. From the customer’s perspective, the features of medical services go well beyond the Common Procedural Terminology (CPT) or International Classification of Diseases (ICD) definitions, most of which our customers do not understand or even appreciate. The “product” features most appreciated by our patients/customers might include the following: • An appointment today, because I feel terrible • Extended medical practice hours because I cannot afford to take off work to get Junior to the doctor • A pleasant reception when I enter the office • Great staff with a caring attitude • Help with my medical insurance questions • Lab and x-ray services right in your office so I don’t have to go (or drag my child) to another location • Easy parking and access to your medical office • A short wait time in your reception and examination rooms • A physician who listens to me before diagnosing • A clear understanding of my unique situation (even though you have seen six other cases of the same diagnosis today) • Taking over scheduling diagnostic tests, specialty physician visits, and therapeutic services that I cannot pronounce • Help me get you paid by my insurance company • A clear explanation of your bill for the services I receive. Paying attention to these features helps address the wants and priorities part of the patient service equation. In many cases, these features help attract (largely through word-of-mouth referrals) and retain patients in primary care settings, including family medicine, general internal medicine, pediatrics, internal medicine/ pediatrics, and obstetrics. In specialty settings, attention to these same features ensures that delighted patients will return to their referring physicians with positive feedback about their experience. Speaking about referring physicians, wise specialists recognize primary care physicians (PCPs) and other referral sources as a very important market segment with their own unique needs, wants, and priorities. Features that could be of interest to these referral sources include: • Ease of access when the PCP wants to refer a patient, regardless of the patient’s insurance carrier

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• Respect for the PCP as a medical professional • Confirmation of the PCP’s initial diagnosis or respectful feedback and education if the diagnosis ultimately differs • Rapid response when a consult is requested • Feedback according to the PCP’s preference (e.g., immediate phone call, letter, and email) • A thank you for each patient referred • A patient returned to the PCP for follow-up • Positive feedback from patients referred by the PCP to the specialist. Understanding the desired customer segment and building the features into our services to meet their needs, wants, and priorities is the basis for effective promotion and successful practice development.

THE ANATOMY OF PRACTICE DEVELOPMENT Long gone are the days of physicians routinely graduating from training programs to hang out a shingle as solo practice entrepreneurs. Today’s new physicians are more likely to seek an employment opportunity, often in a group practice or in a hospital-owned medical practice, rather than the solo practice standard of their predecessors. Many graduating physician residents express concern about the additional debt and risk that would be required to start up a medical practice. Most want a better quality of life than those physicians who have gone before. (Older physicians often lament the relative lack of commitment to practice on the part of younger physicians now entering the field.) Regardless of differences in career objectives, practice ownership, or legal structure, there are certain factors that attend and potentially drive the development of a new medical practice. Indeed, some of these factors are found in the physicians themselves. Others are outside of the physician and his or her direct control. The most critical factors in each group are listed below:

Factors within the Physician • Learning to practice: Residency training helps physicians develop the skill and expertise to practice clinically. Graduates can boast hands-on experience, with a variety of clinical skills having been mastered. Due to the nature and purpose of residency programs, speed and efficiency are not necessarily acquired during the training process. We have often worked, for example, with primary care physicians, right out of residency, who dropped exhausted after seeing 4 to 6 patients in a morning. The thought of seeing 4 to 6 more in the afternoon was almost overwhelming. Then to learn that 12 patients a day only pays the overhead and not the physician can be a cause of great consternation on the part of the new recruit. New physicians are clinically competent, but they still need to learn to practice medicine. It takes time to develop the skills, processes, experience, and

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• •

•

•

confidence to see 24, 26, 28, or more patients a day and still practice quality clinical care and caring. Without a mentor, it can take months for new physicians, even with the right motivation, to develop the ability to see higher patient volumes. Hiring or moving an experienced physician to start a new practice in a new location can shortcut this barrier. Personality: A physician with an engaging personality will build a practice more quickly than one who is more reserved. Communication skills: A physician who can listen intently, reflect understanding, and explain clearly will have the advantage in acquiring patients and developing a viable medical practice. Gender: Female providers tend to develop a practice more quickly than their male counterparts do in the same specialty because women typically prefer a female provider if one is available. Motivation: Physicians who are financially motivated and who have the opportunity to benefit from a growing practice will tend to increase practice more quickly than their less motivated counterparts.

Factors outside the Physician • Supply and demand: When the demand for services exceeds the supply of providers, new practices will grow more quickly. When the opposite occurs, new practice development will become protracted, even with effective promotion and a willing physician. • Warm start: Particularly in primary care specialties, adding a new physician to an established practice will enhance the growth of a new practice. The new physician will benefit from the patient volume and word-ofmouth referrals of the established provider, and can benefit from established processes and systems that support higher productivity. • Competitive alternatives: Part of the supply and demand equation is the availability of competitive options. Other physicians in the same specialty or perceived substitutes (e.g., chiropractors) can dramatically reduce the development of a new practice. • Location: Location is always a factor in developing a practice. For a primary care provider, locating in or near vibrant neighborhoods and a growing population will positively affect the growth, payer mix, and prosperity of the practice. For the specialist, locating near the “right” hospital and within referral range of several primary care physicians is essential to survival. • Hospital affiliation: What is the “right” hospital? Several factors make an acute care facility the hospital of choice. First is its competitive position in the marketplace. Attaching your practice to a sinking or marginally profitable hospital can have a dramatically negative effect on your success. Beware of recruitment deals that are too good to be true—they might just be desperate last-ditch efforts to survive. Instead, the hospital

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partner of choice is likely to have a clear vision, access to adequate capital to achieve that vision, experienced leadership, integrity, and a reasonable share of the market. For specialists, selecting a hospital partner whose primary service lines coincide with your expertise is a real plus. • Payer participation: The opportunity to participate with a variety of payers in the community is critical to the success of any practice. Most patients in most communities have some type of insurance coverage. In order to attract those patients, primary care providers have to participate in the right panels. In order to accept referrals from those PCPs, specialists must align their payer mix with that of their referrals sources. • Promotion: Letting your targeted customers know that you are available and interested in their business is critical to the survival of every new practice. Newspapers, fliers, referral acknowledgment, speeches, presentations, church attendance, and social functions, all contribute to the growth of the new primary care practice. Orchestrated meetings and educational opportunities, as well as breakfast in the physician lounge, can help specialty physicians gain practice development traction. Unfortunately, fewer primary care physicians are rounding at the hospital these days, so wise specialists make the rounds of primary care offices, often assisted by hospital liaisons or by their own office managers. • Customer service: New patients have already had several opportunities to form opinions about a new practice and/or physician before they ever meet the doctor. The word-of-mouth referral, the first appointment call, the receptionist’s greeting, the paperwork, the nurse, and the wait time either place the physician on a pedestal or in a deep dark pit from which there is little chance of escape. The entire service experience reflects on the physician. In our experience, when there is reasonable demand for service, when we place a gifted and motivated physician in a great location, when the staff we hire is personable and enthusiastic, and when the promotion is appropriate, it still takes 18 to 24 months for a new primary care practice to approach financial viability. Specialty practices vary in their start-up experience, ranging from as little as 6 months for many high-dollar surgical practices to 18 months or more for some less invasive specialties. (Some internal medicine specialists find that they must spend a portion of their time practicing primary care medicine in order to survive.)

FACILITATING PRACTICE DEVELOPMENT THROUGH PROMOTIONAL ACTIVITIES The mere mention of advertising or promotion in some physician circles used to conjure up a repulsive image of the sleazy used car salesman in a bright-colored sport jacket trying to pawn substandard vehicles off on unsuspecting dupes. This was hardly the image physicians wanted to portray. Just a few years ago, it was difficult to find more than a line or two in the Yellow Pages alerting patients to

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the telephone number and address of doctors in their communities. Today, most professionals, including physicians, recognize the importance of advertising and promotion. Newspaper space, Yellow Page ads, billboards, and even radio and television spots are common tactics used by physicians in many competitive markets. Consumers have so many choices and they are bombarded with so much information on a daily basis that the opening of a new medical practice can easily become lost in a cacophony of marketplace noise. What role does promotion play in the growth and development of a new medical practice? How can a physician determine which promotional tactics to employ? First, let us define promotion for our purposes as activities designed to promote a medical practice to both current and potential patients/customers. Within our definition, we will find tactics such as educational activities, mass media advertising, direct advertising, relationship development, sales, and even the Internet. A brief definition of these tactics, again for our purposes, follows: • Educational activities: This tactic includes membership in the local healthcare speaker’s bureau, opportunities to address the medical staff regarding the physician’s expertise, providing medical education segments for local media, brief talks given at local schools and day care centers, and articles written for local papers or newsletters. • Mass media advertising: This tactic includes the newspaper, Yellow Pages, billboards, radio, television, and any other vehicle that reaches large numbers of current and potential customers. • Direct advertising: This tactic includes selected letters, announcements, fliers, brochures, refrigerator magnets, and other vehicles that target specific households or referring physicians. • Relationship development: This tactic includes active participation on the medical staff, memberships in the Rotary Club or the Chamber of Commerce, church attendance, meet and greet visits, dinners, and luncheons. It even includes golf (thankfully), membership in the country club, and other places where relationships can be developed. It has been said, “Referrals follow relationships.”3 • Sales: Satisfied patients and referring physicians become a passive sales force. They are passive, because they only “sell” or recommend our services as the occasion arises rather than actively soliciting business on our behalf. It is largely the practice’s service level that creates and maintains this passive sales force. • Internet: “Everyone who is anyone has a Web page!” Not so, but almost. This electronic communication medium is becoming so pervasive that many of our customers are likely to use it. Every organization of any size must consider its use to both develop and maintain relationships with customers. Second, in order to use the promotional tactics/tools effectively, we must first identify our target market(s) and determine our promotional objectives

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for reaching each market. Then we can determine which tools—or combination of tools—will most likely reach our targeted audience and achieve our objectives. Failure to match our tactics with our target market and promotional objectives can be an expensive lesson. For example, a neurosurgeon hoping to generate new surgical business by using direct mail to reach a neighborhood near his practice is not likely to see much of a return. A family physician, on the other hand, may benefit tremendously from the use of direct mail to alert new households in a new neighborhood within a three- to five-mile radius of her practice location of her interest in meeting their primary care needs. One of her promotional objectives may be to alert the neighborhood of her special interest and expertise in women’s health issues, which can be included in the selected advertising piece. Third, tools or tactics must be designed around the needs, wants, and priorities of the target market. The closer the match, the better will be the return. For example, some years ago I learned a valuable lesson when advertising two new solo practice general internal medicine physicians. Both doctors were to start practice on the same Monday during the month. The same size newspaper advertisement for each physician was placed on the same page of the same Sunday paper. Both physicians were men and both physicians had an office in the same medical office building. One physician wanted nothing more than the bare facts about his board eligibility, address, and telephone number. The other physician listed these same facts and, in addition, noted a few of his areas of clinical interest. Monday morning brought a flurry of telephone calls for the physician who had been more specific in his advertising. Patients with migraine headaches and his other areas of clinical interest saw the ads and said to themselves, “I’ve got that problem!” They called. The nonspecific ad resulted in far fewer telephone inquiries. Fourth, given the competing noise, medical practice promotion is most successful when it involves a variety of tactics over a period of time. Most members of our target audience need a physician only infrequently. Therefore, they might pay little attention to a newspaper advertisement, even if it runs for a few weeks in their local paper. The key is to be top-of-mind or the first referred when they do need a physician. Fly fishermen, trying to get the attention of a trout in fast moving water, will sometimes use what is called a “dropper” fly—a second fly tied 12–18 inches behind the first hook. This rig increases the opportunity to interest and attract a wily trout to strike one of the artificial lures. Likewise, multiple attractors will potentially increase our opportunity to interest and attract our targeted audience. For new primary care providers, we usually recommend the development and implementation of a promotional plan using multiple tactics and implemented over several months. Such a plan may include initial newspaper advertising to reach a broad audience and alert them to the availability of a new physician in the area. The newspaper ads might be followed with high-quality fliers handdelivered to targeted neighborhoods near the practice. Refrigerator magnets might be developed with local emergency phone numbers and the physician’s telephone number. These can be distributed by mail or along with the fliers previously mentioned. Participation in health fairs and health screenings (also distributing

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the refrigerator magnets) can attract interested parties. Public speaking on relevant healthcare topics to church groups, nursing homes, day care centers, school classes, and clubs will often result in new patients being attracted to the practice. Asking new patients how they were attracted to the practice and creating a referral log will help identify those promotional techniques that yield the greatest return in your local market area. The referral log also notes the names of patients who, by word-of-mouth, send their friends and relatives to our practice. Thanking those who refer, without violating patient confidentiality, is a nice gesture and likely motivates additional referrals. A referral reward system or process takes very little physician and staff time. This technique is often used successfully by those in the dental profession to thank patients who refer new patients to the practice. Most often, a referral reward is simply a thank-you form letter, tailored by a mail merge, to patients who have referred others for care. Naturally, the letter should not mention the referred patient’s name, but might just thank our established patient for keeping us in mind. Specialty physicians will likely use a different set of promotional tactics, but should not leave promotion to chance. Alerting the community to a new specialist’s availability is certainly a reasonable objective, especially if patients can self-refer to the specialist for certain ailments (e.g., allergy services, dermatology services). More critical to the specialist, particularly invasive specialists, is developing relationships with primary care physicians and other potential referral sources. As noted earlier, referrals follow relationships. In my experience, many relationships can be interrupted because relationships tend to atrophy or grow stale over time. A new specialist may have the advantage over busy competitors who find it more difficult (or who have simply quit paying attention) to maintain their current relationships with their referral sources. Meeting and greeting primary care physicians or going to dinner with them can immediately begin to yield returns. Providing education to referring physicians in support of their practices is a huge benefit, whether that education is provided in formal settings or through high-quality educational materials provided for their use with patients.

CUSTOMER SERVICE AS PROMOTION (MAINTAINING AND MOTIVATING OUR SALES FORCE) As mentioned earlier, it is our customer service level that builds and maintains and motivates our established patient sales force. Promotional activities are of only limited value if the physician or the practice fails to consistently deliver the anticipated service results. Frustrated patients will likely tell their story more often than happy patients—and the story gets more graphic with every telling. They are likely to include their referring physician among those who have to endure the tale. It is critical to remember that primary care customers are unlikely to fully understand the value of the cognitive and procedural services they receive. Their assessment is likely to use surrogate measures such as the responsiveness of the appointment desk, a pleasant greeting by a receptionist, a clean and nicely appointed office, a

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friendly nurse, recent magazines, wait time, and other measures.4 Even the billing clerk and the billing process influence the patient’s view of the practice, and by association, the physician. Yes, a friendly and favored physician can counter failure in the other areas for a period of time, but many patients ultimately become frustrated and leave if the practice culture is not customer friendly. Frustrated patients become a negative sales force that is not so passive. So much for promotion. Frustrated physician customers (and other referral sources) will likely respond with their feet by referring to another provider and practice without ever saying a word to the offending specialist. PCPs will not long suffer the negative feedback from patients who are offended by a referent physician. Nor will they long endure the disrespect shown by specialists who are not responsive or accessible. As soon as an alternative becomes available, referral patterns will change. The challenge for the most successful practices is remaining accessible, responsive, and service-oriented when the practice becomes busy. It is much easier to “be nice” at the front desk when we are new and checking in three patients a day (the two-hour lunches were great!). However, when we are checking in three patients every 15 minutes, it is hard to smile and be nice unless that service orientation is part of who we are. Assuming that we understand the needs, wants, and priorities of our various customer segments (e.g., patients, guarantors, referring physicians), we must prepare the entire organization to meet those needs, wants, and priorities automatically. Physicians and management must consider the impact of each of those items (listed in Table 6.1) from a service perspective.

Table 6.1 Customer Service Considerations Physician commitment

The first and foremost influence on customer service is the physician’s attitude as displayed in his or her words and actions. A willingness to work in that 4:30 P.M. patient or to respond to that urgent call from a referring physician will demonstrate a level of commitment that will be shared by the support staff.

Facility design, furnishings, and equipment

Designing the facility around patient service and physician productivity is critical. Offering, for example, privacy at the cashier’s desk is very important. Such privacy involves design rather than the bulletproof glass found at many reception desks.

Telephone system

Select a phone system that can grow with the practice with features that facilitate responsive service. Add a special line for referring physicians and for pharmacies.

Computer technology

A user-friendly practice management system is essential. Patient service representatives should be able to use the software as a performance-enhancing tool, whether they are verifying patient information, scheduling follow-up appointments or referrals, collecting co-payments and cash, or answering insurance questions. The best software is just as important as the best clinical equipment.

Table 6.1 Customer Service Considerations (continued) Hiring support staff members

Hire for service. Friendly, smart, competent, pleasant “A” players are the people we want in our practice. Quickly (and appropriately) remove those who fail to live up to service requirements.

Policies and procedures

Make sure that every policy and procedure established in the practice passes four important filters. First, does it enhance or maintain our ability to deliver quality clinical care? Second, does it enhance or maintain our ability to deliver high-quality customer service? Third, does it enhance or maintain physician productivity? Fourth, does it enhance or maintain practice financial viability? Even the smallest policy or procedure at the front desk or in the billing department must pass all four filters to survive.

Staff training

There is nothing more frustrating for all parties than having competent, caring, and poorly trained support staff. Patients, physicians, fellow employees, even the incumbents are frustrated. Too busy to train? Don’t worry. You won’t be for long!

Division of tasks

Organize the work in the office with the four filters previously mentioned in mind. Keep nurses off of the referral phone and hire a referral coordinator so that the nurses can manage physician productivity. Let the receptionists greet patients, collect co-payments, verify insurance data, and manage the reception room rather than forcing them to do data entry. Don’t add staff until you have examined and fine-tuned processes. Otherwise patients will enjoy another episode of the Keystone Kops through the wide-screen TV we call a reception window.

Staffing

The busiest medical practices tend to employ slightly more staff per FTE physician. However, they generate so much more revenue that the additional staff is not an expense issue. Remember, the medical practice “game” is won on the revenue side of the income statement.

Performance standards

Articulating and documenting our performance standard is critical to establishing a service culture. “Be nice” is just not compelling enough to inspire supportive standards for each position and staff member. A clearly articulated service vision should be supported throughout the organization as each person is asked to develop his or her own performance standards in support of the vision. For example, the receptionist who decides to try greeting each patient in an extremely busy practice by name is certainly doing more than being nice.

Performance measurement

The organization should rigorously measure overall performance against the service vision. Effective patient satisfaction surveys can be implemented rather inexpensively. The specialist can solicit referring physician satisfaction formally and through telephone calls. Individuals should be asked to measure their own performance rigorously against their standard and to report that performance to management and the physicians.

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Table 6.1 Customer Service Considerations (continued) Performance recognition

Strong performance by the organization and by individuals should be celebrated on an ongoing basis in staff meetings and in other small ways. Bonuses are not necessary (although an occasional “thank you” check certainly does not hurt). Personal recognition, movie tickets, peer recognition, and occasional pizza parties are all welcome reminders that service is a part of our culture.

Managing exceptions

Service exceptions (usually identified through patient complaint or through patient satisfaction surveys) are openly discussed in physician meetings and in staff meetings. The group analyzes these exceptions, with ideas solicited to ensure that such failures do not reoccur. Physicians are not exempt from the discussion. In fact, they should lead it!

SUMMARY Product, price, promotion, and place, the traditional concerns of marketing, are still relevant today in the development of a new medical practice and the maintenance of an established one. Understanding our customer segments, their needs, wants, and priorities, is the first step. Defining our product or service in terms of their needs, wants, and priorities is the next step. Organizing around high-quality clinical care and high-quality caring is a critical area of focus to ensure our ability to deliver automatically and consistently the service we have promised. Finally, letting our prospective customers know about our service using multiple tactics, including our established patient sales force, will help ensure our ability to develop and promote a physician practice.

NOTES 1. Braus, P. 1997. Marketing Health Care to Women. Ithaca, NY: American Demographic Books. 2. Halley, M. 2007. The Primary Care—Market Share Connection: How Hospitals Achieve Competitive Advantage. Chicago, IL: Health Administration Press, 37. 3. Ibid., 120. 4. Halley, M. 2004. “The Case for a Medical Practice Retail Strategy.” Journal of Medical Practice Management (November/December): 164.

CHAPTER 7

Creating a Simplified, Integrated, Practice Marketing Plan Debra R. Murphy

W

hatever you build must begin with a solid foundation or you will be faced with a structure that requires constant maintenance and repair. Creating a solid marketing plan requires similar diligence. Jumping directly to program execution without producing the necessary foundation increases your risk of missing your target and wasting your marketing dollars. The fundamental information and tools that must be in place before any marketing campaign will be successful need to be assembled with as much care as the foundation of a building. The VistaPlan Framework is a simplified, integrated marketing plan process designed to help you focus on the key elements that will make a difference in your business (Figure 7.1). Starting at the bottom, the figure takes you through the process one step at a time, ensuring you have the information you need before you go to the next step. As you work your way up the figure, you systematically develop your marketing strategy for each segment of the market you wish to target. Once you have the strategy in place, you can then start to execute marketing activities. This chapter will walk you through the figure as follows: • • • • • • •

Situation analysis Target market and segmentation Positioning, differentiation, and messages Vision, mission, and goals Marketing strategy Brand image and identity Sales tools

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Figure 7.1 A Marketing Plan Framework

We will conclude with developing the marketing budget that corresponds to the plan. The appendix provides a sample marketing plan for an orthopedic group.

SITUATION ANALYSIS: LAYING THE FOUNDATION Market Review Healthcare marketing continues to evolve and many professionals still feel uncomfortable doing it. In today’s competitive marketplace, hospitals, private practices, and other healthcare facilities have to market in order to win their share of patients and keep their practices solvent. To ensure that you market your practice effectively and in good taste, you need a marketing plan. A market analysis is a critical first step in market investigation and development of your marketing

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plan. You need to understand the market forces that influence patients’ choices of healthcare providers by thoroughly examining the market for your services. The analysis will help you define your target market, determine its requirements, and understand factors that can affect the success of your practice. The market analysis has you look at the pool of potential patients and understand what these people need that you can provide. Think about your practice in terms of whom you wish to attract and use this analysis to determine how you want to focus your marketing efforts. By evaluating your business from the perspective of patient need, the strengths you bring, and how you differ from the competition, you will be able to align your efforts on initiatives that drive your business’s success.

Key Questions • What are the economic and social trends occurring in the healthcare market, especially your practice area? • What is going on in the healthcare industry that will positively and negatively affect your practice? • What social, technical, environmental, regulatory, or economic changes are taking place within the market and how will they affect your ability to attract patients from this market? • What external factors are affecting the decisions of your potential patients to choose your practice? • What are your challenges in reaching your target audience? Look around your environment and determine what may be impacting your practice that you have not noticed. Is there a new free clinic opening close by? Do you have a large concentration of other practitioners located within a 5 to 10 mile radius? How is the Health Insurance Portability and Accountability Act (HIPAA) affecting your practice? Is there an economic downturn that is resulting in higher unemployment rates and therefore fewer people with insurance or money to pay for services? These are the types of questions to ponder. The more you know about your environment, the better you can react to its effect on your business.

Competitive Review: Understanding Your Competition Before you can fully analyze your practice’s strengths and weaknesses, you need to understand your competition. A competitive analysis helps you understand what your competitors are doing from both a business and a marketing perspective. Knowing who your competitors are and what they offer can help you determine what you need to do to make your services and marketing stand out. Understanding your competition and how you are different from them enables you to develop a plan that differentiates you in a way that gets you visibility with your target audience.

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Your competition is any other physician’s practice that competes for the same dollars that you are trying to acquire. If you have an orthopedic practice, your competition is other orthopedic practices, chiropractors, sports physicians, and physical therapists. In other words, you compete with any business that is going after the dollars, both insurance and personal, of the patient requiring the service. Competition could also involve other services that target your market, such as drugs for arthritis or nerve blocks for pain. Understanding the overall market for the types of competition is a good start. Next you should research a couple of specific, direct competitors, and learn as much about how they market their practice as you can. Use the Internet to see where their name appears—whether in press releases, articles, or other media—to see how they are using public relations to gain and maintain visibility. Information gleaned from similar practices can be used to get ideas on how to improve or better market your practice. Look at what any physician does to market her practice, both good and bad, and learn from it. Depending on your practice, you may want to understand your competitors’ service offerings and how they price, market, and sell them. Knowing how they speak to their patients through their Web site, literature, or marketing campaigns can help you determine if you need to make adjustments to your own messages and marketing activities. Try to find out how they treat their patients. Ask people you know who have gone to them not only what was bad but also what was good about the level of service your competitors offered. Learning about your competitors’ positive qualities may be far more useful than only hearing the negative.

What Do You Do with All This Information? The value of having competitive information is that it gives you insight into what you need to do in your practice to better position yourself against your closest competitor, establish your unique selling proposition (USP), and develop marketing activities that help you stand out. Learn as much as you can from them and use this information to determine where you need to improve. Watching the competitive landscape can give you valuable information on how you can better reach your patients, improve your image, update your messages, and gain an advantage. The competitive landscape is always changing. It is important to keep your ears and eyes continually open to what has changed, what is working and what is not. Keeping your analysis up to date ensures that you can make adjustments in your business that will gain you the visibility and additional income that can help your practice flourish.

Key Questions • Who is your competition? • What are their strengths? • How do you compare?

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• How are they marketing themselves, that is, what are their key messages and what tactics are they using to build awareness in the market? • What are their strengths and weaknesses? • What could they do that would make it difficult for you to practice and compete? Look closely at the competition and be objective in your analysis. Get someone not close to your practice to help bring an objective eye to the task. Knowing you are better than your competition is irrelevant at this point if your competitors are doing better than you. Why do people think they are better? What do they offer that you do not? How are they perceived in the community? Perception is reality. It makes no sense to argue with people about their perspectives, only to adapt to a dynamically changing marketplace.

Practice Review Objectively analyzing your practice from both an internal and external point of view can help you better define what you are trying to accomplish. To conduct this analysis, you need to assess your practice from different perspectives using a SWOT analysis, as described in the next paragraph. SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. Opportunities and threats are external factors. A SWOT analysis provides a snapshot of your business position at a point in time and will change as the business evolves. The point of the SWOT analysis is to assess where your strengths are today and align them with new opportunities you see coming in the market you serve. It also will help you avoid areas where your strengths are lacking. The analysis should be short, to the point, and realistic about the strengths and weaknesses in relation to your competition. A SWOT analysis can provide you with new insights about your practice that will help you guide your business into new, profitable markets and avoid high-risk situations. A SWOT analysis can help you understand the characteristics of your practice and the environment around it that can affect its overall success. It allows you to uncover opportunities that you are well placed to target and manage or eliminate threats that could otherwise catch you off guard. It is also a tool for assessing your business against your competition.

Strengths and Weaknesses Strengths are the positive, internal characteristics of your practice with respect to your competition. Identifying strengths can help set you apart from the competition. Do not underestimate any quality when determining your strengths because what may seem insignificant to you just may be an interesting quality that will attract new patients and help you retain established patients. Think about your expertise, your people’s strengths, your contacts, any distinctive services you offer, the location of your business, any processes that are unique or that could

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simplify your patient’s visits, affiliations and alliances, or any other aspect of your business that adds value to what you offer your patients. Weaknesses are factors internal to your business that detract from your ability to maintain a competitive advantage. Although it is good to be candid, it is not necessary to attack your practice. The point of understanding your weaknesses is to help you correct them or market around them. By identifying your weaknesses, you have the potential of converting them into strengths. Think about areas that need improvement, such as a lack of experience in certain markets, limited resources, a poor location for your business, critical dependencies that would hurt your business if they disappeared, or other factors that are under your control but are difficult to improve in the short term.

Key Questions Strengths • What is it about your business that sets you apart? • What advantages do you have over your competition, such as breadth of services, outcomes, accessibility, and service to patients? • What is your key to success? • Does your staff bring anything different or special to the practice? • Does the market know about your strengths?

Weaknesses • In what areas can your practice improve? • What should be avoided? • What do your competitors do better than you?

Opportunities and Threats Opportunities are external factors that are attractive to the business and represent areas that if approached properly can increase revenue, market share, and net income. You want to find opportunities that you can exploit with your strengths. For example, you may meet someone who has skills that complement your businesses and by collaborating, you can open new markets for your company and offer more in-depth services to your customers. Threats are external factors beyond your control that could place your marketing strategy, or the business itself, at risk. Identifying threats allows you to take actions and have contingency plans in place to address these factors, should they arise, before they can negatively affect your business. These challenges are unfavorable economic trends that could lead to reduced revenues and profits. Competition, whether existing or potential, is always a threat. Your existing competitors can make moves that can undermine your practice. Other threats could be government regulations, changes in patient behavior, and new

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technology that reduces the demand for your current services. Make sure you address your worst fears during this part of the exercise. It is better to be prepared than blindsided. Once you have your SWOT analysis information, you can then use it to form a strategy to capitalize on your strengths, minimize your weaknesses, exploit opportunities, and deal with threats. The strategy should align with your practice’s objectives and goals, but you may want to determine if you need to shift the business model to accommodate new, more profitable opportunities or deal with an established or potential threat.

Opportunities • • • •

What untapped or undeveloped opportunities exist? Are there new market segments you could effectively target? Are there new trends coming that you could use to your advantage? Do you have special expertise that competitors are lacking?

Threats/Challenges • What moves could competitors make that would put your practice in an unfavorable situation? • What factors could most hurt your practice now and in the future? • What would happen to your practice if regulations became more burdensome? • What new technology could undermine your practice? Look for ways to capitalize on your opportunities that play to your practice’s strengths and pursue a strategy that will get you into that space, especially if it enables you to leave an area that threatens your business. In addition, assess your weaknesses and determine which ones you can address now and which will take time to correct.

TARGET MARKET AND SEGMENTATION “Pin the tail on the donkey” is a blindfolded game that may be fun for children, but when it comes to your practice, you need to approach your business with your eyes wide open. Unfortunately, many owners seem to be playing this game with their business, meandering “blindfolded” through the market and trying to land patients without knowing who the most appropriate audience would be. A target market is the group (of people or of businesses) that has a need, is aware of the need, and is willing to spend money now to satisfy that need. It helps if your target market includes people whom you enjoy serving by virtue of shared values or interest in improving their condition(s). Selecting an appropriate target market for your practice is the most important but also the most difficult part of

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the marketing plan. You must sacrifice some markets to be successful in others. This is the hardest concept for many business owners to accept because by narrowing the market, they will leave money on the table. Every business owner goes through this thought process until you realize that targeting enables you to target a more lucrative audience and develop messages with greater precision. Then a counterintuitive phenomenon happens—your clarity about what you offer makes other prospects, even outside of your target, more likely to call you. If you narrowly define your niche market, your messages are clear, your offerings are precise, and your marketing efforts are more effective, even to those not within your target market. To be direct, we call this group of people or businesses you want to do business with a target market because that is the market at which you aim all your marketing efforts. Being focused on one particular market enables you to make choices that are difficult if you trying to market to a broad array of candidates. For example: • You can select publications that your target market reads and advertise or work with the editors to get coverage through a public relations strategy. • You can select networking functions that only target your market. • You can direct your messages to your market’s key need, focusing on what is important to that audience using the language they understand. By selecting a target market, you can focus and be really clear about why your target should be interested in your services. It is not necessarily a restriction on what types of patients you may attract or wish to work with. That is a business choice. Those are decisions you can make as the opportunities arise. In most physician practices, selecting a target market will most likely include two groups of patients: • Existing patients. Proactively staying in touch with your current patients is crucial. Offering them useful information on new treatments, new discoveries, healthy ideas, or the latest in research can ensure that they continue to be your patients. • New patients. Whether building a new practice or managing an existing one, you need to constantly attract new patients. In order to focus your practice on delivering the care you most enjoy to the patients you want to see requires that you target those patients specifically. Another target audience that may be beneficial to identify are your referral sources. Depending on your practice, referral sources may include general physicians, acupuncturists, massage therapists, chiropractors, physical therapists, sports trainers, athletic directors and coaches, or any other group of professionals that have the same target market but do not compete with you directly. Marketing your services to a referral source can help you reach more patients more easily.

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Key Questions • What is the market for your product or service—that is, your ideal target market? • What do they need and what are they lacking? • What are the characteristics of your ideal customer? • Why do they want to do business with you? • What do you offer them that others do not? Knowledge of your target market enables you to make better decisions about your practice, including pricing and services that you may want to offer. Understanding how you can service your target market helps you focus your practice and serve the appropriate audience more effectively.

Market Segmentation Once you have defined a target market, you may want to divide the market into smaller segments to address the more specific market needs, media, pricing patterns, and decision criteria for each of the different market segments. Segments may be based on age, gender, health needs, location, or any criteria that enable you to determine how your services apply to different segments of the market—how they vary in the perceived benefits they bring to that segment and the messages needed to address that segment. Segmenting enables you to target specific people with specific messages, focusing on their specific needs. Marketing opportunities become more evident when you are able to analyze a group of prospects that have similar wants and needs. For example, you may want to segment your current patients by their health needs and offer them advice and information to help them manage their specific health issues. Market segmentation allows you to determine: • the services required to satisfy that market segment that you may not already offer • whether a segment is worth addressing based on your resources and skills • whether some of your services are not worth offering to particular segments Segmenting the target market also helps you gain insight into which patients your practice can be more successful caring for and what you may need to do within your practice to expand your services to other groups. Likewise, analyzing a particular segment may provide insight into a segment that is losing money or one that you are not capable of servicing effectively. You may determine that one particular segment is so lucrative that you only want to work with that segment.

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For example, if you are an orthopedic surgeon, you may want to segment the market into groups based on the type of condition you are treating in order to target the messages accordingly. If one of your target segments is athletes, you may want to break that segment by gender and age, as the needs of athletes differ based on these two demographics. Once you have identified these segments, you are now ready to address their needs with specific messages. It is also easier to identify marketing activities that can reach these segments more effectively. You may want to post your brochure at health clubs or run seminars on injury prevention at these facilities. If you run seminars in the mornings, you may want to discuss sports injuries in women or senior citizens. If you run them in the evening, you may want to discuss injury prevention for weekend athletes.

Key Questions • Which segment of the market is the most attractive in terms of future growth potential, ease of entry, competition, profit potential, and overall risk? • Why are you focusing on a specific target market? • What makes a particular segment more interesting than others? • What characteristics of this segment are important? In summary, market segmentation is another way to more precisely focus your efforts. Although you may think that all athletes are your target segment, by looking more closely at this group of potential patients, you can identify which segment within that market that would be best served by your practice and how you can reach patients in that segment.

POSITIONING, DIFFERENTIATION, AND MESSAGES Positioning is how you want your practice to be viewed in the minds of your patients relative to the competition. It is how you differentiate your practice from your competition and explains to your patients what makes you the best choice for them. It is not enough to be different, but your target market must feel that the difference offers a benefit substantial enough for you to stand out in their minds. Differentiation is the uniqueness you offer your target prospect that sets you apart from your competition. It must be meaningful, measurable, and defensible. Most likely, your differentiation is a combination of your credentials and a business practice that makes you stand out. To identify your unique differentiation, view your practice from the patient’s perspective and ask, “What’s in it for me and why do I care?” Ask yourself why you can promise and deliver a benefit better than the competition. Begin with a statement that describes the benefit, and then explain how you uniquely achieve that benefit. If you cannot do this, then it is probably not your differentiator. Your benefit must be measurably better than your competition or unique to your practice.

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Be creative and look at your business from a new set of criteria such as more convenient hours, easier access, and a more welcoming experience. Expand the breadth of services to your patients outside of your specialty but in a way that relates to your practice. For example, orthopedic surgeons may wish to add a massage therapist, a personal trainer, or a chiropractor to the practice to offer related services that encourage patients to come in more frequently. A trend in women’s health centers is to offer spa treatments—facials, chemical peels, laser hair removal, and other “med-spa” type offerings. Someone who comes for a spa treatment, but is not currently a patient, may later have need of your services, and will be much more likely to book an appointment in a familiar place where he or she already feels comfortable and confident. The positioning statement verbalizes how you differentiate your practice from your competition, describing the single most important aspect of your practice that you wish to instill in your patient’s mind. Your positioning statement takes your key strength and communicates this compelling advantage to your target market, creating clarity and consistency in the way you speak to your market. The following template was adapted from one authored by Geoffrey Moore1 to help high-technology companies develop a positioning statement, but it can be used by businesses from any discipline. The model helps you create a two-sentence positioning statement that tells prospective patients what you offer, how they will benefit, and why your practice is different from others.

For who <statement of problem>, our product/service is a <describe the solution> that provides . Unlike <primary competitive alternative>, our solution <describe your key differentiator>.

For example, “For athletes who need quick resolution of pain, the XYZ Orthopedic Group offers same-day diagnosis and innovative treatment of orthopedic conditions that gets to the source of your injury. Our practice offers quality patient care, plus complementary treatments such as massage therapy and chiropractic care, convenient hours, and easy-to-schedule appointments.” Once you have your positioning statement created, you can develop key, supporting messages targeted at your specific target segments. Your messages should focus on educating and informing, explaining the benefits of your services, and creating an image. They must be crystal-clear and must speak to the needs of your prospective patients. They should make patients want to find out more, examine your Web site, and call for an appointment. Unlike the positioning statement, developing your key messages is more of an art than a science. There is no precise formula that can be used to clearly develop these messages. You should take the key points from your positioning statement and provide supporting evidence for those points. From there, those secondary

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differentiators and other messages you collected during the positioning process can be explored and expanded. Keep in mind the following points:

• Be honest and credible in your messages. Tell people who you really are and what you really do. • Be clear and concise with what you offer. Make it easy for the reader of your message to know what you are promising. • Test your message. Try your message out and measure the results you are getting to ensure the message is clear. • Know your audience. Send your message to the right audience to ensure the best use of your marketing resources. When you have developed a set of messages that speak to the needs of your target market, you need to use them consistently and repetitively in all of your marketing efforts.

VISION, MISSION, AND GOALS Does your practice need mission and vision statements? And if so, what is the difference? There is value in creating these two components of the marketing plan. Developing a vision and mission statement is a way of articulating what your practice is about and why you started it in the first place. A vision statement is a statement about what you want your business to be. It is your dream of the future without respect to current resources. It inspires you, gives you direction, and keeps you on course. For an orthopedic practice, a vision statement could read: The XYZ Orthopedic Group strives to become the premier orthopedic practice for athletes, baby boomers needing joint replacements, and women facing the challenges of osteoporosis. We will offer highly innovative treatment of orthopedic conditions while educating our patients on preventive measures.

A mission statement is a concise statement of the fundamental purpose of your practice as viewed from the perspective of the patient. Although it supports the vision, the mission statement is firmly grounded in today’s reality. It should be brief, explain the connection between your practice and your target market, suggest action yet couch this in nonspecific terms, and have a geographic or demographic dimension. A mission for our orthopedic practice could be: The XYZ Orthopedic Group is an eastern Massachusetts private practice that takes pride in providing high-quality, cost-effective treatment and education services to all of our patients regardless of their challenges. We are leaders in the innovative treatment of orthopedic conditions while remaining compassionate in our dealings with patients.

The key here is to be honest about what you really want from your practice. If you really want to run a major health clinic, then use that vision. But if your dream

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is to have a small, lucrative practice that you can handle without a large business structure or high overhead, then express that in your vision and mission statements. Doing what you think you should do rather than what really inspires your passion will only frustrate you and limit your success.

Marketing Goals When writing your marketing plan, it is valuable to identify your goals and how you plan to achieve them. Your marketing goals are the quantifiable, measurable targets that are being aimed for by your practice, such as number of new patients, percentage of patients that remain loyal to your practice, or total revenue for the practice. A common approach to developing your marketing goals is to use the acronym S.M.A.R.T. for the five characteristics of well-developed goals. There are many variations of this model and all are effective. The following can be used as a guide: • Specific—Who is involved? What do I want to accomplish? Where will it happen? In what timeframe? What is the purpose or benefit of accomplishing the goal? The more specific you can be, the more likely the goal will be accomplished. • Measurable—You need to be able to measure your progress toward achieving your goals. If the goals are measurable, you can answer the questions “How much?” “How many?” and “By when?” • Attainable—Goals need to be realistic and attainable based on the resources you have or can acquire to achieve them. The best goals should encourage your practice to reach beyond its immediate comfort zone, but not so far as to involve unavailable resources or unrealistic expectations. • Relevant—Goals should help you reach your vision. Setting goals that do not align themselves with your ultimate outcome will divert your attention from those that help you get where you want to go. • Timely—Goals need to have deadlines. Without having specific timeframes associated with each goal, you most likely will not achieve them because the day-to-day interruptions will take over. Using the vision for the orthopedic practice—to become the “the premier orthopedic practice for athletes, baby boomers needing joint replacements, and women facing the challenges of osteoporosis”—some of our goals could be: • Grow the patient base by 30 percent in the next 12 months. This growth will be made up of professional athletes (5 percent), college athletes (10 percent), and recreational athletes (15 percent). • Over the next 12 months, generate 50 percent of our gross revenue from current patients, developing an ongoing relationship that promotes wellness and loyalty.

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• In the next 18 months, derive 20 percent of gross revenue from related, alternative services such as personal training, massage therapy, and chiropractic care. These services will bring current patients back more often and attract new patients to the practice that may not need orthopedic services at this time. Once you have your goals, prioritize them in order of importance to furthering the mission and realizing the vision. Setting your specific goals for your business allows you to measure and gauge the success of your marketing activities. Without them, how can you tell if you are accomplishing what you initially set out to do?

MARKETING STRATEGY The marketing strategy outlines your plan of action and allocation of resources needed to achieve your marketing goals, utilizing the seven types of marketing promotion at the top of the visual marketing plan diagram. If one of your marketing goals is to generate 50 percent of your revenue from current patients, what activities will you use to ensure that this market segment continues to come for treatment, in what timeframe, and with what budget? Think through each of your marketing goals and identify the key activities that will help you achieve success. You most likely will not utilize all types of marketing, but will select from those that make the most sense for your practice. To develop the most effective marketing strategy, you will need to determine the marketing mix based on market segment. The strategy to reach one target audience will differ from the strategy to reach another. For example, marketing to athletes will be different from the strategy used for marketing to women with osteoporosis because their needs and requirements differ (which should have been identified as part of your market segmentation exercise). You have opportunities to reach athletes through sports newsletters, seminars, and other activities catering to the athlete. In contrast, reaching women with osteoporosis would be through publications, organizations, seminars, or other venues that attract older women. By looking at the segments, you can uncover opportunities you may not realize are there otherwise.

Understanding the Marketing Mix The marketing mix is sometimes referred to as the four P’s of marketing—product, price, promotion, and place. For your healthcare practice, it is still important to look at these four areas and understand for each market segment the benefits you offer your patients, any special pricing or packaging of services that may benefit certain types of patients that you can control, and your promotional activities. Of the following categories, select those that you are comfortable using for your practice: • Events—Gain visibility by offering seminars, participating in health fairs, and taking part in civic gatherings such as the Chamber of Commerce, charity walks, and other networking opportunities.

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• Advertising—Build awareness through ads in magazines, journals, billboards, television, and radio spots to reach your target audience. • Direct marketing—Send information or special offers directly to your target market including letters, postcards, gifts, and telemarketing. • Internet marketing—Generate visibility using online venues such as banner or pay-per-click advertising, newsletters, e-mail marketing, and acquiring links from other reputable web sites. • Public relations—Build awareness with the media by writing guest columns or becoming an expert interview source. • Word of mouth—Network to build and foster relationships and generate referrals within your community. • Strategic alliances and joint ventures—Develop relationships that help expand your business by adding value to your offerings. To develop the marketing strategy for your practice, you want to consider the different types of activities you have the time, resources, and budget to put into action. You may want to send your patients a newsletter, discussing new services or an educated opinion about the merits of a new procedure in the news. The marketing strategy for an orthopedic practice could contain the following: • Educate and inform current patients using a combination of direct and Internet marketing. • Attract athletes by sponsoring sporting events, offering talks to team coaches, and placing selected advertising in local sports programs. Develop one relationship with a local health club per quarter that results in referrals of members to the practice. • Develop relationships with other physicians, personal trainers, chiropractors, massage therapists, physical therapists, and other noncompeting related professions. For each of the strategies that you identify, you will need to develop a set of tactics and a timeline to accomplish them. For example, if an orthopedic practice wants to educate and inform their current patients using direct and Internet marketing, the activities could include a quarterly newsletter that discusses new techniques in your practice area, articles from your chiropractic, massage, and personal trainer alliances, and other articles that help your patients become and stay healthy. You may want to develop a blog for your Web site, posting information for your patients and links to other blogs of interest. If you collect patient e-mail addresses and you receive their permission to send them information, you could segment patients by what they were treated for or by area of interest and send brief, informative e-mails to them on their particular issue and how to alleviate it. Online newsletters, blogs, and other types of knowledge increase your visibility, enhance your credibility, and improve your competitive advantage.

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In summary, remember that strategies are not tactics. Strategies are the route you will take to make your goals a reality. Tactics are specific actions needed to accomplish each strategy. Each strategy can have many possible tactics. Keeping strategies and tactics separate helps you evaluate the success of your marketing plan. If you try one tactic and fail, that does not mean your strategy is at fault. But, if you try many tactics for the same strategy and all of them fail, you need to adjust your strategy. Perhaps the needs of your market have changed or there are new competitive forces in the dynamically changing marketplace.

BRAND IMAGE AND IDENTITY Developing Your Brand Your brand is the image you wish to portray to the world and is one of your practice’s most valuable assets. A strong brand is more than your logo or what appears in your advertising and marketing campaigns. It is everything you are and the value you deliver. It includes the total patient experience from when they make an appointment through when they leave your office and pay the bill. It communicates the personality of your practice clearly and visually, and promotes credibility. It shapes patients’ perceptions of who you are and conveys the expectations and promises that you extend to your patients in terms of quality, service, reliability, and trustworthiness. A strong brand helps the audience differentiate you from your competitors and can positively influence their decision to come to your practice, directly impacting your profitability. To develop your brand, identify what you want your brand to do for your practice and what you want patients to think, feel, and say about it. What are the adjectives that best describe your business? How do you want that description communicated to your patients? What images would you like people to associate with you? Conversely, what qualities and messages are not associated with your practice? Every image you project, including your logo, location of your practice, office furnishings, and the way your staff answers the phone, needs to reflect the personality of your business. Building a strong brand for your healthcare practice depends on the positive, consistent experiences patients receive when they come in contact with you, your materials, your staff, your office, and all aspects of your image that might be visible to the community. Once you have developed your image, use it consistently in everything that you do.

SALES TOOLS Historically, marketing your practice was frowned upon because it was not seen as professional for doctors to advertise. Today’s competitive marketplace has made marketing an important component of your overall business plan. If you think of marketing as an educational resource for your patients, you can increase your visibility and build relationships that will benefit your practice.

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Sales tools provide valuable information to current and prospective patients and the medical community. Sales tools are your Web site, business cards, letterhead, newsletters, brochures, and other materials needed to fulfill the call to action of your marketing programs. Developing your sales tools is the last activity you should undertake before you execute your marketing tactics. Until you know what types of marketing you will do, you cannot know which tools you will need to support them. Using your brand identity and messages, combine them to create the sales tools that help you communicate with your target audience. A good first impression is important for your practice, and a consistent set of materials with a strong identity and a compelling, powerful, and enduring message gets you noticed and remembered.

Why Develop a Web Site for Your Practice? Many physicians may not believe that a Web site will benefit their practice, that no one finds a doctor by surfing the Web. In today’s competitive marketplace, your Web site can provide many benefits. Your Web site can reduce the number of calls to your office by enabling patients to schedule appointments, request prescription refills, provide patient information through secure forms, or pay bills online. Your business is really no different than others, and with many consumers wanting the convenience of online purchasing, scheduling, and education, you may sell your practice short if you do not provide automated appointments and electronic prescription refills at the minimum. As an information source, you can educate your patients with targeted articles and question and answer forums. You can opt to answer specific questions and provide follow-up information through a secure e-mail correspondence system. New services can be announced, new research can be discussed, and innovative services, products, and equipment can be introduced. Remember, your current patients are your best “new customers” and your most powerful marketing assets. Offering them a valuable online service will keep you visible to them, ensuring they continue to come to your for their health needs. Providing answers to questions they may be too intimidated to ask or too nervous to remember, or that require more than a quick consultation, makes their total experience with your practice much more useful. In addition, satisfied patients are more likely to refer you to their friends and colleagues, turning your current patients into a powerful source of referral business. Prospective patients may turn to your Web site to learn more about you, your skills, and how you can help them. Your Web site can provide answers to questions they have about their condition, enabling them to know that you can help them, and encouraging them to make that difficult first appointment with you. Getting to know you and your practice before a new patient comes in for an appointment can help reduce the anxiety of that first visit and make the experience much less stressful.

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Remember that your Web site is your major fulfillment piece for all marketing activities. If you send a direct mail piece, the call to action should send prospective patients to your Web site. If you meet someone and hand them a business card, your Web site will offer them an anonymous way to find out more about you. People today are more accustomed to researching service providers on the Internet and are more apt to call and book an appointment with someone they feel they know through a Web site. Hire a professional Web developer and designer to build your site, and make sure you are working with someone who understands the marketing aspects of Web site creation in terms of ease of use, navigation, search engine optimization, and the type of content that attracts and retains prospects.

Getting Found on the Internet Having a quality, informative Web site is just the first step. Making sure your prospective patients find it is a critical requirement. Search engines and directories generate the majority of Web traffic by users who are trying to search the Web for information and services. Search engine optimization is the act of developing your Web site to make it easier for search engines to review the content on your site and decide where to place it in the search results based on certain keyword terms. When you have your Web site developed, make sure you work with someone who understands search engine optimization and can incorporate the basic techniques during the development process. Before you can begin search engine optimization techniques, you need to define your keyword list based on how your target market would search for your services on the Internet. The keyword can be one word or a phrase. Keyword phrases are more likely to narrow the search and get a better quality list of results. For example, the keyword “orthopedic” returns 15 million pages. The keyword phrase “orthopedic surgeon Boston” returns 700,000. A more specific phrase like “sports related orthopedic injury Boston” returns about 200,000. If one of your pages discusses treatments for sports-related injuries and you incorporate the techniques using that phrase that we discuss below, in time your page will rise in the ranks and you will increase your odds of being found by a prospective patient. Search engines use different indexing algorithms to review Web sites, making it difficult to stay current with what works and what does not. Because of the rapidly changing environment, the best way to stay current is to read online forums from reputable search engine companies. However, the basic search engine optimization techniques listed below will remain important, regardless of what the search engines do to their products. • The page titles of your Web site are among of the most important parts of your page as far as search engines are concerned. The title tag has to contain your major keyword, which describes the page and which should be between 60 to 80 characters in length including spaces. Tightly focused titles with your important keyword at the beginning perform best with Google and help with many other engines.

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• Use text links that incorporate your keywords to enable the search engine robot to quickly identify what is on the page. Image links, although they may look interesting, are less effective. A good Web developer can make text links look interesting, giving you the best of both worlds. • Make sure your content contains your keywords and try to put them in your headers and bold them when possible. • The page description meta-tag is the content displayed under the title in the search engine results. If you don’t have one written, the search engine will use content from the page. Take advantage of this tag and define it wisely for each page in the site, ensuring it describes the page using keywords. Some search engines compare the page descriptions, titles, and keywords to see if the content on the page matches. • If your site has many pages within different areas (such as a resource area that contains articles, information, and links), you need a site map. A site map links to every page on the site. This will help the search engine robots find every page with just two clicks. For small sites, a well-defined navigation scheme will perform just as well. • Make your site popular. Get links to your site from other sites that add value to yours. Buy links from reputable sites to help, but work out exchanges with people who have the same type of clients but do not directly compete with you. The quality of links is important—pick your links as you would pick your friends. • If your site has a consistent theme throughout, that will help you in the rankings. The spiders. are looking for consistent, valuable, and fresh content to serve up. Make sure your site provides the value they are looking for. (Web spiders or Web crawlers are automated programs that are used by the search engines to index the pages to provide fast searches. The better the content they see when crawling the pages, the better the ranking in search engine results.) In summary, making sure your Web site can be found is important to marketing your business. Using these search engine optimization techniques can help improve your rankings and drive business to your practice.

MARKETING BUDGET The marketing budget needs to include everything that goes towards marketing your practice. If you need consulting help with the marketing plan, be sure your overall budget earmarks consulting funds for marketing purposes. The cost of the marketing plan will be well worth it if it focuses your efforts and ensures that you spend only on the activities that make sense for your practice. Too many times small businesses work without a plan and needlessly spend money on “marketing” efforts that have absolutely no return on investment. A simple marketing plan can identify where you should spend based on an analysis of the market and your competition.

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To get a quality marketing plan that fits within your budget, you might want to consider working with a marketing coach who guides you and helps you complete the process. Instead of paying for the consultant to research and write your marketing plan, you pay him or her to work with you a couple of hours a week. Depending on how you structure the coaching effort, the cost of developing the plan yourself with guidance could be 30–50 percent of the cost of a marketing plan done by the marketing consultant directly. You need to add the cost of your time into the equation to determine if developing the plan with guidance is the best use of your time, but in many cases, working with a coach is a way to get a quality plan for a lot less money. If you are starting a new practice, you need to invest in brand development. Developing your brand image is more than just getting a logo, but a quality logo done by a skilled designer is an important centerpiece for your branding efforts. Your brand image needs to be aligned with your practice’s brand identity so that everything you do projects a consistent message to your patients, including how you answer the phone, how your office looks, and how your Web site and sales tools appear to your patients. If your budget cannot support the cost of having a custom logo, then check out some online companies that offer logos for a small price. One important benefit of these services is that you get a quality image in all the formats needed for Web and print media. The downside is that the logo is not unique. If you are going to spend the time marketing your company to establish a brand identity, be sure that you can live with the logo you select for some time. Another area of the budget that can be controlled is your sales tools. To control your costs, limit what you create rather than cutting corners on the design or quality of the tools. Cutting corners on your sales tools will make you look inexperienced and send a negative message to your patients and families. Business cards and a Web site are a necessity and should be developed first. If you have limited written correspondence, you can have a letterhead template created in Microsoft Word that can be printed using 28-pound letterhead paper on a color printer. Office supply stores carry a large selection of paper in weights and colors that will go with your brand. Printing the envelopes yourself is not as easy. Given the amount you need, you may want to invest in professionally printed envelopes. Most businesses benefit from a highly professional, quality Web site. Depending on your business, you can select a template-based Web site or a custom-designed Web site. The option you choose is based on what appeals to your target audience. Be sure you understand the importance of your Web site to your business and the impact it can have on your revenue before you determine the budget you need to spend on your site. If your primary marketing effort will be Internet marketing based, you need to invest in your Web site and have it developed correctly. You will also need to implement search engine optimization for your site so that the search engines can find you. When you get prices for Web sites from different sources, make sure you understand exactly what you get. You may think you are getting a $500 site, but if the firm requires you to use their hosting company, and

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charges extra for pages over a set number, for forms, and for search engine optimization, you can spend a lot more than you may have budgeted. Each activity you want to execute needs to be accounted for in your budget. Your most cost-effective activities include networking, Internet marketing, health fairs, and public relations. The activities that can be expensive are direct marketing, advertising, and events that you host such as seminars, although there are less expensive activities in each of these categories as well. Keep in mind that you do not need to do all the activities at once. Plan them out over the year so that you can budget for them and measure their effectiveness. If you have too many activities going on at once, it gets difficult to track and measure your results so that you understand what activities optimize your investments. Understanding the return on investment of a marketing activity enables you to determine whether to continue it or stop and try something else. Establishing a marketing budget helps you identify the amount of money you want to spend on marketing activities over the year and to set a schedule for executing the plan. If a program is not giving you an appropriate return on investment, then you can take the money and invest it in some other marketing activity. Setting a marketing budget gives you the flexibility to move funds around for additional marketing opportunities that arise throughout the year. Without a budget, you may not know if you have the funds to take advantage of the opportunity or you may find that you spent a lot more on marketing at the end of the year than you had planned. Managed appropriately, your marketing budget can be the best investment you make in your practice. If you wisely invest your marketing dollars, you can keep your costs down and obtain a sufficient return on your investment.

CONCLUSION: BUILDING UPON THE FOUNDATION Once you have a road map for your practice, a budget for your activities, and an understanding about how you will reach your prospective patients, you are ready to execute the plan. By building your foundation first, your programs will be consistent, targeted, and more likely to succeed. You can be assured that no matter what type of programs you choose, you will consistently communicate your value to your prospects, increasing your ability to increase awareness, attract ideal prospects, and increase profitability.

Key Concepts • Every business benefits from having a well-defined marketing strategy. A marketing plan provides you with a roadmap for how you will communicate with your target audience and for how much. Trying to market without a plan can result in wasted marketing dollars and disappointing results. Your marketing plan should answer the following questions: • Who are your patients and what type of services do they need? • Why should patients come to your practice?

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• How are you different from your competition? • How are you communicating your services to your target audience? • What is the budget required to successfully execute this plan? • The marketing strategy section of your plan outlines your game plan to achieve your marketing goals and should include information about how you package, price, and promote your practice’s services. Promotional activities will come from the following categories: events, advertising, direct marketing, Internet marketing, public relations, word of mouth, and strategic alliances and joint ventures. Select the types of marketing activities that make the most sense for your practice. • Sales tools including your Web site, business cards, letterhead, newsletters, brochures, and other materials needed to fulfill the call to action of your marketing programs should be the last activity you undertake before you execute your marketing tactics. Until you know what types of marketing you will do, you cannot know which tools you will need to support them. Using your brand identity and messages, combine them to create the sales tools that help you communicate with your target audience, projecting a good first impression that gets you noticed and remembered.

REFERENCES 1. Moore, G. A. 1999. Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers. New York: Harper Business. 2. Molpus, J., B. Cain, and P. Betbeze. 2006. “What’s Your Best Specialty?” HealthLeaders Magazine (March 16). Available at: http://www.healthleadersmedia. com/view_feature.cfm?content_id=77932. Accessed November 7, 2006.

ADDITIONAL READING Kennedy, D. S. 2000. The Ultimate Marketing Plan. Avon, MA: Adams Media Corporation. Stevens, M. 2003. Your Marketing Sucks. New York: Crown Business. Trout, J. 2000. Differentiate or Die: Survival in Our Era of Killer Competition. New York: John Wiley. Trout, J. 2000. Positioning: The Battle for Your Mind. New York: McGraw-Hill.

APPENDIX: SAMPLE MARKETING PLAN The following marketing plan is a brief example of one that could be developed by an orthopedic group that wanted to grow their practice over the next 12 months.

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MARKETING PLAN Executive Summary XYZ Orthopedic Group is a physician-owned group of skilled, board-certified orthopedic surgeons. Since inception, our goal has been to provide exceptional care to our orthopedic patients. Our practice is dedicated to caring for injured athletes, individuals of all ages with an active lifestyle, and patients with injuries to the shoulder, elbow, and knee, as well as many general orthopedic problems. The focus of the practice is sports medicine and joint reconstruction. Our goal for the practice is to double our patient traffic in 12 months, from 80 patients per week to approximately 160. We also need to ensure that everyone views our practice as the most efficient and patient-friendly orthopedic practice in the area. To achieve this goal, we will undertake new marketing activities that increase the awareness of our practice throughout the surrounding communities.

SITUATION ANALYSIS Market Summary The subspecialty of sports medicine continues to emerge as one of the major components of orthopedic surgery due to the continuing rise of professional and amateur athletes in our country. According to an article by Molpus, Cain, and Betbeze (2006) in HealthLeaders Magazine,2 the orthopedic service line is a highly profitable area in which to practice. Active baby boomers are entering their sixties in the next few years and will need knee or hip replacements or other treatments so they can continue their active lifestyle. The article cites statistics provided by the American Academy of Orthopedic Surgeons in Rosemont, Illinois, projecting that the total number of hip replacements will grow from 156,400 in 2000 to more than 272,000 by 2030, and the number of knee replacements will rise from 257,795 to more than 457,000 in the same time period. In terms of revenue, a 2004 survey by Irving, Texas-based Merritt, Hawkins & Associates found that net inpatient/outpatient revenue in orthopedics grew 61 percent from 2002 to 2004, 20 points higher than cardiology.2 For the geographic location where XYZ Orthopedic Group exists, we have an abundance of athletes. There are three health clubs, four professional sports teams, 10 colleges, and many high schools all offering a myriad of team sports to the students.

Competition The competitive environment for the XYZ Orthopedic Group includes three other practices within the 25-mile radius of our ideal target market. These practices have the following characteristics: • Practice One has 3 surgeons located 10 miles from our practice. They offer minimal ancillary services, but offer sports medicine services. One

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of the surgeons is affiliated with the town’s high school athletic program and serves as the team doctor. • Practice Two has 5 surgeons located 30 miles from our practice. They offer general orthopedic services and do not specialize in sports medicine.

Company Analysis Strengths • The location of the practice is ideal since it is conveniently located in an easy-to-reach business district with easy access to free parking. Also, it is in close proximity to the hospital used for surgery. • We are located close to many educational environments that offer team sports. • We currently offer ancillary services to our patients, such as occupational and physical therapists, a chiropractor, and a massage therapist. • We offer specialized services for female athletes, mature athletes, and growing athletes.

Weaknesses • We have not gained visibility in the community. Our practice is relatively young, and we have not done any marketing to build the awareness in the community. • Our cash flow is relatively weak; we need to spend wisely on our marketing activities.

Opportunities and Threats Currently, XYZ Orthopedic Group is the primary center for orthopedic care in a 25-mile radius and provides orthopedic services to the local hospital. Our opportunity is to continue to build our relationship with the hospital and ensure they are serviced appropriately. A threat to our practice would be that if we could not service the hospital’s needs, the hospital would recruit its own team of orthopedists to challenge our services and compete against us.

TARGET MARKET AND SEGMENTATION The target market for our practice is athletes of all types, such as individuals of all ages with an active lifestyle, professional athletes, and high school and college athletes. Our target segments include: • Female athletes • Mature athletes • Growing athletes

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POSITIONING, DIFFERENTIATION, AND MESSAGES Positioning Statement • For athletes who need quick resolution of pain, the XYZ Orthopedic Group offers same-day diagnosis and innovative treatment of orthopedic conditions that gets to the source of your injury. Our practice offers quality patient care, complementary treatments such as massage therapy and chiropractic care, convenient hours, and easy-to-schedule appointments.

Differentiation • XYZ Orthopedic Group helps patients of all ages and activity levels reach their fitness goals through comprehensive orthopedic care. In addition to providing expert medical treatment for the full range of orthopedic medicine, we partner with athletic trainers to assist our orthopedic and primary-care sports-medicine physicians in the clinic extending the traditional on-the-field athletic training room model to the sports-medicine orthopedic clinic.

Messages • XYZ Orthopedic Group has the experience to know which types of treatments will be most successful based on the specific requirements of each individual patient. We are committed to finding a solution that is best for you, whether you need conservative care and medical treatment, or complete joint replacement surgery.

VISION, MISSION, AND MARKETING GOALS Vision The XYZ Orthopedic Group strives to become the premier orthopedic practice for athletes. We are committed to state-of-the-art orthopedic service, defined by excellence in patient care, a highly qualified medical staff, employee dedication, and strong community relations. We will build a community of services that cater to the athlete regardless of ability or age.

Mission The XYZ Orthopedic Group takes pride in helping people from every age and skill level regain and maintain a healthy and active lifestyle. We encourage physical activity for our patients in order to live a healthy lifestyle and we promote safety in sport participation as a crucial element in preventing further injury. We strive to educate the public about the importance of treating sports injuries as early as possible to achieve the best possible recovery and avoid the potential of developing a chronic condition.

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Goals • Double the volume of patients seen over the next 12 months by effectively building awareness of the practice at schools, universities, and health clubs. • Develop strategic relationships with supporting services to increase the number of patients we get through referrals. • Institute new marketing programs that keep all current patients educated about the latest orthopedic treatments for sports injuries, ensuring that they remain patients with our practice and obtain services from our partners.

MARKETING STRATEGY The marketing strategy for XYZ Orthopedic Group will include a combination of events, advertising, public relations, word-of-mouth marketing, strategic relationships, and Internet marketing programs. The types of activities we will invest in include: • Public education programs about injury prevention in athletes that will be part of an overall community outreach plan offered at health clubs, schools, and colleges. • Public visibility and promotions including sponsorship of sports teams, banners at athletics functions, and other activities that connect our practice name with athletics. • Internet marketing activities that enable local athletes to find our Web site and get critical information about injury prevention and resolution. These would include developing local pay-per-click advertising and placing a sponsorship link to our site from an athletic event. • Public relations activities that establish our practice as experts in our field. These will include writing and placing articles about sports medicine and becoming an expert resource for editors to call. • Advertising in targeted publications for the local athlete such as supporting the school or university newspapers; programs for the professional athletic events; buying a banner ad on the appropriate web sites that target our market. • Strategic relationships with supporting services such as chiropractic massage therapy and personal trainers, and developing referral-based marketing programs with these partners.

BRAND IDENTITY We will develop a new brand identity that associates us with athletes and use it consistently in all of our materials including our Web site, business cards, brochures, signage, banners, and other promotional items we decide to use. We will invest in a new logo that projects the brand we want to be associated with.

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REQUIRED SALES TOOLS To support the marketing activities outlined above, we will invest in the following sales tools: • Web site • Business cards • Tri-fold brochure

MARKETING BUDGET The estimated market budget for our activities is $25,000 to be spent over the next 12 months. The logo and sales tools need to be developed initially in order to support the activities.

Table 7.1 Marketing Plan Budget Summary Strategy

Goal

Tactics

Budget

Public education programs

Build awareness with athletes

Seminar with high school athletes regarding injury prevention

$1,000.00

Sponsor local sporting events

$1,000.00

Public visibility Build awareness with and promotions athletes Internet marketing

Strategic partnerships

Drive the appropriate Localized pay-per-click advertising patients to our practice by finding us on the Sponsorship link from Web an event to our practice Word of mouth Develop relationships with supporting services Cross-link Web sites Develop a referral rewards program

$1,000.00

$1,000.00

Advertising

Awareness

Advertise in select publications

$3,000.00

Public relations

Build credibility in community

Write articles to be published

$6,000.00

Engage a PR specialist for 6 months for coverage and article placement Sales tool development

Total

Logo design: $1,500.00 Web site: $5,000.00 Business card design: $300.00 Brochure design: $700.00 Print costs (estimates)

$7,500.00

$4,500.00 $25,000.00

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CHAPTER 8

Revenue Cycle Management Brian K. Morton

A

thriving medical practice can gauge its success through a number of methods—high patient satisfaction, quality awards, employee surveys, and other subjective measurements that indicate a practice’s performance. Ultimately, however, simple economics prevail: The practice must have enough incoming cash to pay the bills. Without sufficient cash, high levels of patient and employee satisfaction are inadequate to stave off creditors. In an ideal situation, a practice generates enough incoming cash to pay competitive staff wages and provide for physician bonuses at year-end. The most critical aspect of ensuring an appropriate cash flow is revenue cycle management (RCM). Revenue cycle management involves multiple activities such as payer contracting, patient registration, charge capture and coding, patient flow, claim processing, and payment posting. Each of these activities is crucial to the process. As such, the practice must ensure that each activity is performed and completed with a high level of accuracy. Failure in the simplest of these activities oftentimes accounts for increased days in collections, extensive amounts of resubmissions, multiple phone calls to patients, and oftentimes nonpayment of claims that have been filed late. In this chapter we will summarize the most important aspects of revenue cycle management. We will review the ideal RCM process and examine insights into necessary critical decisions, policies, controls, and metrics. Some of the information covered may inspire further questions and research on the part of the reader. Ultimately, a practice needs either to have a staff expert to handle these issues, or to know someone who is available to answer questions as they arise.

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THIRD-PARTY PAYERS Before any patient is seen or a claim submitted, the physician must decide which payers the practice will accept. While it is completely legal and ethical to have a cash-based practice whereby patients pay for services upon receipt, it is not a feasible reality in most markets. Most patients will see only those physicians who are credentialed for their insurance, whether it is Medicare, Medicaid, or a commercial payer. In order to be paid by any of the these groups, the practice must be a participating provider—meaning that the physician will accept the payer’s approved charge limits as the total payment for the service provided. It does not mean the payer will pay 100 percent of the approved charges, only that the approved charges are the maximum the physician will receive. Some payers cover a percentage (usually 80 percent) of the total, leaving the patient responsible for the remainder, while others require the patient to supply a copayment at the time of service. The first decision for most physicians is whether to participate in Medicare. If the physician chooses not to participate, federal law still imposes fee limits when service is provided to a Medicare beneficiary. Based on the fee limits mandated by Medicare for nonparticipating physicians, it is oftentimes best to participate with Medicare, thus ensuring that the practice will receive at least the 80 percent portion of the approved fees. Exceptions to this practice would be those specialties that have minimal Medicare patients (such as pediatrics). The next major decision will be whether to accept Medicaid as a reimbursement source. Medicaid typically pays the least for services provided and often creates cash flow problems depending on the state’s budget cycle. Some practices choose to participate on a limited basis with a predefined panel; others elect to participate only to the extent possible in order to collect the 20 percent portion of services for patients who have Medicare as their primary insurance. After decisions have been reached on Medicare and Medicaid, the practice must decide which commercial payers to pursue for contracts. These decisions are highly dependent upon local market conditions: For example, who are the major employers, what plans do they offer, which plans are perceived by patients as “good”? The practice must research the local market to make data-driven determinations on which plans to pursue in order to ensure patients. A good source of payer information in a local market is oftentimes the medical staff office at the hospital. That office can usually place the physician in contact with the appropriate person who manages payer contracts for the hospital. While the hospital staff cannot contract with the insurance plan for the physician, they can provide the names and contact numbers for the predominate plans in the market. In addition, almost every state has an insurance commission, and contact information can often be found on the respective state’s Web site. (Most state government Web sites follow a format of www.STATENAME.gov.) Once on the Web site, enter “Insurance Commission” or “Insurance” in the search box usually visible on the home page of the state’s Web site. There should then be several references to the individual state’s insurance commission.

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Insurance plans generally create economic incentives for patients to utilize contracted providers. These incentives are usually in the form of lowered copayments for the patient as well as payment of a higher percentage of covered services. Most plans will allow an out-of-network physician to treat under some circumstances; however, the patient will be required to pay a higher level of copayment and coinsurance for the services rendered. Once the plans have been identified, the practice must be credentialed and contracted with these plans. The contracting process involves a legally binding document that details requirements for credentialing, claim submission, payment, and appeals. The credentialing process ensures that the physician meets the plan’s quality requirements, is licensed to provide the services, and has the appropriate processes in place to service the patient. To assist physicians with credentialing, several state medical societies provide referrals to a centralized credentialing service. These services allow the physician to submit credentials to a single entity, which then provides the information to the various payers as requested. While this service helps lessen the burden of credentialing, it does not absolve the practice from having to negotiate a contract with each payer.

FEE SCHEDULE Concurrently, the practice should be establishing its initial fee schedule. Several resources exist to help determine the codes to use and the amount to charge. An Internet search using the term “physician fee schedules” will identify different options should the practice wish to purchase a fee schedule template. If the practice does not wish to purchase a schedule, it is relatively easy to obtain a starting point by downloading fee data from Medicare. At a minimum, the practice should obtain a utilization report from Medicare, which shows the codes billed in the past year by practice specialty. Medicare via its Web portal provides extensive information that can be used to help the practice create an initial fee schedule. This data is free of charge and available at www.cms.gov. The following calculation shows how Medicare determines the fee for each service (for 2007):

2007 Nonfacility Pricing Amount = ((Work RVU × Budget Neutrality Adjustor (0.8994)) (round product to two decimal places) × Work GPCI) + (Transitioned Nonfacility PE RVU × PE GPCI) + (MP RVU × MP GPCI)] × Conversion Factor Source: http://www.cms.hhs.gov/PhysicianFeeSched/.

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As shown above, there are multiple components to the creation of the fee. The primary components of fee creation are the Relative Value Units (RVUs). RVUs were developed to provide a basis for equity among different physician services. The values of RVUs increase based on the complexity of a given service. The following list (from http://www.cms.hhs.gov/apps/ama/license.asp?file=/pf slookup/02_PFSsearch.asp) shows the Work RVU values for office visit codes for an established patient based on the January 2007 table from Medicare:

2007 Work RVU Values for Medicare Office Visit Codes CPT Code

Total RVUs

99211 99212 99213 99214 99215

0.55 1.02 1.66 2.52 3.42

In effect, Medicare estimates that a level 3 visit (99213) requires three times the work and complexity as a Level 1 visit (99211), and half the work and complexity of a Level 5 visit (99215). There are three different RVUs that are included in the Total RVUs associated with any particular code: • Work RVU, or WRVU. The WRVU is indicative of the amount of work, time, and complexity involved by the physician or other healthcare provider in the service. • Practice Expense or PE RVU. This PE RVU is indicative of the amount of practice expense resources needed to perform the procedure. These resources include rent, utilities, supplies, and other items associated with running a practice • Malpractice Expense or MP WRVU. This component accounts for the cost of malpractice insurance for the individual code. In addition to the RVUs, there are three other terms in the formula: • Geographic Practice Cost Index (GPCI). The GPCI is used to provide a market-based index to Medicare fees. GPCIs have been established for every potential area within the United States. In addition to the GPCI for an individual state, there are also oftentimes GPCIs established for the major metropolitan regions within a state. These tables can also be accessed at www.Medicare.gov. • Budget Neutrality Factor. The Budget Neutrality Factor is a multiplier established to ensure that Medicare expenditures fall within the budgetary requirements established by Medicare. This factor changes on at least

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an annual basis. As of January 2007, the factor has been established at .8994. • Conversion Factor. The Conversion Factor provides the actual amount of revenue for a given code. This factor also changes on at least an annual basis. As of January 2007, a Conversion Factor of $37.8975 was in effect for Medicare payments for code 99213. All of these factors can be computed for each service in a simple worksheet as follows:

A B C D E F G H I J K L

Code

99213

Budget Neutrality Factor Conversion Factor Work RVU GPCI Total Work RVU (A*B*C*D) Practice Expense RVU GPCI Total PE RVU (B*F*G) Malpractice RVU GPCI Total MP RVU (B*I*J) Total Medicare Payment (E + H + K)

0.8994 37.8975 0.92 1.003 $ 31.45 0.71 0.942 $ 25.35 0.03 0.569 $ 0.65 $ 57.45

Therefore, based on the above example the practice must charge a minimum of $57.45 to receive the fully allowed payment from Medicare. As most insurance contracts are established as a percentage of Medicare for allowed payments, it is highly recommended that the practice adopt a pricing strategy that assures fees are consistently set higher than the highest allowable. Therefore, if the managed care contract pays 118 percent of Medicare, it is recommended that the practice utilize an additional factor of at least 118 percent of the above-calculated amount ($57.45 x 1.18 = $67.79) to determine the fee. Oftentimes, rates are rounded to the nearest amount close to the fee to make loading the fee schedules easier. Therefore, a computed fee of $67.79 would be raised to $68 or $70.

DEVELOPING RCM PROCESSES Now that the practice has decided on its payers, the next step involves establishing processes that will ensure the practice maintains a focused revenue cycle. This phase details what is needed in terms of systems, people, forms, policies, and processes. The work performed in this phase will establish the practice’s culture of accountability, as well as train the patient base for what is expected of them. As discussed briefly in the introduction to this chapter, it is imperative that these

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processes be established immediately after deciding which payers to accept, and consistently enforced with all members of the practice. The establishment of accountability for information gathered, accuracy, and consistency in policy at this stage significantly decreases the potential of poor collections and helps ensure that the practice will receive payment for the services it provides, thus ensuring cash flow for continued practice operations. Small practices have the ability to use manual processes for billing. While this option is available, the complexity of billing, along with reporting needs and forms creation, all but mandate the need for a computerized billing system. Several options exist—from a scheduling/billing platform to a fully integrated practice management system that includes electronic medical records. There are many reputable software vendors in the marketplace as well as those that do not deliver what was promised. It is highly recommended that practices be extremely diligent in the selection of the vendor. Practices should not only utilize ratings and surveys that show vendor performance, but also interact with current users of the system, schedule site visits, and review reports generated from the system. Surveys of vendors are available from both MGMA (www.MGMA.org) and KLAS (https:// www.healthcomputing.com/). Computerized billing systems have become so costly that application service providers (ASPs) are now becoming common. ASPs allow practices to use a higher-end program for a monthly fee or on a percentage-of-collection basis. These services allow the practice access to the vendors’ data services. These vendors also have differing levels of services at different price points. Another benefit of an ASP is access to up-to-date technology. The vendor is responsible for software upgrades, maintaining services, maintaining redundant data repositories, and oftentimes for the performance of several billing office functions such as cash posting, claim follow-up, and denial tracking. Two of the industry leaders at the time of this chapter offering an ASP product are AthenaHealth (www.athenahealth.com) and Med3000 (www.med3000.com). Regardless of option, the system should include—as a minimum—forms generation, line item posting, reporting, and integration with scheduling. Regardless of the software vendor, all systems are dependent upon obtaining the correct information, entering the information accurately, and enforcing the accountability of staff involved in the process. Without strong accountability, all systems are destined for failure.

FRONT DESK STAFF Consider that the front desk person is the face of the practice to the public. This person must be highly engaged and accountable for the duties performed. This person often is the one who obtains personal information from the patient that is necessary to process the bill. The front desk staff member also asks for any old balances as well as copayments that are due and enters the insurance information into the billing system. Therefore, he or she must be detail-oriented and highly accurate. The person must be able to perform task-based duties while functioning

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in an environment that may be fraught with multiple interruptions. When hiring for this position, practices should carefully screen their candidates to ensure they have the traits that will enable them to perform such duties in a manner that enhances customer service.

PATIENT REGISTRATION Now that the contracts, system, and staff are in place, the real work of revenue cycle begins. The first step is the patient registration process. Registration provides the opportunity to capture all the information necessary to submit a claim for service, as well as to send statements to the patient for any remaining balance. The minimum information required during registration includes: • • • • • • •

Patient name Current address Phone number (or alternative) Birth date Guarantor name, address, phone number (if different from patient) Employer name (often used for insurance verification) Insurance information (a copy of the insurance card provides a reference if information is entered wrong in the system; in addition, the card often includes phone numbers for obtaining preauthorization when needed and to check on member eligibility) • Social security number (though not required for billing, the patient’s social security number must be included if the practice needs to report bad debt to credit reporting agencies). Some practices choose to obtain this information by phone when the patient calls to schedule a visit; other practices gather the information when the patient presents for services. Either way, federal law mandates that the patient receive a copy of the practice’s privacy policy before services are provided to ensure compliance with the Health Insurance Portability and Accountability Act (HIPAA).

BENEFITS VERIFICATION The practice now has the necessary information to verify benefits before any service is provided. In fact, the practice should create and enforce a policy that ensures benefits are verified prior to the provision of services. Most payers offer some type of Internet-based verification process. Several practice management systems also provide a mechanism for electronic verification. If neither electronic option is available, the practice can contact the insurance company to verify benefits. If the payer reports that the patient is not eligible for benefits or that the benefits cannot be verified, the patient should be informed that full payment must be rendered at the time of service. The practice may establish a process whereby the claim is held for a finite timeframe (usually less than one week) to allow the

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patient time to supply updated information. By ensuring the verification process prior to providing the service, the practice can set the expectation that the patient is responsible for payment in advance. Of course, benefits verification does not guarantee that the patient is eligible. It is possible the patient has changed employers or benefit levels and that the payer system is out of date. Nor does the verification ensure that the services are medically necessary or approved for payment. In addition to the eligibility check, the registration process should follow a policy that requires staff to ask patients for payment on balances along with the necessary coinsurance for the day’s visit. It is best to remind patients (at the time their appointment is being made) to bring the balance due with them, and then ask for the balance when they present at the front desk. In terms of any copayment and/or coinsurance for the current visit, the practice can seek these funds before or after the physician sees the patient. If the patient is on a percentage basis for the coinsurance (e.g., Medicare), it will be more effective to ask for this payment after the physician has indicated the services provided. This way, the front desk can quickly calculate the expected payment from the patient for the day’s services.

DOCUMENTING SERVICE Now that the registration information is complete and benefits are verified, the physician can provide services to the patient. Revenue cycle management relies on the physician’s knowledge of coding in terms of services and diseases. Services for the day are documented on an encounter form, which also goes by other names such as charge ticket, fee slip, and visit summary. Regardless of the name, the form contains the basic information necessary for the physician to document the services provided along with the diagnosis necessary to support those services. These forms usually contain a list of the most common procedures performed by the practice. The list is categorized by service type and offers the physician the option to indicate procedures not included. In addition to documenting the service and diagnosis codes, the physician should link the service to the diagnosis. To ensure accurate reimbursement, the physician should attend in-depth training on appropriate evaluation and management coding. The E/M codes account for the majority of services provided by the primary care physician. Most payers compare the physician’s own coding levels to averages by specialty to determine if physicians are overcoding their services. If the payer believes the physician is overcoding, it will ask for clinical notes to prove the service level billed. If the payer determines that the notes do not support the service, the payer can retract the billing and ask for repayment from the physician. If the payer is Medicare or another government agency, it can also apply a percentage of error to all billed services and ask for a payback of this percentage to the practice’s complete billings to the payer over a period of time. Obviously, the documentation of coding levels is critical, and physicians should seek all training available to ensure accuracy. Once the physician completes the encounter form, the form and the patient are walked to the front desk for processing. The ideal process at this time involves

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entering the charges into the system, collecting any coinsurance/copayments, and providing the patient with a summary of the day’s services including the total amount charged. When charge entry occurs as the patient is leaving, any missing information can be easily obtained from either the patient or the physician. Depending upon the system used, feedback in this manner helps avoid potential errors on the claim.

SUBMITTING THE CLAIM The charges are now ready for submission to the insurance carrier. To begin, most payer systems perform an initial review of the claim using what is commonly referred to as “claim scrubbing.” The claim scrubbing process ensures that all information is in the correct blocks, ID numbers are in the appropriate format, and the claim appears “clean” from a submission standpoint. If potential problems are found, the claim is returned to the practice for editing and resubmission. If the claim is clean, it moves on to the next step for processing. At this point, the practice may receive verification that the claim has been successfully submitted. Prior to payment, however, the payer again edits the claim for completeness. If errors are found, the payer will either return the claim electronically or deny it based on the errors. If the claim passes the edit process, it will be accepted for payment. Depending upon the contract and state regulations, the practice will receive payment within 14 to 30 days after approval of the claim.

CLAIM PAYMENT Claims are paid to the practice via a remittance advice, commonly referred to as a remit. The remittance advice lists the practice’s claims that were processed in the current payment cycle. It also includes a list of claims that were denied and the reason for each denial. Most remits will provide the information needed for posting the payments on the account, as well as any contractual allowances (which are the differences between the payer’s approved fee schedule and the amount billed by the practice). Remits also list amounts that are due from the patient or that should be submitted to a secondary insurance carrier. Many Medicare patients have supplemental insurance to pay the 20 percent portion that Medicare deems is the patient’s responsibility. In addition, some patients have multiple policies that can pay the claim depending upon the patient’s coverage, their spouse’s coverage, or a multitude of other options in which they have arranged for complete coverage for medical services. Many payers prefer that the remittance and the payment for services occur through electronic means rather than paper remits sent via the mail. Several practice management systems can accept these files from the payer and automatically post the remits into the system. If the system does not support this functionality, the remits must be printed and then manually posted, along with the paper remits received in the mail. To post a remit, the practice must follow the process documented within its practice management system. Most systems use a process whereby the

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payments are applied to the individual line item and then any remaining balances are either “dropped” to the patient or submitted to the secondary insurance. During remit posting, it is recommended that the denials also be processed. Often, these denials can be reversed by correcting some part of the demographic information, providing additional documentation, or rebilling under a code that more accurately describes the service provided. By working the denials at this point, the practice can prevent backlogs as well as help build efficiencies by handling one piece of paper one time only.

CONTROL POLICIES Revenue management as described here would seem to be a fairly straightforward process. In its purest form, it is. However, every step does not always go according to plan. To help maintain an efficient revenue management program, a practice must implement effective controls, policies, processes, and measurement metrics to ensure that the systems function as designed. Control policies are a central principle in a well-designed revenue management system. Control policies minimize the risk of staff impropriety as well as providing guidelines for all involved. Control policies should be followed by all practice personnel, including the physician, and should be designed to facilitate productivity while ensuring full compliance.

Cash Control One of the most essential control policies is cash control. Cash in the medical practice is no different than cash in any retail establishment. In the event of a robbery, offices often have cash stolen along with drugs and computer equipment. In addition, without strong cash controls, it is extremely easy for a front desk staff member to pocket copayments from the patient and not show the payment in the system. The first aspect of a cash control policy is physical control over the cash box. The box needs to be secured in a locking desk drawer or other area not easily accessed by the patient. Office personnel should be trained to not leave cash lying out where a patient or other visitor could easily take it without being noticed. In addition, the cash control policy should clearly state that all patients are to receive a receipt when the cash transaction occurs. Receipts should be provided on a prenumbered receipt pad if a manual process is used or by a system-generated receipt pad if the process is automated. For system-generated receipts, the practice needs to ensure that a clear audit trail exists if the transaction is subsequently voided or changed.

Daily Cash Reconciliation A daily cash reconciliation process should exist as well. This process should include the following items: 1. A verification of the total cash received for the day, including a breakdown of cash, checks, and credit card payments.

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2. A verification of any missing receipts if the process is manual. All receipts should be accounted for, including voided transactions. 3. A verification of cash against the system-generated report if the process is automated. Discrepancies should be researched and corrected. 4. A verification of the change funds remaining at the end of the day. The amount noted here should match the funds that were in place at the end of the prior day. Discrepancies should be researched and noted. Upon completion of the daily cash reconciliation process, the daily deposit ticket should be completed with a list of all cash and checks received. The daily credit card submission should also be recorded. The deposit is then ready to be taken to the bank. As a final step, the deposit slip from the bank should be given to the office manager or practice accountant, who will be responsible for verifying the deposits with the monthly bank reconciliation. In addition to posting cash to the receivables system, zero pays are also extremely important to the cash control process. Most payers will indicate denials as a zero payment. These zero pays should be posted at the same time as the remit. Denial codes and write-off adjustments should have very clear codes so that they can be differentiated from contract allowances, which are also posted at this time. If the practice were to use a global contractual allowance code for all noncash credits to the patient’s account, it would lose the ability to later analyze and trend denials. By tracking these codes every month, the practice can readily analyze root causes and thus prevent recurrences of the same denial.

Charge Capture Charge capture is another process that requires strict control measures. Charge capture helps ensure that the practice captures all charges for services performed. For most offices, the encounter form provides the basis of this process. If the encounter forms are system generated, a report can easily show which are outstanding. For offices that do not use system-generated reports, a process should be established as part of the daily closing procedure, whereby all encounter forms are compared against the daily schedule. Daily accounting of the encounter forms will ensure that every patient who presented in the office has a bill for the day’s services. It is harder to ensure that all charges are captured for services performed outside the office. Services performed outside the office include hospital rounding, nursing home visits, and service provision at other sites. Due to daily changes in patient status, prearranged schedules do not usually take place for these services. The physician will often receive a rounding list for the hospital or nursing home; other times, the physician’s office might provide a notice that a new patient is being treated in a facility. To help ensure the capture of external services, many practices use a rounding slip. This slip contains abbreviated information such as the patient’s name and a short list of the most common procedure codes for external visits. The physician should complete one slip for each patient. Some practices

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choose to use one slip per patient admission; others use a slip for every day of service. Regardless of whether slips are generated daily or based on the complete admission, the billing should include services related to admission, discharge, and daily consults as needed. Most hospitals and nursing homes will provide the practice with a list of patients who have been admitted under the physician for the time frame indicated. This report then becomes the control mechanism for these services. The practice should compare the report against the charge slips turned in by the physician. Another aspect of charge capture that cannot be overlooked is the assurance that oral orders are documented on the encounter form prior to charge entry. Physicians often give an oral order to a clinical assistant to provide a treatment, give an injection, or draw some type of lab sample. When these orders occur, the clinical assistant needs to be trained to document the procedure both in the medical chart and on the encounter form. By having the physician and the clinical assistant document on the form, the practice will minimize the possibility of lost revenue from missed procedures. Several of these procedures and injections may involve costly drugs. Therefore, if a procedure is missed, not only is revenue lost but (depending on the cost of the vaccine or drug) the practice could in theory be paying a vendor for the visit. A recent example of this problem has been for the human papillomavirus vaccine (HPV). As HPV is a relatively new vaccine, several payers have not yet established a reimbursement amount for its administration. In addition, access to the vaccine has been somewhat limited, driving the acquisition cost higher than what the few payers have allowed for reimbursement. Early adopters of this vaccine oftentimes lost money on every vaccine administered. As market forces allow for greater distribution and the payers update their schedules, this issue should resolve itself.

CONTROLS AND GROWTH It is essential that cash and charge control measures be developed at the onset of the practice start-up. The measures will be simple at first. However, as the practice grows in patient volume, physicians, and staff, these controls will form the basis for further expansion. For example, a small practice has only a few employees. But as the practice grows, its processes should change to allow for double checks. That is, the person who checks the patient in should be different than the person who checks the patient out. The person who takes the cash should be different than the person who deposits the cash.

FINANCIAL POLICIES Along with implementation of control measures, the practice must also develop fairly rigid financial policies. These policies enable front desk personnel to effectively manage communication regarding the patient’s responsibility to pay and provide guidance for difficult decisions.

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Credit Extension The first policy that should be addressed is a credit extension or self-pay policy. This policy would cover both the true self-pay patient (no insurance) as well as the patient who has copayment and out-of-pocket requirements. Ideally, this policy would be written so that the expectation to pay any balance is firmly set when the patient first registers. In addition to stating the fee schedule, points that should be addressed in the policy include: • Patients are expected to bring their copayments with them for all visits. Copayments will be collected at the time of service. • After the insurance company pays, patients are expected to pay any balance remaining on the account within 15 days of being sent a statement. • Follow-up appointments may be withheld for patients with outstanding self-pay balances. In addition, failure to pay the balance in full will result in discharge from the practice. Some practices choose to include these statements within their assignment of benefit forms. Some practices will post these policies at the front window. Regardless of how they are communicated, policies are ineffective unless the physician is willing to enforce them. In addition, it is a violation of law to not collect a Medicare coinsurance amount, and managed care plans have been known to revoke physician contracts for failure to collect copayments. For the true self-pay patient, practices have options. True self-pays are patients who either by choice or by circumstance do not have insurance coverage, yet may have the ability to pay directly for services. Some practices use their standard fee schedule or provide a percentage off for self-pay patients. Others have a fee schedule that is an aggregation of the different payer rates or equivalent to the highest or lowest contract. Regardless of which option is preferred by the practice, it is advisable that with any discount from the normal fee schedule, the patient sign a contract that stipulates the discount as well as the expected payment terms. To help ensure tight cash control, all staff must be trained regarding the importance of cash to the practice. It should be required that staff tell patients about their outstanding balances when they make appointments. In addition, patients should be asked to pay the balances when they present for payment of the day’s services. By having all staff aware of the importance of cash collections and providing consistent information to patients, the practice will ultimately minimize the risk of poor collections. Understandably, some physicians have difficulty with these policy points, especially the one regarding the discharge of a patient. Physicians feel they have a duty to treat their patients regardless of the patients’ compliance with payment. While there is a duty to treat, the practice cannot exist without cash flow. In addition, the community learns quickly who will enforce financial policies and who will not. Therefore, the practice could very quickly have a large base of patients

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who do not pay their bills. Discharging a patient is a last resort only and must be accompanied by a notice to the patient. It is recommended that the physician check with the appropriate state medical board to determine the notification period necessary to discharge a patient from care for nonpayment. Most states require a 30-day period, but it varies by state. A final point of consideration for the credit extension or self-pay policy regards accounts that have been submitted to collections. Some practices will allow a predetermined percentage “discount” to be applied if the patient is willing to make immediate payment. Regardless of the discount used, this policy should allow any staff member involved in billing to implement the policy when needed. By doing so, the person on the phone with the delinquent patient will be able to work with the patient without adding additional delay to the process.

Noncovered Services The next financial policy deals with noncovered services. Government payers such as Medicare and most third-party carriers will allow a physician to directly bill a patient for a noncovered item. However, to do so, the patient must sign a document called an “Advanced Beneficiary Notice” (ABN) detailing why the service is not covered, as well as the expected charge for the item. Common items that are often not covered include preventive services, some lab testing, some vaccines, sports physicals, and school physicals. Different payers, however, have different rules for each of these services, and it is imperative the practice have a thorough understanding of the payer-specific rules. In order to ensure payment for these services, the front desk staff must know the specifics of each major carrier. Ideally, the staff will have called and verified the coverage of a specific code prior to the service being provided. The reality, however, is that a patient will ask for or need a specific service at the visit that will likely not be covered. To prevent this situation the physician, as well as the back-office staff, will need to be trained on completing an ABN prior to actually performing the service. Under Medicare law, a patient can ask that the service be billed to Medicare, even knowing it will be denied. These are called demand denials and can easily be processed with a modifier indicating that it is being billed at the patient’s request and that an ABN is in place. Without the ABN, the practice has little opportunity to recoup payment from the patient.

MEASUREMENT METRICS The final aspect of the revenue cycle is that of measurement metrics. Ultimately, the only “real” metric is cash in the bank and all else is management process. The other metrics, however, allow for predictive models for cash flow and provide indicators of how well the practice is managing receivables and, thus, cash flow. The metrics also provide a comparison for the practice to benchmark against other practices to determine if the revenue cycle metrics are in line with the industry.

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These metrics are published in annual surveys from various trade organizations, the prevalent one being the Medical Group Management Association (MGMA).

A/R Days The first metric that is usually looked at is the Days of Sales Outstanding (DSO); also referred to as the number of Days in Accounts Receivable (A/R), or A/R Days. This standard is computed by dividing the total accounts receivable by the average amount of charges in a given day. The average amount of charges can be for a week, month, quarter, six-month period, or even a year. The purpose of using a longer period for comparison is to remove any seasonality from the equation. This metric tells the practice, on average, how long it takes to collect on the services generated. Therefore, if a patient is seen today and the DSO is at 28 days, the practice should expect to collect on this account 28 days from the current date, if not sooner. Some practices choose to further refine this metric and track it by different payers. Government payers such as Medicare usually pay within 14 days, while other government agencies will pay within 30 days or even up to 180 days for workers compensation, Black Lung benefits, or Champus. Commercial payers have different payment cycles as well. Oftentimes these are agreed upon in the contract signed by the payer and the practice. Commonly, the contract with the payer stipulates that they will pay a clean claim within 30 days of receipt. Breaking this metric down to a payer level also provides information for the practice in states that have a clean claim submission law. Ohio is currently a state with this type of law. Within Ohio, the payer must pay a clean claim within 30 days. If the claim is not paid, the carrier must also pay interest to the provider at the Federal Reserve Rate for all days beyond the 30-day period. A report that shows the A/R days by payer gives the practice a bargaining tool, as well as a tool to help predict interest payments or show missing interest payments. Typically, A/R days are measured monthly and trended against prior months. The trending is important to explain variances. An increase in days can be related to several different factors, the first of which is that the practice is growing. As revenues grow and more physicians are hired, A/R days tend to increase. However, even in growth modes, significant increases could indicate problems in the revenue cycle process. When the A/R days grow, a root cause analysis should be performed to look at the underlying issue. A root cause analysis involves six basic steps: 1. Define the problem. • What has occurred? • Why is it a problem? • What will happen if the problem or situation continues?

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2. Gather data/evidence. • Gather reports • Graph the change in values over multiple periods of time • Depending on the problem, look for evidence of changes in claim submission rules, deposit histories, remits, and so forth. 3. Identify issues that contribute to the problem. • Are there new staff or temps in the process? • Audit the accuracy of information capture at the front desk • Is the billing system printing outdated forms or using outdated claim submission rules? 4. Find the root cause. • Use the 80/20 rule in looking at the data. Group the issues into like causes (e.g., registration, claims processing, denial management). Focus on the causative factors that would contribute to 80 percent of the problems. 5. Develop solution recommendations. • • • • •

Do staff need additional training? Would a software update solve the problem? Would a meeting with a payer solve the problem? Do forms need updating? Do all staff have access to the appropriate tools to perform their job?

6. Implement the solution. • Fix whatever was identified in the above steps, focusing on the 80/20 rules 7. Reevaluate the effectiveness of the solution. If necessary repeat steps 2 through 6.

180-Day Claims The next metric that should be examined within the aging report are the claims aged beyond 180 days. Most aging reports break the outstanding claims into categories of 30 days. These reports often lump all the claims over 180 days into one final category. What is important in this report is the percentage of claims that are aged over 90 days and again over 180 days. It becomes increasingly difficult to collect a claim that has aged beyond 90 days. Most payers have timely filing requirements established within their contracts. The timely filing clauses state that a claim must be submitted by the practice within a certain number of days from

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the date of service. The practice must be able to prove that the payer had received the claim within the set time limit of the contract. If the practice can prove the submission, the claim will usually be adjudicated and paid. If the practice cannot prove the submission, the practice might or might not be able to bill the patient (depending upon language of the contract). In addition, self-pay balances become harder to collect as they age out. If the visit was a one-time visit and the patient does not maintain an ongoing relationship with the practice, there is little incentive for the patient to pay, beyond the fear of collection agencies and credit reporting. The medical practice needs to make a determination of when these accounts reach a bad debt status and are written off the receivable report. Depending upon the judgment of the practice’s accounting staff and whether the practice uses accrual-based accounting, reserves may be established based on the age of the receivables. Some practices reserve 50 percent of value over 120 days, while others reserve 100 percent of the claims aged beyond 180 days. Regardless of which system is used, the aged accounts have a negative effect on the practice’s fiscal performance. If the practice maintains a cash-based accounting methodology, revenue recognition is based on the cash received. It is extremely important to review the aging based on the date of service rather than the date filed. Several computer systems provide the report using both criteria. Running the report based on the claim submission date shows the efficiency of that individual payer, but it can mask the actual performance of the billing process. Since many payer contracts as well as Medicare and Medicaid have limits on timely filing, it is extremely important to closely manage the aging of accounts. The practice needs to ensure that all claims are submitted to the payer within the appropriate time-filing limits or the claim will not be paid, and the practice is contractually obligated to not bill the patient.

Net Revenue versus Gross Revenue The next metric is net revenue (or cash collections) compared to gross revenue. While this measurement is very helpful to predict future cash flows, it should be realized that there is a great deal of variability when comparing rates to other practices and even national standards. The greatest factor in the variability is the fee schedule compared to managed-care rates. Often, fees are established that ensure that the practice bills more than their highest contracted fee schedule from managed care companies, while other practices simply establish their fees based on Medicare reimbursement. While two practices could each be paid $85 for an office visit, the first practice might charge $85 for the visit, and the other practice could charge $100. Thus the net-to-gross revenue rate for the first practice is 100 percent and the other practice is 85 percent. Some practices choose to use a revenue realization metric rather than a collection percentage. Revenue realization removes the variability of fee schedules and provides an effective review of billing efficiencies. In its simplest form, a revenue realization report will total all the charges for a specific month and then apply all payments and adjustments received on those charges. Revenue realization can take

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place only when there are a sufficient number of months of accounts receivable data. Ideally, the revenue realization report will show that 100 percent of a given month’s charges has been fully adjudicated through payments and adjustments. Any amounts remaining are indicative of money that is still owed the practice.

CONCLUSION While there are several other processes, policies, control measures, and metrics used in revenue cycle management, the ones mentioned here, along with the ideal RCM process first explained in this chapter, will help to ensure that the practice has a comprehensive approach. As the practice continues to expand, additional control measures and practices will need to be established. However, it is highly advisable to establish policies that are communicated to all staff and enforced without exception. Every exception to policy and control process creates an additional opportunity for lost revenue and decreased collections. By having clear policies and processes and establishing clear expectations for performance with staff and patients from their very first encounter, the revenue cycle will function well from the beginning.

FURTHER READING Henry, T. C. 2000. Looking for the Cash Cow. Englewood, CO: Medical Group Management Association’s Center for Research. Medical Group Management Association. www.MGMA.com. Publications include prewritten policies, billing system vendor surveys, collection agency surveys, and a listserve to answer questions.

CHAPTER 9

The Future of the Physician Practice Severine Brocki and Kathleen Henrichs

T

he turbulence and uncertainty that physicians have experienced in the last 20 years in adapting to the multiple forces transforming the delivery of healthcare will continue and likely increase. Cost pressures, quality issues, increasing competition, and burgeoning scientific and technological innovations are challenging the way healthcare is delivered. Confronting these issues will result in a major redirection and realignment in physician practices across the delivery spectrum, including the types of services provided and the ways they are delivered, practice organization, and provider and patient relationships. This chapter reviews the current status and trends in the practice of medicine and discusses future directions for physician practice, both obvious and not so obvious, as the medical profession advances to the next generation of practice. The forecasts, while potentially disruptive in the shorter and even longer run, do not consign the medical profession to a bleak future in terms of professional satisfaction and stature. In fact, medical practitioners who are able to adjust to these changes by actively advancing their stake in the continuing evolution of healthcare will survive and even prosper. With change comes opportunity, including the prospect of new tools and systems that, while fundamentally changing physician practice in many ways, will advance the quality of care that the medical profession can provide.

The authors are grateful to Bruce E. Balfe, Vice President of Strategic Planning, the American Medical Association, for his insightful and visionary guidance and first-rate scholarship.

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CURRENT STATE OF MEDICAL PRACTICE This section profiles some fundamental features of medical practice as it currently stands. These practice characteristics constitute a platform from which many future practice patterns will emanate. They also identify some of the ways physicians are adapting to today’s healthcare market and how changes in the personal values of physicians themselves are influencing practice patterns.

Practice Groups: Growth in Number and Size Group practices are on the rise, both in number and size, necessitated by the high costs of maintaining competitive solo and small practices. The number of group practices increased from 16,500 in 1990 to more than 37,000 in 2003.1 Data from the American Medical Association (AMA) show that from 177,000 to 185,000 physicians in the United States are practicing in groups.2 (The AMA considers a practice a group if it has 3 or more physicians.) Excluding physicians who practice in institutional settings, only 33 percent of physicians were in solo practices in 2001. The remaining 67 percent of office-based physicians worked in practices with two or more physicians, an increase from 54 percent in 1991.3 In 2001 (the latest year for which AMA data are available), the distribution of physicians by practice size was solo practices (33 percent), 2-physician practices (11 percent), 3 physicians (9 percent), 4 to 8 physicians (22 percent), and practices of 8 or more physicians (25 percent).4

Employment as an Emerging Phenomenon Physicians are increasingly becoming employees. They are working as salaried providers of services in group practices, hospitals, health maintenance organizations, and other delivery systems and facilities. More physicians are seeking employment with hospitals and large group practices for the financial stability they afford as well as their ability to provide physicians with the state-of-the-art resources, including advanced health information technology systems.5

Lifestyle Factors and Their Impact Younger physicians express a greater interest in balancing their personal and professional lives than previous generations of medical practitioners, looking to allocate more time for their families and recreational pursuits.6 Lifestyle considerations such as predictability of working hours and some control over the total number of hours worked are not only major factors in a physician’s decision to become an employee but also affect specialty choice.7 The effects of lifestyle preferences on physicians’ practices are due in large part to the “feminization” of medicine. Presently, almost 27 percent of physicians in this country are female and this percentage is growing steadily.8 In 2006, over 17,000 students enrolled in United States medical schools and 48.6 percent of these first-year enrollees were women.9 Women tend to approach their careers differently than men, focusing

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more attention on the personal components of their lives. Survey data showed that child-rearing causes 25 percent of female physicians to work fewer than 40 hours per week compared to 12 percent of male physicians who do so.10 However, this phenomenon is not exclusive to women physicians. Male physicians are also increasingly looking for more balance between their professional and personal lives.

Student Debt Impacting Career Decisions Over 80 percent of medical school graduates carry educational debt.11 In 2003, the median debt for graduates from public medical schools was $100,000 and for private medical schools, $135,000.12 In constant dollars, medical school debt has risen more than 150 percent since 1984.13 While the relationship between debt and specialty choice has been debated, many believe that a considerable number of medical students consider their amount of debt as a factor in making career decisions. In a 2002 survey by the Association of American Medical Colleges (AAMC), 32 percent of medical students responded that their debt level influenced their choice of specialties.14 The AAMC believes that large debt is partly responsible for the decrease in students who elect to enter the primary care specialties. The American College of Physicians (ACP) has also expressed concern that students will avoid primary care practices because of lower reimbursements coupled with high student debt.15

Supply for 24/7 Services Not Meeting Demand While there has been a rapid growth of patients making Emergency Department (ED) visits, this has been occurring as the number of the facilities offering these services has been declining. Between 1993 and 2003, the number of hospitals in the United States decreased by 703 and the number of American EDs fell by 425.16 Yet in 2003, there were almost 114 million ED visits; compare this to the figure of over 90 million visits 10 years earlier.17 The Institute of Medicine’s (IOM) Committee on the Future of Emergency Care in the U.S. Health System (2006) reports that ED overcrowding leads to problems such as boarding patients in the ED (sometimes in hallways) until inpatient beds become available and ambulance diversions from an ED that is full to a more distant one that is not.18 Factors contributing to the inadequacy of “24/7” services include the difficulty in finding specialists who want to be on-call, lack of reimbursement because many emergency patients are uninsured, and higher liability payments for specialists who work in EDs because of the riskier procedures.

The Healthcare Team: Need for a Game Plan Chronic disease management is driving healthcare expenditures and with the aging baby boomers, costs will escalate dramatically. The scale of team care needed by chronically ill patients is staggering when one looks at the statistics for this population. Current estimates are that almost 100 million Americans have some

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type of chronic disease. Of Medicare beneficiaries, 78 percent have at least one chronic condition while two-thirds have two chronic conditions or more.19 Of those with two chronic conditions or more, almost one-third (or 20 percent of the total Medicare population) has five more chronic conditions or comorbidities. A Medicare beneficiary with two chronic conditions averages over 11 doctor visits per year and sees more than five different physicians annually. One outcome of these numbers is that except for those who specialize in pediatrics, physicians who are currently in training will spend half of their future practice time treating patients who are over 65 years of age, the large majority of whom will have multiple chronic illnesses.20 Well-coordinated healthcare teams are critical in the management of chronic disease, but the current insufficiency of care coordination is well acknowledged. The “silos” of care that the Institute of Medicine described produce treatment that is fragmented because of inadequate communication among providers and across delivery sites.21 The problem is exacerbated by a deficiency of provider incentives for coordinating care because many of these services go unreimbursed.

Continued Pressure on Practice Income with Detriments to Healthcare Access Reimbursement constraints and escalating costs are exerting downward pressure on practice income and these strains on physician income will undoubtedly increase, at least for the next decade. Between 1995 and 2003, the average net income from the practice of medicine declined about 7 percent after adjusting for inflation.22 Research by the Center for Studying Health System Change shows that after inflation adjustment, the average net income for primary care physicians declined 10 percent from 1995 to 2003, to $121,000, while physician specialists experienced a 2 percent drop to $175,000 in the same period.23 Declining and flat fees from both public and private payers are primarily responsible for this squeeze on practice income, a situation spurred by the soaring costs of healthcare, which are projected to exceed $2 trillion in 2006, equivalent to 16 percent of the gross domestic product (GDP).24 The future for physician income looks just as bleak since the federal government proposes to decrease Medicare payments to physicians by 37 percent over the next 9 years while the cost of providing patient care is expected to rise 22 percent or greater.25 Reimbursement cuts may also affect physicians’ service populations. An AMA survey indicated that if Medicare reimbursements continue to decrease, 38 percent of the physician respondents said that they would be forced to decrease the number of new Medicare patients they accept.26

FUTURE DIRECTIONS: THE OBVIOUS The following are practice patterns that have gained momentum in the last 10 to 20 years and represent trends that are reasonably well entrenched. They are anticipated to continue in the future, with some of them increasing in intensity.

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Impending (and in Some Cases Current) Shortages of Healthcare Practitioners The shortages of physicians, nurses, and other healthcare professionals are real concerns for the delivery of quality care. The Council on Graduate Medical Education (COGME) predicts that if present trends continue, physician demand will outweigh supply substantially by the year 2020 with a shortage of 85,000 physicians.27 Federal projections estimate that nurses will also be in short supply by 2020, although the gap may be narrowing by the increase of people choosing to assume nursing careers in their late 20s and early 30s.28 Ultimately, the market will help calibrate and adjust for this, but the lag times in the health professions education system are considerable and there will be substantial discontinuities as we go forward. These are real or unavoidable problems in the short term and will exert impact on which physician practice specialties and nonphysician providers the market ends up rewarding. These shortages will also be a factor in the “negotiations” that physicians and other health professionals have with their “employers” over wages and working conditions.

Increased Separation of Business and Clinical Decision Processes The larger the group practice, the greater the separation of elements involved in decision making, and the smaller the practice, the more integrated these elements are. Given the growth in number and size of medical practice groups, the following will characterize their business and clinical decision making as the business side becomes more complex: • If efforts to increase market competition are successful (even moderately so), the level of business and marketing sophistication it will take to run a practice from a business perspective will increase dramatically and physician group management will grow in size and stature as a profession to the point where it rivals what hospital administration has become. • As the business side of a practice “professionalizes” there is the real prospect that some of the tensions between the business and clinical sides of practices will increase. A “we-they” syndrome may well develop, especially in groups where there are both equity and nonequity partners. Organizing clinical staff in a manner similar to the way hospital medical staffs are organized (with bylaws, officers, and so forth) may well become a common pattern. It is also possible that this organizing could occur through unions, which will be discussed further in this chapter.

More Employment and Fewer Independent Practices As noted previously, employment is increasingly becoming the choice of physicians and will continue to be so. For many physicians, spending more time on patient care in larger practices where administrative support and information

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technologies insulate them from the day-to-day business decisions is an attractive practice feature.29 There is evidence that doctors are beginning to hire agents to help them locate employment and negotiate contracts with insurance and health plans.30 While this activity is in its embryonic stage at this point, it is yet another symptom of physicians acting more like employees and seeking career assistance rather than practice management support.

A Mix of Equity Partners and Physician Employees, Including the Law-Firm Model The Medical Group Management Association (MGMA) estimates that the capital required to develop and support the type of physician organization capable of competing in the marketplace can run from several hundred thousand dollars to millions.31 Partnering with hospitals, health plans, and venture capitalists are some alternatives that practices are exploring to raise this capital. With the escalation of physician group practices, a growing option for equity financing is the classic law firm model. Typically this model is organized around partners who jointly own the firm and share in its profits and losses and associates who are employed by the firm, in some instances having the opportunity to one day become partners. This type of practice arrangement will present some interesting directions related to workforce supply, attitudes toward scope of practice issues, and physicians’ expectations from their practice. • The law firm model and younger physicians’ attitudes toward a more balanced lifestyle will be in conflict, particularly as more group practices have both equity and nonequity partners. The dominant pattern now is that nonequity partners are junior partners or associates who expect to become full partners with a real stake in the practice. However, some younger physicians are joining practices as employees who do not expect to become partners, or who expect it but will not necessarily achieve it. A major factor in the potential discord of these practices will be whether the senior physicians emulate law firm partners who expect junior members to work 80 hours per week for lower compensation while the senior partners get the lucrative cases and earn the large incomes. Presently, there is not enough evidence to predict a pattern on this. • The lifestyle preferences of younger physicians and the more ambitious business goals will be in some conflict. Physicians in specialties where there is a shortage will have some leverage in determining their working conditions and the overall impact of this across the system will be less workforce (in terms of full-time-equivalents (FTEs) for purposes of meeting patient demand). This will set up negotiations between physician employees and their employers, and open up an opportunity for agents who negotiate employment terms for physicians.

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• Physicians in “law firm model” practices will be looking to their medical societies for counseling on career development and climbing the corporate ladder instead of learning skills in practice management.

The Procedural versus Cognitive Differential: Likely to Continue The procedural versus cognitive differential in payment remains resilient to change, and practices in cognitive specialties such as internal medicine, cardiology, and pediatrics are continuing to expand their in-office diagnostic procedures to improve their bottom lines. This differential will persist, at least until the growth of health information technology (HIT) enables the quality movement to mature and there is real outcomes data that can be brought to bear on this issue. If improved outcome measures demonstrate that medical interventions are equal to or more effective than procedural interventions, the cognitive-procedural differential will probably be reduced. However, outcomes-based adjustments are probable in both the procedural and cognitive arenas, and there will likely be a lasting tendency to invest “actually doing something” with a higher value than “just knowing something.”

Automated Offices Become the Norm Computerized provider order entry (CPOE) has been around for over 30 years and yet CPOE is used by only 5.7 percent of nongovernmental U.S. hospitals.32 Yet broader use of HIT in clinical situations is inevitable, receiving assistance from the Department of Health and Human Services (DHHS) funded Health Information Technology Standards Panel, which reported on its first set of standardized clinical vocabulary in late 2006. While patient health records are now largely paper and scattered among caregivers and across delivery sites, electronic records will be self-contained and accessible from almost anywhere by patients as well as providers. Although there is significant movement in implementing this technology, there is still a long way to go before the healthcare industry has an electronic and interoperable system of patient records. • Cost is a major barrier, and an alignment problem between payers and providers about who should bear the burden of the investment will occur in the short run. In the end, it is reasonable to expect that this technology will be subsidized by the government and the creative capitalization efforts of both payers and providers. • To compete successfully, physicians will ultimately need to obtain and use digital applications, regardless of their practice size and setting. Automation in records and practice administration will permit easier measurement development for quality and efficiency analysis as well as more timely and effective treatment. Examples of benefits include the better

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management of medical prescriptions, projected to be 4 billion in 2006, up from 3.4 billion in 2003.33 Evidence-based protocols can also be delivered right to physicians’ desks. Such an instantaneous dissemination of information may help bring more state-of-the-art medicine to remote geographical areas. There are concerns that automation will make it easier to sort out the patient types who are less desirable for practices and payers. Taking lessons from the continued advancement of security measures being implemented today in e-commerce, physician practices and the healthcare industry as a whole must develop and adhere to technologies and protocols that protect the privacy of patients’ electronic records.

Bioethics: A Continued Struggle In today’s world, societal values change at a much slower pace than technology and this lag will likely continue. Stem cell research and its application, organ transplantation, end-of-life care, and genetic engineering are just some of the areas that will remain bioethical issues. Physicians will continue to be confronted with making judgments on behalf of or in conjunction with their patients for which current ethical thinking does not provide ready or clear answers. This same issue will play out on a societal level. The question of universal coverage is ultimately a societal value related to using technology that is available. Outcomes information from the quality movement will help inform this quandary but it will not answer the fundamental question of how much is enough and whether the health of people and thus healthcare is a societal asset in which to invest or a commodity to be bought and sold. Medical practices will continue to be at the center of this conundrum both as partial drivers of the calculus itself and as a key component of the system that is affected by it.

Marketing of Medical Practices Becomes Essential To become or remain competitive, medical practices need to market themselves the same way that other successful businesses do. The realities of the healthcare environment, both now and in the future, require physicians to promote the advantages of their practices over those of their competitors. To attract patients, acquire capital, and develop strategic partnerships, it is important for a practice to develop a presence in the market, by raising its profile and identity in its service area. Since consumers are becoming more reliant on the Internet for obtaining information about businesses, practice Web sites are progressively essential for success as Internet competition for patients continues to intensify. Solo and small practices are no exceptions since larger group practices have the resources to market themselves more extensively and many do a very effective job. Reliance on word of mouth is no longer sufficient to grow a practice and all physician practices will have to make efforts to understand the dynamics of their service areas and develop strategies to compete successfully.

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FUTURE DIRECTIONS: THE NOT SO OBVIOUS Many future implications for the practice of medicine are not very obvious, resulting from the complex interaction of events and conditions that will emanate from the healthcare marketplace.

How the “Quality Agenda” Will Play Out with the Help of Health Information Technology In their publication, Redefining Health Care, Porter and Teisberg make a compelling argument for how value-based competition (the best outcome per unit cost) is the only solution to the country’s healthcare problems of uneven quality, limited access, and high cost.34 They contend that many pay-for-performance proposals and experiments will reward compliance with a process rather than with quality outcomes and thus confuse cost-savings with quality. The authors reject the assumption that quality means higher cost by maintaining that good quality should cost less. While Porter and Teisberg’s argument has intuitive appeal, it appears that the whole structure of healthcare must change to realize a situation close to the one they propose. Yet maybe this is beginning to happen already organically. • Private groups such as the Integrated Healthcare Association (IHA), the Leapfrog Group, and the Quality Forum have developed their own programs to influence the use of data to measure quality and to make the reporting of quality results a standard at healthcare facilities. • In the area of information technology, concern about the level of investment needed to establish HIT systems and the issues of who has to invest (providers) and who reaps the benefits (payers) will arise in the short term in what the HIT world refers to as the “alignment problem.” However, a look at how technology has evolved in other industries can be used as a reference point. Initially, there are many vendors in a field, but eventually, a dominant player starts to prevail (although there is no guarantee it will be the technically superior one). The overwhelming need for standardization will drive the market to one system or several with high degrees of compatibility (as in the VCR, ATM, and software industries). • As healthcare providers start using whatever system emerges, will the efficiency of healthcare delivery improve dramatically? Will unit cost go down or increase at a slower rate? Will data to support quality assessment and assurance become readily available? As in other fields, the answers to these questions will derive more from other phenomena than from what is going on in the HIT sector per se. Fifteen years ago, the big push in business consulting was that the Internet would change everything and any company that did not redefine itself via the Internet would be out of business within the decade. The reality is that while the Internet did dramatically affect many things, most industries are not in a different business because of it. They just have a new tool, a very significant one in many instances, to use in their enterprises. Other than those involved

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in running the Internet itself such as Google, only a small number of businesses were created by the Internet, like eBay, Amazon.com, and Match.com. A similar fate will happen to HIT. When it comes into its own, it will be analogous to a utility that enables many activities but does not constitute a redefinition of the industry. • The dimensions of medical practice and healthcare that will be substantially enabled by HIT will be quality of care measurement and related quality assurance activities. The availability of data enabled by HIT will make it possible for the outcomes dimension of quality assurance to fully develop. When that happens, the economic and scientific dynamics of healthcare will change forever. Value-based assessment of outcomes will inform and educate patients and drive major change in how medical education is taught. Purchasers and payers will be able to assess the costbenefit of different clinical and delivery approaches and tailor coverage options accordingly. In short, the existence of value-based outcome measures will demystify medical care to the point where rational decisionmaking about healthcare options will be much more feasible. • Outcomes measurement will happen in two stages. First will be applying HIT to current systems and processes of organizing and delivering care (a duration of possibly 4 to 8 years). Second will be when those systems and processes for organizing and delivering care are redesigned by people who think about them in a nontraditional context (mostly from the “digital generation”), such as critical enablers of quality care (another 8 to 15 years).

The “Art” of Medicine Gives Way to the “Science” The question of what will happen to the mix and balance of art versus science as the various forces for quality measurement play out is one that comes to the fore. The prominence of HIT and the call for more quality information (particularly outcomes data) will accentuate the science dimension. The art component of medicine may well become completely lost in the shuffle and possibly even become looked down upon as lore of a bygone era when art was all physicians really had to offer. However, if outcomes data on the application of the same technology vary significantly and it turns out that the “art” involved in knowing when and how to apply the technology is the primary differentiating factor in the outcomes, the opposite is likely.

The Healthcare Team’s Scope of Practice Distinctions May Start to Shift • The aging population and corresponding increase in chronic care is going to change how the various health professions interact, and what the healthcare team ultimately looks like. The issue is whether this just “happens” in response to changing conditions or if it is so apparent and

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urgent a need that formal team models are consciously developed and tested, leading to a dominant model that can be demonstrated to work the best. For the short term, the former scenario will prevail. However, the increased professionalization of practice management and the resulting pursuit of successful business models will combine with pressures from payers to find more cost-effective ways to deliver care and will accelerate the development of a healthcare team model that is truly effective. This will almost certainly involve a different mix of physician and nonphysician professionals who will be interacting in different ways than they do today. The pressures driving the system in this direction, together with the decreased leverage that physicians may have as employees, will make the existence of the de facto healthcare team more short term. • While a tried and true health team model is not yet a part of current healthcare delivery, there is ample evidence that nonphysician providers will play increasingly prominent roles in physician practices. Collaboration between physicians and nonphysician providers (NPPs) is increasing and the scope of practice for NPPs is expanding.35 An impetus for this trend is the belief that NPPs can deliver some physician services at the same quality level with lower cost, a phenomenon that will likely decrease many routine services that physicians currently provide. Payers will not reimburse physicians more for performing the same services as NPPs unless there is some demonstrated advantage of having physicians do so. Increased use of NPPs such as physician assistants, nurses, technologists, and other physician extenders will add value to practices by increasing patient oversight, communication, and coordination of care. “Scope of practice” for all members of the health team will be in flux for a time while new patient care roles are established. • New types of health professionals may arise to fill any perceived needs to maximize the team’s effectiveness, as seen with the increased introduction of hospitalists, who see only inpatients, and surgicalists, hospitalists who do surgery. With regard to physicians, the increase in outcomes data will help define what their distinctive contribution is to the healthcare team, with their specific roles evolving to optimize their unique input to the quality of care. This could lead to a significant change in the skill set that the physician is viewed to need and could be reflected ultimately in medical training. While it is probably assumed that as the healthcare team evolves, physicians will become the team managers, this may not be the case, at least on all types of teams. Some physicians may become high-end technicians on the team instead of the directors of this enterprise. • If the Porter and Tiesberg model has any validity and begins to emerge, healthcare teams may well form around medical conditions. If this happens and if they can demonstrate better outcomes, it could be the stimulus for broader reshaping of the entire healthcare delivery system. As noted above, some of this clustering is already beginning to happen.

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• To increase the potential for coordinating care along the entire healthcare spectrum, large group practices will have an advantage of having a considerable variety of specialties and services under one roof. Multispecialty groups, however, will be obliged to manage the clinical boundaries between specialties and subspecialties.

The Doctor-Patient Relationship Continues to Evolve Within the next 20 years, there will be a surge in chronic disease due to the aging of the baby boomer cohort. Success in managing chronic conditions depends heavily upon vigilant personal management and the prudent use of community resources. Might a decrease in face-to-face interaction between the physicians and patients change the substance of the traditional doctor-patient covenant? Some argue that certain types of managed care systems and the increase in physicians becoming employees have already weakened the bonds of this link. It is plausible that another healthcare practitioner could surface from the chronic care team to be the primary interface with the patient and assume significant components of the role that physicians now play vis-à-vis their patients. Also affecting the doctor-patient relationship is the growth of both number and size of medical practice groups. With the inevitable division between business and clinical decision making in larger practice groups, which was addressed earlier in the chapter, the physician-patient relationship could become enhanced because clinicians will be able to focus strictly on clinical work. However, if groups turn out to be unsatisfactory employers and physician employees become dissatisfied, there is strong potential for physicians to become less invested in the practice and develop a poor service ethic.

The Potential for Collective Bargaining Moves Closer to the Table Physician unions in this country have existed since 1957 and they represent mostly physicians and medical residents employed in public settings.36 An estimate of the total number of members in these unions is between 14,000 and 20,000.37 Historically, the medical profession has viewed the union as an unsuitable organization for physicians because of a variety of reasons, including its threat to the physician’s clinical and practice autonomy and to the physician’s ability to keep the patient’s best interests at the center of all practice matters. Changes in the healthcare market, however, could make unions a realistic option for practicing physicians in the future. The potential for collective bargaining by physicians has probably been made more viable by the high growth in the number of physicians who are choosing to become employees. As employees they are moving closer to the nonsupervisory status that exempts them from antitrust laws and allows them to engage in collective bargaining with employers in matters involving the terms and conditions of employment. Yet even without formal management positions, physicians who are

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employees are often designated as managers because they direct other members of the healthcare team. As courts are asked to revisit the “physician employee” concept and as healthcare teams may evolve in a way which makes it more difficult to characterize the physician’s role as supervisory, the union option may gain momentum. Collective bargaining may have appeal to a segment of the physician population as a response to a perceived need for a more effective, structured way of negotiating with employers because of current and projected practice situations, including a continued downward pressure on physician income and a desire among younger physicians for balance between their personal and professional lives. Too, these younger physicians have demonstrated by their practice choices that they are not as tied to the traditional concept of what a doctor should and should not be. There are some difficult questions that arise over the prospect of physician unions. How might the public’s image of physicians change if they became union members? How would unions affect the cost, quality, and delivery of care?

The New Consumerism: Mixed Participation • Calls for new ways to repair the “broken” healthcare system, such as the IOM’s Crossing the Quality Chasm report and the American Academy of Family Physicians’ New Model of Care, focus on the importance of including consumers in treatment decisions.38,39 While many or even most patients will be more than willing to take on this role, some will be reluctant to do so. Regardless, physicians will promote consumer involvement in healthcare decision making as it becomes a standardized expectation for the delivery of quality care. • Informed consumers will become a reality, but the vision of patients searching the Internet for hours to download research results that they will discuss with their caregivers (and possibly use to challenge the caregivers’ recommendations) will not be nearly as common as some seem to suggest. Many consumers will view the study of healthcare literature as not only too labor intensive but also as somewhat futile given their lack of experience to interpret it correctly. • As the HIT-enabled quality movement begins to generate outcomes data that really mean something, consumers will become more informed and savvy as this information emerges and sources such as the general media and health education programs in schools interpret this data to the public. Given the wealth and variety of performance information, they may also need to rely on various consumer groups or even healthcare “brokers” to help them understand provider performance data. This will likely increase the number and aggressive marketing of consumer-report types of services to help consumers choose their care more wisely. • While it is assumed that more transparency, especially in pricing, will help patients make more cost-effective treatment decisions, the extent to which this will occur and the rate at which it will occur remains unclear.

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While in theory, quality care is cost-effective, the links between outcomes data and pricing may not be readily apparent to the average consumer. If the price-outcome value relationship is not clearly manifest, patients will rely more on outcomes data than price data in their decision making, especially for less routine and more invasive procedures. • Consumers who are dissatisfied with the state of their healthcare will have the opportunity to share their complaints with a larger audience than just their family and friends. They, and many others like them, can exercise their blogging skills on the World Wide Web to affect public opinion on the delivery of care, which could well influence the actual delivery of care. Patients already compare disease symptoms and the success of various treatments with each other on Internet sites designed for this purpose. As “digital generations” eventually comprise the vast majority of the patient population, global patient constituencies will develop to share information on a more structured, consistent, and broad scale.

A New Taxonomy for the Sites of Care • Embedded mindsets still tend to think of the health delivery system as divided into inpatient and outpatient. But this dichotomy is changing quickly and will continue to do so in ways that are not even envisioned now. Practices are increasingly doing their own imaging and many other procedures previously performed in the hospital (particularly in cardiology and orthopedics). The number of for-profit specialty hospitals is growing at a tremendous rate, contributing to the deteriorating financial viability of general acute care hospitals. These patterns suggest a system that is quickly evolving into a continuum of delivery sites that range from high-tech acute care institutions requiring sophisticated capital equipment and super-specialized providers (usually in teams) to low-tech, decentralized management of chronic conditions at home and other settings that are not traditionally considered health delivery sites. There will also be many delivery points along the continuum, not just a few. • The implications of an increased continuum of delivery sites for care are many and some are questions that cannot currently be answered. For example, will this result in lower or higher overall cost? Will quality of care be enhanced by specialized sites for various conditions, or deteriorated by more fragmented and reduced continuity of care? And, how will this affect what is defined as “a medical practice”? However, increased continuum of delivery sites is another trend that could open the way for the Porter and Tiesberg model of value-based competition, discussed previously in this chapter. The big question about their model is how the structural change necessary to implement their approach could ever be achieved in an industry with so many entrenched

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patterns of behavior and traditional mindsets. Perhaps the market is driving it that way in spite of these institutional impediments.

Healthcare Goes Retail: Big Box and Boutique • Catering to consumers’ quests for convenience and affordability, there are hundreds of store-based clinics, mostly operating in the Midwest and South in retail chains such as Wal-Mart, CVS, Target, and Kroger. Estimates are that number will expand to several thousand in the next few years.40 Some practices in the vicinity of store-based clinics are concerned that such clinics will disrupt the loyalty of their patient base and cull out the more routine ailments, leaving them with the more costly, time-consuming ones, in which margins may not compensate for the loss in procedure volume. Even though much of the care performed by the store-based clinics is low margin, or even net loss service, for regular practices, those practices will be reticent to lose patients to the clinics for fear of the patients leaving the practice altogether. Loss of patients to these clinics may turn out to be the case in various localities. The American Academy of Pediatrics has spoken out against retail-based clinics on the basis that they make the continuity of care more difficult by spreading care over multiple providers. These clinics typically operate by leasing space from a retailer like Wal-Mart for a flat fee and strictly limiting the types of treatment they provide (immunizations, strep, sinus infections). With no appointments necessary, they charge patients an up-front fee ($45 at Wal-Mart), an attractive price for many patients without insurance. The extent to which this phenomenon flourishes will be mostly dependent on profitability, which could be affected by factors such as professional liability, for both the clinics themselves and their big box landlords. • Boutique medicine, also called concierge practice, is a small but growing trend that presently appears to be limited in its overall appeal, although its patients currently have a high rate of renewal. For an annual fee, patients receive highly personalized services including guaranteed same-day appointments, routine checkups that may not be covered by insurance, and home visits. Presently, the number of these practices is not tracked because boutique medicine is relatively new and still too small to have an impact on the healthcare system. In 2004, a U.S. Government Accountability Office (GAO) report found that there were just 146 physicians practicing medicine in this manner, mostly located in the Northeast, Northwest, and Florida.41 Patients pay annual retainers from a low of $1,500 per individual to $24,000 for a family of four.42 In 2003, AMA agreed that this concept was ethical if it followed certain guidelines. There are bills in Congress to prohibit concierge practice physicians from charging retainer fees to Medicare patients or at least to preclude them from billing Medicare for two years if they charged such

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fees. Depending upon patient satisfaction and profitability for providers, this niche market may grow more than current trends indicate. • Although the concept of overt differentiation for those who can pay for extra service is an offensive idea to some, Tufts-New England Medical Center, one of a significant number of teaching hospitals with fiscal problems, is experimenting with the boutique concept to develop a primary care practice that provides amenities such as private waiting areas and longer appointments for an annual retainer fee.43 In these instances, such services are viewed as a way to help subsidize nonprofit hospitals that treat underinsured patients. If the difficulties of gaining access to primary care in a timely manner continue or become worse for some patient markets, this type of practice may prove to be a profitable enterprise.

Lifestyle Choice May Eventually Bend to Help Meet Patient Demand • The advent of store based-clinics and the professionalization of practice management are phenomena that might become countervailing forces to the lifestyle tradeoff discussed earlier in the chapter. In spite of younger physicians wanting to work fewer hours, the demands of competition from convenience clinics and practice group managers who will be acutely aware of market share may end up putting sufficient pressure on the physicians to increase their practice time. While physicians may push back and end up generating a whole different kind of rotational coverage system, traditional practices may well start to have evening and weekend hours. If the law firm model discussed earlier grows significantly in medicine, younger physicians for whom lifestyle issues are more important will be the ones expected to assume relatively more of the additional burden of extended hours of service availability.

Physician Income Will Reconverge toward That of the Average Worker The widening gap between physicians’ incomes and those of the average workers’ began to accelerate around 1950 as a result of advances in medical technology and the growth of health insurance coverage, and has reached its widest point during the last 20 years or so. Market conditions have already worked to flatten and decrease physicians’ incomes and bring them closer to the level of advantage they had over the average workers’ incomes in the pre–World War II period. As noted previously, between 1995 and 2003, the average net income from the practice of medicine declined about 7 percent after adjusting for inflation, while income for nonphysician professionals increased 7 percent in that period.44 While physicians will continue to be compensated substantially above the level of the average worker, the differential that existed for much of the last half of the twentieth century will be hard to sustain in the face of current and predicted market forces.45

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Medical Technology, an Increasingly Crucial Catalyst for Affecting the Delivery of Healthcare across Its Entire Spectrum • The mapping of the human genome, now completed, will profoundly alter the delivery of healthcare. Within the next generation, genetic tests and the ability to manipulate the activity of genes that are responsible for a variety of diseases will become standard procedures. Knowing genetic proclivities toward illnesses, preventive care will have a vital tool for improving patient outcomes and could catapult preventive medicine to a status that may well rival the management of chronic diseases in the investment of healthcare practice time. The advancement of gene therapy has the prospect of both enabling the pharmaceutical industry to customize drugs for patients according to their specific genetic profile and expanding the scientific platform for more breakthroughs by the research of data gathered from genetic maps.46 Aside from the obvious patient benefits, gene mapping and manipulation will give physicians the tools to be more effective medical practitioners, thus providing them with greater personal and professional satisfaction from their enhanced abilities to prevent and treat diseases such as various types of cancer, for which current prognoses are overwhelmingly dire. There will be issues to tackle with gene mapping, including who will perform the gene maps, physicians or competing business ventures directed to this purpose or both. The development of processes to prevent adverse selection will also be germane to the incorporation of this technology into healthcare practices. Concerns that payers and employers will use genetic information to exclude high-risk individuals from insurance and employment pools are very real. • Telemedicine is the remote communication between physicians as well as between physicians and patients that transmits two-way audio and video in addition to medical information. While telemedicine will not replace human contact, it has the potential to enable doctors and patients in different locations to interact in real time and transfer medical imagery. With the use of other technology such as electronic stethoscopes, telemedicine can even help monitor patients by listening to their heartbeats.47 Such a capacity will facilitate the management of chronically ill patients with complex treatments and multiple providers. The University of California—Davis School of Medicine has a multimillion dollar grant to establish the school as a statewide center for medical telecommunications to help improve healthcare for patients living in the remote areas of the state, including linking primary care providers in small counties to specialists for consultations.48 Lack of access to healthcare in rural areas has been a long-standing problem. While not the optimal solution to the lack of care in remote areas, telemedicine will become an important step toward expanding access to care.

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• The use of HIT systems gives solo and small physician practices an opportunity to establish “virtual group practices” to better compete with “actual group practices.” Providers as well as patients will have access to their medical and healthcare records through their cell phones or new, similar platforms. While HIT systems have already given rise to issues such as the outsourcing of diagnostic services currently performed domestically, the digital revolution will continue to become one of the most historically significant factors in directing the course of healthcare delivery.

CONCLUSION The current challenges to successful physician practices are daunting and will remain so for years to come. To help determine the future of healthcare delivery and their stake in it, physicians need to exercise proactive and innovative efforts to maximize their professional positions in the present environment. The destabilization of a healthcare system that is not operating at peak performance and requires an infusion of new ideas to achieve its goals can force that system into a situation where the experimentation with solutions can ultimately increase its efficiency. There is no reason to believe that this will not happen in the case of medical practice. With the assistance of health information technologies that may finally enable real progress in addressing quality issues, the future medical practice model will look much different from that of today but may well be more personally and professionally rewarding.

REFERENCES 1. Medical Group Management Association (MGMA). Group Practice Fast Facts. Available at: http://www.mgma.com/print.aspx?id=1434. Accessed February 10, 2007. 2. American Medical Association. 2000. AMA Physician Marketplace Report: The Practice Arrangements of Patient Care Physicians1999. Physician Characteristics and Distribution in the United States, 353. 3. MGMA, Group Practice Fast Facts. 4. Wassenarr, J., and S. Thran. 2003. Physician Socioeconomic Statistics 2003. Chicago: American Medical Association Center for Health Policy Re search, 91. 5. “Physicians Venture Out.” 2006. Modern Healthcare (August 7): 76. 6. Abdo, W., and M. Broxterman. 2004. “Physician Employment Trends.” Physician’s News Digest (June): 4. 7. Dorsey, E. R., D. Jarjoura, and G. W. Rutecki. 2003. “Influence of Controllable Lifestyle on Recent Trends in Specialty Choice by Students.” Journal of the American Medical Association 290:1173–1178. 8. American Medical Association, Women Physicians Congress. 2006. Table 1: Physicians by Gender (Excludes Students). Available at: http://www.ama.assn.org/ama/ pub/category/12912.html. Accessed February 9, 2007. 9. Association of American Medical Colleges. 2006. Facts: Applicants, Matriculants and Graduates. Table 4: Applicants and Matriculants by School and Sex. Available

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at: http://www.aamc.org/data/facts/2006/2006school.htm. Accessed February 9, 2007. 10. Steinhauer, J. 1999. “For Women in Medicine, a Road to Compromise, Not Perks.” New York Times (March 1): Health Section. 11. Jolly, P. 2004. Medical School Tuition and Young Physician Indebtedness. Washington, D.C.: Association of American Medical Colleges, March 23, p. 2. 12. Ibid. 13. Ibid., 6. 14. Zeltser, M. 2007. Reclaiming Professionalism; Revolutionizing Medical Education! Reston, VA: American Medical Student Association. Available at: http://www. amsa.org/meded/studentdebt.cfm. Accessed February 7, 2007. 15. American College of Physicians. 2007. Student Loan Debt Relief. Philadelphia, PA: American College of Physicians. Available at: http://www.acponline.org/hpp/ advocacy/leadday05/debt_relief.pdf. Accessed February 6, 2007. 16. Institute of Medicine of the National Academies. 2006 (June). The Future of Emergency Care in the United States Health System. Washington, D.C.: Institute of Medicine of the National Academies. Available at: http://www.iom.edu/CMS/3809/16107. aspx. Accessed February 2, 2007. 17. Ibid. 18. Ibid. 19. Berenson, R. A., and J. Horvath. 2002. “The Clinical Characteristics of Medicare Beneficiaries and Implications for Medicare Reform.” Paper presented at the Conference on Medicare Coordinated Care, Washington, D.C., March 2002. 20. Council on Long Range Planning and Development, American Medical Association. 2006. Health Care Trends Report (June): 5. Available at: http://www.ama-assn. org/ama/pub/category/4266.html. Accessed August 2, 2007. 21. Committee on Quality Health Care in America, Institute of Medicine. 2001. Crossing the Quality Chasm: A New Health System for the 21st Century. Washington, D.C.: National Academy Press. 22. Tu, H. T., and P. Ginsberg. 2006. Losing Ground: Physician Income, 1995–2003. Center for Studying Health Systems Change, Tracking Report No. 15, June 2006. Available at: http://www.hschange.org/CONTENT/851/. Accessed February 2, 2007. 23. Ibid. 24. National Health Statistics Group. 2006 (January). National Health Care Expenditures Projections: 2005–2015. Baltimore, MD: Centers for Medicare and Medicaid Services. Available at http://www.cms.hhs.gov/NationalHealthExpendData/downloads/proj2006.pdf. Accessed August 2, 2007. 25. American Medical Association. 2006. “Busy Week for Medicare Physician Payment on Capitol Hill.” eVoice® (July 27). Available at: http://www.ama-assn.org/ ama/pub/category/16621.html. Accessed November 3, 2006. 26. American Medical Association. 2005. “AMA Survey Shops Steep Medicare Payment Cuts Will Hurt Access to Care for America’s Seniors.” News release of April 5, 2005. Available at: http://www.ama-assn.org/ama/pub/category/14924.html. Accessed January 4, 2007. 27. Council on Graduate Medical Education (COGME). 2005. Physician Workforce Policy Guidelines for the United States, 2000–2020. Sixteenth Report (January). Rockville, MD: Department of Health and Human Services, Health Resources and Services Administration. Available at: http://www.cogme.gov/16.pdf. Accessed August 2, 2007.

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28. Evans, M. 2007. “Following the Money to Nursing.” Modern Healthcare (January 15): 10. 29. “Physicians Venture Out.” 2006. Modern Healthcare (August 7): 76. 30. Bethely, J. G. 2007. “Talk to My Agent: Some Physicians Let Others Arrange the Job.” Amednews (January 22): Business section. Available at http://www.amaassn.org/amednews/2007/01/22/bisa0122.htm. Accessed August 2, 2007. 31. Wiberg, C. 2007. Senior Knowledge Manager, MGMA Information Center. Personal communication with author, March 7, 2007. 32. Doolan, D. F., and D. W. Bates. 2002. “Computerized Physician Order Entry Systems in Hospitals: Mandates and Incentives.” Health Affairs 21 (4): 180–88. 33. Hanson, R. S., and D. P. Feeney. 2004. “Future Physicians Can Play Key Role in Driving New Technology Adoption.” American Physician and Scientist (February). Available at: http://www.acphysci.com/aps/resources/PDFs/Feb04_web.pdf. Accessed November 15, 2006. 34. Porter, M. E., and E. Olmsted Teisberg. 2006. Redefining Health Care: Creating Value-Based Competition on Results. Boston: Harvard Business School Press. 35. Cooper, R. A., P. Laud, and C. L. Dietrich. 1998. “Current and Projected Workforce of Nonphysician Clinicians.” Journal of the American Medical Association 280 (9): 788–94. 36. Smith, D. H. 1998. “Wishful Thinking About Unions.” Physician’s News Digest (October). Available at: http://www.physiciannews.com/discussion/smith.html. Accessed February 13, 2007. 37. Ibid. 38. Committee on Quality Health Care in America, Institute of Medicine. 2001. Crossing the Quality Chasm: A New Health System for the 21st Century. Washington, DC: National Academy Press. 39. Future of Family Medicine Project Leadership Committee. 2004. “The Future of Family Medicine: A Collaborative Project of the Family Medicine Community.” Annals of Family Medicine (March): S3–S32. 40. Moran, T., and C. Herman. 2006. “Future of Health Care or Quick Fix?” ABC News (October 17). Available at: http://abcnews.go.com/Nightline/print?id= 2577785. Accessed November 11, 2006. 41. Williams, D. E. 2006. “Boutique Medicine: When Wealth Buys Health.” CNN.com (December 19). Available at: http://edition.cnn.com/2006/US/10/19.bil. healthy.wealthy/index.html. Accessed December 7, 2006. 42. Ibid. 43. Smith, S. 2003. “The Boutique Medicine Boom: Perspectives on the Growth of a Controversial Trend.” Practice Builders 2 (9): 1–2. 44. Tu and Ginsberg, Losing Ground. See reference 22. 45. Friedman, M. 1991. “Gammon’s Law Points to Health-Care Solution.” Wall Street Journal (November 12): A20. 46. Nwanguma, B. C. “The Human Genome Project and the Future of Medical Practice.” African Journal of Biotechnology 2 (12): 649–56.

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47. “Could Telemedicine’s Impact on Health Care Cause Investors to Take Notice?” 2006. PRWeb® (December 5). Available at: http://prweb.com/releases/2006/12/ prweb487323.htm. Accessed February 15, 2007. 48. UC Davis Health System. 2006. More Doctors and Better Health Care. Available at: http://www.ucdmc.ucdavis.edu/welcome/features/20061213_doctors_ruralprime/ index.html. Accessed December 8, 2006.

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CHAPTER 10

Can Pay-for-Performance Really Pay for Performance? Douglas E. Hough

T

he concept of “pay-for-performance” has become one of the most hotly debated topics in health policy, including proposals by think tanks,1 demonstration projects by payers,2 resolutions by professional associations,3 and federal legislation.4 The challenge is whether this concept will succeed—or follow the path of many other proposals to improve performance or contain costs that did little to add value but instead added to the rise in healthcare spending. To consider this prospect, one must consider both the theoretical and pragmatic consequences of the pay-for-performance initiative. In this chapter, we will: • Describe the issue, the reasons for the growing interest, and the perspectives of the various stakeholders. • Summarize the current pay-for-performance initiatives that are being undertaken. • Present the evidence of the effectiveness of pay-for-performance to date. • Articulate the challenges that may inhibit widespread adoption of payfor-performance plans. • Speculate on the long-term prospects for pay-for-performance initiatives in healthcare.

WHAT IS THE ISSUE? Pay-for-performance can be defined as any formal effort to reward those providers who deliver “better” care, whether defined as lower cost, higher quality (either service or technical), or greater access. In some sense, this approach is patently obvious; after all, consumers usually pay more for better goods and

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services, be they hotels or restaurants or universities. However, in healthcare it is a revolutionary concept; for the most part, physicians, hospitals, and other providers of healthcare in the United States that generate superior outcomes, easier access, or lower cost are paid the same as lower performing providers. This system has prevailed for at least a century.5 The concept of paying better-performing providers is generating discussion now for two reasons. First, over the past decade healthcare reform has evolved from top-down, structural transformation (as exemplified by the Clinton healthcare plan) to a more bottom-up approach that focuses on effecting change at the organizational level. For example, a 2005 survey by the Commonwealth Fund found that 57 percent of 289 healthcare opinion leaders rated “rewarding more efficient and high-quality medical care” as their top choice for lowering healthcare spending.6 Second, the patient safety initiative (sparked by the Institute of Medicine studies and the work of the Institute for Healthcare Improvement) motivated thousands of hospitals to analyze and improve their safety practices, and pay-forperformance is one of the policy levers that leaders of this movement have advocated to reward providers who are dedicated to improving patient safety.1,7 Pay-for-performance has promise primarily because healthcare currently offers few, if any, financial rewards for performance.8 Physicians are paid the same amount for the same service to Medicare patients (based on the Resource-Based Relative Value Scale) regardless of the quality or outcome of care. In some instances, better-performing providers are penalized for more efficient care. According to the Centers for Medicare and Medicaid Services (CMS), “[W]hen physicians and hospitals take proven steps to improve quality and lower costs, their reward is often getting paid less”9 (because they provide fewer services, shorten length of stay, or keep patients out of hospitals). In a remarkable admission, CMS further states that, “If we just keep paying the bills the same old way, we will not get higher quality, more efficient care.” As a result, one of CMS’s five strategies in its Quality Improvement Roadmap is to “pay in a way that reinforces our commitment to quality, and that helps providers and patients take steps to improve health and avoid unnecessary costs.” The U.S. Congress expressed its support for this initiative by adopting the Deficit Reduction Act of 2005, which requires CMS to develop plans for “value based purchasing” for hospitals by 2009.4 Given these foundations, policy wonks are beginning to articulate the preferred details of pay-for-performance plans. John Rowe, a physician and former CEO of Aetna, is advocating that plans reward the level of performance as well as sustained improvement, based on quality measures that are “evidence-based; based on reliable, aggregated, observable performance information; transparent; and clinically important.”10 Arnold Epstein has enunciated key features needed for a pay-for-performance program: widespread public reporting of care quality; extension beyond narrowly defined quality indicators (including efficiency); and limited expansion of budgets for physician services.11 Healthcare organizations have weighed in, as well. The Joint Commission on Accreditation of Healthcare Organizations issued a set of 10 “Principles for the Construct of Pay-for-Performance Programs,” including incentives that are a

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mix of financial and nonfinancial (such as lessened administrative oversight for high-performing providers), incentive programs that support team-based care and are aligned with professional responsibility and control, and rewards for accreditation.12 Many physician associations—such as the American Medical Association, the American Academy of Family Physicians, the American College of Physicians, the American College of Cardiology, the Society of Thoracic Surgeons, and the Alliance of Specialty Medicine—have given general support for pay-forperformance programs, as long as they involve rewards, not penalties; measure outcomes rather than process; measure excellence as well as improvement; and provide additional funds for physician services.13 On the other hand, consumers/patients present a contrary view toward payfor-performance. A 2004 survey of 1,223 adults with health insurance conducted for American Healthways found that although 81 percent believed that bonus pay for meeting goals or doing superior work is a good idea in general, only 51 percent agreed that bonuses should be given to physicians (compared to 84 percent for teachers and 87 percent for retail sales clerks).14 When asked why they opposed physician bonuses, those responding said most frequently that physicians should always do their best, that physicians already make a lot of money, and that physician behavior should be governed by their professional ethics. A Wall Street Journal/Harris Interactive Poll conducted of 2,123 adults in 2006 found that 33 percent favored health insurance plans paying more to hospitals and medical groups that provide better care and paying less to those that do not (with 13 percent opposing and 54 percent not sure). However, only 19 percent thought that it would be fair for patients to pay more to be treated by medical groups or hospitals that provide better care (with 57 percent opposing and 24 percent not sure); likewise, only 14 percent would be willing to pay a significantly higher premium for a health insurance plan that covered hospitals and medical groups that provided superior care (with 55 percent opposing and 31 percent not sure).15

WHAT IS BEING TRIED? Pay-for-performance initiatives are growing rapidly. A 2004 publication identified a total of 78 demonstration projects or operational pay-for-performance programs in the United States.2 A survey of 252 health maintenance organizations (HMOs) conducted in the last half of 2005 found that 126 (52 percent) used some form of pay-for-performance in their provider contracts.16 These 126 HMOs represent 81 percent of those enrolled in the 252 plans. Of the HMOs with payfor-performance programs, 48 (38 percent) had programs for hospitals and 113 (90 percent) had programs for physicians. Of the physician-targeted programs, only 15 (13 percent) measured and rewarded the individual physician, whereas 64 (57 percent) measured and rewarded the medical group, and 26 (23 percent) did both. All of the 51 capitated plans with pay-for-performance programs targeted to physicians measured clinical quality, 80 percent measured information technology uptake, and 69 percent measured patient satisfaction. The 62 noncapitated plans with pay-for-performance programs targeted to physicians were

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more diverse in how they measured performance: clinical quality (79 percent), information technology (45 percent), patient satisfaction (50 percent), and cost (42 percent). In terms of bonus structure in the 113 physician-related pay-forperformance programs, 36 (32 percent) gave rewards only to the top performers, 70 (62 percent) based the rewards on attainment of predetermined performance thresholds, 23 (20 percent) based the rewards on improvement of performance, and 16 (14 percent) rewarded both attainment and improvement. A survey conducted by the Commonwealth Fund in 2006 found that 28 of the 50 state Medicaid programs were operating a total of 35 pay-for-performance programs for physicians, and 15 additional states expected to have such plans in operation within five years.17 Twenty-five of the 35 Medicaid pay-for-performance plans operate in managed care or primary care case management environments. Some of the programs include only one or two performance measures, while others include 10 or more. The most commonly used measures (69 percent) are from the Health Plan Employer Data and Information Set (HEDIS) created by the National Committee for Quality Assurance (such as childhood immunization rates, diabetes care measures, and various types of cancer screening); 60 percent of the Medicaid pay-for-performance programs use structural measures, such as accreditation, health information technology adoption, and time required to get an appointment. Eighty-five percent of Medicaid pay-for-performance plans reward physicians based on a predetermined target level of performance; 33 percent reward based on performance improvement; and 21 percent reward based on peer comparisons. The plans use diverse financial incentives: 69 percent use bonuses; 34 percent use penalties; 31 percent use differential reimbursement (i.e., ongoing payments rather than onetime increases), and 9 percent reduce withholds. When asked the characteristics of a good pay-for-performance program, the surveyed state Medicaid medical directors responded that the following were most important: • Incorporates scientifically sound measures (78 percent rated as “very important”) • Uses measures that are feasible to collect (73 percent) • Uses measures that are regularly reviewed and updated (70 percent) • Promotes continuous quality improvement, not just attainment of a target (62 percent) • Developed in coordination with providers and purchasers (61 percent). When asked what factors would be detrimental to a pay-for-performance program, the two most cited were “It penalizes providers” (69 percent) and “It could result in greater spending” (57 percent). There are a number of demonstration projects and organizational initiatives on pay-for-performance that merit discussion. First, CMS and Premier, Inc. (a healthcare alliance of over 200 not-for-profit hospitals and health systems) partnered to create the Hospital Quality Incentive Demonstration Project (HQID).18,19 This three-year project was launched in October 2003, with approximately 250 hospitals participating in 38 states. The participating hospitals are

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collecting and submitting to CMS patient-level data and hospital-level quality data for all discharges, using 34 standard quality metrics for five key clinical areas: • Acute myocardial infarction (9 measures, such as aspirin given at arrival to the hospital and inpatient mortality rate [all measures are listed in the Appendix]) • Coronary artery bypass graft (8 measures, such as aspirin prescribed at discharge and postoperative physiologic and metabolic derangement) • Heart failure (4 measures, including left ventricular function assessment and adult smoking cessation advice/counseling) • Community acquired pneumonia (7 measures, including percentage of patients who received an oxygenation assessment within 24 hours before or after hospital arrival) • Hip and knee replacement (6 measures, including prophylactic antibiotic received within one hour prior to surgical incision and number of readmissions 30 days postdischarge) The top-performing decile of participating hospitals receives a 2 percent bonus; the second decile receives a 1 percent bonus; beginning in year 3, the lowest two deciles receive up to a 2 percent penalty. Results from the first two years of the demonstration project have been analyzed, and will be discussed in the section below. CMS has also launched a physician-oriented pay-for-performance demonstration project: the Medicare Physician Group Practice Demonstration.20 The three-year project began in April 2005 with 10 large multispecialty physician groups—Billings Clinic (MT), Dartmouth-Hitchcock Clinic (NH), Everett Clinic (WA), Forsyth Medical Group (NC), Geisinger Health System (PA), Marshfield Clinic (WI), Middlesex Health System (CT), Park Nicollet Health Services (MN), St. John’s Health System (MO), and University of Michigan Faculty Group Practice. The incentive methodology is based on both cost and quality performance. Figure 10.1 shows the bonus payment algorithm, which is explained in a 248-page report written by the company contracted by Medicare to administer the program.21 First, a participating group receives a bonus only if the group generates savings to Medicare of at least 2 percent (compared to what Medicare would have paid the group on a standard fee-for-service basis). If so, Medicare takes 20 percent of the savings above the 2 percent threshold, and the group receives the remaining 80 percent. The group’s bonus is divided into two parts—cost and quality—with that split varying from 70/30 in year 1 to 60/40 in year 2 and 50/50 in year 3. The cost performance incentive goes directly to the group. The actual size of the quality payout depends on the performance of the group on 32 quality measures (listed in the Appendix) for five clinical areas (phased in over the three years of the demonstration): • Diabetes mellitus (10 measures, with a “weight” of 22) • Congestive heart failure (10 measures, with a weight of 13) • Coronary heart disease (7 measures, with a weight of 10)

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• Hypertension (3 measures, with a weight of 3) • Preventive care (2 measures, with a weight of 5) To be eligible for each of the 32 quality measures, the group must satisfy at least one of three targets: • The higher of 75 percent compliance with the measure or the mean value of the equivalent Medicare HEDIS measure • The 70th percentile Medicare HEDIS level • A 10 percent or greater reduction in the gap between the level achieved by the group in the base year and 100 percent compliance with the measure in the performance year Results from the first year of the project have been released, and will be discussed in the section below. There are three major private sector pay-for-performance initiatives currently under way. The first was organized by the Integrated Healthcare Association (IHA), a California-based, not-for-profit organization of 30 payers, providers, consultants, and the government. In 2000 the leaders of several large physician groups approached IHA with the idea of developing a uniform program of quality incentives for physicians. After a detailed consensus process of developing and piloting measures, the pay-for-performance program was launched in 2003 with seven of the largest health plans in the state (Aetna, Blue Cross, Blue Shield, CIGNA, Health Net, PacifiCare, and Western Health Advantage). The 225 participating physician organizations (representing 35,000 physicians) are now being assessed along 10 clinical measures (childhood immunizations, cervical cancer screening, breast cancer screening, asthma management, HbA1c screening, HbA1c control, LDL screening, LDL control [less than 130], chlamydia screening, and appropriate treatment for children with upper respiratory infection, for a total weight of 50 percent), five patient experience measures (specialty care, timely access to care, doctor-patient communication, overall ratings of care, and care coordination, for a total weight of 30 percent), and two information technology investment measures (population management and clinical decision support, for a total weight of 20 percent).22 The second private sector initiative is being led by the Leapfrog Group, an organization with over 170 Fortune 500 company members founded in 2000 by the Business Roundtable, to initiate breakthrough improvements in healthcare safety, quality, and cost. In 2005 the Leapfrog Group developed a performance measurement and management tool called Hospital Insights Program, which is the basis for the group’s Hospital Rewards Program. Hospital Insights ranks hospitals in five clinical areas—coronary artery bypass graft, percutaneous coronary intervention, acute myocardial infarction, community acquired pneumonia, and deliveries/newborn care—along two dimensions (quality and resource efficiency).23 The Leapfrog Group is working with several payers—for example, Horizon Blue

Figure 10.1 Process for Calculating Bonus Payments in the PGP Demonstration

Note: Dotted lines represent negative contribution to Medicare program savings. 1 Annual Medicare Savings between –2% and 2% of target expenditures are not included in bonus computations because they may result from random fluctuations. They are included in Medicare Program Savings. 2 In Performance Year 1, the cost bonus and maximum quality bonus shares of the PGP bonus pool are 70 percent and 30 percent, respectively. In performance year 2, the shares are 60 percent and 40 percent, respectively, and in Performance Year 3, the shares are 50 percent and 50 percent, respectively. 3 For the calculation of the percentage of quality targets met in a performance year, claims-based quality targets will be weighted four times as much as chart-based and hybrid quality targets. Source: RTI International

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Cross Blue Shield of Massachusetts and Horizon Blue Cross Blue Shield of New Jersey—to apply this methodology in their payment schemes for hospitals. The third private sector pay-for-performance initiative is “Bridges to Excellence,” a loose organization of employers, physicians, and health plans. Its goal is to “encourage physicians and physician practices to deliver safer, more effective and efficient care by giving them financial and other incentives to do so.”24 Similar to the approach of the Leapfrog Group, Bridges to Excellence has developed four methodologies—Physician Office Link, Diabetes Care Link, Cardiac Care Link, and Spine Care Link—and works with health plans to implement pay-forperformance plans with physician practices. The efforts as of March 2007 have been modest, with programs in 18 states recognizing 3,025 physicians in 275 practices. Finally, the National Health Service (NHS) in the United Kingdom initiated a pay-for-performance program for family practitioners in 2004, which has received widespread attention. The NHS committed £1.8 billion ($3.2 billion) over three years to fund the pay-for-performance program.25 Family practitioners could earn bonuses of up to 25 percent, based on their performance on 146 quality indicators26 related to: • Ten “clinical domains” • • • • • • • • • •

Coronary heart disease (15 measures) Transient ischemic attacks (10 measures) Hypertension (5 measures) Diabetes (18 measures) Chronic obstructive pulmonary disease (8 measures) Epilepsy (4 measures) Hypothyroidism (2 measures) Cancer (2 measures) Mental health (5 measures) Asthma (7 measures)

• Five organization of care components • • • • •

Records and information about patients (19 measures) Patient communication (8 measures) Education and training (9 measures) Practice management (10 measures) Medicines management (10 measures)

• Four patient experience measures • Four additional services • Cervical screening (6 measures) • Child health surveillance (1 measure)

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• Maternity services (1 measure) • Contraceptive services (2 measures). Each measure was assigned a number of points, with a total of 1,050 points; family practitioners earn points largely by having the percentage of their patients exceed a preestablished threshold for a quality indicator. For the most part, the thresholds were established at what was predicted to be the 75th percentile of family practitioners. For the 2004–2005 fiscal year, payment was set at £76 ($133) per point; in 2005–2006 forward, payment was £125 ($218). Thus, the maximum bonuses were £79,800 ($139,400) in 2004–2005 and £131,250 ($228,900). The first-year results of this program will be discussed in the section below.

WHAT IS THE EVIDENCE? Given all the interest in pay-for-performance in healthcare, one would expect to see a multitude of studies evaluating demonstration projects of the concept. The evidence for pay-for-performance—albeit preliminary and contradictory—is only beginning to arrive. Rosenthal and Frank undertook the first review of the evidence on pay-for-performance.27 In 2004 they scoured the peer-reviewed, empirical literature related to payment for higher quality; they found only seven such studies in healthcare. Only two of the seven studies demonstrated statistically—and clinically—significant improvements in measured quality. The authors then searched outside the healthcare sector for evidence of pay-for-performance: executive compensation (minimal effects found), teacher and school performance (null or mixed effects found), and job training (a combination of real effects and “cream-skimming” by job training programs). The authors also examined the literature in experimental psychology. They found that financial incentives improved performance for those tasks for which increased effort (i.e., quantity) was strongly related to performance, such as production or clerical tasks. However, “incentives appear not to matter” for those tasks for which quality determines performance, such as problem solving or reasoning. Given that much of healthcare delivery involves the latter more than the former, the experimental psychology literature suggests that financial incentives may not be relevant in improving the performance of health professionals. Finally, psychological research has repeatedly demonstrated the tendency of people to consider themselves to be above average—and thus overconfident in their ability to perform tasks. Rosenthal and Frank conclude that, “[I]f physicians are overconfident, they will tend to believe that their usual practice will yield rewardable performance. The end result would be weak response to pay-for-performance schemes.” Not long after Rosenthal and Frank’s review was published, Petersen and others did a more comprehensive review of the pay-for-performance literature in healthcare.28 Using a somewhat more systematic review methodology, they searched PubMed for articles related to quality of care and payment from 1980 through 2005. From their initial identification of 3,256 articles, Petersen and

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others selected 33 articles that were original reports providing empirical results assessing the relationship between financial incentives and at least one quantitative measure of healthcare quality. Of these, they excluded 16 studies that had no comparison group or baseline measure of the quality indicator(s). (Five of the studies reviewed by Rosenthal and Frank were in the 17 included studies, and two were in the 16 excluded studies.) Petersen and others reported their assessment of the 17 studies as follows: • Two studies examined financial incentives provided at the payment system level; of these, one showed a large and statistically significant impact of financial incentives on quality; the other did not. • Nine studies assessed the use of financial incentives at the provider group level; of these, 7 found partial or positive effects of financial incentives— but most of the effect sizes were small. • Six studies addressed financial incentives directed to individual physicians; 5 of these found partial or positive effects. • Four studies used an absolute target to measure performance, two used relative performance targets, and three used a combination. (The authors did not describe the targets for the other eight studies.) • Four studies found evidence of unintended consequences of the incentive system, particularly providers “gaming the system” by excluding the most severely ill patients (if the providers were paid on absolute or relative performance) or improving documentation rather than quality of care. Petersen and others concluded that “despite widespread implementation, we found few informative studies of explicit financial incentives for quality.” Since the publication of these two review articles, a number of assessments of large-scale pay-for-performance demonstration projects have begun to be released. Six of these will be reviewed here, two hospital-based and four physician-based assessments. First, the CMS/Premier Hospital Quality Incentive Demonstration Project has now collected data for two program years. The results are shown in Table 10–1.19,29 Performance improved for all five clinical areas in each year: In the first year of the program, performance (as measured by composite quality scores) increased from 3.8 percent for acute myocardial infarction to 15.0 percent for heart failure; in the second year, the annual increase ranged from 3.7 percent for hip and knee replacement to 15.6 percent for community acquired pneumonia. In other words, over the first two years of the program performance increased the most for the two clinical areas that had the lowest base-year performance (heart failure [27.8 percent] and community acquired pneumonia [23.8 percent]), and the least for the three clinical areas for which base-year performance was already high (acute myocardial infarction [7.9 percent], coronary artery bypass graft [10.6 percent], and hip and knee replacement [10.4 percent]). These results are remarkable, given that bonuses are small (1–2 percent) and they are awarded to only the top 20 percent of participating hospitals. In fact, in the first year, bonuses averaged only $71,960, and ranged from $914 to $847,227.30 Perhaps either the hospitals

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Can Pay-for-Performance Really Pay for Performance? Table 10.1 Composite Quality Scores for CMS/Premier Hospital Quality Incentive Demonstration Project Clinical Focus Area

2003–2004

Program Year 2004–2005

2005–2006

Acute myocardial infarction

87.5

90.8

94.4

Heart failure

64.5

74.2

82.4

Community acquired pneumonia

69.3

79.2

85.8

Coronary artery bypass graft

84.8

89.7

93.8

Hip and knee replacement

84.6

90.1

93.4

Sources: (1) Premier Inc. 2006. Centers for Medicare and Medicaid Services (CMS)/Premier Hospital Quality Incentive Demonstration Project: Project Overview and Findings from Year One. Charlotte, NC: Centers for Medicare and Medicaid Services. (2) “Groundbreaking Medicare Payment Demonstration Results in Substantial Improvement for Hospital Patient Care.” Press Release, January 26, 2007. From http://www.cms.hhs.gov/apps/media/press/release. asp?Counter=2076. Accessed May 7, 2007.

that chose to participate in the program are already geared towards performance improvement, or the act of measurement is generating the intended response (cf. the “Hawthorne effect”31). Lindenauer and others30 deepened the analysis of the CMS/Premier Hospital Quality Incentive Demonstration Project (HQID) by comparing the participating hospitals with a natural control group. That is, they matched each HQID hospital with as many as two hospitals that were participating in the Hospital Quality Alliance (HQA), a national public-private collaboration to collect and report hospital data on quality of care. The HQA hospitals reported 10 of the 34 quality measures (which made up three of the five clinical areas) as the HQID hospitals, but were not given any financial incentives; thus, they act as a de facto control group. Lindenauer and others found that over the two-year study period both the HQID and HQA hospitals improved their performance in all 10 common performance measures; however, the HQID hospitals had a statistically significantly higher improvement than the HQA hospitals in 7 of the 10. The HQID hospitals performed better on the three clinical areas, with differences in composite quality scores ranging from 4.1 percent for community acquired pneumonia to 5.2 percent for heart failure. Lindenauer and others then divided the HQID and HQA hospitals into baseline performance quintiles, and found a surprising result for both groups of hospitals: performance improved most for the lowest quintile, and least for the highest quintile. This finding is paradoxical for the HQID hospitals, because the lowest quintile participating hospitals were the least likely to be able to improve their performance to reach the highest quintile and earn the bonus payments. That the lowest quintiles of both HQID and HQA hospitals improved suggests that public reporting, peer comparisons, and/or Hawthorne effects might be more powerful in modifying behavior than simply financial incentives.32

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Finally, after adjusting for baseline performance and matching the HQID hospitals with the HQA hospitals, Lindenauer and others found that the incremental effect of pay-for-performance for the HQID hospitals decreased to 2.6 percent in the composite quality score for acute myocardial infarction, 3.4 percent for community acquired pneumonia, and 4.1 percent for heart failure. This response may not seem material, but it should be remembered that the financial rewards were modest at best. There are four pay-for-performance program targeted at physicians that have had enough experience to generate at least initial results. Since 1993, PacifiCare of California has been collecting information on clinical and patient-reported measures of quality for its affiliated medical groups. In 1998, it began to make these data public. In 2003, PacifiCare began paying bonuses of up to 5 percent of the capitation rate to the 163 affiliated physician groups in California that had at least 1,000 PacifiCare commercial patients. The performance targets were set at the 75th percentile of the 2002 performance by the participating groups on five ambulatory care quality indicators (cervical cancer screening, mammography, childhood immunizations, diabetic HbA1c testing, and screening of coronary artery disease patients for elevated LDL cholesterol), five patient satisfaction measures (medical group, primary care physician, referral process, specialist, and communications), and six measures of quality and patient safety for the hospital at which the group admitted the majority of its patients. In the first year of the program, PacifiCare paid $3.4 million in bonus payments (27 percent of the $12.9 million potential payout pool) to 129 of the participating practices, with a mean annual bonus of $26,560 and a maximum payment of $305,702.33 Rosenthal and others examined the first-year performance of the participating physician groups on the three measures of clinical quality for which complete preand postdata were available: cervical cancer screening, mammography, and diabetic HbA1c testing. They found statistically significant improvement for all three measures: rates of cervical cancer screening increased from 39.2 percent before the program to 44.5 percent at the end of the first year; rates of mammographies increased from 66.1 percent to 68.0 percent; and rates of HbA1c testing went from 62.0 percent to 64.1 percent. However, when compared to other practices in the Pacific Northwest that had capitation contracts with PacifiCare (but which did not have the pay-for-performance incentives), the quality improvement was statistically significant only for cervical cancer screening. In addition, they examined the behavior of three sets of participating physician groups: Group 1 met or exceeded the 75th percentile threshold at baseline; Group 2 were within 10 percent of the threshold at baseline; and Group 3 were 10 percent or more below the threshold at baseline. Group 3 improved most on all three clinical quality scores, and Group 1 improved the least. Nevertheless, Group 1 received 75 percent of the total bonus payments. Rosenthal and others concluded from these results that “paying clinicians to reach a common, fixed performance target may produce little gain in quality for the money spent and will largely reward those with higher performance at baseline.”

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The pay-for-performance initiative by the Integrated Healthcare Association (IHA) described earlier has completed three program measurement years, with incentive payments of $37 million being made for the 2003 measurement year and $54 million for 2004, for an average of 1.5 percent of total physician compensation.22 From year 1 to year 2, 87 percent of participating physician groups improved their overall clinical score, by an average of 5.3 percent; average improvements on individual clinical scores ranged from 1.1 percent for breast cancer screening to 10.2 percent for cholesterol screening for cardiac patients. During that same period, 66 percent of groups improved their overall patient experience performance, by an average of 1.2 percent; average improvements in individual patient experience categories ranged from 0.5 percent for rating of physician to 2.2 percent for problems with specialists. The largest improvement, however, was for adoption of information technology, with a 54 percent increase in the number of groups qualifying for at least partial credit for investment in healthcare IT. Although rigorous analysis was not performed on the IHA program as Rosenthal and others did for the PacifiCare initiative, the IHA report concluded that, “Payment incentives are indeed a powerful catalyst and motivator.” The Medicare Physician Group Practice Demonstration reached its two-year point in April 2007. Although quantitative results have not been reported, a conference of the 10 participating groups held after the first year yielded some interesting insights into how the groups are modifying their processes.20,34 The participating groups have focused on reducing avoidable admissions and readmissions among congestive heart failure patients and increasing influenza and pneumovax vaccine rates. They also are focusing on the small number of patients that generate very high costs. Given that commonality, the groups are targeting different approaches: Everett Clinic, Middlesex Health System, and Marshfield Clinic are concentrating on improving cost efficiency; the University of Michigan Faculty Group Practice, Forsyth Medical Group, Park Nicollet Health Services, and Dartmouth-Hitchcock Clinic are emphasizing methods for care management and disease management; and Geisinger Health System, Billings Clinic, and St. John’s Health System are targeting information technology applications for improving care. Finally, the leaders of the participating physician groups have indicated that they will use their incentive payments to invest in infrastructure rather than distribute them to individual physicians. The fourth physician-based pay-for-performance program—and the one that has generated the most controversy—is the National Health Service initiative in the United Kingdom. Doran and others25 analyzed the results for the 8,105 family practices in England that participated in the first year of the program (April 2004 through March 2005). They restricted their analysis to the 76 clinical quality indicators (which accounted for 550 of the 1,050 potential points that the practices could earn). The results were stunning. The median practice scored 1,003 points (95.5 percent), and 230 practices (2.8 percent) earned a perfect score. On the clinical indicators, the median practice scored 532 (96.7 percent), with 591 practices (7.3 percent) earning the maximum 550 points. (A recent conference presentation by Doran indicated that improvements have continued in the second year of the

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program.35) The practices “earned” an average of £76,200 ($133,200); however, because payouts were limited to 25 percent of practice income, the average bonus to the physicians was £23,000 ($40,200). These surprising results generated two concerns. First, many questioned how the threshold could have been set so low; the measures were fairly standard, and surveys and data mining should have identified the 75th percentile of expected performance more accurately. (Doran and others report that for the 2006–2007 fiscal year, all minimum payment thresholds have been raised, 30 indicators have been dropped or modified, and 18 new indicators have been added.) Second, many were concerned that the family practitioners “gamed the system” by abusing their ability to exclude patients from inclusion in performance calculations for specific indicators (dubbed “exception reporting”). However, Doran and others found that the median physician excluded only 5.9 percent of patients, and concluded that “large-scale gaming was uncommon.” In anticipation of the next section of this chapter, it may be instructive to recount the lessons that Doran and others draw from the UK experience with payfor-performance: • Pay-for-performance can be expensive. • Integrated information systems are required to monitor the program. • A clear baseline is needed to avoid paying for improvements that have already occurred. • Introducing pay-for-performance incrementally reduces risks for providers and payers. • Payers should allow for the possibility of higher-than-expected achievement. • The risk of inappropriate treatment can be decreased through exception reporting, but monitoring is required to prevent abuse.

WHAT ARE THE CHALLENGES WITH PAY-FORPERFORMANCE PROGRAMS? These studies illustrate the conceptual and practical issues that must be addressed if pay-for-performance programs in healthcare are to succeed. The challenges can be categorized as: incentive structure, performance measures, and long-term viability.

Incentive Structure It is clear from the pay-for-performance initiatives that have been undertaken so far that considerable attention must be paid to the structure of the incentives that participating providers are given. The major questions include: • Does the program pay for performance, for improvement, or for both? If the program pays for performance, it may (as the PacifiCare and UK National

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Health Service programs demonstrated) reward providers who were already high-quality (and willing to provide care at the prevailing rate). If it pays for improvement, the program may reward differentially those providers who were the poorest performers ex ante, and potentially pay these providers more than superior performers. To date, no program has paid for both performance and improvement, but there is no inherent reason that a dual system could not be developed. • If the program pays for performance, does it reward all who meet a minimum threshold or does it pay only a certain percentile of providers? The former approach may be more appropriate if the payer can identify appropriate thresholds; however, as the NHS experience demonstrated, lack of solid benchmarks can engender financial risks. On the other hand, rewards to only the highest percentile of providers may discourage those who are close—but do not reach—the rewarded percentiles (although studies of the CMS/Premier and PacifiCare programs found that the lowest performing providers at baseline improved the most, even though they had little chance to earn the bonuses). These results speak to the importance of using pilot studies to assess the merits of alternative incentive schemes before implementing pay-for-performance on a widespread basis. • How large do the payment differentials need to be to change provider behavior? The NHS program demonstrated that large incentives will generate large improvements in performance. However, as the CMS/Premier program illustrated, 1–2 percent bonuses—and given to only the top 20 percent of providers—also fostered significant improvements in performance in a short period of time. As a counter to that finding, though, modest rewards in the PacifiCare program barely generated performance that was better than control groups. These results raise the issue of whether payfor-performance programs need to be tailored to an area’s practice and professional culture, rather than designed on a “one-size-fits-all” basis. A related issue (more for the future than the present) is how providers will respond to multiple pay-for-performance programs. Glied and Zivin36 found that physicians respond to multiple managed care plans by tailoring their behavior to the requirements of the dominant payer. If that finding can be generalized, the issue for pay-for-performance may not be just the size of the incentive per se, but the proportion of a provider’s total revenue at stake. • Are the incentive payments timed to link to desired behavior? Perhaps one factor that facilitated the performance of the family practitioners in the NHS was that the payments were made quarterly. Such reinforcement is unlikely with the Medicare Physician Group Practice Demonstration, in which payment is made six months after the end of each program year. (However, for this program it is unlikely that payment timing will affect behavior of individual physicians, since group leaders at the first-year

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review conference indicated that the groups were planning to spend any rewards on infrastructure rather than physician compensation.)

Performance Measures The explosion of interest in measuring performance in healthcare delivery in general has raised a series of issues. Rodney Hayward has noted that, “Extensive work has shown how simplistic, all-or-nothing performance measurement can mislead providers into prioritizing low-value care and can create undue incentives for getting rid of ‘bad’ patients.”37 Among the specific issues that need to be addressed for pay-for-performance are: • Are the performance measures valid and reliable? To be useful as policy tools, performance metrics need to be clinically relevant and have statistical power; this characteristic requires that each provider have a sufficient sample of patients for each measure to distinguish his or her performance from others in the payer’s panel. Otherwise, Type I and II errors will abound, making it difficult to recognize true differences: truly superior providers may not be consistently recognized and rewarded, whereas truly mediocre or poor providers may be overpaid. For instance, Davidson and others analyzed data from the first year of the CMS/Premier Quality Incentive Demonstration project and found that small hospitals (defined as those that would have 20 or fewer patients in each of the five clinical areas) would experience between five and seven times more uncertainty about their true ranking (based on the size of the relevant confidence intervals) compared to large hospitals.38 Such errors will be minimal for large payers such as Medicare or Medicaid; however, payers with smaller enrollments in a market could be unable to operate a valid and reliable pay-for-performance program, which might put them at a competitive disadvantage with their contracting providers. • To whom or what should provider performance be compared? It is critical to determine the appropriate baseline: Is it other “similar” providers (and how is “similar” measured)? Or, is it the participating providers themselves in prior years (and how are individual providers within a practice or system to be measured)? To what extent should the providers be riskadjusted based on their patient population and procedure mix? Should performance be normalized by the availability and quality of clinical or financial resources in a provider’s organization or the community? • Should the performance measures be related to process or outcome? Presumably, the ultimate indicators of performance are outcome of treatment and long-term satisfaction of patients. However, it may be difficult to measure these results directly (and thus reward providers in a timely way), so process measures may need to be used as proxies. Two recent

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studies provide insight into the appropriateness of indirect measures. Werner and Bradlow39 compared the performance of 3,657 hospitals as measured by the kinds of indicators used in the CMS/Premier Demonstration Project and other studies with those hospitals’ conditionspecific, risk-adjusted mortality rates. They found generally statistically significant—but numerically small—relationships between the two measures, and concluded that “the ability of performance measures to detect clinically meaningful differences in quality across hospitals is questionable.” (This finding might be related to low in-hospital mortality rates for common medical conditions, and suggest a need to identify other outcome measures of hospital quality.) On the other hand, Safran and others40 surveyed over 44,000 patients regarding 11 measures of patient experience; they found that samples of just 45 patients were able to generate highly reliable measures of patient satisfaction. As a result, they concluded that such surveys are reliable methods of collecting performance metrics on individual physicians related to patient perception of care. • Is the appropriate unit of observation the individual physician or the practice—or both? The 2004 study of HMO use of pay-for-performance cited above found that 80 percent of plans targeted the medical group, or both the group and the individual physician. The Medicare Physician Group Practice Demonstration clearly targeted the practice, not the individual physicians. A recent study by Pham and others41 confirms the value of this approach. They examined the Medicare claims of 1.8 million Medicare beneficiaries who were treated by 8,600 physicians who participated in the Community Tracking Study Physician Survey in 2000 and 2001. By assigning each patient to the physician with whom the patient had had the most ambulatory care visits, they were able to determine that the median Medicare beneficiary saw two primary care physicians and five specialists working in four different practices in a single year. For the median patient, only 35 percent of visits each year were with “assigned” physicians, and the assigned physician changed from one year to the next for one-third of beneficiaries. Such dispersion and churning limit the ability of a single physician to manage the overall quality of care provided to any given patient, which highlights the importance of organizational as well as individual incentives to improve care. • How should the balance be set between the need for comprehensive measures and the burden of data collection? Any pay-for-performance program needs to reward multiple measures, to encourage comprehensive care, and to minimize gaming by providers. At the same time, attention needs to be paid to the time and effort required by providers and program administrators in terms of collecting and analyzing data. The Medicare Physician Group Practice Demonstration is instructive in this regard. The methodology for defining and collecting data for the 32 quality measures is

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specified in a 248-page report.21 For example, the seventh measure for diabetes mellitus is “eye exam,” defined as “Percentage of patients who received a dilated eye exam or seven standard field stereoscopic photos with interpretation by an optometrist or ophthalmologist or imaging validated to match diagnosis from these photos during the reporting year, or during the prior year if patient is at low risk for retinopathy.” First, the numerator of that percentage needs to be calculated; this task would seem straightforward, but suppose the practice does not have an optometrist or ophthalmologist on staff. How does the practice ensure that the patient gets an eye exam, and how does the practice verify the exam from another practice’s records (while adhering to HIPAA patient privacy regulations)? Second, the denominator needs to be calculated, which is “all patients with diabetes” in the practice between 18 and 75 years of age (as of the beginning of the performance year). How does the practice count a patient who came to the practice for the first three months of the year, but not afterwards, or the patient who joins the practice in the last three months of the year (and tells the practice that he had an eye exam “sometime in the past year”)? The opportunities for inaccuracies and gaming are legion.

Long-Term Viability Finally, one needs to consider how pay-for-performance initiatives will play out over the long term. The short-term performance of providers in pay-forperformance initiatives may not parallel their performance in the long term. • How can pay-for-performance programs avoid “bonus fatigue”? Behavioral psychologists have demonstrated that people readily adapt to changing circumstances, and gradually shift their frame of reference.42 As a result, they incorporate the change and come to expect it. This phenomenon implies that providers in a pay-for-performance program will, over time, build the bonus into their payment expectations. They will not respond as readily to the existing incentive structure, and suffer from what could be termed “bonus fatigue.” Designers of pay-for-performance programs will need to modify the components of their incentives periodically to maintain the providers’ engagement. One approach would be to use “virtual gainsharing” by directing the rewards to improve the practice environment (e.g., by renovating a patient care unit or investing in new equipment that will help practitioners care for patients) rather than increasing physicians’ compensation directly.43 • How should performance measures be adjusted over time? As noted above, the NHS needed to modify its performance measures and thresholds even after the first year because so many family practitioners exceeded the targets. As quality of care improves, the expectations of payers will probably grow as well, and performance targets will most likely rise.

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Payers need to be careful, however, not to frustrate providers, especially those who are seemingly “so close” to earning the bonuses only to see the targets moved further away. • Will the Hawthorne effects prevail over time? Studies of the CMS/Premier and PacifiCare pay-for-performance programs found that the lowest performing providers made the largest improvements, even though they had the smallest chance of monetary reward. It will be interesting to see if these providers continue to improve (or even level out in performance) as they discern that they are not being rewarded for their performance— or whether intrinsic benefits of higher quality and patient satisfaction are sufficient to maintain involvement. • Will pay-for-performance programs over time shift from positive-sum to zerosum, from new money to old money? Almost all pay-for-performance initiatives to date have financed the plans through additional funds. If (as noted earlier) public resistance grows to increasing compensation to physicians for what they should already be doing, pressure will grow to redistribute existing budgets from low-performing providers to high performers. At that point, penalties will become as prevalent as rewards, and as Kahneman and Tversky 44 have shown, people value penalties/losses much higher than the same dollar amount of rewards/gains. The gaming behavior that worries policy analysts now will likely become more prevalent as penalties take hold.

WHAT ARE THE PROSPECTS FOR PAY-FOR-PERFORMANCE? As these conceptual issues are debated, payers that seek to develop a pay-forperformance program face a daunting structural task. The measures need to be comprehensive, yet not so complex as to make the measurement process burdensome. The potential payouts to providers need to be of sufficient magnitude to affect behavior, yet not so large as to create politically indefensible rewards. The payouts need to be predictable and long-term, yet not so routine that providers consider them as an entitlement instead of a behavioral incentive. These issues, as well as the debate over the appropriateness and merits of payfor-performance, illustrate the complexity of the market for healthcare services. What are policy questions in healthcare are—in most other industries—worked out through the interplay of supply and demand. If consumers value a good or service that has a particular vector of attributes, they will bid up the price in the market for those products that offer that vector, which in turn induces more supply. It just happens, and does not require demonstration projects with elaborate structures and evaluation methodologies. Why do most other markets (e.g., hotels, air travel) pay for performance without difficulty? There are at least four reasons. First, many non-healthcare goods and services have multiple and distinct levels of product attributes; hotels range from Holiday Inn Express to the Ritz-Carlton. Second, the product attributes are

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observable by the customer; for the most part, customers know what to expect from a Holiday Inn Express and from a Ritz-Carlton. Third, the differences in product attributes are transparent; customers can see and articulate the differences between a Holiday Inn Express and a Ritz-Carlton. Fourth, the consumer of the product is also the payer, so that the interests of the consumer and the payer are aligned. For the most part, these characteristics of other markets are absent in healthcare. The American public and the medical profession have long resisted the implication that there are multiple tiers of healthcare quality. It is difficult for consumers/ patients to perceive differences in clinical quality (which has, in part, generated the interest in developing and publishing distinct quality measures). Finally, with the prevalence of public and private health insurance, consumers/patients have been distanced from the direct purchase of care, and thus do not have much financial incentive to reward superior performance. Based on issues presented in this chapter, the answer to the question posed in the title of this chapter (“Can pay-for-performance really pay for performance?”) must be a resounding “maybe.” The concept of pay-for-performance has considerable promise to reward providers who can improve quality and control cost. However, the logistics of developing and operating a sustainable pay-forperformance program are formidable. Ultimately, the detailed design and carefully measured clinical outcomes of the program will determine such a program’s actual success. Theory suggests that a successful pay-for-performance program will have four characteristics: a large potential impact on provider revenue (to make behavioral change worth the provider’s effort); a small number of metrics (to make a clear connection between behavior and reward); frequent payouts (to reinforce the preferred behavior); and a significant sustainable improvement in clinical outcomes (which is the intended goal). It will be intriguing to observe whether payers will be able to develop such programs.

REFERENCES 1. Institute of Medicine. 2001. Crossing the Quality Chasm: A New Health System for the 21st Century. Washington, DC: National Academy Press. 2. Healthcare Intelligence Network. 2004. Case Studies in Pay-for-Performance Programs. Manasquan, NJ: Healthcare Intelligence Network. 3. Glendinning, D. 2005. “AMA: Go Slow on Pay-for-Performance.” American Medical News (October 17): 5. 4. Deficit Reduction Act of 2005. S. Vol 1932; 2005. 5. Starr, P. 1983. The Social Transformation of American Medicine. New York: Basic Books. 6. The Commonwealth Fund. 2005. The Commonwealth Fund Health Care Opinion Leaders Survey. New York: The Commonwealth Fund. 7. Berwick, D. M., N-A. DeParle, D. M. Eddy, P. M. Ellwood, A. C. Enthoven, G. C. Halvorson, K. W. Kizer, et al. 2003. “Paying for Performance: Medicare Should Lead.” Health Affairs 22 (6): 8–10.

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8. Robinson, J. C. 2001. “Theory and Practice in the Design of Physician Payment Incentives.” The Milbank Quarterly 79 (2):149–77. 9. Centers for Medicare and Medicaid Services. 2005. Quality Improvement Roadmap. Baltimore, MD: Centers for Medicare and Medicaid Services. 10. Rowe, J. W. 2006. “Pay-for-Performance and Accountability: Related Themes in Improving Health Care.” Annals of Internal Medicine 145 (9): 695–99. 11. Epstein, A. M. 2006. “Paying for Performance in the United States and Beyond.” New England Journal of Medicine 355 (4): 406–8. 12. The Joint Commission on Accreditation of Healthcare Organizations. 2007. Principles for the Construct of Pay-for-Performance Programs. Available at: www.jointcommission.org/PublicPolicy/pay.htm. Accessed May 6, 2007. 13. Institute of Medicine. 2007. Rewarding Provider Performance: Aligning Incentives in Medicare. Washington, D.C.: National Academies Press. 14. American Healthways. 2004. Consumers Doubt Bonus Pay Will Improve Physician Performance. Available at: www.rewardingquality.com/perspectives.html. Accessed May 6, 2007. 15. “Few Americans Willing to Pay More for Better Health Care.” 2006. The Wall Street Journal Online (March 28). Available at: http://online.wsj.com/article/ PA2VJBNA4R/SB114346944251609001-search.html. Accessed May 6, 2007. 16. Rosenthal, M. B., B. E. Landon, S-L. T. Normand, R. G. Frank, and A. M. Epstein. 2006. “Pay For Performance in Commercial HMOs.” New England Journal of Medicine 355 (18): 1895–1902. 17. Kuhmerket, K., and T. Hartman. 2007. Pay-for-Performance in State Medicaid Programs: A Survey of State Medicaid Directors and Programs. New York: The Commonwealth Fund. 18. Centers for Medicare and Medicaid Services. 2005. Hospital Quality Initiative: Overview Baltimore, MD: Centers for Medicare and Medicaid Services. 19. Premier Inc. 2006. Centers for Medicare and Medicaid Services (CMS)/Premier Hospital Quality Incentive Demonstration Project: Project Overview and Findings from Year One. Charlotte, NC: Premier Inc. 20. Trisolini, M., G. Pope, J. Kautter, and J. Aggarwal. 2006. Medicare Physician Group Practices: Innovation in Quality and Efficiency. New York: The Commonwealth Fund. 21. RTI International. 2005. Physician Group Practice Demonstration Quality Measurement and Reporting Specifications, Version 2. Waltham, MA: RTI International. 22. Integrated Healthcare Association. 2006. Advancing Quality Through Collaboration: The California Pay for Performance Program: A Report on the First Five Years and a Strategic Plan for the Next Five Years. Oakland, CA: Integrated Healthcare Association. 23. The Leapfrog Group. 2006. Potential Benefits of National Implementation of Leapfrog Hospital Insights. Washington, DC: The Leapfrog Group. 24. Bridges to Excellence. Available at: www.bridgestoexcellence.org. Accessed May 6, 2007. 25. Doran, T., C. Fullwood, H. Gravelle, D. Reeves, E. Kontopantelis, U. Hiroeh, and M. Roland. 2006. “Pay-for-Performance Programs in Family Practices in the United Kingdom.” New England Journal of Medicine 355 (4): 375–84. 26. Department of Health, United Kingdom. 2006. Annex A: Quality Indicators— Summary of Points. Available at: http://content.nejm.org/cgi/data/355/4/375/DC1/1. Accessed May 6, 2007.

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27. Rosenthal, M. B., and R. G. Frank. 2006. “What is the Empirical Basis for Paying for Quality in Health Care?” Medical Care Research and Review 63 (2): 135–57. 28. Petersen, L. A., D. W. LeChauncy, T. Urech, C. Daw, and S. Sookanan. 2006. “Does Pay-for-Performance Improve the Quality of Health Care?” Annals of Internal Medicine 145 (4): 265–72. 29. Centers for Medicare and Medicaid Services. 2007. Groundbreaking Medicare Payment Demonstration Results in Substantial Improvement for Hospital Patient Care. Available at: http://www.cms.hhs.gov/apps/media/press/release.asp?Counter= 2076. Accessed May 7, 2007. 30. Lindenauer, P. K., D. Remus, S. Roman, M. B. Rothberg, E. M. Benjamín, A. Ma, and D. W. Bratzler. 2007. “Public Reporting and Pay for Performance in Hospital Quality Improvement.” New England Journal of Medicine 356 (5): 486–96. 31. Franke, R. H., and J. D. Kaul. 1978. “The Hawthorne Experiments: First Statistical Interpretation.” American Sociological Review 43 (5): 623–43. 32. Epstein, A. M. 2007. “Pay for Performance at the Tipping Point.” New England Journal of Medicine 356 (5): 515–17. 33. Rosenthal, M. B., R. G. Frank, Z. Li, and A. M. Epstein. 2005. “Early Experience With Pay-for-Performance: From Concept to Practice.” Journal of the American Medical Association 294 (14): 1788–93. 34. Leavitt, M. O. 2006. Report to Congress: Physician Group Practice Demonstration: First Evaluation Report. Washington, D.C.: Department of Health and Human Services. 35. Doran, T. “Intended and Unintended Consequences in the UK’s Pay-forPerformance Programme.” Paper presented at the Policy Conference of the National Committee for Quality Assurance, Washington, D.C., December 1, 2006. 36. Glied, S., and J. G. Zivin. 2002. “How Do Doctors Behave When Some (But Not All) of Their Patients Are in Managed Care?” Journal of Health Economics 21: 337–53. 37. Hayward, R. A. “Performance Measurement in Search of a Path.” 2007. New England Journal of Medicine 356 (9): 951–53. 38. Davidson, G., I. Moscovice, and D. Remus. 2007. Hospital Size, Uncertainty and Pay-for-Performance. Minneapolis, MN: Upper Midwest Rural Health Research Center. 39. Werner, R. M., and E. T. Bradlow. 2006. “Relationship Between Medicare’s Hospital Compare Performance Measures and Mortality Rates.” Journal of the American Medical Association 296 (22): 2694–2702. 40. Safran, D. G., M. Karp, K. Coltin, H. Chang, A. Li, J. Ogren, and W. H. Rogers. 2005. “Measuring Patients’ Experience with Individual Primary Care Physicians.” Journal of General Internal Medicine 21: 13–21. 41. Pham, H. H., D. Schrag, A. S. O’Malley, B. Wu, and P. B. Bach. 2007. “Care Patterns for Medicare and Their Implications for Pay for Performance.” New England Journal of Medicine 356 (11): 1130–39. 42. Kahneman, D. 2003. “Maps of Bounded Rationality: Psychology for Behavioral Economics.” American Economic Review (5): 1449–75. 43. Cohn, K. H., C. D. Dauner, and T. R. Allyn. 2006. “Socioeconomic Issues Affecting Healthcare Collaboration.” In Collaborate for Success: Breakthrough Strategies for Engaging Physicians, Nurses, and Hospital Executives, ed. K. H. Cohn, 23–41. Chicago, IL: Health Administration Press. 44. Kahneman, D., and A. Tversky. 1979. “Prospect Theory: An Analysis of Decision Under Risk.” Econometrica 47 (2): 263–91.

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APPENDIX: PERFORMANCE MEASURES FOR PAY-FOR-PERFORMANCE PROGRAMS CMS/PREMIER HOSPITAL QUALITY INCENTIVE DEMONSTRATION PROJECT • Acute myocardial infarction (9 measures) • Aspirin given at arrival to hospital • Aspirin prescribed at discharge • Angiotension converting enzyme inhibitor for left ventricular systolic dysfunction • Adult smoking cessation advice/counseling • Beta blocker prescribed at discharge • Beta block at arrival to hospital • Thrombolytic agent received within 30 minutes of hospital arrival • Percutaneous coronary intervention received within 120 minutes of hospital arrival • Inpatient mortality rate • Coronary artery bypass graft (CABG) (8 measures) • Aspirin prescribed at discharge • CABG using internal mammary artery • Prophylactic antibiotic received within one hour prior to surgical incision • Prophylactic antibiotic selection for surgical patients • Prophylactic antibiotic discontinued within 24 hours of surgery end time • Inpatient mortality rate • Postoperative hemorrhage or hematoma • Postoperative physiologic and metabolic derangement • Heart failure (4 measures) • Left ventricular function assessment • Discharge instructions • Angiotension converting enzyme inhibitor for left ventricular systolic dysfunction • Adult smoking cessation advice/counseling • Community acquired pneumonia (CAP) (7 measures) • Percentage of patients who received an oxygenation assessment within 24 hours before or after hospital arrival • Initial antibiotic selection for CAP in immunocompetent patients (ICU and non-ICU patients)

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• • • •

Blood culture collected prior to first antibiotic administration Influenza screening/vaccination Pneumococcal screening/vaccination Antibiotic timing, percentage of CAP patients who received first dose of antibiotics within four hours after hospital arrival • Adult smoking cessation advice/counseling • Hip and knee replacement (6 measures) • Prophylactic antibiotic received within one hour prior to surgical incision • Prophylactic antibiotic selection for surgical patients • Prophylactic antibiotic discontinued within 24 hours of surgery end time • Postoperative hemorrhage or hematoma • Postoperative physiologic and metabolic derangement • Readmissions 30 days postdischarge.

MEDICARE PHYSICIAN GROUP PRACTICE DEMONSTRATION • Diabetes mellitus (10 measures, with a “weight” of 22) • HbA1c management: Percentage of patients with one or more A1c tests • HbA1c control: Percentage of patients with most recent A1c level greater than 9.0% • Blood pressure management: Percentage of patients with most recent blood pressure greater than 140/90 mm Hg • Lipid measurement: Percentage of patients with at least one lowdensity lipoprotein cholesterol test • LDL cholesterol level: Percentage of patients with most recent LDL cholesterol greater than 130 mp/dl • Urine protein testing: Percentage of patients with at least one test for microalbumin during the measurement year, or who had evidence of medical attention for existing nephropathy • Eye exam: Percentage of patients who received a dilated eye exam or seven standard field stereoscopic photos with interpretation by an optometrist or ophthalmologist or imaging validated to match diagnosis from these photos during the reporting year, or during the prior year if patient is at low risk for retinopathy • Foot exam: Percentage of eligible patients receiving at least one complete foot exam

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• Influenza vaccination: Percentage of patients 50 years of age or more who received an influenza vaccination from September through February of the year prior to the measurement year • Pneumonia vaccination: Percentage of patients 65 years of age or more who ever received a pneumococcal vaccination • Congestive heart failure (10 measures, with a weight of 13) • Left ventricular function (LVF) assessment: Percentage of patients with heart failure who have quantitative or qualitative results for LVF assessment recorded • Left ventricular ejection fraction testing: Left ventricular ejection fraction testing during the current year for patients hospitalized with a principal diagnosis of heart failure during the current year • Weight measurement: Percentage of heart failure patient visits with weight measurement recorded • Blood pressure screening: Percentage of patient visits with blood pressure measurement recorded • Patient education: Percentage of patients with heart failure who were provided with patient education on disease management and health behavior changes during one or more visit(s) • Beta-blocker therapy: Percentage of patients with heart failure who also have left ventricular systolic dysfunction (LVSD) who were prescribed beta-blocker therapy • ACE inhibitor therapy: Percentage of patients with heart failure who also have LVSD who were prescribed ACE inhibitor or ARB therapy • Warfarin therapy for patients: Percentage of patients with heart failure who also have paroxysmal or chronic atrial fibrillation who were prescribed with warfarin therapy • Influenza vaccination: Percentage of patients 50 years of age or more who received an influenza vaccination from September through February of the year prior to the measurement year • Pneumonia vaccination: Percentage of patients 65 years of age or more who ever received a pneumococcal vaccination • Coronary heart disease (CAD) (7 measures, with a weight of 10) • Antiplatelet therapy: Percentage of patients with CAD who were prescribed antiplatelet therapy • Drug therapy for lowering LDL cholesterol: Percentage of patients with CAD who were prescribed a lipid-lowering therapy • Beta-blocker therapy—prior myocardial infarction: Percentage of CAD patients with prior myocardial infarction who were prescribed beta-blocker therapy

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• Blood pressure: Percentage of patients with CAD who had a blood pressure measurement during the last office visit • Lipid profile: Percentage of patients with CAD receiving at least one lipid profile during the reporting year • LDL cholesterol level: Percentage of CAD patients with most recent LDL cholesterol less than 130 mp/dl • ACE inhibitor therapy: Percentage of patients with CAD who also have diabetes and/or LVSD who were prescribed ACE inhibitor or ARB therapy • Hypertension (3 measures, with a weight of 3) • Blood pressure screening: Percentage of patient visits with blood pressure measurement recorded • Blood pressure control: Percentage of patients with most recent blood pressure less than 140/90 mm Hg • Plan of care: Percentage of patient visits with either systolic blood pressure greater than or equal to 140 mm Hg, or diastolic blood pressure greater than or equal to 90 mm Hg, with documented plan of care for hypertension • Preventive care (2 measures, with a weight of 5) • Breast cancer screening: Percentage of women 50–69 years of age who had a mammogram during the measurement year or year prior to the measurement year • Colorectal cancer screening: Percentage of patients 50 years of age or more screened for colorectal cancer during the one-year measurement period.

About the Editors and Contributors

KENNETH H. COHN, MD, MBA, FACS, is a board-certified general surgeon. He obtained his MD degree from Columbia College of Physicians Medical School, completed his residency at the Harvard-Deaconess Surgical Service, and performed fellowships in endocrine and oncologic surgery at the Karolinska Hospital and at Memorial Sloan-Kettering Cancer Center, respectively. He was assistant professor of surgery at SUNY Health Science Center at Brooklyn and later moved to Dartmouth-Hitchcock Medical Center as associate professor of surgery and chief of surgical oncology at the VA Hospital at White River Junction. With the change in the medical economic climate, Dr. Cohn entered the MBA program of the Tuck School at Dartmouth and graduated in June of 1998. He worked initially as a consultant at Health Advances, assisting six firms to commercialize new products. Since joining the Cambridge Management Group, he has led changemanagement initiatives for physicians at affiliated hospitals within the Yale New Haven, Banner Colorado, Cottage Santa Barbara, and Sutter Sacramento Health Systems. He remains clinically active, covering surgical practices in New Hampshire and Vermont. Dr. Cohn has written 40 articles published in peer-reviewed medical journals, and two books, Better Communication for Better Care: Mastering Physician-Administration Collaboration, and Collaborate for Success! Breakthrough Strategies for Engaging Physicians, Nurses, and Hospital Executives. His Web site is www.healthcarecollaboration.com. DOUGLAS E. HOUGH, PhD, is associate professor and chair, The Business of Health, at the Carey Business School of Johns Hopkins University. He is responsible for six programs, including the innovative Hopkins Business of Medicine®, a four-course graduate certificate program and an MBA program with concentration

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in Medical Services Management, designed for experienced physicians (offered in partnership with the JHU School of Medicine). Dr. Hough has over 25 years of experience in industry and academia. He has been a research economist at the American Medical Association, a manager in the health care consulting division of Coopers & Lybrand, and a partner in two health care strategy consulting firms. His research interests are in identifying the optimal size and structure of a physician practice, and in determining the impact of changing physician demographics on the structure of medical practices. His consulting interests focus on methods of strengthening hospital/physician relations (e.g., the development of integrated delivery systems, physician/hospital initiatives, and management service organizations), as well as the organization and strategic direction of physician practices. Dr. Hough is a frequent speaker and author on health care issues related to physicians. His research has been published in such professional journals as the Journal of the American Medical Association, the Journal of Human Resources, and the Journal of Medical Practice Management. Dr. Hough earned his MS and PhD in Economics from the University of Wisconsin. He received his BS in Economics from the Massachusetts Institute of Technology. He is a member of Academy Health, the American Economic Association, the International Health Economics Association, and the Medical Group Management Association. SEVERINE BROCKI, PhD, is a senior associate of Henrichs & Associates, an organizational strategy and governance consulting firm in Evanston, Illinois. Prior to this, she spent 10 years in management and senior positions at the American Medical Association (AMA). As director of the Division of Consumer Affairs, she managed the development of AMA consumer health initiatives, including the revision and adoption of AMA policy on direct-to-consumer advertising of prescription drugs. As director of AMA’s Office of Policy and Issue Management, Brocki oversaw a national health policy development program comprised of representatives from health and medical professions, business, consumer groups, and government. Before her AMA tenure, she was senior analyst at the Central Indiana Health Systems Agency in Indianapolis and a faculty member at Valparaiso University. She received her PhD in Sociology from Vanderbilt University, where she was a principal investigator for a national study of mental health in occupational and domestic life. WILLIAM L. DOSS, MD, MBA, is associate professor in the Department of Physical Medicine and Rehabilitation at Eastern Virginia Medical School. He is also president of Hampton Roads Institute of Performance & Sports Medicine, a private practice group based in Portsmouth, Virginia. He has been in solo practice since 1998. Prior to joining Eastern Virginia Medical School, he was medical director of Maryview Center for Physical Rehabilitation in Portsmouth, Virginia, 1995–2000. He also serves as vice chairman of the Physical Medicine and Rehabilitation section of the National Medical Association. He is boardcertified in Physical Medicine and Rehabilitation, Pain Medicine, and Electrodiagnostic Medicine. Dr. Doss earned his BS from the University of Michigan,

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Ann Arbor, his MD from Howard University in Washington, DC, and his MBA from Auburn University in Auburn, Alabama. NICHOLAS J. GIAMPETRO is a practicing attorney in Baltimore, Maryland, and represents noninstitutional healthcare providers in connection with their legal and financial affairs. His practice concentrates on planning and structuring healthcare transactions, including intrapractice relationships, outpatient facility arrangements, practice sales, and arrangements between physician groups and third parties. Mr. Giampetro is a member of the Maryland, Pennsylvania, New Jersey, and District of Columbia bars. He holds an LL.M. in taxation and an MBA. Mr. Giampetro is a member of the Practitioner Faculty of Johns Hopkins University, where he teaches “Anatomy of a Private Practice” in the Business of Health Program, Carey Business School. He is a member of the American Health Lawyers Association (AHLA)—Physician Organization Committee, and the health law sections of the American Bar Association and the Maryland Bar Association. He has published articles in the AHLA’s Physician Organization newsletter and has authored the chapter Formation and Operation of Medical Practices: Representing Physicians Handbook, published by the AHLA. MARC D. HALLEY, MBA, president and chief executive officer of the Halley Consulting Group, founded Ambulatory Management Services, Inc. (AMS), a for-profit subsidiary of Trinity Health. AMS was the culmination of many years of providing practice management and consulting services to practices of varying specialties, including hospital-owned primary care networks. In 2005, AMS became the Halley Consulting Group, a privately held national consulting firm specializing in strategy and performance improvements for physician practice networks. Mr. Halley is a frequently requested speaker, trainer, and lecturer, addressing national conferences, governing boards, senior executives, physician groups, and management teams. He has authored and coauthored several articles that have been published in industry publications such as Healthcare Financial Management, Group Practice Journal, and the Journal of Medical Practice Management. He is the author of The Primary Care–Market Share Connection: How Hospitals Achieve Competitive Advantage (2007). LARRY HARMON, PhD, is a psychologist and Director of the Miami-based Physicians Development Program, a physician leadership- and teamworkdevelopment firm. He is the founder of the P.U.L.S.E. Program and the Annual Physician Leadership Feedback Report, a confidential 360-degree personal survey process that provides physicians and healthcare staff with objective and helpful feedback to improve their leadership and teamwork skills Dr. Harmon specializes in “disruption reduction” interventions, teamwork and leadership development, medical staff education, clinical impairment evaluations of disruptive practitioners, and anger management training. He is a voluntary assistant professor, in the Departments of Psychiatry as well as Family Medicine, at the University of Miami, Miller School of Medicine. He is the former Ethics Chair of

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the Florida Psychological Association, and is currently on the faculty of the Estes Park Institute. KATHLEEN HENRICHS, PhD, is founder of Henrichs & Associates, a strategy and governance consulting firm specializing in health and medical organizations. She is a national expert on medical societies and advises the Society of Thoracic Surgeons, the American Society of Plastic Surgeons, the Society of Interventional Radiology, and the College of American Pathologists Foundation. Since founding the firm in 2000, she has also consulted with many health organizations such as the Institute for Healthcare Improvement (IHI), and medical groups such as Northwestern Medical Faculty Foundation and Harvard Medical School Division of Sleep Medicine. A former senior vice president at the American Medical Association, she was responsible for the AMA Foundation, international affairs, and governance. Prior to joining the AMA, Dr. Henrichs was on the faculties of Indiana University and Kent State University, where she received her PhD in Education. In addition to numerous articles, she has written Practice Profiles in Orthopaedic Sports Medicine for the American Orthopaedic Society for Sports Medicine, and Practice Profiles in Family Medicine for the California Academy of Family Physicians. SUSAN LAPENTA is a partner in the law firm of Horty, Springer & Mattern, P.C., of Pittsburgh, Pennsylvania. She has worked extensively with hospitals and their medical staffs on peer review investigations and hearings. She has also assisted medical staffs in the revision of bylaws and related projects. Additionally, Ms. Lapenta has served as counsel in litigation stemming from credentialing decisions, including the defense of antitrust claims. She is on the faculty of the American College of Physician Executives. Ms. Lapenta received her Juris Doctor degree from the University of Pittsburgh School of Law. BRIAN K. MORTON, MBA, is a practice consultant for Halley Consulting Group. He is a seasoned healthcare manager with more than 20 years of hands-on experience in primary care, specialty practices, and behavioral health, with particular expertise in billing, receivables management, and compliance. His prior experience includes the direction of operations and fiscal management for home health, durable medical equipment, and behavioral health departments of Fairfield Medical Center. Mr. Morton developed the audit and revenue analysis tools for National Century Financial Enterprises, and subsequently was instrumental in the receivables funding processes for several healthcare facilities located in California, Georgia, South Carolina, and Arizona. He has a Bachelor of Science and a Master of Business Administration from Franklin University, Columbus, Ohio. DEBRA R. MURPHY is principal of Massachusetts-based Vista Consulting and is also a marketing consultant with a background in computer science, management, and marketing. With more than 20 years’ experience in the marketing discipline, her specialty is strategic consulting for businesses wishing to reach

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their ideal target market and achieve their business goals. Ms. Murphy created the VistaPlan™ Framework, a process and visual guide that simplifies developing a marketing plan, removing the stress usually associated with this process. In addition, she is currently researching Marketing 2.0 and Web 2.0 technologies as they relate to business-to-business marketing. Debra is the author of the forthcoming book, Demystifying the Marketing Puzzle, and is a contributing author of Create the Business Breakthrough You Want: Secrets and Strategies from the World’s Greatest Mentors, 2004. Read her marketing blog at www.vistaviewpoint.com. WILLIAM S. REISER, MBA, is the vice president of Information Technology and Decision Support for Halley Consulting Group. He has been instrumental in developing many of the firm’s tools and methodologies and has been actively engaged in consulting to independent health care providers and health systems since 1990. He received his Bachelor of Science degree in Psychology and Anthropology from the University of Utah and a Master of Business Administration degree from Brigham Young University. He is a member of Medical Group Management Association.

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Index

Accountability: an accounting of, 64; assigning responsibility for, 63–64; barriers to, 64–67; communication and, 71; components of, 62–64; conflict avoidance as barrier of, 67; creating culture of, 67–72; culture of, 61–62, 67–72; to customer, 62; enabling, 64; factors of, 61–62; formal reporting and, 67; frequent, 62; for implementation of change, 66; indicators of culture of, 72–73; of individuals, 66–67; organization bullies as barrier of, 65; personal relationships undermining, 65; progress monitored for, 70; shortterm financial focus as barrier of, 64; staff meetings and, 70; storytelling and, 66; success/failure as treated in creating, 71; weekly follow-up in process of, 69 Accounts receivable, 29–30, 32–33, 55 Advertising: as marketing, 121; of physicians, 93 American Medical Group Association (AMGA), 43 Americans with Disabilities Act, 89 AMGA. See American Medical Group Association Anger management, 82

Bioethics, 160 Blanchard, Kenneth, 8–9 Brand: budget for, 126; development, 122, 126; image/identity, 122, 132–33 Buy-ins: arrangement of, 28–36; buy-out v., 37–38; call option for, 31; compensation for, 34–36; determination date of, 31; due diligence in process of, 27; management/governance in, 36–37; owner protection from breach during, 33–34; for private medical practice, 25; purchase price of, 28–34; terms for, 26–27; valuation for, 29 Buy-out: buy-in v., 37–38; considerations, 38–39; medical records’ custody in, 38; patient abandonment and, 38; post-termination restrictions in, 38–39; trigger event for, 37–38; valuation/purchase price of, 37 Cash flow: as defined, 9–10; Medicare and, 15; RCM ensuring appropriate, 135; in solo practice, 9–13 Centers for Medicare and Medicaid Services (CMS), 179–80; on pay-forperformance, 176; program, 44–45; Quality Improvement Roadmap of, 176 Chronic disease management, 155–56, 162 CMS. See Centers for Medicare and Medicaid Services

Behavior. See Disruptive behavior Billing: computerized, 140; medical practices’, 55–56

207

208 Code of Conduct Policy: as monitoring system, 78; purpose of, 78 Collective bargaining, 164–65 Communication: accountability and, 71; in group practice, 2; physicians’ skills of, 99 Compensation: in private medical practices, 34–36; production fraction for, 34–35; RVUs in, 34–35; sharing method, 34–36 Competition: healthcare’s value-based, 161–62; of medical practices, 93 Conner, Daryl, 61 Consumerism, 165–66 Customer service, 100; considerations, 104–6; as promotion, 103–6 Debt, 155 Differentiation, 116, 131 Disability, 18–19 Disability insurance, 19 Disruptive behavior: characteristics of, 75–76; collegial intervention for, 79–80; dealing with physicians’, 76; defensiveness of physicians with, 80; documentation of, 77–78; follow-up monitoring for, 83; formal interventions for physicians with chronic, 80, 83; impaired physicians v. physicians with, 76–77; individual assessment protocol for physicians demonstrating, 80–81; lack of improvement by physician with, 88; leaders as trained for dealing with, 79; legal issues of leadership regarding physician with, 89; managing physicians with, 76–78; mental health evaluation of physicians with, 77; Personalized Code of Conduct for physicians with, 81–82; PFP for intervening physicians with, 80; of physicians, 75–82, 89–90; policies for, 78–79; preventing, 78–79 Due diligence, 25, 27 Employer Identification Number (EIN), 6 Gap analysis, 57–59 Group medical practice: aspects of, 2–4; communication in, 2; financial issues with, 4; growth in number/size of, 154; Medicare accepted by, 3; on-call schedule for, 3 Headhunters, 2 Healthcare: boutique v. big box, 167–68; new consumerism in, 165–66; new taxonomy for sites of care in, 166–67;

Index practice distinctions in, 162–64; valuebased competition for, 161–62; women as making choices for, 96. See also Systems of care Health policy, 175 Hospital Quality Incentive Demonstration Project (HQID), 178, 185–86 IHA. See Integrated Healthcare Association Income statements, 53 Insurance: malpractice premiums, 61. See also Disability insurance; Health insurance; Mortgage insurance Insurance companies, bill v. payment received with, 10 Integrated Healthcare Association (IHA), 187 Internet: visibility of medical practices on, 124–25. See also Websites JCAHO. See Joint Commission on Accreditation of Healthcare Organizations Joint Commission on Accreditation of Healthcare Organizations (JCAHO), 22; on pay-for-performance, 176 Labor: costs of, 61; shortages of qualified medical, 61 Leadership: educational training for developing, 82–83; legal issues regarding physicians’ disruptive behavior and, 89; in medical practice setting, 67–69 Leapfrog Group, 180–81 Locum tenens, 21 Low-price elasticity, 95 Management services organization, 14 Marketing: advertising as, 121; budgets, 108, 125–27, 133; competitive information’s value for, 110–11; competitive review for, 109–10, 129; components of, 94; customer as defined for, 95–96; differentiation in, 116–18; direct, 121; events for, 120–21; goals, 119–20, 131– 32; market review for healthcare, 108–9; of medical practices as essential, 160; mix, 120–22; place and, 95; plans, 107, 126, 129; positioning in, 116–18; pricing and, 94–95; product/service defined for, 96–98; situation analysis for, 108– 13; strategy, 120–22, 132; traditional view of, 94–95; well-defined strategy for, 127. See also Brand; Promotion; Sales; VistaPlan Framework

Index Medical Group Management Association (MGMA), 43, 158 Medical practices: as automated offices, 159–60; benefits verification by, 141–42; billing by, 55–56; building occupancy ratio of, 55; business/clinical decision processes in, 157; business imperatives for, 43; cash only v. Medicare as accepted by, 15–16; challenges to, 61; claim payment for, 143–44; claims submission by, 143; clinical quality of, 43, 44–45; coding index of, 55; commercial payers for, 136; competition of, 93; competitive alternatives of, 99; control policies of, 144–46; current state of, 154–56; customer service for, 100; development of, 98–100; documenting service for, 142–43; employment as emerging phenomenon of, 154; exceptional, 61–63; fee schedule for, 137–39; financial indicators of performance by, 53–56; financial policies of, 146–48; financial viability of, 43; front desk staff of, 140–41; future direction of, 156–70; goals of, 118–20; growing, 94; hospital affiliation of, 99–100; income pressures, 156; income statements of, 53; on internet, 124–25; labor ratio in, 55; law firm model of, 158–59; leadership in setting of, 67–69; lifestyle factors and, 154–55; location of, 99; marketing principles applied to developing, 94; mission statements of, 118–19; new patient ratio of, 54; noncovered services, 148; opportunities of, 112–13; patient registration for, 141; payer participation in, 100; payers accepted by, 136; performance improvement action plan of, 51, 59; performance measurement of, 43; physician productivity in, 43; physicians’ factors for development of, 98–99; promotion by, 100–103; scheduled hours of, 54; service quality of, 43; strengths/weaknesses of, 111–12; successful operation of, 43, 59, 135; supply and demand of, 99, 155; surgical cases of, 54; survey data as utilized by, 56; target market of, 113–16; threats of, 112–13; as valued, 29; vision of, 118–19; websites for, 123–24; word-of-mouth referral to, 94. See also Group medical practice; Private medical practice; Solo medical practice; Specialty medical practices Medical technology, 169–70 Medicare: accepting, 15–16; audits by, 8; billing to, 148; cash flow and, 15; fees

209 as determined by, 137–39; in group practices, 3; opting out of, 16; Opt-Out Notice, 16–18; practices accepting cash only v., 15–16; practices participating in, 136; socioeconomic environment and accepting, 15; solo practice and, 15; WRVUs for office visit codes of, 138 MGMA. See Medical Group Management Association Mission statements, 118–19 Moore, Geoffrey, 117 Mortgage insurance, 19 Motivation, 88 National Health Service (NHS), pay-forperformance program of, 182–83, 187–88 Office equipment, 7 Office hours, 9, 54 The One Minute Manager (Blanchard), 8–9 Parking, 5 Patient: abandonment, 38; demand, 168; doctor relationship, 164; ratio of medical practices, 54 Pay-for-performance programs: challenges with, 188–93; characteristics of good, 178; CMS on, 176; as defined, 175–76; detrimental factors for, 178; evidence on, 183–88; in health policy, 175; incentive structure of, 188–90; initiatives for, 177–78; JCAHO on, 176; long-term viability of, 192–93; of NHS, 182–83; performance measures of, 190–92; physician-oriented, 179–80; promise of, 176; prospects for, 193–94 Percentiles: pitfalls of, 56–57; in survey data, 56–57; as valuable, 56 Personality, 99 Personalized Code of Conduct: consequences of, 82; for disruptive behavior of physicians, 81–82; mentoring in, 82; requirements for rehabilitation in, 82 Personnel, 7–8 PFP. See Physician feedback program (PFP) Pharmaceutical companies, 18 Pharmacy, 5 Physician feedback program (PFP): benefits of, 84; group, 84–87; for intervening with disruptive behavior, 80; ongoing annual use of, 84; P.U.L.S.E. program as, 80–81, 87–88 Physician Leadership Feedback Report, 79

210 Physicians: advertising by, 93; on call, 2–3; communication skills of, 99; demand for services of, 25; disability risk as high for, 18–19; disruptive behavior of, 75–82, 89–90; with disruptive behavior v. impaired physicians, 76–77; employment opportunities for, 98; future of practice of, 153; gender of, 99; headhunters for, 2; hospital employed, 93; income of, 168; learning practice for, 98–99; measuring productivity of, 52; motivation of, 99; nonphysician providers collaboration with, 163; personality of, 99; poor service quality of, 53; productivity of, 43, 52–53; product offered by, 97; professional training of, 93; service quality of, 45–51; shortages of, 157. See also Practitioners; Solo practitioners Policy. See Health policy Porter and Tiesberg model, 163 Positioning: as defined, 116; marketing and, 116–18; statements, 117, 131; statements v. key messages, 117–18; statement template, 117 Practitioners: disability insurance for, 19; group model for, 1–2; shortage of healthcare, 157; solo, 1–4 Pricing: inelasticity in, 95; marketing and, 94–95 Private medical practice: accounts receivable of, 29–30, 32–33; associative phase in, 26–28; buy-ins for, 25; compensation in, 34–36, 35–36; goodwill of, 31; governance of, 36–37; income of, 28; information gathered by associate on, 27–28; liabilities of, 28; management of, 28, 36–37; outside interests of, 28; ownership interest as acquired in, 25; positive v. negative aspects of, 2; for practitioners, 1–4; process into, 1–3; purchase price of, 27; tangible assets of, 29; terms regarding buy-in of, 26–27. See also Solo practitioners Promotion: components of, 95; customer service as, 103–6; as defined, 101; facilitating practice development through, 100–103; of medical practices, 100, 102; product/service as, 96; by specialty physicians, 103; tactics of, 95, 101; target market of, 102; word-of-mouth referral, 95 Public relations, 121 P.U.L.S.E. program, 80–81, 87–88

Index Quality: clinical, 43–45; measuring service, 46; service, 43, 45–51 RCM. See Revenue cycle management Reimbursement, 61 Relative value units (RVUs): in compensation, 34–35; types of, 35. See also Work Relative Value Units Retirement savings, 61 Revenue cycle management (RCM): 180day claims in, 150–52; appropriate cash flow ensured by, 135; cash control and, 144; charge capture for, 145–46; control policies for, 144; controls/captures for, 146; credit extension in, 147–48; developing processes of, 139–40; ideal process of, 135; measurement metrics of, 148–49; net revenue v. gross revenue in, 152 Rowe, John, 176 RVUs. See Relative value units Sales tools, 122–23, 128, 133 Segmentation: market, 115–16; target market and, 113–16, 130 Solo medical practice: 401K plan/profitsharing plan for, 19–20; alternative model for, 13–14; bill paying for, 10–12; cash flow in, 9–13; co-payments and, 10; corporation v. sole proprietorship of, 6–7; cost sharing for, 14; decline of, 157–58; designing, 4–5; employees of, 6, 93; execution of model for, 7–9; financial foundation of, 5–7; financial planning for, 18–20; location of, 5; maintaining relationships in, 18; management services organization for, 14–15; management style in, 8–9; Medicare and, 15; multitasking by employees of, 8; office hours for, 9; outpatient model of, 4; parking access to, 5; personnel hiring for, 7–8; success of, 9–13; types of practitioners in, 4 Solo practitioners: growing practice of, 3–4; location of, 5; mortgage insurance for, 19; psychological well-being of, 20–21; rewards of being, 21–22; self-evaluation of, 5 Specialty medical practices: marketing for, 96; promotion tactics for, 103; referral source satisfaction in, 46–48 Sponsorship, 61 Staff meetings, 70

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Index Survey data: appropriate use of, 56; percentiles in, 56–57 SWOT analysis, 111 Tanner, Richard, 5 Target markets: of medical practices, 113– 16; of promotion, 102; segmentation and, 113–16, 130 Teamwork, 82 Vision statements, 118–19 VistaPlan Framework, developing marketing strategy with, 107–8

WACC. See Weighted average cost of capital Websites: benefits of having, 126–27; for medical practices, 123–24 Weighted average cost of capital (WACC), 31 Work Relative Value Units (WRVUs), 52; for Medicare office visit codes, 138 Zonies, Ken, 13–14

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Praise for The Business of Healthcare

“The editors and writers of The Business of Healthcare have created a compelling and highly informative set of books that merge various disciplines and perspectives to create a comprehensive look at the challenges facing the healthcare industry. These books should prompt valuable discussion and, hopefully, action that will strengthen and advance the U.S. health system.” Craig E. Holm, FACHE, CHE Health Strategies & Solutions Inc. Philadelphia “Thoughtful and provocative, The Business of Healthcare is a clearly articulated exploration of critical issues facing healthcare leaders today.” C. Duane Dauner President, California Hospital Association “Just when the pressures and challenges on healthcare practitioners and organizations seem unbearable, Cohn and Hough have skillfully assembled this work which offers advice and comfort, not only on how to cope with today’s climate, but how also to take advantage of the opportunities that abound while not abandoning the call to serve humanity.” Robert A. Reid, M.D. Director of Medical Affairs, Cottage Health System, Santa Barbara, California Past president, California Medical Association “Now, more than ever, this three-volume set is necessary and important. The format and breadth of content is impressive; rather than a prescriptive set of how-tos, I come away with an expanded vision of ‘want to’ and ‘able to.’ ” Leonard H. Friedman, Ph.D., MPH Professor and Coordinator Department of Public Health, Oregon State University

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Editorial Advisory Board Murray Brennan, MD Benno C. Schmidt Chair in Clinical Oncology Memorial Sloan-Kettering Cancer Center R. Lawton Burns, PhD James Joo-Jin Kim Professor of Health Care Systems and Management The Wharton School of Business University of Pennsylvania Terry Hammons, MD Senior Vice President, Research and Information Medical Group Management Association Jack Matloff, MD

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The Business of Healthcare Volume 2: Leading Healthcare Organizations

EDITED BY KENNETH H. COHN, MD DOUGLAS E. HOUGH, PHD

PRAEGER PERSPECTIVES

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Library of Congress Cataloging-in-Publication Data The business of healthcare / edited by Kenneth H. Cohn, Douglas E. Hough. p. cm.—(Praeger perspectives) Includes bibliographical references and index. ISBN 978–0–275–99235–4 (set : alk. paper) ISBN 978–0–275–99236–1 (v. 1 : alk. paper) ISBN 978–0–275–99237–8 (v. 2 : alk. paper) ISBN 978–0–275–99238–5 (v. 3 : alk. paper) 1. Medical care—United States. 2. Medical offices—United States— Management. 3. Medical care—United States—Quality control. 4. Health services administration—United States. 5. Health care reform—United States. I. Cohn, Kenneth H. II. Hough, Douglas E. III. Series. [DNLM: 1. Delivery of Health Care—organization & administration— United States. 2. Leadership—United States. 3. Practice Management, Medical—United States. 4. Quality of Health Care—United States. W 84 AA1 B969 2007] RA395.A3B875 2008 362.1068—dc22 2007031135 British Library Cataloguing in Publication Data is available. Copyright © 2008 by Kenneth H. Cohn and Douglas E. Hough All rights reserved. No portion of this book may be reproduced, by any process or technique, without the express written consent of the publisher. Library of Congress Catalog Card Number: 2007031135 ISBN: 978–0–275–99235–4 (Set) 978–0–275–99236–1 (Vol. 1) 978–0–275–99237–8 (Vol. 2) 978–0–275–99238–5 (Vol. 3) First published in 2008 Praeger Publishers, 88 Post Road West, Westport, CT 06881 An imprint of Greenwood Publishing Group, Inc. www.praeger.com Printed in the United States of America

The paper used in this book complies with the Permanent Paper Standard issued by the National Information Standards Organization (Z39.48–1984). 10 9 8 7 6 5 4 3 2 1

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Contents Preface by Kenneth H. Cohn and Douglas E. Hough Chapter 1

Perspectives on Leading Complex Healthcare Delivery Systems

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1

Diane L. Dixon Chapter 2

Mending the Gap between Physicians and Hospital Executives

27

J. Deane Waldman and Kenneth H. Cohn Chapter 3

A Seat at the Power Table: The Physician’s Role on the Hospital Board

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Jayne Oliva and Mary Totten Chapter 4

The Impact of Biotechnology Advances on the Healthcare System

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Neil J. Campbell Chapter 5

Healthcare Informatics: The Intersection of Information Technology and Care Delivery

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Edwin E. Lewis, Jr. Chapter 6

Complementary and Alternative Medicine and the Future of Healthcare in America

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Chris D. Meletis Chapter 7

The Next Frontier in Addressing Clinical Supply Costs in Hospitals

Anand S. Joshi

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Chapter 8

Contents

Liability Risk Management: Saving Money and Relationships

177

Kathryn K. Wire Chapter 9

Pastoral Medicine: The Impact of Pastoral Care

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Samuel Miller About the Editors and Contributors

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Index

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Preface

T

he healthcare system in the United States is a mass of paradoxes. We lead the world in the creation and application of technology for the clinical practice of medicine; yet the United States lags behind the rest of the developed world in basic health indicators (e.g., infant mortality rate, life expectancy). We provide some of the highest quality care in some of the premier health institutions that are the envy of the world; yet 45 million Americans cannot take advantage of these benefits because they lack health insurance. We outspend every other country on healthcare; yet almost no one is satisfied with the results: patients may get unparalleled quality care, but they pay a lot for that care and access can be erratic; payers are frustrated that they (and their customers) are not receiving good value for their growing outlays; and providers are feeling harassed by payers and regulators and unappreciated by patients. Some claim that healthcare is being ruined by the intrusion of business interests, which put the bottom line ahead of the appropriate care of patients and denigrate the professionalism of those sworn to care for the sick. They worry that these interests are making healthcare no different than any other “industry” in this country. Others argue that the problems of inconsistent quality, sporadic access, and high and rising costs can only be solved by imposing the discipline of the market. To these observers it is business thinking and processes that can transform the current system. The editors of The Business of Healthcare believe that the issue is not professionalism or business in healthcare, but professionalism and business. We believe that the healthcare system in the United States needs the perspectives and expertise of physicians and economists, nurses and accountants, technicians and strategists. We have organized this three-volume set for Praeger Perspectives to demonstrate

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how these mutual viewpoints can yield innovative solutions to our healthcare conundrum. In designing The Business of Healthcare, the editors recognized that the solutions to the challenges facing the U.S. healthcare system will not come from one source. Rather, the solutions must address both the micro and the macro aspects of the system. Individual medical practices, as the foundation of healthcare delivery, must be operated as efficiently as possible. Healthcare organizations of all types must be led in ways to maximize the effectiveness of both human and financial resources. Finally, attention must be paid to the systems currently in place that affect all aspects of the healthcare sector. To that end, we have organized The Business of Healthcare into three volumes that address each of these levels of the healthcare system in the United States. Volume 1 ( Practice Management) focuses on those areas critical to the successful operation of physician practices: the process of joining and leaving a practice; promoting a practice; and managing the human and financial resources of a practice. It addresses the current structure of physician practices (including the continuing viability of solo practice) as well as the very future of the physician practice itself. Volume 2 (Leading Healthcare Organizations) shifts the focus to the complex tasks of leading in healthcare. The chapters in this volume illustrate that leadership involves the integration of relationship management (such as the appropriate involvement of physicians in healthcare organizations), new modes of care (including such disparate areas as biotechnology, complementary and alternative medicine, and pastoral care), and operations (informatics, clinical supplies, liability risk management). Volume 3 (Improving Systems of Care) widens the lens to consider how systems in healthcare can be transformed to resolve the paradoxes that we noted above. The chapters in this volume address systems to improve clinical quality and safety, development systems (e.g., for moving scientific ideas from the lab to the market, for developing medical technologies), operational systems (e.g., disaster response, information technology, and end-of-life care), and financial systems (such as the new “Massachusetts Plan” to cover all members of society). The volume also includes the voice of the patient in improving systems of care. We are grateful to all of our chapter authors who volunteered scarce time to write about aspects of healthcare about which they are passionate. Our goal has been to provide works by experts that will engage stakeholders in discussions of issues important to our nation’s health and economy. We hope that we have succeeded.

VOLUME 1: PRACTICE MANAGEMENT It used to be that physicians could graduate from medical school, complete a residency, and be confident that they could start a practice that was financially and professionally successful almost from the first day. Those halcyon days are long

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gone, with the advent of constrained reimbursements, increased regulation, and real competition for patients. Today, physicians must run their practice as if it was a business—because it is. Although many physicians may be accidental business people, they must pay attention to the most critical operational aspects of their practice if they are to achieve their professional goals. To that end, we asked our authors to bring forward the issues that they see from their experience as those most critical to the operational success of the medical practice. They responded with eight focused and insightful chapters on how to: • • • • • • • •

Manage the continuing opportunities and challenges of solo practice Join and leave a practice Measure performance in a medical practice Build a culture of accountability in a practice Manage difficult physicians Promote a practice Create a practice marketing plan Manage the revenue cycle

In addition, two authors took a broader look at the environment of medicine, one exploring the potential and realities of the new pay-for-performance and the other considering the future of the medical practice. In all, these chapters should provide physicians and practice administrators with the most up-to-date practical thinking on the effective management of physician practices.

VOLUME 2: LEADING HEALTHCARE ORGANIZATIONS Leadership is the art of instilling in people the desire to strive together to create a better future. Leaders listen, observe, provide direction and meaning, generate and sustain trust, convey hope, and obtain results through their influence on other employees. The challenge is to energize people to push themselves beyond what they thought they could do (Cohn, Cannon, and Boswell 2006). Nowhere are these principles more evident than in the chapters in Volume 2, where nationally known authors discuss the need for and evidence of leadership in healthcare. Diane Dixon begins this volume with an analysis of six healthcare leaders who embraced a positive, can-do mindset that enabled them to transform their institutions. Drs. Waldman and Cohn describe ways to transcend the adversarial relations that traditionally accompany physician-hospital relations and the dividends to patient care of engaging physicians in clinical priority setting, which Jayne Oliva and Mary Totten build on by describing the dual opportunity and responsibility of physicians serving on hospital boards. The final six chapters highlight the need for and benefits of leadership in specific sectors of healthcare, including biotechnology, informatics, complementary and alternative medicine, supply costs, risk management, and pastoral care.

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In healthcare, as in other fields that serve the public welfare, dedicated professionals prefer being inspired to being supervised. Through their influence on business strategy and especially on organizational culture, effective leaders: • Create a safe environment for reflection and learning • Improve the practice environment and hence practice outcomes • Help people reconnect with the values that attracted them to healthcare in the first place The purpose of this series and of Volume 2 in particular is to create a nurturing environment that stimulates further reflection, discussion, and action, resulting in improved healthcare for our communities. Only then can we consider our efforts successful.

VOLUME 3: IMPROVING SYSTEMS OF CARE The imperative for improvement is clear for everyone who works in healthcare. Through breakthrough studies championed by the Institute of Medicine, we have learned that inadequate systems of care jeopardize the health and recovery of hundreds of thousands of patients annually, adding billions of dollars of expense to an unsustainable healthcare budget. For people inside and outside the nonsystem of fragmented U.S. healthcare, the complexity can be overwhelming. A framework that treats a patient or healthcare processes as a number of mechanical parts, without paying attention to interactions of human beings with other human beings, is likely to fail. We are fortunate in Volume 3 to have chapters written by experts who have created a platform for learning and discussion that can inform the healthcare debate, point out the choices we need to make, and help us maintain optimism about our future. Carl Taylor provides practical and organizational insights that can guide us in meeting the needs of patients, families, and healthcare workers during the next man-made or natural disaster. Michael Doonan and Stuart Altman use the recently enacted Massachusetts health plan to discuss a way forward for dealing with the needs of the uninsured and underinsured. Philip Buttell, Robert Hendler, and Jennifer Daley define quality and safety in operational metrics that permit tracking, improvement, and cultural change. Jack Barker and Greg Madonna analyze the similarities and differences between aviation and healthcare and offer promise that simple practical steps like briefing, debriefing, coaching, and team training can enhance skill sets in communication and improve safety outcomes, as they did in aviation nearly three decades ago. Hospitals’ success increasingly relies on sharing information to prevent adverse outcomes in medication administration and proactive disease management, as seen in the next three chapters on informational technology solutions, medical technology, and improving outcomes and reimbursement. In the final four chapters, Donald McDaniel, Anirban Basu, David Kovel, and Ian Batstone argue that despite the expense of our poorly coordinated (non)system of care, healthcare

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creates high-wage, high-tech, and high-touch jobs that form the backbone of the American economy. Rudy Wilson Galdonik, who has been a caretaker and a patient, offers practical suggestions for improvement of systems of care from a humanistic perspective. Lynn Johnson Langer notes the rapid uptake that accrues when scientists translate the results of their research to the business community to serve the interests and needs of society. Finally, Kenneth Fisher and Lindsay Rockwell point out the tremendous cost of care in the last year of life and the billions of dollars that could be freed to support systems improvement if we instituted practical changes in the way that we provided terminal care. Although change may feel like failure when we are in the middle of it, we have reached a critical time when we can move from individual “blame-storming” to ways to ameliorate systems of care. This volume and indeed the entire threevolume series will only be successful if the insights contributed by our authors inspire us to create an environment conducive to questioning our past assumptions and learning new ways to study and improve patient care. Kenneth H. Cohn, MD, MBA Douglas E. Hough, PhD

REFERENCE Cohn, Kenneth H., S. Cannon, and C. Boswell. 2006. “Let’s Do Something: A CuttingEdge Collaboration Strategy.” In Collaborate for Success! Breakthrough Strategies for Engaging Physicians, Nurses, and Hospital Executives, ed. Kenneth H. Cohn, 76–77. Chicago: Health Administration Press.

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CHAPTER 1

Perspectives on Leading Complex Healthcare Delivery Systems Diane L. Dixon

T

here is hope for the future of healthcare delivery systems. We read and hear a great deal about all that is wrong with hospitals, nursing homes, physician practices, and other types of healthcare organizations. Numerous articles, books, and documentaries have described what needs to be fixed. The intent of this chapter is not to duplicate what has already been done, but rather to convey positive perspectives on leading complex healthcare delivery systems. There are many hard working leaders who are demonstrating every day that it is possible to transform an ailing system. There are no fancy models or quick fixes. Hope for delivering quality care lies within hopeful leaders who are committed to service and people. This chapter will share examples of six leaders who have achieved performance excellence by leading with a bold vision for better quality care and igniting leadership in the people who knew best how to make that vision a reality. They faced the same challenges that everybody else deals with such as quality, patient safety, financial restraints, staff shortages, and care for the uninsured to name a few. But they did not let these challenges become barriers to excellence. What makes them different? One of the key differences is that these leaders did not let conventional practices block their openness to engage in different ways of thinking and being. They embraced a positive mindset that enabled them to make progress in unstable and difficult times. These leaders understand the traditional, mechanistic, organizational paradigm and its potentially negative impact on their leadership. This understanding helped them to embrace different worldviews that influence how they lead.

EMBRACING DIFFERENT WORLDVIEWS The manner in which leaders see organizations and their relationships to them directly impacts how they lead. A machine metaphor has been descriptive of the 1

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The Business of Healthcare

traditional organizational paradigm that has its foundation in Newtonian scientific principles.1 When the machine metaphor dominates thinking about organizations and management, it becomes a filter through which leaders determine how they manage.2 Seeing an organization as a machine suggests that the whole is the sum of its parts. Translated into a hospital or nursing home setting, this would mean individual departments are the focus and that understanding the organization is dependent upon looking more closely at departments separately. Silos dominate the landscape, creating boundaries that impede interaction. This thinking is well aligned with long-established hierarchies that have traditionally controlled healthcare delivery systems. In the mechanistic worldview, things are rational, predictable, and controllable. There is a basic assumption of stability and order. So the command and control management technique works well in this context.

SOCIOLOGY OF REGULATION This way of thinking has been influenced by a worldview of Western society that asserts the need for regulation in human affairs as a means of holding the society and institutions within it together. To further comprehend the power of the traditional paradigm and its impact on healthcare leadership, it is important to understand the “sociology of regulation.”3 The sociology of regulation is characterized by concern with the status quo, social order, cohesion, and what is actual as a way of understanding society. One can posit a relationship between this point of view and mechanistic thinking. If an organization functions like a machine, regulations will ensure that the parts will be cohesive, and the status quo and order will be maintained to keep the machine running smoothly. And, from a health policy and governmental standpoint, regulations have been the key manner in which healthcare institutions have been managed. The regulation mindset has often constrained the thinking of healthcare leaders. This accepted pattern of assumptions about how organizations behave in the context of our larger society has influenced how leaders lead and manage for a long time. These mechanistic viewpoints have collectively formed the foundation of the traditional organizational paradigm for healthcare organizations. Challenges to this worldview are very evident in a fast-paced, highly turbulent, unpredictable, and continuously changing world. According to Burrell and Morgan, there is another very different sociological construct or way of understanding society and its institutions. The “sociology of radical change” has to do with seeking explanations for radical change, entrenched structural conflict, forms of domination, and contradiction.4 This view of society purports liberation from structures that limit potential for human and organization development. There is a focus on what is possible rather than maintaining the status quo. Given the current state of healthcare and the turbulent environment in which it exists, this perspective seems more aligned with the reality of care delivery systems in need of radical change to adapt to the demands of society. Related to the sociology of radical change is a different viewpoint of organizational behavior. For example, rather than seeing a hospital or nursing home as

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machines to be regulated, we can see them as complex adaptive living systems.5 This viewpoint is informed by complexity science which is an emerging science that embraces a combination of theories and concepts including physical, biological, quantum, chaos, and social science. A complex adaptive system is a nonlinear system comprised of numerous connections and interdependence between diverse elements and independent agents that have the capacity to learn and adapt from experience.6 As these diverse agents, which may be departments within a delivery system, interact with each other, they have the capability to self-organize without external intervention. Within a complex adaptive system, relationships and connectedness are more important than individuality. The whole system and its interdependent elements become the focus for leaders. So if leaders accept that healthcare delivery organizations are complex adaptive systems in an environment on the verge of radical change, then leading becomes a process of facilitating change by building relationships and collaboration. Leadership is guided by core values and mission that act as simple rules in an unpredictable and uncontrollable environment. Embracing new worldviews requires leaders to change their mindsets so that they are open to and can discover new ways of thinking. To do this, leaders need to be aware of their mindsets; those assumptions, beliefs, and values that act as filters.7 They need to know what they think, why they think the way they do, and how their thinking affects their behavior. This is how leaders break the cycle of implementing new approaches the old way, a familiar pattern in healthcare. The leadership examples shared in this chapter demonstrate how healthcare leaders can really change and improve care delivery systems when they break this mechanistic cycle.

LEARNING FROM LEADERSHIP CASES The six leadership cases are presented as sources of learning and reflection rather than best practices. They are intended to inspire deeper inquiry about the leadership capabilities required to transform healthcare delivery systems. While each case is different, the leaders share some common leadership characteristics and practices. The examples are based on conversations with each of the featured leaders and a review of supplemental material describing their organizations.

Christy Stephenson, RN, MBA, Former President and Chief Executive Officer, Robert Wood Johnson University Hospital Hamilton Christy Stephenson, RN, MBA, retired in December 2006 as president and CEO of Robert Wood Johnson University Hospital Hamilton (RWJUHH) after serving in that position since 1998. Prior to becoming chief executive officer (CEO), she was the chief operating officer for six years. Her entire career has been in healthcare, beginning as an aide, then becoming licensed as a registered nurse (RN) and attaining a masters in business administration. She has served in many different positions in seven hospitals. One of these experiences included two

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and a half years with a for-profit ambulatory care company. Ms. Stephenson has learned a great deal about leadership over the years. Her most recent experiences at RWJUHH define her leadership with many markers of success. RWJUHH is located in Hamilton Township, Mercer County, New Jersey. It is a private, not-for-profit, acute-care hospital serving more than 350,000 residents in the region. The hospital is part of Robert Wood Johnson Health System and Network and is affiliated with the University of Medicine and Dentistry of New Jersey-Robert Wood Johnson Medical School. There are over 1,750 employees and more than 600 physicians representing more than 30 medical specialties.8 Ms. Stephenson’s leadership approach resulted in the emergence of leaders throughout the hospital on all levels during her tenure. The leadership team led RWJUHH to earn many notable achievements. The success of RWJUHH demonstrates that healthcare delivery can provide high quality care in a challenging environment. The hospital was awarded the Malcolm Baldrige National Quality Award in 2004. This is the highest honor an organization in the United States can accomplish for quality management and performance excellence. They are one of a few hospitals to receive this mark of distinction. In 2006 and 2007, the hospital attained the Distinguished Hospital for Clinical Excellence Award from HealthGrades, Inc. This designation ranks the hospital’s clinical excellence among the top five percent in the nation.

Voice of the Customer Leaders at RWJUHH have focused their attention on achieving excellence through service for three primary customer groups—patients, employees, and community. According to Ms. Stephenson, the leadership team continuously listens to the Voice of the Customer. They developed a database that captures customer needs and anticipates future trends. Community surveys provide valuable data as well. Employee opinions are also solicited, and their recommendations are a foundation for improving customer service. Providing excellent service means that the leadership team sees the hospital as a system that links all functions together as a whole and does not work in silos. Continuous cycles of improvement, measurement, and evaluation are the foundation of excellence through service. Ms. Stephenson believes that employee satisfaction has been integral to patient satisfaction. This is why there are daily briefings with staff at RWJUHH. Each executive management team member shares critical information and answers questions that enable the frontline staff to do their jobs better. Ms. Stephenson also participated in these briefings. Every employee is only three steps away from organizational goals. Organizational goals are prioritized, and the top five organizational goals cascade down so each department of the hospital has a goal linked to the top organizational goals. The departmental goals further cascade down to each individual employee. For example, a hospital goal is 7 percent RN vacancy rate or lower. The human resources (HR) departmental goal is to reduce time to hire RNs to below 30 days. An HR staff person’s goal is to reduce 90 day turnover for RNs.

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Each individual carries an E-3 card (Engage Every Employee). The E-card reminds employees of their role in achieving organizational objectives. The inclusiveness and involvement of employees has improved their satisfaction to over 90 percent from 78 percent. Another key factor contributing to satisfaction is employee teamwork and interdepartmental collaboration. The “Walk in My Shoes” process gives employees the opportunity to work in departments other than their own. This process has several benefits that include cross training, sharing information, and gaining valuable insights. Five-star service standards are the signature of patient satisfaction, according to Ms. Stephenson. These standards consist of commitments to customers and coworkers, courtesy, etiquette, and safety awareness. They are used to recruit, train, and evaluate employees. An example is the 15/30 Program in the emergency department. The program guarantees that every patient will see a nurse within 15 minutes and a physician in 30 minutes. Standards like these serve as the operating agreement for how patients will be treated at RWJUHH. Because of this unified commitment to patient service, the hospital has consistently improved patient satisfaction. Patient satisfaction, specifically with nursing and physician care, has remained above the 92nd percentile for several years. An integrated information technology system helps employees and physicians serve patients more efficiently. RWJUHH has been engaged in an “IT Innovation Journey” for several years. They have pioneered technologies such as fully digital radiology, bar coding of medications, electronic patient medical records, and computerized physician order entry systems. Technology, particularly computerized patient records, are more accurate, legible, and can be reviewed by more than one health practitioner at the same time. In 2006, RWJUHH received an award from Hospitals and Health Networks for being one of the most technologically advanced hospitals, incorporating wireless applications.

Team Leadership Leadership has been the key ingredient to success at RWJUHH. When asked about her leadership, Ms. Stephenson points out that it was not only about her as a leader, it was a team effort. She stated, “We accomplished great things because of our teamwork.” Her job was to set the direction and engage everybody in the process of achieving the vision “to passionately pursue the health and well-being of patients, employees, and the community.”9 Stephenson believes effective leaders see the best in each person and are successful when they tap into the passion that brought them into healthcare in the first place. Her passion about the vision and mission helped to ignite passion in others. She thinks leadership is not about position or education, but rather about attitude. Her positive mindset greatly contributed to her leadership approach. Stephenson always wanted the best and aimed higher. This positive outlook transcended the organization and sparked others to be more motivated to achieve common goals. For example, at a staff meeting prior to Ms. Stephenson’s retirement, an employee who had come back to the hospital five years ago after 18 years at another local hospital, credited

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Ms. Stephenson’s leadership as being the driving force in helping her find fulfillment in her work. However, a positive outlook will only go so far in leading a hospital system in a competitive, constantly changing environment. The decision to embrace the Baldrige Health Care Criteria for Performance Excellence Framework as a guide for transformational change helped leaders at RWJUHH to create an environment in which the vision and values cascade throughout the organization on all levels.10 This means that every employee understands the vision and values and how important their role is to bringing them to life. In this way, staff become leaders of service through excellence. Employees work in a culture in which suggestions are encouraged on how the hospital can improve patient care and action is taken when suggestions come forward. Staff closest to the patient know what needs to be improved to enhance service delivery. The role of leaders is to remove roadblocks that get in the way of quality improvement and to provide the staff with the resources to do their jobs well. Ms. Stephenson believes that this is how leaders embed performance improvement into the culture so that it can be sustained. This philosophy is a departure from traditional thinking in healthcare that typically focuses on financial health. In focusing on performance improvement grounded in high involvement and engagement of all staff working toward shared goals as an interdisciplinary team, financial health is achieved. Dialogue, listening, and communicating effectively are essential for building relationships paramount for teamwork and connecting all stakeholders in an interdependent process of performance excellence. Ms. Stephenson has demonstrated that healthcare leaders who have a vision of excellence and know how to foster leadership in everyone through passionate pursuit of vision and values can make a difference.

John H. Tobin, DMan, MPH, President and CEO, Waterbury Hospital John H. Tobin is president and CEO of Waterbury Hospital, located in Waterbury, Connecticut. He has been CEO of this mid-sized community and teaching hospital for 28 years. Licensed for 357 beds, Waterbury Hospital serves approximately 15,000 inpatients and more than 21,000 outpatients. It is the second largest employer in the city with a workforce of approximately 2,000 employees. Waterbury Hospital faces the challenges of providing healthcare to the underserved and indigent along with those who have health insurance. Financial resources are continuously strained in an effort to balance competing values of business and a social mission whose guiding principle states, “Caring makes a world of difference.” What makes John Tobin like most of his peers, in many ways, yet different? How does his leadership approach make a discernable difference? John Tobin will tell you that his experience as a chief executive does not mirror that of the traditional image of top leaders. That is, he does not see himself as a powerful charismatic figure who uses prestige of an elite to influence stakeholders to embrace

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visions that have the potential to create sweeping change. He is not the enigmatic strategist who uses singular authority to move board decisions throughout the organization. Rather, John Tobin talks about his world as one of groups of people in collaboration. He describes the Waterbury Hospital world as an intricate tangle of interdependence in which consistent, purposeful behavior in word and action over time with appropriate use of restraint and tact are more influential than charisma. Tobin states that his world is one of “shifting patterns of leading, of constant interplay between my role in the formal structure of the hospital and the roles that emerge in social interaction.”11 He states that strategies often do not emerge from linear articulations of intent but may emerge in patterns within a stream of messy conversations, short-term plans, and prudent decisions made in a moment in time when they are most practical. Tobin believes that the potential for sweeping change is possible in these less structured contexts, although it rarely occurs. More often, change happens as an evolving process that may not always be evident in the midst of action, but becomes clearer upon reflection. This is a fundamental shift in thinking for Tobin who, early in his career, was educated and mentored to be a traditional healthcare administrator. Healthcare administrators are typically trained to be effective managers and transactional leaders who focus on planning, organizing, controlling, and managing performance through contingent rewards like pay for performance in a hierarchical structure that assumes vertical power dynamics as a means for achieving organizational goals.12 How does a leader move from this traditional framework of leadership to one that embraces social interaction, empowerment of staff, emergence of ideas in a nonlinear context, and the power of groups and group process? In John Tobin’s case, the impetus was his introduction to the work of Dr. Ralph D. Stacey who is a professor of Management and director of the Complexity and Management Centre at the Business School of the University of Hertfordshire in England.

Complex Responsive Processes Dr. Stacey explains that what is going on in organizations is “complex processes of relating.”13 This construct suggests that during a typical day in a hospital, for instance, there is a continuous interchange of verbal and nonverbal interactions, a series of gestures which form a complex, nonlinear, dynamic interplay of thought and spoken word. Leader and follower relationships are an example of how these patterns of social interactions flow in an organization.14 According to Tobin, leading is fundamentally a social process that has no meaning without interaction with followers. To deepen his understanding of this perspective, Tobin completed a doctorate of management from the University of Hertfordshire. For Tobin, understanding complex responsive processes of relating h as reshaped how he sees himself as a leader. Traditional leaders tend to think in terms of what “I” want to happen rather than what “we can do to make things happen.” Leading is more than a list of characteristics, behaviors, and practices. Tobin stated that “the way I think of who I am, how I got to be what I am, and how I function in groups has a major impact on my behavior

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as a leader.”15 He believes that engaging in group interaction as more of a participant rather than just an authority figure affects his behavior in subtle ways. He balances his role as an executive leader and the positional power to influence with being a participant in the process. For example, meetings once seen as time wasters are now appreciated as time for human collaboration. The format of department director meetings has changed significantly by shifting rows of chairs into an open circle so that all participants can see each other. This circle format also helps to equalize the power dynamic so that the CEO is not the only influencer in the group. Tobin’s role is both facilitator and leader of the meeting process. The meeting is a balance of structured agenda items and open conversation enabling topics to arise based on the interests of the group. Rather than just reporting a list of events or actions, issues are discussed making the meeting more interactive and dynamic.

Group Process The appreciation of group process and its impact on Mr. Tobin has affected other processes at Waterbury Hospital. Planning is a collaborative social process involving not just the executive team but individuals in various levels of the organization, including the medical staff and department directors. Group process and collaboration have also played a key role in developing a healing environment in which staff work together across departmental boundaries. Interdisciplinary teamwork has been an essential aspect of this organizational development process as well as quality improvement processes. The scope of issues that are addressed by interdisciplinary teams and a wider circle of involvement including physicians have greatly enhanced outcomes. Tobin, as chief executive, is not separate from these processes, but is actively immersed as a full participant. For example, at a directors’ off-site meeting that Tobin facilitated along with the executive team, discussion of the hospital information technology project was used as a process for director development and learning. This project is a largescale system change targeted to speed transfer of information, reduce errors, and enhance communication with an end goal of improving patient care. As a team, the executives and directors engaged in dialogue about the positive experiences that the directors had working on this project. The intention was to identify what could be replicated and applied to other projects. Directors indicated that the project provided an integrative structure that forced them to work across departmental boundaries to solve software and implementation problems. In the emergency department, for example, they discovered that it was essential for clinical and administrative staff to understand the needs, interests, and perspectives of each other. Another important lesson was the value of conflict in bringing issues to the surface and that questioning behaviors that get in the way of progress can be a source of creativity. They also learned that the mutual accountability for producing results motivated staff to work together, reach accommodations, and make collective decisions. Collaboration and shared leadership have advanced project implementation. The overall impact of this project is still being measured, but indicators suggest that the information technology upgrade is on the path to achieving the intended results.

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Twenty-First Century Leadership John Tobin believes leading successfully in twenty-first century healthcare delivery systems requires leaders to be receptive to groups and the value of relationships. Understanding the role of working in a group of interacting human beings as a coordinator and facilitator of the process rather than an authoritarian boss will significantly enhance the teamwork needed to improve quality of care delivery. He thinks that the group collaborative experience is an excellent context for ethical leading which means leaders hold themselves accountable for their actions and take into account the needs, interests, and feelings of others. And one of the most important things healthcare leaders can do is to continuously learn and reflect on what will help them to think differently. Tobin believes that the way leaders think will have a significant impact on leading healthcare delivery systems now and in the future to meet the evolving needs of their communities.

Dr. Anthony J. Cusano, MD, Staff Physician, Waterbury Hospital, Assistant Clinical Professor, Yale School of Medicine Dr. Anthony J. Cusano, MD, is a nephrologist and an assistant clinical professor at the Yale School of Medicine who works as a staff physician in private practice at Waterbury Hospital in Waterbury, Connecticut, and is one of the teaching faculty for the hospital residency program. As a member of the Medical Staff Quality Committee at the hospital, he has led efforts to transform traditional medical practices in an effort to prevent medical errors. In September 2004, Dr. Cusano listened to a presentation given by Jerry Sternin, the director of the Positive Deviance Initiative at Tufts University in Boston. John Tobin, president and CEO of Waterbury Hospital, invited Sternin to share perspectives on positive deviance with hospital administrative staff and department heads so that they could learn about this approach. Positive deviance focuses on finding people in the organization who are using different approaches to common problems and achieving better solutions.16 As a result of participating in this meeting, Dr. Cusano was intrigued with how positive deviance could be applied to improving medical practices.

Positive Deviance Approach in Action After some discussion, the group that participated in the meeting with Jerry Sternin decided to focus on communication as an area for improvement. Dr. Cusano recognized that communication was an important aspect of medication reconciliation at the time of hospital discharge. When patients are discharged, there may be changes in their medication regimens. Sometimes these changes are not accurately transferred to the medical record, and the physician may not reconcile the changes in the discharge instructions for the patient. Also, Dr. Cusano noted that on occasion, physicians may write generic names or preferred brand substitutions that might be different from what the patient was taking prior to

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hospitalization. A patient may be told to resume their original medication at the time they leave the hospital and then become confused when the medication name is different. The problem can be compounded if the patient is required to either taper medication dosage or use variable dosage regimens. He decided that this was a problem that needed further investigation. Dr. Cusano led the effort to study medication reconciliation along with Bonnie Sturdevant, RN, nurse manager for quality improvement. By March of 2005, they formed a multidisciplinary team that decided to use the positive deviance approach to address this issue. The team developed a survey tool to review 20 randomly selected medical records of discharged patients. These patients received a telephone call within 48 hours after discharge to determine whether they were taking their prescribed medications properly. This process helped the team to identify problems that patients may have confronted with their medication regimen as well as learn how discharge instructions and other information were communicated by healthcare professionals. The survey results indicated that 49 percent of the patients were not taking their discharge medications as prescribed. Typically, when healthcare leaders identify problems, they either look outside of the group to find best practices or engage in some kind of problem-solving process. Rather than do this, which targets healthcare providers who did not successfully advise patients, Dr. Cusano and his team applied the positive deviance approach. They studied the 51 percent of patients who did not experience problems with their medical regimens and the staff who advised patients appropriately. Successful practices were discovered that could be replicated such as using a written communication sheet to list the medications with specific instructions for complex regimens and follow-up phone calls after discharge. It was important to share these findings at noon teaching conferences and departmental ground rounds in a collaborative education and engagement process. Staff were asked for their reactions to the findings and, later, as many as 25 to 30 healthcare providers volunteered to call patients to collect additional data on their discharge regimens and compliance. This raised awareness throughout the hospital about the need to communicate medication regimens appropriately at discharge. Widespread engagement and involvement of staff increased ownership for improvement. The result was that six months after beginning the collaborative education and engagement process, 78 percent of the healthcare staff used written communication tools for discharge instructions and 66 percent of patients were more likely to use their medications without diffculty.17

Lessons Learned from Positive Deviance Process Dr. Cusano reflected on his leadership and what he learned from the positive deviance process. Here are several key lessons: • Involvement. Facilitate the group so that they can embrace the problem. Leaders need to do this knowing that there are people in the group

Perspectives on Leading Complex Healthcare Delivery Systems

•

•

•

•

who are successfully solving the problem. It is important that leaders develop confidence in the people who are closest to the issues. A topdown approach coming from senior leaders who think they know all the answers either impedes solution discovery or stops it. The discharge medication problem was identified by the group of professionals who were responsible for solving it. Self-Discovery. The process of self-discovery can enable staff to act as owners. Leaders inhibit staff when they give solutions to problems that they have not experienced directly. It was important for the staff to experience the problems and dilemmas that providers and patients faced with medication regimens at the time of discharge. Involvement in surveying patients and reviewing records that were successfully completed helped staff to discover solutions firsthand. Self-discovery motivated staff to become more engaged in championing solutions. Continuous Learning. By engaging staff in collaborative education about solutions to medication reconciliation at discharge, collective learning was enhanced. Learning was embedded in the action of staff experiencing the problem and inquiry associated with identifying solutions. This was an action-learning process. Action learning is a group process that involves learning as problems are being solved and implementing system-wide solutions.18 An important aspect of this process is developing leadership skills and self-awareness. Leaders such as Dr. Cusano were facilitating learning by continuously asking staff what they were learning as they were working on solutions. Dr. Cusano believes that this is a good example of the positive deviance principle, “acting their way into a better way of thinking, rather than to think their way into a better way of acting.”19 Organizational Culture Change. Interdisciplinary collaboration and the collective learning process helped to change the organizational culture at Waterbury Hospital. Developing solutions for improved medication recognition and reconciliation engaged staff in a whole new way of working together. Because of this experience, staff now approach other problems using positive deviance principles that encourage tapping the wisdom within the group. For example, one of the surgical chief residents is using a positive deviance approach to improve the practices for diagnosing and treating acute appendicitis. Another group of physicians, nurses, dieticians, pharmacists, and patient educators and advocates have begun using positive deviance to engage and improve the care of hospitalized patients who have diabetes mellitus. Enlarging Networks by Enabling Self-Organizing. The collaborative manner in which discharge medications were managed engaged stakeholders across the entire hospital. Relationships were enhanced and the positive energy from working together ignited self-organizing networks of new relationships seeking to improve practices in the hospital.

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Dr. Cusano has demonstrated that physician leadership is essential for performance excellence in healthcare delivery systems.

Linda Rusch, RN, MS, APN; Vice President, Patient Care Services, Hunterdon Medical Center Linda Rusch has been vice president of patient care services for 14 years at Hunterdon Medical Center in Flemington, New Jersey. Hunterdon Medica Center is a 180-bed nonprofit community hospital providing acute and preventive care. Ms. Rusch describes the work environment as a place where people thrive and positive energy is focused on providing the best care to the patients they serve. The best care is measured by benchmarking such factors as falls, decubiti prevalence, central line infections, and patient satisfaction. At Hunterdon, patient satisfaction is in the 90th percentile and the nursing retention rate has been approximately 97.5 percent for 10 years.20 At one point in 2005, there was actually a precedent-setting waiting list of nurses who wanted to work for this hospital. This is quite unusual considering the national nursing shortage. What makes Hunterdon different? Ms. Rusch attributes their success to her people, because she believes that “you are only as good as your people.” It is also evident that leadership has played a significant role. Leadership does not just reside in the vice president’s office, but rather cascades throughout the patient services division. The organization chart looks like a reverse pyramid in that patients and families are at the top of the chart in the center surrounded by a circle of caregiver staff that include RNs, licensed practical nurses, patient care assistants, unit coordinators, and technicians. Staff members are empowered to be leaders of caregiving and their work is coordinated by a management council, education council, nurse practice council, and performance improvement/research council. A coordinating council synchronizes the work of the multiple councils. This shared governance approach has been one of the hallmarks of Hunterdon’s success. Senior leadership is comprised of the vice president of patient care services who is assisted by a director of staff development and director of patient care services. This dynamic organization structure demonstrates the true meaning of transformational leadership as leaders are developed on all levels and engaged in a shared mission of providing quality care.

Complexity Science at Hunterdon Ms. Rusch believes she leads with a complexity science lens. Complexity science bridges multiple disciplines such as biology and social sciences to address questions about living systems.21 Contrary to Newtonian scientific principles that are grounded in stability and predictability, complexity science principles embrace the dynamism and unpredictability inherent in today’s healthcare delivery systems. The traditional machine metaphor has limitations because the focus is on understanding each part of a system separately. This construct limits and influences our thinking about how organizations behave. Seeing the healthcare world

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through a complexity lens helps to clarify and explain organizational behavior. Ms. Rusch believes a complexity lens helps her to see Hunterdon as a whole organization comprised of interdependent relationships. Change in any part of the system affects other parts of the system. The synergy of interconnectedness of relationships is a key component to maximizing positive outcomes in patient services. Authenticity, communication, effective dialogue, and mutual respect are the guideposts of healthy relationships. It is through nurturing these relationships and observing, asking questions, and discovering new emerging patterns that Ms. Rusch makes sense of the complex world of patient service delivery. This is the work of a transformational leader in a new age. The process for selecting new patient beds is a good example. A variety of bed vendors were identified. During a specific time frame, beds were brought to the hospital and placed in several patient rooms so that evaluation and assessment would be convenient during the selection process. Nurses and other staff who were directly involved with patient beds, such as housekeeping and maintenance, were engaged in evaluating and rating them. They collectively selected the best beds for Hunterdon. This high involvement process appreciated the great diversity of perspectives that, through a complexity lens, enables creative ideas to emerge. Bed selection in this context was built on a foundation of interdependent relationships and simple rules of openness, creativity, mutual respect, and what would work best for patients. Another example of complexity-informed leadership is the hospital process that Hunterdon calls “transforming care at the bedside.” All departments that nursing depends on to provide patient care are involved. Ms. Rusch believes that diversified teams minimize hierarchy because the focus is on shared purpose and achieving mutual outcomes. She posits that diversity fuels the energy for change. Leaders should enter the change process with no assumptions or preconceived ideas. They need to ask questions rather than have all of the answers. In this example, focusing on positives such as, “What is working well with regard to providing patient care at the bedside?” sets the discovery path for transformation in the right direction. Another important question was, “What would give minutes back to nurses so that they can be more vigilant about taking care of their patients?” Simple rules were followed such as, “Tell the truth no matter how hard it is,” And, “Work with the patient in mind.” These rules guided staff through this complex process. Keeping the rules simple enables the team to self-organize and, as the flow of the process unfolds, creative ideas emerge that lead to transformation. Shared governance meetings are an important aspect of the process. But these are not the typical meetings we experience in healthcare settings that are often focused on getting through a standard agenda with little time for interaction. Meetings in patient services are opportunities for free-flowing ideas and creativity. At Hunterdon, the agendas include time to have conversations about house issues and lessons learned.22 Ms. Rusch thinks it is important for leaders to provide unstructured open space in meeting agendas to allow spontaneous dialogue to emerge. When this dialogue is facilitated in a “no blame culture,” the truth about problems and mistakes such as medical errors can be revealed without fear. Then,

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as a team, the staff can solve problems constructively. This open space is also a time for appreciative inquiry that enables staff to reflect on what is going well and what they are learning.

Transformational Leadership with a Complexity Worldview Linda Rusch is a transformational leader who has learned to view the world through a complexity science lens, seeing the hospital as a nonlinear complex adaptive system in which diverse agents such as clinical professionals and support staff interact with each other and possess the dynamic capability to spontaneously self-organize. There is evidence of how shared purpose and minimizing hierarchy enables self-organization to thrive and how this approach leads to powerful results. Ms. Rusch accepts that there are many factors inherent to healthcare delivery systems that are fundamentally unpredictable and uncontrollable. Acting on this premise helps her to be more creative as she takes risks and continuously learns from mistakes. Simple rules like those cited in the examples guide the journey on sometimes uncharted and rugged paths. Ms. Rusch develops her staff to become leaders of the vision and mission by involving them and encouraging their participation in continuous improvement processes targeted toward providing quality patient care. They travel the journey together, and she is not separate from the staff, but rather very much immersed in supporting them. By nurturing relationships, she builds a community of trust and mutual respect that enables her staff to work as a team. With this as a foundation, the work of Ms. Rusch has demonstrated that anything is possible.

Steve McAlilly, President and CEO of Mississippi Methodist Senior Services, Inc., Tupelo, Mississippi Steve McAlilly has been president and CEO of Mississippi Methodist Senior Services, Inc., for 13 years. This organization provides long-term care services to approximately 1,600 elders on 11 campuses in Mississippi. Mr. McAlilly pioneered the development of the first Green Houses on their Traceway Retirement Community campus in Tupelo. Green Houses are a radically different model of care for elders. The concept was created by Dr. William H. Thomas, MD, a geriatrician who is a thought leader for transforming long-term care. The individual houses are specifically built to provide an enjoyable living environment for 8 to 10 elders. There are private rooms with private baths. A central hearth with an adjacent open kitchen gives elders an opportunity to enjoy community meals and participate in cooking activities. Elders have access to all areas of the house. Pleasant surroundings make it appealing for residents to go outside within full view of the staff. This is a social model of care that is a paradigm shift from the nursing home as a medical institution. It is not only the physical environment that is dramatically different from a traditional nursing home, but also the organizational structure that greatly influences leadership relationships with staff. Life in a Green House is focused on

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the needs of the residents, and all decisions are made by those who work closest to the elders. The hierarchical pyramid is transformed into a circle of direct care staff. This self-managed team provides person-centered care to elders living in the Green House. They are called shahbazim, a term Dr. William Thomas created based on the metaphor of the king’s falcon that protects people, since direct-care workers protect, nurture, and sustain elders in Green Houses.23 In essence, they are the leaders of caregiving. A guide supports the team by acting as a coach, providing guidance and monitoring quality of care and quality of life. The guide is a licensed nursing home administrator, but is not in the traditional role. The direct-care team works collaboratively with a clinical support interdisciplinary team that works under the direction of the medical director and director of nursing. Outcomes of their work are monitored by the guide. The higher level of staff involvement greatly influences leadership in Green Houses and shifts the primary decision making about care delivery and the overall well-being of residents to direct care workers. Leading is a shared responsibility in a circle of interrelationships among staff in the house.

Servant Leadership Steve McAlilly has learned to lead differently. Leading the development of Green Houses has been a transition for Mr. McAlilly, a lawyer by training. He started as a volunteer for Mississippi Methodist Senior Services. After reading Servant Leadership, which was given to him by his father, the need to lead as a servant became more apparent.24 A servant leader puts service first and leads with that as the central purpose of their leadership. Mississippi Methodist Senior Services was a setting in which he could become a servant leader. When asked to describe his leadership style, he quickly stated, “I do not think leaders can put on a leadership style. It is about who I am as a person.”25 Leading involves doing something that is worthwhile and makes a difference.

Leading a Paradigm Shift Mr. McAlilly was asked what it takes to be a leader of the Green House Project and to lead a paradigm shift in long-term care. He indicated that to lead transformational change, leaders have to be able to articulate a vision in a way that captures the essence of where the organization is going. The vision has to be big enough to inspire people to become change agents and to motivate them to want to do everything they can do to achieve it. In the case of Green Houses, the organizational culture is not just being changed, it is being replaced. Everyone had to change their mindset about how care gets delivered and how the relationships among staff work. The old way of thinking that views top leaders as the key decision makers had to be replaced with the new culture in which the direct caregivers are the decision makers because they are the closest to the resident. This significantly changes the role of top leaders. One of the biggest lessons McAlilly had to learn was to give up power and control. This means continuously balancing shared authority and power with people

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closest to the residents, yet knowing when to intervene. He had to learn to trust that the staff would do what is right. Building that trust means getting close to staff so that he could develop relationships and learn their capabilities. McAlilly believes leading is all about relationships with people who share a common goal. As staff were being trained to work in the Green Houses, McAlilly became more deeply engaged with the direct care staff and learned everything he could about their jobs. He put his jeans on and became one of them, participating in the training focused on developing direct care staff to become leaders of caregiving and interdisciplinary team members. This approach is a departure from the typical healthcare top executive who is removed from the direct care staff and works through the chain of command to learn about issues that impact their effectiveness. McAlilly had to change his CEO mental model of a leader with all the answers to a leader who facilitates inquiry, coaches, and mentors. He believes that each person has an innate desire to do their best and wants to help people grow. However, these beliefs are grounded in a pragmatic understanding that there are some people who are not going to get on the bus. Leaders have to be willing to either let these detractors select themselves out of the new culture or to manage their performance sooner than later to help them move on.

Insights on Leadership Leading transformational change required McAlilly to be introspective and reflect more deeply on how to be an effective leader. Letting go of long-held beliefs about the role of top leaders and how they interact with staff was not easy. But his openness to becoming more self-aware and willingness to learn enabled him to grow. He shared several important insights about leadership that helped him. • Paradigms and mental filters have a great impact on how leaders view themselves and how they lead. The implication is that leaders need to become aware of their thinking and assumptions. • A positive outlook influences a leader’s ability to lead effectively. • Acknowledge that you do not have all of the answers. A leader cannot become so focused on the needs of their own egos and take themselves too seriously. McAlilly began the Green House Project believing that he had all of the answers. As the change process evolved and he put more faith in his staff, he realized that with support, the staff closest to the elders had important insights. He learned that leaders have to let go of control and accept ideas from staff that may be different from the leaders’ own. Differences of opinion and mistakes are learning opportunities. • Leaders learn to ask the right questions. For example, a key question healthcare leaders need to ask is, “What is wrong with this system that no matter how many regulations we put in place, residents and staff are still not satisfied and results are the same?” By asking questions such as these, leaders can get to the root causes of the problems that impede transformational change in healthcare.

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• Accept the uncertainty and ambiguity in transformational change. Embrace ambiguity. McAlilly said, “I don’t know what is going to happen on the journey, but I know we have the capacity to get where we are going. I believe the people can do it.”26 It is this trust that enables him to lead his organization and develop staff to become leaders of the change process. • McAlilly learned that “you cannot lead by remote control.” Leaders need to be available so that they can listen, learn, and help staff solve problems and concerns. He believes that leading requires building relationships with those who are transforming the culture, particularly the direct care staff. Steve McAlilly is an example of a transformational servant leader because service drives his leadership and he engages followers by developing them to become leaders of making the vision a reality. His strong beliefs and values about the quality of life that elders deserve have enabled him to lead the Green House Project. At the end of the interview, McAlilly stated that he is leading because it is the right thing to do.

David A. Green, Retired President and CEO, Evergreen Retirement Community David A. Green retired in 2005 as president and CEO of Evergreen Retirement Community in Oshkosh, Wisconsin, after 29 years of service. As a pioneering leader in the field of long-term care, Mr. Green left a legacy that has been sustained. Evergreen is a continuing care retirement community that provides quality living environments for elders ranging from independent homes and assisted living apartments to skilled nursing care. While the development of Evergreen as a nationally recognized community for elders is interesting, the real story is the transformational leadership that facilitated the innovative design of their skilled nursing facilities, Creekview North and Creekview South. Mr. Green exemplifies the quote from Winston Churchill, “We shape our buildings; thereafter they shape us.”27 The Creekview story illustrates how a visionary leader grounded in values of service and relevant knowledge in architectural engineering and long-term care administration radically changed an organization with the help of an expansive circle of involved stakeholders.

The Creekview Story During a presentation at Evergreen Retirement Community in August 2006, David Green gave an overview of the Creekview story.28 After the presentation he was interviewed to gain further insights about Creekview. In 1983, Green started thinking about how nursing homes needed to be more person and relationship centered. He had struggled for years with the traditional model of nursing homes that are designed to be extensions of hospitals. But it was not until 1987 that his ideas became more concrete and he envisioned a neighborhood of households rather than a long corridor of isolated residents in rooms. He believed that the skilled nursing facility at Evergreen should be redesigned to

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become household/neighborhoods in which elders live in the community, and their well-being—physical, emotional, spiritual, and social—would be the central focus. Mr. Green took bold steps to make this vision a reality and did not let financial and regulatory constraints stop him from articulating his picture of the future to those who needed to embrace it. A positive mind-set enabled him to see potential barriers to change as opportunities that could lead to the ideal home for frail elders. He recognized that if his vision was to become reality, it would require leadership beyond him. Also, he knew that he did not have all the answers but had many questions that others needed to consider. In collaboration with his staff and the board of directors, Green created the Evergreen Health Center Planning Committee to include board members, residents, and staff at every level. They were tasked with the job of further developing a vision of the perfect nursing home. Mr. Green believed it was critical to engage the people who would be directly responsible for implementing the change and that they would need to become leaders. The committee worked hard to widen the circle of involvement to include as many people as possible in the process, including state officials. Green and the committee recognized that state regulators had to become partners in change rather than adversaries. Teamwork and collaboration were essential for success. The result of these efforts was a household/neighborhood design concept that envisioned elders living in a community with more opportunity for meaningful relationships and activities, as well as more control over their lives. This groundbreaking idea was affirmed by the passing of the Nursing Home Reform Act of 1987, which was part of the Omnibus Budget Reconciliation Act passed that same year (OBRA 87). The legislation established that resident outcomes should be the basis for evaluating nursing homes. Evergreen provided an excellent model for how nursing homes could not only be reformed, but transformed to be resident and relationship centered.

Prototypes for Change Mr. Green recognized that this transformational change would be costly in terms of time and money. He decided that it would be wise to conduct a pilot study of this innovative design before investing the resources needed to build a new nursing home. In 1992, an eight-resident section of the existing skilled nursing facility was remodeled as a household with resident rooms opening directly onto a living/dining/kitchen area for those residents. An interdisciplinary team of direct care staff was formed to provide care and to create a positive living environment for the residents. A 30-hour Continuous Quality Improvement training program equipped the staff to function effectively as a self-directed team for the one-year project. Mr. Green believed that it was important to measure resident, family, and staff outcomes so that what they learned from the pilot could be used to plan a new 36-resident household/neighborhood. Data were collected and used to evaluate the quality of life, quality of care, and satisfaction. The results confirmed that the household/neighborhood model improved resident quality of

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life and satisfaction, as well as family satisfaction and staff fulfillment. The most important indicator of success was the uniform response of the residents, families, and staff involved that all nursing home residents should have the opportunity to live in this kind of environment. This evidence convinced the Evergreen Board of Directors to approve building the 36-resident household/neighborhood. An estimated $3 million was needed for the project. The combination of a collaborative relationship with the state of Wisconsin, a $1 million capital campaign, and long-term financing enabled the project to be built. In June 1997, 36 residents moved into a household/neighborhood named Creekview because of its proximity to Sawyer Creek. The look and feel of Creekview was positive, with lively neighborhoods comprised of homelike households. The nine residents of each household share a kitchen/dining/living area that looks onto a sunny, protected backyard. A neighborhood center connects the four households, providing space for gathering. The skilled nursing facility was transformed into a warm home where elders can live a quality life while receiving the medical care they need. Transformational leadership also requires good management. Mr. Green again recognized the need to measure results and document evidence that Creekview improved quality of life, functional health status, family satisfaction, and staff satisfaction. He engaged an external consultant to conduct a year-long evaluation study of the 36 Creekview residents and 56 residents in Evergreen’s traditional skilled nursing units. A comparative analysis indicated significant positive changes in each of the areas measured for Creekview residents as compared with individuals in the traditional units.29 At the end of one year, the residents of the neighborhood consistently rated higher or better on cognitive, emotional, and behavioral indices, although they were lower on physical functioning. Additionally, these results were highly consistent across all the different instruments, suggesting high validity. This research supported the positive impact of the neighborhood design on the lives and care of a typical nursing home population.

Building on Success The success of Creekview led to the construction of Creekview South and Creekview Center in July 2004. Mr. Green solicited suggestions for improvements from staff who had experience with what is now Creekview North to plan the new facility. Some improvements included more kitchen counter and dining floor space, redesigned work areas for medication administration and documentation, and a more spacious bathing facility. The neighborhood center added features such as a large aviary; a game area; an information area with a computer terminal, books, and reference materials; a music area with a piano; a children’s play area; and cozy seating areas around a large stone fireplace. Creekview Center, which connects the north and south buildings, includes a café, aquatic center, fitness center, and aerobics studio which are available to all residents, their families, employees, and community elders. The Creekview model for skilled nursing care

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is truly a success story, not only because the vision became a reality, but because it has been enhanced and sustained over time.

Leaving a Legacy—Sustaining Transformational Change A visit to Creekview in the Summer of 2006 confirmed that David Green left a legacy at Evergreen. One of the biggest challenges with transformational leadership and change is sustaining it. So often when transformational leaders leave an organization, their vision goes with them. But this is not the story at Evergreen. Mr. Green had a keen understanding of the critical role of governance in sustaining transformational change. He believes the CEO is not the future of the organization. The board of directors is the future because the board is “the steward of the organization’s moral owners,” according to Mr. Green.30 The Policy Governance Model™ developed by John Carver greatly influenced his leadership and relationship with the Evergreen Board of Directors.31 This model of governance recognizes that organization sustainability depends upon the board being the chief guardian of the organization’s values. The Evergreen values were embedded into the culture of the organization by leaders at all levels as they worked to design and implement the household/neighborhood model. When values are constant and are the platform on which change is built, transformational change has a better chance of being sustained. The dedication of Mr. Green to developing several potential successors for his CEO position from the executive team helped to ensure leadership continuity. Succession planning by staff in combination with appropriate governance enabled Evergreen’s operational and governance leaders to engage in a thoughtful process which prepared the organization for Green’s retirement. The board’s selection of an internal candidate with a positive leadership track record in the organization helped to ensure that his legacy lives on. And, because of Mr. Green’s development of the leadership team, the internal candidates who were not selected continue as members of the team. David Green has demonstrated that leaders can challenge conventional systems and shift the traditional healthcare delivery paradigm. He had a bold vision grounded in values of service and competence, and discovered how to achieve collaboration and teamwork among those who would make the vision a sustainable reality.

LEADERS SHARE COMMON APPROACHES The leadership examples give us insights into what leaders of complex healthcare delivery systems need to be and do to transform these organizations. It is clear that the featured leaders are not mechanistic thinkers who use regulations as a means to maintain the status quo. Rather, these leaders are change agents who are guided by a deep commitment to service. They understand that their organizations are complex, dynamic systems that need to adapt to an unstable and unpredictable environment. The challenges of delivering healthcare in this environment have not obstructed their bold vision for better quality care and quality of life for all

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of those served by their organizations. Therefore, the vision and mission of their respective delivery systems are patient/resident and relationship-centered. Passion for achieving that vision provided them with the motivation and resilience needed to lead in tough and turbulent times. They share a positive mindset characterized by a belief that people deserve excellent service and most people who work in care delivery systems want to do their best work. These leaders really care about people. They are authentic leaders who are guided by their beliefs and values. Grounded in a clear sense of purpose, they do not succumb to the whims of the next new fad or model but lead to improve quality patient care for their communities. This focus helps to ensure that the transformational changes they put into practice are sustainable. The leaders in these examples, while different, share some important leadership approaches. The term approach is used rather than style because these leaders are being themselves. They did not adopt a textbook leadership style that did not fit their core values, but rather are leading authentically with self-knowledge that enables them to lead with integrity. In fact, a couple of the leaders specifically stated, and the others implicitly indicated, that leadership is not just a list of characteristics and behaviors or a style they put on. Leadership is very much about leaders knowing themselves, being themselves, and not trying to be like somebody else. This does not mean that they did not learn from other leaders, just as readers of their stories will learn from them, but they took the lessons learned from leadership role models and made them their own based on who they are as a people and what makes sense in their situations. Here is what the leaders in the examples share in common: • An ability to see the organization as an interdependent whole The organizational lens through which the leaders see their delivery systems greatly influences how they lead and build relationships with stakeholders. They do not see a machine image that focuses on individual departments and disciplines, but rather they see an image of a dynamic living system in which interrelationships and interdependence hold the keys to transformation. The vision encompasses the whole system. The silos of the mechanistic organization are transformed into an interconnected network of relationships focused on achieving shared goals. • The knowledge that leadership exists within the entire organization The leaders believe that central to the success of attaining their vision and living the mission, leaders are developed beyond the executive realm. They have expanded the span of power and influence, particularly to those who directly care for patients. This meant changing the traditional hierarchical pyramid to a circle of inclusion. Sharing power and control as a CEO means letting go of mindsets and conventional training that suggest administrators of hospitals and nursing homes must tightly control operations, policies, and procedures to comply with regulatory demands. The leaders in the examples see it differently. They recognize that their

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organizations must be resilient and adapt quickly to a changing environment. To do this, authority and decision making need to be with the people who have the most knowledge and wisdom to do what needs to be done. With a clear mission, vision, shared values, and articulated expectations as the simple guides in a complex system, staff possess the ability to self-organize. Ideas for how to continuously improve will emerge. The leaders know how to balance being close to employees with enough distance to lead effectively. • The value of inclusion and involvement In each example, it is evident that the leaders believe in the value of inclusion and involvement of staff, physicians, board, and community in transformational change. Key stakeholders were active participants in shaping the vision, and their ideas were used to develop new approaches to delivering quality care. Because these leaders widened involvement and participation, there was less resistance to change, and the natural resistance that did occur was embraced as a source of information for identifying obstacles to the intended changes. These leaders demonstrate that there is more ownership and commitment to change when people who will be affected by the change are involved. • The development and facilitation of interdepartmental teamwork and collaboration When leaders see their organizations as an interconnected network of interdependent relationships, it is easier for them to facilitate and guide the interdepartmental teamwork and collaboration required for the changes that they need to implement. These leaders not only know how to build teams, but also how to facilitate them. They model teamwork and collaboration by removing the barriers to interdepartmental, multidisciplinary, and interorganizational team development. The leaders featured in this chapter transcended organizational boundaries and made sure they engaged all the people who needed to work together to achieve patient/resident-centered goals. • Commitment to effective communication Communication is more than sharing information and the expectations for change. The leaders spent a lot of time asking questions and listening. These individuals recognize that they do not have all of the answers. This is counterintuitive to the manner in which many top leaders are trained and socialized to believe that they should know everything. Accepting that they do not know everything is at once humbling and empowering because it frees leaders from an impossible task and enables them to open up to others who are more likely to possess knowledge critical for success, as the leaders in the examples demonstrated. They did this by coming out of their executive offices and engaging in conversations with employees on all levels. Other key stakeholders such as patients, residents, families, and

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the community were given many opportunities to share their perspectives about targeted changes. The leaders’ communication mirrors the image of organizations as a network of interdependent relationships. • Understanding the importance of measuring results Achieving results begins with a clear shared understanding and commitment to specifically defined outcomes and measures of success. Measurement provides the documented evidence required to determine whether targeted outcomes are being achieved. It is important to note that these leaders did not measure for the sake of measuring or become so consumed with evidence-based data that they missed the point of why they were measuring in the first place. The leaders used the data to learn what needed to be improved, sustained, and replicated. They saw that measurement is a source of learning. • Appreciation of continuous learning Learning is important to these leaders and has played an integral role in their ability to lead transformational change efforts. Their openness to engage in conversations to learn different perspectives about change and what is going on in the organization demonstrates learning in action. Learning informed their thinking about how to adapt their leadership approaches so they could effectively lead and manage change. Mistakes were a catalyst for deeper learning and inquiry. These leaders also embedded learning into their organizations by providing education and training to help staff learn new ways of approaching organizational challenges and to develop the skills required for change management. Continuous learning was ingrained in their organizational cultures.

CONCLUSION The seven leadership approaches that the leaders shared, along with a positive mindset, bold vision, clear values, and enduring purpose grounded in a spirit of humble service helped these leaders to lead and manage significant transformational change in their organizations.

LOOKING FORWARD We have learned from the six leaders that authentic transformational change in complex healthcare delivery systems is possible. The business of healthcare is really the business of people and relationships interconnected in a mutual quest for quality care delivery that is affordable and accessible. A bright future requires transformational leaders who are dedicated to people and service. They must be willing to embrace new worldviews that will enable them to genuinely change the traditional paradigm and develop innovative approaches to healthcare delivery. Hope for a better future depends on leadership.

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NOTES 1. Zimmerman, B., C. Lindberg, and P. Plsek. 1998. Edgeware: Insights from Complexity Science for Health Care Leaders. Irving, TX: VHA Inc., 4–5; Wheatley, M. J. 1992. Leadership and the New Science: Learning about Organization from an Orderly Universe. San Francisco: Berrett-Koehler Publishers, 25–45. 2. Morgan, G. 2006. Images of Organization. Newbury Park, CA: Sage Publications, 11–26. 3. Burrell, G., and G. Morgan. 1979. Sociological Paradigms and Organisational Analysis: Elements of the Sociology of Corporate Life. Portsmouth, NH: Heinemann Educational Books, Inc., 11–20. 4. Burrell and Morgan, Sociological Paradigms and Organisational Analysis. 5. Barker, A. M. 2006. “Complexity Science and Change: A Path to the Future.” In Leadership Competencies for Clinical Managers: The Renaissance of Transformational Leadership, ed. A. M. Barker, D. Taylor Sullivan, and M. J. Emery, 57–75. Sudbury, MA: Jones and Bartlett Publishers. 6. Zimmerman, Lindberg, and Plsek, Edgeware. 7. Anderson, D., and L. Ackerman Anderson. 2001. Beyond Change Management: Advanced Strategies for Today’s Transformational Leaders. San Francisco: Jossey-Bass/ Pfeiffer, 77–84. 8. Robert Wood Johnson Hospital Hamilton. n.d. Robert Wood Johnson Hospital Hamilton. Available at: http://www.rwjhamilton.org. Accessed August 22, 2006. 9. Christy Stephenson interview with the author. July–December 2006, via telephone from the author’s office in Columbia, MD. 10. Baldrige National Quality Program. 2006. Health Care Criteria for Performance Excellence. Gaithersburg, MD: National Institute of Standards and Technology, United States Department of Commerce. 11. Tobin, J. H. 2003. “The Practical Side of Complexity: Implications for Leaders.” PhD thesis, University of Hertfordshire. 12. Bass, B. M., and R. E. Riggio. 2006. Transformational Leadership. 2nd ed. Mahwah, NJ: Lawrence Erlbaum Associates, 3–4. 13. Stacey, R. D. 2001. Complex Responsive Processes in Organisations. London: Routledge, 5–7. 14. Tobin, J. H., and J. H. Taylor. 2004. Complexity as a Management Tool. Available at: http://www.hhnmag.com/hhnmag_app/jsp/articledisplay.jsp?dcrpath= HHNMAG/PubsNewsArticle/data/040831HHN_Online_Tobin&domain=HHNMAG. Accessed August 24, 2006. 15. John H. Tobin, interview with the author, July–December 2006, via telephone from the author’s office in Columbia, MD. 16. Pascale, R. T., and J. Sternin. 2005. “Your Company’s Secret Change Agents,” Harvard Business Review 83 (5): 72–81. 17. Positive Deviance Institute. n.d. Positive Deviance Makes Its Debut in Healthcare at Waterbury Hospital in Connecticut. Available at: http://www.positivedeviance.org/ projects/waterbury/waterbury_narrative_final.pdf. Accessed August 25, 2006. 18. Marquadt, M. J. 2004. Optimizing the Power of Action Learning: Solving Problems and Building Leaders in Real Time. Palo Alto, CA: Davies-Black Publishing. 19. Positive Deviance Institute, Positive Deviance Makes Its Debut in Healthcare. 20. Rusch, L. 2006. “Complexity Science in Action.” In Leadership Competencies for Clinical Managers: The Renaissance of Transformational Leadership, ed. A. M. Barker,

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D. Taylor Sullivan, and M. J. Emery, 297–310. Sudbury, MA: Jones and Bartlett Publishers. 21. Zimmerman, Lindberg, and Plsek, Edgeware. 22. Rusch, “Complexity Science in Action.” 23. Dixon, D. L. 2004. “Changing the Landscape of LTC.” Caring for the Ages 5 (11): 61–65. 24. Greenleaf, R. K. 1977. Servant Leadership. Mahwah, NJ: Paulist Press. 25. Steve McAlilly, interview with the author, July–December 2006, via telephone from the author’s office in Columbia, MD. 26. Ibid. 27. Churchill, W. 1960. Simpson’s Contemporary Quotations. Available at: http:// www.bartleby.com/63/83/5583/html. Accessed September 23, 2006. 28. Green, D. A. 2006. “The Creekview Story.” Presentation at the Evergreen Retirement Community, Oshkosh, Wisconsin; Green, David A. The Story of Creekview, Evergreen Retirement Community brochure, Oshkosh, Wisconsin. 29. Calkins, M. P. 1999. Creekview: Its History and Evaluation, Final Report. Cleveland, OH: Innovative Designs in Environments for an Aging Society. 30. David A. Green, interview with the author, July–December 2006, via telephone from the author’s office in Columbia, MD. 31. Carver, J. 1997. Boards That Make a Difference: A New Design for Leadership in Nonprofit and Public Organizations. San Francisco: Jossey-Bass.

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CHAPTER 2

Mending the Gap between Physicians and Hospital Executives J. Deane Waldman and Kenneth H. Cohn

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his chapter explores the relationship between two components of our healthcare system: physicians, representing all providers of direct care, and hospital executives, referring to those with administrative responsibilities, regulatory obligations, and resource control. Currently, there is a wide gulf, or gap, representing an adversarial interaction. Over the past 50 years, there have been dramatic, frankly, revolutionary, changes in the practice of medicine without corresponding or matching adjustments in the healthcare system. As a result, both physicians and healthcare executives are frustrated. The present adversarial tone between healthcare executives and physicians adversely impacts healthcare outcomes. We discuss data showing differences between physicians and healthcare executives in education, background, work experience, and culture. However, the two share common core values: altruism, service, and love of a challenge. They also have common concerns about the future. We conclude that the real enemy is not the so-called other—physicians or healthcare executives—but our dysfunctional healthcare system. The common values and concerns shared by physicians and healthcare executives could provide the framework for successful communication leading to a bridge across the gap and a collaborative rather than confrontational relationship. Physicians could teach healthcare executives about clinical priorities, useful new technologies, and scientific methodology, including evidence-based decision making. Healthcare executives could educate physicians about management tools and techniques for planning, implementation, and assessment, especially systems thinking. Together as partners, healthcare executives and physicians could address many of the currently insoluble problems in healthcare.

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INTRODUCTION If you have not used the tube (subway) transit system in London, you have missed a pleasurable experience. In a place where streets are narrow and wind around buildings, where street names change without notice and are routinely mispronounced by tourists, it would be easy to get lost. The tube helps you get where you need to go. There are, however, places where the subway rails are not flat but cantilevered, forcing the train to be tilted away from the platform edge, creating a dangerous gap into which passengers can fall to injury. At each of these places, when the train comes into the station, a stentorian mechanical voice with a British accent warns: “Mind the gap!” In the following discussion of hospital-physician relations, we have stolen and modified the tube-stop clarion call, writing that we need to mend the gap. During the discussion that follows, we use the words hospital, management, and MGT (management) interchangeably to indicate those within a hospital or healthcare system who have administrative functions and resource responsibility. This includes managers, support staff, billing individuals, all the way up to the chief executive officer (CEO) and the board. We intersperse the terms physician, medicine, and provider to represent all who directly provide care, such as doctors, nurses, therapists of all kinds, social workers, and technologists.

Case Report: Local Newspaper Reports 10-Hour Waits in Emergency Room The following is a dramatization of an actual meeting in a hospital after the major local newspaper printed a front-page story about how long people waited in the emergency room (ER). Director of public relations:

“You all saw last week headlines. The board is very distressed over the story showing that patients often wait in our ER for 8 to 11 hours. I have called this meeting to see what we can do.”

Medical director of ER:

“We have real problems. Yes, people do wait a long time in my ER. We need more resources: nurses, bed spaces, and equipment.”

Vice president of operations:

“We have no additional money. The ER is a moneylosing facility. How long can it take to see if the patient is bleeding and sew him up or determine what the child’s rash is?”

Director of inpatient services: “We do not have beds to accept patients from the ER, and we frequently are sitting around waiting for the cath lab.” Chief of nursing:

“I cannot recruit enough nurses to fill the vacant positions we have in the ICU or the cath lab.”

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Chief of cardiology:

“It is malpractice to have a patient with an evolving heart attack waiting around in the ER. This cannot go on!”

Director of fiscal services:

“Too many ER patients have no insurance or are undocumented or refuse to fill out papers. No one has preauthorization. We just do not get paid for what we do.”

Chairman of surgery:

“Patients lie in the ICU [intensive care unit] or the wards waiting for surgical times to get into the operating room. We need more rooms and surgeons, or the waiting list just gets longer.”

Director of Emergency Transport Services:

“Our hospital is the Level I trauma center for the area. I have to bring the patients here, and, oh, we lose money on every uninsured patient. We are mandated to transport them but do not get paid.”

Chairman of Pediatrics:

“During epidemic seasons, we have to house dehydrated or asthmatic children in the ER because there is no other place to put them.”

Medical Director of the ER:

“We have to do something!”

Director of Public Relations:

“We have to do something!”

Each person was speaking the truth from his or her perspective. No one understood the others’ issues. No one was talking to anyone else. No one was diagnosing causes of ER flow problems, and no one was suggesting any workable solutions.

PHYSICIAN-HEALTHCARE EXECUTIVE EXCHANGES Below are some additional examples of communications between physicians, called white coats, and healthcare executives, nicknamed blue suits. As above, they are actual, recent in-hospital verbal exchanges. Even the jocular names—white coats and blue suits—suggest opposing teams rather than teammates, much less colleagues, and certainly not brothers. • Doctor (to receptionist): “Please fax this information immediately to Dr. X.” • Hospital receptionist: “I can’t. My name is not on the medical release form.” • Provider (doctor): “How can I talk to my patient when there are no translators?” • Manager (director of translation services): “Do these doctors think I can print money?”

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• Provider (doctor): “I should talk to the patient about the complication.” • Manager (risk management director): “You can’t. They might sue, and besides, all discussions at morbidity and mortality conferences are confidential.” • Provider (surgeon): “Where is the family of the patient I just operated on?” • Hospital (receptionist): “Somewhere in the hallways. There are 22 waiting room chairs for a 72-bed ICU.” • Doctor (surgeon in operating room): “I need a 24-mm CarpentierEdwards heart valve.” • Hospital (operating room [OR] manager): “We only have 20 and 25 Shiley valves. Those were the only ones I was allowed to order.” • Provider (doctor): “Why must this patient wait four days for the surgery she needs?” • Manager (OR supervisor): “Because we only have three ORs and they are all booked solid.” • Doctor (department chairman): “We need to recruit Dr. Z as soon as possible.” • Hospital (human resources [HR] director): “It will take 6 to 18 months, approximately seven different forms, at least four committee meetings, compliance with EEOC [Equal Employment Opportunity Commission] regulations, and I have no idea how much it will cost. Oops. She has an H-1 visa. Sorry, we cannot hire her.” • Provider (social worker): “I saw in this morning’s paper that our CEO got a 4 percent performance bonus. His ‘performance’ success means we have fewer translators.” • Hospital (CEO): “I saved the hospital $4 million last year and am underpaid by national standards.” • Provider (respiratory therapist): “Why aren’t we using the ventilators with the new servo control?” • Hospital (unit manager): “If I stay within budget, I get my annual bonus.” • Provider (nurse): “I have had it here. I am moving to Hospital X uptown.” • Hospital (HR manager): “I cannot understand why she left. We gave her a signing bonus.” • Both, separately: “But we meant well!!” • In unison: “You won’t believe what they just did!?!”

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Whether the subject at hand is an individual patient, facilities within the hospital, relations with outside agencies, or outcomes—medical or financial, the providers and managers seem to be shouting at each other rather than having collegial discourse. Relations are either silo type, with one side functioning independently of the other, or frank adversaries, where each side sees the other as the source of its problems.

ADVERSARIES Most physicians and nurses simply want to do their work free of hassle, providing high-quality, patient-sensitive care.1 They see themselves as doing what society wants, and therefore expect society to make it easy, rather than difficult-to-impossible. Unfortunately, most experience the opposite: hindrances and hassles due to the plethora of diverse expectations and restrictions placed by organizations, managerial personnel, regulatory agencies, and patients.2 Not surprisingly, clinicians tend to direct their anger and frustration on immediately available, easily identifiable individuals, such as their own managers, rather than some faceless insurance entity, an unknown regulator, a distant legislator, or global economic pressures. Healthcare executives are responsible for creating conditions that enable and promote quality care while overseeing limited resources. Ultimately, their administrative decisions impact medical care delivery. However, the complexity of modern medicine presents serious challenges to anyone in hospital management who seeks to create a milieu free from error, strife, dissatisfaction, and constant turnover.3–5 As the presumed top of the power pyramid, the hospital CEO has come to symbolize the enemy in the minds of many physicians looking for a convenient scapegoat.6 A pejorative view by physicians of those in hospital management does little to resolve problems or improve health care outcomes.7 Such attitudes only exacerbate an already contentious care delivery setting.8 Moreover, this tendency to stereotype CEOs is inconsistent with evidence-based practice. In many respects, physicians probably know less about the CEOs who lead their hospitals than they do about the neighbor next door.

Change in Function without Change in System Consider a hospital in 1950—what was possible, the standards of medical care, roles, and relationships. All these were in the future: heart surgery; drugs affecting specific organs like Viagra, Cardizem, Lipitor, and Zoloft; nonsurgical repairs; CAT (computerized axial tomography) scans; echo studies; computers; and the Internet. The 1950s hospital was filled with patients convalescing from pneumonia, diarrhea, ear infections, appendectomy, and childbirth (the standard was five days in the hospital postpartum). Almost all modern specialties did not exist, such as cardiology, neonatology, even the ICU. Medicine was incapable of caring for

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patients with renal failure or premature babies, and therefore such patients were not hospitalized. Older people with heart failure died at home in bed. The 1950s hospital consisted of a cadre of nurses, some supply personnel, no lawyers on staff, and a very small group of professional managers. Most doctors were in private practice, and many hospitalized patients had their own private duty nurses. Physicians made rounds in the early morning on their hospitalized patients, possibly taught some students, and then went to their private offices. The doctor and the hospital sent separate bills to the patient, invariably a few lines on a single sheet of paper. People paid their own medical bills in cash. Most patients in modern hospitals are gravely, not mildly, ill, requiring complex technologies and highly trained, specialized teams. Over 80 percent of all the medical care available in your hospital did not exist in 1950. High-acuity patients are extremely resource intensive in terms of equipment, supplies, expertise, personnel, and liability. The 2006 hospital is typically staffed with full-time physicians and hospital-employed nurses. Private duty nurses are not allowed in hospitals, and many office-based physicians delegate in-patient care to the full-time staff. Interestingly, 55 percent of all the people who work in a hospital never see or physically touch a patient!3 The CEO is responsible for an annual budget ranging from $25 million in a small rural hospital to over $1 billion for major metropolitan institutions. The vast majority of all medical bills are paid by third parties rather than out of a patient’s wallet.9 In 1950, production efficiency was the key to success in any business. The hospital was, after all, a business owned by a political entity, usually the county or the federal government. Reimbursement was “cost plus,” meaning a cost was determined, invariably by allocation and calculation, not direct measurement, and a profit margin or predetermined “plus” was added. The more one did, the more one got. Success, for both hospital and doctor, was effectively having all hospital beds filled all the time. In 2006, most reimbursements are fixed price, based on a diagnosis and contractual arrangements. A detailed bill listing what was done and what was used has become almost irrelevant. Success is achieved by having the right types of patients—both diagnosis and insurer—and getting them in and out the hospital as quickly as possible. Since the pot of healthcare dollars is predetermined and fixed, the less you take out, the more that is left over to be profit. Therefore, providing the least care gives the most money. The entire healthcare paradigm has been radically altered, from the care possible to the finances, from the definition of success to medical impacts on society. Have the roles of managers and doctors radically changed over the past half century? Of course they have. Have the relationships between managers and doctors adapted correspondingly to the changes in their roles and responsibilities? They have not, and the absence of this adjustment is, in large measure, the genesis of the so-called gap.

The Adversarial Relationship Is Inevitable Some see the conflict between providers and managers as inevitable, citing the inherent nature of the two sides, somewhat like the Sharks and the Jets in

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West Side Story. The West Side Story analogy has some real merit in our healthcare system with its unsustainable supply/demand ratio: fixed supply of funds, but uncontrolled and apparently limitless demand for services. How would 10 rats or people behave if you only gave them enough food to feed 7? Doctors and Healthcare Executives Are Both Frustrated Both providers and managers feel squeezed and frustrated. For physicians, job satisfaction has decreased because of increased workload, decreased reimbursement, and feelings of powerlessness as well as disenfranchisement.10 The providers believe that managers belittle, even sometimes distort, what is to them a sacred trust between provider and patient. The physician’s role as captain of the team has diminished, and providers, in general, are confused by a system that wants them to do social good works but then puts stumbling blocks in their way. They are experiencing “vu jàdé,”11 where the world itself makes no sense. Managers are frustrated as well. They were socialized in a collaborative, bottom-line management environment where machines, money, and people (like nurses and doctors) are simply means to an end, generally treated as undifferentiated commodities. They do not understand the doctors’ failure to recognize, much less understand, and accept resource constraints. Just as managers are frustrated by their internal environment (and those doctors), so too are they frustrated by the obligations and restrictions placed by the outside world, particularly governmental agencies and insurers. They are required to offer services without adequate resources and follow confusing, often contradictory, rules. Managers, like doctors, feel they are in a no-win position. An unintended, important, and subtle change in the physician-management relationship has resulted from the intrusion of regulatory and accreditation bodies into the management and delivery of healthcare. Healthcare executives have been forced to become agents of the government, as they are responsible for compliance and for providing mandated services. If their institutions fall out of compliance or fail a Joint Commission on Accreditation of Healthcare Organizations (JCAHO) audit, the hospital loses accreditation and becomes unable to bill Medicare for services. As an agent of government regulations, the healthcare executive comes, by necessity, into conflict with the physicians. In addition to the dynamic tensions and adversarial interactions that might naturally occur between management and medicine, each has personal and professional frustration that they must vent. Both tend to focus on the nearest convenient target—those egotistical white coats or those bean-counting blue suits. (Amongst doctors, the single word suits is used derisively to refer to managers.)

How They Communicate Providers of healthcare services are trained rigorously in the knowledge base, judgment, and technical skills necessary to be providers. In the past, physicians did

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not receive training in communication or in cross-cultural relationships that could improve communication capabilities between medical people and management people. The only process that the providers see is their interaction with the patient, rather than a broader process of healthcare. If providers could master process skills, such as communication, team building, and conflict resolution, they could enlist, rather than fight with, their own managers. Successful communication could improve care processes, change the work environment, and possibly regain the doctors’ (lost) leadership role in patient care.10 Unfortunately, each side tends to see a we-they, adversarial relationship, and they communicate on that basis.

REVIEW OF LITERATURE Prior Data While much has been written about medicine-management relations, there is surprisingly little hard data. The lack of such evidence allows people to make definitive and unqualified statements about relations between physicians and hospital executives. Nonetheless, useful insights can be gained from perusal of previous writings. Most agree that a fundamental disparity exists in the minds of many clinicians about how healthcare managers view the world of medicine and its practitioners.12–16 Physicians intimately know and relate to the passages doctors endure on their way to becoming licensed practitioners. They intuitively understand, respect, and trust other physicians, even those in management positions, because of sharing a common professional background. Having these career paths in common usually leads to fruitful interactions and philosophical understanding about care delivery issues and problem-resolution methodologies. In contrast, practicing physicians and hospital CEOs seldom share the same education, professional career path experiences, or organizational perspective.17 The two can have great difficulty in reaching an agreement about how care should be delivered and resources apportioned. As a result, communication breaks down, suspicion germinates, and a cultural gulf forms that is extremely difficult to bridge.

Recent Data In an attempt to acquire accurate data about hospital management, we asked U.S. hospitals CEOs to describe: (1) the career path to CEO, (2) why they chose to become a hospital CEO, and (3) what were their concerns for the future of U.S. healthcare.18 Six hundred and seventy U.S. hospital CEOs responded to our survey, representing 16 percent of those to whom letters were sent. Eighty-eight percent of the respondents were men, which slightly underrepresented women.17 The median number of in-patient hospital beds was 229 (mean = 147).

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Career Path for CEOs The educational background of hospital CEOs was highly varied. Ninety percent of the CEOs had advanced degrees (Figure 2.1) beyond bachelors. Seventy-nine percent (n = 529) held masters degrees in public health or health administration; business administration; the arts, the sciences or some other field. Nine percent had a second degree such as RN (registered nurse); a different additional masters degree; CPA (certified public accountant); and others. Nine percent (n = 63) had doctorates in medicine, philosophy, law, and others. Contrast this diversity to the highly structured, lock-step requirements to obtain an MD (doctor of medicine) degree, specialty, or subspecialty certification. Furthermore, though women are ascending the ladders of both medical and managerial senior positions,19 still only 12 percent of hospital CEOs were women. Work positions held by the respondents prior to becoming CEO were categorized as follows (Figure 2.1): administration (or management)—starting at 37 percent, but the number goes up 60 percent before becoming CEO; finance— 24 percent; operations—8 percent to 6 percent; 9 percent started in patient care (direct or support), enrolled in formal training, and held other positions (e.g., marketing, human resources, development, consulting, legal, or information technology). Administration or management was the leading career path according to the respondents. Sixty percent of the respondents indicated they moved from an administrative or managerial position to the CEO position. In comparison, 24 percent of the respondents indicated moving from a finance position to CEO. The vast majority of prior jobs held by the respondents (regardless of activity) were in healthcare delivery rather than other occupations.20 In contrast to many other industries, job crossover is uncommon in healthcare. This may be due to the highly specialized nature of healthcare administration, the contentious environment, the lesser income compared with other industries, or a self-selection process as people enter the workforce. Tenure as CEO is also displayed in Figure 2.1. Forty percent had been CEO less than five years (n = 268) and 25 percent had been in the position 5 to 10 years. In contrast to corporations such as General Electric, only 67 hospital CEOs (10 percent) had been in place for 20 or more years.

CEO Concerns for the Future The constant expansion of unfunded mandates was by far the most frequent concern voiced by CEOs. Their institutions are required by law to provide services for which they do not have the resources—financial, physical, and human. Seventy-seven percent specifically expressed concern about reimbursement and cost issues (financing), while 66 percent indicated that personnel shortages were their greatest concern. These results are highly comparable to prior survey results.21,22 The consistency of CEO concerns clearly documents the determinants of stress that CEOs experience trying to meet expectations of their boards of trustees, medical staff members, accreditation bodies, and patients.

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Figure 2.1 Ascending the Corporate Ladder to Hospital CEO

Results are displayed from a survey of 670 U.S. hospital CEOs. College and postgraduate education are the foundation, followed by ladders representing work experience leading to the CEO position. Nine percent started as doctors or nurses. Increasing concentration is noted toward administration. The length of time the 670 CEOs had been CEO is shown in the bar graph.

One-third of the CEO respondents protested the lack of national health policies and inherent contradictions in the present system and similar large percentages criticized the ubiquitous unfunded government mandates, the plight of the uninsured or underinsured, and issues surrounding patient safety.23,24 Other concerns voiced by the CEOs included loss of public confidence, insufficient capital to provide mandated services, keeping up with technological imperatives such as electronic records, the impact of malpractice insurance, and the need for tort reform. Eleven percent directly expressed concern over internecine competition between their hospital and its own attending doctors. A striking feature of the CEO responses was that their concerns mirror the concerns of vocal clinicians.10

CEO Values As part of our research, we asked CEOs of U.S. hospitals why they chose to become CEO. From the 670 responses, some very lengthy and passionate, we

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could deduce a number of primary values. In Table 2.1, we offer a number of representative quotations made by the CEOs. Thirty-one percent of the CEOs reported a primary focus on their own careers. Most then emphasized their desires to combine what they were good at with what would benefit society: in essence, a combination of a personal skill set and altruism. A separate group (26 percent) directly indicated altruism as their purpose in choosing a healthcare career. Thirteen percent stressed their desire to be in the healthcare field in contrast to the for-profit business world. Combining these three groups, one sees that altruism in various forms was a driving force in seventy percent of U.S. hospital CEOs. Nineteen percent of the respondent CEOs indicated that the love of a challenge was the primary reason for their career choice; they liked the difficulty of combining good business with good medicine. As several wrote, their work was never boring. These people might be likened to the adrenalin junkies of medicine, such as heart or trauma surgeons and interventional cardiologists. An interesting subgroup (6 percent) reported that hospital administration was a family tradition, crossing several generations, similar to the oft-touted, multigenerational physician families.

Table 2.1 Reasons for Becoming a Hospital CEO Legend: Gender; State; Number of hospital beds. Quote follows beneath. Male; Pennsylvania; 95 “It was a way to combine meeting the healthcare needs of people and my interest in business. On any given day, my busiest physicians might care for 10 inpatients—I care for all of them. I’ve been able to make a difference in the community by bringing technology, manpower, and a philosophy of care together to enhance a community resource.” Male; Indiana; 70 “There is simply no other job that gives you the challenge to run things fiscally sound, while doing our best to provide quality healthcare to our patients with a diverse and wonderful workforce dedicated to caring for patients.” Male; Indiana; 108 “I’m driven to succeed. I wanted to make greater contributions to society than being a clinician allowed.” Female; Washington, D.C.; 130 “Wanted to use financial and managerial skills in an environment that was socially responsible.” Female; Georgia; 78 “Because I wanted to influence decision making for patient care and maintain a patient advocacy role in the board room and at the bedside.” Male; Illinois; 163 “Father and older brother were physicians. Sister, a nurse. Thus had an interest in the medical field but did not desire to be a physician. Older brother recommended that I look into hospital administration. His words to me 41 years ago, ‘Why don’t you check out hospital administration, I think it’s a good racket.’ ”

Table 2.1 Reasons for Becoming a Hospital CEO (continued) Male; Virginia; 153 “My mother was an RN working at the Medical College of Virginia and my father was a practicing attorney. I intended to be an attorney like my dad, but my mom helped me get a part-time job at the hospital after high school in medical records. The administrator overseeing medical records who also taught in the graduate program took an interest in me and encouraged me to pursue a masters in hospital administration and forget law school. It was good advice and I have never regretted that decision.” Male; South Dakota; 86 “I had worked in a hospital as an orderly during early college, liked the field—helping people, and so forth—but was not suited to be a physician as I was more skilled in numbers, statistics, and working with groups rather than being autocratic, and not being a team member. Now some of that has changed for physicians coming out of school as they hopefully see the need to be team players, but in the 50s and 60s that was not the case.” Male; Ohio; 453 “This is one of the greatest jobs in this century. The opportunity to make a difference in the lives of individuals and the greater community occurs every day! Ninety-nine days out of 100, I can’t wait to get to work. Many of my colleagues share this view.” Male; Tennessee; 219 “Didn’t so much ‘choose’ what I’m doing as much as my passions led me here. I am a clinician at heart, and I approach administration the same way I would treat a client/patient through systems theory. This health system is like a great big (potentially) dysfunctional client/ patient/family system. Strategic planning is nothing more than creating, with the patient/ family involved, a detailed treatment plan with short-term, measurable objectives and long term goals. Then you work with your client/patient within the context of all the overlapping systems, including financial to achieve these goals. Concerns about money and the cost of care, as well as reimbursement (or benefits), is as relevant for an individual who is seeking treatment as it is for a large health system. I balance quality care/outcomes and fiscal responsibility every day.” Female; Ohio; 651 “I love healthcare. It is a sacred trust to care for others. I also enjoy people and serving their efforts to provide care. Finally, I feel that I am able to make a difference in the lives of those we serve in the community.” Female; South Carolina; 106 “My background is in Nursing and operations of clinical areas. I progressed in my positions above the staff nurse level to increase the voice of the caregiver. I accepted the CEO position for the same reason—to see if a hospital could be successful with the priorities and point of view of the physicians, nurses, and patients. Creating an environment to support the professionals caring for the patients instead of catering to the ego of an executive.” Male; North Carolina; 50 “I felt there were far too many MBAs running hospitals who have no understanding or appreciation what occurs at the patient’s bedside. Financial decisions often have serious clinical consequences, and these folks either do not care or do not know how to adequately or successfully manage the consequences to minimize negative patient care impact. I feel more clinicians need to take the reins of the healthcare facilities to ensure that patients are truly getting the care they seek and deserve.” Male; West Virginia; 168 “Healthcare is a ministry; simply look at the work of Jesus! I take pride at using my business skills to keep a hospital going strong as opposed to lining my own pockets. I am not a clinician—I am a businessman—and a hospital requires many different types of people to

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Table 2.1 Reasons for Becoming a Hospital CEO (continued) be strong. Some CEOs want to think they are clinicians, and some clinicians thinks they are CEOs. The real truth is you can’t be both, but both have equal merit and deserving of respect.” Male; Minnesota; 215 “Having begun life as a practicing pediatrician, then moving into academic medicine, I gradually became more interested in participating at a broader level in decisions and policy making. Never intended to go into hospital management, and was persuaded to take a VP position by a previous CEO/mentor who had never had physician on his executive team. Over the next decade, I handled most of the different portfolios, always learning on the job. Ended up COO, and one day was recruited as CEO at a different hospital. I never left any previous position because of dissatisfaction, only because of a new and exciting opportunity. Each phase of my life has been valuable and rewarding, and each new phase has built on skills acquired in the previous one. Being CEO of a large children’s hospital system is, in my view, entirely consistent with the initial direction of my career as a pediatrician. However, now my decisions have the potential to have a much broader impact than when I was dealing with one patient at a time. (Probably more than you wanted to hear!)”

COMPARISON OF ATTRIBUTES For physicians, educational background and licensure/accreditation requirements are highly structured and provide common rites of passage for all doctors, nurses, and therapists. This creates bonds of cohesion among clinicians. Socialization during postgraduate training, particularly the role models of teachers, emphasizes personal responsibility, individual goal setting, and autonomous decision making. Physicians have little knowledge and less interest in rule-following bureaucracy, organizational structure, accounting, personnel management, or strategic planning (Table 2.2).16,17,25 Those in management have a very wide diversity of educational backgrounds and no set job accreditation or licensure process. Not only is this markedly different from doctors, but during socialization, managers learn to make group decisions and to delegate responsibility. In strategic planning, managers generally try to forecast and anticipate, while physicians are typically in reactive mode, responding to the acutely ill patient. In theory, the two sides of the gap have different time horizons: short- or moderate-term for doctors and long-term for healthcare executives. However, most healthcare managers are now judged on the variance from their monthly or annual budget. Because of the incentive structures and the constantly changing mandates, as well as regulations, healthcare executives are forced to focus on immediate concerns and ad hoc crisis management. Changes in healthcare over the past 50 years have had profound effects on the power relationships within medicine. The power and influence of healthcare executives has increased with corresponding fall in power and prestige of physicians. Nevertheless, each side sees itself as on the top of the power pyramid, that is, most important in the system. Doctors reason that, as the patient comes first and the physician or nurse are the only people legally allowed to touch the patient, they must be

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Table 2.2 Contrasting Medical and Management Attributes

on the top of the power hierarchy. In any situation involving strategic decisions and money issues, the healthcare executive is responsible. Since the ultimate decision maker is the hospital CEO, he or she must be at the top of the power hierarchy. A real important, but subliminal, cognitive difference is the value of business. Academic physicians are socialized to disdain or at best ignore money, as everything should be done for the patient without regard to expense. Physicians in private practice have a similar problem to hospital executives: trying to balance escalating expenses with fixed revenues, while they have control over neither. The physicians’ ethos places patient survival first, while for those in healthcare administration, the institution must survive by having the budget balance. Despite the host of divergences between doctors and healthcare executives, we find that common core values—altruism, service, and the challenge—motivate both.18

RELATIONS BETWEEN PHYSICIANS AND HEALTHCARE EXECUTIVES DIRECTLY IMPACT OUTCOMES Today’s medical center is a complex, matrix-structured organization. The results of modern medicine are summation effects of the activities of large numbers of people in multiple teams. The “ ‘one-ill, one-pill, one-bill doctor’ is a thing of the past,” wrote Wittkower and Stauble over 30 years ago. 26 When my (JDW) 93-year-old mother goes for her semiannual checkup, her care involves a general physician, several office staffs, at least five computer programs,

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central supply, patient transport, three separate laboratories, cardiology, radiology, and pulmonology, and she speaks perfect English. These diverse elements encompass function and expertise of both white coats and blue suits. To the extent that medicine and management relate well, the patient gets what he or she needs. If physicians and hospital executives function independently (silo systems; minimal interaction), the care will be disjointed, less effective, and inefficient. If the providers and managers think and behave as adversaries, it is a wonder that anyone gets care at all. Forces external to the medical center further complicate relations between doctors and healthcare executives. These elements include accreditation and licensure entities, insurers, advocacy groups, for-profit medical companies such as the pharmaceuticals, and of course, governments at state and federal levels, sometimes even other national governments. The rules, regulations, and laws must be interpreted and to variable extents implemented by both physicians and healthcare executives. If they are adversaries, each side will seek to game the system to individual advantage. The patient in many U.S. hospitals finds himself or herself in the middle of an internecine war.

STRUCTURAL ASPECTS OF PHYSICIAN-HOSPITAL CONFLICT The Real Enemy Is the (Non) System Reasons for physician-manager conflict can be viewed as structural, cultural, and perceptual. The cultural and perceptual reasons—how the two sides view and relate to each other—have been covered already. There are at least six structural reasons. First, each stakeholder group—patients, providers, and payers—has expectations that are often unattainable or in conflict. Patients want all the care they want or need, when they want it and believe they are entitled. Providers behave as though there is no issue with resources, and payers want not to spend the country into bankruptcy. In a fixed reimbursement structure, for-profit entities, whether hospitals or insurance companies, generate profits by avoiding or delaying payment for healthcare. Furthermore, the outcomes we track are the opposite of what we want. We measure death, complications and costs when we desire longevity, good health, and resource responsibility. Second, the whole system of medical payments is bizarre. It pits the physician (the cost driver) against the hospital manager, and the consumer (patient) against the payer(s). In a previous article, we called this “Billing Schadenfreude,”27 where medical payment structures subvert the fiduciary relationship (position of trust) that is supposed to exist between doctor and patient. Third, as all behavior is strongly influenced by incentives, what is the incentive system under which the physician and the healthcare executive must operate? Based on the confused, ill-defined, and contradictory expectations, both doctors and managers work in a world of conflicting carrots and sticks that has made them “accidental adversaries,” as described in systems thinking.28,29 George Bernard

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Shaw, directly addressing the issue of financial incentives and profit-generating self-referral, wrote in his own inimitable way: “As to the honor and conscience of doctors, they have as much as any other class of men, no more and no less. But what other men dare pretend to be impartial where they have a strong pecuniary interest on one side?” and “That any sane nation, having observed that you could provide for the supply of bread by giving bakers a pecuniary interest in baking for you, should go on to give a surgeon a pecuniary interest in cutting off your leg, is enough to make one despair of political humanity.”30 Fourth, healthcare organizational structures and management philosophies are holdovers from the nineteenth century—but healthcare workers care for patients in the twenty-first century. The power shifts that have occurred are in conflict with the desired outcomes as decision makers are given multiple, dichotomous mandates and are expected to achieve the impossible. Fifth, while the external environment expects definitive answers to medical problems, it provides punishment for bad outcomes without corresponding positive incentives for improvement. Therefore, healthcare has become highly risk averse, which translates to defensive and dedicated to the status quo. If every incentive punishes risk taking and rewards stability, learning will be suppressed.31 The environment—in theory, the marketplace—seeks to reward efficiency, but places a huge regulatory and bureaucratic, uncompensated burden on the healthcare industry. Sixth and final, there is the unique nature of healthcare. It is a people-processing activity performed by people. A lug nut doesn’t complain if you overtighten it. An overstuffed chair does not expect you to reduce its puffiness with a pill. The primary cause of physician-healthcare executive conflict—the real enemy— is the healthcare system, which is not systematic and offers stakeholder contradictions, perverse incentives, microeconomic disconnection, punitive medico-legal environment, and overregulation.32,33

Collaboration Is the Beginning Russell Ackoff 34 makes an important distinction when he contrasts resolving a problem (making the best possible result) with dissolving a problem (changing the system so that the problem can never recur). We believe that collaboration between medical schools and management schools can begin to dissolve healthcare woes. Management knowledge and expertise, and business experience and tools have much to offer healthcare. We and others have demonstrated the potential utility of proven management principles in the healthcare arena.35–37 In collaboration, a medical school and a management school can begin to achieve high-quality, reduced-error, resource-sensitive healthcare. However, we also have noted with concern that most universities lack any bridge—physical, philosophical, cognitive—across what we call the chasm (Figure 2.2) separating medical schools from their university-affiliated management schools. We believe that an analogous and equally unhealthy separation exists within most medical centers between the providers and the managers. We call this schism the Gap (Figure 2.3).

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Figure 2.2 The Chasm

What Is the Gap? The gap represents a gulf, both substantive and perceived, between managers and care providers. The gap includes differences in thinking and approach, priorities and incentives, and responsibilities as well as roles. Most of the substantive distinctions are due to divergent educational backgrounds, temperament and self-selection, radically different professional socialization, alternate worldviews, and specific expertise. Figure 2.3 The Gap

Most hospitals have a cultural and functional separation between direct care providers (white coats) and hospital administrators or executives (blue suits). The Gap prevents effective interactions.

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The two sides also tend to have stereotypical and negative perceptions of each other. The manager sees a doctor who has no understanding of or interest in resource constraints or proper organizational behavior, even if the doctor has an MBA and manages a successful multimillion dollar division. The doctor sees a heartless bean counter who cares nothing for patients, despite the CEO spending seven hours before a state oversight committee aggressively seeking support for the doctors’ medical programs. For example, scotoma is common in healthcare. It is the Italian word meaning that we see what we expect, and not necessarily what is there. This is true for both doctor and manager, and clouds what could become a fruitful collaboration. Table 2.2 offers both the reasons for the gap and, based on recent data, what can be used to mend it. Physicians and CEOs (representing healthcare executives) share common core values. We suspect this similarity may surprise both sides of the gap. Such basic, gut-level commonality can provide the structural supports to bridge the gap.

MENDING (ACTUALLY, BRIDGING) THE GAP In trying to understand physician hospital relations, we begin by explicating who they are, what their attributes are, and end suggesting that we mend or actually bridge the gap (Figure 2.4). The differences between physicians and healthcare executives can be used to great advantage. We need to embrace this diversity rather than eliminate it. Combining the diverse talents of physicians and healthcare executives could dissolve (per Ackoff 32) many of the problems healthcare faces every day. Conflict is inevitable in times of rapid change.4 Physicians and hospital leaders can no longer pass on cost increases at will to patients and third-party payers. Effective dialogue and collaboration are in all parties’ interests to optimize patient Figure 2.4 Mending (Bridging) the Gap

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care and to develop innovative services. To improve the practice environment for physicians and patients and to keep hospitals financially solvent so that they can continue to serve the public good, physicians and hospital management must learn to work more interdependently. At the local level, improved physician-management interaction may not immediately improve pricing power, but it could enhance efficiency and thus improve competitive position. Perhaps the greatest long-term value of improving physician-management communication lies in developing shared perspectives that enhance mutual respect and build trust. Because physicians collectively influence hospital revenue, clinical costs, quality, and safety issues, having practicing physicians involved in a meaningful way in a hospital priority setting may provide competitive advantage and improve quality.38

Systems Thinking and Thinking Systems General systems theory, complexity science, systems thinking, systems analysis or dynamics are names given to a school of thought initiated by Ludwig Bertanalanffy in the mid twentieth century, subsequently expanded and modified by others.39–46 Its essence is the concept that all systems—biologic, mechanical, chemical, social—produce outcomes by the interactions of the parts, not by the parts in isolation, and that all systems are functionally subsystems of larger systems. Thus, the heart is part of the body; the body is a person that is part of a social group such as a hospital staff; the hospital functions within and for a community; healthcare is merely one of the systems within the community in addition to education, commerce, emergency services, and so on; the community is part of a nation state; the nations share a planet; the planet is part of the solar system. Thus, the heart is a tiny sub-sub-subsystem of the solar system. Practical consequences flow from the general concept of interaction and causal loop relationships.28 For example, study of and optimization of the function of a part of a system in isolation often does not improve overall system results and may actually degrade the system’s output.34,43 Consider a healthcare example. Improving the efficiency of the OR and balancing its budget may reduce patient throughput and cost more for the hospital than the savings in the OR.46 Systems dynamics describes what are called complex adaptive systems, which have three distinct characteristics. They self-organize, meaning that whatever organization may be imposed from the outside (or not), complex adaptive systems develop their own internal organizational structures and means of interaction. Such systems coevolve, so that they are changed by their own interactions. The results from systems that self-organize and coevolve emerge; they cannot be precisely predicted in advance.42 Thinking systems exhibit the three characteristics of complex adaptive systems—self-organization, coevolution, and emergence—but have two additional unique features: the ability to structure their own learning and goals different from and sometimes inconsistent with personal survival.46 Healthcare is a paradigm of a thinking system.

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Several authors have recommended the use of systems thinking and complexity science to healthcare.10,45,47 The Pittsburgh Regional Healthcare Initiative is actively applying systems thinking to various medical centers.48 We concur strongly, but add that the unique nature of thinking systems must be incorporated into any application to healthcare. With physicians and healthcare executives working together rather than at cross-purposes, healthcare institutions can improve their outcomes based on their own initiatives by applying systems thinking. The exact results cannot be predicted in advance, nor should they be. In order to achieve such a to-be-desired collegial relationship, doctors and executives need to communicate more effectively.

Skills in Communication and Confrontation Clinical training alone is insufficient to ensure quality patient care. Communication is a critical element in providing care, and physicians are not trained to communicate well. Their authoritarian style and limited listening skills hamper clear exchange of information. Healthcare professionals can improve their communication by utilizing the skills summarized below.49

Communication Active Listening. Like so many everyday, every minute activities, listening is considered a skill that everyone has. After all, we listen all the time—to the radio, to our children, to the people in the next office, and to the passing air stream as we drive the car. Listening is not something we all automatically do well, but is particularly important because it makes people feel that their concerns matter.10 A mnemonic for improving listening skills is CLOSE: • Concentrate on the speaker, maintaining comfortable eye contact for 6 to 10 seconds at a time without staring, giving the person the feeling that nothing else matters but what the speaker is saying. • Listen with multiple senses, paying attention to the speaker’s body language, facial expression, and tone of voice, in addition to the content of the message. • Open one’s stance to convey receptivity to the speaker’s message; avoid crossing one’s arms over one’s chest, which imposes a barrier between the speaker and listener. • Suspend judgment to maintain objectivity. • Empathize, trying to put oneself in the speaker’s frame of reference with summary comments such as, “Do I understand you to say . . .” to build trust and credibility.

Checklists. A formal written checklist is highly useful to surface assumptions and discuss expectations proactively. At the beginning of a group

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project, a checklist helps people to adopt a common wavelength, to learn to welcome diversity of opinion, and to minimize feelings of disappointment, betrayal, and anger. Checklists will vary based on the nature of the project and the backgrounds of the participants, but common features include: • • • • • • • •

punctual attendance and starting on time; active participation; building on others’ ideas; avoiding personal attacks; developing win-win solutions; respecting members’ confidentiality; monitoring progress at regular intervals; and sharing ownership of results.

Sensitivity and Empathy. As discussed in the previous case report and the physician-administrator exchanges, highly charged words can contribute to an us versus them, adversarial atmosphere and thereby interfere with successful communication. Listening with sensitivity and avoiding hot button words or phrases improves our listening and others’ hearing. Saying, “Maybe there is another way to view this,” is better than, “I disagree,” because the latter creates a you versus me construct. Focusing on costs rather than benefits immediately after someone makes a suggestion often narrows the discussion focus and impedes collaboration.

Confrontation Skills Differences in strategy and responses to the environment are inevitable in times of rapid change.49 Therefore, to communicate well and collaborate, professionals need confrontational and conflict resolution skills. As Grenny wrote, “We can either talk out or act out our differences; the choice is ours.”50 Having the same frustrating conversation repeatedly may reflect the lack of confrontation skills, in which the focus is on content the first time, on the pattern of events the second time, and on issues of competence, respect, trust, and loss of confidence in a relationship the third time. Patterson et al.51 wrote that to avoid the fundamental attribution error, people need to ask questions and obtain information rather than assuming hidden and evil motives. Other causes for failure to meet expectations involve ability, training, and social and structural incentives. To influence others’ behavior, we must start from a position of safety and security, maintaining respect, establishing mutual purpose, and ending with a question rather than a threat. In the process of discovery, skeptics can become believers and act more like long-term partners and owners rather than short-term renters, as illustrated in the following.

Structured Dialogue. Structured dialogue is a process that helps a group of practicing physicians articulate their collective, patient-centered

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self-interest. For example, structured dialogue can help physicians improve physician-physician communication, understand more fully the complexity of hospital operations, and articulate clinical priorities for their communities.52 Structured dialogue can improve both physician-physician communication and physician-administrator communication.38 Unlike hospital-centric change efforts, the structured dialogue process is led by a medical advisory panel of high-performing, well-respected clinicians, who review and recommend clinical priorities based on presentations by the major clinical sections and departments. Contrary to the apprehensions of some hospital executives, the recommendations generally include performance improvements and minor expenditures that support these improvements, rather than a list of capital-intensive budget items. In return for giving physicians a say in clinical priority setting, the hospital is able to enlist physicians to attend meetings and outline their priorities. Over 30 hospitals of varying sizes and locations in the United States have successfully undertaken a structured dialogue process, which has improved the practice environment, reenergized physician-physician and physicianhospital communication and collaboration, and has served as an effective training environment for new physician leaders. What has surprised one author (KHC) is the extent to which a process that improves hospital executives’ standing with their physicians and board engenders suspicion and mistrust on the part of administrators. A Western CEO, considering using the structured dialogue approach at his hospital, when asked by his board chair if losing control to physicians upset him, replied, “Heck no. I never had control in the first place!” (A surprising commonality found in our 2006 study18 was the sense of powerlessness felt by many U.S. hospital CEOs.) The Western CEO decided to use the structured dialogue approach and has since been a speaker at national seminars about the value of physician engagement. Healthcare professionals need to understand that control is illusory53 and the only control we have is over our own response to our helplessness in the face of rapid change. We can also build on what is going well. Rather than complaining and blaming, we can focus on what is going right and build on success, as described below.

Appreciative Inquiry. Appreciative inquiry (AI) is a technique that focuses on building on success. Practical applications of AI in healthcare settings include54: • Making rounds with front-line workers, asking: • “What is going particularly well for you?” • “Do you have the tools and resources that you need?” • “What can I do to help you?”

Mending the Gap between Physicians and Hospital Executives

• Asking affirming questions during performance appraisals and following up with thank-you notes in response to the question: • “Do you have colleagues or coworkers who have been particularly helpful?” AI is based on the premises that people respond favorably to positive reinforcement and that sharing stories of past successes generates more energy and less defensiveness than analyzing problems and attributing blame. Storytelling, which is an integral part of AI, decreases the inhibiting effects of hierarchy on sharing knowledge, uses metaphors to summarize important points and make them vivid, and provides vignettes that are remembered more readily than facts.55 Healthcare professionals may not feel comfortable using AI, incorrectly perceiving it to condone poor performance rather than as an alternative to consider when problem solving hits a wall because of defensiveness. Work at the Baptist Hospital has made AI easier to operationalize, such as rounding on wards, rewarding positive behavior, and being more proactive and receptive to improvement opportunities.56,57 Another important development involves bottom-up efforts that change the culture, as described below.

Positive Deviance. Positive deviance (PD) is an approach to organizational change based on the premise that solutions to problems already exist within the community. It encompasses intentional behaviors that depart from the norms of a group in honorable ways.58 PD seeks to identify and optimize existing resources to solve problems rather than using the more conventional identification of needs and obtaining of external resources to meet those needs. For example, healthcare workers at Waterbury Hospital used the PD method to analyze and resolve problems in communication at discharge. Miscommunications over discharge medications were responsible for an average of two readmissions per month. By observing the steps physicians and nurses used in discharging patients, a process was created that prevented the miscues. To follow up, a nurse called the patient within 48 hours of discharge to review discharge medications.49 Keys to the PD method include59: • Self-identification as a community by members of the community; people see themselves as alike rather than conflicting • Mutual designation of a problem by the community members, that is, a bottom-up rather than a top-down approach • A search for community members on the leading edge who have managed to surmount a problem • Analysis of meritorious behaviors that enable outliers (positive deviants) to achieve success • Introduction and adoption of new behaviors into group practice

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PD appears to work by unfreezing commonly held perceptions without threatening people. It hastens the transition from early adopter to early majority by creating a safe environment for learning that does not make anyone feel stupid. It is based on adult-learning principles of learning by doing and mentoring. Finally, it avoids the transplant rejection approach to best practices adopted from other institutions because it celebrates the accomplishments of local heroes with whom insiders can relate.60

Financial Confrontation or Collaboration Berenson et al.61 recently wrote that economic pressures have greatly exacerbated the potential for physician-hospital conflict in many areas of the country. According to their survey of 1,008 healthcare leaders, relations were under greater strain in 2005 compared with 2000 to 2001. They cited selective employment and financial collaboration as two strategies that have been used in response to an ever-changing economic environment. Several U.S. states prohibit physician employment by hospitals based on the fear of conflicts of interest or, worse, collusion. Other states allow such employment. All jurisdictions accept a variety of medical school–hospital financial arrangements. Berenson and colleagues report on the increasing fears of private practice physicians that their hospitals are competing with them by selective employment or, worse, exclusionary methods such as economic credentialing to prevent physicians who compete with the hospital-employed physicians from practicing within the hospital. We will focus below on opportunities for collaboration. The goal of physician-hospital financial collaboration should be to create value for patients, physicians, and hospital. Collaboration implies win-win-win scenarios that enlarge the economic pie rather than divide a predetermined, insufficient, and contracting pot of money. Both parties gain if physicians act as owners rather than clients, increasing revenue and collaborating on ways to improve processes and outcomes. Regardless of how deals are structured,62 successful financial collaboration between physicians and hospitals requires63: • • • • •

mutual understanding of each party’s interests and needs; sharing information widely; distinguishing negotiating from thinking aloud; stepwise building of transparency and trust; and both sides acting as a team of active owners rather than as individual, passive investors, jointly improving care processes in an ongoing fashion.

Dealing with Physician-Hospital Competition64 We doubt that physicians and hospital leaders were ever in alignment. A difference now, however, is that neither party can pass on increases in costs independently of the other as was the case in the era of cost-based reimbursement.

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Like it or not, they are bound together in a complex web of interdependence. We offer a three-part strategy of proactivity, collaborative conflict (not an oxymoron), and containment as a guide for dealing with physician-hospital competition. With the difficulty of predicting how events will unfold, we empathize that both sides must begin to respect and trust the other or healthcare will never break out of the current cycle of conflict. Both parties can actually become stronger by loosening individual control.

Proactivity. It may seem counterintuitive for hospital leaders to take the lead in partnering with their highest revenue generating physicians, but a proactive approach minimizes the opportunity for turnkey operators to create unrealistic expectations among physicians looking for greater efficiency and reimbursement. In turn, a more content medical staff can help the hospital and the community by increasing revenues, decreasing the costs of clinical care, and improving outcomes. Collaborative Conflict. In collaborative conflict, people attack problems rather than one another. They solve problems in a way that satisfies both parties and builds long-term relationships. Success depends on each party’s preparation and their understanding of what each wants and needs to accomplish, what each is willing to concede, and what hot buttons might cause an angry response. Containment. When negotiations break down, the prior effort that went into them was not wasted. Both parties have learned more about each other and about areas of mutual interest. It is important to depersonalize potential conflicts by agreeing to revisit the issues in the next two to three months rather than assigning blame and walking away. Discussions may be more favorable after each side learns more about the costs and possible consequences of continuing physician-hospital competition.

RECOMMENDATIONS In computer terms, both physicians and healthcare executives should delete their files containing stereotypical images of each other. They need to learn who the other really is and accept the fact that they have similar core values: altruism, service, and love of a challenge. As suggested before, this can provide the foundation for a bridge across the Gap. Malcolm and colleagues65 use the same term—gap—to describe the separation between clinical culture and governance or managerial culture. They believe that New Zealand is seeking a convergence of cultures, meaning two fundamental changes are in store: (1) “A shift from preoccupation with resource management to health outcomes as the ‘bottom line’ of the organization”; and (2) “Acceptance by clinicians of a key role in managing resources and in achieving the organization’s goals.” Malcolm et al. then foreshadow what we advocate here by writing that the converging cultures need a “more trusting relationship based on . . . shared values.” As our data show, physicians and healthcare executives have shared values

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and core ideals in common. They act, however, as though they have irreconcilable differences. We would prefer avoiding military analogies in healthcare. However, we must recognize that there is a mindless, unintended but real and very powerful enemy of what we all want: high quality, compassionate, and efficient healthcare. It is a system that does not work. Hospital management and doctors must become allies, brothers-in-arms. The patients are noncombatants and insurance companies are the accidental adversaries of both patients and hospitals.28 If goals were clearly defined and outcomes tracked by appropriate measures, incentives could be aligned with desired results. The relationships between patients and providers or hospitals and payers would not be win-lose scenarios and the so-called enemy would cease to exist. One phrase mentioned in Malcolm’s opinion piece65 was crossing over to the “other side.” When the cultures converge and a trusting relationship of colleagues develops, there will not be two sides, just one team with members having different talents and responsibilities. Continuing the military analogy, an effective army does not have the infantry and artillery think of each other as being on opposite sides. Physicians and managers need to learn about and learn from each other. If they do so, their differences can become strengths. Physicians need to educate executives about research and rigorous science so that managerial decisions can be based on proof rather than just logic. Healthcare executives need to educate doctors about proper management, from financial planning to proven error-reduction techniques and application of queuing theory, namely, in the ER. There are dozens of powerful and applicable business-proven management tools and approaches that can be adapted to healthcare. While we mention (above) some useful techniques such as structured dialogue and positive deviance, others with great potential include continuous quality improvement,66 learning curve theory,31,37 total quality management,67 the theory of constraints,68 failure mode and effect analysis,69 the internal customer concept,70,71 generative relationships,72 lean systems,73 and possibly most important, systems thinking.28,34,39–47,74 Together, physicians and healthcare executives can accomplish most of their goals-in-common. If they continue the present adversarial relationship, nothing will improve. What Benjamin Franklin said about revolutionary politics is equally true for the revolution needed in healthcare: “We must hang together, gentlemen . . . else we shall most assuredly hang separately.”75

Key Concepts • Over the past 50 years, the functions of healthcare institutions and the people within them have changed dramatically. The system for healthcare delivery has not experienced corresponding changes or adjustments. • Both physicians and healthcare executives are frustrated by the confusion, systemic contradictions, perverse incentives, and opposing priorities of the stakeholders in healthcare. They tend to behave like adversaries, competitors, and even combatants.

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• An adversarial relationship between physicians and healthcare executives negatively impacts both clinical as well as financial outcomes. • Numerous differences exist between physicians and hospital executives in education, background, socialization, and work experiences. However, they share striking similarities in core values and future concerns. Neither side behaves as though it is aware of the commonalities. • Physicians and hospitals executives have a common enemy: the system, or really, the absence of a functional system. • The core values that physicians and hospital executives share could provide a foundation for developing a collegial relationship. Each has important skills and knowledge that the other needs. Working in collaboration, together they could solve many of the challenging problems in modern healthcare.

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13. Ashmos, D. P., J. W. Huonker, and R. R. McDaniel. 1998. “The Effect of Clinical Professional and Middle Manager Participation on Hospital Performance.” Health Care Management Review 23 (4): 7–20. 14. Loop, F. D. 2001. “On Medical Management.” Journal of Thoracic Cardiovascular Surgery 121 (4): S25–S28. 15. Shortell, S., T. Waters, P. Budetti, and K. Clarke. 1998. “Physicians as Double Agents: Maintaining Trust in an Era of Multiple Accountabilities.” Journal of the American Medical Association 23: 1102–1108. 16. Wood, K. M., and G. E. Matthews. 1997. “Overcoming the Physician GroupHospital Cultural Gap.” Healthcare Financial Management 51: 69–70. 17. Engstrom, P. 1995. “Cultural Differences Can Fray the Knot after Physicians, Hospitals Exchange Vows.” Medical Network Strategy Report 4: 1–5. 18. Waldman, J. D., J. N. Hood, and H. L. Smith. 2006. “Hospital CEOs and Physicians—Reaching Common Ground.” Journal of Healthcare Management 51 (3): 171–187. 19. Phillips, K. 2005. Hospitals Increasingly Tapping Female Executives. Available at: http://www.nursezone.com/stories/SpotlightOnNurse.asp?articleID=12529. Accessed August 19, 2005. 20. Ocasio, W., and H. Kim. 1999. “The Circulation of Corporate Control: Selection of Functional Backgrounds of New CEOs in Large U.S. Manufacturing Firms.” Administrative Science Quarterly 44 (3): 532–563. 21. Anonymous. 2003. “Research Notes.” Healthcare Executive 18 (2): 42. 22. Bolster, C. J., G. Hawthorne, and P. Schubert. 2002. “Executive Compensation Survey: Can Money Buy Happiness?” Trustee 55 (10): 8–12. 23. Jones, W. J. 2000. “The ‘Business’—or ‘Public Service’—of Healthcare.” Journal of Healthcare Management 45 (5): 290–293. 24. Schyve, P. M. 2004. “What Feigenbaum Says; One of Four Essays on ‘Can the Gurus’ Concepts Cure Healthcare?’ ” Quality Progress (September): 30–33. 25. Kissick, W. L. 1995. “Medicine and Management—Bridging the Cultural Gaps.” Physician Executive 21: 3–6. 26. Wittkower, E. D., and W. J. Stauble. 1972. “Psychiatry and the Role of the General Practitioner.” Psychiatry in Medicine 3: 287–301. 27. Waldman, J. D. 2006. “Billing Schadenfreude.” Congenital Cardiology Today 4 (1): 1–5. 28. Aronson, D. 1996–8. Systems thinking Web site and specific pages as: www. systems-thinking.org. Accessed April 2004. 29. Atwater, J. B., and P. H. Pittman. 2006. “Facilitating Systemic Thinking in Business Classes.” Decision Sciences Journal of Innovative Education 4 (2): 273–292. 30. Shaw, G. B. 1913. Preface to The Doctor’s Dilemma. Baltimore: Penguin, 1954. 31. Waldman, J. D., S. A. Yourstone, and H. L. Smith. 2003. “Learning Curves in Healthcare.” Health Care Management Review 28 (1): 43–56. 32. Waldman, J. D., and F. Schargel. 2003. “Twins in Trouble: The Need for System-wide Reform of Both Healthcare and Education.” Total Quality Managementand Business Excellence 14 (8): 895–901. 33. Waldman, J. D., and F. Schargel. 2006. “Twins in Trouble (II): Systems Thinking in Healthcare and Education.” Total Quality Management and Business Excellence 17 (1): 117–130.

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34. Ackoff, R. L. 1999. Ackoff’s Best-His Classic Writings on Management. New York: John Wiley & Sons. 35. Arndt, M., and B. Bigelow. 2000. “The Transfer of Business Practices into Hospitals: History and Implications.” Advances in Health Care Management 1: 339–368. 36. Waldman, J. D., and R. A. Spector. 2003. “Malpractice Claims Analysis Yields Widely Applicable Principles.” Pediatric Cardiology 24 (2): 109–117. 37. Waldman, J. D., S. A. Yourstone, and H. L. Smith. 2005. “Learning-The Means to Improve Medical Outcomes.” Proceedings of the Decision Sciences Institute 2005: 12041–12046. 38. Cohn, K. H., S. Gill, and R. Schwartz. 2005. “Gaining Hospital Administrators’ Attention: Ways to Improve Physician-Hospital Management Dialogue.” Surgery 137: 132–140. 39. Bertalanffy, L. 1975. Perspectives on General Systems Theory: Scientific-Philosophical Studies. New York: George Braziller. 40. Beinhocker, E. D. 1997. “Strategy at the Edge of Chaos.” The McKinsey Quarterly (Winter) 1: 24–40. 41. Davidson, M. 1983. Uncommon Sense—The Life and Thought of Ludwig von Bertalanffy (1901–1972), Father of General Systems Theory. Los Angeles: Tarcher, Inc. 42. Johnson, S. 2001. Emergence—The Connected Lives of Ants, Brains, Cities and Software. New York: Scribner. 43. Kauffman, S. A. 1995. At Home in the Universe. New York: Oxford University Press. 44. Lazlo, E. 1972. The Systems View of the World. New York: George Braziller. 45. McDaniel, R. R., and D. J. Driebe. 2001. “Complexity Science and Health Care Management.” Advances in Health Care Management 2: 11–36. 46. Waldman, J. D. 2007. “Thinking Systems Need Systems Thinking.” Systems Research and Behavioral Science 24: 1–15. 47. Ashmos, D. P., D. Duchon, and R. R. McDaniel. 2000. “Organizational Response to Complexity: The Effect on Organizational Performance.” Journal of Organizational Change 13 (6): 577–594. 48. Dobyns, L. 2006. How Hospitals Heal Themselves. Available at: http://www. managementwisdom.com/goodnews.html. Accessed September 16, 2006. 49. Cohn, K. H. 2006. Collaborate for Success!: Breakthrough Strategies for Engaging Physicians, Nurses, and Hospital Executives. Chicago: Health Administration Press. 50. Grenny, J. 2006. “Knowing No Boundaries: Five Crucial Conversations for Influencing Administration.” Physician Executive 32 (4): 12–15. 51. Patterson, K., J. Grenny, R. McMillan, and A. Switzler. 2005. Crucial Confrontations. New York: McGraw Hill. 52. Cohn, K. H., A. H. Nighswander, J. L Dorsey, and R. B. Harrington. 2006. “The Benefits of a Structured Dialogue Process in Fostering Collaboration.” In Collaborate for Success!: Breakthrough Strategies for Engaging Physicians, Nurses, and Hospital Executives, ed. K. H. Cohn, 1–9. Chicago: Health Administration Press. 53. Waldman, J. D., R. M. Ratzan, and S. J. Pappelbaum. 1998. “Physicians Must Abandon the Illusion of Autonomy . . . . ” Pediatric Cardiology 19: 9–17. 54. Ludema, J. D., D. Whitney, J. Bernard, and J. Thomas. 2003. The Appreciative Inquiry Summit: A Practitioner’s Guide for Leading Large-Group Change. San Francisco: Berrett-Koehler.

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55. Cohn, K. H., P. H. Araujo, and S. Gill. 2005. “Appreciative Inquiry.” In Better Communication for Better Care: Mastering Physician-Administrator Collaboration, ed. K. H. Cohn, 24–29. Chicago: Health Administration Press. 56. Stubblefield, A. 2005. The Baptist Health Care Journey to Excellence: Creating A Culture That WOWs! Hoboken, NJ: John Wiley & Sons. 57. Studer, Q. 2003. Hardwiring Excellence. Gulf Breeze, FL: Fire Starter Publishing. 58. Weber, D. O. 2005. “Positive Deviance, Part 1.” Hospital and Health Networks. Available at: http://www.hhnmag.com. Accessed October 9, 2005. 59. Weber, D. O. 2005. “Positive Deviance, Part 2.” [Online article; retrieved 10/9/05.] Hospital and Health Networks. Available at: http://www.hhnmag.com. Accessed October 9, 2005. 60. Pascale, R. T., and J. Sternin. 2005. “Your Company’s Secret Change Agents.” Harvard Business Review 83 (5): 73–81. 61. Berenson, R. A., P. B. Ginsburg, and J. H. May. “Hospital-Physician Relations: Cooperation, Competition, or Separation.” Health Affairs. Available at: http:// content/healthaffairs.org/cgi/content/full/hlthaff.26.1.w31./DC1. Accessed December 6, 2006. 62. Cohn, K. H., T. R. Allyn, R. Rosenfield, and R. Schwartz. 2005. “Overview of Physician Ventures.” American Journal of Surgery 189 (1): 4–10. 63. Cohn, K. H., and T. R. Allyn. 2005. “The Spectrum of Physician-Hospital Financial Collaboration.” In Better Communication for Better Care: Mastering PhysicianAdministrator Collaboration, ed. K. H. Cohn, 12–16. Chicago: Health Administration Press. 64. Cohn, K. H., and T. R. Allyn. 2005. “When Physicians Compete with the Hospital.” In Better Communication for Better Care: Mastering Physician-Administrator Collaboration, ed. K. H. Cohn, 17–23. Chicago: Health Administration Press. 65. Malcolm, L., L. Wright, P. Barnett, and C. Hendry. 2003. “Building a Successful Partnership between Management and Clinical Leadership: Experience from New Zealand.” BMJ 326 (7390): 653–654. Available at: http://www.bmj.com/cgi/ content/full/326/7390/653. Accessed August 31, 2006. 66. Center for Advance Palliative Care. n.d. Continuous Quality Improvement. Available at: http://64.85.16.230/educate/content/development/cqi.html. Accessed September 10, 2006. 67. Cohn, K., P. Batalden, E. Nelson, T. Farrell, D. Walsh, R. Dow, J. Mohr, J. Barthold, and R. Crichlow. 1997. “The Odyssey of Residency Education in Surgery: Experience with a Total Quality Management Approach.” Current Surgery 54: 218–224. 68. Goldratt, E. M., and J. Cox. 1984. The Goal. Great Barrington, MA: North River Press. 69. Grout, J. R. 2003. “Preventing Medical Errors by Designing Benign Failures.” Joint Commission Journal on Quality and Safety 29 (7): 354–362. 70. Heskett, J. L., W. E. Sasser, and L. A. Schlesinger. 1997. The Service Profit Chain. New York: Free Press. 71. Rucci, A. J., S. P. Kirn, and R. T. Quinn. 1998. “The Employee-CustomerProfit Chain at Sears.” Harvard Business Review 76 (1): 83–97. 72. Zimmerman, B., C. Lindberg, and P. Plsek. 1998. Edgeware: Insights from Complexity Science for Health Care Leaders. Irving, TX.: VHA Inc.

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73. Eagle Group. n.d. Description of Lean Systems. Available at: www.eaglegroup usa.com/Lean percent20MFG.htm. Accessed November 10, 2006. 74. Sterman, J. D. 2002. “Systems Dynamics Modeling: Tools for Learning in a Complex World.” IEEEE Engineering Management Review (First Quarter): 42–52. 75. Franklin, B. n.d. Quote World. Available at: http://www.quoteworld.org/ quotes/4954. Accessed September 24, 2006.

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CHAPTER 3

A Seat at the Power Table: The Physician’s Role on the Hospital Board Jayne Oliva and Mary Totten

T

he boards of today’s healthcare organizations face unprecedented challenges in the areas of quality, care delivery, financing, physician relations, and information technology. More often than not, trustees seek counsel from members who are successful corporate and civic leaders, philanthropists, and activists who draw on their personal and professional achievements to help guide and define healthcare services in communities across America. Indeed, it is predominantly the board’s business dealers—and not its patient healers—who are reshaping the delivery of healthcare today. But as guardians of patient and community health, physicians in boardrooms across America may be in the best position, if not the driver’s seat, to articulate and advance clinical excellence. They bring to the table their unique vantage point, skill set, and understanding of process and protocols to help ensure that hospitals embrace and facilitate a mission of health, healing, and access for all. To be truly effective, physicians on boards must connect their message to the organization’s mission and strategic goals, as well as the legal and governance responsibilities for which the board is accountable. Understanding the nuts and bolts of governance can help physicians to more effectively translate their vision of clinical excellence into organizational imperatives and enlist fellow board members as partners to lead the charge toward accomplishing them. This chapter provides the information and tools physicians need to ensure they are involved, informed, and engaged members of the governance team, specifically: • Insights and Strategies to Support the Physician Trustee • Boardroom Basics: A Primer for Physicians Who Serve

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Figure 3.1 Today’s Challenges for Hospital Board of Trustees ♦ Growing consumer demand for information and accountability fueled by the Internet, consumer-driven healthcare, and the publication of quality and pricing information by payers ♦ Growing demands from patients and payers for improved quality and safety ♦ The effect of the baby boomer age wave on healthcare financing and delivery ♦ Growth of complementary and alternative medicine ♦ Technologic innovation in care and delivery such as telemedicine and robotic surgery ♦ Treatment advances resulting from genomics and new drug treatment therapies ♦ Increasing demand for inpatient and outpatient services that strain capacity and resources ♦ Increasing costs to build needed infrastructure ♦ Ever-declining reimbursement ♦ A continued nursing shortage and predicted physician shortage ♦ Shifting relationships with physicians – from one of seeking cordial relations to one of market-based collaboration ♦ Unfunded federal mandates, such as HIPAA compliance ♦ Cultural competence and sensitivities in delivering care to diverse populations ♦ Proactively managing patients with chronic medical conditions

• How Physicians Can Maximize Their Impact on Boards • Advancing the Clinical Agenda

INSIGHTS AND STRATEGIES TO SUPPORT THE PHYSICIAN TRUSTEE Physicians typically arrive in the boardroom with different skills, background, experience, and expectations than their fellow board members, who frequently hail from business or corporate environments. As William Fulkerson Jr., MD, chief executive officer (CEO) of Duke University Hospital, and Deedra L. Hartung, MA, vice president and practice leader of Cejka Search, explain, “Most non-physician executives are trained in thought leadership and are process driven, team oriented, consensus builders, and facilitative. Physicians, on the other hand, are trained to be decisive, data driven, action oriented, and more individual focused and values

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driven.”1 Understanding these differences, and the board’s fiduciary duties and governance responsibilities, can help physicians maximize what they give to and get out of their board service.

Who’s on Board Generally, two types of physicians serve on boards. Traditionally, most hospital boards include the chief of the medical staff, who serves in an ex officio capacity, that is, because he or she holds the chief of staff position. Some boards also appoint other physicians to represent the medical staff or key physician groups. Boards may also ask retired physicians who live in the community or physicians from outside of the hospital’s service and geographical area to serve. The board’s expectation for these “outsiders” is the same as those for all board members—to govern on behalf of the organization’s stakeholders and in support of its mission.

Allegiance to Mission or Practice? Physician board members nominated by key practice groups or from within the medical staff may feel pressured to represent and advance group concerns ahead of the organizational agenda. Governance experts contend that because these physicians come from specific physician groups or organizations that often expect them to advance the group or organization’s interests, they do not always vote like the rest of the board—on behalf of stakeholders and in support of the hospital’s mission. A duality of interest emerges that can polarize the board and contribute to ineffective governance. In order to govern most effectively, it is important that boards clarify expectations, roles, and responsibilities for all members. Physicians on boards face other challenges in the way of scrutiny and accountability. The Internal Revenue Service allows so-called interested persons to comprise up to 49 percent of the membership of not-for-profit, tax-exempt boards. Interested persons include employees of the organization, such as the CEO, and physicians who treat the hospital’s patients or who do business with or receive financial benefit from the hospital. This “49 percent rule” only applies if the organization meets specific other requirements that show it operates for the community’s benefit and not for the benefit of board members. These requirements include enforcement of a strict conflict of interest policy—a key issue for physician trustees as hospitals and physicians increasingly compete and collaborate in the marketplace—and periodic reviews of hospital activities to make sure that the organization operates according to its tax-exempt purpose. Further, if the Sarbanes-Oxley legislation that raised the bar on performance and accountability for publicly traded for-profit company boards were to be applied to healthcare, physician group representatives who serve on the board would be considered nonindependent board members and would be prohibited from serving on important board committees, including the audit, CEO compensation, and governance/ nominating committees.2

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Maximize Physician Participation Insights into what physicians bring to the table, as well as role and responsibility clarification, can better position boards for success. To make the most of physician participation in hospital governance, Orlikoff and Totten suggest2: • Clearly and explicitly distinguish the role and function of the medical staff (or other physician group) representative (“insider”) on the board from that of the “outsider” physician trustee. Develop written job descriptions for each board position and use them as part of the recruitment process. • Educate all new trustees—especially physicians—about the distinction between the roles of the insider physician trustee and the outsider physician trustee. Use the written job descriptions for both insider and outsider positions as the foundation for this part of the orientation. • Routinely review this physician role and responsibility distinction with all board members during annual retreats and continuing education sessions. • Educate the entire medical staff about the distinction between the two types of physician governing board members. • Recruit physicians from outside the community or physicians who are not members of the medical staff to serve on the board. Retired physicians who are truly independent minded and removed from current medical staff politics and physician practice pressures may also be appropriate. • Develop concrete conflict of interest policies and procedures for physicians on the board. These policies should clearly define those situations where specific physicians are in conflicted situations, as well as outline the procedures to follow when there is a tug of loyalties. Such procedures might stipulate abstaining from voting on an issue in which the physician board member has a conflict, recusing the conflicted physician during board discussions, and removing any information from the board agenda book relating to the situation or decision involving the conflict. • Ensure that all board members clearly understand the roles and responsibilities physician members play on the board. During the full board and individual board member self-evaluation processes, include an assessment of how physician trustees are fulfilling their roles and determine if the roles are properly discharged. Use the individual assessment process and the resulting personal development plans as an opportunity to identify and address specific board needs and concerns. • Consider developing a physician leadership academy or providing other education and support to help physicians maximize their effectiveness as board members and organizational leaders.

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BOARDROOM BASICS: A PRIMER FOR PHYSICIANS WHO SERVE Arguably the most important strategy for empowering physicians in the boardroom and ensuring their success as valued members is to be certain that they recognize what it takes to govern effectively. The first step is to understand the organization’s corporate purpose as well as the legal duties and accountabilities that flow from it. A majority of the nation’s hospitals are nonprofit organizations. According to Fredric Entin, Janice Anderson, and Katherine O’Brien, healthcare attorneys with Foley & Lardner LLP: Nonprofit healthcare organizations have a charitable purpose that focuses on preserving the health status of the community the hospital serves. . . . Charitable trust law in many states considers the assets of nonprofit organizations to be held “in trust” for the benefit of the communities they serve. Taken together, these laws require that the nonprofit corporation’s purpose focus on the interests of the community and not on the individual self-interest of any person or group.3

Varied Stakeholders In this context, unlike for-profit boards who are accountable to shareholders, nonprofit healthcare organization boards answer to a variety of stakeholders and constituencies. Each healthcare organization must define its stakeholders, and these may differ among organizations. But, typically in healthcare, key stakeholders include patients, employees, physicians, strategic partners, and legislative and regulatory bodies. In governing on behalf of these parties, boards safeguard the corporation’s best interest as legally accountable fiduciaries, making certain that the organization reasonably and appropriately deploys its assets and resources.

Three Primary Duties As fiduciaries of nonprofit organizations, boards must act in accordance with key legal duties that, crisply defined, encompass care, loyalty, and obedience. • Duty of Care. According to Entin et al., “The Duty of Care requires board members to act in good faith and to use the same degree of diligence, care and skill that a prudent person would use in similar situations or circumstances.”3 In essence, board members must:

• make informed decisions; • ask questions and request additional information if facts come to light that raise issues about the validity and thoroughness of the information the board has received; and • follow the business judgment rule, which releases board members from personal liability if they make an informed decision in

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good faith, without self-interest, and in the best interest of the corporation. • Duty of Loyalty. This duty obligates nonprofit board members to protect the corporation’s business interests and decline personal gain to the corporation’s detriment. Making decisions on the corporation’s behalf demands that trustees act in good faith and without self-interest. The duty of loyalty requires board members to:

• avoid prohibited conflicts of interest; • avoid pursuing an opportunity for personal gain that would be of interest to the corporation; and • uphold the confidentiality of the organization’s affairs. • Duty of Obedience. At times, this duty can supersede the others, calling on board members to:

• comply with applicable laws, rules, and regulations; • follow the organization’s mission, bylaws, policies, and procedures; and • act within the authority granted to the board by the corporation’s articles, bylaws, and applicable laws. Oversight Responsibilities: From Planning to Performance Duties of care, loyalty, and obedience provide a framework in which the governing board discharges its primary oversight responsibilities, which include: • • • • •

mission and strategic planning; financial health; quality of care and patient safety; CEO and executive management performance; and board development and effectiveness.

First and Foremost: Mission and Strategic Planning According to Orlikoff and Totten,4 a strong mission forms the bedrock for effective governance. The mission defines the organization’s belief system, values, philosophies, and, ultimately, its culture. It is the basis for the board’s decision making, strategy formation, and policies. As stewards of the organization, the trustees’ most fundamental responsibility is the mission, from which all other board responsibilities emanate. A good mission statement guides the board through difficult decisions. The values, philosophies, and beliefs expressed in the mission serve as a touchstone for the board and help the organization realize and express its identity and purpose. The

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board can apply these noble and sound standards in each situation it confronts, to uphold consistent and predictable board policies that serve to integrate and align the organization’s disparate stakeholders. A clear mission also becomes the basis for a focused strategic plan. The mission establishes the parameters of the strategy, providing direction for the organization’s actions. In other words, considered in the context of current market conditions, the mission should inform the strategy, and the strategy should reflect the mission. Unfortunately, the mission statements of many hospitals are generic, bland, and not useful in determining strategic directions. Too many hospitals simply claim to be the leading provider of high-quality, cost-effective care. Physicians can take a leading role in ensuring that the hospital’s mission statement is distinctive and connected to its daily activities. In addition, physicians can advocate that the process of forming and reevaluating the mission statement includes people involved in the provision of care. Through overseeing the strategic planning process, a board can frame and address the tension between the often-conflicting demands of mission and market. Some boards may pursue a strategy that is incompatible with the mission, which leads to a jarring disconnect between the board’s formal belief system and the direction of the organization’s actions (the strategic plan). This inconsistency then alienates key organizational stakeholders, such as physicians, employees, patients, and payers. A pattern of erratic decisions based on circumstance rather than principle will condemn a board to profound ineffectiveness. The strategic plan is the springboard for specific annual goals and objectives, which are tactical in nature. They detail the game plan for accomplishing, and incrementally measuring, the strategy. Both the CEO and the board operationalize these goals and requirements through annual performance objectives.

Financial Responsibilities Trustees are responsible for their organization’s financial health and well-being. In order to discharge these duties on behalf of stakeholders, they must: • specify financial objectives; • make sure that management’s plans and budgets align with and promote achievement of financial objectives, key goals, and the board’s vision; • monitor and assess financial performance and ensure that management undertakes corrective action to address any problems; and • confirm that necessary financial controls are in place. Financial objectives are the parameters for overseeing financial planning and budgeting, for assessing financial performance, and for developing needed financial controls. Financial objectives, say Dennis D. Pointer and James E. Orlikoff,5 should answer three questions:

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• What is the board’s definition of financial health? • What must the organization achieve financially to accomplish key goals and fulfill the vision? • How should the organization assess financial performance? Every year, the board, with help from the chief executive officer and chief financial officer, should draft quantifiable, comprehensive financial objectives that are tied to the organization’s key goals and focused on achieving the vision. Budgets are the end result of an organization’s financial planning process. The board uses revenue and spending estimates as guideposts to monitor the organization’s operations, cash flow, and capital expenditures. Effective trustees view budgets as management’s blueprint for resource allocation to accomplish the board’s financial objectives. Therefore, good boards forgo meddling in budget details and focus their activities instead on how well the dollars support organizational achievement of financial objectives. Boards must also see to it that appropriate controls are in place to discharge the organization’s and the board’s financial accountabilities and responsibilities: • Do existing accounting and information systems generate accurate and timely information for review and evaluation? • Are financial transactions handled appropriately? • Do financial statements accurately portray the organization’s current financial status? Boards also appoint the organization’s external auditor and review the auditor’s opinion and findings regarding the organization’s financial condition. Determining that the internal audit function is alive and well is yet another board responsibility. Boards use a variety of tools and processes to monitor the organization’s financial well-being. Generally, indicators of financial health are selected and standards specified for each. Then the board’s finance committee, along with the entire board, routinely reviews each indicator’s measurements against previously established standards. If performance is unacceptable, the board asks management for an improvement plan.5 A financial dashboard indicator report is one tool a board can use to monitor ongoing performance. Dashboard reports measure performance over time against an established target. Typically presented in concise, at-a-glance formats, dashboards focus attention on critical performance measures linked to strategic priorities. Often explanatory notes accompany the dashboard report to help managers and trustees interpret the information. The financial dashboard in Figure 3.2 depicts an organization’s operating margin over five quarters against an annual target, and includes a revised target for the upcoming year. As shown, performance has generally exceeded the existing

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target, except for the most recent quarter. Questions board members might ask based on this report include: 1. Why did the operating margin so significantly exceed the established target in the fourth quarter of 2005 and the third quarter of 2006? 2. Why did the operating margin fall below target in the fourth quarter of 2006? 3. What does management anticipate the organization’s operating margin to be in the next quarter?

Figure 3.2 Sample Financial Dashboard Report

Source: Adapted from Kumar, S., and Carson-Martin, C. 2005. Patient Safety and Quality Reporting for Governance: Data Reporting Guide for Hospital Staff. Chicago: Center for Healthcare Governance.

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4. If management anticipates that performance will remain below target for the next quarter, what are management’s plans for improving performance? 5. What impact might current and projected operating margin performance have on the organization’s ability to meet the more aggressive target established for 2007?

Quality of Care and Patient Safety In order to effectively discharge their responsibility for watching over quality and patient safety, governing boards need to first participate in and understand how their organizations define quality. Healthcare organizations might consider many different perspectives of quality when approaching this task, including clinician, patient, payer, hospital employee, regulatory, and public and consumer groups. However the organization chooses to define quality, the board should make certain that the needs and views of significant stakeholders take priority. Armed with a clear definition of quality, the board can then participate more effectively in key quality oversight activities. These include credentialing of the medical staff and other licensed practitioners, monitoring the organization’s quality and safety efforts, and evaluating overall performance. Medical staff credentialing involves the appointment, reappointment, and delineation of clinical privileges for physicians on the hospital’s medical staff. While the medical staff itself does the heavy lifting in terms of gathering the necessary data and information about a physician’s background and performance—and formulating a recommendation for the board—it is the board’s responsibility to make the final credentialing decision about each medical staff candidate. To carry out this responsibility, the board ensures that a fair and effective credentialing process exists and is based on objective criteria associated with appointing, reappointing, and delineating clinical privileges. The board can then compare the medical staff’s recommendation against the criteria, and either approve the recommendation if it meets guidelines, ask for additional information, or reject the recommendation if it falls short of meeting the criteria. Because physicians play such a central role in allocating hospital resources and delivering care and service, ensuring that the hospital has a competent and effective medical staff is one of the board’s most important oversight responsibilities. Physician trustees can play an important role in helping the full board better understand the credentialing process and how the medical staff makes its recommendations to the board so that board members have the knowledge and the information they need to make sound decisions. Beyond credentialing, the board participates in upholding quality care and patient safety by deeming that systems are in place and functioning to provide performance data. Trustees must also review and analyze the effectiveness of care processes, outcomes, and use of resources against established quality, patient safety, and compliance indicators. Figure 3.3 includes examples of these indicators.

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It is the board’s job to assess performance against the targets set for each indicator and determine whether achievements meet, exceed, or fall short of expectations. When performance is below established standards, trustees ask managers to implement a performance improvement plan and share results with the board. The sample radar chart in Figure 3.4, sometimes referred to as a spider diagram, is one type of report that boards can use to evaluate the hospital’s quality and patient safety outcomes. This report shows a snapshot of performance at a given time across a number of different indicators. It allows board members to compare outcomes against established targets and note possible relationships among performance measures. The outside circle of the radar chart shows the highest anticipated level of performance, the next circular line shows the performance thresholds for each indicator, and the center or bull’s-eye of the chart shows the poorest performance level. The boxes depict actual performance data for each indicator. Questions board members might ask based on this radar chart include: 1. What factors contribute to low performance in the customer satisfaction category? 2. Is it time to set new goals for areas such as staff injury, percent of registered nurses, or patient falls since performance in these areas has exceeded the benchmark? Figure 3.3 Sample Quality, Patient Safety, and Compliance Indicators Quality Indicators ♦ Acute Inpatient Mortality Rate Failure to Rescue Rate ♦ Ventilator Pneumonia Rate ♦ Surgical Infection Rate Patient Safety Indicators ♦ Patient Falls ♦ Medication Errors ♦ Nosocomial Infection Rate ♦ Birth Trauma Rate Compliance Indicators ♦ Joint Commission Standards Compliance ♦ National Patient Safety Goal Compliance ♦ Leapfrog Group Compliance Source: S. Kumar and C. Carson-Martin. 2005. Hospital Patient Safety and Quality Monitoring: A Resource for Governing Boards and Trustees. Chicago: Center for Healthcare Governance.

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Figure 3.4 Sample Radar Chart

Source: S. Kumar and C. Carson-Martin. 2005. Hospital Patient Safety and Quality Monitoring: A Resource for Governing Boards and Trustees. Chicago: Center for Healthcare Governance.

3. What benchmarks do managers use to establish performance targets? 4. Is there any relationship between our nurse staffing ratio and safety metrics such as patient falls or medication errors?

CEO and Executive Management Performance The board fulfills most of its responsibilities through the CEO. Therefore, the board’s most important relationship is with the CEO—its only direct report. David A. Bjork and Dan Fairley of Clark Consulting-Healthcare Group describe6 the board and CEO relationship as follows: The board’s role is to develop policy, set goals, and provide overall guidance to the CEO on strategy, plans, financial management, and investments; keep

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the organization focused on its mission and the community’s needs; promote improvement in clinical quality, patient safety, and customer service; and help the CEO maintain an effective, supportive medical staff. The CEO’s role, in relation to the board, is to identify issues needing the board’s attention, set them in context, and provide information that will help the board make good decisions. The CEO should recommend or at least suggest ways to address these issues, too, especially if they require research or knowledge of financial, clinical, or technical issues.

Bjork and Fairley go on to describe the boundary between governance and management that both parties should recognize and respect: The board’s role is more about providing sage advice than about making decisions. The decisions it makes, outside of those related to supervision of the CEO, should be limited to setting policies, goals, and performance expectations. The board should steer clear of operational and management decisions, if it wants to hold the CEO accountable for the results of these decisions. It should recognize and respect the boundary between governance and management. The CEO’s role includes advising the board on policies, goals, and expectations, and helping the board make good decisions. But once the board has made its decisions, the CEO’s role is to implement the board’s policies and manage the organization as well as possible to meet the board’s goals and expectations. The CEO should respect the board’s primacy in defining the organization’s mission, prioritizing its goals, and deciding how to best use the organization’s resources to meet the community’s needs.6

Even though this relationship is critical to board effectiveness, many boards have not given it adequate care or attention. Boards and CEOs that work well together not only understand each other’s responsibilities, but set expectations for one another and participate in managing and evaluating each other’s performance. Trustees must cultivate and sustain this alliance, understanding that they are responsible for: • • • • •

hiring, retaining, and, if necessary, firing the CEO; motivating, managing, and developing the CEO; evaluating CEO performance; setting CEO and executive compensation; and overseeing and participating in succession and leadership transition planning.

As Bjork and Fairley suggest, “[I]f the board accepts and acts on its responsibility to nurture this relationship, it will make the CEO’s job easier, the board’s job easier, and the organization more successful.”6

Board Development and Effectiveness An old adage suggests that self-regulation is a hallmark of effective leadership. The only way for boards to stay ahead of the curve, especially in the current cli-

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mate of heightened legislative and regulatory scrutiny of board performance and accountability, is to take responsibility for their own effectiveness. Strong and self-sufficient boards establish and participate in a number of activities to ensure that the right people with the right skills come on board and continue to grow and develop throughout their service. Effective governance requires that boards put into place and execute sound processes for trustee selection, orientation, continuing education, and ongoing performance evaluation. A good board is not a chance occurrence, but rather a carefully orchestrated and thoughtfully composed mix of individuals with complementary skills and competencies necessary to advance organizational goals. While some board seats are held by individuals who serve by virtue of their position in the organization, such as the CEO or chief of the medical staff, most boards select members to serve on behalf of the community and the organization’s stakeholders. Productive boards develop a current profile of board membership and compare it against the organization’s strategic priorities to identify gaps in skills, experience, or competencies that should be filled if the board is to further organizational success. Wise boards understand that regardless of how they select individual members, every trustee serves to meet stakeholder needs and to help the organization achieve its mission and goals on their behalf. Boards use a variety of techniques to orient new members to the organization and their governance roles. Typically, new trustees will participate in a board orientation program that reviews healthcare issues and trends; national and local markets and competitive issues; the healthcare organization’s structure and function; and the board’s key roles, responsibilities, and relationships. An orientation manual can provide more depth on orientation topics and serve as a reference for board members. Some boards also pair new trustees with seasoned board and executive-staff colleagues, who act as mentors during the first year or so of service. Mentors help new trustees acclimate to the board and their governance role. Responsible boards provide a variety of ongoing education for their members. Opportunities range from reviewing an in-depth topic at each meeting; conducting annual off-site board or leadership retreats where trustees can learn from, and network with, each other and with executive and physician leaders; and attending conferences focused on healthcare and governance issues of importance to the board. Some healthcare organizations also offer leadership development academies or similar opportunities, especially for physicians interested in assuming broader organizational leadership roles. One of the most important ways boards can continuously improve their performance is to participate routinely in individual and full-board performance evaluation. These processes are typically survey based, to assess and discuss overall performance and to develop action plans for improvement. Most boards conduct annual full-board evaluation and action planning, often as part of a board retreat, and review individual trustee performance at least once before the member’s term of service expires.

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HOW PHYSICIANS CAN MAXIMIZE THEIR IMPACT AS BOARD MEMBERS While physicians are no strangers to boardrooms across America, it is true that many have traditionally and comfortably confined their roles to serving as ombudsmen to the medical staff. They survey medical colleagues and report on the need for new technology, novel equipment, and/or expanded services. When in the boardroom, they are a resource for fellow trustees, fielding questions about care quality and patient safety, and serving up a medical-staff perspective on issues of the day. Physicians on boards, however, can play more pivotal governance roles by recognizing the benefits of board service and becoming more active, engaged members. For physicians, the opportunity to sit on the hospital’s board allows them to: • Set policy that guides the organization in care delivery on behalf of stakeholders, including physicians, patients, and the community. • Help the board identify, clarify, and focus on the wants and needs of key stakeholders on whose behalf the board governs. Physician board members often have better insight than their board colleagues about the needs of key stakeholders, such as patients and physicians. • Share physician and patient needs and concerns and ensure that these stakeholders have a voice at the table as the board makes decisions. Board service affords physicians a unique opportunity to leverage their expertise and make an impact that extends beyond any individual patient to meet the needs of a broader population. The board, therefore, becomes a platform for expanding the physician’s capacity to do good and help others, which is why many doctors wanted to practice medicine in the first place. • Influence resource allocation decisions in ways that maximize benefits across all key stakeholders. • Help align physician and hospital interests by acting as an opinion leader and influence broker with both the medical staff and the board. • Learn valuable skills about leading in a group setting that could translate to their own group practice or participation in medical society or other professional organization activities. • Better understand the broader healthcare environment and where the advantage points and opportunities are for all providers going forward.

Making a Contribution Physician trustees can take full advantage of these opportunities to sway colleagues by moving out of the comfort zone and into the power seat. In this way, they can do more to rally clinical and administrative troops, direct the discussion, mediate consensus, and chart the hospital’s course, which ultimately will lead toward improved community health. Indeed, there are those who argue that if physicians fail to embrace a more commanding role in the boardroom, it could prove hazardous to

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not only patient and community health, but in today’s climate, the very well-being of the organization itself. Fortunately, the lay members serving in today’s medical boardrooms generally support a changing and more pivotal role for their physician colleagues. Board members want physician peers to weigh in and to contribute to setting the agenda on quality, retention, reimbursement, cooperation, and innovation, representing the perspective of the entire medical staff, and guiding the way toward productive change and collaboration. They understand that accomplishing the hospital’s goals is dependent upon dynamic, mutually beneficial hospital-physician partnerships. And they want the physician trustee to lead the way.

Stepping Up to the Plate Physician trustees have the wherewithal, clout, and respect—from both boardroom and clinical colleagues—to advocate for the health needs of their communities and transform the delivery of services. Their unique perspective counts, maybe more than any other, in devising strategies to safeguard quality, foster access to care, and ensure appropriate utilization of services and technology. Still, for all their collective insight and expertise, physician board members are sometimes guilty of falling short in a few key areas: • Not putting aside personal views to focus on a broader organizational picture • Not representing the needs of younger physicians or those outside their own specialty • Not understanding the operational complexity of the organization and its facility, labor, and information technology challenges • Not being sensitive to the burden of regulation and accreditation • Not grasping the full picture as it relates to the needs of the community served In fact, to help address these shortcomings, some experts advocate for more formal ways (such as developing written position descriptions) to achieve greater clarity between the roles of those physician trustees who serve in the same capacity as any other board member and those who are typically selected by the medical staff and serve ex officio (usually because they are either the hospital’s chief of staff or medical staff president).

ADVANCING THE CLINICAL AGENDA Just as passengers would not want an airline’s chief financial officer to fly the airplane, hospital trustees want the care-delivery agenda piloted by those who understand it best. Trustees appreciate that physicians are: • orchestrators of quality and clinical performance; • advocates for easy access and productive partnerships; • overseers of reimbursement trends and sound finances;

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• catalysts for collaboration; and • champions for information technology applications. By capitalizing on these strengths, physician trustees can take the lead in developing, spearheading, and nurturing a vision of clinical excellence. Successfully advocating for the clinical agenda requires that physician trustees stay abreast of industry trends, the actions of peer institutions, and the needs of the medical staff and patient community. Because of their unique skills and perspective, physician trustees should not shrink from asking penetrating questions, clarifying the outcome that is expected, and charting the organizational course more closely, speaking out if hospitals and administrators appear to veer off track. However, no trustee, physicians included, should dictate the course of action to get back on track and/or meet organizational goals; that challenge is management’s job. There are five critical areas where physician trustees can marshal forces to make a significant difference for their hospital and community.7

Orchestrators of Quality and Clinical Performance First and foremost, the physician trustee should be the prime advocate for quality, improved patient care outcomes, patient safety, and clinical care excellence. Physician trustees and their fellow board peers should thoroughly understand, and tenaciously address, several key questions: • What is the impact of transparency on our organization? Specifically, how will we respond to public reporting on our quality and outcome measures, what will we implement in the way of clinical improvements to stay ahead of public data releases, and where do we stand vis-à-vis payers (who need our data) and competitors (who look to capitalize on their own outcome achievements)? • How do our patients use publicly reported data to make healthcare decisions? • Do we participate in, or measure our performance against, national benchmark initiatives such as Leapfrog or Bridges to Excellence? • Have we assessed, for example, if our patient volume—from routine to complex cases—meets the six Bridges to Excellence primary quality attributes: safe, effective, efficient, patient centered, timely, and equitable care delivery? • Do quality measures include patient mortality, nurse patient index, nurse Magnet status, and patient care coordination, as appropriate? • Does the hospital use CareMaps, best practice protocols, and clinical guidelines?

Advocates for Easy Access and Productive Partnerships The physician trustee is a proponent for community, patients, and providers alike. Together with fellow board members, trustee physicians must set the tone,

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positioning the organization as consumer-friendly, responsive to patient and community needs, supportive and efficient for employees and providers, and accessible for all. The following questions can stimulate discussion and spark action: • Are our constituents—patients, physicians, employees—satisfied with our organization? How do we measure their satisfaction? Are our scores where we want them to be? How do we communicate, celebrate, and reward performance and leadership? • How quickly can our patients get appointments, book surgeries/procedures, or access ancillary services? Figure 3.5 Orchestrators of Quality and Clinical Performance There are many national organizations developing guidelines to improve quality of care and outcomes. Physician board members should be aware of these groups and their guidelines and understand the impact on both the institutions they represent as board members, and on the constituencies served. Below are some thoughts to get the ball rolling: ♦ Is the organization up to speed on major quality initiatives (such as those from The Leapfrog Group) that include technology (Computerized Physician Order Entry), staffing ratios, demonstrated proficiency in high risk treatments, and implementation of National Quality Forum (NQF) safe practices? ♦ In each specialty or service area, whether for care of routine or the complex cases, is there sufficient volume to ensure staff competencies? ♦ Does each specialty or service have in place its own quality indicators that are benchmarked and monitored consistently, with immediate action taken for remedial interventions as indicated? ♦ Depending on the institution or patient venue, quality indicators may also include patient mortality, nurse/patient ratios, Magnet status, patient care coordination and patient/family communication. Where is the institution on these measures? ♦ Physicians should be the conscience of the board on quality care, reporting at least quarterly but preferably at each meeting on quality initiatives, outcomes, areas of strength and weakness, organizational needs to provide quality care. Do our organization’s physician board members play this role? ♦ Physicians should be the Board’s ‘trainers’ on quality – keeping all members up to date on initiatives by national organizations such as Leapfrog, AHRQ, CMS, IHI, and NQF. How well-prepared are our physician trustees to act as such a board resource? ♦ Do our non-physician board members participate in institutional quality initiatives, especially in response to a specific community need? If so, what have been the outcomes?

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• Are surgeries and diagnostic testing procedures scheduled and coordinated for our patients, or must patients navigate a maze of services and offerings independently? • Are we the provider of choice for all referral sources in our community? Do we actively and swiftly facilitate physician-to-hospital and physicianto-physician referrals? • Do we have minimal errors and complaints? Do we take prompt action on patient, family, and referrer incidences and complaints when they occur? • Should we adopt innovative customer service programs such as same-day appointment scheduling, patient care coordination, online history and physicals, medical record access by patients, and provider/patient email? • Are we prepared for the increasing demands for service excellence that aging baby boomers will make? • Is there a better way to manage chronic care by reexamining ambulatory strategies and tactics? Can we develop and implement disease management systems to screen for, and prevent, chronic disease and illness? • What will be the direction and pace of change in our organization?

Overseers of Reimbursement Trends and Sound Finances Hospital management is responsible for, and usually quite savvy about, reimbursement, billing and financing. However, physician trustees must be well versed in the two major environmental trends affecting patients, providers, and hospitals alike: pay-for-performance initiatives and consumer-driven health plans and health savings accounts. Insurers drive pay-for-performance criteria in order to tie reimbursement to quality improvement. Physician trustees can guide their board colleagues through these tough questions: • Are we knowledgeable about initiatives among our payers? • Against what criteria are our physicians measured, and are there additional performance measures we should anticipate? • How can we help our providers and clinicians improve their performance? • Are there unintended consequences of pay-for-performance plans for which we need to prepare? Employers are leading the charge to empower employees to comparison shop and make healthcare choices based on costs and customer satisfaction. It’s a fact: consumer driven health plans and health savings accounts are shifting control of purchasing decisions and dollars from insurers to patients. Physician trustees should be certain their board colleagues and the organization itself are positioned for success by asking: • Are we ready to respond to increased consumer expectations? • Are we set up, as an organization, to help consumers easily compare and choose our services over competitors?

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• Have we ensured that expense management strategies are sound from both a quality and cost standpoint to bolster our cost-effective position?

Catalysts for Collaboration While the physician trustees contribute to the board’s agenda—as orchestrators of clinical performance, advocates for access and partnerships, and overseers of finance—they should lead in the development of strategies to strengthen hospital/ physician collaboration. Today’s hospital/physician collaboration agenda has two components. The first is to redefine the rules of engagement. The changing medical landscape is forcing trustees and management to reexamine the traditional relationship between hospital and physician. Orlikoff and Totten8 suggest that board members and physician leaders jointly consider these questions: • What terms would we use to describe the current relationship between the hospital and physicians, and how can we achieve the relationship we want? • How would we characterize the traditional social contract that has existed between the hospital and physicians? • What is changing, what should we preserve in this contract, and what should we rewrite? The second agenda is an economic and business one: • Will our hospital partner with physicians to deliver branded services and/ or facility joint ventures? • Will the hospital offer special incentives and support for physician practices including: • Recruiting primary care and specialty physicians into our community? • Employing physicians? • Offering practice management services—from basics such as billing and malpractice insurance procurement, to more sophisticated offerings such as quality management/reporting and electronic medical record acquisition/support?

Champions for Information Technology Applications It’s a wild Wi-Fi and Web-based world today, where doctors can provide care and consults off-site, from remote locations, and patients can tap into portals and pages that offer health advice and diagnostics. If trustees, physicians, administrators, managers, and, indeed, anyone connected with the healthcare organization don’t speak the language or use the tools or haven’t mastered the technology, it’s time for a crash course. Otherwise physician trustees—as practitioners and as stewards of the organization—risk falling behind with a new

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plugged-in generation that will soon receive all the information it needs via cell phones. The Partners Health Care System in Boston is one forward-thinking organization that has jumped on board the technology bandwagon. Partners has adopted five signature initiatives, each supported with information technology (IT) tools: • Investing in quality and utilization infrastructure • Enhancing patient safety by reducing medication errors • Advancing uniformly high quality by comparing performance to benchmarks for select inpatient and outpatient conditions • Expanding disease management programs by supporting activities for patients with chronic illnesses • Improving cost effectiveness by tracking and managing utilization trends and variances Physician trustees can make an invaluable impact as power brokers to vet their own hospital’s IT initiatives from the provider perspective. These questions can help boards assess and address current capabilities: • Where are we in introducing, implementing, and/or expanding our electronic medical record capabilities? • Is the clinical information supporting our IT tools accurate, and up to date? • How will our IT tools allow for improved care coordination between the hospital and its physicians? • How will we use our IT tools to manage our costs? What is the role of our physician community? • How will our IT tools help involve our patients in proactively managing their care and in strengthening the patient/physician relationship? • How will we use IT to develop our own quality reporting systems to provide our stakeholders with a more robust and accurate picture of our performance than external source reporting? • Have we adequately funded the venture to ensure that our physician community can acquire, install, integrate, and optimally utilize the IT tools? • Have we seeded the transition from paper to electronic tools with enough capital to train physicians and staff and to provide transition support?

COMING OF AGE Physician trustees, as guardians, stewards, and orchestrators, are in a unique position to shepherd healthcare systems and organizations through some of their toughest medical, operational, and financial challenges to date. It’s a time for setting bigger goals with broader horizons, for expecting much of self and peers, and for motivating all to make the best choices for improved patient and community health. By understanding basic board duties and responsibilities, asking

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the right questions, and investing in the right resources, physicians on boards can help shape a preeminent position for their organizations. The physician trustee perspective will help ensure that, community by community, American citizens will receive the best healthcare in the world.

NOTES 1. Fulkerson, Jr., W., and D. L. Hartung. 2006. “Creating a Healthy Hospital— The Demand for Physician Executives.” Group Practice Journal 55 (9): 41–47. 2. Orlikoff, J. E., and M. K. Totten. 2005. “Physicians in Governance: The Board’s New Challenge.” Trustee Workbook 3. Trustee 58 (7): n.p. 3. Entin, F., J. Anderson, and K. O’Brien. 2006. The Board’s Fiduciary Role: Legal Responsibilities of Health Care Governing Boards. Chicago: Center for Healthcare Governance. 4. Orlikoff, J. E., and M. K. Totten. 2001. “The Pyramid: A Model for Effective Governance.” Trustee Workbook 3. Trustee 54 (10): n.p. 5. Pointer, D. D., and J. E. Orlikoff. 1999. Board Work. San Francisco: JosseyBass. 6. Bjork, D. A., and D. Fairley. 2006. Creating a Culture of Collaborative Leadership Between Boards and CEOs: A Practical Guide for Trustees. Chicago: Center for Healthcare Governance. 7. Oliva, J. 2006. “A Seat at the Power Table: The Physician’s Role on the Hospital Board.” Physician Executive 32 (4): 62–66. 8. Orlikoff, J. E., and M. K. Totten. 2005. “The Hospital-Physician Relationship: Redefining the Rules of Engagement.” Trustee Workbook 3. Trustee 58 (2): n.p.

CHAPTER 4

The Impact of Biotechnology Advances on the Healthcare System Neil J. Campbell

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iotechnology has existed for thousands of years. When the first humans realized that they could plant and crossbreed their own crops and breed their own animals, they learned to use agricultural biotechnology. The discoveries that fruit fermented into wine or that milk could be converted into cheese or yogurt or that beer could be made by fermenting solutions of malt and hops were momentous—and practical applications of biotechnology. When the first bakers found that by adding leavening they could make a soft, spongy bread rather than a firm, thin cracker, they were developing biotechnology for useful purposes to improve their lives.1 The age-old adage, “Necessity is the mother of invention,” has driven many advances by humankind. Nearly 10,000 years ago, our ancestors were producing wine, beer, and bread by using fermentation, a natural process in which the biological activity of one-celled organisms played a critical role in everyday life. This discovery had a profound effect on those civilizations and improved health and life when applied in positive ways. Let’s take a closer look.

PRACTICAL BIOTECHNOLOGY In the fermentation process, microorganisms such as bacteria, yeasts, and molds are mixed with ingredients that provide them with food. As they digest this food, the organisms produce two critical by-products: carbon dioxide gas and alcohol. In beer making, yeast cells break down starch and sugar (present in cereal grains) to form alcohol. The froth, or head, of the beer results from the carbon dioxide gas that the cells produce. In practical terms, the living cells rearrange chemical elements to form new products that they need to live and reproduce.

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Bread baking is also dependent on the action of yeast cells. The bread dough contains nutrients that these cells digest for their own sustenance. The digestion process generates alcohol (which contributes to that wonderful aroma of baking bread) and carbon dioxide gas (which makes the dough rise and forms the honeycomb texture of the baked loaf). Discovery of the fermentation process allowed early civilizations to produce foods by allowing live organisms to act on other ingredients. But our ancestors also found that by manipulating the conditions under which the fermentation took place, they could improve both the quality and the yield of the ingredients themselves.1 What are today’s practical applications of biotechnology? Some think of developing new types of animals. Others dream of almost unlimited sources of human therapeutic drugs that one day will be tailored or personalized to an individual’s genetic makeup. Still others envision the possibility of growing crops that are more nutritious, require less environmental inputs, and are naturally pest-resistant to feed a rapidly growing world population.

THE PREMODERN PHASE OF BIOTECHNOLOGY The term biotechnology was coined in 1919 by Karl Ereky, a Hungarian engineer. At that time, the term meant all the lines of work by which products are produced from raw materials with the aid of living organisms. Ereky envisioned a biochemical age similar to the Stone and Iron Ages.2 The premodern phase of biotechnology started in the late eighteenth century and continued into the nineteenth century. This period saw the advent of vaccinations, crop rotation involving leguminous crops, and animal-drawn machinery. The latter half of the nineteenth century was a turning point for human and animal biology and our understanding of life, death, and the nature of disease. New microorganisms were discovered, Gregor Mendel’s work on plant genetics opened our eyes to the passing of inherited traits, and institutes for investigating fermentation and other microbial processes were established by Robert Koch, Louis Pasteur, Joseph Lister, and others to further this new field of science.2 The goal was to expand this knowledge into useful, everyday applications for society. As we neared the end of the premodern phase, we began to see more rapid development of knowledge into uses in the everyday world. This new age of biotechnology began to expand at the beginning of the twentieth century, as the convergence of industry and agriculture came together in very useful ways. This period was instrumental in setting up many of the great discoveries that would later enable the advancements of the latter half of the twentieth century. During World War I, fermentation processes were developed that produced acetone from starch and paint solvents for the rapidly growing automobile industry and for the war production effort. Industrial applications of the biological and chemical sciences were greatly studied and applied in many varied ways. One notable discovery was the work by Alexander Fleming in 1928.3 Dr. Fleming was working with yeast cultures at St. Mary’s Hospital, now part

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of Imperial College in London, when he had inadvertently left the petri dishes in his lab unattended. When he returned, he found this new growth among the cultures. This growth was penicillin, which yielded an antibiotic derived from the mold. Large-scale production and distribution of penicillin was achieved in the 1940s and proved instrumental in treating infections during World War II. Penicillin became one of the most important tools in the fight against bacterial infections for many decades there after. One other notable discovery, among many others, was the work of Oswald Avery, Colin MacLeod, and Maclyn McCarty who, in 1944,3 demonstrated that deoxyribonucleic acid (DNA)—not proteins—was the hereditary material in most living organisms. However, the revolution in understanding the chemical basis of cell function and eventual engineering that stemmed from the postwar emergence of molecular biology was still to come. It was this phase of biotechnology that led to its recent explosive development and ushered in the modern phase of biotechnology.

THE MODERN PHASE OF BIOTECHNOLOGY The discovery of the double helix as the structure of DNA by James D. Watson and Francis Crick in 1953 started the revolution of what we now call the modern phase of biotechnology.4 That work eventually led to the Nobel Prize for both men in 1962. With that seminal discovery came an amazing amount of research in the 1960s and 1970s that led to the current understanding of molecular biology and its many applications today. This notion of the double helix structure of DNA and the power of genes to control many aspects of human, animal, and plant function and health is the basis today of all pharmaceutical, diagnostic, and animal and plant research. It is this search for understanding the genetic code and its direct implications in disease and wellness that drive biotechnology research and development and will directly impact the way healthcare will be managed and delivered for many decades to come. It is this simple-looking, but complex, genetic code system that forms the infrastructure from which all life originates and operates. What we must remember is that biotechnology is not new. But how this technological shift is moving will be important in how we apply new logic and technology to further our understanding of life. The resulting success will be greatly determined by the applicability of the technology and its uses to the needs of society. In the context of today’s world, the term biotechnology refers to the modification and engineering of living organisms or their products to address human health and the human environment. Biotechnology has also evolved into many industries and converged with other nonmedical ones as well. From a modern day viewpoint, biotechnology encompasses the fields of pharmaceuticals, medical devices, and laboratory diagnostic technologies, as well as products used in basic research within companies and universities, agriculture, cosmetics/cosmaceuticals, nutrition/nutriceuticals, and nonbiologic fields like high-performance computing and information technologies.

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The ability to shape and transform the genetic code or DNA started with the work conducted by Herb Boyer, Stan Cohen, and Paul Berg in the late 1960s, continuing into the 1970s.3 These scientists discovered novel enzymes that were located in the body that would normally repair and organize DNA in a daily process. By isolating these enzymes and using them outside the body, scientists can cut the DNA like molecular scissors and piece them back together into various new structures. This process has now become known as genetic engineering, and allows us to study various forms of our genetic makeup and perform studies that can help our understanding of disease. In the 1970s, researcher Kerry Mullis3 was working on various ways to manipulate DNA while working as a researcher at a small biotech company called Cetus. While daydreaming during a now famous drive on California Highway 128 from San Francisco, he conceptualized and, later, invented a method whereby one could multiply the amount of DNA one started with for experiments. This process, called the polymerase chain reaction (PCR), revolutionized the ability of scientists to work with and conduct in-depth studies of processes involving DNA. Because of this seminal work, Dr. Mullis won the Nobel Prize in 1993, and the PCR process has continued to be used in every academic and industrial laboratory around the world as the gold standard for DNA amplification. With this advancement in the biological sciences has come a responsibility to the proper use of these technologies, and the field of bioethics has grown to establish a balanced viewpoint on the use of them. All enabling technologies can have a common good when applied appropriately to society. They can also have a dark side if not properly managed and developed within ethical guidelines. The manipulation of living organisms to cause harm or death, currently known as bioterrorism, can cause widespread, horrific outcomes similar to the advent of nuclear technologies during World War II. With the international community engaged in controlling this negative use of biotechnology, hopefully we can avert any largescale disasters. The potential of biotechnology to advance life spans, human and animal health, and our environment looms large. Many governmental and international organizations have stated that the two most life-changing industries of the twenty-first century will be the fields of biotechnology and computer sciences, and these two have and will continue to advance and converge when necessary to create many far-reaching applications for everyday life.5

THE CHALLENGES OF TODAY’S HEALTHCARE LANDSCAPE The world is becoming a much more divided place of the haves and have-nots. We see this deepening divide in real wealth of nations and the economic impact this has on every facet of daily life. The world’s wealth is distributed in a very small number of countries, but these countries—where the work of biotechnology is being performed—have the potential to bring more equity to the rest of the world by making medicines cheaper and more effective and by creating better disease-management tools and better agriculture products that can thrive in the

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underdeveloped countries of the world. It is this aspect of biotechnology that makes the field so valuable. Many healthcare systems of the world are nationalized and/or socialistic in nature and are stressed under the burdens of escalating costs, aging populations, and fragmented delivery of services. Providing social programs comes at a great cost to society, and the economic health of that society is directly tied to its ability to provide for itself. The “health” of a nation is both an economic advantage as well as an important piece in the national security strategy of any country. The healthcare system of the United States is not socialistic and does not provide for universal care, but is a system of private, market-driven organizations that choose the parameters in which to deliver healthcare. We also have governmentsponsored systems, like Medicare or Medicaid, that help to provide healthcare coverage to specific populations, but large cracks remain. When you have busloads of the elderly crossing into Canada to buy prescription drugs that they can’t afford in the United States, something is arguably wrong. The cost of healthcare has skyrocketed in the United States due to many factors, but two things are sure in the medium term: (1) that the system will continue to be very inefficient and fragmented with outdated processes and technologies and (2) that due to these inefficiencies and fragmentation, the system will continue to increase in costs and burden on companies and society. Many hope that biotechnology can play a vital role in decreasing the cost of healthcare and increasing the quality of life. At the moment, biotech products have greatly improved the management of some diseases, but the cost reductions expected have not followed. For example, the biotechnology industry has developed and introduced human-engineered insulin for diabetics and human growth hormone for dwarfism. The development and use of personally tailored medicines for genetic predisposition such as Herceptin for a Her-2/Neu particular type of breast cancer or Gleevec for specific use in leukemia has made personalized treatment for particular diseases a reality, although a limited one at the moment. Some say that the industry is just exiting its adolescence and has not been able to take advantage of economies of scale in the way products are developed. The process of development is improving, and the financial markets that provide the funding are becoming more mature and larger to support the growing industry. One thing is certain—that in order for biotechnology-derived products and services to make a substantial impact long term, they will have to be able to decrease costs and provide for more efficacious treatments that are not possible today. One area that has seen justifiable applications is the field of agricultural biotechnology, or AgBio. Examples of more effective crop technology management include pest-resistant crops, crops that can survive the trip to market and shelf life, and crops that require less water in arid climates. However, not all AgBio advances have survived the market test. For instance, the Flavr-Savr Tomato of the 1990s was engineered to be juicy, meatier, and able to survive longer during the shipment to market. The tomatoes lasted on the store shelves longer, but people were not used to the look or consistency of the tomato and sales eventually declined until the product was withdrawn. It was a “product in search of a market”; marketers should

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have done customer research and then developed a product to meet those tastes. More successful have been initiatives in providing food such as rice, corn, and other staples to underdeveloped regions or regions where food crops are difficult to grow. AgBio is now a multibillion-dollar industry in sales. Nevertheless, genetically modified foods still generate a lot of controversy regarding their long-term health impact. The Food and Drug Administration has declared that genetically modified crops are safe to eat. However, there are no longterm studies to support the overall safety of the crops. Most genetic modifications are fairly straightforward and the risk is probably very low, but in order for society to accept these products, the industry will have to be more mindful of the concerns. Society, especially in less fortunate areas of the world, needs these crops. A large amount of the criticism of genetically modified foods comes from the developed countries at the expense of the more underdeveloped ones. The debate, it should also be noted, is also as much about national economics as potential safety. The issue of American corn or rice being planted in Europe is a very economic one and can change the economic picture versus indigenous crops and revenues to indigenous companies.

OUR CHANGING LIFESTYLES AND ATTITUDES The other element of our present-day society is the rapid pace and multitasking nature of how we live. We are a service and information technology driven society, and with that our lifestyles have changed greatly. With technology all around us, our lives have sped up, resulting in changing diets, less exercising, more stress, and a blending of work and personal lives into one with the advent of Blackberries, computers, e-mails, and text messaging. The negative consequence is a society that is pressed to its limits and rapidly becoming less healthy and more clinically obese. It is estimated that up to two-thirds of adults in the United States are clinically obese and subject to downstream ailments like diabetes, heart disease, cancer, and physical ailments that threaten to impact the quality of life of those who will have a longer life span. These trends are seen in the majority of developed nations of the world and could be prevented to a large degree by changing our lifestyles, our diets, and with exercise. Biotechnology can have a positive or negative effect on this issue. There are drugs in development that will turn off or inhibit the production of certain chemicals that can cause several problems that diabetics endure such as kidney, liver, heart, or eye damage. However, one disturbing trend is that many adults in the United States have stated in several independent studies that they would opt for taking a pill to prevent a certain condition or disease versus changing their behavior or diet to effect the same outcome.4 Taking a once-daily pill for weight loss or to increase longevity are just two of the holy grails in maintaining good health that people seek. And products such as Botox (which is bioengineered botulism, or—better stated—a toxin) continue to be popular. Not all is lost if we apply technology and, of course, some logic to the current dilemma that we face. Although the deliverables that will come from

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biotechnology and computational medicine will probably not slow down, we can improve how we manage these processes and provide products and services that improve our lifestyles. Many times in the development of biotechnology products, the intellectual stimulation that comes from working in a leading-edge field blinds the scientists to a point at which they do not look realistically at the consequences of the product being developed. As organizations become more professional and objective in their commercialization of research, we will see more market acceptable products reach the market, and the impact on healthcare, of course, will greatly improve. This prediction is based on observations of applied research strategies that are being adopted by both universities and commercial research organizations.

WHAT DOES THE FUTURE HOLD FOR HEALTHCARE AND THE IMPACT OF BIOTECHNOLOGY? Tomorrow’s healthcare solutions start with today’s research and development. The understanding of the mechanisms of disease and how to quantify and organize them will be one of the greatest impacts of biotechnology. This process will require the applications of computer technology along with medical technology to handle the vast amounts of data in the decision-making process needed to treat patients and their diseases.

THE ROLE OF PERSONALIZED MEDICINE Personalized medicine is the cataloging of various diseases and their differences in the human population from a genetic or DNA sense and applying that knowledge to predict, diagnose, or monitor the course of disease in each individual. For example, by understanding the genetic differences of two women, both with breast cancer, individualized courses of treatment can be developed, each with the same positive outcome of eradicating the disease. The question we ask now is why do two seemingly similar patients react differently to the same treatments? Some progress rapidly towards death, and others go into remission and are “cured.” We are gaining weapons in our arsenal to aid in the fight to understand disease. There are diagnostic laboratory tests that can be performed that highlight differences among women who are at risk for breast cancer and help develop distinct courses of treatment for them. Two such genetic tests—BRCA1/BRCA2 and Her-2/Neu—can identify the possible type of breast cancer and possible courses of treatment options and predict eventual outcomes for the patients. Based upon this genetic understanding, we now have a few pharmaceutical products that can treat these forms of breast cancer. Herceptin, a drug researched and developed by Genentech (one of the first biotech companies), is available to treat women with the Her-2/Neu type of breast cancer. The notion of personalized medicine is active today in many areas, although the larger understanding and implementation is nascent. The current numbers of

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products are growing and are starting to take hold and should greatly impact the delivery of healthcare in terms of patient outcomes, but the jury is still out on how personalized medicine will really change medical economics for the future.

THE INDUSTRIAL REVOLUTION OF BIOTECHNOLOGY The large scale and automation of biotechnology research and manufacturing are becoming more factory-like; the scale of costs will decrease and the output of knowledge and value-added products will increase. These factory-like processes should speed up the understanding and commercialization of technologies by taking a systemic approach to the understanding of disease or to understanding the completeness of an organism, such as the avian flu virus or the retrovirus that causes AIDS (acquired immunodeficiency syndrome). As the costs of these applications are reduced, it will allow large-scale sequencing and testing of our genetic makeup. This will provide a profile of who we are and our possible risks for various diseases. New approaches have begun to look at epidemiological studies of disease and their carryover of genetic traits. These new testing technologies will become more affordable in the near future and allow for us to have our profiles compared to knowledge databases of disease and potential treatment options. With new pharmaceutical drugs that are tailored to our genetic makeup, we will forego taking drugs that will not help us, or drugs that could have terrible side effects for us, or that may counteract with other drugs we already take. This approach should, over time, decrease the cost of treatment and improve long-term health. One area that is crucial to making personalized medicine work, other than the continued research and development of the biotechnologies, is the computerization of medical records, sharing those records among healthcare organizations, and the protection of that information. Without the seamless and dynamic updating of electronic medical records, caregivers will not be able to provide the most efficient, cost-effective, and optimal choices of products and services. This knowledge and convergence with computer technologies will allow us to be proactive and manage the treatment of lifestyles and health. This proactive approach will be furthered by the Internet and its associated technologies and by a deeper understanding from biotechnology of the cause and effect of our environment and health.

THE CONVERGENCE OF BIOTECH AND COMPUTERS This convergence of computer technologies and biotechnology has been occurring since the early 1990s and has provided us with many current applications of designing and experimenting on an “in silico,” or computer modeling, basis. Creating synthetic organisms or disease models that are generated by mathematics, supercomputers, and digital technologies have allowed researchers to model potential products with indications of disease, both in humans as well as in plants and animals. The applications range from providing expertise of specialist physicians to remote villages to assessing and monitoring current treatments

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for patients in remote locations like assisted living or home-based care programs. CAT (computerized axial tomography) and PET (positron-emission tomography) scans that can provide high-density imaging to find small differences over the less specific X-ray technologies have provided caregivers more tools to assess and diagnose potential diseases. Physicians and surgeons can perform practice procedures or perform specialist surgical procedures remotely via a virtual environment in geographical areas that may not be able to sustain physicians with this knowledge. The application of nonbiotechnology technologies can greatly equalize the disparities in healthcare quality and access between developed and underdeveloped countries. The use of computer technologies have, in the end, allowed biotechnologists to experiment in a larger context than would be possible with the human body alone. The exponential growth of computing power will continue to drive the pace of biotechnology research capabilities by providing both a computational as well as laboratory approach to understanding the processes of life. An interesting trend is the convergence of engineering technologies with biomedical applications. Biomedical applications utilizing engineering principles have spawned a whole new industry around biotechnology product materials. The development of compatible bio products that can coexist with our body is becoming commonplace. Tissue regeneration in conjunction with bionic prosthetics for arms and legs, for example, can harness the mind and electrical impulses to make these devices move. Replacement materials that allow us to grow skin and collagen for birth defects and burn victims are a very important part of biotechnology. Utilization of genes delivered as drugs (gene therapy) and the potential use of stem cells to program the body’s existing cells will require both the use of biotechnology and computer technology to study the possible outcomes.

THE WORLD OF NANOTECHNOLOGY AND ITS BIOTECHNOLOGY COMPONENT The science is moving towards creating even smaller environments in which to operate. This need to understand how things work in real time in vivo is driving researchers to create synthetic worlds for genes, proteins, cells, and models for disease. To create synthetic, virtual bio worlds, researchers have moved to utilize the realm of nanotechnology in their biotechnology approaches. Nanotechnology is the science and resulting applications of creating and working with materials and organisms on the scale of a billionth of a meter or 1/80,000th the size of a strand of human hair.6 The technology is being used, for instance, to formulate more efficacious and cost-effective drugs by using nanotechnology scale materials as scaffolds or delivery vehicles for drugs, to make laboratory tests more specific to the type of disease, and to ultimately create a synthetic cell for research study. These biomedical computer models that simulate a human body and its functions are called avatars, and they will allow us to model and study the course of lifestyles, environments, and progression of disease, and to conduct virtual human studies before actual clinical studies in humans. These technologies could change

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the nature of preclinical research and reduce or eliminate the need to use animals for prehuman testing of biotechnology products. The end goal, yet to be realized, is to make research practical, useful, and affordable.

A PARTING THOUGHT ON THE FUTURE OF HEALTHCARE Although there are many stakeholders that have an economic need to maintain the status quo, the current healthcare system is extremely inefficient, escalating costs to disproportionate levels that will eventually stress the system and force change. A more optimistic, but probably unrealistic, approach is to believe that the forces of this current state will naturally change how healthcare is being managed before these healthcare systems are forced to change. The more pragmatic and most probable forces of change will be these computer and biotechnology technological shifts that push the current practice of medicine towards a more personalized approach to understanding and treating human diseases. With a deeper understanding of how our biology works, we can tailor the development of products to match this targeted and specific understanding and deliver customized products for agriculture, animal, and human health. As with any enabling technology, the long-term use of the products will come with an economically driven proposition. Only those technologies that result in cost-effective advantages for better patient care, reduced healthcare costs, and an improved ability to manage our lifestyle and health will stay the course. A famous quote in the high technology world is attributed to the Nobel Laureate physicist, Dr. Richard Feynman: “The best way to predict the future is to invent it.” This approach has yielded societal-changing technological shifts such as the automobile, electricity, powered flight, portable communications, computers, and the Internet. In all instances, the ultimate success of these inventions was the ability for society to understand their usefulness and to apply them in constructive ways. The long-term sustainability of these inventions was their cost effectiveness relative to the alternative choices. The needs of the healthcare system of the twenty-first century will require us to realize Dr. Feynman’s vision. We must develop the ability to tailor or personalize our approach to medicine and healthcare in general, which will allow future generations of healthcare providers to offer solutions to problems that could not be solved in generations past.

REFERENCES 1. Biotechnology Industry Organization. 1989. Biotechnology at Work. Washington, D.C.: Biotechnology Industry Organization; Biotechnology Industry Organization. 1990. Biotechnology in Perspective. Washington, D.C.: Biotechnology Industry Organization. 2. Peters, P. 1993. Biotechnology: A Guide to Genetic Engineering. Dubuque, IA: Wm. C. Brown Publishers.

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3. BayBio: The Northern California Biotechnology Association. 2004. The History and Timelines of Biotechnology. San Francisco: The Biotech Communications Group. 4. Watson, J. D. [1968] 1996. The Double Helix: A Personal Account of the Discovery of the Structure of DNA. New York: Simon and Schuster. 5. Robbins-Roth, C. [2000] 2001. From IPO to Alchemy. Cambridge, MA: Perseus Publishing. 6. Murphy, A., and J. Perrella. 1993. A Further Look at Biotechnology. Princeton, NJ: The Woodrow Wilson National Fellowship Foundation.

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CHAPTER 5

Healthcare Informatics: The Intersection of Information Technology and Care Delivery Edwin E. Lewis, Jr.

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nformatics is the application and use of computing technologies that assist an organization in meeting its business objectives. As with anything that involves computing, those technologies are never dormant, and the only constant is change. Whether the technology is found in the computer hardware or the software that runs on it, it will change. This chapter addresses some of the key premises associated with deploying and using information technology (IT) systems to improve the quality of healthcare. This chapter is not meant to be a comprehensive treatise of the topic, but instead focuses on some concepts and pitfalls that IT professionals in the area of healthcare often face. Along the way, it will also address cost and design drivers that if not identified as a project begins, will almost certainly result in a cost overrun. The intent of this chapter is to help the IT professional be successful in a difficult and challenging market segment. Healthcare C-level executives must maintain their roles and responsibilities to identify and implement strategy, as with any organization. In healthcare, those C-level executives must also work closely with their physicians and medical staff to assist in the identification of those strategies. This chapter also provides guidance and insight into some of the areas in which strategic implementation of healthcare services can be enhanced through the implementation of IT.

DEFINING MEDICAL INFORMATICS The business objectives of most healthcare organizations are focused on both patient care and operations management across all aspects of their operations. From a care delivery perspective, these objectives may cover issues ranging from the reduction of mortality rates in an intensive care unit (ICU) to effective decision

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support and drug-interaction management. From an operational management perspective, goals would include items such as capturing billable costs at the conclusion of each patient encounter to minimizing the administrative work required of nurses to reduce turnover and recruiting costs. The application of IT in healthcare and the management of the data contained therein, or medical informatics, is an area in which exceptional benefits are possible. Medical informatics is defined as “the application of computer technology to all fields of medicine—medical care, medical teaching, and medical research.”1 This definition is broad and implicitly addresses related topics that include the use of the applications by healthcare and the management of the information created, collected, or processed. A broader definition is “the intersection of information science, medicine, and healthcare. It deals with the resources, devices and methods required to optimize the acquisition, storage, retrieval and use of information in health and biomedicine. Health informatics tools include not only computers but also clinical guidelines, formal medical terminologies, and information and communication systems.”2 There are many aspects of this definition that have significant implications to the application of IT to medicine.

Improving the Quality of Care A primary goal, if not the ultimate goal, of most healthcare practitioners is the delivery of quality patient care that expedites healing, lessens pain, and promotes the general health and well-being of their patients. To achieve this objective, technology has a major role to play. In the current areas of medical research and development, the profession of medicine is changing at a rate greater than any time in its history. Changes resulting from research in genetics, medicine, and environmental research all are leading to a vast improvement in treatments and protocols available for use. The need for systems that effectively provide decision support, drug-interaction alerting, or simply speed the delivery of lab reports to the requesting physician are subsets of problems that could be solved with the application of technology. They are needed to improve patient care.

Managing Healthcare as a Business A major element of management in healthcare is the confluence of the methods and processes to use the underlying information systems. For many healthcare organizations, the management of IT across departments and care provider organizational specialties has been restricted by artificial silos of bureaucracy, whose boundaries are defined by the business objectives of each department. Although many organizations have had some successes in collaboration and integration between departments, for the most part, these efforts have been limited in scope and proved difficult to achieve due to financial and regulatory constraints.

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The Progression of Technology In medicine, the application of IT as a means to improve patient care and organizational performance has become recognized as an achievable objective for most healthcare organizations. Though intuitive, the economic realities of healthcare organizations—in terms of income to invest in these new technologies, the price of those technologies, and the related issues with deploying and then using them all—have resulted in a slower deployment of technology as compared with deployment occurring in other industries. At present, the price of the hardware continues to drop; applications and the systems that run on those platforms are becoming more capable, and, most importantly, early adopters of the technologies are beginning to realize true gains in efficiency, which are being communicated across the industry. Organizations have seen the reported benefits, so there are compelling reasons to examine the use of the technology to meet each organization’s objectives. With quantitative proof, most organizations are now examining solutions and planning to deploy pilot projects to take advantage of the more recent advances in IT within the medical field.

HEALTHCARE INFORMATICS PROJECTS AND REQUIREMENTS A successful project is defined as one in which the end solution or product performs as required, is delivered at estimated cost, and meets the agreed upon schedule. Unfortunately, IT project success rates, those meeting all three criteria, are only as high as 49 percent, as reported by Software magazine.3 It should be noted that this statistic represents a 15 percent increase in performance over the preceding 10 years. By any standard, this is an abysmal success rate. In healthcare informatics projects, though the types of stakeholders may be different from those in other organizations, the issues that are faced by the project teams are the same. In this section, we begin to address some of the more fundamental issues of IT management and introduce some concepts that a typical manager in a healthcare IT environment would expect to encounter in establishing project priorities, based on alignment with organizational objectives and identifying all aspects of the requirements of a project. Though not exhaustive, it should provide the reader with a basis of reference in moving forward with a project.

Project Alignment and Requirements Identification Aligning a project with an organization’s strategic goals and objects is usually key for it to survive through implementation. Alignment with those goals can help achieve long-term commitment by the sponsors through their continued funding. In addition to alignment, correct and complete requirements need to be identified to ensure that the expected benefits from that project are fully realized. Each

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of these elements is a key starting point for any successful project. The field of healthcare is no different. In the general area of planning IT implementations, it is critically important to fully understand, define, and then document the problems that need to be solved prior to the initiation of any project. This includes understanding each problem’s interdependencies with different influencing elements, both within and external to the organization. An effective problem analysis cannot be done successfully without considering contributing factors to the problem. As an example, a high nursing staff turnover rate in an ICU may not rest solely with the stress of caring for patients in that unit. Contributing factors may include patient density (bed count), physical layout of the floor (distance between room and the nurses station), support resources, patient-related paperwork, outside competition, or simply a bad supervisor. To solve a problem, you have to understand it and all of its contributing elements. The risk of not doing this in the field of medical informatics is not just getting the solution wrong and realizing it after the project has begun (along with all of the career damage). In doing so, you will also most likely incur significant costs for the technology and its implementation in the process. Unfortunately, many organizations, regardless of industry, fail to address these criteria before moving forward with a project to solve a problem or to take advantage of an opportunity. As often happens, unstructured analysis of either a problem or opportunity may lead to less than desirable outcomes. As such, several approaches have been identified within the consulting industry and in project management organizations that can assist a manager in meeting these objectives. These approaches build frameworks that can support the needed analysis. In the current areas of IT project management, two general approaches are usually suggested by consultants and industry experts. These approaches are the Balanced Scorecard (BSC) and Information Technology Integrated Library (ITIL). In the BSC approach, IT organizations focus on strategic alignment with organizational goals and objectives. The second of these, ITIL, usually focuses on a micro analysis of the IT environment and the comparison of the specific industry’s best practices with those practices currently in place and used by the organization. The effectiveness of each methodology usually depends on the goals being sought and, perhaps of greater importance, the skill of the individual(s) performing the data collection and assessment. Therefore, it is important to recognize this need to engage skilled, and where possible, experienced resources in either analytical undertaking.

Balanced Scorecard A BSC framework is designed to bring focus and clarity to measure an organization’s success in moving towards and reaching its strategic objectives. Robert Kaplan and David Norton (of the Harvard Business School) created the BSC in the early 1990s as a measurement approach to facilitate strategic management.4 The BSC has gained recognition because it approaches an organization’s operations

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from a holistic (balanced) and strategic manner. This approach contrasts with the more common reality of an organization being run through vertical silos of operational management. In healthcare, physician practices or hospital departments tend to work as individual operational units. As an example, the chief radiologist seeks an additional modality to perform advanced magnetic resonance imaging system that operates at 3 Tesla. The argument supporting this acquisition is that the technology will enhance imaging resolution associated with studies that seek to identify small malignancies such as those found in the brain. Medically, this is a sound capability that could benefit the organization in diagnosing those conditions. Strategically, this may or may not align with the goals of the facility. Questions of alignment could be as simple as, “Does the facility perform services that could fully utilize this type of system as opposed to the two less powerful systems purchased last year?” or, “How does this proposal coincide with the goals of the chief of surgery or the chair of the oncology department? Will they use it, and if so, at what rate?” The answers to these types of questions can determine if there is an alignment with the acquisition of this modality and with the overall goals and objectives of the facility. This may address the medical aspects of the acquisition, but there are other elements that should be addressed as well. These would range from financial commitment and return on investment (ROI) analysis to questions regarding the structural soundness of the flooring where the new system would be installed. Within an organization, multiple activities affect the ability of an organization to operate effectively. The BSC approach looks at the overall management objectives, as defined by their vision and strategy, and how the organization is moving to achieve each one. It segments the management of the organization into four general areas or perspectives: Learning and Growth, Internal Business Process, Customer, and Financial perspectives. 1. Learning and Growth—This perspective addresses the need for continuous education in the staff of the organization to enhance corporate objectives. This would include changing cultural norms such as moving away from a silo-based knowledge structure and replacing it with integrated objectives and jointly developed solutions across departments. 2. Internal Business Process—This area is designed to determine how well businesses are running using metrics and objective data analysis. The goal is to monitor strategic-based processes and ultimately ensure that those processes that are in place are repeatable so that consistent results can be achieved. Strategic processes are difficult to monitor quantitatively due to the nature of the activities surrounding them. As an example, a strategic budget development process may be arduous and difficult, yet still generate excellent results. The outcome is more qualitative than quantitative. Repetitive processes, such as posting accounts and system reconciliation, may be more conducive to quantitative measures, such as the number of errors in posting, or the duration of time to perform reconciliation.

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3. Customer—This perspective focuses on meeting the needs of the customer, both internal and external. Items such as patient satisfaction with meal service may have more visible metrics than those associated with mortality rates, yet both certainly are concerns of external patients. Internal customer satisfaction is of equal importance. Items such as the timeliness of lab reports, decision support, patient access, or any number of other issues could fall into this category, making the need for sharing data more important. 4. Financial—This perspective is based upon the conventional use of timely and accurate financial reporting. As such, objectives in this area would include the distribution of information in a timely manner. Monthly financial reporting may be acceptable in some areas, while in others, such as IT project management, they would not meet the needs for shortduration projects with tight budgets. In such cases, daily cost reporting may be required.5 As with any organization, the existing segmentation of each perspective may be difficult to fully identify and manage, because each perspective will cross multiple departments within the organization. This requires significant coordination between departments and the integration of like objectives. All departmental management must be in agreement with the approach that will be used to meet the organizational objectives. Within each of these perspectives, departments would also be expected to develop metrics, collect data, and analyze their ongoing operational results both within their department and in their support of other departments in meeting those objectives. From a manager’s perspective, it becomes incumbent upon them to understand all aspects of each measurement, in that each manager’s organization’s performance will be rated by those measures. In areas where objectives are not being met and gaps exist, each department would participate in the development of projects that would either close or at least narrow those gaps. Objective analysis may be difficult to obtain using existing resources, because those resources may accept what they currently do as optimal and changes to processes that they own could create problems for them. These problems may range from physicians and staff simply being uncomfortable with the changes being proposed to optimizing a care delivery process that would eliminate their own job or the jobs of their friends and coworkers. Care should be taken when selecting resources for this activity.

IT Integrated Library In the second framework, establishing the efficiency of an organization’s IT department is key. Collecting data and then performing a comparative analysis establishes both an organization’s current IT posture and, perhaps of more importance, it identifies where the organization needs to be. Once the gaps are identified—and the organization’s industry best practices are reviewed and validated as acceptable to the organization—an implementation plan can be developed and an

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estimate proposed, approved, and funded. To move forward with a project that has a high probability of success, the organization should know where it is and where it needs to be, what it has to do, when the project needs to be done, and/or what the project manager has to do to complete the project. Most successful program managers will recommend that this final point be aggressively addressed in any IT effort. This approach is the most efficient way to minimize scope creep (growth of additional requirements that must be met and that are usually not funded). The ITIL was developed by the Office of Government Commerce and the IT Service Management Forum in the United Kingdom. It was designed to promote the best practices developed within an industry (or industry segment). It consists of formal papers prepared by industry experts that document those best practices.6 ITIL has emerged as one of the leading techniques to drive IT projects from concept to postdelivery operations and support. It addresses five major elements within the scope of IT services: Business Perspective, Service Delivery, Service Support, Information Communications Technology (ICT) Infrastructure Management, and Applications Management.7 These service elements, whether under an ITIL structure or other similar monikers, such as COBIT8 or ISO/IEC 20000,9 are required for the department or, at a minimum, the service offering to be successful. 1. The Business Perspective of IT services—This is the functional requirement to maintain a liaison role between the business needs and the translation of those needs into formal requirements that can be met. (The difference between a requirement and a need may be confusing. As an analogy, an individual purchases a three-eighths inch drill bit because he needs it to drill a three-eighths inch hole. The hole is the requirement.) Establishing a clear dialogue and documenting what is really needed and what is required to meet that need are key objectives of this role. Assigning individuals with the technical and communication skills is very important to complete this function. In healthcare, this usually requires people who can discuss both the medical requirements for information flow and access as well as the ability of the IT community to deliver those needs. 2. Service Delivery—The service delivery element identifies the services required to provide adequate support to the business concern. In a hospital, the service delivery element is usually a jointly managed functional element requiring the support of the medical staff, administration, and the IT departments. It cannot be emphasized enough that the participation of these three groups is critical in the successful delivery of IT services. 3. Service Support—Interconnected with service delivery, service support seeks to ensure that the services needed by the business elements of the organization are being met. This is also a joint function across all elements within the organization. The separation of service delivery and support becomes more important as the organization becomes more

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reliant on IT to conduct operations. As organizations become larger, it becomes incumbent on management to ensure that both the requirements for services are understood and that the delivery of those services are meeting those requirements. Since the requirements often change with medical technology, these elements are never fully complete. 4. ICT Infrastructure Management—This element refers to the management of the IT resources associated with the operation of the IT department. This specifically addresses the management of the network services aspects of the firm (e.g., wireless network management), the operations of the IT systems (e.g., ICD9 claims processing), the management of those systems (e.g., both operating system and application patch management), and the local processes needed to efficiently execute those management services so that consistency and repeatability are achieved. 5. Applications Management—The element addresses the applications used by the organization and matches the changes associated with them and the business process changes that are implemented to facilitate their use. As an example, the use of a computerized provider order entry (CPOE) solution with charge capture and decision support should change the way physicians and caregivers conduct patient encounters. The changes in business operations as a result of the use of that application must be addressed to optimize its benefits. The ITIL framework provides a clear and concise structure that requires each element to be addressed on an ongoing basis. To optimize competitiveness within an industry, ITIL requires that specific practices need to be obtained and used for comparison purposes. The ITIL solution base is significant, but may not have readily available solutions that match the specific or unique needs of an organization. To gain that knowledge, an organization may need to bring in outside resources. When reviewing framework processes for use in a healthcare environment, it is important to remember that three decision makers need to be won over before making a final decision. First, the physician or caregiver needs to provide support to the methodology. Healthcare professionals are experts in what they do and are often disinclined to depart from their own operational doctrine. A nonstandard treatment may open them to professional liability should it fail. Therefore, care providers tend to be cautious in adapting new methods or processes. It is important to gain their commitment on these types of efforts. Second, administrators, who usually control the funding, may need to be persuaded that the cross-organizational commitments of time and money are worth the investment. Additionally, they will also be able to direct the various department heads to support the initiative. Finally, there is the IT department. It is at the end of the approval chain and is usually responsible for some aspects of the deployment or at least operational support of the end solution. IT can seldom say no to a project and must find technical solutions to meet operational requirements. In many cases, resources

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are thin, so those needed to support a framework implementation should be recognized. A healthcare-based BSC or ITIL solution is a disruptive influence to an organization and should be managed accordingly. One must recognize that these methodologies for alignment and requirements analysis help facilitate the development of a medical informatics project. However, the proper alignment and understanding of a project’s relationship with the strategic objectives of a firm and the full understanding of the requirements that need to be met are required for any project to be successful.

Meeting Healthcare Delivery and Business Needs The delivery of healthcare services combines two elements. First, it requires that the caregiver have preexisting knowledge of healthcare and its delivery. The second element is the ability to obtain patient data. Patient data is usually obtained in two general ways. The first is for the caregiver to access historical data on the current patient. Historical data, or a patient’s medical history, is key to optimizing effective treatments in the current encounter. A caregiver needs to have an understanding of any preexisting conditions, the patient’s current care being delivered by other providers, current medications being taken, drug allergies, care preferences, family history, and other historical data. The caregiver must be able to access that data rapidly. In an average primary care practice, most physicians will spend between 8 and 12 minutes during an inoffice patient encounter. In such an encounter, the physician may spend up to two minutes reviewing the paper chart (which was updated by the patient in the waiting room and the nursing staff just prior to the patient being led into an examination room). After a brief greeting, the patient is asked about medications that he or she is taking, other doctors he or she is seeing, and so forth, and the physician spends one to three minutes discussing with the patient why he or she is there. Next, the physician will spend two to five minutes performing the actual exam and either diagnosing the problem or calling for additional tests to collect additional information. At the conclusion of the visit, the physician discusses the recommended treatment with the patient, writes prescriptions, schedules a follow-up, or otherwise concludes the encounter. Prior to the next encounter, the physician will also write any final notes and provide billing instructions. This process allows a physician to see approximately five to seven patients an hour. In this scenario, there are multiple areas for problems to occur during the early stages of the encounter and at the end of the encounter where applied technology can help. Both cases involve accessing data and updating data. Early in the encounter, a patient may fail to disclose all other doctors that he or she is seeing, medications that he or she is taking, or any other number of things. The physician may also have failed to thoroughly review all the pertinent information contained within the patient’s record. (Consider that some older patients may have paper records roughly the size of a small town phone book.) Should either the patient or the physician miss any aspect of the initial data disclosure/collection process,

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problems can occur with the delivery of healthcare services. Automated drug interaction and alerting systems, electronic medical or health record systems, and decision support may minimize some of these issues. At the conclusion of the encounter, the physician must document a diagnosis, update the chart, and prepare the billing information. It is during this period that the physician answers questions, returns phone calls, and tries to coordinate the next series of encounter activities. During this phase, significant losses of revenue frequently occur as a result of the physician not recording all billable activities during the encounter. Studies indicate that applying charge capture technology to address missed billings may generate additional revenue generation exceeding $100,000 per physician.10 As a caveat to such statistics, revenue generation can depend on many factors, ranging from the diligence of the physician to the extent of his or her workload. A busy physician may first focus on care delivery, updating patient diagnostic and treatment data before addressing billing information. In a busy office, billing may be the last element that is addressed, and as such, details relating to charge capture may be missed. Similar problems exist throughout healthcare. The use of technology can improve the synchronization of objectives between the clinical and the business goals.

Availability and Reliability In healthcare informatics, system availability has to remain a primary concern. A key requirement of any solution is to provide information when it is needed and in a consistently reliable manner. This is true if the system is collecting data, such as in a patient monitoring system, or if it is accessing data, such as an electronic medical records (EMR) system. To achieve reliability, both technological and system-use conditions must be met. Fortunately, the technology to do this has matured beyond the mainframe realm and is now readily available across most network and server products at an affordable cost. Many current servers are designed to run multiple hard drives that can be configured in redundant arrays to provide internal data availability through redundancy. Servers commonly have dual power supplies with automatic failover, controllers, and cooling fans. Multiple network devices, such as switches and routers, can usually be configured to run in redundant fashions. The software to manage many of these configurations is available, at no additional cost, with the operating systems. Though such software is not necessarily the best, these no-cost applications are available and have driven down the cost of the higher end applications. Of equal importance is the daily operation and management of these systems. IT staffs with the skills needed to maintain healthcare systems are often difficult to obtain or retain. Due to the wide variety of skills that are often needed, multiple individuals are usually required to support a complex environment. When considering the overall scope of a project, staffing requirements to support reliability and availability need to be considered as part of the overall project plan.

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As a caveat, some aspects of some systems can only be maintained either by, or under, the supervision of the original equipment manufacturer (OEM). In some cases, systems have Food and Drug Administration (FDA) approval, which is contingent upon a set configuration being maintained when the system is in use for care delivery. The installation of an unapproved patch may cause serious problems or introduce failure points into the system. As an example, several electronic medical record system manufacturers use highly customized Microsoft Windows operating systems as the base operating system. Using a standard patch or upgrade directly from Microsoft will most likely cause problems, or in a worse case scenario, a system failure. In such circumstances, the maintenance and support costs from those OEMs can be significant, and as a manager, these requirements should be considered as well.

Confidentiality of Data In healthcare, a primary regulatory requirement is to ensure the privacy of health records. Specifically this regulation requires the protection of personally identifiable (protected) health information (PHI)—codified within 45 CFR (Code of Federal Regulations) Parts 160 and 164 and commonly referred to as the Health Insurance Portability and Accountability Act (HIPAA). To clarify that statute and some of the earlier rulings in this area, the Office of Civil Rights within the Department of Health and Human Services (HHS OCR), which is responsible for the enforcement of HIPAA, has issued numerous guidelines, most recently in December of 2006, for controlling access to and the use of PHI in electronic form (EPHI). The protection of this data remains problematic. In late 2006, a Veterans Administration employee had his laptop stolen, which contained 1.8 million patient records. In early 2007, a leading medical institution on the east coast had 80,000 records possibly misplaced when backup tapes were mishandled by a subcontractor. The Medicare contractor for the state of Georgia reported a similar loss of the names, addresses, and social security numbers of 2.6 million beneficiaries. There are numerous other examples of these types of loss of data, each creating liabilities to the institution or organization. In terms of HIPAA, the dissemination of PHI in any form is managed by three guiding principles: treatment, payment, and operations (TPO). Treatment refers to the delivery of care. Payment refers to exchanging information in sufficient detail to facilitate payment or related accounting activities. The term operations refers to all aspects of an organization’s operational environment (excluding direct patient care), ranging from room assignments to quality assurance work. Under these conditions, PHI may be shared. If TPO is not present, then the PHI data must be kept confidential and protected from access by all unauthorized individuals. This would include those individuals with similar roles and responsibilities. The bottom line to this regulation is that if it is not a specific physician’s patient, then that physician cannot have access to that patient’s information.

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Segregating Duties In the area of business operations, it is good business practice to separate the responsibility of entering invoices into the system from the responsibility of writing checks to pay those invoices, in order to prevent embezzlement. This same separation of responsibility should be extended into the IT department. In IT security, there is a similar principle used as a basis for granting access to a system, referred to as least-privileged access. This means that only the absolute minimum rights needed for that user to do their job and only their job are granted. To illustrate this concept, there is no need for an administrative file clerk to have database administrator (DBA) privileges to process ICD9 claims. A DBA would normally have the ability to make significant changes to a database, whereas a file clerk would not normally have the skills to perform that level of activity nor ever need to in their capacity. The file clerk’s user account should have fewer privileges that the DBA’s user account. To implement this concept, IT administrators manage most large systems using what is referred to as role-based access, which controls who may use their systems and when.11 Role based access has some distinct advantages over granting access to individual users. With this type of approach and continuing the previous example, all file clerks with similar job assignments would be granted user accounts with the same rights because their job role is the same. Therefore, all clerks would be able to access the same data entry screens, get the same reports, and access the system in the same manner. They would have the least amount of access needed to allow them to perform their jobs. This system ensures that access is consistent by job role and avoids having to apply the same individual or group of rights to each individual’s account, one at a time (which would increase the probability of errors). Role-based access control is a cost-effective and efficient approach to applying access rights to a system. Unfortunately, the regulations associated with HIPAA do not easily allow for all physicians within the same role to have the same access to all records. If PHI access were configured this way, it would violate the TPO rule previously discussed. Older electronic health or medical record system designs may not have the capability to segregate access based on assignment; those systems were usually designed to work on a general role-based access model. Newer systems provide such access control granularity, but may require more manual activity to assign a physician to each patient or will need to integrate into the staff scheduling on-call systems or patient check-in systems. There are three approaches to addressing the problem of access control. First, some aftermarket solutions are available that provide more capable access control; these may be implemented and installed external to the data management systems (i.e., electronic medical records, radiological information system). The integration of these systems may be complex and expensive. The second alternative is the introduction of newer data management systems, which can be installed either through conversion or upgrades that provide these capabilities. These systems will often meet the confidentiality and segregation requirements, but can be disruptive

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during the implementation and ramp up periods. The third alternative that many organizations implement is to set policy and procedures prohibiting the unauthorized access to patient records and rely on manual spot-checking for enforcement. Though not efficient, many organizations consider this approach adequate in view of the lack of aggressive enforcement by HHS OCR. However, there are risks to the organization if strict access controls on key systems are not applied.

Integrity of Data Integrity of data specifically addresses the unaltered quality of the data that is both at rest (that is, written to a file or hard drive) and used by end users and other systems. Data that is to be used for any reason must be accurate and not altered from its originally accepted format. Data is collected from various sources and may be entered into a system either manually or automatically by the collecting sensors or probes. Clinical systems, such as electrocardiogram monitors, have the ability to connect to a central repository for posting patient information. Additionally, recordcreation work associated with a new patient is usually entered manually into EMR systems. In other cases, the raw data, such as that derived from a blood test, may be processed to some degree prior to its being posted for use by the caregiver. There are multiple data samples taken from a specimen prior to a specific result being calculated or determined, to ensure that the results are consistent prior to using a single determination as a basis for treatment. The caregiver is most interested in the postprocessing data and not necessarily how those results were determined, so long as an approved protocol was followed to develop them. Once the data is collected and loaded into a record system, controls and safeguards must be implemented to ensure that the posted data is not altered without authorization and that any alterations be documented. Authorization is usually accomplished through the use of aggressive controls on data and system access, turning on system and application audit logs (which are default capabilities found on most database applications), and establishing procedures to ensure that the logs and configurations are aggressively and consistently monitored. Additionally, both incident management and sanction policies are developed and used in support of the monitoring activity.

INFORMATICS APPLICATIONS FOR HEALTHCARE Informatics in healthcare is focused on improving patient health and quality of care and achieving operational efficiency across the organization. As with many industries, there are unique requirements and challenges in implementing technologies to solve the specific problem areas within healthcare. In this section, some of the basic solution areas will be identified and their uses discussed. It is important that the reader understand that there are certain parameters that constrain the use of these products, both within a department and across an

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organization. First and foremost, these products are available from a wide range of vendors and vary from a single application to a suite of integrated applications. More often than not, healthcare organizations will select and implement solutions from different vendors. Since these solutions are different and may not be built using compatible standards, they may not readily work with other existing products currently in place, even from the same vendor. Additionally, any specific solution should not be expected to solve all of the problems faced within that department or across the entire organization. The core challenge is that the use of a specific application, without its customization, will almost certainly require the department or organization to adapt its processes to accommodate the functionality provided by the application. Conversely, the customization of any application can usually be achieved by incurring development costs as well as some level of compromise in terms of performance, heuristics, and/or functionality. This problem is not unique to healthcare. In the late 1980s, SAP introduced some of the first enterprise resource management and enterprise resource planning (ERM/ERP) solutions available. This industry has grown significantly, with other software manufacturers entering this space (such as Oracle and Microsoft), and in doing so, the products have significantly matured. With that maturation, the benefits of a fully integrated ERP/ERM solution are generally recognized, but the problems of integration and customization remain. This, in turn, has driven an entire consulting industry to develop skills in this area. Firms such as IBM, CSC, EDS, and Accenture, as well as some others, all have mature and capable practices in ERP/ERM consulting. In the healthcare market, the potential customer base is estimated to be less than 20,000 for large deployments. Unfortunately, part of that base is barely financially viable and therefore cannot make the investments needed for a fully integrated system. The common alternative for these organizations is to procure stand-alone systems and worry about integration later. Additionally, the overall healthcare product market is less mature, comparatively speaking, to the nonhealthcare market, which means that many of the existing applications do not integrate well with others. Additionally, the integration tools and solutions themselves are not always as mature as they are in other industries. As a result, healthcare applications tend to be less than fully integrated with other applications. This situation has created a market for upgrades and many software developments, and consulting firms are aggressively moving into this space. In this section, the basics of each general class of healthcare applications are presented. In terms of basic functional requirements, each system must be easy and intuitive to use, be capable of supporting high availability with reliability, and be secure in its design, deployment, and use. It should also be noted that as technologies evolve and newer products reach the market, the functionality described will evolve as well.

Clinical Systems and Monitoring Clinical systems are specifically designed for collecting and monitoring patient data and then presenting it in a cohesive manner. The collection of the base data,

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that which is populated in the system for a specific patient, may originate from a wide range of sources. These sources would include patient clinical history (previous lab work, etc.) and current data such as pulmonary and cardiac data that is collected and recorded in real time or close to real time. The focus of these systems is to provide the caregiver with accurate and timely data on the patient’s conditions based on the assumption that timely data improves the quality of care. In most healthcare organizations, patient care and patient status are monitored during rounds performed by the various physicians and nurses assigned to the patient. Charts are updated when an encounter occurs. If the patient load for the floor is properly sized for the staff available and on duty, rounds occur regularly and the data collected should be accurate as of the time of the encounter. In many cases, comprehensive patient data collected during and between encounters could yield beneficial information that would facilitate treatment regimes. In such a situation, a clinical system that records information from the patient’s various monitoring systems and identifies anomalous readings within a database or alerting system in real time would be very advantageous to the delivery of care. Unfortunately, in most organizations providing in-patient care, there are ongoing problems with this scenario that result in interruptions of regular rounds. The actual source of the data will vary depending on the clinical applications and the type of care being delivered. As an example, an ICU clinical system may need to collect data from real-time monitors as opposed to historical data used in an outpatient wellness center.

Decision Support Systems The concept behind the development of a decision support system is based upon the presumption that a tremendous amount of information is available to caregivers when treating a patient. The key premise is that there is potentially so much information available that options may be overlooked, or simple mistakes in the delivery of care could be made as the result of incomplete information. Patient information drives the selection and delivery of specific treatment protocols. Therefore, details of the success or failure of previous treatments for a specific patient, ranging from effectiveness to side effects, should be examined and understood prior to delivery of specific care. For referential purposes and from an IT perspective, this information may require both data collection on treatment results as well as detailed analysis of that data for care protocol reviews and enhancements. The second challenge is the delivery of what is considered the optimum care for a patient’s specific condition(s) at a specific point in time. As medicine progresses, the recommended treatment protocols evolve. The problem for caregivers is attempting to stay current with newer protocols and technologies. The amount of information being introduced into medicine is significant. Large amounts of research results are being published by many leading institutions directly to their Web sites. Some are very reputable, while other research may not have been subjected to rigorous verification. This creates the need for the

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caregiver to apply diligence to both the source and content of the information being considered for use. In addition to the challenges of information overload (or the lack of easily accessible information on a patient) and the need of the caregivers to stay current, there is also the simpler problem that caregivers make mistakes even when they have the needed information and are current with their profession. Dr. Charles Vincent et al. wrote in the British Medical Journal that medical errors originate in three general categories.12 The first category is errors of actions. These would be categorized as a caregiver attempting to deliver the proper care in accordance with the correct protocol and therapy, but making a mistake in its delivery, such as picking up the wrong syringe. The second class of error is a deviation from the approved or optimal care delivery protocol. This can be a conscious decision, such as deciding that a particular protocol and associated therapy were not appropriate for a specific patient and then altering care based on what is thought to be sound medical practice. Should the resulting outcome be negative, then this action would be considered a deviation error. The third category is the cognitive error, such as a memory lapse. A common example of this error occurs when a long-standing protocol or therapy is updated to improve results, yet the practitioner forgets about those changes and delivers the previous version to a patient. There are several subcategories for each cognitive error that are associated with many factors that affect caregiver performance. These may range from fatigue to lack of training or education. Decision support systems are designed to solve or at least reduce the occurrence of one or more of these problem areas while providing the caregiver with the most current information, a partial analysis of that information, and verification of the viability of decisions. Decision support systems do not replace the decisions made by the caregiver. They are designed to be able to provide or even suggest treatment alternatives. Decision support systems, in their optimal form, not only host all of the information available, but also supplement care delivery decisions by suggesting possible improvements. These may include alternative drug therapies, warnings about protocol variances, or suggested supplemental information on a diagnosis. Some may go further and provide treatment checks and third-party alerting if certain problems or risk factor thresholds are reached. This type of support would be useful for supporting the learning process of a first-year resident, supplementing the decisions of a physician’s assistant at a walk-in pediatric clinic, or helping an experienced physician work the eighteenth hour of a shift.

Pharmacy and Medicine Management/Drug Interaction Pharmacy informatics is an emerging field of study that combines the uses of IT with the practice of pharmacy.13 Pharmaceutical informatics systems may provide a wide variety of functionality to support the operation of a pharmacy. Depending on the location and customer service base (retail stand-alone, in-store, hospital, clinic), these systems may be designed to provide for support functions ranging from business management, customer services and sales (filling prescriptions for

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patients), supply chain management, inventory management, billing (including formulary verification and validation by insurance carriers prior to preparing the prescription, product transfers and record keeping), basic security, HIPAA privacy functionality, and remote transactions. Some features or functions, such as automatic notification to patients of pending refills, enhance both revenue generation and improved patient care. If viewed in context of any business, these functions are key capabilities that provide levels of automation, management, and reporting that are found in most businesses today. In pharmacy operations and management, as with any other business, manual paper trail documentation work is no longer cost effective, functionally sufficient, or competitive. Beyond the business functions, a major benefit and focus espoused by many pharmaceutical system OEMs are features that provide caregiver decision support capabilities. Functionality, such as drug interaction alerting, adverse reaction warning, and order validation address specific problems associated with pharmacy services. In a study conducted at Seattle’s Children’s Hospital, it was found that up to 6 percent of orders had common errors. The majority of these errors involved dosing, incorrect route of administration, and illegible handwriting. As such, most errors occurred at the physician ordering stage. More than 70 percent of those errors were considered preventable by the application of real-time decision support at the time the prescription was prepared.14 To solve these specific problems, the automation of a prescription system that allows for remote access of prescription services, automatic drug interaction, and order verification to the physician as the prescription is being written has the potential to improve care and reduce costs. It should be noted that a pharmaceutical system and a decision-support system integration may eliminate duplicative functions such as drug interaction. Again, as previously discussed, successful integration has the potential to increase efficiency and reduce costs. In filling a prescription, the pharmacist is subject to the same information overload that a physician faces. There are many new drugs, new research on existing drugs, and the optimization of drug delivery for specific conditions that are changing daily. A system that provides automated drug interaction alerting has the potential to significantly reduce the number of avoidable errors within a pharmacy. The key presumption in this statement is that for a system to identify interactions or adverse reactions for drugs being taken by a specific patient and do so with a high degree of accuracy, it must have access to information concerning all other drugs currently prescribed and being taken by the patient. For that to be accomplished, access to the patient’s current medical records and their medical history from all other medical sources is needed. This would include the identification of all other prescriptions having been filled (including those by other pharmacies), as well as the identification of all over-the-counter drugs being taken. Information on the patient’s use of each of these drugs would also be optimally needed to support a more thorough decision support process. With these data, there is a much higher probability that any drug interactions can readily be identified by the pharmaceutical system. The actual consumption of the drugs being taken still must be confirmed during the actual encounter with the patient. Although it is

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not practical to achieve that level of integration in most organizations or localities, the basic capabilities to achieve integration are beginning to appear across many healthcare organizations. The systems needed to collect this level of data are beginning to be deployed more universally. The next step will be the secure integration of these divergent systems while recognizing that privacy rights will need to be maintained.

Radiologic Information Systems/Picture Archiving and Communications Systems Radiologic information systems (RIS) and picture archiving and communications systems are the basis for managing modern radiology studies. An individual study is the collection of information obtained from an exam (e.g., X-ray) combined with the collection of information pertinent to that study. The technology that serves as the driver for these systems is the partial (or in some environments, the complete) replacement of films with digital images. Since the late 1990s, most devices used for medical imaging have begun to be built using digital imagers as a replacement for older analog-based systems. With digital data being generated by these modalities, the files generated can be transferred and managed along with any other digital solution. With digital data collection and processing as the basis for work, ancillary items, such as data management, patient processing, and overall work flow, can also be automated and combined into one integrated solution. Typically, a picture archiving and communications systems (PACS) network consists of a central server that stores a database containing the images. For reference purposes, a large PACS environment running several hundred CT (computerized tomography) studies a week will generate between one and two terabytes (1 terabyte = 1,000 gigabytes) of data per week. To optimize the potential of this type of solution, a RIS may be deployed to facilitate the creation of a patient record, often automatically doing so when a study is scheduled in the hospital’s information system. In this way, data is automatically input into the RIS by the hospital system, minimizing data entry errors. The images are fed directly into the database by the modalities. To manage the images themselves, records are created using the Digital Imaging and Communications in Medicine (DICOM) standard. Specifically, DICOM is the primary standard for managing, processing, storing, printing, and transmitting information generated by an imaging system. The details of this standard are extensive, but for compliant systems, the data embedded within each image greatly enhances the accuracy of the findings associated with each study.15 With the creation of a server that manages digital records and images, the benefits of an all-digital solution become available to the radiology community. The most current systems usually employ Web interfaces, thereby allowing studies to be forwarded and read by remote staff or contractors literally any place in the world. By enabling remote analysis of a study, the problem of having qualified radiologists on duty or on call at all times is lessened. Additionally, remotely reading a study when needed offers the potential for improved outcomes based

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on a quicker diagnosis. This can be a critical factor in critical or emergency care situations.

Laboratory Information Systems (LIS) A laboratory information system (LIS) is a class of applications that processes lab orders. Each order is processed based on workflow and priority scheduling. In general terms, the order is received, scheduled, and processed using the appropriate tests. Scheduling coincides with the collection or receipt of specimens, which are then processed. As data is collected, either through manual data entry or automatically with the test instruments, the data is recorded and stored. An LIS must be preconfigured to include data collection parameters and reporting configurations from all disciplines of laboratory science—hematology, chemistry, immunology, blood bank (donor and transfusion management), surgical pathology, anatomical pathology, flow cytometry, and microbiology16—based on the capabilities and resources used within the laboratory at the facility. Once data is collected, the results are then returned to the requesting caregiver. Within an integrated healthcare environment, the results are returned electronically as soon as they are confirmed. As with most other healthcare systems, the results are also recorded in the patient record and, depending on results, such as a contagious pathogen finding, to other units within the organization to facilitate disease control and containment. Such alerting would ideally be structured to be automatic.

Charge Capture In the majority of medical practices, patient encounters are scheduled for the caregiver to occur in rapid succession. Each encounter is driven by meeting the treatment needs of the patient. As described earlier, this rapid progression of encounters often results in some of the details of the encounter being missed. A caregiver’s professional training is always patient centric so his or her focus is always placed on exercising diligence in delivering treatment. At the end of the encounter, prior to initiation of the next encounter, the caregiver is required to document all aspects of the treatment and, often, what supplies were used during that treatment. The result is that unless specific cost elements associated with the care delivery (supplies, tests performed, and specimens) are recorded in some manner, billable services are missed, and the organization’s revenue stream suffers. The informatics solution associated with solving the problem of missed charges is referred to as charge capture. Charge capture solutions are integrated with the delivery of service and are designed to be used by the caregiver during or immediately after each encounter. A key motivation for the use of charge capture systems is revenue generation. Estimates vary on their value in terms of increases in revenue, but are usually considered positive for successfully deployed systems. These revenue increases are usually reported as increases in billable charges over comparable periods using normalized data. Other ancillary benefits are reductions in billing errors and

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quicker invoice generation, improving cash flow. In one example, Mount Carmel St. Ann’s Hospital in Franklin County, Ohio, reported gross revenue increases in excess of $3.6 million in their emergency department (approximately 69,000 patient visits annually) over a 12-month period using a charge capture system.17 The use of a charge capture system by the caregiver is a key feature to most systems. The benefit is that these systems assume responsibility for entering the services delivered or ordered into an invoicing model in close to real time. In doing so, this method reduces the reliance on administrative or nursing staff to transfer oral, dictated, or written instructions into a billing system, a patient record system, or some combination of systems. With the elimination of one or more manual data transfer points, the number of potential errors is reduced. This also greatly reduces labor costs associated with the documentation effort. However, simply directing an already busy caregiver to perform data entry activity is not reasonable. This approach will generate little or no support with the end user communities, will not be used, and may very well reduce revenue generation further. A charge capture system becomes efficient when it is integrated into other informatics functionalities, such as patient scheduling, lab reporting, or with an EMR system. Ideally, when a lab result is entered into a system, costs would be generated behind the user interface from that action. A requirement for listing itemized supplies used to meet that diagnosis would be avoided. As an example, if lab findings are entered into a patient’s record that streptococcal bacteria is present, then several cost elements could be presumed and be associated with that test. A swab was used to collect the specimen and, assuming that the rapid antigen test (RAT) system is available and is part of the normal protocol for that facility or office, the rapid antigen test is used. Then the costs for the use of the RAT (labor, time, cleaning, maintenance) and supplies associated with the delivery of that protocol are automatically recorded for billing. These cost elements would be preloaded into the charge capture system. In addition to the capture of these costs, the system would also verify the reimbursable amounts associated with the performance of that protocol. This verification is conducted with data obtained from the patient’s insurance carrier. With verification, those costs form the basis for the invoice. Differences between what the patient’s insurance carrier considers to be an allowable cost and the actual cost incurred, as well as other reimbursement factors (such as patient co-pay), are not technology issues beyond the development and application of rules to the charge capture system for integration with the accounting and billing systems. Rather, processing these receivables and their associated costs properly are accounting issues. From a technology perspective, providing the caregiver with the ability to capture costs either directly or indirectly in real time requires that the caregivers be able to use the system wherever the encounter occurs. To meet this requirement, patient encounter areas either need to be wired and workstations installed, or a mobile solution needs to be installed and deployed that uses wireless PDAs (personal digital assistants), laptops, or tablet PCs (personal computers). Once completed, these technologies will help ensure that encounters are documented and the associated billing costs captured.

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The actual application logic of this functionality is based on a series of decision points which, in turn, are based on rules, similar to care delivery protocol decision points. Such decision tree rules are easily coded into any system and simply pull data from, or write data to, various tables within one or more databases. The challenge remains in initially developing the rules and integrating them into an existing (or legacy) system. Though stand-alone charge capture systems can be beneficial, optimal performance suggests that they obtain data from other systems within the organization or from remote data sources, such as a carrier’s system. Recognizing this need, most OEMs have designed their solutions to be integrated with larger systems, which, if done correctly, improves both efficiency and functionality.

Electronic Health and Medical Record Systems Electronic health record (EHR) and EMR systems are software applications designed to replace a patient’s paper records. The formal distinction between an EMR and an EHR remains somewhat blurred. Various healthcare organizations use these terms interchangeably in that most systems perform the same basic functionality. Some manufacturers may use these terms as product differentiators within their competitive sales literature. In reviewing some of that literature, it appears that health record systems designs focus on the integration of multiple data sources into each individual’s record, striving to make it complete and portable, while medical record systems perform the exact same functions but their designs tend to focus on the efficient management of multiple records. In both cases, the functionality is limited only by system configuration and setup. In reality, most care providers want complete functionality that encompasses both of these descriptions. Both EMR and EHR can refer to an individual’s health or medical record, or, as in the context of this section, to the IT systems that manage the health and medical records of multiple individuals. In the simplest form, EMRs/EHRs are large-capacity databases that contain records stored in structured, relational tables. These relational tables allow thousands of pieces of information on a person’s health condition to be collected into a single searchable resource. In front of the database are a series of forms and reports that allow the user to quickly see any aspect of a patient record, either in part or in whole. Many systems allow for data feeds to be exchanged with other systems, allowing data to be received, compiled, and sent to other systems as reports. The healthcare data stored in these databases is generated by each of a patient’s encounters with a caregiver and, ideally, in any care delivery setting. In general, these systems are designed to be progressive, that is, patient records are updated by adding new information derived from each subsequent encounter without overwriting or deleting previously written data. As an example, a patient with a bronchial infection who was treated with amoxicillin showed improvement but had an adverse reaction. This reaction is an important reference point for future encounters where treatments can be tailored to provide an alternative therapy. As such, this information would not be overwritten by a conclusion that “the patient has recovered.” Historical data is key, including patient historical and updated

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demographics, progress notes, problems and reasons for encounters, medications, vital signs, past medical history, immunizations, laboratory data, and radiology reports.18 Within an EMR/EHR, each of these elements should be searchable and cross-indexed. With this information, the caregivers have the ability to implement efficiencies in their encounter processes to optimize workflow. In practice, an EHR or EMR will eliminate or at least minimize redundancies, thereby lowering costs. A fully populated EHR has the ability to generate and maintain a complete record of a clinical patient encounter. With this information, improvements in care associated with evidence-based decision support, quality management, and outcomes reporting are possible, as long as the collected data is regularly reviewed and analyzed to identify operational efficiencies. From a functionality perspective, user interfaces supporting data input screens, reports, and related information access are designed to be intuitive. These systems are often Web-enabled, which reduces the reliance on custom installations on office computers or wireless systems. The better designed systems reflect great amounts of time spent by the design teams to optimize these interfaces to support the caregivers and simplify their workload. There are several challenges with the implementation of these types of systems. First, they are complex systems to set up, install, and train staff to use. Even as difficult as these steps can become, the major problem many organizations and OEMs identify is the conversion of a patient’s historical paper records into an electronic record. Paper records contain notes that are handwritten, lab reports in different formats, and hosts of other data, none of which can be imported into a database without special applications for conversion, reading, imaging, and processing. Services are available, but conversion is an involved and time-consuming process. The next problem area arises when a patient visits multiple caregivers in different disciplines at different facilities. EHR manufacturers have developed their products as customized applications that focus on organizational services and do not always embrace standards that would allow data transfers between systems. Another potential problem is the lack of motivation by caregiver organizations to develop IT protocols to exchange data between their respective systems. Although the technology exists to exchange data, the economic reasons to develop the code or deploy the applications to accomplish it are not always present. As an example, it is highly unlikely that a cardiology practice would accrue a material financial benefit if it were to develop an EHR/EMR data exchange system with a podiatry practice. Recognizing this problem as a barrier to EHR interoperability is one of the primary reasons many organizations, such as the Healthcare Information and Management Systems Society (HIMSS) and agencies within the federal government, are all advocating the adoption of application standards by EHR/EMR product manufacturers and vendors. This need for interoperability is also driving the adoption of open source healthcare applications, such as the Veterans Administration’s Computerized Patient Record System (CPRS) component of the Veterans Health

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Information Systems and Technology Architecture (VistA®) system, and the Armed Forces Health Longitudinal Technology Application (ALTHA), offered by the Department of Defense’s medical services infrastructure. The EHR is the basis for all integrated healthcare systems. If optimally deployed, connectivity with all other systems across the organizations is implemented, allowing for automatic updating of a patient’s record regardless of the caregiver seen or service received. The problem of integration between care providers is significant, but the benefits of accomplishing this are undeniable. Several studies (including those published by HIMSS ANALYTICS, a vendor/product neutral healthcare technology organization) have documented statistical correlations between integrated EHRs and improvements in the quality of care delivered to patients, reduced acute and ambulatory cost, and positive patient outcomes.19

Computerized Physician Order (Online) Entry Systems Clinical, decision support, drug interaction alerting, and charge capture systems all bring significant benefits to a healthcare organization. As the benefits provided by these systems within the caregiver community are recognized, certain operational needs begin to be identified to facilitate their effective deployment. Architecturally, the different features of each of these systems need to be integrated to optimize performance. Ideally, this integration would provide users with the ability to access all systems through the same interface. The solution to these problems is the computerized physician order (online) entry (CPOE) system. Organizations that operate within business networks of hospitals, physician offices, clinics, and/or pharmacies have the potential to share information on each encounter or order completed. An integrated CPOE solution is designed to access one or all of each of these different systems. In doing so, on order entry by the physician performing the encounter, the application cross-checks historical information, recommended protocols for therapies, and drug interactions, and provides other decision-support recommendations for the caregivers. Once a therapy is ordered, a CPOE system validates insurance for charge capture purposes and sends the appropriate orders to different systems. Error reduction is often greater than 50 percent, greatly improving outcomes and quality of care.20 Studies indicate that areas that resulted in the greatest cumulative savings were renal dosing guidance, nursing time utilization, specific drug guidance, and adverse drug event prevention.21

System Integration In the field of healthcare, the application of information technologies can take advantage of the gains made in other industries. The maturity of open source technologies, the acceptance of standards, and other evolutionary changes have paved the way for the integration of systems. This is specifically true in the areas of integration between legacy systems and between legacy systems and newly deployed systems.

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Many healthcare delivery organizations have evolved into organizations that are aggressively using IT. The evolutionary cycle for most organizations within and outside of healthcare begins with the incremental introduction of some information systems into different departments. As those initial systems show value, other departments recognize that value and begin to implement systems that add value to their own operations. This process usually continues until information systems are used in multiple departments at various levels. At some point in this evolutionary cycle, one or more members of the C-level executive team recognize, or are made to recognize by others, that integration between these systems will bring additional benefits to the organization. This is the evolutionary point that many healthcare organizations have reached. They recognize the value of technology and have legacy systems in place. They now need to move to the next level to begin to share information between departments and organizations; that is, integration. Unfortunately, old and new systems may not work together without developing or buying custom software. There are two general approaches to achieving system integration. The first is the development of custom code connecting existing systems to new systems. The function and design of the custom code can vary greatly and is largely dependent on the configurations of the original systems. Common functionality would include pulling or pushing data from one system to another to allow the receiving system to perform some function. An example of this could be a lab system posting lab results to a specific medical record within an EMR solution. The technology and methodology to achieve these types of conversions and linkages between systems is mature, and conversions can be accomplished by most skilled developers. Once developed, the conversion code and the configuration of both systems that were current then must be placed under stringent configuration control and management. If changes to either system are made, there is a possibility that the connectivity code will be broken, disrupting services. To avoid this, a more managed change process must be implemented. In this context, each change must be thoroughly reviewed by multiple parties, including developers, system administrators, network resources, and end users, before it is implemented. Building structured code is often favored when both applications are co-located or managed by the same team because the management of both systems can be more easily accomplished. The second approach is to develop some form of middleware between applications. Many developers currently favor the use of extensible markup language (XML) as an approach to achieve middleware development goals for physically dispersed applications. XML is very similar to HTML (hypertext markup language), the language commonly used to develop Web pages. Most Web servers receive and send data in several different formats, including XML. The XML file can then be transmitted, usually via a Web server. Without undertaking a lengthy description, data exchanges based on XML programs are straightforward and sequential so long as both applications meet two criteria in advance. First, the applications needing to exchange the data must be able to export or receive data in an XML format, either directly or through the

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use of a third party product. Most healthcare applications being offered today have this capability. Secondly, both applications that need to exchange the data must use the same data conversion dictionary. Data dictionaries using XML standards are easily portable between systems and can be based on one or more of many readily available healthcare templates. The sequence for an XML file transmission begins as the result of a request (user or system), a scheduled event, or other trigger seeking information from a source application. The source application selects the data and marks it using the previously agreed to XML conversion data dictionary and places the data into an XML formatted file or document that is ready to transmit. It is then sent to the Web server for transmittal to the destination system. The destination system then receives the data through its own Web server and converts it from the XML format to a file format that it can use. With this approach, the data is converted to a neutral format that can be reconverted to any format that is usable by any system so long as data dictionaries match. Although it sounds complicated, it is often simpler than developing structured code between one or more systems. An emerging solution that warrants some discussion is the use of services-oriented architecture (SOA) as an integration approach. An SOA is a design approach that creates middleware objects that perform similar conversions as XML, but can also perform simple, concise tasks. An SOA object will often go beyond moving data from one location to another; it may also compile the data and place it in a format that is usable by the requesting system or user. As an example, the admissions coordinator for a large teaching hospital may need to know how many encounters occurred during the last 24 hours. His or her area of responsibility may include five hospitals and dozens of ambulatory care clinics located in the local metropolitan area and perhaps around the world, across multiple time zones. These facilities would likely use dozens of applications to register and record patient encounters and treatments. The coordinator’s problem is how to get this information without setting up a complex system of fixed, structured connections or assigning staff to manually generate reports at each facility. To solve this problem using SOA, a single software object would be built that would automatically connect to each system and compile only the admissions or encounter data and send a report back to the admissions coordinator. A key element in this approach is that the object is designed to perform only limited functions. This constraint forces a concise development effort to achieve a very limited goal, but it also makes it more suitable for reuse in other SOA applications. As the SOA object is completed, it is also registered on a universal description, discovery, and integration (UDDI) repository. The UDDI is basically a network/ systems directory that allows authorized users to connect to the SOA object. For a single report, creating one object would be a tremendous amount of work, both in terms of effort and the associated cost. However, if the concept of software object reuse were embraced (which is one underpinning of SOA), then parts of that object could be reused for other purposes since they already have the ability to connect to each system. Other similar reports (such as identifying types and

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quantities of drugs dispensed) could identify public health issues and use trends and possibly serve as a basis for negotiating better rates from the pharmaceutical firms. An SOA has several key characteristics: 1. Loosely coupled. Services are designed to be autonomous and independent of implementation, which enables greater flexibility in introducing new services, aggregating existing services into composite solutions, and changing the deployment of services versus having to address inherited levels of dependence. 2. Service encapsulation. This involves the separation of the interface to the service from the detailed internal specification and implementation of the service. 3. Interface standardization. A standardized vocabulary to service interoperability ensures interservice communication. 4. Shared semantic framework. This is a method to ensure the comprehension of the content of messages communicated between services. 5. Access services. Reliable and secure system and people-based access to services and necessary system artifacts within the SOA. 6. Development facilities. Full life-cycle support and software versioning of services, messages, including modeling, coding, debugging, testing, deployment, and change control. 7. Security and management services. Service and process monitoring, management, security, and ID management. 8. Application and data services. Services built around the supporting data persistence and data semantics. As other departments identify data that would facilitate their operations, they could build and deploy their own SOA objects, following the same process. Once tested, deployed, and registered on the UDDI, any user with the appropriate security permissions could access that SOA object and access the data that it was designed to obtain. Over time, the UDDI could host literally hundreds, if not thousands, of SOA objects. These objects would greatly enhance operational integration between legacy systems and simplify the exchange of data between those systems. SOA has tremendous potential. However, that is not to say that it is a perfect fit for healthcare. First and foremost, the development costs of the SOA objects, as well as their testing and validation, can be prohibitive. Additionally, a robust UDDI repository may be difficult to set up and manage. If multiple groups within the parent organization have the ability to build and deploy SOA objects, there is a need for centralized management to avoid duplicative efforts. Of greater concern to healthcare organizations is the small number of very large firms that have expertise in this technology. Fewer still have experience in building and deploying an SOA for healthcare organizations. This is changing, however, and as more organizations incorporate SOA, the availability of SOA objects suitable for reuse will also grow. As that happens, the startup costs and subsequent SOA management costs will go down, making SOA a very viable solution.

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As a final word of caution, healthcare organizations commonly use applications that are FDA certified and are covered by warranties issued by the original equipment manufacturers (OEMs).22 Many FDA-certified applications are problematic when originally sold, and as those problems are fixed by the OEMs, third-party structured code may break. Additionally, changes to those applications could violate both the FDA certification and the warranty. Alternatively, developing a data exchange methodology that transfers data used in delivering care to patients may very well create liability issues for the developers’ organization should erroneous data be used as the result of incomplete or problematic coding from which some type of adverse reaction occurs.

INFORMATICS TECHNOLOGY OVERVIEW In the previous section, the software applications discussed are varied and are increasingly capable. However, applications unto themselves cannot meet the needs of the healthcare user community. An infrastructure must be able to support those user requirements. Application support consists of several general classifications of computing and network systems. For better or worse, as hardware and software evolve, technologies are being comingled and individual products and systems can be configured to perform functions that were not historically associated with their names. Examples include that desktops running most common operating systems (Windows, Linux, Solaris, etc.) can share or route connections, allowing those computers to become a router, and a router or switch (such as those provided by Cisco, Juniper, and others) can act as an authentication points, a function historically reserved for servers. In this section, we provide a general discussion of systems and network devices commonly used in medical informatics. These definitions are accurate to industry standards as of this writing. As a subtext of these descriptions, the implementation of any healthcare system or solution should incorporate high availability and reliability features into its deployed design.

Servers and Storage The term server has two general meanings. From a software perspective, a server refers to an application that runs on a computer that responds to requests for information from client computers. It does so by “serving” those clients the requested information. Those responses are usually delivered via a continuous network connection, allowing for multiple simultaneous connections and transfers. Server applications range from simple, shared storage spaces, such as a mapped drive on the client computer logged into the network, to specific applications, such as e-mail, databases, or EMR systems. A second, generally accepted (if not completely correct) definition of a server refers to a single computer that runs an operating system and other server software applications. In this context, the computer is designed and purchased with heavier duty hardware components installed over lighter duty systems such as desktops.

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It is worth noting that hardware has continued to evolve so that even common desktops have a mean time between failures of at least five years. The difference is that a desktop computer seldom has redundant components within it, and its duty cycle elements, such as CPU (central processing unit) utilization, are significantly lighter than systems that have multiple users attached to them. From a healthcare perspective and considering the need for reliability and availability, redundancy of hardware is a highly recommended configuration. There are several types of internal and external storage that are commonly found in healthcare IT centers. These range from internal drives to storage area networks requiring dedicated networks, security, and management systems. Each has its place, and storage should be examined very carefully. With the price of hardware continuing to fall and the capabilities of hardware continuing to increase, care should be taken in selecting the management software that will be used to manage these large amounts of storage and the data contained within it. The efficient use of indexing, searching, and related information retrieval systems should be considered in selecting any solution. Long-term storage of data should also be addressed, both in terms of accessibility as well as durability of the solution. It is important to exercise the appropriate amount of due diligence to facilitate a product selection that meets the requirements of the end user community.

Server Availability It is a common practice for important or mission critical systems supporting healthcare operations to use multiple computers to perform those roles. By using multiple computers, if a single computer fails, the applications or functions continue to be available for client use. For this to work effectively, the data received by each computer must be shared among all of the computers, and multiple servers supporting the same function must appear as a single server to the client computers. To achieve this, a software application called clustering is installed. This application allows multiple computers to perform the server functions while synchronizing data across the different systems, allowing those multiple physical systems to appear as one single system to the end user. Clustering is an effective solution to improve system availability, but it does have some limitations. Clustering software requires that additional application licenses and specific server clustering licenses be purchased, increasing base costs. To effectively support a clustered solution, both the system and application administrators need to receive specialized training on how to use and managed this solution. Finally, and of perhaps greater importance, not all healthcare applications can be clustered. For applications that cannot be clustered, real-time or close to real-time backup solutions should be considered. Basic system backups are required for any application and server. Usually incremental backups are scheduled to occur nightly, with full backups occurring over the weekends. The backup tapes are usually rotated and complete backup tapes stored off-site for protection. For healthcare solutions for critical systems, a backup solution may include both hardware and real-time data

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backups. In this approach, duplicate machines are built of the production systems, and the applications and operating system are imaged on the backup servers. Data is copied from the production machines to the backup machines as it is created, minimizing data availability should those systems be needed. This solution does require the purchase of specialized backup software, but several different applications are available from various vendors. In this configuration, if the primary system goes down, the backup system can be made available in a minimum amount of time. Alternative backup solutions are both available and, in some cases, viable, but may take more time to implement.

Networks Within the context of medical informatics, networks refer to one or more computers that are connected together using a shared set of mediums (such as wire and radio waves) for the transmission of data. There are several parallel areas of discussion that are needed to understand network concepts. These elements consist of the physical properties of the network, the data types, how the data messages are exchanged, the general types of networks, and the infrastructure devices used to facilitate the delivery of the data to the connected computers in an efficient and reliable manner. The following information provides a high-level review of the technology and is not meant to be complete. It is meant to provide the nontechnical manager with an entry-level understanding of the topic.

Physical Mediums The physical medium refers to the actual medium used by the network over which the data travels. There are three general classes of mediums. First are the copper cable solutions. Copper may refer to several types of cables, but the most common type found throughout the United States is the 8-conductor, category-5 type of cable. Most computers and servers come with the internal hardware needed to use these types of connections. These cables have the capacity to carry significant amounts of data, but have some limitations in terms of capacity and throughput. Capacity and throughput refers to the amount of data transmitted via the cable over a short period of time. Most copper cable can support transmission rates of 100 megabits per second, and with the proper equipment, 1 gigabit per second. Rates exceeding that level may result in the data being corrupted or lost in transit. The second class is fiber optic or glass cables. These cables require special hardware on the servers and workstations to accommodate their use. This hardware is becoming more common and is considered a standard component on many business class systems. Fiber cables also require custom connections on various network devices. In general terms, fiber offers extremely high capacity and throughput, and is considered the most capable solution available. However, it is often more costly to deploy, so with a few exceptions (such as in radiology), it is limited to use as trunk lines, connecting multiple network devices together.

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The third medium is the use of radio waves, commonly referred to as wireless networks. Wireless networks incorporate two-way radio transceivers, or wireless access points (APs), into a wired network. Almost all APs are designed to connect directly to copper-based systems and use standard connections to connect to network devices. Some specialized designs also allow power to be transferred to these devices—these require either network devices that provide power over specialized ports or aftermarket hardware to facilitate the power transfer. This configuration is referred to as power over ethernet (POE). The alternative to POE is to plug each AP directly into an AC (alternating current) wall outlet or other similar power source. To connect to an AP, a computing device must also have a transceiver built into it or pluggable into it. Several security requirements need to be addressed before these can realistically be used for business purposes, but these are the basic components of a wireless network.

Data Types Within healthcare, the types of data that are exchanged have the biggest impact on care delivery and related services. The data may consist of information in any form, including software applications, digital voice, and digital video. As hospitals continue to update their systems, it is common to see networks being asked to accommodate all of these data types. This combination of data types, referred to as data convergence, can potentially cause problems to the network if it is not built with the ability to accommodate their use. The volume or amount of information that can be carried across the network is referred to as the network’s capacity. In all networks, capacity utilization changes as different portions of it are used by different applications or devices. A video conference may need to utilize a large portion of a network’s available capacity to deliver a high quality conference. Failure of the network to provide the needed capacity will cause problems, such as jumpy video or voice drops. From a utilization perspective, video conferencing is seldom an ongoing activity across most healthcare networks, so its requirements for network capacity are not constant. Voice over Internet Protocol (VoIP) are basically telephone calls placed using computer data networks that, like video, cannot be delayed without significant quality degradation. For geographically dispersed organizations that already share data networks, these systems are increasingly popular as they can provide very significant cost savings over upgrading or maintaining standard telephone service private branch exchanges. These systems allow for calls to be routed over a healthcare organization’s networks, not the telephone companies’ networks. For organizations with facilities in different interexchange regions, such as Baltimore, Maryland, and Washington, D.C., a standard telephone call from one facility to the other using the telephone company’s services will generate a long distance call charge. Using a VoIP solution, such a call would be routed across the organization’s existing computer and data network, avoiding those charges. As an extension, assuming that both facilities have local exchange phone service (usually required for local emergency services at a minimum), the calls from one facility

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to numbers outside of the distant facility (but within that distant facility’s local exchange) can also be made avoiding long distance charges. This is because the call enters the local exchange carriers’ network as a local call. Though very cost effective, VoIP applications without sufficient bandwidth will be vulnerable to jitter, making a phone conversation difficult to conduct. Computer data is often considered less critical in terms of timeliness. Nevertheless, in an emergency department, seconds waiting for specific clinical data do count. Studies sent from radiology may have priority equal to, or higher than, any video conference or phone call. Conversely, a normally scheduled synchronization of the EMR may be subservient to other uses of the network. Collectively, each of these requirements must be addressed and managed.

Data Message Exchanges Infrastructure communications are managed by devices that operate using a series of standards. Those standards are incorporated into the design of communications hardware systems and the applications that run on them. The essence of these standards is based on addressing information to certain locations, inside of each network and connections between networks. In the world of publicly networked computers, each location has a unique address. The challenge, then, is to know where those unique addresses are and how to get packets of information to certain addresses. In a network environment, data is seldom sent in a constant stream. The larger the set of information that is sent, the longer it will take, and the more likely that some of the information will be lost or garbled, ruining the entire transmission. To nullify this problem, information that is to be sent over a network from one computer to another is broken down into smaller packets of information. The disassembly and subsequent reassembly of data is performed by various applications on the computer, but their transmission and addressing is managed by a set of protocols known as the transmission control protocol and the Internet protocol (TCP/IP). TCP enables two host computers or devices to establish a connection and exchange streams of data packets. TCP guarantees delivery of the data packets by confirming transmission and receipt as well as managing the disassembly of the message and its reassembly at the destination.23 The IP is a set of data-oriented protocols that are designed to encapsulate data for delivery. It also applies a unique source and destination address associated with each unique device connected to the network (i.e., each device has its own number, similar in concept to a telephone number at an office desk). The details of the IP protocol are complex and beyond the scope of this chapter. Suffice it to say that it is incumbent upon healthcare managers to retain staff with the hands-on expertise in this area to support network operations and systems integration.

Types of Networks Networks can be described in several ways, and for referential purposes in this section, will be addressed in terms of physical dispersion. First, going from the

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smallest to the largest, is the local area network (LAN). LANs are found on single floors or wings within a building. This limitation on size is usually done to simplify management of the devices connected to it for exchanging data and information. The second type of network is the campus area network (CAN). A CAN is considered a collection of interconnected LANs, usually owned or managed by the same organization. CANs are usually dispersed across a group of buildings, usually in the same area. As an example, a hospital with one or more buildings residing in the same medical complex but sharing some common physical network attributes and resources (such as a shared Internet connection) could be considered a CAN. The third type of network is the metropolitan area network (MAN). A MAN is often considered the connection of multiple LANs and CANs within the same geographic region. In a university teaching hospital where the same organization operates several hospitals and clinics within the same city, the connection between these different sites is usually provided by a third party, such as a telco common carrier. Often, a telco-managed MAN may be supplemented by communications mediums, such as line of sight communication lasers or radio connections, maintained by the facility or organization. These are sometimes deployed as cost-cutting measures. In those cases, the connection between each CAN or LAN is usually deployed as a private network, as opposed to the Internet or a public network. As such, these are purchased and maintained at a higher price than a basic Internet connection, yet provide higher reliability and security. The fourth and final type of network is identified as a wide area network (WAN). A WAN covers a large geographic area, and in commercial healthcare organizations, uses transmission facilities provided by telcos. As in the case of the MAN, the connections between physical locations are usually accomplished through private connections or virtual private connections. A key difference is that over a wide area, one or more telcos may be involved with the connectivity. A major academic medical center with affiliated campuses around the world may use a WAN to ensure connectivity between environments. As with a MAN, costs are higher than basic Internet connectivity. Within each of these classes of networks, wireless capabilities may be overlaid to provide mobile workers with the ability to use and access organizational information and resources, regardless of their location. To meet these needs, a supplemental solution to enhance mobility is often accomplished through the use of Wi-Fi networks and network cards. A Wi-Fi network is similar in nature to the wireless LAN in that both utilize radio transceivers. The key difference is that the Wi-Fi radios are managed by a telecom carrier and use that carrier’s cell phone infrastructure and Internet connections into the organization to complete the communications connection. The Internet connection allows access to the organization’s wired network. This remote access requires the implementation of a series of secure measures to be implemented. Unfortunately, not all Wi-Fi carriers provide acceptable services in all locations, and dead zones in coverage areas exist. As a result, care needs to be taken in validating a specific carrier’s capabilities to meet the needs of mobile workers prior to entering into any longterm obligation.

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Network Devices For networks, several types of devices are designed to support the management of data across the network to the end-point computers. In general terms, the core devices of any network are routers (which send data to end points and other networks) and switches (which optimize throughput for host-to-host and hostto-router traffic). In terms of healthcare solutions, building in redundancy and failover capability should be seriously considered in any deployment or network upgrade. The design and deployment of these types of network configurations requires staff with specialized skills. The specialization may warrant specific product knowledge and manufacturer certifications, such as a Cisco Certified Internetworking Engineer. Individuals with these skills are costly, but may be critical to the successful deployment and management of the network. Ancillary to these core systems, the network may also need to support other solutions such as wireless LANs, video teleconferencing, VoIP, application layer switching, load balancing, and various security systems (firewalls, network and host-based intrusion detection, authentication, and monitoring). Larger and more complex network solutions require centralized management to facilitate their operation. Although there are alternative solutions available, they are seldom as effective as a more centralized management approach. It is incumbent on the IT manager to have access to the skilled resources needed to address the support of these systems throughout their planning and ongoing operations.

Environmental Infrastructure For IT systems, certain environmental controls need to be in place. The size and space will vary with the needs of an organization, but the basic requirements are the same. For sustainable and maintainable computing services, controls must be in place to regulate temperature, humidity, and particulate contamination within the operating environment. Most servers have automatic shutdown controls that engage if operating temperatures exceed approximately 100 degrees Fahrenheit. The lack of cooling air circulation, as a result of poor air conditioning or dust building up on cooling vents within the computer’s case, may create this condition. Humidity-generated condensation (resulting from high humidity or unmanaged temperatures should the Heating, Ventilation, and Air Conditioning (HVAC) fail within the data center) may cause electrical shorts. Even in smaller facilities and clinics, environmental infrastructure is a legitimate concern—where placing the servers and related systems in an unused coat closet is not an unknown practice. In addition to environmental controls, power to the data center is another design element that should be addressed. In most cases, hospitals have installed backup generators to ensure that operations are maintained in the event of local power failures. Additionally, most facilities also use uninterruptible power supplies (UPS) on many key systems to ensure that they do not fail in the event of a power interruption prior to the emergency generators coming on line. These key systems

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should include servers, but may primarily focus on clinical systems, such as patient monitoring or life support systems. From an IT perspective, a major concern should be the sufficiency of the generator and UPS systems that are in use to support all systems using the local or facility power grid. Healthcare Chief Information Officers (CIOs) and managers need to be cognizant that a successful power failover test may not cover their systems. Many organizations conduct tests of only portions of the facility, such as a physical wing or floors of a building. In such tests, a circuit breaker is thrown for that portion of the complex, denying power to that area. When this occurs, the power management system senses the failure, switches to the battery backup on the UPS array, and initiates the automatic startup of the generator. Once the generator starts and begins generating full power, the power management system automatically switches from the UPS back to central power and the UPS is recharged. This cycle should take less than five minutes. In many hospitals and clinics, their computing centers are designed to meet these and many other requirements. In all cases, these environmental constraints are key to the successful, long-term hosting of applications on servers. When examining any environment for hosting key resources, whether internal or external to your organization, asking detailed questions on humidity, cooling, power, and redundancy are all critical to ensuring the availability of the hosted solutions.

Security Security is not about the effectiveness of a firewall or an antivirus application. It involves many technologies, processes, and policies that are integrated into a cohesive plan that is implemented and maintained. Security is defined as the reduction and subsequent mitigation of risk to the point that the residual, or unmitigated, risk is at an acceptable level based on the value of the system or systems being protected. A cohesive plan measures the risks on a regular basis, identifies the value of the systems to the organization, and identifies cost-effective controls that are implemented to mitigate those risks to a level that is acceptable to the system owners. Organizations need to perform a formal risk assessment and system valuation process for each system on a regular basis. Risk is defined as a combination of threats that have a relative probability of those threats exploiting certain known vulnerabilities associated with the system. Threats range from environmental factors (such as earthquakes, severe storms, and power and cooling failures) to human errors (including setup mistakes, patch installation errors, or simply spilling a drink onto a keyboard in the server room). For each threat that is identified, the system owner needs to determine if their system has exploitable vulnerabilities by those threats. They then need to determine the probability that the identified threat will occur and exploit the vulnerability in the next 12 months or some other measurable period. With these three pieces of information (the likelihood of a threat, the probability that it could exploit a vulnerability related to the system, and the probability that the exploitation will occur), a calculation can be made to

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determine the level of risk. Some threats, such as a data center being subjected to a cyber attack in the next 12 months has a definite probability of 1 while others, such as an EMR crashing the system it is hosted on, may be much lower, depending on many other factors. To optimize the determination of risk, a significant number of realistic threats should be considered and analyzed using this process. The next step is to develop a realistic estimate on how long the organization can tolerate being without the system should an exploitation be successful. Some systems (such as a patient monitor in an ICU) cannot be down for more than a few minutes without risking patient safety, while other systems (such as a feedback blog page on an intranet Web site) can have a significantly longer outage without significantly affecting operations. As a word of caution, the use of arbitrary valuation methodologies is tempting but not very useful. Most system owners presume that their systems are critical to operations. The reality is not every system has the same value to the organization, nor are they all critical to the delivery of healthcare services. Asking all users of a system and averaging their responses may provide a more reasonable sense of value. If the majority of users consider a system of key importance to the performance of a certain percentage of their job, then the unavailability of that system can be determined using a cost analysis valuation. The cost analysis valuation is associated with the impact of the system being unserviceable for some amount of time. It is not recommended to perform a valuation analysis on a partial system outage where only some of the functionality is available; an incremental value is not empirically useful when attempting to identify the associated value of the controls that would be used to mitigate risks. Calculating the value of the system to the organization should begin with an estimate of its complete replacement cost and a sound estimate of the lost productivity should the system become unavailable.24 Lost productivity would be calculated on total user access or other metrics either calculated or analyzed from operational data. As an example, if the e-mail system for a large academic medical center were to completely crash, the replacement e-mail system may cost $100,000 and may take five days to replace with the ordering of new hardware and related efforts. However, the valuation of that system must also include lost productivity for all of the users that rely on that e-mail system. If 10,000 employees are paid with a weekly payroll cost of $21 million and 10 percent of their work is dependent on e-mail, then a complete system loss for one week would cost the organization $2.1 million (or $12,500 per hour). Other losses, such as goodwill with the physicians and staff, as well as other less tangible costs like community relations, may also be factored in. With this cost estimate established, the system owners can make a reasonable estimate of the system’s value. With each threat and exploitable vulnerability, one or more controls should be in place to reduce the probability of the exploitation being successful. An accurate threat identification list will improve the likelihood that all of the needed controls will be deployed. In many respects, some controls may address multiple exploits. As an example, a firewall will restrict many cyber attacks and unauthorized access to the system. However, it is not designed to prevent someone from introducing a virus into the system via a thumb drive, the cooling system from

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failing, or someone spilling a drink in the data center. Disabling the USB ports on all workstations would address the thumb drive issue, while a policy disallowing open drink containers in the server room would address the third issue. Based on the probability of other events happening and the duration of the resulting outage, additional controls can be introduced or the risk of having the exploitation occurring can be accepted. To complete the overall security assessment, a final value should be calculated; that is, the value of the controls used to mitigate the threats. If 100 percent of every conceivable technical and environmental threat were mitigated, the cost of those controlling mitigations could exceed the value of the system. To prevent this situation, the cost of the controls is also measured and balanced with the cost of the system and probability of a system failure. Using this methodology, an informed business decision can be made where security dollars can be allocated in the most efficient and cost-effective manner. In healthcare, budgets are tight and every dollar must count. Though tedious in approach, this methodology can help the medical informatics IT managers optimize their budgets and expenditures.25 There are multiple organizations that provide a wide range of guidance in this area, such as the National Institute of Standards and Technology (NIST), The SANS (SysAdmin, Audit, Network, Security) Institute, the IT Governance Institute, the Computer Security Institute, and the International Information Systems Security Certification Consortium ((ISC)2). All of these organizations provide multiple resources for developing comprehensive security programs. Individuals with the knowledge and experience in security should be retained or consulted with to develop and maintain an effective security plan.

CONSTRAINTS AND CHALLENGES In the areas of medical information systems, there are many issues that need to be addressed. One of the most critical issues is obtaining and maintaining funding for a specific project. First and foremost, a project needs to be aligned with the strategic goals of the organization. So long as the alignment is solid and the goals remain well founded, the basic success of the project has been established. The participation and commitment of senior stakeholders to the project is also of great importance. This commitment is usually directly related to the benefit that they expect to receive once the project is completed. However, if the cost of supporting the project becomes too great versus the anticipated benefits, then their support will usually wane. This problem can be mitigated by communicating the status of the project to the stakeholders, making sure that it is running on schedule and to budget, and addressing problems aggressively as they occur. A more fundamental success factor is the valuation of the project prior to or immediately after its inception. Valuation is the determination of complete system costs and the expected benefits over the entire life cycle of the project. The basis for investment must reside in sound business planning, performance, and measurable returns based on a quantifiable methodology. Investments in IT have

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become outcome based, with ROI usually being considered the key element in the decision making process. The cost and benefit methodology should be the same as used for calculating any other capital investment within the organization. Managers should recognize that collecting project-specific cost and benefit data is a complex and timeconsuming task. Due diligence requires a detailed, methodical approach to data gathering, so time needs to be allocated for the estimating process to be done correctly. It is also recommended that all estimates should use minimum, reasonable estimates for both costs and benefits. Managers must be careful not to allow individual estimators to pad their estimates independently. A structured basis for estimating should be followed to achieve the best results. From a cautionary perspective, using IT department estimates as a basis for financing a project will open the project to challenge from the finance department. It remains important to get multiple parties to participate in the estimating process. The key to all of these aspects is for the estimating team to pay close attention to the many complex and interrelated details of a medical informatics solution. The technology is complex and expensive in terms of the procured items and the labor needed to make it work and then to maintain it. The technologies may be new to many IT departments, so recent past experience may not be available. The understanding of that technology, diligence, and attention to detail are the keys to making solid estimates for analytical purposes.

CONCLUSION This chapter describing some of the technologies used in medical informatics barely scratches the surface. Facility access control, the use of biometrics, identity management, power distribution, and even fire suppression are all areas worthy of review. The basic computing technologies needed by healthcare organizations have been developed over the last several decades and are finding their way into this environment. It should be expected that more and more manufacturers and consultants will offer their products and opinions on how things should be done. Healthcare applications in informatics are becoming more capable with each new product or technology release. Many systems are being built using state-of-the-art development languages and tools. The result is that the current versions of many applications are functionally more capable than their predecessors. Of even greater importance is the diligence with which the new designers have engaged health professionals to assist them in developing the user interfaces and functionality needed to simplify use and improve performance. Collectively, the new languages and improved design interfaces will increase the popularity of these systems and provide for a more accelerated expansion into the healthcare market. The medical informatics IT executive has significant and ongoing challenges. Budgets are tight and expertise with the depth of knowledge and experience is seldom readily available. To address these issues, the IT manager must take an aggressive approach to the political realities within the organization, the IT operations of the organization’s environment, and informed decision making.

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Healthcare IT management has at least two masters: the clinicians (especially physicians) and the other C-level executives (usually the chief financial officer and the chief executive officer). Knowing how to manage their expectations and their decision-making processes can be invaluable. The IT managers need to anticipate the needs and interests of these decision makers. Staffing the operation with skilled resources is a challenge. Having those same people implement effective policies and procedures based on the industry’s best practices can be close to impossible as other projects and tasks constantly interfere. Yet if those steps are achieved, there is a significant probability that system service will greatly improve. Technology updates, revisions, and changes are all part of IT. Addressing them in a logical and consistent manner can address many potential problem areas. The formal analysis in support of decision making provides an excellent hedge against future risk and second guessing decisions. An extensive and accurate analysis that is performed correctly will generate supporting data that is difficult to question. Informatics in healthcare will continue to change care delivery. It remains one major avenue where appreciable savings can be generated while improving the quality of care surrounding the patient. As the population ages, improvements in care are expected by patients. The application of IT services and solutions to the healthcare space can meet those expectations.

NOTES 1. Collen, M. F. 1977. Preliminary announcement for the Third World Conference on Medical Informatics, MEDINFO 80, Tokyo, September 29, 1980. 2. Wikipedia. n.d. Health Informatics. Available at: http://en.wikipedia.org/wiki/ Medical_informatics. Accessed October 1, 2006. 3. Software Magazine. 2004. “Standish: Project Success Rates Improved Over 10 Years.” January 15. Available at: http://www.softwaremag.com/L.cfm?Doc=newsletter/ 2004–01–15/Standish. Accessed December 22, 2006. 4. Kaplan, R. S., and D. P. Norton. 1992. “The Balanced Scorecard: Measures That Drive Performance.” Harvard Business Review (Jan/Feb): 71–80. 5. Balanced Scorecard Institute. 1998. Balanced Scorecard. Available at: http:// www.balancedscorecard.org/basics/bsc1.html. Accessed December 31, 2006. 6. Nance, A. 2006. ITSM Handbook. Rotterdam, The Netherlands: ITpreneurs Nederland-BV, 19–20. 7. “ITIL Service Manager,” from The ITIL Service Manager Workshop. Available at: http://www.itilsurvival.com/default.asp. Accessed December 20, 2006. 8. COBIT, or Control Objectives for Information and Related Technology, is a process very similar to ITIL, but focuses on industry-wide practices allowing for individual customization and implementation success to be reliant on the skills of the implementer. COBIT is a copyrighted process owned by the IT Governance Institute. For additional information, see http://www.ISACA.org. 9. ISO/IEC 20000–1:2005 is the formal specification, and defines the requirements for an organization to deliver managed services of an acceptable quality for its customers. It was issued in 2005 as the most current standard at that time by the

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International Standards Organization, replacing standard BS (British Standard) 15000. It is administered by the itSMF (IT Service Management Forum). 10. Smithline, N. 2002. “Handheld, the Holy Grail of Healthcare?” Paper presented at the Healthcare Information Management Systems Society 2002 Conference, Atlanta, Georgia, January 27–31, 2002. 11. Role-based access is available at some level on all operating systems that are commercially available for either home or office use. The differentiation between user and administrator accounts is log-in based and may manifest itself as giving significantly fewer rights to the users. A common role-based access restriction allows only system administrators to install applications on desktop or laptop computers. 12. Vincent, C., S. Taylor-Adams, and N. Stanhope. 1998. “A Framework for Analysing Risk and Safety in Clinical Medicine.” BMJ 316 (7138): 1154–1157. 13. PharmacyInformatics.com. n.d. What Is Pharmacy Informatics? Available at: http://www.pharmacyinformatics.com/informatics.html. Accessed February 21, 2007. 14. Dwight, J., M. Del Bewccaro, and M. Eisenberg. 2006. “CPOE at Seattle’s Children’s Hospital and Regional Medical Center.” Children’s Hospital and Regional Medical Center Seattle Washington Presentation sponsored by the Community Health Information Technology Alliance (CHITA). Material presented at the Seattle, Washington and Portland, Oregon sessions. 15. Wikipedia. n.d. Digital Imaging and Communications in Medicine. Available at: http://en.wikipedia.org/wiki/DICOM. Accessed February 28, 2007. 16. Wikipedia. n.d. Laboratory Information System. Available at: http://en.wikipedia. org/wiki/ Laboratory_information_system. Accessed February 28, 2007. 17. “An ALLSCRIPTS Case Study: Mount Carmel St. Ann’s Hospital, Franklin County, OH,” n.d., Available at: http://www.allscripts.com/siteresources/files/ casestudies/Mount%20Carmel.pdf. Accessed February 24, 2007. 18. Healthcare Information Management Systems Society. n.d. EHR Electronic Health Record. Available at: http://www.himss.org/ASP/topics_ehr.asp. Accessed February 21, 2007. 19. HIMSS Analytics. 2006. EMR Sophistication Correlates to Hospital Quality Data: Comparing EMR Adoption to Care Outcomes at UHC Hospitals, Including Davies Award Winners, Using HIMSS Analytics’ EMR Adoption Model Scores. Available at: http://www.himss.org/content/files/UHCresearch.pdf. Accessed February 28, 2007. 20. Bates, D. W., L. L. Leape, D. J. Cullen, N. Laird, L. A. Petersen, J. M. Teich, E. Burdick, et al. 1998. “Effect of Computerized Physician Order Entry and a Team Intervention on Prevention of Serious Medication Errors.” Journal of the American Medical Association 280 (15): 1311–1316. 21. Kaushal, R., A. K. Jha, C. Franz, J. Glaser, K. D. Shetty, T. Jaggi, B. Middleton, et al., and Brigham and Women’s Hospital CPOE Working Group. 2006. “Return on Investment for a Computerized Physician Order Entry System.” Journal of the American Medical Informatics Association 13 (3): 261–266. 22. U.S. Food and Drug Administration. 2006. Ensuring the Safety of Marketed Medical Devices: CDRH’s Medical Device Postmarket Safety Program. Available at: http://www.fda.gov/cdrh/postmarket/mdpi-report.html. Accessed on April 18, 2007. 23. Webopedia. n.d. What Is TCP? Available at: http://www.webopedia.com/ TERM/T/TCP.html. Accessed March 5, 2007.

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24. Staff Writer. 2005. “Technical Risk Assessment,” Technical Support White Paper, Available from Riskwatch Customer Support Services, Riskwatch, Inc. Annapolis, MD. 25. Stoneburner, G., A. Goguen, and A. Feringa. 2002. “Risk Management Guide for Information Technology Systems,” National Institute of Standards and Technology, Special Publication 800–30, dated July 2002. Available at: http://csrc.nist.gov/ publications/nistpubs/800-30/sp800-30.pdf. Accessed April 18, 2007.

REFERENCES He, H.. 2003. “Webservices Q&A” published on the O’Rielly XML Web site on September 30, 2003. Available at: http://webservices.xml.com/pub/a/ws/2003/09/30/ soa.html. Accessed September 10, 2005. Jenkins, N., and S. Schatt. 1995. Understanding Local Area Networks. 5th ed. Indianapolis: SAMs Publishing. Kohn, L., J .Corrigan, and M. Donaldson. 2000. To Err is Human: Building a Safer Health System. 1st ed. Washington, D.C.: National Academy Press. Lewis, Chris. 2000. CISCO TCP/IP Routing Professional Reference. 3rd ed. Dallas, Texas: McGraw Hill Technical Expert Series. Remenyi, D., A. Money, M. Sherwood-Smith, and Z. Irani. 2000. The Effective Measurement and Management of IT Costs and Benefits. 2nd ed. Oxford, United Kingdom: Butterworth-Hienemann. Rogers, S., and S. Hendrick. 2005. Oracle Builds a Comprehensive SOA Solution. Available at: www.oracle.com/technologies/soa/idc_soa_platform.pdf. Accessed September 9, 2006. Webopedia. n.d. Webopedia: Online Encyclopedia that Provide Rapid Identification of Standard Information Technology Terms. Available at: http://www.Webopedia.com.

CHAPTER 6

Complementary and Alternative Medicine and the Future of Healthcare in America Chris D. Meletis

T

o understand the current role and placement of complementary and alternative medicine (CAM) in the hierarchy of the U.S. healthcare system, it is essential to appreciate the historical migration away from traditional healing methods to the allopathic, conventional model of medicine. It is equally important to objectively view how the current fragmentation of the U.S. model has been propagated and to seek insight into the rationale behind the economic and personal choice mandate made by the U.S. healthcare consumer toward CAM practices. CAM is defined as everything that is not allopathic medicine; its practitioners provide naturopathic, chiropractic, acupuncture, massage, Ayurvedic (traditional medicine of India), nutrition, spiritual-based medical, and numerous other practices provided by the groups detailed in Table 6.1. Historically, natural medicine practices have sustained humanity over the millennia as the only form of medicine until the advent of allopathic medicine. In many parts of the world, healthcare is not divided between allopathic and CAM but integrated in a collaborative model. From an historical perspective, the creation of the so-called new allopathic medical model began during the twentieth century with the advent of applied science, which triggered the rapid transformation of medicine in the United States. This series of events was formalized with the Flexner report in 1910, which established the allopathic medicine model as the new standard.1 Unlike other countries, which have maintained a fundamental appreciation of their traditional, natural medicine approaches and superimposed allopathic medicine, the U.S. healthcare system transitioned largely to replace traditional (CAM) practices. This is implied by the term itself—complementary and alternative—

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Table 6.1 CAM Therapies Included in the 2002 NHIS Acupuncture Ayurveda Biofeedback Chelation therapy Chiropractic care Deep breathing exercises Diet-based therapies Vegetarian diet Macrobiotic diet Atkins diet Pritikin diet Ornish diet Zone diet Energy healing therapy Folk medicine Guided imagery Homeopathic treatment Hypnosis Massage Meditation Megavitamin therapy Natural products (nonvitamin and nonmineral, such as herbs and other products from plants, enzymes, etc.) Naturopathy Prayer for health reasons Prayed for own health Others ever prayed for your health Participate in prayer group Healing ritual for self Progressive relaxation Qi gong Reiki Tai chi Yoga Source: National Center for Complementary and Alternative Medicine, National Institutes of Health. The Use of Complementary and Alternative Medicine in the United States. Available at: http://nccam.nih.gov/news/camsurvey_fs1.htm#info#info.

suggesting that the role of traditional natural practices was to complement and/ or serve as an alternative to the established allopathic model. There is no question that millions of lives have been saved by the application and developments of allopathic medicine. The consequence has been better understanding and appreciation of disease processes within the human body and the sequential development of specialties and subspecialties. But to appreciate the current state of the U.S. healthcare system and its metamorphosis, we must assume that no healthcare model is beyond improvement. Many healthcare consumers seeking CAM healthcare believe the allopathic

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model has become too focused on treating the parts of the body at the expense of treating the entire person. It is this shift away from whole-body medicine by the allopathic model, with its continuous movement to specialization, that has contributed to the surge in interest in CAM. It also explains the willingness of patients to spend money on services that are not presently reimbursed. One can view consumer spending on CAM services as an expression of supply and demand. A combination of socioeconomic trends has led to a resurgence of interest in natural medicine. These include greater medical knowledge available via the Internet, the proliferation of medical newsletters, and the growing population of baby boomers who have discretionary income and do not readily embrace the concept of getting old. A majority of healthcare consumers already use allopathic medicine in addition to treatments such as massage, acupuncture, chiropractic, and herbal remedies. As this chapter will show, allopathic medicine and CAM need not be mutually exclusive.

THE EXTENT OF THE CAM REVOLUTION IN THE UNITED STATES In the early 1990s, Dr. David Eisenberg analyzed market trends of the U.S. healthcare system relative to CAM. He estimated that there were 243 million more visits to CAM providers than to primary care allopathic physicians. Patients were paying for these visits with out-of-pocket discretionary dollars at a rate of $13 billion a year.2 From 1990 to 1997, CAM expenditures grew to $27 billion, a 42 percent increase. With the shift towards shorter and more focused doctorpatient visits, a decline in the allopathic physician-patient relationship has occurred. The growth in CAM use is occurring across all age levels: Previously reported analyses of these data showed that more than one third of the U.S. population was currently using CAM therapy in the year of the interview (1997). Subsequent analyses of lifetime use and age at onset showed that 67.6% of respondents had used at least one CAM therapy in their lifetime. Lifetime use steadily increased with age across three age cohorts: Approximately 3 of every 10 respondents in the pre–baby boom cohort, 5 of 10 in the baby boom cohort, and 7 of 10 in the post–baby boom cohort reported using some type of CAM therapy by age 33 years. Of respondents who ever used a CAM therapy, nearly half continued to use many years later. A wide range of individual CAM therapies increased in use over time, and the growth was similar across all major sociodemographic sectors of the study sample.3

This trend is not a reflection on the level of innate caring or compassion possessed by the allopathic provider, but a reflection of the consequences of a move to managed care. In addition, in the 1990s, media attention to adverse drug reactions and hospital-acquired infections raised questions about quality and safety issues in modern medicine. Furthermore, the increased public awareness of the trends toward obesity, diabetes, cancer, and other degenerative chronic disease states primed the economic pump toward exercising personal choice. Moreover,

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there are some things modern medicine just does not address well, like chronic stress recognition and reduction. Yet, stress has been shown to be the second leading risk factor for heart disease after smoking.4 Thus, socioeconomic forces and healthcare education have shifted attention toward the CAM that focuses on empowered personal healthcare choices—choices that can be determined directly by the individual consumer, without gatekeepers or preapproval by an insurance company. Quantifying this trend has been a challenge. Much of the healthcare interactions occurring in the realm of CAM are either not covered or only partially covered by medical insurance plans, making it difficult to collect quantifiable economic data. To date, the most reliable information of CAM use by Americans was released by the National Center for Complementary and Alternative Medicine (NCCAM) and the National Center for Health Statistics (NCHS, part of the Centers for Disease Control and Prevention) in May 2004. The data were compiled from the 2002 edition of the NCHS’s National Health Interview Survey (NHIS), an annual study conducted that incorporates the health- and illness-related experiences of 31,044 adults aged 18 years or older, as described below.5

UNDERSTANDING CAM A culture of us versus them has begun to take hold on both sides of the fence between CAM providers/healthcare consumers and allopathic providers/healthcare consumers. As with all labeling of individuals in a culture, a subculture is established and identity is created as a result of being categorized. As was pointed out by Pietroni in the British Medical Journal in 1992: To speak of “alternative” medicine is like talking about foreigners—both terms are vaguely pejorative and refer to large, heterogeneous categories defined by what they are not rather than by what they are. The analogy is apt: the current worldwide trend away from suspicion and hostility between “orthodox” and “alternative” medicine toward investigation, understanding, and consumer protection can be compared with the process by which Europeans have learnt to view each other as partners rather than foreigners. This shift in attitude is evident in the BMA’s [British Medical Association] recent publication, Complementary Medicine: New Approaches to Good Practice,6 and in the use of the term “complementary” rather than “alternative.” We welcome this new spirit and believe it will benefit patients.7 Even the term complementary medicine is not entirely satisfactory, lumping together as it does a wide range of methods with little in common except that they are outside the mainstream of medicine. The most accurate term may be “unconventional therapeutic methods.”8

It is important to acknowledge that the separation of allopathic from nonallopathic is a gray line itself. When is CAM no longer CAM? The answer is when allopathic providers begin embracing it in their daily practice of medicine. The

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concept of allopathic medicine as the gold standard, to which all else is compared relative to its validity, is at the heart of the definition. Allopathic physicians have a history of incorporating natural products into their practices under the auspices of drug therapy. Examples would be foxglove, the origin of the heart failure drug digitalis; Madagascar periwinkle, the origin of the chemotherapy drug vinicristine; the chemotherapy drug Taxol from the Yew tree; the gout remedy Colchicine from Rauwolfia; and the statin drugs for lowering cholesterol from red rice yeast extract. Likewise, it is becoming a more common practice for nutraceuticals like EPA from fish oil, Coenzyme Q10 (CoQ10), and glucosamine sulfate to be recommended by allopathic physicians. The reality is that a healthcare model that will be sustainable must be economically sound and deliver improved outcomes. Clearly, health maintenance, or wellness, must employ the strategic use of diet, exercise, and stress recognition and reduction at a far superior level than currently implemented in the United States. Before we proceed further, a few definitions and an observation. Complementary medical practices are defined as those that are used with conventional/allopathic medicine, whereas alternative medicine is used in lieu of conventional medicine. It is important to realize that until the advent of allopathic medicine, every practice of medicine would have been considered alternative. It is not until the differences among practitioners of allopathic and complementary and alternative medicine are transcended that true collaborative, holistic medicine can come to the forefront. Having served as dean and chief medical officer at the National College of Natural Medicine (NCNM) in Portland, Oregon, I can attest that establishing a team approach among varied healthcare providers is both fruitful and essential. Many of NCNM’s 16 teaching clinics incorporated varying degrees of integrated/collaborative medicine. The key in establishing an economically viable model is to establish a common focus for all the stakeholder providers that can best be summed as embracing patient-oriented wellness. It does not matter which therapy from a given discipline—CAM or allopathic—shifts the scales in favor of improved health. It is the end result that the team celebrates along with the patient it serves.

VITAMIN THERAPY: CAM OR ALLOPATHY? The majority of patients, according to the Eisenberg report, do not share with their physician that they are pursuing CAM therapies.9 The inclusion of CAM into the healthcare setting would diversify income streams for clinics, hospitals, pharmacies, and integrated medical practices, while offering a more consistent delivery of these services by credentialed providers. In 2002, according to the NHIS CAM survey,10 36 percent of U.S. citizens access CAM services. When megavitamin therapy and prayer are incorporated into utilization, this number rises to 62 percent. The Journal of the American Medical Association reported that as a tool to combat chronic degenerative diseases such

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as diabetes, cancer, and cardiovascular disease, a daily multivitamin would be a strong consideration: Vitamin deficiency syndromes such as scurvy and beriberi are uncommon in Western societies. However, suboptimal intake of some vitamins, above levels causing classic vitamin deficiency, is a risk factor for chronic diseases and common in the general population, especially the elderly. Suboptimal folic acid levels, along with suboptimal levels of vitamins B6 and B12, are a risk factor for cardiovascular disease, neural tube defects, and colon and breast cancer; low levels of vitamin D contribute to osteopenia and fractures; and low levels of the antioxidant vitamins (vitamins A, E, and C) may increase risk for several chronic diseases. Most people do not consume an optimal amount of all vitamins by diet alone. Pending strong evidence of effectiveness from randomized trials, it appears prudent for all adults to take vitamin supplements. The evidence base for tailoring the contents of multivitamins to specific characteristics of patients such as age, sex, and physical activity and for testing vitamin levels to guide specific supplementation practices is limited. Physicians should make specific efforts to learn about their patients’ use of vitamins to ensure that they are taking vitamins they should, such as folate supplementation for women in the childbearing years, and avoiding dangerous practices such as high doses of vitamin A during pregnancy or massive doses of fat-soluble vitamins at any age.11

Is vitamin therapy a CAM item or is it a non-CAM item? As we will discuss in the following paragraph, pharmaceutical companies are offering an array of vitamins and supplements. Natural medicines migrate into the realm of allopathy, such as fish oil for helping with lipid profiles and CoQ10 to support cardiac health, as well as glucosamine sulfate for osteoarthritis. What threshold will need to officially be passed for each of these to become regarded as non-CAM? Regardless of whether a natural product is recategorized, it is important that when CAM practices are incorporated into standard allopathic medicine, continuing medical education (CME) be provided to ensure proper training on dosing, administration, quality, and safety. To assume that all supplements are created equal and to recommend that a patient pick up a certain dose of CoQ10, glucosamine,, or any supplement off the shelves at the store would be a disservice to patient efficacy and safety. This issue was emphasized in Comparative Guide for Nutritional Supplements, which looked at the quality of supplements available to consumers. Of 1,000 multivitamins reviewed, 508 met the criteria for testing. Less than 1 percent of the total products compared exceeded a score of 90 percent.12 Though the following pharmaceutical companies are better known for the medications they manufacture, this small sample supports the idea that there is money to be generated through supplement sales, thanks to rising demand and no insurance reimbursement limits: • Wyeth: Sells multivitamins under the brand name of Centrum. • SmithKline Beecham: Sells nutritional and natural products under the labels Scott’s emulsion, Eunova, Horlicks, Lucozade, Ribena, Cetebe, Abtei, and Alluna Sleep. SmithKline recently offered RemiFemin, a popular herbal menopause supplement in Europe.

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• Pfizer: Sells an array of natural medicine offerings, such as Lydia Pinkham, Nature’s Bounty, Goldline, and vitamin E and glucosamine and chondroitin products. It has also diversified into pet vitamins, including Pet-Cal, Pet-Tinic, and Pet-Tabs Plus. Consumers spend $21.3 billion on supplements, including multivitamins/minerals ($4.2 billion), single vitamins ($3 billion), single minerals ($1.8 billion), sports supplements ($2.2 billion), and botanicals/herbs ($4.4 billion).13 All providers, CAM and non-CAM, generate strong sales in the pharmaceutical and nutritional supplement industry respectively, both from prescriptions and recommendations.

PROFILING THE CAM CONSUMER BASE What does a CAM user look like? What are the demographics that the physician, hospital, or clinic administrator need to understand to meet the needs of this growing consumer base? CAM utilization spans all socioeconomic sectors, yet there are demographics that display higher utilization14: • • • •

Women more than men People with higher education levels People who have been hospitalized in the past year Former smokers

Figure 6.1 CAM Use by U.S. Adults 80 Ever used 70

74.6

74.1 Used past 12 months

60

62.1

61.6

Percent

50 49.8 40 36.0

30 20 10 0

Any CAM

CAM (excluding megavitamins)

Source: Barnes, Powell-Griner, McFann, and Nahin 2002.

CAM (excluding prayer for health)

Figure 6.2 CAM Use by Race/Ethnicity 80 70

CAM including megavitamin therapy and prayer 71.3

60

61.7

CAM excluding megavitamin therapy and prayer

61.4

60.4

Percent

50 40

43.1 35.9

30 28.3

26.2

20 10 0 Asian

Black

Hispanic

White

Source: Barnes, Powell-Griner, McFann, and Nahin 2002.

Figure 6.3 CAM Use by Domain and Whole Medical Systems 60

50

52.6

Percent

40

30

20

10

21.9

10.9 2.7

0

Mind-body Biologically Manipulative Whole medicine based and body-based medical systems practices practices

Source: Barnes, Powell-Griner, McFann, and Nahin 2002.

140

0.5 Energy medicine

Figure 6.4 10 Most Common CAM Therapies 50

40

43.0

Percent

30 24.4 20 18.9 10

11.6

9.6

7.6

7.5 5.1

0

Prayer/ self

Prayer/ Natural Deep Prayer others products breathing group

Meditation

Chiropractic

Yoga

11.8

11.7

5.0

3.5

Massage Diets

Source: Barnes, Powell-Griner, McFann, and Nahin 2002.

Figure 6.5 Top 10 Natural Products* 50

40

40.3

Percent

30

24.1 20

21.1

19.9 14.9 12.0

10

0

Echinacea Ginsing Ginko biloba

10.5

9.4

Soy Garlic Glucos- St. John’s Pepper- Fish oils/ Ginger omega Supple- supplesupple- amine wort mint fatty acids ments ments ments

Source: Barnes, Powell-Griner, McFann, and Nahin 2002. * The percentage for each product represents its rate of use among U.S. adults who use natural products.

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Figure 6.6 Disease/Condition for Which CAM Is Most Frequently Used* 20

16.8

Percent

15

10 9.5 6.6 5

0

4.9

Back pain

Head cold

Neck pain

Joint pain

4.9

4.5

3.7

Arthritis Anxiety/ Stomach depression upset

3.1

Headache

2.4

2.2

Recurring Insomnia pain

Source: Barnes, Powell-Griner, McFann, and Nahin 2002. *These figures exclude the use of megavitamin therapy and prayer.

Prayer is the most commonly used CAM therapy. It is categorized as CAM since it has not been embraced by the allopathic model as a tool in healthcare. When prayer is included in the definition of CAM, the mind-body medicine category becomes the most commonly used CAM category at 53 percent. Yet when prayer is not included, biological-based therapies, defined as substances found in nature, such as herbs, special diets, or vitamins at doses not used by conventional medicine, were used at a rate of 22 percent.15

SELF-MEDICATION WITH NATURAL PRODUCTS AND POTENTIAL REPERCUSSIONS Only 12 percent of the individuals using CAM report seeking the guidance of a licensed CAM provider when utilizing CAM therapies, raising the question of potential safety issues relative to self-prescribing. With nearly 20 percent of consumers of CAM reporting the use of supplements, it is worth noting that gingko, ginseng, garlic, fish oil, and ginger all possess blood-thinning properties. The number of individuals on prescribed blood thinners such as warfarin (Coumadin), heparin, Plavix, and aspirin illustrates the need for healthcare providers to become knowledgeable on potential interactions between CAM and allopathic medical therapies. Likewise, St. John’s Wort ranked as the sixth most common supplement, has been shown to decrease blood levels of drugs metabolized by the

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Figure 6.7 Reasons People Use CAM 60 54.9 50

50.1

Percent

40

30 27.7

25.8

20 13.2

10

0

Thought CAM combined with conventional medicine would help

Thought it would be interesting to try

Thought Conventional conventional medical medicine would professional not help suggested it

Conventional medicine too expensive

Source: Barnes, Powell-Griner, McFann, and Nahin 2002.

cytochrome oxidase P3A4 pathway (CYP3A4) by upwards of 50 percent.16 These drugs include cardiac, immune, and psychiatric medications like amitriptyline* (Elavil), benzodiazepines alprazolam (Xanax), triazolam (Halcion), sertraline (Zoloft), and venlafaxine (Effexor).

CAM UTILIZATION REFLECTS PRIMARY CARE MEDICINE The health conditions that motivate patients to seek CAM therapies parallel those that motivate them to seek allopathic care: back, neck, head, or joint aches, and other painful conditions; colds; anxiety or depression; gastrointestinal disorders; and sleeping problems. The leading driver of CAM interventions appears to be pain.

WHAT ARE THE ECONOMIC IMPLICATIONS? The accounting for CAM expenditures is incompletely understood, since transactions are frequently being made outside of customary medical channels and third-party reimbursement. It is estimated that the U.S. public spent $36 billion to

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$47 billion on CAM therapies in 1997 (the latest year for which data are available). Approximately $12 billion to $20 billion was paid out of pocket for the services of professional CAM healthcare providers.17 The significance of these numbers is that CAM professional fees exceed the total amount paid for out-of-pocket expenses for hospitalizations in 1997 and represent about half of the amount paid for out-of-pocket physician services. Revenues continue to grow in nutraceutical purchases, including herbal remedies, vitamins, and other supplements, at a rate of $5 billion of out-of-pocket spending per year.18

CREATING A CAM HEALTHCARE TEAM What follows is an investigation into how CAM professionals function with in America’s healthcare terrain and their economic impact. Additionally, general concepts of how collaborative medicine can increase safety and financial viability will be discussed. A focus will be placed on the four largest CAM professional groups, chiropractors, naturopathic physicians, acupuncturists, and massage therapists, to reflect overall trends in CAM utilization. Each of these groups has been accepted as integrated services within hospitals and outpatient clinics and has varying levels of insurance reimbursement. As the dean of naturopathic medicine and chief medical officer at NCNM, the supervision, growth, and management for 16 clinics, incorporating varying levels of integrated medicine, was my primary focus. Clinical faculty included naturopathic doctors (NDs), medical doctors (MDs), osteopathic physicians (DOs), chiropractic physicians (DCs), and Chinese medicine providers, including Master of Oriental Medicine and licensed acupuncturists. A growing number of medical models have incorporated a patient oriented and collaborative medicine model that works at both a clinical and economic level and as discussed below.

CAM PROVIDERS Thus far, we have discussed CAM trends from the consumer side of the healthcare services model. Yet, there are well-established CAM medical models that represent a strong constituent group in the shaping of the evolving American healthcare system. To understand current and future economic trends and to be able to project future areas of growth, it is important to appreciate the educational backgrounds, scope of practice, and current economics of these professionals. Lobbying efforts of all medical professions, scope of practice, insurance issues, and other legal and governmental regulatory processes are at play along with consumer spending patterns. The positioning for growth or strategizing to maintain market share are continuously influencing the American healthcare landscape. Legal skirmishes are routinely occurring at the state level across the United States, among CAM professionals, and between CAM and allopathic lobbyists as well.

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Chiropractic Economics, Evidence, and Education There are over 53,000 chiropractic physician according to statistics from the U.S. Bureau of Labor. In general, chiropractors complete four years of chiropractic medical school after graduating college. Chiropractic educational programs in the United States are approved by an accrediting agency recognized by the U.S. Department of Education. Prior to practicing, chiropractic trainees must demonstrate competency and public safety knowledge by passing national board examinations and they must obtain state licenses.19 Most chiropractors go into solo practice and are self-employed. Some chiropractors choose not to practice full-time and work in academic teaching positions, perform research, or offer their services to hospitals, insurance companies, or natural medicine companies.20 Chiropractic physicians can be found in all 50 states and the District of Columbia. Scope of practice varies from state to state, with some serving as primary care physicians offering generalized, though somewhat limited, family medicine practices. The concept of a chiropractor as being limited in scope of practice to manipulation or adjustment of the spine is a misnomer. In the state of Oregon, chiropractic physicians can order laboratory and diagnostic imaging tests, perform physical exams, and perform minor surgery. With the aging population, the need for noninvasive treatments for mechanical and structural problems will continue to rise. Chiropractic medicine embodies the growing acceptance of CAM providers by both the allopathic medical community and insurance companies. Chiropractics was once perceived as having little scientific evidence supporting its claims. But well-designed studies have clearly documented efficacy. Examples: • Two hundred and fifty-two patients with low back pain secondary to osteoarthritis were randomly assigned to either the treatment group (moist hot pack plus chiropractic care) or the moist heat group subjects who attended 20 treatment sessions over several weeks. Chiropractic care combined with heat is more effective than heat alone for treating osteoarthritis-based lower back pain. Pain reduction occurs more rapidly and to a greater degree, and range of motion increases more rapidly and to a greater degree.21 • Flexion distraction is a commonly used form of chiropractic care with chiropractor utilization rates of 58 percent as seen in a study of 235 subjects who were randomized to either chiropractic care (flexion distraction) or physical therapy (exercise program). During the year after care, subjects who received chiropractic care (flexion distraction therapy) had significantly lower pain scores than subjects who received physical therapy (exercise program).22 • A randomized, double-blind clinical trial with 192 subjects experiencing low back pain of two to six weeks’ duration were randomly allocated to three groups with interventions applied over two weeks. Interventions

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were either chiropractic adjustments with placebo medicine, muscle relaxants with sham adjustments, or placebo medicine with sham adjustments. The Visual Analog Scale for Pain, Oswestry Disability Questionnaire, and Modified Zung Depression Scale were used. Chiropractics was more beneficial than placebo in reducing pain and more beneficial than either placebo or muscle relaxants in reducing global impression of severity scale.23 Current findings have shown that chiropractic medicine reduces pain, decreases medication, rapidly advances physical therapy, and requires very few passive forms of treatment, such as bed rest.24 A growing number of insurance plans cover chiropractic services, yet the extent of coverage varies greatly between plans; thus consumers must be savvy as to how to access care within the confines of their plan. Limits to a certain number of visits or spending limits per annum are still common. For salaried chiropractors, the median income was approximately $69,910 in May 2004. The middle 50 percent earned between $46,710 and $118,280 a year. In a survey conducted by Chiropractic Economics magazine in 2005, the mean salary for chiropractors was $104,363. Factors affecting income include number of years in practice, location of practice relative to patient density, the number of other chiropractors in area, and local socioeconomic demographics. The predominant reason for a chiropractic visit is back-related pain. This should not be surprising, since 31 million Americans experience low-back pain at any given time.25 According to survey evidence, 50 percent of all working Americans report having back pain symptoms each year, and 80 percent will experience back pain sometime during their life.26 Furthermore, back pain is one of the most common reasons for missed work, second only to upper-respiratory infections. The economic impact of back pain in the United States is staggering, with at least $50 billion spent annually.27 Thus, the addition of chiropractic services into an integrated practice incorporating allopathic and other services provides the potential for increased income while helping to ensure continuity of care. With the rise in the aging population, high level of sedentary jobs, increasing rate of obesity, and high-stress living, the need for chiropractic medicine in the field of medicine fills a gap in the current healthcare needs of Americans. The question arises within the ranks of CAM providers of whether their profession will go the way of DOs and that absorption into the allopathic model will occur. Upon reviewing the current level of evidence-based medical studies, the Agency for Health Care Policy and Research, a federal government research organization, made the recommendation that individuals suffering from low-back pain begin with the most conservative care first, with spinal manipulation as a safe, effective, drugless form of initial professional treatment for acute low-back problems in adults.28 Chiropractic physicians spend an equal amount of classroom and clinical hours (minus residency) in their training as allopathic physicians.

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Naturopathic Economics, Evidence, and Education Naturopathic medicine in the United States has grown out of traditional healing practices from around the world. Of CAM providers, the licensed naturopathic physician (ND) is the most broadly trained primary care healthcare provider. There has been a resurgence in naturopathic medicine. Currently there are only about 3,500 licensable NDs in North America—those in jurisdictions offerings NDs the ability to hold a license to practice naturopathic medicine. There are currently only five accredited schools offering four-year postbaccalaureate doctorate degrees: • • • •

Bastyr University (Kenmore, Washington) Canadian College of Naturopathic Medicine (North York, Canada) National College of Natural Medicine (Portland, Oregon) Southwest College of Naturopathic Medicine & Health Sciences (Tempe, Arizona) • University of Bridgeport College of Naturopathic Medicine (Bridgeport, Connecticut) The majority of states have licensed naturopathic medicine at different times since its formation as a distinct American medical profession in 1902, yet only 14 states currently license NDs: Alaska, Arizona, California, Connecticut, Hawaii, Idaho, Kansas, Maine, Montana, New Hampshire, Oregon, Utah, Vermont, and Washington. Additional NDs are licensed in the District of Columbia, U.S. Virgin Islands, and Puerto Rico. It is important to differentiate between four-year ND medical school graduates and the graduates of correspondence schools that can often use the initials ND or NMD behind their names in unlicensed states. Thus, inquiring about the school an ND has graduated from is an important question to understand the level of training received. The term ND is used here to designate licensed four-year graduates of one of the five naturopathic medical schools who have passed national licensure exams. Naturopathic physicians are trained in basic sciences the first two years, while the last two years are spent in a blend of clinical training and classroom instruction. Naturopathic physicians enjoy a broad scope of practice in such states as Arizona, Washington, and Oregon. Collaborative professional relationships between conventional medical doctors and licensed NDs are becoming more common. NDs are broadly trained in botanical medicine, nutrition, supplements, manipulation of the spine, minor surgery, standard physical exam, diagnostic blood work, and imaging studies. NDs also have prescription-writing privileges and can apply for U.S. Drug Enforcement Administration numbers to prescribe narcotics and sedatives, as determined by each state’s licensure guidelines.29 Naturopathic physicians spend an equal amount of classroom and clinical hours (minus residency) in their training, as do allopathic physicians. The guiding principle for naturopathic physicians is Vis Medicatrix Naturae (The Healing Power of Nature). This concept guides NDs as they access healthcare

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interventions, prioritizing the least invasive approach over more aggressive and potentially more risky procedures.

Guiding Principles of Naturopathic Physicians • • • • • •

The healing power of nature. First do no harm. Treat the whole person. Treat the cause. Prevention is the best cure. The physician is a teacher.

Naturopathic physicians generally do not work within the hospital setting, practicing instead alone, in group practices, or in integrated clinical settings. NDs routinely work with allopathically trained primary care physicians, internists, and specialists in comanaging patients, as appropriate, to access additional diagnostic and therapeutic expertise, much the same as a family medicine physician makes referrals. A national survey on Americans’ use of CAM, published in 2004, reported that less than 1 percent of the 31,000 survey respondents had used naturopathy.30 Though the 1 percent number seems low, it is important to remember that there are only 3,500 naturopathic doctors licensed in 14 states, compared with over 50,000 chiropractors and nearly one million medical and osteopathic doctors licensed in 50 states. The survey noted above demonstrates the following rationale for utilization of ND services: • Sixty-two percent believed that naturopathic medicine combined with conventional medicine would help. • Fifty-three percent believed conventional medical treatments would not help. • Forty-four percent thought naturopathic medicine would be interesting to try. • Twenty-eight percent responded that conventional medicine was too expensive. • Seventeen percent were referred to a naturopathic doctor by a conventional medical professional. Almost 75 percent of all naturopathic visits were for chronic health conditions, such as fatigue, headache, and back symptoms. In a comparison among naturopathic practices between the east coast (Connecticut) and the west coast (Washington), the following prescription trends were noted: botanical medicines (51 percent of visits in Connecticut, 43 percent in Washington), vitamins (41 percent and 43 percent), minerals (35 percent and 39 percent), homeopathy,

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which is the use of dilute amounts of specially prepared natural substances that are not sufficiently concentrated to be considered a botanical, vitamin, or mineral (29 percent and 19 percent), and allergy treatments (11 percent and 13 percent). The mean visit length was about 40 minutes. Approximately half the visits were paid for directly by the patient.31 Visits in Connecticut were slightly more likely to be covered by insurance than visits in Washington, 60 percent versus 49 percent of visits.31 More than 70 percent of visits included examinations or the ordering of diagnostic or screening tests, most often assessment of vital signs and upper respiratory exams related to infection.31 Naturopathic practice also involves significant amounts of patient counseling and education. On average, naturopathic physicians spend more than twice as much time with patients as conventional physicians at each visit, 40 minutes versus 14 minutes, permitting greater time to address health concerns and build the foundation for a deeper doctor-patient relationship.32 A common patient motivation observed by naturopathic physicians is a level of concern and frustration among people that getting an annual physical, basic blood work, and cholesterol count is still not sufficient to avoid deadly health trends—such as seen in recent diabetic statistics33: • Total: 20.8 million people—7 percent of the population—have diabetes. • Diagnosed: 14.6 million people. • Undiagnosed: 6.2 million people. People thus often go to naturopathic doctors in an attempt to get a fuller picture of their overall health and to become personally empowered regarding their level of wellness. A growing concept is to focus on wellness care versus healthcare, since wellness is descriptive of a heightened level of health. The average naturopathic physician’s salary varies greatly depending on the location of their practice, insurance reimbursement, chosen field of self-specialization, and practice style. Salaries range from $75,000 to $150,000 and up for full-time physicians in eclectic practices.

Acupuncture Economics, Evidence, and Education There are currently about 16,000 acupuncturists in the United States, and it is estimated that this number will increase by 10 percent per year over the next decade. Although acupuncturists earn approximately $40,000 to $90,000 per year, experienced acupuncturists have been able to earn as much as $10,000 to $20,000 per month.34 State licensure and national board exams are required to demonstrate and maintain competency. Acupuncture has grown in popularity in the United States during the last twenty years. The report from a Consensus Development Conference on Acupuncture held at the National Institutes of Health (NIH) in 1997 stated that acupuncture is being widely practiced—by thousands of physicians, dentists, acupuncturists, and

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other practitioners—for relief or prevention of pain and for various other health conditions.35 In addition, the 2002 National Health Interview Survey estimated that 8.2 million U.S. adults had used acupuncture, and an estimated 2.1 million U.S. adults had used acupuncture in the previous year.36 Acupuncture originated in China more than 2,000 years ago. The term acupuncture describes a group of medical procedures used to stimulate anatomical points on the body. The most heavily researched form of acupuncture is the technique that involves penetrating the skin with thin, solid, metallic needles that are manipulated by the hands or by electrical stimulation. The theory of acupuncture cannot be readily defined in Western medicine terms. Rather, it’s important to understand the unique concepts of traditional Chinese medicine (TCM), such as qi (chi) and meridians. Qi refers to the energy emanating from within and flowing throughout the human body. The flow of qi in the body is often compared with the nervous system or circulatory system, yet the concept of meridians, which are the paths through which qi travels, are completely unique to TCM and there are no exact comparisons. The performance of the body is dependent upon qi, and there can be no function without qi and no qi without function. Qi is also considered the life force, or the vital force, and with its total absence there is death. Meridians were described over 2,000 years ago by Chinese physicians who posited the presence of 14 major channels that serve as the conduits of qi. Meridians comprise an intricate and invisible network transporting and directing qi to every part of the body. Through empiric observation, the destinations of the meridians have been quantified to 361 regular acupuncture points on the major meridians where qi can be accessed and stimulated as clinically indicated. Blocked qi can lead to health maladies. Both external and internal substances and circumstance can lead to an imbalance of the flow of qi. These include poor nutrition, impure food, toxic air or water, infectious agents, organ disease, and traumatic events or overuse injuries. Research indicates that acupuncture releases endorphins and other pain inhibitors, and it decreases inflammation. There are many well-designed studies on the benefits of acupuncture that meet the standards of the allopathic model: • Forty-nine patients with temporomandibular joint dysfunction (TMD) were treated with a combination of acupuncture and manual therapy two or three times a week at the hospital. The pain and maximal mouth opening (MMO) were assessed before and after one and four weeks of treatment. The combination therapy produced significant changes in pain levels and mouth opening. These findings suggest that combining manual therapy and acupuncture decreases the pain level and increases the MMO of TMD patients.37 • A random, controlled trial of 570 patients with osteoarthritis of the knee had 23 true acupuncture sessions over 26 weeks. Controls received six two-hour sessions over 12 weeks or 23 sham acupuncture sessions

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over 26 weeks. Primary outcomes were changes in the Western Ontario and McMaster Universities Osteoarthritis Index (WOMAC) pain and function scores at 8 and 26 weeks. Secondary outcomes were patient global assessment, six-minute walk distance, and physical health scores of the 36-Item Short-Form Health Survey (SF-36). Participants in the true acupuncture group experienced greater improvement in WOMAC function scores than the sham acupuncture group at 8 weeks. At 26 weeks, the true acupuncture group experienced significantly greater improvement than the sham group in the WOMAC function score. The conclusion is drawn that acupuncture seems to provide improvement in function and pain relief as an adjunctive therapy for osteoarthritis of the knee when compared with credible sham acupuncture and education control groups.38 Current spending on acupuncture services is approximately $500 million per year. Conditions treated by acupuncture include pain, stress, insomnia, addictions, arthritis, digestive disorders, headaches, fatigue, and allergies.39

Massage Therapy Economics, Evidence, and Education According to the U.S. Department of Labor, employment for massage therapists is expected to grow faster than average, at a rate of 18 to 26 percent, with 97,000 massage therapists working in 2004. About two-thirds were selfemployed.40 Currently, consumers visit massage therapists about 114 million times every year. The percentage of American adults receiving one or more massages from a massage therapist in the previous year (18 percent) more than doubled since 1997 (8%).41 Massage therapists can specialize in over 80 different types of massage techniques. A sampling includes Swedish massage, deep tissue massage, reflexology, acupressure, sports massage, and neuromuscular massage. In simple terms, massage therapy is a hands-on manipulation of the soft tissues of the body, including muscles, connective tissue, tendons, ligaments, and joints. The principle goal is to improve the circulation, speed the removal of metabolic waste products from tissues, support healthy lymphatic flow, and relax the body. Additional benefits include increased flexibility of muscles, ligaments, and other soft tissues, pain relief, and warming up before a sporting event. Here is a description of a few common types of massage techniques: • Deep tissue massage is used to release chronic muscle tension through slower strokes and more direct pressure, or friction, applied across the grain of the muscles. Techniques employing breath and movement are also used for releasing muscular congestion. • Shiatsu is a Japanese form of massage. It can used to assist with specific injuries, overall health, and to support relaxation. The philosophy underlying Shiatsu is that qi energy flows throughout the meridians. The

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goal of the Shiatsu practitioner is to employ a variety of techniques to improve energy flow. These may include gentle holding; pressing with palms, thumbs, fingers, elbows, knees, and feet on the meridians; and, when appropriate, more dynamic rotations and stretches. • Swedish massage is a collection of gentle techniques designed primarily to relax muscles by applying pressure to them against deeper muscles and bones and massaging in the same direction as the blood flows to the heart. The concept is that the lymph system and veins (which carry blood back to the heart) both rely on muscle action, rather than heart pump pressure, to keep the lymphatic system flowing. Prior to a massage therapy session, an interview with the patient occurs to find out about the person’s medical history. This helps screen patients that may not be medically appropriate for massage therapy, because massage can increase circulation, disrupt underlying structural or pathological conditions, spread infection, and aggravate inflammatory processes. Massage therapists work in private offices, hospitals, nursing homes, fitness centers, and sports medicine facilities. Due to the physical nature of the work and time needed in between sessions to clean and prepare rooms, massage therapists who give massages from 15 to 30 hours per week consider themselves to be fulltime workers. Each state has varying requirements for massage therapists to practice. In 2004, 33 states and the District of Columbia passed laws regulating massage therapy. Most of the boards require massage therapists to complete a formal education program and pass the national certification examination or a state exam. There are roughly 1,300 massage therapy postsecondary schools, college programs, and training programs in the United States. Massage therapy training programs are generally accredited by a state board or other accrediting agency. Approximately 300 programs are accredited by a state board or department of education–certified accrediting agency. After completing a training program, many massage therapists opt to take the national certification examination for therapeutic massage and bodywork administered by the National Certification Board for Therapeutic Massage and Bodywork. Median hourly earnings of massage therapists, including gratuities earned, were $15.36 in May 2004. The highest 10 percent of massage therapists earned more than $32.21 per hour. Actual income may be higher, since massage therapists in private office settings typically charge between $60 and $90 per session.

MANDATE FOR A HEALTHIER UNITED STATES: HINTS FROM EUROPE The Institute of Medicine (IOM) presented a review of the role of CAM in 2004 to integrate CAM into allopathic medical practice. The recommendation was that allopathic professional training programs incorporate adequate information

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so that graduates could advise patients on appropriate access to CAM services.42 Adopting an approach that embraces diverse approaches to healthcare as practiced in European countries was encouraged. A study reported the following findings in Germany: The goal was to chart the use of complementary medications compared with conventional treatments among practitioners and patients in Germany. A cohort study of 4178 patients presenting with chronic as well as acute symptoms by 218 practitioners at 218 centers was reviewed at clinics that focused on either conventional medicine, complementary medicine, or both. The results were clear that complementary medicine was preferentially prescribed over conventional medicine in patients <18 and >65 years old, in women, and in patients with chronic symptoms. The decision to incorporate complementary medicine was based on both the patient’s and the practitioner’s wishes in 40.8% of the cases compared with 25.8% of the cases of conventional therapies. Tolerability and satisfaction with treatment appeared greater with complementary than with conventional therapies. The conclusion read, Patients receiving complementary medicine appear to be more closely involved in the decision process and more satisfied with treatments than conventionally treated patients.43

CAM treatments are used by many therapists throughout Europe.44 The major forms are acupuncture, homeopathy, spinal manipulation, and botanical medicine. Consumer surveys consistently show positive public attitudes to complementary medicine, with about 60 percent of the public in the Netherlands and Belgium45 stating that they are prepared to pay extra for insurance premiums for it, and 74 percent of the British public favoring it being available in the National Health Service.46 In European countries where statistics are available, CAM therapies are used by 20 percent to 50 percent of the population. The popularity of complementary medicine is growing rapidly. For instance, in 1981, 6.4 percent of the Dutch population visited a therapist providing complementary medicine, a number that increased to 15.7 percent in 1990.47 Though current data are not readily available, it is estimated to have experienced a similar growth to that seen in the United States during the same period. One of the challenges in comparing the European and U.S. healthcare consumer is the differences in services available, definitions of CAM, and overall attitudes relative to healthcare and cultural preference for therapeutic modalities. For instance, in France, homoeopathy is the most popular form of CAM therapy, and it rose from utilization by 16 percent of the population in 1982 to 36 percent in 1992.48 In the United Kingdom, members of the Consumers Association who visited a nonallopathic practitioner in the preceding 12 months rose from 14 percent in 1985 to almost 25 percent in 1991.49 The United Kingdom has among the lowest per capita spending in the European Union for over-the-counter homeopathy, but the British market is growing by 20 percent a year. Countries such as Greece and Portugal with low per capita spending have even more rapid growth—30 percent a year 50

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GOVERNMENTAL RESEARCH INTO CAM TRENDS AND ALLOCATION OF RESOURCES The United States Congress passed legislation in 1991 that allowed the National Institutes of Health (NIH) to establish the Office of Alternative Medicine (OAM) with an annual budget of $2 million to coordinate research on CAM practices. In 1998, Congress established the National Center for Complementary and Alternative Medicine (NCCAM), with an annual budget of more than $68 million, to supersede OAM. NCCAM’s mission is to support basic and applied CAM research and inform both the public and healthcare providers. Within the first five years, NCCAM achieved the following results: • Over 780 projects at 123 institutions were funded. • Over 700 scientific publications were generated by funded research. • The enrollment of nearly 40,000 participants in clinical protocols was supported. • 1.5 million visitors visited its Web site (http://www.nccam.nih.gov) annually. • The search engine CAM on PubMed lists nearly 400,000 articles on CAM topics. Though great strides have been made via NCCAM, the $122.6 million allocated in fiscal year (FY) 2006 is not sufficient to meet the expansive needs to conduct research in the fields of CAM and to educate the public on efficacy and safety.

INTEGRATED MEDICINE IN ACADEMIA The National Institutes of Health has fostered healthcare collaboration through NIH–sponsored R-25 grants. The goal of each grant is to expose medical students and faculty to CAM concepts as part of an institutional medical curriculum. A spirit of appreciation has grown between CAM and non-CAM providers through lecture series and CAM curriculum discussions of actual patient care. Portland, Oregon, the location for this NIH grant, provides a unique setting for this level of academic collaboration. Within the confines of the metropolitan area, there is OHSU (allopathic medical school), NCNM (naturopathic medical school), OCOM (Chinese medicine school), and WSCC (chiropractic medical school), giving faculty and students from each institution an opportunity to interview and work with patients in a collaborative fashion, comanaging the cases. Shortly after the beginning of this grant, the Center for Women’s Health at OHSU brought CAM providers delivering naturopathic, chiropractic and acupuncturist services on board.51

INTEGRATED MEDICINE AT WORK Cancer Treatment Centers of America (CTCA), a network of hospitals dedicated to the holistic treatment of patients with cancer, serves as a role model for

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blending comprehensive healthcare by having skilled professionals from CAM fields work side by side with their allopathic colleagues. Physically, CTCA is a network of cancer treatment hospitals and facilities. But it’s much more than that. CTCA programs can be a cancer patient’s greatest ally when it comes to fighting cancer. Because we understand that cancer doesn’t just affect one part of your body—it affects all of you and everything in your life. So that’s how we treat it. Top to bottom, inside and out, it’s total care for your mind, body and spirit. At CTCA, we assemble a dedicated team of experts who provide comprehensive, personalized treatment. Your team will fight your cancer on many fronts, through an integrated combination of medical, nutritional, physical, psychological and spiritual therapies.52

Naturopathic physicians, pastoral services, acupuncturists, and dieticians work together in a patient oriented manner, focusing on the individual needs of each patient to strengthen the mind, body, and spirit.53 When a collaborative team of healthcare professionals join forces in the pursuit of excellence in healthcare with the single focus on patient-oriented wellness, the barriers of personal and philosophical bias can be shelved for the greater good and the true calling of all healers can be fulfilled to serve humanity without prejudice.

CONCLUSION In the United States, we live in a melting pot of cultures; yet, with the immersion into the U.S. Westernized culture, the health practices of the majority of Americans have been based on allopathic medicine. Over the course of the last few decades, U.S. citizens have fallen prey to epidemics of obesity, diabetes, depression, heart disease, and stress-related diseases, despite the current level of healthcare delivery and focus on preventive medicine. The current system is not only bankrupting America, it is not sustaining its people with the robust health of a technologically advanced and wealthy country. We can do better. In short, CAM and allopathic practitioners need to work together with respect, an open mind, and the intent to help support the patient in achieving their health goals in a safe and positive fashion. The current healthcare system is not sustainable. The United States has a growing, aging population that will continue to need healthcare resources. Medicare and private insurance companies cannot sustain the current level of expenditure without significant premium rate hikes or a decrease in services offered. It is time that the fragmented healthcare system in America embrace a more collaborative and holistic model of care. Currently, an estimated 38 million U.S. adults are using botanical medicine, 29 million are using relaxation techniques, and 15 million U.S. adults are using chiropractic. Among CAM users, 41 percent used two or more CAM therapies during the prior year. CAM is here to stay. Healing of America’s healthcare system will promote healing of its people.

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Key Concepts • CAM is most often used to treat back pain, colds, neck pain, joint stiffness, and depression. • The percentage of patients who believe that combining CAM with conventional healthcare approaches provides added benefits is 54.9 percent. • Licensed CAM providers are qualified healthcare providers that graduate from accredited schools and share a common goal of protecting the patient from harm and assisting them with their health needs. • European countries, organizations, and academic settings have demonstrated that patients’ desire to access CAM services and allopathic services in a parallel fashion is not only possible, but results in improved patient and family satisfaction. • United in a collaborative spirit, CAM and conventional medicine can serve individual patient needs, promote continuity of care, and deliver superior care.

NOTES 1. Flexner, A. 1910. Medical Education in the United States and Canada: A Report to the Carnegie Foundation for the Advancement of Teaching. New York: Carnegie Foundation. 2. Eisenberg, D. M., R. C. Kessler, C. Foster, F. E. Norlock, D. R. Calkins, and T. L. Delbanco. 1993. “Unconventional Medicine in the United States: Prevalence, Costs, and Patterns of Use.” New England Journal of Medicine 328 (4): 246–252. 3. Kessler, R. C., R. B. Davis, and D. F. Foster. 2001. “Long-term Trends in the Use of Complementary and Alternative Medical Therapies in the United States.” Annals of Internal Medicine 135 (4): 262–268. 4. Rosengren, A., S. Hawken, S. Ounpuu, M. Sliwa, W. Zubaid, K. Almahmeed, C. Blackett, H. Sitthi-amorn, S. Sato, and S. Yusuf. 2004. “INTERHEART Association of Psychosocial Risk Factors with Risk of Acute Myocardial Infarction in 111,119 Cases and 13,648 Controls from 52 Countries.” Lancet 364 (9438): 953–962. 5. “CAMBASICS, 2007.” Available at: http://nccam.nih.gov/. Accessed May 15, 2007. 6. British Medical Association. Complementary. 1993. Medicine: New Approaches to Good Practice. Oxford: Oxford University Press. 7. Pietroni, P. 1992. “Beyond the Boundaries: Relationship between General Practice and Complementary Medicine.” British Medical Journal 305 (6853): 564–566. 8. Fisher, P., and A. Ward. 1994. “Medicine in Europe: Complementary Medicine in Europe.” BMJ 309 (6947): 107–111. 9. Eisenberg, D., R. B. Davis, S. L. Ettner, S. Appel, S. Wilkey, M. Van Rompay, and R. C. Kessler. 1998. “Trends in Alternative Medicine Use in the United States, 1990–1997: Results of a Follow-up National Survey.” Journal of the American Medical Association 280 (18): 1569–1575. 10. Ewers, H-H. 2001. Children’s Rights in Literature. Available at: http//www. goethe.de/os/hon/kiju/ewemod.htm. Accessed May 6, 2002.

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11. Fletcher, R. H., and K. M. Fairfield. 2002. “Vitamins for Chronic Disease Prevention in Adults.” Journal of the American Medical Association 287 (23): 3127–3129. 12. MacWilliams, L. 2003. Comparative Guide to Nutritional Supplements. Northern Dimensions Publishing. Vernon, British Columbia, Canada. 13. “NIH, 2007.” Available at: http://ods.od.nih.gov/pubs/fnce2006/What DietarySupplementsAreUSChildrenTaking_Picciano.pdf. Accessed May 15, 2007. 14. “NIH, 2007,” Available at: http://nccam.nih.gov/news/camsurvey_fs1.htm. Accessed May 15, 2007. 15. “NIH, 2007.” Available at: http://nccam.nih.gov/. Accessed May 15, 2007. 16. Meletis, C., and T. Jacobs. 2005. Interactions between Drugs and Natural Medicines. 2nd ed. Sandy, OR: Eclectic Medical Publishing. 17. Eisenberg, D., R. B. Davis, S. L. Ettner, S. A. Wilkey, M. Van Rompay, and R. C. Kessler. 1998. “Trends in Alternative Medicine Use in the United States, 1990–1997: Results of a Follow-up National Survey.” Journal of the American Medical Association 280 (18): 1569–1575. 18. Centers for Medicare and Medicaid Services. n.d. 1997 National Health Expenditures Survey. Available at: http://www.cms.hhs.gov/statistics/nhe. 19. Meeker, W., and H. Haldeman. 2002. “Chiropractic: A Profession at the Crossroads of Mainstream and Alternative Medicine.” Annals of Internal Medicine 136 (3): 216–227. 20. U.S. Department of Labor Bureau of Labor Statistics Occupational Outlook Handbook. Available at: www.bls.gov/oco/ocos071.htm#emply. Accessed May 15, 2007. 21. Beyerman, K. L., M. B. Palmerino, L. E. Zohn, and K. Foster. 2006. “Efficacy of Treating Low Back Pain and Dysfunction Secondary to Osteoarthritis: Chiropractic Care Compared with Moist Heat Alone.” Journal of Manipulative and Physiological Therapeutics 29 (2): 107–114. 22. Cambron, J. A., M. R. Gudavalli, D. Hedeker, M. McGregor, J. Jedlicka, M. Keenum, A. J. Ghanayem, A. G. Patwardhan, and S. E. Furner. 2006. “OneYear Follow-up of a Randomized Clinical Trial Comparing Flexion Distraction with an Exercise Program for Chronic Low-Back Pain.” Journal of Alternative and Complementary Medicine 12 (7): 659–668. 23. Hoiriis, K. T., B. Pfleger, F. C. McDuffie, G. Cotsonis, O. Elsangak, R. Hinson, and G. Verzosa. 2004. “A Randomized Clinical Trial Comparing Chiropractic Adjustments to Muscle Relaxants for Subacute Low Back Pain.” Journal of Manipulative and Physiological Therapeutics 27 (6): 388–398. 24. Pain M. B., H. Heart, M.C.H. Failure, and E. Parenting, 2003. “Time to Recognize Value of Chiropractic Care? Science and Patient Satisfaction Surveys Cite Usefulness of Spinal Manipulation.” Orthopedics Today 23 (2): 14–15. 25. Jensen, M., M. N. Brant-Zawadzki, N. Obuchowski, M. T. Modic, D.Malkasian, and Jeffrey S. Ross. 1994. “Magnetic Resonance Imaging of the Lumbar Spine in People Without Back Pain.” New England Journal of Medicine 331 (2): 69–116. 26. Vallfors, B. 1985. “Acute, Subacute and Chronic Low Back Pain: Clinical Symptoms, Absenteeism and Working Environment.” Scandinavian Journal of Rehabilitation Medicine, Supplement 11: 1–98. 27. This total only represents the more readily identifiable costs for medical care, workers compensation payments, and time lost from work. It does not include costs associated with lost personal income due to acquired physical limitation resulting from a back problem and lost employer productivity due to employee medical absence.

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Project Briefs: Back Pain Patient Outcomes Assessment Team (BOAT). In MEDTEP Update, Vol. 1 Issue 1, Agency for Health Care Policy and Research, Rockville, MD, Summer 1994. 28. Bigos, S., O. Bowyer, G. Braen, K. Brown, R. Deyo, S. Haldeman, J. L. Hart, E. W. Johnson, R. Keller, D. Kido, and M. H. Liang. 1994. Acute Low Back Problems in Adults. Clinical Practice Guideline No.14. AHCPR Publication No. 95–0642. Rockville, MD: Agency for Health Care Policy and Research, Public Health Service, U.S. Department of Health and Human Services. 29. Boon, H. S., D. C. Cherkin, J. Erro, K. J. Sherman, B. Milliman, J. Booker, E. H. Cramer, M. J. Smith, R. A. Deyo, and D. M. Eisenberg. 2004. “Practice Patterns of Naturopathic Physicians: Results from a Random Survey of Licensed Practitioners in Two US States.” BMC Complementary and Alternative Medicine 4: 14. 30. Barnes, P. M., E. Powell-Griner, K. McFann, and R. L. Nahin. 2004. “Complementary and Alternative Medicine Use Among Adults: United States, 2002.” CDC Advance Data from Vital and Health Statistics 343: 1–20. 31. Dunne, N., W. Benda, L. Kim, P. Mittman, R. Barrett, P. Snider, and J. Pizzorno. 2005. “Naturopathic Medicine: What Can Patients Expect?” Journal of Family Practice 54 (12). 32. Ibid. 33. National Diabetes Information Clearinghouse. Available at: http://diabetes. niddk.nih.gov/dm/pubs/statistics/index.htm#7. Accessed May 15, 2007. 34. American College of Acupuncture and Oriental Medicine. Available at: http:// www.acaom.edu/en/cms. Accessed May 15, 2007. 35. Culliton, P. D. 1997. “Current Utilization of Acupuncture by United States Patients.” Abstract presented at the National Institutes of Health Consensus Development Conference on Acupuncture. Bethesda, Maryland. 36. Barnes, P. M., E. Powell-Griner, K. McFann, and R. L. Nahin. 2004. “Complementary and Alternative Medicine Use Among Adults: United States, 2002.” CDC Advance Data from Vital and Health Statistics 343: 1–20. 37. Shin, B. C., C. H. Ha, Y. S. Song, and M. S. Lee. 2007. “Effectiveness of Combining Manual Therapy and Acupuncture on Temporomandibular Joint Dysfunction: A Retrospective Study.” American Journal of Chinese Medicine 35 (2): 203–208. 38. Manheimer, E., B. Lim, L. Lao, and B. Berman. 2006. “Acupuncture for Knee Osteoarthritis—A Randomised Trial Using a Novel Sham.” Acupuncture in Medicine 24 (Suppl.): S7–S14. 39. “NIH, 2007.” Available at: http://www.nih.gov/news/pr/nov97/od-05.htm. Accessed May 15, 2007. 40. U.S. Department of Labor/Bureau of Labor Statistics. Available at: http:// www.bls.gov/oco/ocos295.htm. Accessed May 15, 2007. 41. National Holistic Institute, 2007. Available at: http://www.nhi.edu/massagetherapy-careers.html. Accessed May 15, 2007. 42. Committee on the Use of Complementary and Alternative Medicine by the American Public, Board on Health Promotion and Disease Prevention, and Institute of Medicine of the National Academies. 2005. Complementary and Alternative Medicine in the United States. Washington, D.C.: National Academic Press. 43. Schneider, B., J. Hanisch, and M. Weiser. 2004. “Complementary Medicine Prescription Patterns in Germany.” The Annals of Pharmacotherapy 38 (3): 502–507. 44. Fisher, P., and A. Ward. 1994. “Medicine in Europe: Complementary Medicine in Europe.” British Medical Journal 309 (6962):107–111.

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45. Sermeus, G. 1991. “Alternative Health Care in Belgium: An Explanation of Various Social Aspects.” In Complementary Medicine and the European Community, eds. G. Lewith, and D. Aldridge. Saffron Walden, Belgium: CW Daniel. 46. Fisher, P., and A. Ward. 1994. “Medicine in Europe: Complementary Medicine in Europe.” BMJ 309 (6962):107–111. 47. Van Dijk, P. 1993. Geneewijzen in Nederland. Deventer, The Netherlands: Ankh-Hermes. 48. Fisher, P., and A. Ward. 1994. “Medicine in Europe: Complementary Medicine in Europe.” BMJ 309 (6962):107–111. 49. Consumer’s Association. 1992. Regulation of Practitioners of Non-Conventional Medicine. London: Consumer’s Association. 50. Fulder, S., and R. Munro. 1992. EEC Market for Homoeopathic Remedies. London: McAlpine, Thorpe and London. 51. OHSU Center for Women’s Health. Available at: http://www.ohsuwomens health.com/services/doctors/alt_consult.html. Accessed May 15, 2007. 52. Cancer Treatment Centers of America. Available at: www.cancercenter.com. Accessed May 15, 2007. 53. Cancer Treatment Centers of America. Available at: www.cancercenter.com. Accessed May 15, 2007.

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CHAPTER 7

The Next Frontier in Addressing Clinical Supply Costs in Hospitals Anand S. Joshi

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upply costs represent an important element of the business of healthcare from a number of different perspectives. From the macro viewpoint, clinical supplies are big business, and a review of the Fortune 50 makes that abundantly clear. Of these top 50 companies by revenue, five are major healthcare supply-related business, including pharmaceutical companies, medical device manufacturers, and distributors.1 Cumulatively, clinical supplies utilized in hospitals account for roughly 10 percent of the $1.9 trillion spent on healthcare in the United States in 2004, and quite a few suppliers—Johnson & Johnson, Pfizer, Medtronic, for example— are truly household names.2 Similarly, from the micro viewpoint of individual acute care hospitals, supply costs for clinical items account for a significant piece of their expense base. While the exact proportion of spending on clinical supplies can vary tremendously based on the types and volumes of cases performed, it often represents, after laborrelated costs, the largest category of expenses in an acute care hospital’s profit and loss statement.3 Indeed, given the increased financial pressures faced by acute care hospitals across the country over the last decade, the issue of addressing clinical supply costs in hospitals has become a more pressing challenge. This challenge has been highlighted not only in the relatively narrow field of hospital supply chain, but also more broadly in the popular press.4 The purpose of this chapter is to highlight cutting-edge approaches being taken by hospitals to lower supply chain costs on clinical supplies. Special attention is given to the challenges related to addressing costs associated with supplies whose use is driven primarily by physician preferences.

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RECENT ADVANCES IN HOSPITAL SUPPLY CHAIN PRACTICE Given the scope and importance of addressing clinical supply costs, there have already been advances over the years. A lot of the progress has come from applying basic supply chain concepts, honed in other industries, to the hospital supply chain. For example, the emergence of the GPOs (group purchasing organizations) that represent hundreds, or even thousands, of hospitals derive a significant portion of their value by consolidating the spending base of these hospitals. This consolidation allows the group to approach suppliers with more leverage from a volume standpoint than a single institution could hope to amass. Although the business models of many of the nation’s GPOs, such as Novation and Premier, have morphed to include other value-added elements for their hospital members,5 such as focused utilization reviews on specific product categories and standardization analytics driven by information technology (IT), the model is still very much like the cooperatives established by farmers, independent grocers, and retail hardware stores to gain purchasing power.6 Another related supply chain concept that has its roots in the supply chain dogma of other, more industrial, businesses is standardization. Here, too, the relatively straightforward concept of one is better than two and two is better than three, whether it comes to number of suppliers involved in supplying a particular product or the number of actual products used, created value in the hospital supply chain when initially implemented. For example, gone are days where hospitals operated with multiple types of exam gloves from multiple suppliers or two different IV pumps, each with its own tubing and accessories. Standardization in these areas has resulted in more efficient, less costly, supply chains. Finally, data has emerged as a significant force within the hospital supply chain. Relative to other industries, healthcare has always been hampered by an inadequate investment in IT.7 By extension, it should come as no surprise that historically, hospital supply chain data were extremely difficult to obtain, analyze, and act on. Over the past several years, however, many hospitals, with the assistance of their GPOs, have become more adept at understanding their supply chain procurement costs.8 For the most part, hospitals no longer need to rely on suppliers’ databases to understand their own purchase history for a specific product. Rather, that information is readily available, accessible, and usable within a hospital’s procurement database for helping address supply costs. When placed in the context of “how things used to be,” the advances highlighted above in the realm of supply costs are tremendous. The pace of change is often slow in the hospital environment, and departure from the status quo comes only with an enormous amount of effort and perseverance. However, returning to a macro perspective on the issue, numerous indicators suggest significant room for improvement. For example, the margins for earnings before interest, tax, depreciation, and amortization (EBITDA/total revenue) for major publicly traded hospitals over the past six years have trended downwards from approximately 18 percent to 15 percent from 2000 through 2005, with their supply expense

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ratios (supply expenses/total revenues) rising through that time period from less than 14 percent to more than 15 percent.9 On the other hand, a view of major suppliers’ gross margins (revenue generated from product sales minus the costs of making their actual products) shows that the majority of these suppliers have seen gross margins increase over the past several years.10 Also, EBITDA margins of major publicly traded medical device manufacturers grew from 30 percent to 31 percent between 2002 and 2005.11 Two conclusions can be drawn from these trends. One is that hospitals still face a significant operating margin challenge, driven at least partially by increased supply costs, making the need to address supply chain costs important. The second is that efforts at reducing hospital supply costs to date have certainly not whittled supplier margins to the bone—so, there is still work to be done. To achieve further gains in addressing hospital supply costs, however, will not require merely further application of the methods and strategies described above, which are derived from successful supply chain approaches in other industries. To establish the next frontier in hospital supply cost reduction, the industry will have to establish a broader armamentarium of supply chain tools and techniques, unique to the hospital environment. Granted, this next frontier is already being established in some hospitals and hospital systems, but by no means has it been fully defined. The core elements of the emerging next frontier are hospitals taking a more nuanced view of the hospital supply base to inform cost-reduction strategies and more active engagement of physicians who utilize a great majority of the high-expense items in a hospital supply chain. As was the case with earlier advancements in addressing hospital supply costs, moving hospitals to embrace the new approaches highlighted below will not be an easy task. However, without these advancements, the progress seen within hospital supply chains over the past decades will likely stall and erode as suppliers fine-tune their own competitive strategies.

CASE PRESENTATION Introduction Pacemakers and automatic implantable cardiac defibrillators (AICDs) account for a significant amount of spending in any hospital with a sizeable electrophysiology (EP) program, and with unit costs ranging as high as $30,000 for top-of-the-line AICDs, the costs can add up quickly. The marketplace for these extremely complicated devices is dominated in the United States by three manufacturers—Medtronic, St. Jude, and Boston Scientific (formerly Guidant Corporation)—who introduce next generations of technology for each of the product segments of EP implants almost on a quarterly basis.12 Hospital procurement departments struggle to control costs in this arena for several reasons. The companies and their representatives have, over the years, invested significant time and resources to establishing strong relationships with electrophysiologists. Also, given the complexity of the technology and the rapid introduction of similar

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devices with slightly enhanced features, the intrinsic value of these devices is hard to determine. Finally, there are no clinical trials demonstrating the superiority of one supplier’s products over another’s. In this setting, some hospitals attempt to standardize a significant percentage of their use of these devices to one supplier as a strategy to achieve the lowest pricing from the primary supplier. It is often difficult, however, to implement such a strategy, because hospitals have a difficult time engaging electrophysiologists on cost-related issues. Also, because each supplier routinely comes out with technology that may be perceived to be slightly better than the other suppliers’ products, even those hospitals that have a compliance contract in place with one supplier often see the savings from that contract erode due to the volume of purchases made with the non-primary suppliers.

Crosswalk Strategy Hospitals that have been able to implement more progressive supply cost management strategies can have more success in controlling costs for electrophysiology implants. One academic medical center (AMC) in the northeast began by initiating a dialogue several years ago with electrophysiologists to categorize the roughly equivalent technologies sold by each supplier, stressing the value of pursuing a crosswalk strategy that would allow for physicians to access devices from any of the three primary suppliers. The key element of the dialogue was the development of an understanding that physicians would try to reduce their utilization of products that were priced at an unwarranted premium to similar competitive products. With this credible threat to potentially increase or decrease business based on relative pricing, the procurement officials of the hospital initiated negotiations with each of the suppliers. The hospital stressed that it was not interested in committing its physicians to utilize any specific volume of a suppliers’ products. Rather, the hospital committed to routinely communicating any price differentials between competing products to physicians. At the outset, the approach had a dramatic impact on pricing, since the physicians had heretofore rarely been engaged or involved in discussions when the hospital negotiated its EP implant contracts. Suppliers, faced with a united front from the hospitals and physicians working in concert, reduced their prices by approximately 20 percent (roughly $5 million in savings), without any commitment by the hospital to buy a specific amount of any particular supplier’s product. Recognizing that suppliers’ new product introductions could rapidly erode any reductions in price on previous models, the hospital procurement group and physicians routinely reviewed all new products being introduced by suppliers and ensured pricing was in line with the competition, updating the original crosswalk over time. When a supplier balked at lowering its prices, citing the value of its new technology, the hospital and physicians, armed with a solid fact base about comparative pricing and a credible threat to not utilize technology that was not fairly priced, were successful in maintaining a cap on the price increases associated with new technology. In the long term, utilizing the crosswalk strategy, the hospital was able to maintain very tight control over one of its largest and most

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complicated spending categories and allow its physicians the flexibility to utilize different suppliers’ technologies for specific patients.

CASE ANALYSIS: A NUANCED VIEW OF THE HOSPITAL CLINICAL SUPPLY BASE Traditionally, the predominant strategy employed by hospitals to address supply costs has focused on standardization and utilizing GPO contracts that achieved lower prices based on commitments of such standardization.13 The “standardization mantra” has become synonymous with hospital clinical supply cost reduction. A survey of hospital executives and supply chain managers published by the Healthcare Financial Management Association in 2002 ranked “involving clinicians in standardization” and “reducing operating room costs through standardization” as the two top future opportunities.14 (emphasis added) Hospital procurement departments utilized the same approach in addressing spending on garbage bags, needles, and syringes, or interventional radiology guidewires. Standardization strategies were only as effective as they were applicable to a particular spending category being reviewed. To overcome this challenge, hospital supply chain administrators have begun to segment their hospitals’ spending base, and employ different strategies to address overall supply costs. Given the breadth of clinical supplies utilized in the hospital, there are a number of dimensions along which they could be divided—supplier, spending volume, and hospital department where primarily used. However, one of the most critical dimensions has heretofore not been a key driver of supply category designation. Operational stickiness refers to the extent to which a supply is built into the operations of the unit or units where it is utilized and, by extension, the difficulty created by changing supplies or having multiple types of similar supplies available. For instance, intravenous (IV) tubing and extension sets have a high level of operational stickiness. The notion of having multiple types of tubing available and needing to in-service nursing staff every few months with new IV supplies is unfathomable for most organizations. Likewise, many operating room (OR) implant sets (i.e., hips, knees, spinal fusion, etc.) have a high degree of operational stickiness in that the familiarity of the nursing staff in the ORs with specific trays and their components can significantly improve procedure flow and decrease operation time. For these types of categories (that is, those with significant operational stickiness), establishing a standard for use across the hospital, or a significant percent of use in the ORs, can lower the total cost of ownership in two ways: • More efficient operations through increased familiarity with a standardized supply to reduce a hospital’s costs • Decreased personnel training costs for suppliers, leading to increased hospital discounts if these lowered expenses are shared with the hospital A number of categories score lower on the operational stickiness scale, such as the guidewires or stents used by interventional cardiologists or radiologists.

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Having a number of different suppliers’ products is not challenging from an in-servicing perspective because a limited number of clinicians utilize these products, all of whom are proficient at using several different suppliers’ products. While there may be inventory-holding costs for holding multiple suppliers’ products, if the approximate pattern of usage of suppliers’ products is known, excess inventory should be minimal. For instance, a catheterization lab that utilizes 50 guidewires a day by one supplier and wants to hold two days worth of inventory would carry 100 guidewires. Another lab that uses 20 guidewires a day of supplier A and 30 of supplier B that wants to maintain two days’ worth of inventory would also need to hold 100 guidewires—40 from supplier A and 60 from supplier B. Certainly, organizing one shelf versus two shelves may be easier; however, the traditional view of narrowing the supplier base to lower inventory holding costs is often overstated for situations like this. Interestingly, from a supplier standpoint, the cost structure to support a specific volume of sales in nonsticky categories is likely to be different from operationally sticky categories. For example, proportionally speaking, in a typical hospital setting, supplier representatives are physically present for many fewer cases that utilize guidewires and stents than in those utilizing spinal implants or orthopedic implants. Also, while suppliers of nonsticky categories are often willing to establish a consignment of product for a particular area in the hospital, the inventory turns (number of times per month the total value of product inventory gets used completely) on their consignment volume are much greater than in sticky categories, and hence, as a percent of sales, their working capital investment (value of products that a supplier has created but has not been paid for by a hospital) is often less. The scale advantage for a supplier when a hospital standardizes to a single supplier for a particular nonsticky product category is significantly less than it is for a supplier of an operationally sticky product category. The cost to manufacture the product does not change if a single hospital chooses to standardize to a particular guidewire, and the proportion of a representative’s time spent at an account relative to sales volume will likely increase or stay the same. Given these realities for both hospitals and suppliers, though, many hospitals still continue to utilize the same standardization approach to addressing costs in nonsticky categories, and suppliers continue to play along—offering the largest discounts to those customers who can commit to purchasing a large percentage of a particular supply from them.

THE CROSSWALK STRATEGY FOR NONSTICKY PRODUCT CATEGORIES Some hospitals are developing different strategies for handling nonsticky product categories—approaches that are more in line with the operational and fiscal realities for both suppliers and the hospital. One method involves maintaining a constant competitive marketplace for nonsticky product categories in which actual use of a specific product in a particular case can be influenced by the pricing. Executing the strategy essentially involves establishing crosswalks for a particular product category. A crosswalk is a grid of similar products within

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a category offered by different suppliers that demonstrates pricing differentials between competing suppliers’ products. A well-constructed crosswalk built with input from the clinical community and then routinely communicated to physicians can help ensure that cost is at least partially taken into consideration in making product use choices. When contracting under this strategy hospitals must ensure that product pricing is not tied to any specific volume or share commitment to purchase a particular product. For many nonsticky categories, the crosswalk strategy can be effective at lowering a hospital’s cost base—and has several distinct advantages over contracts that require a commitment of volume or share to a particular company. In nonsticky categories like interventional cardiology or interventional radiology, numerous suppliers routinely introduce slight variations on the same technology. If compliance or volume contracts are in place with a supplier that falls behind in this constant leapfrogging process, hospitals must either deny access to a potentially more attractive technology or lose discounts from a primary supplier. On the other hand, if a hospital is employing a crosswalk-based strategy with no commitments (except to provide pricing transparency to clinicians), a new technology could be utilized, where appropriate, without jeopardizing other pricing—as long as the new technology is fairly priced. In fact, if appropriately executed, hospitals may be able to negotiate with a supplier looking to introduce a new technology into the hospital at a discount relative to incumbent product pricing. If this discounted pricing does drive increased usage of the new product, it also creates competitive pressure for the incumbent to lower prices to preserve or regain share. For example, in the relatively crowded interventional radiology/vascular surgery marketplace, some suppliers have done just that for new stents. Also, because hospitals typically get reimbursed for inpatient cases at a fixed rate, regardless of whether they use one supplier’s product for the case or another supplier’s, having competitive pricing across various suppliers for a particular procedure better aligns a hospital’s revenue streams to its costs for a particular procedure. In the current paradigm, where most significant contracts are based on compliance or volume commitments, medical device companies’ research and development (R&D) strategies are driven by the goal of creating a broad product line, where hospitals could reasonably commit a significant volume or share, and less by a desire to gain share by offering products at extremely competitive prices. The current compliance- or volume-based contracting stifles competition from smaller companies who may be able to compete on price for specific products but often do not have the resources to develop and market a complete line of products. Hospitals with compliance- or volume-based contracts often cannot entertain these suppliers’ products because of the impact on their compliance contracts within a category.

CHALLENGES IMPLEMENTING THE CROSSWALK STRATEGY Implementing the crosswalk strategy offers several challenges. First, developing a crosswalk and maintaining it in the face of continuous new product

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introductions in complicated product categories takes dedicated supply chain personnel who can keep abreast of changes in products, pricing, and features within specific product categories. Second, hospitals that attempt to utilize a crosswalk strategy with suppliers that are not accustomed to competing in this manner will face significant resistance establishing fair pricing without making a commitment to purchase a specified volume or share. Finally, the greatest challenge rests on the ability of the hospital to engage its clinicians. Establishing the credible threat of clinicians making price the decision-driving attribute when they are clinically indifferent between specific products is vital to how receptive suppliers will be to provide fair pricing without a volume commitment. A supplier that sees its sales drop significantly with the introduction of a clinically similar product by a competitor that is less expensive incentivizes the incumbent supplier to try to earn back share with lowered pricing or truly improved features. Because many devices cost only 25 to 40 cents on the dollar to manufacture, providing some discount on a product to ensure its sale is better for suppliers than not making the sale at all. Thus, if the challenges described above can be overcome, the crosswalk approach could be effective at not only lowering prices, but also ensuring physician access to a wide array of clinical technology. For a hospital that is looking to improve its cost-containment strategy, understanding its cost base in a more nuanced way than just spending by category or spending by vendor, and then taking different strategies in addressing different categories of spending is vital. The above discussion related to sticky and nonsticky categories and associated crosswalk strategy is a significant departure from the standardization approach that has characterized hospital supply cost reduction efforts to date. The ongoing competitive pressure on suppliers that this strategy can create resembles more the competitive forces created by retailers on manufacturers in the retail industry than the type of competition medical device companies typically face. Michael Porter and Elizabeth Teisberg writes, “The wrong kinds of competition have made a mess of the American health care system.”15 Although their thesis does not explicitly address hospital clinical supply costs, the same concept applies. By redefining the nature of competitive strategy for certain nonsticky product categories, hospitals can improve supply cost management by bringing the right competition to bear.

ENGAGING CLINICIANS ON CLINICAL SUPPLY COSTS Clinician engagement is not only a valuable element of implementing the crosswalk strategy, as described above, but is a requisite element for success regardless of what strategy is utilized to address costs in any category of supplies. Identifying the importance of engaging the end user is not revolutionary. Any centralized procurement group, regardless of the industry or particular commodity group in question, is continuously challenged to develop a close working relationship with its internal clients. For example, centralized procurement functions in a consumer packaged goods or pharmaceutical company will often face challenges in their efforts to engage these companies’ sales and marketing divisions for their major

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advertising contracts. A vice president (VP) of marketing and an interventional cardiologist will likely voice the same concerns when faced with the prospect of working with a procurement professional on a purchasing project: “Purchasing doesn’t understand the complexity of what I need to do,” or, “Purchasing is only viewing cost as an important criterion.” In the advertising scenario above, both the VP of advertising and the procurement professional are typically employed by the same entity, whereas in many hospitals, physicians are not employees of the hospital while the procurement professionals are. For the most part, the analogy is accurate, and in both cases, the challenge of engagement of end users must be addressed in order to lower costs. Some hospitals have already taken steps to engage clinicians. Over the last decade, a number of hospitals and GPOs have hired nurses as part of their procurement arms to connect with clinicians on procurement-related activities.16 Nurses play a significant end-user role in the hospital, utilizing a vast amount of supplies for the day-to-day care of patients. Having similarly credentialed professionals within hospital procurement helps to address end user fears that “purchasing doesn’t understand the complexity of what I need to do and is only concerned about costs.” Much of the progress in lowering supply costs in hospitals over the last decade has centered on general medical-surgical floor supplies utilized by nursing. Supply categories like needles and syringes, drapes and gowns, exam gloves, bandages and gauze—often termed general medical-surgical supplies—are typically no longer viewed as sources of concern within the clinical supply cost base. For these general medical-surgical supply categories, having nurses who can connect with patient care nurses was an important element of the hospitals’ success controlling costs in this area.

THE IMPORTANCE OF PHYSICIAN STAKEHOLDERS Lowering clinical costs within a hospital must involve successfully addressing the increasing proportion of a hospital’s supply base that is driven by technologically advanced supplies utilized by physicians—primarily in the operating rooms and interventional suites of a hospital. For many medical centers whose business model is driven by its physicians performing procedures on patients in these venues, physician preference supplies can be a greater proportion of the clinical spending base than general medical-surgical supplies and typically represent a greater savings opportunity.17 While the importance of these subsets of supplies within the scope of the clinical supply cost base has been clearly identified, actual engagement of physicians as partners in the effort to address these costs, however, has been difficult to achieve for many hospitals. One of the barriers to hospitals working effectively with physicians to lower costs is the perceived relationship between physicians and the suppliers from whom hospitals procure products. Whether these relationships are focused on consulting activities, where physicians offer their expertise to suppliers in marketing a particular product, or research activities, where physicians offer their expertise to suppliers as they develop their next generation devices, hospital supply chain professionals view them as a

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necessary evil. These relationships have been sensationalized in the lay press and in the hospital materials management literature as creating a significant conflict of interest that aligns physicians’ interests with suppliers’ interests, more so than with a hospital’s interests.18 However, this type of conflict is not dissimilar to the conflict created with suppliers in any industry that utilizes their sales and marketing dollars to influence decision makers within an organization. To return to the VP of marketing analogy, no doubt many of his or her suppliers/advertising agencies court his or her favor through dinners, outings, and other promotions, and any effective efforts at procuring the most cost-effective advertising agency require overcoming any potential impact or conflict of interest created by such activities. Given the intense scrutiny medical device manufacturers face related to their sales and marketing approaches with physicians,19 hospital procurement organizations might actually be better positioned not to allow those types of conflicts to interfere than in other industries. For example, the Advanced Medical Technology Association (ADVA-MED), the largest trade association representing medical device manufacturers, recently updated its “Code of Ethics for Interactions with Health Care Professionals” to reflect growing concern within the healthcare sector about the appropriateness of various relationships between medical device companies and healthcare professionals.20 While promulgating this code does not eliminate the potential influence that relationships between medical device companies and healthcare professional may have, it does, at a minimum, set some commonly understood expectations for these activities.

THE DIFFICULTY IN COMPARING MEDICAL DEVICES One of the challenges raised by hospital procurement organizations is the difficulty in determining whether a particular device is better than or equivalent to another. The intrinsic value of a certain device relative to others can be difficult to gauge for a nonphysician, and as such, choices made by a particular physician to utilize one device versus another are difficult to understand in the context of price differentials between the two devices.21 Similarly, hospital procurement officials feel challenged to understand why standardizing a certain product category to one supplier is not possible. Unfortunately, this difficulty in understanding nuanced clinical differences between products on the part of hospital procurement professionals, in the setting of the perceived conflicts created by the physicians’ relationships with suppliers, creates the conditions for mistrust between these parties. However, in many cases, the mistrust is not warranted and gets in the way of making progress in addressing supply costs. Again, the analogy of advertising service procurement is apropos. The nuanced differences in the approach, areas of expertise, and experience of a particular agency for a specific promotional campaign may be incomprehensible to a procurement professional who does not have a background or experience in that field. But for a VP of marketing, these differences could be worth a premium. The problem, and solution, in both instances is less about the specialized products and services that are being procured and

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more about the mindset of the procurement organization. If there is no effective dialogue and desire to gain an understanding of the complexities, for example, of one guidewire versus another or one stent versus another, it is highly unlikely that a hospital procurement organization will be very effective in developing an approach to manage the costs of guidewires and stents. Given the difficulty in understanding the differences between similar supplies sold by different vendors, there has been significant desire to use outcomes evidence to help distinguish between supplies’ performance in an objective fashion.22 In a similar vein to a marketing group tracking the return on investment on their specific advertising investments with a particular agency, hospital administrators, in the areas of procurement and quality, view clinical trial results as a helpful tool in understanding the intrinsic value of specific devices. Unfortunately, for proponents of evidenced-based discussions related to procurement of physician preference items with physicians or suppliers, there is scant evidence in the literature about any of the device categories that are significant expenses in the supply cost base of a hospital. There are a number of reasons for this (see sidebar, below). The actual volume of patients who might be eligible to participate in a trial between so-called similar devices is relatively small, especially when compared with a pharmaceutical trial. For example, the number of patients enrolled in trials of the cholesterol lowering drug Lipitor, one of the most widely studied pharmaceuticals on the market, is greater than 800,000,23 while one of the most closely studied medical devices, the Taxus drug-eluting stent by Boston Scientific has pooled trial data on 3,445 patients.24 Also, unlike pharmaceuticals, clinical device trial results can be significantly impacted by the actual operator involved in the trial. The highly skilled, experienced, trained senior physician may achieve better outcomes using any guidewire for a particular case relative to a less skilled or less experienced physician. Likewise, a physician accustomed to utilizing a particular product for decades to perform a specific procedure may see a drop in quality or outcomes if he or she switches to utilizing a different product for the same procedure, regardless of the relative quality of the two products. Controlling for these types of variables is extremely difficult and requires significantly larger studies. As a result of these difficulties, few true outcome-based studies have demonstrated clear superiority of one particular type of device versus another in the same class of product. In the largest head-to-head device versus comparable device trials conducted, investigators examined outcomes differences between two competing drug-eluting stents—Cypher, manufactured by Cordis, a division of Johnson and Johnson, and Taxus, manufactured by Boston Scientific. The REALITY trial randomized 1,386 patients across 90 centers worldwide to receive either a Cypher or Taxus stent, but the results were inconclusive. The principal investigator in the trial, Dr. Marie-Claude Morice, comments, “There are not enough data to select one drug-eluting stent over the other. They are both very durable and very efficient to prevent restenosis . . . . There is no one good and one bad, one ugly and one marvelous. The reality’s not there. We are in small differences and I think we need much more data to dramatically change the practice.”25

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The converse—that no data to support the superiority of one device over another implies the devices must be equivalent—is not appropriate either. The lack of evidence, again, may be a function of the challenges inherent in actually conducting a trial of this nature and may not be a function of the superiority or equivalence of any particular device. In the case of a physician in any hospital choosing one drug-eluting stent versus another for a specific patient, factors such as specific patient anatomy, experience deploying one stent versus another, and availability of a particular size stent are all factors that may play into decision making. Despite evidence showing the two stents to be equivalent, physicians faced with choosing a specific stent for a specific lesion are often forced to make decisions that rely on their own clinical judgment and not on any documented study result.

Difficulties Making Evidence-Based Comparisons between Medical Devices • • • •

Inadequate volume to power statistically significant trials Outcomes are operator dependent to begin with Changing supplies often involves a learning curve Operator based clinical judgment is relevant

FURTHERING THE DIALOGUE ON SUPPLY COSTS WITH PHYSICIANS Engaging physicians about their use of high-expense items involves moving beyond some of the misconceptions described above and developing a more robust trust- and transparency-based dialogue on the decision-making and financial impact of specific device selection. All too commonly, the preconceived notions of physicians’ decisions being driven by nefarious supplier relationships and hospital procurement’s decisions being driven by a mindless drive towards standardization to a single supplier dominate and, ultimately, doom this dialogue to failure. Also, misinterpretation and utilization of evidence in discussing product choice can also create situations where physicians and hospital procurement are talking past one another and not with one another. Some hospitals, however, have begun to take the dialogue to new levels, in particular, while utilizing the crosswalk strategy described above. This strategy involves providing pricing transparency for relatively similar products to physicians in an organized manner to gain physician champions’ support to shift greater usage toward lower-priced, clinically equivalent products. Over time, other than creating a continuous downward pressure on pricing, the approach engenders a trust-based working relationship that allows hospital procurement professionals to understand clinical product selection in an ongoing manner and allows clinicians to see their input reflected in the hospital’s contracting approach.

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Some hospitals have begun employing physicians in their sourcing departments or increasing the involvement of administrators with medical credentials (i.e., chief medical officers and chief quality officers) to reduce hospital supply costs. All of these approaches are aimed at fostering the development of a productive relationship between hospital procurement officials and physicians who utilize physician preference items. As medical device technology continues to advance, driving more of the hospitals clinical cost base towards physician preference items, efforts to build the foundation for effective physician engagement will be well rewarded.

CONCLUSION In the current environment, the size of suppliers’ gross margins (total sales – cost to manufacture their products) do not provide a strong incentive to improve operating efficiency. Suppliers whose research and development, manufacturing, or sales and marketing activities are inefficient can compete in today’s hospital supply marketplace by masking their inefficiency with high prices that go effectively unchallenged in many hospitals. However, if hospitals become more effective at improving supply cost management, the resulting pressure to provide competitive pricing for clinical supplies will force suppliers to improve their efficiency in all areas in order to maintain profitability. Increased pricing pressure in what have been typically viewed as technology-driven markets will cause suppliers’ R&D groups to orient their activities less around minor technical advances for a product and more around approaches to reducing the cost of manufacturing a product. Currently, there is very little reason for this type of R&D manufacturing-process focus because suppliers have typically been able to extract higher prices from hospitals for products of each successive device generation. Ultimately, creating the impetus for process efficiency improvements and reallocation of resources within the supplier base now could lower the growth trajectory in this large segment of U.S. healthcare spending. While suppliers may not find this scrutiny and pricing pressure pleasant, this result would be welcomed by most healthcare stakeholders given the unsustainable cost pressures on our healthcare system.

Key Concepts • Although clinical supply cost management is an important element of a hospitals’ financial performance, progress to date has been primarily based on utilizing basic sourcing tools and techniques common to many industries. • To achieve a greater impact, however, in the higher cost physicianpreference categories such as electrophysiology implants or drug-eluting stents, hospitals must apply different strategies and establish greater engagement with the physicians who utilize these products.

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• Hospitals fostering greater pricing pressure on medical device companies could help spur improvements in medical device companies’ operating efficiencies in sales and marketing and reorient R&D activities to focus on lowering manufacturing costs of healthcare technology.

Glossary • GPO: Group purchasing organization—an organization that aggregates purchases of various products for member hospitals with the aim of negotiating discounted pricing on behalf of its members. • Operational stickiness: Refers to the extent to which a supply is built into the operations of the unit or units where it is utilized and, by extension, the difficulty created by changing supplies or having multiple types of similar supplies available. • Crosswalk strategy: Describes an approach to lower supply costs by maintaining a constant competitive marketplace useful in specific product categories where a grid of similar products within a product category (a crosswalk) is utilized to demonstrate pricing differentials between competing suppliers’ products and help drive usage toward lower cost products. • Commitment-based contracts: Contracts typical in many medical device product categories where suppliers provide specific discounts based on a hospital’s commitment to purchase a certain volume (units) of a particular product, or maintain a certain percentage (share) of the suppliers’ products in relation to competitors’ products in the same category. • Gross margins: Financial ratio characterized as the total sales for a product minus the cost of producing the product, divided by the total sales of a product. • Internal clients: Term used within procurement departments to describe colleagues from other parts of their organization whom they assist in making purchasing or contracting decisions.

NOTES 1. Cable News Network LP, LLLP. A Time Warner Company. 2006. “Fortune 500, 2006: Our Annual Ranking of America’s Largest Corporations,” Fortune, April 17, 2006. Available at: http://money.cnn.com/magazines/fortune/fortune500/. Accessed January 2, 2007. 2. California Healthcare Foundation. 2006. Snapshot: Health Care Costs 101. Available at: http://www.chcf.org/documents/insurance/HealthCareCosts06.pdf. Accessed December 15, 2006. 3. Schneller, E. S., and L. R. Smeltzer. 2006. Strategic Management of the Healthcare Supply Chain. San Francisco: Jossey-Bass, 2.

The Next Frontier in Addressing Clinical Supply Costs in Hospitals 175 4. Brin, D. W. 2005. “Hospitals Look to Pare Costs, Share Savings With Physicians.” Wall Street Journal, March 29. Available at: http://users2.wsj.com/lmda/do/ checkLogin?mg=wsj-users2&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2F SB111204797928891196.html%3Femailf%3Dyes. Accessed January 25, 2007. 5. Schneller and Smeltzer, 215–227. 6. Hendrick, T. E. 2007. Purchasing Consortiums: Horizontal Alliances Among Firms Buying Common Goods and Services; What? Who? Why? How? Available at: http:// www.capsresearch.org/Publications/pdfs-public/hendrick1997es.pdf. Accessed November 15, 2006. 7. Bower, A. G. 2005. “Federal Investment in Health Information Technology: How to Motivate It?” Health Affairs 24 (5): 1263–1265. 8. Schneller and Smeltzer, 53. 9. Citigroup Investment Research, Health Care Facilities Group. Personal communication, September 11, 2006. 10. Healthcare Financial Management Association. 2006. “Should You Be Negotiating More Aggressively with Medical Device Companies?” Supply Chain Solutions 2 (4): 12. 11. Bloomberg Financial. 2006. Summary Financial Report for Medtronic, Boston Scientific, St. Jude, Guidant, Bard, Baxter, Edwards, Zimmer, Becton Dickinson, Alcon, FY 2002–2005. 12. Medtronic. 2006. Medtronic News Releases. Available at: http://wwwp.med tronic.com/Newsroom/NewsReleases.do?category=category.businessunit&subcate goryId=1095197591862&lang=en_US. Accessed January 25, 2007. 13. Schneller and Smeltzer, 72. 14. Healthcare Financial Management Association. 2002. Resource Management: The Healthcare Supply Chain 2002 Survey Results. Available at: http://www.hfma. org/NR/rdonlyres/B35AA31C-D1BE-4BD5-B41A-569B864F8A17/0/scsurvey.pdf. Accessed September 15, 2006. 15. Porter, M. E., and E. Olmsted Teisberg. 2004. “Redefining Competition in Health Care.” Harvard Business Review (June): 65–76. 16. Schneller and Smeltzer, 81. 17. Joshi, A. S. 2007. “NYPH Reduces Physician Preference Costs by $40 Million with a Homegrown Approach.” Supply Chain Solutions 3 (1): 8–10, 12. 18. Abelson, R. 2006. “Whistle-Blower Suit Says Device Maker Generously Rewards Doctors.” New York Times-Business, January, 24, 2006. Available at: http://www. nytimes.com/2006/01/24/business/24device.html?ex=1295758800&en=fda96725 616cb077&ei=5088&partner=rssnyt&emc=rss. Accessed December 14, 2006. 19. Jones, J. W. 2005. “Medical Device Manufacturer Relationships.” Physician’s News Digest. Available at: http://www.physiciansnews.com/law/205jones.html. Accessed December 1, 2006. 20. Advanced Medical Technology Association: Advamed. 2005. Code of Ethics for Interactions with Health Care Professionals. Available at: http://www.advamed.org/ publicdocs/coe_with_faqs_4–15–05.pdf. Accessed December 15, 2006. 21. Schneller, and Smeltzer, 39. 22. Ibid., 82. 23. Pfizer Corporation. 2006. Lipitor: Important Facts. Available at: http://www.lipitor.com/cwp/appmanager/lipitor/lipitorDesktop?_nfpb=true&_pageLabel=lipitor FactsAbout. Accessed September 15, 2006.

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24. Baim, D. S. 2006. “Update—DES Stent Thrombosis and Long-Term Safety Profile.” Letter to Colleagues, September 20, 2006. Available at: http://www.taxusstent.com/usa/BaimPhysicianLetterThromb09202006.pdf. Accessed November 20, 2006. 25. Angioplasty.org. 2005. Drug-Eluting Stent Trials at the 2005 ACC Scientific Session. Available at: http://www.ptca.org/articles/acc2005_summary_f.html. Accessed October 15, 2006.

CHAPTER 8

Liability Risk Management: Saving Money and Relationships Kathryn K. Wire

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nlike medical specialties or financial services, risk management is a difficult activity to define. It has evolved haphazardly in healthcare, and while there are healthcare risk-management organizations, they do not spell out scope of practice or standards of practice. To understand risk management in today’s healthcare environment requires some general background, some historical study, and a willingness to look in a new direction: at our patients instead of ourselves.

THE 20,000-FOOT VIEW Generic risk management has five fairly simple steps. Knowing them can add to a deeper understanding of the other concepts discussed below. Applying this framework can also assist providers contemplating a new or changed risk in their practice environment.1 The five steps: • Identify and analyze loss exposures. Traditional healthcare risk management defined loss as a malpractice indemnity payment or expense.2 An exposure is the source of the loss. For example, the loss is a payment to parents of a brain-damaged newborn and the birth of the child is the exposure. Insurance companies and actuaries measure potential losses by counting exposure units, including inpatient days, bed counts, outpatient procedures, the number of covered physicians, emergency department visits, and so forth. Exposures can be further subdivided into specific groups, such as counting newborn deliveries and identifying the number of high-risk births, or counting surgeries and further quantifying

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the number of bariatric procedures. Different exposures present different sorts of possible losses, or risks. • Examine risk reduction techniques. Often, several paths can lead to reducing or eliminating a financial risk. Five are typically used, alone or in combination.

• The most clear-cut method is the complete avoidance of the exposure. A hospital that admits no patients cannot incur malpractice exposure. A hospital with no obstetrics unit or emergency room would similarly avoid some risk. A physician who no longer performs surgery has avoided surgical risk exposure. A freestanding clinic may contract with a specialized provider to perform all radiology studies, thereby avoiding the risk of incorrect reading. This approach has obvious disadvantages, in that it limits available healthcare and also constrains revenue to providers. • Providers can also engage in loss prevention, which reduces the likelihood of an adverse event in the course of encountering a risk. For example, time-out protocols before procedures are designed to prevent wrong-site surgery. Sponge and instrument counting during surgery prevents inadvertent retention of foreign objects. • Another approach is loss reduction, in which the provider takes steps to mitigate the effect of an event once it occurs. Saving placentas for later analysis is an example. If a newborn does badly, the placenta may be evidence to show the inevitability of the injury, potentially reducing the extent of the loss. Routine postoperative X-rays to detect retained objects in high-risk surgical cases do not prevent the adverse event, but they can significantly reduce the injury resulting from a retained object like a sponge. Postincident event management, including outcome disclosure and negotiation, is another form of loss reduction. • Segregation of loss exposures consolidates a risk in one location or department so a provider can maximize both loss-prevention and loss-reduction strategies through specialization and/or development of special protocols. For example, a company with long-term care facilities may keep all of its ventilator-dependent patients in one building. Segregation can also put selected high-risk activities in preferred judicial venues, where judges and juries have found more favorably in past malpractice cases. • Contractual transfer of exposures occurs when one party compensates another to assume a risk. The financial risk shifts through either contractual indemnification provisions (in which one party agrees to compensate the other for loss) or the purchase of insurance. In either case, the parties negotiate a transaction in which one assumes certain liabilities that might otherwise fall on the other.

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• Select the best technique for the identified risk exposure. Often this step presents significant challenges. Many techniques have grown out of patient safety work in the last decade that looked at system analysis and redesign. They can be helpful. Examples include failure mode and effect analysis, human factors study, and various tools for statistical examination. • Implement the selected technique. At this point, the effort changes from investigation and planning to change management and operational leadership. More than the other steps, implementation requires multilevel support in the organization to facilitate the necessary changes. Selection of suitable training and learning methods can be critical at this point. • Monitor, evaluate, and improve the program. Is it accomplishing the desired improvement? If not, fix it. This outline of possible approaches to risk hints at a number of areas typically involved in a comprehensive risk management program: insurance management, contract review, incident review and analysis, claim management, staff education, and performance improvement techniques. All are relevant in any risk management program. Healthcare presents unique issues that merit more extensive consideration. Most arise from the dual nature of the patient/provider relationship. Patients are consumers of our services, but they expose themselves physically and emotionally to healthcare providers in a manner that differs greatly from, say, buying a car. The special provider-patient relationship leads to a unique trust in healthcare providers, far more comprehensive than trust in other service suppliers.3 Research is demonstrating that a provider’s malpractice risk profile changes dramatically if the provider and staff nurture and protect that relationship, and healthcare risk management has started to evolve as a result. Later sections of this chapter discuss those developments in more detail.

RISK MANAGEMENT IN HEALTHCARE Risk management in healthcare has always involved aspects of clinical loss prevention, event management, claim management, education, and insurance oversight. In a facility or practice, the risk manager handles some or all of those tasks. However, the specific characterization of the risk management function remains a moving target. Often, it helps to begin defining risk management by what it is not.

Risk Management Is Not Patient Safety The twenty-first century advent of the patient-safety movement has confused the risk-management picture. Though critically important, the systematic improvement of patient care promoted by patient safety advocates does not

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currently address most of the risks that lead to malpractice losses. Accordingly, it remains a separate discipline from risk management, though they are clearly related and often accomplished by the same department using some of the same tools. Risk managers identify the patient-care issues that generate claims. These often differ from patient-safety concerns raised by regulatory or reimbursement agencies (such as Joint Commission for the Accreditation of Healthcare Organizations [JCAHO] core measures, the 100,000 Lives initiative, etc.). While those issues may drive patient outcomes in a general sense and may impact hospital earnings by reducing unnecessary cost, they are often not the source of malpractice suits. Patient-safety efforts have independent value, but they often do not meet risk-management needs. The two disciplines have to be considered separately.

Risk Management Is Not Clandestine Historically, risk managers worked in dark corners, conducting confidential investigations they could not share out of fear that sharing the lessons learned would generate additional liability. Incident reports and the valuable data they contained were hidden in filing drawers. Attorneys discouraged risk managers from discussing cases until they had been resolved, often many years after the underlying event. Now, research indicates that the source of most malpractice suits is a broken relationship with patients and their families.4 When a perceived poor outcome occurs together with a problematic relationship, a claim often results.5 Claimreduction processes must focus on the patient/family relationship and the care, but fixing the relationship will have the greatest impact. This requires communication and trust, not secrecy; this is why risk managers have to become broad-based educators and facilitators of disclosure. Prompt efforts to identify and solve care problems are essential to keeping the patient relationship intact.

Risk Management Is Not Enforcement As healthcare in the United States rushes toward a major shift in the twentyfirst century to transparency and patient-centered care, risk management’s role will change. In the past, risk management often functioned like the principal’s office—staff members hesitated to report things, fearing that they would get in trouble. Risk managers educated providers in their facilities by invoking fear of lawsuits, not other benefits of low-risk care. Because the healthcare community believed malpractice risk arose primarily from dangerous clinical practices, risk managers were viewed as the enforcers of good care. We have learned that inducing change in clinical practice requires much more than a lecture from risk management and that clinical practice seldom related to the likelihood of a suit, anyway.6 Slowly, risk managers’ tools are changing from fear

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and threats to collaboration and partnership. Education has moved far beyond, “If you don’t document it, you didn’t do it.” Risk management education in the twenty-first century will focus proactively on interpersonal relations, not on documentation of past events or deposition preparation. Rather than making providers afraid of their patients, the new wave of risk managers will help providers engage in dialogue with their patients, embracing the uncertainty and conflict necessary for healthy and productive resolutions. To understand how that change will occur, it is important to look at the history of the still young field of healthcare risk management.

THE BEGINNING Prior to the mid-1960s, medical malpractice was a relatively rare concern. Nonprofit healthcare institutions were protected by charitable immunity (for-profit systems were rare if they existed at all), and malpractice suits were filed against physicians personally. Courts did not recognize a legal duty on the part of the hospital, holding instead that the physician managed the care and had legal responsibility for meeting the standards. Both the legal and medical climates inhibited large jury awards against physicians; insurance adequacy and cost were not issues.7 In the 1960s, states began to hold hospitals liable for their own negligence, either for the acts of their employees or for failing to act where there was a clear problem with the patient’s care by others,8 and states began to reduce the protections of charitable immunity.9 Changes in reimbursement models made healthcare providers more conscious of costs, so they behaved more like businesses. The resulting institutional behaviors and the increasingly frequent presence of large organizations as defendants made suits less personal, and claims against physicians and hospitals became more common and more successful. By 1975, malpractice insurance had become an unattractive product for the insurance industry. The policies issued by malpractice carriers typically provided occurrence-based coverage—they covered the insured for any event that occurred during the policy period. Most statutes of limitation don’t begin to run until a patient reaches the legal age of majority, or adulthood; most also have some provision to keep the limitations period from expiring before the plaintiff even becomes aware of the injury. When these provisions apply to medical malpractice cases involving children or very subtle injuries, they can create very long tails—the delay between an occurrence and the ultimate determination of liability. Insurers found they were dealing with losses on policies issued years and sometimes decades before, purchased at lower premium levels based on the perceived exposures in that earlier era. This is still a problem for malpractice insurers, and has led to the predominance of the “claims made” policy, which covers only claims asserted during the policy period. Premiums began to go up, and many of the large hospitals and growing health systems initiated self-insurance programs in the mid-1970s, while physicians

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began to form physician-owned or mutual companies.10 The risk management profession first appeared during this period, largely driven by the need to control burgeoning professional liability exposures, now borne increasingly by the healthcare providers themselves. Facing more financial responsibility for their own risk, facilities and physician groups began to appoint so-called experts to reduce that exposure: risk managers. Risk managers come from a variety of backgrounds, and the focus of a risk management program often depends on whether the designated individual had a legal, insurance, administrative, or clinical background. However, the risk managers and insurance companies all looked in one direction for early guidance. To protect themselves from malpractice losses, they reasoned, they needed to talk to the people involved in those losses—their attorneys. Attorneys told the healthcare providers why they lost trials. The risk management field became very adept at identifying factors that made lawsuit defense difficult: poor documentation, witnesses who do not present well, bloody or disturbing medical presentations (where a picture is worth a thousand words and some dollars), or a smoking gun document such as an altered medical record. But risk managers failed for decades to examine the more important questions. How can we avoid the litigation process altogether? What behaviors will render the quality of our employees as witnesses irrelevant, allowing us to focus instead on their quality as providers of care? How can we relate to our patients so they don’t feel the need to sue? Attorneys took a weak stab at this relationship issue with their platitude, “People don’t sue doctors they like.” While risk managers everywhere understood the basic truth of this concept at some level, they rarely took it farther. Eventually, it became apparent that healthcare’s risk management focus on documentation and retrospective clinical improvement was not working. The mid-1980s brought another crisis in coverage availability and cost, as loss frequency and severity mounted. Researchers began to search for the factors that actually caused patients and their families to sue healthcare providers. Two related factors jumped out of their research. First, the malpractice litigation system did not work very well.11 It was slow to resolve issues, the results were not very accurate,12 the occasional unfounded verdict encouraged baseless lawsuits, and physicians afraid of suits began to practice defensive medicine.13 One key finding came out of the early research at Vanderbilt University: the incidence of claims and suits rarely related to the underlying quality of the medical care provided by the defendants. As one of the researchers described his motivation: “[T]he challenge is to identify what can be done to reduce the number of unfounded claims while simultaneously permitting legitimate claims to proceed.” Although a bad outcome was often present and presumed to have caused the lawsuits, something else distinguished the patients who sued—they could not get what they needed at a personal level. Put another way, the healthcare providers had destroyed their trust.14

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IMPROVING RELATIONSHIPS: THE PATH TO REDUCING LAWSUITS AND LOSSES AND IMPROVING CARE Curious about the true causes of suits, Gerald Hickson, a professor of pediatrics, and his colleagues at Vanderbilt University began by questioning families who had filed claims against Florida obstetricians. He and his fellow investigators found that less than 25 percent of the families asserted a claim because they needed money. An equal number indicated they filed because they recognized a coverup. Many reported failed communication resulting from physicians who would not listen or talk openly, attempted to mislead them, and/or did not talk to them about the long-term prospects for their children.15 Hickson has established the following key factors about malpractice claims: • The quality of care delivered by high-claim and low-claim doctors is indistinguishable.16 • Doctors with high-claims experience generate more complaints when their patients are surveyed.17 • Doctors with many patient complaints tend to have many malpractice claims regardless of the quality of care.18 • A substantial portion of complaints were relationship based, not clinical.19 • Patients with complications affecting their clinical outcome are more likely to complain.20 Essentially, Hickson and his colleagues have given us a picture that shows most suits or claims relate to poor communication or relationship skills, not the quality of care. They do, however, correlate to poor outcomes. A poor outcome, when combined with a previously difficult relationship or one that fails after the adverse event, plants the seed for a suit.21 Poor outcomes in the absence of relationship problems are much less likely to generate a claim. None of these indicators points to a poor quality of care as a definitive factor, just poor outcomes. Because healthcare providers can expect unavoidable poor outcomes to continue in spite of quality medical care, it makes sense to focus on the thing that does differentiate high-claim versus low-claim scenarios: relationships. Hickson and his colleagues found that malpractice claims experience, though unrelated to the quality of care, was predictably higher for physicians who had unsolicited complaints in four areas, as further broken down by the study’s authors22: • Communication (poor communication, did not listen, poor doctor to doctor communication, doctor jousting, who’s in charge) • Care and treatment concerns (treatment problem, diagnosis problem, adverse outcome whether or not caused by the medical practitioners) • Availability (waiting, rushing, calls not returned, refused recommended care) • Humaneness of the physician (rudeness, angry, yelled at patient)

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In a similar vein, Wendy Levinson and colleagues studied communication patterns by recording patient/physician interactions.23 Their research indicated that low-claim physicians (but not surgeons) had the following characteristics: • They engaged the patients more in the communication process, soliciting their opinions, checking their understanding, and encouraging them to talk. • They did more to orient the patient, educating them about what to expect and how their contact during the visit would flow. • They laughed and used humor more than high-claim physicians. • They spent about three minutes more on average with each patient. (The visit length had an independent impact on the likelihood that a physician had claim activity.)24 When researchers studied tapes of surgeons’ conversations with patients, they identified particular voice tones that correlated strongly with malpractice experience rather than other communication patterns. Specifically, the surgeons who routinely exhibited more dominance and less concern or anxiety for the patient had demonstrably higher levels of malpractice claim activity.23 Research has also demonstrated that patient satisfaction with healthcare providers increases when the provider introduces discussion of difficult but important topics such as domestic violence25 and end of life issues,26 whether or not the issue is resolved. Though their research did not compare behaviors to claim activity, Scheitel et al. found that patients tend not to process information very well during a visit to a physician; for example, a high percentage do not remember many details of the diagnosis.27 As a result, incongruent priorities can result from the encounter. In fact, their research was the basis for the National Health Council’s advertising slogan, “Most People Suffer a 68% Hearing Loss When Naked.” 28 That campaign encouraged patients and physicians to overcome the problem by taking specific steps to improve communication and the retention of information, such as giving written summaries to patients at the end of visits. All these findings indicate that when physician behaviors encourage comfort and communication, both the quality of the medical exchange and the patient’s trust level can improve. Presumably, both factors impact the claims experience of physicians and may go far to explain why fewer than 10 percent of the physicians can account for up to 85 percent of complaints and nearly 50 percent of suits.29 This research addresses only physicians, in part, because of the difficulty in isolating factors in the more complex environment of hospital care. However, risk managers find that bad things almost never happen in isolation, and there is often a collection of events and communication failures contributing to a claim situation. Other clinical and support staff can improve a physician’s risk by substituting their own relationship efforts, or they can make the situation worse by their own failures. Conversely, a physician who handles patient relationships well can mask

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problems with a patient’s relationship with other providers. Effective efforts to improve loss experience must address all the players.

Case Study: The Impact of Trust Postoperative Pressure Sores: Closed versus Transparent Approach In the following actual occurrence, the family did not sue, probably because the complication did not become the life-altering problem it might have. However, the family (prominent in their community) shared their negative experiences with anyone who would listen, a result which also bears significant cost. The case demonstrates the many small ways that healthcare providers of all kinds can contribute to a frustrating, dysfunctional, and unresponsive communication experience for patients.

Facts Barbara, 75, needed a hip replacement. Her doctor sent her to an orientation class at the hospital where she would have surgery; she met the nurses and saw the rooms. She began to feel more comfortable about the upcoming ordeal. Her nurse helped her out of bed on her first postop day (Day 2), and noticed two very large open blisters high on her buttocks. The staff put Duoderm (gel) bandages on them. There was no further discussion of the issue with her family that day. On Day 3, her daughter (a healthcare provider) arrived to help. After the day shift had left, the daughter learned of the wounds. She finally tracked down Barbara’s nurse at about 9 P.M. The nurse on that shift knew nothing of the sores, or of any care plan to take care of them. The bandages had shifted, leaving the sores exposed and very painful. (Barbara’s hip precautions forced her to scoot to get out of bed.) The nurse changed them to large gauze bandages, complaining that there was no care plan and she had no idea what the doctors or her supervisors wanted her to do. However, she was very sympathetic and attentive as she dressed the wounds. Otherwise, the hip was recovering well. The next morning, the surgeon’s physician assistant visited, as did Barbara’s internist’s partner. (Because it was Saturday, her real doctors were off.) The internist assured her that the hospital’s wound care specialist would visit—on Monday. Meanwhile, the gauze had bunched up and was still in place. Because the nurses were transferring Barbara from her inpatient room to the rehabilitation unit, no one addressed the bandage issue until mid afternoon, when the family finally insisted that someone adjust or change them. The nurse commented that the gauze bandages were not the correct type, and put the original gel type of bandages in place. She again indicated that the wound care specialist would be available on Monday. The nurses obtained an air mattress to reduce pressure on the sores. Otherwise, the hip recovery was going well. On Sunday, no one looked at the sores or discussed them. As Barbara began to recover from her surgical pain and became more active, the pain from the sores was an increasing problem.

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The nurse on the unit was obviously flustered all day Monday with a number of new admissions. By afternoon, the family became more insistent, and Barbara’s nurse finally paged the wound care nurse at 2 P.M. When she arrived, the specialist first pointed out that she managed stage three and four wounds, and Barbara’s were documented as stage one and two. However, she did look at the wounds, rebandage them, and explain that the bandages would stay on up to a week and that the home health nurses would check the sites. Because Barbara had been discharged to rehab, her doctors did not visit, only the rehab doctor.

Additional Facts 1. The hospital later explained, in its defense, that they have a standard care plan for skin breakdown on the computer, and the nurses just have to print it and put it in the chart. Each unit has a trained point person for wound care who is supposed to help the staff manage stage one and two wounds. The family never learned of this, much less met such a person, and was highly skeptical about the existence of this structure, at least on the days they needed it. 2. Barbara’s surgeon never discussed the issue with her. When her husband brought it up at their second postop visit, the doctor mumbled that extra weight can do that and tossed a prescription at them. 3. No one ever addressed the cause of the wounds with Barbara. Their placement and timing is highly unusual. Barbara remains suspicious, though she is not sure of what. Her daughter believes Barbara developed pressure sores from a device used to support her in the lateral position for surgery. The family doesn’t know if the hospital has changed its procedures or if they had similar experiences before. 4. Several months after her surgery (covered by Medicare and supplemental insurance), Barbara received a statement, her first from the hospital, which indicated that she owed $38,000 and to please contact the hospital about payment arrangements. 5. No one from the hospital ever called Barbara to talk about the issue. Her daughter complained to risk management about the lack of information for Barbara and the family. In response, the risk manager sent a letter which outlined facts one and two above and summarized the medical record. The letter referred to facts in the medical record that the family are pretty sure never happened. Neither the surgeon nor the hospital suggested a meeting. 6. Barbara recovered from the hip well and continues to improve, though she has scars. The wounds were painful for months. Barbara’s husband told the facts of this disappointing experience to everyone who asked about her.

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A Better Way Barbara, 75, needed a hip replacement. Her doctor sent her to an orientation class at the hospital where she would have surgery; she met the nurses and saw the rooms. She began to feel more comfortable about the upcoming ordeal. Her nurse helped her out of bed on her first postop day (Day 2), and noticed two very large open blisters high on her buttocks. The staff put Duoderm (gel) bandages on them. She printed the computerized care plan for pressure sores so she could begin implementation, and she completed a report so an investigation of the cause could begin. The unit had a specially trained nurse who managed stage one and two wounds, and she reviewed the report and the chart. These were unusual, and she would need to support the investigation into the cause. She approached Barbara and her husband, explaining that the sores appeared to be pressure related, but that they were unusual. She asked for permission to photograph them so the staff on the unit and in the operating room could try to identify the cause, either from pressure or an electrical grounding problem. She discussed the care plan, and told the family what to watch for. She updated all the unit’s records so all subsequent nurses caring for the patient would know what to do. She discussed using an air mattress, but she and Barbara decided the surface would be too unstable for a day or two and they would reconsider it later. She did bring in a special pressure-relieving surface. Each time the nurses moved Barbara, they checked the bandages, replacing them when Barbara’s scooting across the bed dislodged them. When the doctors visited, they asked about the wounds and confirmed to the family that there was no need for new orders. (Before the surgery, her surgeon had educated her about the follow-up hospital care, which would involve visits from a physician’s assistant who was qualified to check her progress and incision.) By the weekend, when the surgeon and Barbara’s regular internist were off duty, she and her family were comfortable with the management of her underlying care and her wounds. Though Barbara and her husband knew that there was a full-time wound specialist for the hospital, they did not need to see her because the wound nurse on the unit continued to communicate with them daily about the status and progress of the wounds. She continued to follow Barbara with a brief daily visit during her stay on the rehab unit. She assured Barbara that the home health nurses who would follow her twice weekly after discharge had extensive experience with pressure sores; in fact, Barbara found the home health nurses very helpful. A week after Barbara’s discharge, the hospital risk manager called her and explained that the hospital had completed an investigation into the development of her wounds. The cause, a mechanism used to support her on her side during surgery, would be adjusted or padded in the future to try and avoid similar developments. There had not been any similar problems in the past, and they were continuing to

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examine what factors in Barbara’s situation had triggered the development of the wounds to avoid that outcome for other similar patients. Though she didn’t tell Barbara, the risk manager had contacted the billing office to make sure that there were no charges related to the wounds, either from the hospital or home care, and that the billing process went smoothly. When Barbara visited her surgeon, he asked about the wounds and told Barbara that the hospital had notified him of the results of the investigation. He would work with them to make sure that the orthopedic surgeons evaluated the need for any additional precautions in other patients.

Case Analysis 1. The nurses and/or physicians should have a frank and open discussion with the patient and family as soon as they notice an unusual situation. If facts remain to be developed, then say so and commit to a time for further discussion. 2. Identify, if possible, the cause of any unanticipated outcome and share it with the patient, as well as efforts in place to prevent it in the future. The complexity of the process will vary with the nature of the issues involved. 3. Share with the patient and family how the situation will affect care, including assessment modalities, treatment, and prognosis. 4. The goal is to get the patient and family all the information they need either when they need it or as soon as it can reasonably be available. 5. Implement support systems to make sure those in contact with the patient have the information they need—and make sure they use it. 6. The providers have to address conflict and frustration as part of the process. 7. The clinical care plan (including physician’s orders) should be open and should constitute the foundation for all clinical discussions of care. 8. Control the billing process and use it as part of your event management. Patients often view it as part of the problem. 9. Educate patients about transitions between providers, such as weekend coverage or to the rehabilitation staff. Who will be available to them? 10. Avoid blaming the event on the patient. In this case, even though Barbara was an overweight mild diabetic with sensitive skin, those were background facts to be evaluated, not a defense. In tort law, you take your plaintiffs as you find them. The research by Gallagher and Levinson and their colleagues supports the content of this communication. Hickson’s research findings on physician demeanor and availability underlie this whole process. If the physicians and staff are cold, unfeeling, or hard to reach, or do not share important information, the communication process simply cannot work well. While Hickson’s research only addresses physicians, assuming that it also applies to other providers can generate no harm.

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Query: How would the end of the story differ if the wounds and the implanted joint became infected? What would the disclosure discussion look like in each of these scenarios, either when the patient needed six weeks of intravenous antibiotic treatment or when the implanted joint had to be removed?

HOW DOES DISCLOSURE FIT? The JCAHO Mandate Partially in response to a perceived conspiracy of silence about errors and poor medical outcomes, the JCAHO in 2001 promulgated a standard mandating, “Patients and, when appropriate, their families are informed about the outcomes of care, including unanticipated outcomes.30 This sentence created a firestorm of discussion and activity, even though its simple intent, as described by the JCAHO, was hardly controversial: The responsible licensed independent practitioner or his or her designee clearly explains the outcome of any treatments or procedures to the patient and, when appropriate, the family, whenever those outcomes differ significantly from the anticipated outcome.” (Emphasis added) Though many feared that unanticipated outcome disclosure would significantly increase claims activity, it has, in fact, had the opposite effect in many well-publicized trials, when combined with prompt and straightforward claim resolution.31 In keeping with the findings that patients want open, respectful communication with their providers, they often responded to disclosure discussions with a willingness to listen and resolve differences reasonably amicably. Some malpractice insurance companies have actually incorporated disclosure and early resolution into special programs that include guidance for physicians as they go through the process.32 The American Society for Healthcare Risk Management (ASHRM) published three monologues to help healthcare providers deal with disclosure of unanticipated outcomes.33 Many independent experts and educators have produced books, videos, and seminars to help providers understand disclosure and accomplish it effectively. With disclosure developing as an apparent improvement over past approaches and with its support from the JCAHO, the next wave of research focused on the willingness to disclose, skill levels for disclosure, and sources of resistance to disclosure in healthcare providers. Studies have demonstrated that patients want full disclosure regarding unanticipated outcomes, including errors. Only recently has the research focused on the provider side of the disclosure discussion. Gallagher et al.34 found that patients simply want a complete discussion of errors and outcomes that will have an effect on them. The primary attributes patients want in a disclosure process: • What happened. • The implications for their health. • Why it happened.

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• How it will be corrected. • How future similar errors will be prevented. • They want information supplied to them voluntarily; they don’t believe they should have to ask. As simple as the process sounds, it becomes more complicated in the application. While physicians superficially endorse disclosure, they often find reasons not to disclose.35 They often define errors differently than patients, including only deviations from the standard of care. Patients, on the other hand, include nonpreventable adverse events, poor service quality, and “deficient interpersonal skills of practitioners”36 as errors. Physicians also report fear of liability as an impediment to disclosure; however, recent studies indicate that liability concerns actually constitute less of a barrier than reported by the physicians. Canadian physicians, who have much less malpractice exposure, disclose in very similar patterns to their U.S. colleagues.37 Gallagher et al.38 proposed that physicians have deeply embedded attitudinal blocks to disclosure and discussion of errors (or patient-perceived errors) that do not directly arise from litigation fear. Their study concluded that fear of malpractice has a relatively small impact on physician attitudes about disclosure. Rather, the training and the culture of medicine have not prepared them for talking about errors, and they lack the skills to do it comfortably. Gallagher points out that his survey demonstrates “how early we are in a culture of transparency.”38 Risk managers are usually central to the management of disclosure processes. Perhaps because they are more involved in disclosure, risk managers are generally supportive of the concept. However, in practice, they tend to be conservative about what information they would disclose to a patient or family, and are uncomfortable with full disclosure of the five informational elements listed by patients as essential. Though they will discuss the simple facts of the case, they hesitate to disclose “lessons learned,” and are still noticeably squeamish about apology.39 This hesitancy may well result from decades of influence from trial lawyers, who have forbidden any discussion of subsequent action that might indicate a preexisting problem and who still often advise clients not to apologize unless the apology will stay out of court.40 The two concepts, disclosure and apology, are clearly related, and it is hard to envision any disclosure of an error without a sincere apology. Unfortunately, as the next section explains, an incomplete apology can leave the aggrieved party less satisfied than no apology at all. As research continues, risk managers will learn whether partial disclosure, in fact, exacerbates patient and family frustration.

APOLOGIES Based on their survey of patients, Gallagher et al. recommend that providers reveal and describe errors and offer an apology.41 Apologies, however, have become a contested point due to both fears of their impact and questions about their appropriateness when both the existence and the definition of error are in doubt.

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Focus-group research indicates, however, that an appropriate apology, in fact, facilitates the fair and prompt resolution of a malpractice claim. Jill Robbennolt42 tested participants with three civil liability scenarios: one with full apology, one with partial apology (sympathy for pain/inconvenience, but no responsibility), and a third with no apology at all. She found that the outcome depended on the nature of the underlying facts of the event that led to the injury. If there was clear liability or clear error, then a full apology increased the chances for a reasonable settlement, and partial apology was worse than none at all. However, if liability was unclear or the injury minor, a partial apology (sympathy) was effective and achieved more settlements than no apology.42 Robbennolt’s research addresses a point of concern for many participants in disclosure and apology conversations—what if liability is unclear? No one (except perhaps no-fault proponents) has advocated assuming liability where none exists. But from whose vantage point do we make that determination? If the patient’s willingness to abandon litigation is the desired outcome, and the response to a particular type of apology depends on the patient’s perception of liability or error, the effectiveness of an apology (and the related disclosure) will depend on the recipient’s understanding of the facts. How can providers impact the patient’s perception of the event? They must put themselves in the patient’s shoes and imagine both what has already been shared, intentionally or not, and why the patient might believe what he or she already does believe. Has the disclosure to date been complete? Providers need to watch for situations in which they find themselves saying things like, “I’m sorry but I can’t discuss that privileged information,” or, “I can’t share anything about our response to this event,” or, “I am not allowed to talk with you about that,” or, “Our rules don’t allow you to see your medical record right now.” Does the provider’s behavior convey a message of secrecy, even though the words don’t? Providers and risk managers also often view situations through defense-colored lenses, discussing facts without acknowledging apparent problems in care or with defensive explanations. They ignore the patient’s view of liability. If a patient presents to the emergency department with chest pain and then dies at home after discharge, his family will not appreciate a technical explanation of how the hospital met the standard of care. Yet, often, that is how providers have responded. Instead of acknowledging the patient/family’s pain and frustration and anger, the system explains its defenses without validating or even seriously acknowledging the patient/family experience. To know how to apologize, we have to understand their viewpoint and move from there. So far, providers have directed their efforts at the content of the disclosure, not at the relationship skills inherent to understanding the patient’s perspective and building trust. Hickson’s research, outlined above, identifies a bad relationship as a cause of lawsuits; undoubtedly it will also impede the effectiveness of efforts at post-event management. A patient who believes that the providers have erred in providing care will expect an acknowledgement and an apology. One who trusts the provider, in spite of disappointment, is more likely to listen to explanations and react accordingly.

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THE CRITICAL ROLE OF TRUST IN PATIENT CARE, DISCLOSURE, AND APOLOGY The effectiveness of any disclosure conversation will depend directly on the patient/family’s willingness to believe what they are told. If they fear a coverup or posturing, then the disclosing providers will have a much harder job. An apology in the context of perceived insincerity hurts more than it helps. Yet these conversations typically take place after an unanticipated bad outcome, and must incorporate the existing pre-event relationship to providers. This leads back to close the circle on Hickson’s previously discussed findings about caring relationships.15–19 Effective exchange of information, both personal and clinical, and mutual respect improve the malpractice picture on many levels. They result in better clinical care, because the physician and patient each have better data. The relationship between providers and patients is healthier if an adverse event occurs. Assuming that the disclosure discussion also includes effective trust building communication practices, then the parties will more likely share a common understanding of the event itself and related liability. Any apology is more likely to achieve the desired healing effect. On the other hand, picture a disclosure discussion in the absence of trust and respect. If a patient has encountered trust roadblocks—perceived an uncaring affect from nurses, waited without food for scheduled procedures, survived minor care problems such as untimely medications, unsuccessful attempts to meet with doctors, and perceived a lack of appropriate resources—a sudden gush of caring and concern during a disclosure conversation will certainly want for sincerity. The patient and family are likely to believe that the niceness and honesty is a ploy to manipulate them. In short, without basic respect and trust, a disclosure may meet regulatory requirements, but it will not achieve any risk management goals. So an effective risk management program must also address the foundations of the underlying relationship and how to improve it. Risk management professionals increasingly focus on how to impart skills such as emotional intelligence, active listening, and daily conflict management.

MANAGING THE FINANCIAL SIDE OF DISCLOSURE: CLAIM HANDLING Unfortunately, some active proponents of disclosure as a risk management tool are so supportive of the approach that they may leave an impression that disclosure and apology could eliminate financial losses completely. However, a more accurate analysis would look at the impact of those activities on the ability to resolve a claim promptly, for a reasonable sum, and with a minimum of resources devoted to the process. How does disclosure impact total claim costs, and how must claim managers (as opposed to risk managers) respond to support disclosure?

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Our current malpractice litigation system fails both providers and patients in several respects. While most settled claims involve some questionable care, the groundless claims cost money to defend. The total cost of just operating the system, including attorney fees, expert fees, and court costs is over 50 percent of the total expended for professional liability. Many truly injured and deserving parties do not recover anything. Some undeserving parties recover too much.43 Because of the secrecy of litigation, any clinical learning that results from an event is unavailable for years—many risk managers do not talk to staff about events and the lessons learned from them until the resulting claims have been resolved. Providers’ ability to promptly follow disclosure discussions with an equally collaborative discussion of financial settlement is severely hampered by the fact that insurance companies and self-insured entities have designed their claim management programs around the litigation structure. Some require expert witness opinions and depositions in many cases before they can consider settlement, especially where large sums are involved. Because the decision makers have traditionally had drawers full of information before settlement discussions arose in earnest, many remain extremely uncomfortable making a judgment early, based on internally derived information. Many claim committees meet quarterly, and rules forbid any settlement until a matter has been before the committee. Earlier discussion of events with patients, as triggered by the disclosure requirement and more advanced risk-management practices, will require changes in this bureaucratic and inflexible claims management structure. A number of structural and professional factors add barriers in the process. The “disclosure to claim resolution” quagmire derives from these process-related factors, among others: • Often, several providers and carriers are involved in the underlying events, and they disagree about evaluation and/or apportionment. • Defense attorneys are accustomed to pinning down every possible fact before evaluating a case. • Decision makers rely on lengthy group processes to justify payment decisions and do not empower front-line claims experts. Rigid, hierarchical decision-making structures cannot serve a need for fast-paced resolution. Claim professionals often use standardized valuation structures that only acknowledge economic damages as real damages. Like our early disclosure discussions, this process fails to validate the emotions and noncompensable experience of the patient. It minimizes life disruption, fear, disappointment, anger, and other very real factors that influence patients at this difficult time. Over time, the valuation system may need to adapt and consider these factors if claims are to be resolved early. • Disclosure discussions can generate a momentum toward resolution as they lead to openness and provide a vehicle for identifying the claimant’s true needs. Many claim management processes do not appreciate the value of that momentum.

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• Decision makers will not acknowledge the full value of the claim early; they still require more time to adjust. • The healthcare provider wants to settle, but the insurance carrier does not, or vice versa. • If plaintiff attorneys are involved at this stage, they often expect a full fee of one-third to 40 percent of the settlement despite the substantial reduction in both risk and work required to achieve early resolution. • Defense attorneys, who are compensated based on hours of preparation time, will lose a substantial portion of their livelihood. Accordingly, even the most forward-thinking malpractice defense lawyers have an inherent conflict unless they can concentrate their practice on alternative resolution processes. If we can address these challenges, we can dramatically change the path and nature of medical professional liability claims.

DISCLOSURE, APOLOGY, AND LITIGATION: ARE WE GIVING AWAY THE FARM? Even the most effective disclosure and mediation process will sometimes fail to bring the parties to a resolution. Will the fact that they went through the process create unwarranted litigation risk in the subsequent lawsuit? Both focus group outcomes and a growing body of real-world results indicate that the answer is a resounding, “No!”44 Because case variables make it impossible to take two similar cases and handle one with disclosure and early resolution efforts and one without (the classic medical research model), we have to look at indirect indicators of the potential outcomes of so-called new risk management programs. The first is focus groups. When preparing for trial, attorneys will often hire consultants to assist with mock trials to test different trial strategies. When a case that involved disclosure is tested with disclosure as part of the defense of the case, the results are better than when the defense does not talk about disclosure. The consultants who perform the test conclude that disclosure has a favorable impact on juries because it meets their expectations. Though they may still find liability, juries do not increase the award because of the fact of disclosure, and may reduce it.45 The second method of analyzing a disclosure-based approach is to study results of the organizations using it. The Pew Charitable Trust has funded such an effort in Pennsylvania, which they describe as a mediation-based model. The reports from that project generally support the financial success of the model.46 Some have expressed fear that disclosure will lead to more suits because without it, the patient would not have realized that anything was wrong. While this argument has some initial appeal, it assumes that people with bad outcomes will not sue anyway. Risk managers know that healthcare providers do not get away with much anymore. This argument also flies in the face of the research that distinguishes injured patients who sue from those who do not based on

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communication and trust. In fact, the research, as outlined above, indicates that communication and information reduce the likelihood of a suit with any given outcome.

THE QUANDARY: HOW TO IMPROVE BEHAVIORS? Healthcare environments are notorious for implementing management programs of the week, the latest tool for management excellence. Employees who have survived such a two-day seminar know that explaining how to behave is one thing, but actually influencing behavior is much more difficult and complex. Gerald Hickson has proposed that physician behavior can best be altered by introducing an objective system of measurement, together with peer-based interventions.47 His program, which has operated successfully at Vanderbilt to reduce patient complaints about targeted physicians, relies on helping relationshipchallenged physicians by exposing them to better practices, with a high dose of peer support. Physician behaviors are measured by counting independently generated patient complaints (not surveys), and trained coders categorize the complaints. Statistical comparisons show which physicians have an exceptional number of complaints, and trained physician peers then counsel the outliers. He attributes the success of the program to the relative absence of subjectivity in identifying the target physicians and using peers for the intervention process. Gallagher et al.48 suggest that physicians have trained and worked in a culture that simply doesn’t deal well with the concept of errors or transparency, and thus imply that a cultural shift must take place to change their behaviors, not just training. Their more recent research with risk managers supports this concept and also suggests that discomfort with openness and transparency goes beyond physicians and, in fact, is ubiquitous in the healthcare structure.48 As providers move to a culture of safety, they will also need to embrace a culture of transparency that encourages emotional intelligence and conflict management. The new open culture for patient safety and risk management will help the disciplines support each other, so implementing the efforts side by side should be helpful. Patient safety efforts will help providers develop a greater understanding of systems and process improvement, reducing adverse events and enabling providers to better understand and explain the failures that impact patients. As risk managers and clinical providers learn more from patients in open discussions, that information can feed back into the process improvement efforts. One comprehensive study endorses the systematic use of traditional mediation and alternative dispute resolution skills in the early event management process to reduce claims activity and maximize the benefit of disclosure.49 Those conflict management skills overlap with basic change management practices designed to soften resistance to change, such as listening to the resistors and meeting their needs.50 As providers and administrators around them adopt these interpersonal conflict management practices in both the risk management arena and operations and patient safety, the synergy between the processes can grow.

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ENTERPRISE RISK MANAGEMENT Risk management began as a financial effort—to reduce losses due to malpractice liability. Over time, executives in other industries (and some in healthcare) have realized that the risk of substantial financial loss spreads beyond liability situations, and can arise from, for example, operations, supply chains, human resource issues, the environment, regulatory compliance, and financial markets. A good example of an issue that presents dramatic risk for healthcare providers in several of those areas is the nursing shortage. It can impact costs in many ways, and expenditures that improve hiring and retention can have benefits at many levels. As risk analysis tools are accepted as essential in more legal, financial, and operational areas, some healthcare providers have begun to incorporate risk management into a much broader range of decisions. Accordingly, chief risk officers have appeared and are included in senior executive circles to bring risk analysis and control concepts into play on a broader variety of issues. The move to enterprise risk management has also generated more complete analysis of classic risk issues. Instead of telling the risk manager to stop the losses in a service line, which may or may not be possible, the losses are balanced against the benefits of the line and the cost of controlling the risk. For example, the department that generates the most liability cases may also have an otherwise stunning margin. Previously, few healthcare organizations took such a broad view of loss control. A similar broad view can demonstrate the potential benefit of early resolution programs. The cost of early resolution, in other words, settling a few things that may not have been settled in a more aggressive defense environment, may well be balanced by improved patient satisfaction and higher quality that arise from more transparent event management practices that incorporate early lessons learned back into patient safety.

RISK MANAGEMENT CLASSICS: DOCUMENTATION AND INFORMED CONSENT It is hard to picture a complete discussion of risk management without some mention of documentation and informed consent. However, they are easy to comprehend if one considers them in the framework discussed above: transparency and emotions. The medical record and any related documents serve one purpose. They communicate—to other providers, to insurance companies, to patients and families, and to lawyers. If a lawsuit develops, they communicate to juries. If providers consider this role in conjunction with the findings about patient and jury expectations for complete communication, medical record preparation becomes much simpler. Is the event/finding related to the patient’s condition? Is it important for other caregivers to know? Might it impact how another caregiver interacts with the patient? If so, it belongs in the record. Comments or behavior indicating that the patient is disappointed or angry can be very relevant to those coming into the chain of future care. Information on

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the root cause of an error is not; it needs to be distributed in a different pathway for maximum patient safety impact. Because more patients are asking to see their records, caregivers must record information with an assumption that it will be reviewed by the patient or the family. Informed consent (perhaps more accurately viewed as patient education) remains important for loss control, but not because a piece of paper signed by the patient has legal significance. The paper simply serves to confirm that the patient has experienced a discussion with his or her physician about the underlying condition, options for treatment, and the risks and benefits of treatment. The communication process is the legally critical piece and also most important for the underlying relationship. Informed consent and disclosure also seem to wind up as two sides of the same coin. If a patient knows the risks of treatment decisions, then outcomes will less likely be unanticipated, and the post-event conversations will flow much more easily. Both documentation and informed consent are part of an inclusive education and communication process which will reduce risk in both surgical and nonsurgical care situations. Documentation and informed consent go beyond physician relationships. How does the patient decide whether to cooperate with the nurse who is asking for early, painful ambulation? How does a physical therapist deal with a patient resisting important therapy because of pain? Those are important care decisions, much like the decision to undergo surgery. In fact, they may be more important to the patient’s ultimate outcome. Often, nonphysician staff just charts “noncompliant with ambulation” or “refuses therapy.” Conversations and notes about the patient’s background condition and the risks and benefits of that decision offer both fuller communication and understanding. Communication that covers all relevant areas of patient concern (and documentation that confirms those conversations) still has a large role in reducing healthcare liability risk.

CONCLUSION Healthcare liability risk will be a fact of life for all providers for the foreseeable future, for patients will have disappointment and unpredictable outcomes. By managing their relationships with their patients—generating trust and strong communication—providers can significantly improve their experiences in this risky domain. However, the best results come from addressing conflict and concerns with the patients and their families directly, a process that, for many, will require new skill development and support from risk managers, educational systems, and professional organizations.

Key Concepts • Loss identification and prevention (avoiding adverse outcomes) remains an important component of risk management. Efforts in this area should be coordinated with the patient-safety movement.

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• Risk management requires openly addressing both real adverse outcomes and potential problems identified through incident and outcome reporting processes. • Simply enforcing rules for good clinical practice will not eliminate the majority of claims and suits. • Most lawsuits and claims arise from patient dissatisfaction with the patient-provider relationship, usually coupled with a disappointing medical outcome. The statistically significant factor is the relationship, not the quality of care. Patients do not split out their relationships, and all providers during a course of care are part of the experience. • Significant risk reduction for high-claim providers requires attention to behavioral and communication issues, as well as clinical quality and outcomes. • Patients and families want open, honest, and voluntary discussion of disappointing encounters and outcomes, as identified by them. Providers have to address these events as identified by the patients with the patients, not just what the medical field defines as errors. Discussion should include education about the event, steps to prevent it in the future, and in most cases an apology. • Clinical documentation and informed consent processes need to support the transparent culture.

REFERENCES 1. Carroll, R., ed. 2004. Risk Management Handbook for Healthcare Organizations. 4th ed. San Francisco: Jossey-Bass 2. A later section of the chapter discusses the broader concept of enterprise risk management, which encompasses financial, regulatory, and other operational risks. 3. Hall, M. 2002. “Law, Medicine and Trust.” Stanford Law Review 55 (2): 463–527, 474. 4. Hickson, G., C. Federspiel, J. Pichert, C. Miller, J. Gauld-Jaeger, and P. Bost. 2002. “Patient Complaints and Malpractice Risk.” Journal of the American Medical Association 287 (22): 2951–2957; Levinson, W. D. Roter, J. Mullooly, V. T. Dull, and R. Frankel. 1997. “Physician-Patient Communication: The Relationship with Malpractice Claims among Primary Care Physicians and Surgeons.” Journal of the American Medical Association 277 (7): 553–559. 5. Hickson, G., cited in A. Robeznieks. 2002. “Being Open May Avoid Lawsuits.” American Medical News (June 10). Available at: http://www.ama-assn.org/ amednews/2002/06/10/prsb0610.htm. 6. Hickson, G., J. Pichert, C. Federspeil, and E. Clayton. 1997. “Development of An Early Identification and Response Model of Malpractice Prevention.” Law and Contemporary Problems 60 (1): 7–29. 7. Mohr, J. 2000. “American Medical Malpractice Litigation in Historical Perspective.” Journal of the American Medical Association 283 (13): 1731–1737. 8. Darling v. Charleston Community Memorial Hospital, 33 Ill.2d 326, 211 N.E.2d 253, 14 A.L.R.3d 860 (1965).

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9. Va. Code Ann. § 8.01–38; Danzon, Patricia, 1984. “The Frequency and Severity of Medical Malpractice Claims.” Journal of Law and Economics 27 (1): 115–148. 10. U.S. General Accounting Office. 1993. Medical Malpractice: Multiple Factors Have Contributed to Increased Premium Rates. Washington, D.C., 38–39. Available at: http://www.gao.gov/new.items/d03702.pdf. 11. Brennan, T., and M. Mello. 2002. “Deterrence of Medical Errors: Theory and Evidence for Malpractice Reform.” Texas Law Review 80: 1595, 1599–1600, 1618. 12. O’Connell, J., and A. S. Boutros. 2002. “Treating Medical Malpractice under a Variant of the Business Judgment Rule.” Notre Dame Law Review 77: 373, 377. 13. Hickson, James, Federspeil, and Clayton, 8. 14. Ibid. 15. Hickson, G., E. Clayton, P. Githens, and F. Sloan. 1992. “Factors that Prompted Families to File Medical Malpractice Claims Following Perinatal Injuries.” Journal of the American Medical Association 267 (10): 1359–1363. 16. Hickson, Pichert, Federspeil, and Clayton, 12. 17. Hickson, G., E. Clayton, S. Entman, C. Miller, P. Githens, K. WhettenGoldstein, and F. Sloan. 1994. “Obstetricians’ Prior Malpractice Experience and Patients’ Satisfaction with Care.” Journal of the American Medical Association 272 (20): 1583–1587. 18. Hickson, Pichert, Federspeil, and Clayton, 12. 19. Hickson, Federspiel, Pichert, Miller, Gauld-Jaeger, and Bost, 2955. 20. Murff, H. J, D. J. France, J. Blackford, E. L. Grogan C. Yu, T. Speroff, J. W. Pichert, and G. B, Hickson. 2006. “Relationship between Patient Complaints and Surgical Complications.” Quality and Safety in Health Care 15: 13–16. 21. Hickson, G., cited in A. Robeznieks. 2002. “Being Open May Avoid Lawsuits.” American Medical News (June 10). Available at: http://www.ama-assn.org/ amednews/2002/06/10/prsb0610.htm. 22. Hickson, Federspiel, Pichert, Miller, Gauld-Jaeger, and Bost, 2955. 23. Ambady, N., D. LaPlante, T. Nguyen, R. Rosenthal, N. Chaumeton, and W. Levinson. 2002. “Surgeons’ Tone of Voice: A Clue to Malpractice History.” Surgery 132 (1): 5–9. 24. Levinson, Roter, Mullooly, Dull, and Frankel, 553–559. 25. Rhodes, K., M. Drum, E. Anliker, R. Frankel, D. Howes, and W. Levinson. 2006. “Lowering the Threshold for Discussions of Domestic Violence.” Archives of Internal Medicine 166: 1107–1114. 26. Wolosin, R. 2005. “How Safe Do Patients Feel?” Patient Safety and Quality Healthcare e-newsletter (November/December). Available at: http://www.psqh.com/ novdec05/how-safe.html. 27. Scheitel, S., B. Boland, P. Wollan, and M. Silverstein. 1996. “Patient-Physician Agreement about Medical Diagnoses and Cardiovascular Risk Factors in the Ambulatory General Medical Examination.” Mayo Clinic Proceedings 71 (12): 1209–1210. 28. Public Health Advertisement from United Health Foundation. Available at: http://www.unitedhealthfoundation.org/tips/doc_ad.pdf. Accessed July 27, 2007. 29. Hickson, Pichert, Federspeil, and Clayton, 15, 22. 30. Joint Commission for the Accreditation of Healthcare Organizations. 2002. Comprehensive Accreditation Manual for Hospitals: The Official Handbook. Chicago: Joint Commission Resources, RI-10. (RI refers to the section on Patient Rights, Ethics, and Institutional Responsibility.)

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31. Boothman, R. 2006. “Apologies and a Strong Defense at the University of Michigan Health System.” The Physician Executive (March–April): 7; Kraman, S., and G. Hamm. 1999. “Risk Management: Extreme Honesty May Be the Best Policy.” Annals of Internal Medicine 131 (12): 963. 32. COPIC Insurance Company. 2006. COPIC 3Rs Program 3 (1). Available at: http://www.callcopic.com/resources/custom/PDF/3rs-newsletter/vol-3-issue-1-jun2006.pdf. 33. American Society for Healthcare Risk Management. 2003. Disclosure (Parts 1-3). Available at: http://www.ashrm.org/ashrm/resources/monograph.html. Accessed July 29, 2007. 34. Gallagher, T., A. Waterman, A. Ebers, V. Fraser, and W. Levinson. 2003. “Patients’ and Physicians’ Attitudes Regarding the Disclosure of Medical Errors.” Journal of the American Medical Association 289 (8): 1001. 35. Gallagher, T., and M. Lucas. 2005. “Should We Disclose Harmful Medical Errors to Patients? If So, How?” Journal of Clinical Outcomes Management 12 (5): 253. 36. Gallagher, Waterman, Ebers, Fraser, and Levinson, 1003. 37. Gallagher, T., A. Waterman, J. Garbutt, J. Kapp, D. Chan, W. C. Dunagan, V. Fraser, and W. Levinson. 2006. “U.S. and Canadian Physicians’ Attitudes and Experiences Regarding Disclosing Errors to Patients.” Archives of Internal Medicine 166 (15): 1605–1611; Pierce, O. 2006. “Why Docs Don’t Say I’m Sorry.” United Press International. Available at: http://www.upi.com/archive/view.php?archive=1&S toryID=20060815–120236–5629r. 38. Pierce. 39. Gallagher, T., G. Brundage, K. Bommarito, E. Summy, A. Ebers, A. Waterman, V. Fraser, and C. Dunagan. 2006. “National Survey: Risk Managers’ Attitudes and Experiences Regarding Patient Safety and Error Disclosure.” Journal of Healthcare Risk Management 26 (3): 11. 40. Zimmerman, Rachel. 2004. “Doctors’ New Tool to Fight Lawsuits: Saying ‘I’m Sorry.’ ” Wall Street Journal (May 18): A1; Butcher, Lola. 2006. “Lawyers Say ‘Sorry’ May Sink You in Court.” The Physician Executive (March–April): 20. 41. Gallagher, Waterman, Ebers, Fraser, and Levinson, 1006. 42. Robbennolt, J. 2003. “Apologies and Legal Settlement: An Empirical Examination.” Michigan Law Review 102: 460. 43. Studdert, D., M. Mello, A. Gawande, T. Gandhi, A. Kachalia, C. Yoon, A. Puopolo, and T. Brennan. 2006. “Claims, Payments and Compensation Payments in Medical Malpractice Litigation.” New England Journal of Medicine 354 (19): 2024–2033. 44. Boothman, 7. 2005. “Product Liability—Pro-Active Protection.” IndustryWeek. com. Available at: http://www.industryweek.com/ReadArticle.aspx?ArticleID=10902. 45. Popp, P. 2003. “Disclosure: A Legal View: How Will Disclosure Affect Future Litigation?” Journal of Healthcare Risk Management 23 (1): 5. 46. Liebman, C., and C. Hyman. 2005. Medical Error Disclosure, Mediation Skills, and Malpractice Litigation: A Demonstration Project in Pennsylvania. Available at: http:// www.pewtrusts.com/pdf/LiebmanReport.pdf. 47. Hickson, Pichert, Federspeil, and Clayton, 25. 48. Gallagher, Waterman, Garbutt, Kapp, Chan, Dungan, Fraser, and Levinson, 1605–1611; Gallagher, T., A. Waterman, A. Ebers, V. Fraser, and W. Levinson. 2006.

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“National Survey: Risk Managers’ Attitudes and Experiences Regarding Patient Safety and Error Disclosure.” Journal of Healthcare Risk Management 26 (3): 11. 49. Liebman and Hyman. 50. Maurer, R. 1996. Beyond the Wall of Resistance: Unconventional Strategies That Build Support for Change. Austin, TX: Bard Press.

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CHAPTER 9

Pastoral Medicine: The Impact of Pastoral Care Samuel Miller

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astoral medicine is not easily defined. It is the warmth and caring that nurtures and supports patients and their families, as well as the caregiver staff. It provides emotional and spiritual support in a compassionate way. In its broadest sense, pastoral medicine is practiced by doctors, nurses, technicians, chaplains, friends, family, and other spiritual and medical caregivers. The use of prayer and other spiritual practices to improve health dates back thousands of years, to Hippocrates and Maimonides. Using spirituality in ancient medicine was a way for doctors of the day to approach care for their patients. It was not because they did not have diagnostic tools or medicines. Even though they were very different from today’s modern technology, they did possess medicines and tools for diagnosis and treatment. Maimonides wrote, “May I never see in the patient anything but a fellow creature in pain.”1 The essence of this quote indicates the need for caregivers to be equal with those whom they are treating. Medicine, and especially pastoral medicine, should be a partnership filled with humility. Pastoral medicine embraces the idea of treating the patient as a person rather than as a medical condition. It also includes treating the whole person, body, mind, and spirit. The purpose of this chapter is to define spirituality and spiritual assessment and to present case histories of pastoral medicine interventions.

SPIRITUALITY AND HEALING The concept of spirituality is at the core of pastoral medicine. Many practices may help a person to develop spiritual connectedness and balance, including prayer, journaling, yoga, and meditation.

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These practices may be done alone, with a group, or in a community. All of these practices provide a way for a person to achieve internal clarity. The most profound effects of these techniques happen when they become part of a daily routine. Spirituality and religion are not the same thing. Spirituality is what the divine gives to us, and religion is what we have made it into. Prayer is often thought of within the context of religion, but prayer can be practiced outside of its context. When pastoral medicine is practiced well, it meets people where they are, whether they are within a religious context or outside of it.

SPIRITUAL ASSESSMENT Spiritual assessment is used by nurses in the hospital and completed at the beginning of each shift. It consists of three questions: • Does a patient have meaning and purpose in her life? • Does he or she have a sense of love and belonging? • Does he or she have freedom from guilt and shame? If the patient answers yes to all three questions, he or she has the emotional and spiritual balance to move forward in the healing process. When he or she answers no to any of the three questions, his or her nurse determines if this area of the patient’s life is hindering the patient’s medical treatment or imposing a barrier to recovery. Barriers represent an opportune time to consult the pastoral medicine service. The following case presentations are examples of pastoral medicine.

Case Presentation: Atypical Chest Pain Jack was a 48-year-old man who arrived at the emergency room complaining of chest pain and shortness of breath. The emergency department physician immediately performed an electrocardiogram (EKG), chest X-ray, and blood tests. The EKG showed no evidence of heart attack, and blood tests revealed no heart muscle damage. However, Jack continued to complain of chest pain, and was admitted to the hospital for serial testing and observation. Within 12 hours, Jack had earned a reputation for being a noncompliant, abusive, belligerent patient. The nursing staff on his unit began coming early to make certain not to have him as one of their patients. For a day and a half, Jack refused to allow staff to draw blood tests. He also refused to take any medications or allow any intravenous needles to be inserted. When a nurse saw a hospital chaplain in the hall, she asked, “Glenn, I have a patient that I really need help with! Please see Jack in room 3111.”

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It took Jack almost 45 minutes to vent before he could talk about his situation: Glenn: “What kind of work do you do?” Jack:

“I drive an 18-wheeler—a brand new, customized Kenworth Diesel with leather interior and chrome magnesium wheels on both the tractor and my tanker trailer. I haul 10,000 gallons of jet fuel to the rural airports in the mountains. I love my truck! I have the best job in the world.”

Glenn: “What seems to be bothering you the most?” Jack:

“I am scared that I am going to get fired from my job. And my wife has left me for the fourth time. This time she is threatening to get a divorce.”

As Jack shared his story, he grew calmer. He realized that he described his truck in more loving terms than he described his wife. The chaplain said, “Jack, I am not a clinical person, but your EKG did not show any evidence of a heart attack. It may be that the stress in your life is causing your chest pain. Unless you allow the hospital staff to complete the necessary tests, you will not be able to learn whether you really have any heart problems.” The chaplain left Jack’s room, and Jack changed his attitude. When his nurse returned, he used appropriate language, stated that he was ready to take his medicine, and allowed staff to draw blood tests. By the next day, the nurses asked Glenn, “What did you do to Jack? He is a different patient—cooperative and not swearing. He is even letting us help him get better.”

Case Analysis Numerous studies indicate a correlation between spirituality and health. Considering the spirituality of patients informs, enhances, and adds a new dimension to clinical practice.2 Abundant evidence indicates a change in outcomes when principles of pastoral medicine are used. The broader concept of a person’s spiritual, emotional, and mental health affecting physical health continues to gain momentum in Western medicine.

Case Presentation: A Near-Death Experience A Western cardiologist recalled a lesson that he learned over 20 years ago at the bedside of a patient who was in cardiogenic shock. After three hours, he had done everything he could think of to save her life without success. He ended the resuscitation and prayed. He left the hospital and expected to hear that she had died. Instead, the woman survived. She told him that as she lay near death, she had heard a choir of praying voices, including his. “It went against everything I had been taught. Her numbers were incompatible with life. Over and over again, I see a divine hand in the lives of my patients.”

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Case Analysis Modern medicine can dehumanize patient care. A hospital gown and semiprivate room limit patients’ privacy. Furthermore, an average patient may have no clue what high-tech machines do. The healing environment demands high touch. VanDecreek3 documented the beneficial outcomes for patients in whom pastoral medicine works in conjunction with clinical practice. The partnering of high tech with high touch is the healing environment where science and spirit blend. High touch includes: • • • •

connecting with patients emotionally; reassuring them with a pat on the arm, shoulder, forehead, or back; reaching them spiritually with prayer or meditation; actively listening to their concerns and empathically trying to put oneself in their frame of reference; and • providing a calming presence.

Case Presentation: Overcoming Anxiety A woman who volunteered at a hospital walked into the chaplain’s office and said, “I told the radiology department that they would have to wait because I had to see the chaplain before I go in for my MRI [magnetic resonance imaging] exam. I know that I can do it because I had an MRI before, but I am very claustrophobic, and I hate that thumping sound. Will you please pray with me and for me, so that I can calm down and get this done?” After a brief conversation followed by prayer, the patient was ready for her MRI.

Case Analysis Competent pastoral medicine balances and blends physical and spiritual assessments. Optimal care represents not an either-or, but a both-and perspective.

Case Presentation: Reframing Perspectives Kathy was a new intensive care unit (ICU) nurse caring for two patients. Eight hours into her shift, she had checked on a 54-year-old male patient suffering from a severe respiratory condition. His intravenous medications were infusing properly, and he appeared clinically stable. As Kathy turned, she noted that her patient had stopped breathing. Immediately, she summoned help by calling a Code Blue. Momentarily, more than a dozen doctors, nurses, respiratory technicians, and a pharmacist filled the room and hallway and resuscitated the patient. Kathy froze, standing near the head of the bed. However, the patient was successfully revived, and his vital signs became stable.

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At the end of her first shift on the ICU, Kathy went to her supervisor and said, “I cannot do this work. I panicked after I signaled for the Code Blue today. I just froze and could not move.” Her nursing supervisor said, “Kathy, it happens to all of us. You did exactly what you were supposed to do, and we got a great outcome for our patient. I will not let you quit after just one day. Please work with me the rest of the week. Then we can decide what you want to do.” The next day, Kathy returned to work at the ICU to care for the patient who had stopped breathing the day before. As she walked into room 2218, her patient said, “You are my nurse. You saved my life yesterday! You were my emotional rock. Yesterday was almost like an out of body experience for me. I could feel the medicine that they gave me, and I could feel and see the nurses, doctors, and others touching me and doing different things. It was like I was watching them work on someone else. And you were standing over there near the head of my bed. I could see your face. You appeared calm. You helped me believe that everything was going to turn out all right. Thank you for saving my life!”

Case Analysis Kathy still works in an ICU as a caring, skilled, and capable nurse. She knows that healthcare embodies a team effort. She enjoys working in an environment where she feels supported and can thrive. In a report on a survey of nurses working in a magnet hospital, the essential elements of a good working environment were4: • coworkers who are clinically competent; • a healthy nurse-doctor relationships characterized by two-way dialogue; and • a paramount concern for patient welfare. Holistic care, encompassing the patient’s body, mind, and spirit, continues to be a theme for top hospitals that have applied for and received magnet nursing status.

Case Presentation: Physician Burnout Dr. J had been an emergency physician for more than 20 years. He had saved hundreds of lives with his skill and compassion, but he began to describe himself as “burned out, completely fried.” Yet, he had no desire to change professions. An ambulance brought in a female patient who was in labor. Dr. J phoned her obstetrician, who replied, “It will be at least an hour before I can get to the hospital.” Dr. J told the patient, “Your doctor is on the way. However, if you need a doctor before he gets here, I will assist you. I have delivered babies for over 20 years.”

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Five minutes later, the head of the baby was crowning, and Dr. J delivered a dark-haired baby girl with blue eyes. Carefully, he placed the baby’s head in the palm of his hand, and laid her body on his left forearm as he clamped and cut the umbilical cord. Gently, he cleansed her face. Her blue eyes locked onto him. In that moment, he thought, “I am the first human being she has ever seen. It is my job to welcome her.” Suddenly, he was reminded why he was an emergency room doctor. He felt that he was standing on sacred ground.

Case Analysis Burnout occurs when work and/or personal demands exceed one’s ability to cope. It can result in psychological distress, physical symptoms, clinical errors, and increased patient morbidity and mortality.5 A brief encounter renewed Dr. J’s calling and gave him back his reason for living and working. He never forgot the patient encounter of the dark-haired baby girl with the blue eyes. Being renewed helped him recover from burnout.

CONCLUSION Pastoral medicine combines spirituality, healing, and science in an environment that encourages and enriches caregivers and promotes caregiving. It creates a nurturing base that provides a healthy, healing place for patients, families, and staff.

Key Concepts • Caregivers have used pastoral medicine for centuries to promote holistic care. • Modern scientific technology is enhanced by principles of pastoral medicine that help patients, families, and staff find meaning and purpose in their lives.

NOTES 1. Gundersen, L. 2000. “Faith and Healing.” Annals of Internal Medicine 132 (2): 169–172. 2. McBride, J. L., G. Arthur, R. Brooks, and L. Pilkington. 1998. “The Relationship between a Patient’s Spirituality and Health Experiences.” Family Medicine 30 (2): 122–126. 3. Vandecreek, Larry. 1995. Spiritual Needs and Pastoral Services: Readings In Research. Decatur, GA: Journal of Pastoral Care Publications, Inc. 4. Studer, Q. 2003. Hardwiring Excellence. Gulf Breeze, FL: Fire Starter Publishing. 5. Cohn, K. H., D. B. Panasuk, and J. C. Holland. 2005. “Workplace Burnout.” In Better Communication for Better Care: Mastering Physician-Administrator Collaboration, ed. K. H. Cohn, 57. Chicago: Health Administration Press.

About the Editors and Contributors

KENNETH H. COHN, MD, MBA, FACS, is a board-certified general surgeon. He obtained his medical degree from Columbia College of Physicians Medical School, completed his residency at the Harvard-Deaconess Surgical Service, and performed fellowships in endocrine and oncologic surgery at the Karolinska Hospital and at Memorial Sloan-Kettering Cancer Center, respectively. He was assistant professor of surgery at State University of New York Health Science Center at Brooklyn, and later moved to Dartmouth-Hitchcock Medical Center as associate professor of surgery and chief of surgical oncology at the Veterans Administration Hospital at White River Junction. With the change in the medical economic climate, Dr. Cohn entered the MBA program of the Tuck School at Dartmouth and graduated in June 1998. He worked initially as a consultant at Health Advances, assisting six firms to commercialize new products. Since joining the Cambridge Management Group, he has led change-management initiatives for physicians at affiliated hospitals within the Yale, New Haven; Banner, Colorado;, Cottage, Santa Barbara; and Sutter, Sacramento Health Systems. He remains clinically active, covering surgical practices in New Hampshire and Vermont. Dr. Cohn has written 40 articles published in peer-reviewed medical journals and two books, Better Communication for Better Care: Mastering Physician-Administration Collaboration, and Collaborate for Success! Breakthrough Strategies for Engaging Physicians, Nurses, and Hospital Executives. His Web site is http://www.healthcarecollaboration.com. DOUGLAS E. HOUGH, PhD, is associate professor and chair, the Department of Business of Health, at the Carey Business School of Johns Hopkins University. He is responsible for eight programs, including the innovative Hopkins Business of Medicine, a four-course graduate certificate program and an MBA program

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About the Editors and Contributors

with concentration in medical services management, designed for experienced physicians (offered in partnership with the Johns Hopkins University School of Medicine). Dr. Hough has over 25 years of experience in industry and academia. He has been a research economist at the American Medical Association, a manager in the healthcare consulting division of Coopers and Lybrand, and a partner in two healthcare strategy consulting firms. His research interests are in identifying the optimal size and structure of a physician practice and in determining the impact of changing physician demographics on the structure of medical practices. His consulting interests focus on methods of strengthening hospital-physician relations (e.g., the development of integrated delivery systems, physician-hospital initiatives, and management service organizations), as well as the organization and strategic direction of physician practices. Dr. Hough is a frequent speaker and author on healthcare issues related to physicians. His research has been published in such professional journals as the Journal of the American Medical Association, the Journal of Human Resources, and the Journal of Medical Practice Management. Dr. Hough earned his MS and PhD in economics from the University of Wisconsin. He received his BS in economics from the Massachusetts Institute of Technology. He is a member of Academy Health, the American Economic Association, the International Health Economics Association, and the Medical Group Management Association. NEIL J. CAMPBELL, MA, MBA, is currently the founder, chairman, and chief executive officer (CEO) for Mosaigen, Inc., a biotechnology development corporation located in Rockville, Maryland. Mr. Campbell is also a member of the Adjunct/Practitioner Faculty of the Carey Business School at Johns Hopkins University. Mr. Campbell was formerly president and chief operating officer/ CEO for EntreMed, Inc., where he led the turnaround and transformation of the biopharmaceutical company. Prior to joining EntreMed, he served as senior director of commercial development for Celera Genomics, where he led U.S. and international efforts to develop the e-commerce markets for medical highperformance computing and bioinformatic software tools. With over 20 years of industry experience, Mr. Campbell has held executive management, business development, and sales and marketing positions with Life Technologies, Inc., IGEN, Inc., and Abbott Laboratories. During his career, Mr. Campbell has successfully developed and/or introduced over 170 products and services in the areas of high-performance computing, medical software, e-commerce, pharmaceuticals, medical devices, clinical diagnostics, consumer healthcare products, research products, bioinformatics, and nanotechnology. He cofounded Quanta Biosciences of Gaithersburg, Maryland, and currently serves as an advisor to the company. He’s also on the board of directors for a number of organizations. Mr. Campbell earned his MBA and MA in management systems from Webster University in St. Louis, Missouri, and his BS-BA from Norwich University in Northfield, Vermont. DIANE L. DIXON, EdD is managing principal of D. Dixon & Associates, LLC, an independent leadership and organization development consulting practice

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specializing in healthcare and human services. She has taught leadership and organizational behavior in the Business of Medicine Program at Johns Hopkins University-Carey Business School. Ms. Dixon writes a leadership column for Caring for the Ages, an official publication of the American Medical Directors Association published by Elsevier Medical News Group. A chapter, “Successfully Surviving Culture Change,” was included in the book, Culture Change in LongTerm Care. Ms. Dixon holds a doctorate in education from George Washington University’s Executive Leadership in Human Resource Development Program. The focus of her research was transformational leadership and hospital chief executives. ANAND S. JOSHI, MD, MBA, is currently the director of clinical procurement for New York Presbyterian Hospital, an academic medical center of 2,300 beds and up in New York City, that was most recently ranked sixth in the US News and World Report honor roll of U.S. hospitals. Having published and presented numerous times on the topic of strategic sourcing of hospital supplies and, specifically, sourcing physician preference items, Dr. Joshi has established himself as a recognized authority in hospital supply chain management. EDWIN E. LEWIS, Jr., is senior security advisor, information systems manager, and an adjunct instructor for the Johns Hopkins University, Carey Business School. He has extensive experience in supporting federal, state, and commercial clients over a wide range of defense, intelligence, and healthcare programs. Within the healthcare market, he has supported the deployment of large commercial and state-run systems, as well as managed security operations for the centers for Medicare and Medicaid services payment processing system. He also has extensive experience as a graduate school instructor, having developed and taught courses ranging from medical informatics to information technology economics. Mr. Lewis received his graduate degrees from Loyola University in Baltimore and from the Johns Hopkins University. He also holds multiple certifications in information security and related technologies. CHRIS D. MELETIS, ND, is past dean of naturopathic medicine/chief medical officer and is now professor of natural pharmacology at the Oregon-based National College of Naturopathic Medicine (NCNM). He has also served as dean of clinical affairs at NCNM. Earlier, he was medical director for Outside In, a clinic in Oregon offering complementary and alternative medicine (CAM), and staffed by NCNM residents/interns working in partnership with allopathic residents from the Oregon Health and Science University. He has been a licensed naturopath since 1992 and has his own private practice. Dr. Meletis is principal investigator leading a Consortium Oregon CAM study with a $1.5 million grant. He has contributed to five books, including The Natural Pharmacy, and has authored nine books for major publishers, including The Complete Guide to Safe Herbs, Enhancing Fertility Naturally, and Better Sex Naturally. He has been extensively interviewed in popular media, including magazines like Body and Soul,

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Working Mother, Mademoiselle, Self, Heart & Soul, and Good Health Keeping. He’s also been interviewed on Internet sites and radio and television. SAMUEL MILLER, a professional hospital chaplain, is director of mission and ministry at Porter Adventist Hospital in Denver, Colorado. A resident of Colorado Springs, Colorado, he holds a BA in theology from Southwestern Adventist University and a master of divinity degree from Andrews University. JAYNE OLIVA, MBA, is principal with the Croes Oliva Group, a team of medical group management diagnosticians. The Croes Oliva Group works with healthcare organizations and their affiliated physicians, as well as private practices, to improve front-line operations and boost performance in profitability, productivity, patient access, and patient-care coordination. She also coaches and mentors physicians for optimum leadership performance. Ms. Oliva holds an MBA from the Kellogg Graduate School of Management at Northwestern University. She teaches graduate-level courses in outpatient care delivery and physician practice management, speaks nationally, and appears frequently in regional and national publications. MARY TOTTEN, MBA, president, Totten & Associates, is a speaker and consultant to hospitals and health systems and other health-related organizations on quality of care and medical staff credentialing, strategic planning and mission development, governing board orientation, and board self-evaluation and governance restructuring. She conducts board retreats and education programs and writes and publishes books, articles, and newsletters for healthcare leaders. Her publications include the American Hospital Association’s Guide to Governance for Hospital and Health System Trustees, first and second editions, The Board’s Role in Quality of Care: A Practical Guide for Hospital Trustees, The Future of Health Care Governance: Redesigning Boards for a New Era, and The Trustee Handbook for Health Care Governance, first and second editions. Ms. Totten holds an MBA from the Kellogg Graduate School of Management at Northwestern University and has served on several hospital, health-system, and educational institution governing boards. J. DEANE WALDMAN, MD, MBA, is a practicing pediatric cardiologist and pathologist, as well as a principal in ADM Healthcare Consulting. He is professor of pediatrics and pathology, University of New Mexico Health Sciences Center, and professor of healthcare strategy, R. O. Anderson Graduate Schools of Management in Albuquerque, New Mexico. He has published over 100 citations on medical topics in pediatric cardiology and more than 25 citations on the strategy and management of healthcare, with emphasis on the application of systems thinking. He has deep experience in healthcare culture, turnover/retention of the healthcare workforce, and physician-manager relations. KATHRYN K. WIRE, JD, MBA, CPHRM, is a healthcare risk management consultant, author, educator, and certified civil mediator. She actively participates in

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risk-management and health law organizations, contributing articles and programs on claim and outcome management, conflict management, and long-term care. She wrote a chapter, “Embracing Poor Outcomes: A Comprehensive Claim Reduction Strategy,” for the 2004 edition of West’s Health Law Handbook. She has lectured for local graduate healthcare programs on risk management, conflict management, and negotiation.

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Index

Ackoff, Russell, 42 Active listening, 46 Acupuncture: economics/evidence/education of, 149–51; origin of, 150; popularity of, 149–50 AI. See Appreciative Inquiry Allopathic medicine: application/development of, 134; CAM integrated into, 152–53; CAM v., 136–37; nonallopathic v., 136–37; vitamin therapy and, 137–39. See also Complementary and alternative medicine Apologies, 190–91 Appreciative Inquiry (AI): confrontation and, 48–49; practical applications of, 48–49 Avery, Oswald, 83

industrial revolution of, 88; lifestyles/ attitudes changing and, 86–87; modern phase of, 83–84; as nanotechnology component, 89–90; negative use of, 84; paradigm shift in, 15; practical, 81–82; premodern phase of, 82–83; research/development, 83; responsibility of working in, 84; as term, 82–83; testing technologies for, 88 Bjork, David A., 70–71 Boards. See Hospital boards Boyer, Herb, 84 BSC. See Balanced Scorecard CAM. See Complementary and alternative medicine Campus area networks (CAN), 124 Central line infections, 12 CEOs, 36–37, 70–71 Charge capture: application logic of, 113; caregivers and, 112–13; as healthcare informatics application, 111–13; solutions, 111–12 Checklists, 46–47 Chiropractic medicine: current findings on, 146; economics/evidence/education of, 145–46 Clinical supply: base of hospitals’, 165–66; chain practices’ advances, 162–63; costs,

Balanced Scorecard (BSC): creation of, 96– 97; framework of, 96–97; overall management objectives in approach of, 97–98; for project management in IT, 96–98 Baldrige Health Care Criteria for Performance Excellence Framework, 6 Berg, Paul, 84 Bioethics, 84 Biotechnology: agricultural, 85–86; computers and, 88–89; DNA as manipulated in, 84; as evolved, 83; future impact of, 87;

215

216 161, 163–65, 172–73; Crosswalk strategy and, 164, 166–68; device trials of, 171; engaging clinicians on costs of, 168–69; lowering cost of, 161, 163–65; medical devices as compared for, 170–72; nonsticky product categories of, 166–67; physician stakeholders and, 169–70; standardization strategies for, 165. See also Medical devices Cohen, Stan, 84 Collaboration: financial, 50–51; in healthcare, 42–44; in hospital management, 42–43, 78; leaders developing interdepartmental, 22; leadership in, 7; patient care optimized with, 44–45 Communication: active listening in, 46; checklists for, 46–47; empathy in, 47; leaders committing to effective, 22–23; in medication reconciliation, 9–10; sensitivity in, 47; skills in, 46. See also Confrontation Complementary and alternative medicine (CAM): in academia, 154; allopathic providers v., 136–37; consumer base as profiled, 139–42; economic implications of, 143–44; governmental research on, 154–55; healthcare consumers seeking, 134–35, 136; in healthcare system hierarchy, 133, 137; healthcare team for, 144; in history, 133; improved health from, 137; integrated into allopathic medicine, 152–53; key concepts of, 156; prayer as therapy of, 142; providers, 144, 145–46; revolution in United States, 135–36; self-medication and, 142–43; therapies, 134, 142–43; understanding, 136–37; in United States v. Europe, 152–53; in U.S. healthcare system, 133–34; vitamin therapy and, 137–39. See also Allopathic medicine Complex adaptive systems, 45 Complexity science: characteristics of, 45– 46; concept of, 45; multiple disciplines bridged by, 12; organizations’ behavior explained through lens of, 12–13 Computerized physician order entry (CPOE) system, 115 Computers, 88–89 Conflict: non-system and hospital management/physician, 41–42; rapid change and, 44; structural aspects of hospital management/physician, 41–44 Confrontation, 46; appreciative inquiry and, 48–49; financial, 50–51; positive

Index deviance and, 49–50; skills, 47–50; structured dialogue for, 47–48 CPOE system. See Computerized physician order entry system Crick, Francis, 83 Cusano, Anthony J., 9–12 Data: confidentiality of, 103; in EHR/EMR systems, 113–14; integrity of, 105; messages exchange, 123; in network environment, 123; physical mediums for, 121–22; types in IT, 122–23 Decision support system: as designed, 108; development of, 107; as healthcare informatics application, 107–8 Disclosure: claim handling and, 192–94; financial side of, 192–94; resolution from, 197; in risk management process, 189–90; trust’s role in, 192 EHR. See Electronic health record Eisenberg, David, 135 Electronic health record (EHR): costs lowered by, 114; EMR v., 113; healthcare data stored in, 113–14; as healthcare informatics application, 113–15; implementation of, 114 Electronic medical records (EMR) system, 102; costs lowered by, 114; EHR v., 113; healthcare data stored in, 113–14; as healthcare informatics application, 113–15; implementation of, 114 EMR. See Electronic medical records system Ereky, Karl, 82 Evergreen Health Center Planning Committee, 17–18 Fairley, Dan, 70–71 Feynman, Richard, 90 Fiberoptic cables, 121 Fleming, Alexander, 82–83 Food and Drug Administration, 103 Fulkerson Jr., William, 60 Genetically modified foods, 86 Green, David A.: on Creekview story, 17– 18; on leadership, 17–20 Green Houses: development of, 15; life in, 14–15; as nursing home, 14–15; personcentered care in, 15; physical environment of, 14 Group process: in healthcare institutions, 8; planning as, 8

Index Healthcare: administration, 7; AI in, 48–49; challenges in landscape of, 84–86; collaboration in, 42–44; future of, 90; IT applications in, 78–79; managed as business, 94; nature of, 42; primary regulatory requirement in, 103; revolution needed in, 52; risk management in, 179–81 Healthcare delivery systems: business needs as met, 101–2; complex responsive processes, 7–8; cost of, 85; dysfunctional, 27; future of, 1; meeting needs of, 101– 2; nationalized/socialistic, 85; in United States, 85. See also Allopathic medicine; Complementary and alternative medicine Healthcare informatics: access control and, 104–5; applications of, 105–19; availability of, 102–3; charge capture as application of, 111–13; clinical systems/ monitoring as application of, 106–7; decision support systems and, 107–8; duties segregated in, 104–5; EHR as application of, 113–15; EMR system as application of, 113–15; healthcare delivery/ business needs met through, 101–2; integrity of data in, 105; IT executive, 129– 30; LIS as application of, 111; medicine management/drug interaction as application of, 108–10; PACS as application of, 110–11; project alignment/requirements identification for projects in, 95–96; projects and requirements, 95–105; radiologic information systems as application of, 110–11; reliability of, 102–3; system integration and, 115–19. See also Balanced Scorecard; Information Technology Integrated Library Healthcare Information and Management Systems Society (HIMSS), 114 Healthcare institutions: as complex adaptive living systems, 3; group process in, 8; regulations as key manner of managing, 2; self-organization in, 14; varied stakeholders in, 63 Health Insurance Portability and Accountability Act (HIPAA), 103, 104 Hickson, Gerald, 183, 195 HIMSS. See Healthcare Information and Management Systems Society HIPAA. See Health Insurance Portability and Accountability Act Hospital boards: advocating by members of, 74; benefits of being on, 73; care duty of, 63–64; CEO relationship with, 70–71; challenges for, 59–60; clinical

217 agenda advanced by members of, 74–80; collaboration and, 78; development of, 71–72; duality of interest of, 61; education for members of, 62, 72; effectiveness of, 71–72, 73–74; financial dashboard report for, 67; financial objectives of, 65–66; financial responsibility of, 65–68, 77–78; governance/management boundary of, 71; healthcare as shaped by, 59; insights/strategies supporting physicians on, 60–61; IT applications championed for by, 78–79; loyalty as duty of, 64; members contribution to, 73–74; mission of, 64–65; obedience as duty of, 64; operating margin of, 67; oversight responsibilities of, 64; patient safety and, 68–70; performance evaluation for, 72; physicians on, 59–62, 73–74, 75–80; policies of, 62; practice groups represented on, 61; productive partnerships advocated for by, 75–77; quality/clinical performance orchestrated by, 75–76; quality of care and, 68–70; recruitment for, 62; reimbursement trends overseen by, 77–78; role of physicians on, 62; selfregulation of, 71–72; strategic planning of, 64–65; types of physicians on, 61. See also Hospital executives Hospital executives: communication with physicians in hospital management, 29–31, 33–34; frustration of, 27, 33; medical care delivery impacted by decision of, 31; physicians relationship with, 27, 33, 40–41 Hospital management: attributes of people in, 39–40; cancer paths in, 35; CEO values in, 36–37; clinical culture v. culture of, 51–52; collaboration in, 42–43; corporate ladder in, 36; data on, 34–35; as defined, 28; economic pressures and physician conflict with, 50; frustration of, 33; future concerns of, 35–36; literature on, 34–39; mending gap between physicians and, 44–51; non-system and physician conflict with, 41–42; philosophies, 42; physicians/healthcare executives communication in, 29–31, 33–34; power/influence of, 39–40; pricing and, 45; production efficiency of, 32; providers’ adversarial relationship with, 32–33; structural aspects of physician conflict with, 41–44. See also Hospital executives Hospital supply. See Clinical supply

218 Informatics. See Healthcare informatics; Medical informatics; Pharmaceutical informatics Information technology (IT): aggressive use of, 116; applications in healthcare, 78–79; applications management, 100; applied in medicine, 95; BSC for project management in, 96–98; business perspective of, 99; constraints/challenges with medical systems of, 128–29; data types in, 122–23; departments’ organization, 98–99; duties segregated in department of, 104–5; environmental infrastructure of, 125–26; hospital boards as champions for application of, 78–79; hospitals’ investment in, 162; ICT infrastructure management and, 100; integrated library, 98–101; management of, 94; networks, 121, 123–24; overview, 119–28; physical mediums for data in, 121–22; progression of, 95; project management, 96; projects’ success rates, 95; security of systems of, 126–28; servers in, 119–21; service delivery of, 99; service demands/ support of, 99–100; staff, 102; storage in, 119–20; systems integration of, 115– 19; valuation of, 128–29. See also Data; Medical informatics; Servers Information Technology Integrated Library (ITIL), 96; development of, 99; framework of, 100; service elements in, 99 Information technology (IT) professionals: as administrators, 104; as successful, 93 Internal Revenue Service, 61 IT. See Information technology IT Governance Institute, 128 ITIL. See Information Technology Integrated Library JCAHO, 189–90 Kaplan, Robert, 96 Koch, Robert, 82 Laboratory information system (LIS), 111 LAN. See Local area networks Lawsuits, 183–84 Leaders: continuous learning as appreciated by, 23; effective communication by, 22–23; follower relationship with, 7; interdepartmental teamwork developed by, 22; measuring results’ importance understood by, 23; organizations as seen by, 1–2, 21; of paradigm shift, 15–16;

Index role of, 16; shared approach of, 20–23; traditional, 7–8 Leadership: approaches, 21–23; building on success of, 19–20; collaboration in, 7; common goals and, 16; complexityinformed, 13–14; core values/mission guiding, 3; Cusano on, 9–12; customers’ voice affecting, 4–5; within entire organization, 21; inclusion/involvement as important to, 22; insights on, 16–17; learning from cases of, 3–20; McAlilly on, 14–17; of nursing homes, 14–17; for positive outlook, 5–6; servant, 15; shared governance approach to, 12–14; successful, 9; sustaining transformational change through, 20; team, 5–6; Tobin on, 6–9; transformational, 14, 19; twenty-first century, 9 Levinson, Wendy, 184 Lifestyles, 86–87 LIS. See Laboratory information system Lister, Joseph, 82 Local area networks (LAN), 123–24 Long-term care: paradigm shift in, 15; resident outcomes measuring success of, 18–19. See also Green Houses Loyalty, 63 MacLeod, Colin, 83 Malpractice: claims, 183–84; insurance, 181 MAN. See Metropolitan area networks Management. See Hospital management Massage therapy: economics/evidence/ education of, 151–52; techniques, 151–52 McAlilly, Steve, 14–17 McCarty, Maclyn, 83 Medical devices: evidence-based comparisons between, 172; technology advances, 173 Medical informatics: business objectives, 93–94; defining, 93–95; quality of care improved with, 94. See also Healthcare informatics Medication: reconciliation, 9–10; self, 142–43 Medicine management, 108–10 Mendel, Gregor, 82 Metropolitan area networks (MAN), 124 Mindset, positive, 1, 5 Mullis, Kerry, 84 Nanotechnology: biotechnology component of, 89–90; as defined, 89; drugs formulated using, 89–90

Index National Institute of Standards and Technology (NIST), 128 Naturopathic medicine: economics/evidence/ education of, 147–53; guiding principles of, 147–48; physicians, 147–49 Networks: campus area, 124; devices for, 125; IT types of, 123–24; local area, 124; metropolitan area, 124; wide area, 124; wireless capabilities of, 124 NIST. See National Institute of Standards and Technology Norton, David, 96 Nursing Home Reform Act of 1987, 18 Nursing homes: Green Houses as, 14; leadership of, 14–17; physical environment of, 14–15. See also Long-term care Omnibus Budget Reconciliation Act, 18 Original equipment manufacturer (OEM), 103 PACS. See Picture archiving and communications systems Pasteur, Louis, 82 Pastoral medicine: case studies of, 204–8; as defined, 203. See also Prayer Patient satisfaction, 12 PCR. See Polymerase chain reaction PD. See Positive deviance Personalized medicine: computerization of medical records and, 88; role of, 87–88; understanding, 87 Pharmaceutical informatics, 108–9 Physicians: adversaries of, 31–34; attributes of, 39; behavior of, 195; chiropractic, 145–46; communication with healthcare executives in hospital management, 29–31, 33–34; credentialing of, 68; economic pressures and hospital management conflict with, 50; fiduciary relationship between patient and, 41; on hospital boards, 59–62, 73–74, 75–80; hospital executives relationship with, 27, 40–41; maximizing participation on hospital boards of, 62; mending gap between hospital management and, 44–51; naturopathic medicine, 147–49; non-system and hospital management conflict with, 41–42; practice environment for, 45; role on hospital boards, 62; structural aspects of hospital management conflict with, 41–44; types on hospital boards of, 61 Picture archiving and communications systems (PACS), 110–11

219 Pittsburgh Regional Healthcare Initiative, 46 Polymerase chain reaction (PCR), 84 Positive deviance (PD): approach in action, 9–10; confrontation and, 49–50; continuous learning and, 11; enlarging networks by enabling self-organizing from, 11; involvement from, 10–11; keys to, 49; lessons learned from process of, 10–12; for medication reconciliation, 10; organizational culture change from, 11; self-discovery and, 11 Prayer, 142, 203 Quality of care: guidelines for improving, 76; healthcare boards and, 68–70; indicators for, 68–69; medical informatics improving, 94 Radiologic information systems (RIS), 110–11 Radio waves, 122 Regulation, 2–5 RIS. See Radiologic information systems Risk: assessment, 126–27; as defined, 126; determination of, 127 Risk management: apologies and, 190– 91; disclosure process for, 189–90; documentation/informed consent in, 196– 97; enforcement v., 180–81; enterprise, 196; focus for, 180; generic, 177–79; in healthcare, 179–81; history of, 181–82; JCAHO mandate and, 189–90; loss identification/prevention as component of, 197; patient safety v., 179–80; techniques for, 178–79; tools for, 180–81; trust’s role in, 192. See also Disclosure Rusch, Linda, 12–14 Safety, patient, 68–70, 179–80 Security: as defined, 126; of IT systems, 126–28; risk assessment and, 126, 128; systems, 125; systems down due to, 127; threats, 127–28 Self-organization, 14 Servers: automatic shutdown controls of, 125–26; availability of, 120–21; as defined, 119–20; in IT, 119–21; software perspective of, 119 Services-oriented architecture (SOA): key characteristics of, 118; potential of, 118; as systems integration approach, 117–18 Service standards, 5 Shahbazim, 15

220 SOA. See Services-oriented architecture Spirituality: healing and, 203–4; spiritual assessment and, 204 Stephenson, Christy, 3–6 Sternin, Jerry, 9 Structured dialogue: as confrontation skill, 47–48; process of, 48 Sturdevant, Bonnie, 10 System integration, 115–19 Systems thinking. See Complex adaptive systems; Complexity science TCM. See Traditional Chinese medicine (TCM) Thinking system: characteristics of, 45–46; healthcare as paradigm of, 45 Tobin, John H., 6–9 Traditional Chinese medicine (TCM): qi in, 150–51; theories of, 150

Index Trust: impact of, 185–89; role in risk management, 192 Trustees. See Hospital boards Uninterruptible power supplies (UPS), 125–26 Values: CEO, 36–37; of leadership, 36–37 Video teleconferencing, 125 Vincent, Charles, 108 Vitamin therapy: as CAM v. Allopathy, 137–39; pharmaceutical companies and, 138–39 Voice over Internet Protocol (VoIP), 122, 125 VoIP. See Voice over Internet Protocol Watson, James D., 83 Wide area networks, 124

Praise for The Business of Healthcare

“The editors and writers of The Business of Healthcare have created a compelling and highly informative set of books that merge various disciplines and perspectives to create a comprehensive look at the challenges facing the healthcare industry. These books should prompt valuable discussion and, hopefully, action that will strengthen and advance the U.S. health system.” Craig E. Holm, FACHE, CHE Health Strategies & Solutions Inc. Philadelphia “Thoughtful and provocative, The Business of Healthcare is a clearly articulated exploration of critical issues facing healthcare leaders today.” C. Duane Dauner President, California Hospital Association “Just when the pressures and challenges on healthcare practitioners and organizations seem unbearable, Cohn and Hough have skillfully assembled this work which offers advice and comfort, not only on how to cope with today’s climate, but how also to take advantage of the opportunities that abound while not abandoning the call to serve humanity.” Robert A. Reid, M.D. Director of Medical Affairs, Cottage Health System, Santa Barbara, California Past president, California Medical Association “Now, more than ever, this three-volume set is necessary and important. The format and breadth of content is impressive; rather than a prescriptive set of how-tos, I come away with an expanded vision of ‘want to’ and ‘able to.’ ” Leonard H. Friedman, Ph.D., MPH Professor and Coordinator Department of Public Health, Oregon State University

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Editorial Advisory Board Murray Brennan, MD Benno C. Schmidt Chair in Clinical Oncology Memorial Sloan-Kettering Cancer Center R. Lawton Burns, PhD James Joo-Jin Kim Professor of Health Care Systems and Management The Wharton School of Business University of Pennsylvania Terry Hammons, MD Senior Vice President, Research and Information Medical Group Management Association Jack Matloff, MD

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The Business of Healthcare Volume 3: Improving Systems of Care

EDITED BY KENNETH H. COHN, MD DOUGLAS E. HOUGH, PHD

PRAEGER PERSPECTIVES

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Library of Congress Cataloging-in-Publication Data The business of healthcare / edited by Kenneth H. Cohn, Douglas E. Hough. p. cm.—(Praeger perspectives) Includes bibliographical references and index. ISBN 978–0–275–99235–4 (set : alk. paper) ISBN 978–0–275–99236–1 (v. 1 : alk. paper) ISBN 978–0–275–99237–8 (v. 2 : alk. paper) ISBN 978–0–275–99238–5 (v. 3 : alk. paper) 1. Medical care—United States. 2. Medical offices—United States— Management. 3. Medical care—United States—Quality control. 4. Health services administration—United States. 5. Health care reform—United States. I. Cohn, Kenneth H. II. Hough, Douglas E. III. Series. [DNLM: 1. Delivery of Health Care—organization & administration— United States. 2. Leadership—United States. 3. Practice Management, Medical—United States. 4. Quality of Health Care—United States. W 84 AA1 B969 2007] RA395.A3B875 2008 362.1068—dc22 2007031135 British Library Cataloguing in Publication Data is available. Copyright © 2008 by Kenneth H. Cohn and Douglas E. Hough All rights reserved. No portion of this book may be reproduced, by any process or technique, without the express written consent of the publisher. Library of Congress Catalog Card Number: 2007031135 ISBN: 978–0–275–99235–4 (Set) 978–0–275–99236–1 (Vol. 1) 978–0–275–99237–8 (Vol. 2) 978–0–275–99238–5 (Vol. 3) First published in 2008 Praeger Publishers, 88 Post Road West, Westport, CT 06881 An imprint of Greenwood Publishing Group, Inc. www.praeger.com Printed in the United States of America

The paper used in this book complies with the Permanent Paper Standard issued by the National Information Standards Organization (Z39.48–1984). 10 9 8 7 6 5 4 3 2 1

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Contents Preface by Kenneth H. Cohn and Douglas E. Hough Chapter 1

Leading Impact-Driven Disaster Response in a Healthcare Setting

vii

1

Carl W. Taylor Chapter 2

Healthcare Insurance: The Massachusetts Plan

35

Michael T. Doonan and Stuart H. Altman Chapter 3

Quality in Healthcare: Concepts and Practice

61

Phil Buttell, Robert Hendler, and Jennifer Daley Chapter 4

Adapting Proven Aviation Safety Tools to Healthcare: Improving Healthcare by Changing the Safety Culture

95

Jack Barker and Greg Madonna Chapter 5

Healthcare IT Solutions

119

Barry P. Chaiken Chapter 6

Market Dynamics and Financing Strategies in the Development of Medical Technologies

143

Jonathan Gertler Chapter 7

Improving Outcomes and Reimbursement: Outpatient Management of Pediatric Diabetes and the Implications for Chronic Illness

Karen Rubin, Jayne Oliva, and Debi Croes

v

157

vi

Chapter 8

Contents

Healthcare as an Economic Engine

177

R. Donald McDaniel Jr., Anirban Basu, David I. Kovel, and Ian Batstone Chapter 9

Improving Systems of Care: A Patient’s Perspective

195

Rudy Wilson Galdonik Chapter 10

Moving Ideas from the Laboratory to the Marketplace: How Scientists and Business Leaders Engage to Take Action

209

Lynn Johnson Langer Chapter 11

The Cost of End-of-Life Care

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Kenneth A. Fisher with Lindsay E. Rockwell About the Editors and Contributors

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Index

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Preface

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he healthcare system in the United States is a mass of paradoxes. We lead the world in the creation and application of technology for the clinical practice of medicine; yet the United States lags behind the rest of the developed world in basic health indicators (e.g., infant mortality rate, life expectancy). We provide some of the highest quality care in some of the premier health institutions that are the envy of the world; yet 45 million Americans cannot take advantage of these benefits because they lack health insurance. We outspend every other country on healthcare; yet almost no one is satisfied with the results: patients may get unparalleled quality care, but they pay a lot for that care and access can be erratic; payers are frustrated that they (and their customers) are not receiving good value for their growing outlays; and providers are feeling harassed by payers and regulators and unappreciated by patients. Some claim that healthcare is being ruined by the intrusion of business interests, which put the bottom line ahead of the appropriate care of patients and denigrate the professionalism of those sworn to care for the sick. They worry that these interests are making healthcare no different than any other “industry” in this country. Others argue that the problems of inconsistent quality, sporadic access, and high and rising costs can only be solved by imposing the discipline of the market. To these observers it is business thinking and processes that can transform the current system. The editors of The Business of Healthcare believe that the issue is not professionalism or business in healthcare, but professionalism and business. We believe that the healthcare system in the United States needs the perspectives and expertise of physicians and economists, nurses and accountants, technicians and strategists. We have organized this three-volume set for Praeger Perspectives to demonstrate

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how these mutual viewpoints can yield innovative solutions to our healthcare conundrum. In designing The Business of Healthcare, the editors recognized that the solutions to the challenges facing the U.S. healthcare system will not come from one source. Rather, the solutions must address both the micro and the macro aspects of the system. Individual medical practices, as the foundation of healthcare delivery, must be operated as efficiently as possible. Healthcare organizations of all types must be led in ways to maximize the effectiveness of both human and financial resources. Finally, attention must be paid to the systems currently in place that affect all aspects of the healthcare sector. To that end, we have organized The Business of Healthcare into three volumes that address each of these levels of the healthcare system in the United States. Volume 1 (Practice Management) focuses on those areas critical to the successful operation of physician practices: the process of joining and leaving a practice; promoting a practice; and managing the human and financial resources of a practice. It addresses the current structure of physician practices (including the continuing viability of solo practice) as well as the very future of the physician practice itself. Volume 2 (Leading Healthcare Organizations) shifts the focus to the complex tasks of leading in healthcare. The chapters in this volume illustrate that leadership involves the integration of relationship management (such as the appropriate involvement of physicians in healthcare organizations), new modes of care (including such disparate areas as biotechnology, complementary and alternative medicine, and pastoral care), and operations (informatics, clinical supplies, liability risk management). Volume 3 (Improving Systems of Care) widens the lens to consider how systems in healthcare can be transformed to resolve the paradoxes that we noted above. The chapters in this volume address systems to improve clinical quality and safety, development systems (e.g., for moving scientific ideas from the lab to the market, for developing medical technologies), operational systems (e.g., disaster response, information technology, and end-of-life care), and financial systems (such as the new “Massachusetts Plan” to cover all members of society). The volume also includes the voice of the patient in improving systems of care. We are grateful to all of our chapter authors who volunteered scarce time to write about aspects of healthcare about which they are passionate. Our goal has been to provide works by experts that will engage stakeholders in discussions of issues important to our nation’s health and economy. We hope that we have succeeded.

VOLUME 1: PRACTICE MANAGEMENT It used to be that physicians could graduate from medical school, complete a residency, and be confident that they could start a practice that was financially and professionally successful almost from the first day. Those halcyon days are long gone, with the advent of constrained reimbursements, increased regulation, and

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real competition for patients. Today, physicians must run their practice as if it was a business—because it is. Although many physicians may be accidental business people, they must pay attention to the most critical operational aspects of their practice if they are to achieve their professional goals. To that end, we asked our authors to bring forward the issues that they see from their experience as those most critical to the operational success of the medical practice. They responded with eight focused and insightful chapters on how to: • • • • • • • •

Manage the continuing opportunities and challenges of solo practice Join and leave a practice Measure performance in a medical practice Build a culture of accountability in a practice Manage difficult physicians Promote a practice Create a practice marketing plan Manage the revenue cycle

In addition, two authors took a broader look at the environment of medicine, one exploring the potential and realities of the new pay-for-performance and the other considering the future of the medical practice. In all, these chapters should provide physicians and practice administrators with the most up-to-date practical thinking on the effective management of physician practices.

VOLUME 2: LEADING HEALTHCARE ORGANIZATIONS Leadership is the art of instilling in people the desire to strive together to create a better future. Leaders listen, observe, provide direction and meaning, generate and sustain trust, convey hope, and obtain results through their influence on other employees. The challenge is to energize people to push themselves beyond what they thought they could do (Cohn, Cannon, and Boswell 2006). Nowhere are these principles more evident than in the chapters in Volume 2, where nationally known authors discuss the need for and evidence of leadership in healthcare. Diane Dixon begins this volume with an analysis of six healthcare leaders who embraced a positive, can-do mindset that enabled them to transform their institutions. Drs. Waldman and Cohn describe ways to transcend the adversarial relations that traditionally accompany physician-hospital relations and the dividends to patient care of engaging physicians in clinical priority setting, which Jayne Oliva and Mary Totten build on by describing the dual opportunity and responsibility of physicians serving on hospital boards. The final six chapters highlight the need for and benefits of leadership in specific sectors of healthcare, including biotechnology, informatics, complementary and alternative medicine, supply costs, risk management, and pastoral care.

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In healthcare, as in other fields that serve the public welfare, dedicated professionals prefer being inspired to being supervised. Through their influence on business strategy and especially on organizational culture, effective leaders: • Create a safe environment for reflection and learning • Improve the practice environment and hence practice outcomes • Help people reconnect with the values that attracted them to healthcare in the first place The purpose of this series and of Volume 2 in particular is to create a nurturing environment that stimulates further reflection, discussion, and action, resulting in improved healthcare for our communities. Only then can we consider our efforts successful.

VOLUME 3: IMPROVING SYSTEMS OF CARE The imperative for improvement is clear for everyone who works in healthcare. Through breakthrough studies championed by the Institute of Medicine, we have learned that inadequate systems of care jeopardize the health and recovery of hundreds of thousands of patients annually, adding billions of dollars of expense to an unsustainable healthcare budget. For people inside and outside the nonsystem of fragmented U.S. healthcare, the complexity can be overwhelming. A framework that treats a patient or healthcare processes as a number of mechanical parts, without paying attention to interactions of human beings with other human beings, is likely to fail. We are fortunate in Volume 3 to have chapters written by experts who have created a platform for learning and discussion that can inform the healthcare debate, point out the choices we need to make, and help us maintain optimism about our future. Carl Taylor provides practical and organizational insights that can guide us in meeting the needs of patients, families, and healthcare workers during the next man-made or natural disaster. Michael Doonan and Stuart Altman use the recently enacted Massachusetts health plan to discuss a way forward for dealing with the needs of the uninsured and underinsured. Philip Buttell, Robert Hendler, and Jennifer Daley define quality and safety in operational metrics that permit tracking, improvement, and cultural change. Jack Barker and Greg Madonna analyze the similarities and differences between aviation and healthcare and offer promise that simple practical steps like briefing, debriefing, coaching, and team training can enhance skill sets in communication and improve safety outcomes, as they did in aviation nearly three decades ago. Hospitals’ success increasingly relies on sharing information to prevent adverse outcomes in medication administration and proactive disease management, as seen in the next three chapters on informational technology solutions, medical technology, and improving outcomes and reimbursement. In the final four chapters, Donald McDaniel, Anirban Basu, David Kovel, and Ian Batstone argue that despite the expense of our poorly coordinated (non)system of care, healthcare

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creates high-wage, high-tech, and high-touch jobs that form the backbone of the American economy. Rudy Wilson Galdonik, who has been a caretaker and a patient, offers practical suggestions for improvement of systems of care from a humanistic perspective. Lynn Johnson Langer notes the rapid uptake that accrues when scientists translate the results of their research to the business community to serve the interests and needs of society. Finally, Kenneth Fisher and Lindsay Rockwell point out the tremendous cost of care in the last year of life and the billions of dollars that could be freed to support systems improvement if we instituted practical changes in the way that we provided terminal care. Although change may feel like failure when we are in the middle of it, we have reached a critical time when we can move from individual “blame-storming” to ways to ameliorate systems of care. This volume and indeed the entire threevolume series will only be successful if the insights contributed by our authors inspire us to create an environment conducive to questioning our past assumptions and learning new ways to study and improve patient care. Kenneth H. Cohn, MD, MBA Douglas E. Hough, PhD

REFERENCE Cohn, Kenneth H., S. Cannon, and C. Boswell. 2006. “Let’s Do Something: A CuttingEdge Collaboration Strategy.” In Collaborate for Success! Breakthrough Strategies for Engaging Physicians, Nurses, and Hospital Executives, ed. Kenneth H. Cohn, 76–77. Chicago: Health Administration Press.

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CHAPTER 1

Leading Impact-Driven Disaster Response in a Healthcare Setting Carl W. Taylor

S

ince the bombing of the Twin Towers of the World Trade Center in New York City on September 11, 2001, the United States has become increasingly focused on the response to sudden and impactful catastrophic events. Yet on August 29, 2005, Mother Nature played her own role in causing chaos and misery as thousands of people were impacted by the destruction of Hurricane Katrina along the Gulf Coast of the United States. The seminal message of any chapter about planning for or participating in disaster response is the need to provide both emergent and nonemergent care to persons impacted by the event. Regardless of the cause—a malicious act, an accident, or Mother Nature—it is a given that healthcare will be delivered by providers under circumstances seldom seen during normal times. Impact-driven disaster response means leading in a manner most likely to accomplish one’s goals. General Colin Powell’s definition of leadership recognizes “plans don’t accomplish work. Goal charts on walls don’t accomplish work. . . . [I]t is people who get things done.”1 To accomplish the goal of finding and directing people to serve and to survive is to understand the issues around disaster response and be prepared to provide clarity of purpose, credibility of leadership, and integrity in organization. In predisaster discussion with physicians and healthcare executives, the frequently heard comment is, “When ‘it’ happens, I will just do my day job of caring for patients, but perhaps just more of them.” Unfortunately, disasters do not always allow the luxury of simply performing one’s daily job. Rather, a complex series of factors also pressure the provider and/or executive to take on leadership roles and responsibilities that extend beyond clinical care.

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Hippocrates advised any physician arriving in an unfamiliar town to “first examine its position with respect to the winds.”2 Isaac Cline, a physician and pioneer in medical climatology, was head of the weather service in Galveston, Texas, in September 1900, when Galveston was destroyed by an unpredicted hurricane. Of a storm that cost him his wife and home, he later wrote, “If we had known then what we know now of these swells and tides they create, we would have known earlier the terrors of the storms which the swells told us in unerring language were coming.”3 Almost 105 years to the day, one could drive the Gulf Road in Mississippi from Ocean Springs to Bay Saint Louis and Waveland and suggest there are still lessons to be learned. Even now, there are reasons for the healthcare provider to examine the surroundings, evaluate the hazards, participate in the planning, and lead in any response. Leadership in disaster response is a dynamic, ever-changing process, a series of shared experiences of the best and worst practices in an effort to learn how to effectively act. Consider the following issues, which form lessons learned from recent disasters. These are continuous threads in the sections that follow: a. Social interactions are more valuable than processes and tools. b. Interpersonal trust is preferred over policies and procedures. c. Cooperation over competition is best. d. Agility in response is even more effective than planning, but good planning produces dialogue. Dialogue produces thought and thought produces knowledge. Knowledge produces confidence, which produces agility. e. Simplicity over complexity always works. f. Reliability over capability prevails.4 This chapter will deal with disaster preparation and response from two perspectives. In the first section are lessons learned primarily from the local and state response viewpoint. To slightly misquote Yogi Berra, a New York Yankee baseball catcher and Hall of Fame inductee, “In theory there is no difference from practice and playing but in playing there is.” What I think Yogi would mean, particularly along the Gulf Coast region in the post-Katrina days, is that experience is the best teacher, though not the kindest or most forgiving, but certainly the best. Hence these sections and the subsequent case studies draw heavily from a series of personal experiences and presentations by other leaders. There is also a federal—formal if you will—response structure.5 In the appendix that follows is an overview of that response structure. A wise reader of this chapter will spend time with the topics covered in the appendix, which highlights the basis for organized response. In the event you choose not to read further, let me leave you with one guiding motto of disaster response: Semper Gumby—“always flexible.” It is a motto to keep in mind when the power is out, communications are down, the water is

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not working, and three things remain: a stethoscope, assessment skills, and good leadership.

PRINCIPLES OF DISASTER LEADERSHIP: BUILDING COMMUNICATION AND EARNING TRUST You are not alone in responding to a disaster. Your effectiveness to your community and your own recovery depend on the ability to communicate with others who need your assistance or can offer it to you. But why is it important to build preevent relationships with reliable partners? What barriers hinder access to this goal? What steps should be taken to ensure the development of a network of support? What must leaders do to create accountable communication bridges? The cornerstone of disaster response is that most success in overcoming a disaster will ultimately depend on communication and trust. Communication is at the core of being able to ask for or offer help. Trust is about using communication ability to convey decisions, which promote effective response and individual and institutional survival. Communication strategies are built, whereas trust is earned. Achieving effective communication and earning trust will overcome many of the disaster response certainties that will be exposed during the catastrophe. Among the certainties are these: a. The disaster will always be more complex than your planning. Witness for a moment the chaos and confusion in New Orleans surrounding events at the Superdome and Convention Center. Loss of power, lack of food, questionable maintenance of general order, and safety failures all seemed to occur when preevent plans were overwhelmed by the gravity of the event. The lack of communication between agencies delayed their emergency responses and caused a lack of trust in the evacuees. b. Many conflicting opinions will be voiced about the best courses of action that should be implemented, including some in opposition to yours. Ed Minyard of Unisys, a company based in New York, relates a story of his effort to create an emergency operations center in the week following Katrina’s landfall. One of the unsung and underrecognized heroes of New Orleans, Ed and his team went to the city of their own volition and established the communication infrastructure that restored connectivity between the city and disaster responders. As Ed noted in a speech to city officials later, however, the real challenge in developing the correct response efforts in New Orleans was sifting through the varying opinions from competing agencies and individuals for the city’s optimum evacuation plan.6 Once the appropriate information was gathered, the actual deployment was monumental. In short, poor communication between perceived competing agencies exposed a lack of trust in the

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decision-making ability of some of the professionals sent in to assist in the disaster. c. Much of the information received regarding the disaster will be incorrect or incomplete. Following Hurricane Ivan in 2004, which greatly impacted Florida and Alabama, a review was undertaken to highlight both right and faulty actions. In interviews with hospital personnel in Alabama, there was a sense that the relief and assistance provided by the federal government disproportionately favored Florida. In subsequent interviews with federal officials, however, it was clear the aid provided was based upon how the hospitals gauged their needs. A phrase frequently uttered was, “Your hospitals could not see tomorrow,” meaning the leaders’ inability to anticipate problems from a lack of food, water, and power. Consequently, the available communication was frequently wrong, which impacted the response.7 d. Many of the individuals or organizations offering to help will be unknown to you. Volunteers may appear at your facility or in your community willing to help but with uncertain skills, inadequate supplies, and, oftentimes, an ill-defined mission. Communication can assist in requesting welltrained, well-supplied volunteers whose capabilities and credentials are verifiable. The challenges to good communication and earning trust are due to: a. The very nature of healthcare, which is often fragmented. Voluntary daily collaboration between facilities or providers is quite uncommon. Every hospital, no matter the size of the community, competes with other hospitals, freestanding facilities, and, occasionally, their own community doctors. Physicians are embedded within silos around their practices and specialties and thus rarely participate in disaster planning meetings because of time constraints. These factors often make communication and connectivity difficult topics to discuss—much less implement. At best, when communication and trust are taken on as an achievable challenge, the approach can best be described as coop-etition, the collaboration of competitors who work together during times of disaster. b. A lack of prior experience with local, state, or federal response partners. To many providers and/or facilities of care, their relationship with federal or state entities is normally viewed as a regulator or, perhaps, payer but rarely as a disaster response partner. Yet within many states it is the Department of Health or the Emergency Management Agency that is

Leading Impact-Driven Disaster Response in a Healthcare Setting

charged with facilitating predisaster communication and trust through its planning efforts. c. The lack of good national examples in which an integrated, well-organized disaster response system has performed well against a backdrop of a real event. Witness almost any congressional committee examining the response to a disaster and you will hear “a failure to communicate” frequently cited as the cause of poor response.8 d. Delaying until the event occurs to build communication channels. The challenge of communication is further heightened by the nature of how or, perhaps better, when relationships are built. It is vital to develop communication and trust before the catastrophe hits. If the event has occurred, there are likely to be additional challenges to building effective communication. Not only are people not physically where they normally are, but their responses may well be impacted emotionally by events as they unfold. Mass media, for instance, will filter the event information in different ways through diverse groups. There is a great deal of debate over just how much civil disorder occurred in New Orleans in the early days following Katrina. Regardless of where the truth lies, the media images displayed will be permanently etched in our minds. After seeing those images, you or your staff may feel differently about assisting during future disasters. Leaders build communication and earn trust by seeking three steps: a. Set clear goals for you and your staff/organization. Setting goals requires a preevent commitment to define your role in disaster response and to communicate those goals before, during, and after an event has occurred. For the provider or healthcare professional, for instance, it may be to serve on a Medical Reserve Corp as a volunteer medical response leader in the community or to agree to be part of a deployable Disaster Medical Assistance Team. It may also be to assume a role within the Incident Command System of your local hospital. For state public health departments, that clear goal is defined by the Emergency Support Function 8 of managing and coordinating healthcare response during an event.9 It is the role of the public health department in a disaster to actively assist in managing surge capacity10 and surge capability. Surge capacity is the term for managing large numbers of patients from a sudden impactful event. The goal, of course, is to manage them in a way

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that no hospital or provider site is overwhelmed by the sheer numbers of patients presenting for care. Surge capability refers to the types of patients a provider can safely handle. An example would be an explosion at a school that causes a large number of pediatric burn cases. A local hospital may have plenty of empty beds but no pediatric burn capability. Regardless of the goal chosen, leadership is best expressed against a clear mission. Whether your role is as a practitioner or other healthcare professional or public health leader, the common goal is to maximize the numbers of lives saved during the disaster while continuing to provide proper care for current patients. By communicating this goal, you are positioned to be a disaster leader and to earn trust by leaning forward into the event. b. Lean forward and be proactive in implementing your goals. This means to actively and proactively participate as a responder—not just an information gatherer. A good example from the public health arena comes from the Alabama Department of Public Health’s (ADPH) use of a Medical Transfer Center during Hurricane Katrina. As large numbers of patients were being displaced by the storm, the ADPH deployed public health employees into the state of Mississippi to identify the source of the patients and direct them to hospitals or shelters that could optimally provide care. This lean-forward approach to “getting in the way of an event” gave rise to a clear understanding of the goal of “managing the many effectively, so providers could manage the one safely.” The Medical Transfer Center’s other goal is to be a resource to all providers during and after the disaster, not only to manage the flow of patients but also to assist with supplies, resources, volunteers, and other issues to support medical care. Leaning forward capably earns trust and has centered the ADPH as an accountable partner in disaster response. Accountable partners are, of course, only as good as their accountable relationships. c. Develop accountable relationships. To become part of a disaster response from a leadership position means recognizing that successful disaster response requires assistance from many differing parties.11 Look at the Incident Command structure in the appendix to obtain a sense of the operational, financial, logistics, planning, and communication requirements of effective response. Although we will outline some of the specifics in the next section of this chapter, here are a few key points. First, before the catastrophe hits, leadership requires advising others in your community of your intended role when “it” happens. A few days after Katrina, Dr. Robert Galli, an emergency physician at the University

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of Mississippi Medical Center, took pictures of the disaster in the Gulf Coast. One particularly compelling photo was of Hancock Medical Center in Bay Saint Louis, Mississippi. Clearly evident from the photo was a water line indicating where four feet of water had stood only a few days before. Yet in the muck and mess, the most revealing part of the photo was not of the damage but of the line of patients— including one clearly pregnant woman—standing outside waiting to be treated. Hal Leftwich, the excellent chief executive officer (CEO) of that hospital, remarked that events left him with little choice of his facility’s response. As the water was retreating, patients began to arrive, some swimming in. He commented later, “We saw a Coast Guard helicopter landing and thought they were bringing help. Instead, they were dropping off patients for us to treat.”12 Through a strong medical staff, outstanding professionals in the facility, good assistance from other response agencies, and outstanding leadership, Hancock Medical Center remained a hub of care for Bay Saint Louis and Waveland without interruption even while the facility was being rebuilt. Hancock Medical Center proved to be an accountable partner to its community when disaster hit. Leaders who set a goal to remain or return quickly to their community accept that there are two key requirements to accomplish this task. First, develop a trusted information/communication network to gain knowledge about the event before, during, and after its impact. This knowledge creates a condition the military might call situational awareness, an accurate as possible understanding of events. Second, situational awareness then allows you to make correct decisions leading to positive outcomes. These actions create trust in the leader and his or her leadership decision making. As an overall approach to gaining situational awareness, leaders need to create channels of trusted information. Again drawing from the Alabama experience, our unified incident reporting system collects real-time information of critical importance to healthcare providers. The status of beds, staff, utilities, supplies, structural challenges, ingress and egress blockages, and other community issues leads to correct decision making based on a statewide view of event issues and response capability. Pushing local disaster planners to create a system to obtain this vital information is an important first step. Supporting the drive toward information clarity is the need to recognize four key issues: a. Develop multiple ways to obtain information. Two of the three Emergency Operations Centers along the Gulf Coast in Mississippi and the Emergency Operations Center of New Orleans were impacted by Katrina. Therefore, receiving good information immediately after the storm proved problematic and uncertain. Moreover, given the challenges of loss of power, movement of responders, and uncertainty of communication tools, more avenues to reach people who possess accurate information about the event become critical and essential to the decision-making process.

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b. Develop redundancy and interoperability. Those you trust for information may themselves be unable to respond because of the disaster’s impact on them personally. Clearly, Mother Nature does not exempt healthcare providers from her wrath, nor will a widespread pandemic. This means that leaders must develop redundancy and interoperability both in the communication devices at their fingertips and in the persons they rely on for support. This is true in the first few days after a disaster and in the days, weeks, and months afterward. Disaster response and recovery is quite often a marathon, not a sprint, and managing people through the information-gathering process in a catastrophe can prove to be difficult. c. Build information channels before the crisis occurs. In natural disasters, the loss of power or transmission lines can reduce access to oral or written documents dramatically unless procedures for communication channels have been developed in advance. d. Develop relationships with people who can provide basic services, including food, water, laundry, and power during times of disaster. During Katrina, for instance, West Jefferson Medical Center’s central laundry facility was destroyed, leaving the hospital without clean linens at a time when its daily emergency room visits had tripled. Therefore, maximizing lives saved and maintaining care for existing patients can be as basic as finding food and clean laundry for them. Being able to communicate with people you trust competently to assist during a disaster will be invaluable in a crisis; however, do not assume that the networks are already in place. Begin now to establish a relationship with public health officials and your provider community partners to build a plan to support one another in time of need. Set clear goals, lean forward by being proactive, agree to participate in one another’s planning and exercises, and be an accountable partner when called upon.

LEADERSHIP IN ACTION: DEALING WITH SPECIFICS OF PROVIDING CARE When disaster strikes, the surrounding infrastructure will change, from both human dynamics and internal operations standpoints. This section will highlight topics that may often be missed in planning, but they will prove critical in maintaining an adequate response to an event. Against the backdrop of maximizing lives saved in less than normal clinical conditions, the demands on leadership are to answer these 11 central questions:

What Is the Philosophy of our Clinical Organization? Principle number one is to determine where you will be and what you will do personally and organizationally when “it” occurs. Does it matter what the nature

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of the event is, such as a man-made or natural catastrophe? Options include: Stay in the facility at all costs, return as early as possible, or do not return. That decision depends greatly on your leadership philosophy with the realization that experience and the actual event will influence that decision making over time. For many of the Gulf Coast hospitals, including the three in New Orleans, West Jefferson Medical Center, East Jefferson Medical Center, and Ochsner Clinic, the decision to stay open regardless after Hurricane Katrina mirrored a philosophy of its leaders to stay in the community. Many of the heroes who stayed the course during Katrina, however, may not have done so had a subsequent disaster occurred. I heard comments frequently from a number of healthcare professionals throughout the Gulf Coast who said they simply would not go through “this” again. The philosophy of your facility may vary, is experientially based, and must be reviewed at least once a year. Principle number two is that circumstances will alter your philosophy. At the initial warning of Katrina’s approach, none of the hospitals in New Orleans evacuated. Their philosophy was to stay and ride out the hurricane. Many of them, however, elected not to ride out the following flood.

Will our Staff Show Up? From a leadership perspective, there are four challenges to staffing, which will determine if your office or healthcare facility is to remain open or recover from an event. 1. The first challenge is addressing the need for workers to come in and work during an event. Recent studies, for instance, suggest that approximately 42 percent of all healthcare workers would not show up for their shift in the midst of a pandemic.13 A number of nurses during the severe acute respiratory syndrome (SARS) event in Canada did not report for their shifts, which caused staff and operational challenges.14 As you attempt to get your staff to report for duty, you must recognize there are issues your employees are dealing with and by inference you must deal with them also. a. The primary issue is fear. Will I be safe? What steps are the leaders of my facility taking to ensure my safety? The fear can come from concern over infection to structural damage from a storm to concern over social disruption, which was experienced in New Orleans. Regardless of the cause, good leaders recognize the challenge of protecting the personal safety of the healthcare workers by communicating solutions and plans before and during the event. b. The second issue is concern for family members and loved ones. While working at a hospital during Hurricane Ivan, the major concern I heard from nurses was not of personnel issues but personal issues. Because the hospital did not allow family members to weather the storm in the facility as staff members worked, this decision created concern

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and anxiety. As one nurse told me, “I can be a nurse anywhere. Remember, there is a national nursing shortage.” You can find proponents and opponents of allowing staff to bring their families into a facility during a storm. Though proponents cite the overall morale benefits, opponents allude to issues of employee distraction, workplace disruption, and stress on food, water, and facilities. Regardless of your personal position, encouraging your staff to have a family plan in place can help ensure their availability to work immediately or to come in shortly thereafter. c. A significant issue in getting employees into work involves mission. A common complaint I hear is, “We have met the enemy and it is caller ID.” This device allows the worker away from the facility to easily identify the caller as his or her employer. The worker knows full well the intent of the call and can choose whether to answer. From a leader’s perspective, you need to gauge the relationships with your staff. Will they put themselves in harm’s way if asked? How deeply do they believe in the mission of your facility? Getting strong emotional commitment for the mission of healthcare in a disaster is vital to getting workers to respond favorably when called upon to work. 2. The second challenge is to determine the correct type of workers needed. Disaster responders often think initially in clinical terms for employees—physicians and nurses. However, food service workers, environmental service workers, and especially clerical staff are all critical personnel to keep the facility open and operational. Vital also are materials management, security, information technology support, and finance personnel. 3. The third, and often overlooked, issue is dealing with the psychosocial needs of your staff during the disaster. During the early days of Katrina with its enormous devastation, healthcare workers suffered the same loss of homes, family, businesses, and community as others. Long hours and altered environments, including lack of water, air conditioning, and basic creature comforts, all contribute to the stress on your workforce. Leaders plan early for dealing with the various types of additional demands on their employees, including creating flexible work rules to allow staff members to grieve or deal with personal losses. After the hurricane season of 2004 in Florida, I discovered a number of hospitals had terminated workers who did not report to work during the storm. I personally do not support this action. In fact, at the height of the storm when no one is on the road, you will need fewer workers than in the hours afterward. A more enlightened approach would recognize that disaster response is both emotionally and physically draining, especially when the storm is at its peak. Perhaps those discharged workers could have provided welcome relief to the first phase of employees who

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reported for duty. These tired workers will eventually need a break to deal with their own physical and emotional challenges. 4. The fourth issue in leadership deals with worker retention. Healthcare costs along the Gulf Coast are up 25 percent following Katrina. Any trained healthcare worker, with a home and skills, is highly desired because of the exodus of many talented, though exhausted, caregivers. Employee retention strategies are required to deal with ongoing staffing challenges.

Where Will Supplies Come From? Your healthcare team will depend on a reliable supply chain for both clinical and nonclinical supplies. Yet roads can be impacted during a natural disaster or the widespread nature of the event can cause suppliers to create delivery priorities. In a yet-to-be experienced pandemic, it is reasonable to assume supply-chain disruptions due to shortages in all areas of business operations: from truck drivers to janitorial personnel, from manufacturing of goods to actual inventory on hand, to concerns of ingress and egress into a healthcare facility, to name a few. In addition, most hospitals and providers have gone to a just-in-time inventory management approach, which means they no longer warehouse supplies. From a leadership planning perspective, there are some commonsense and valuable recommendations that emerged from Katrina. These can be implemented in your facility, regardless of the disaster type. 1. Assume at least a normal or increased patient load. 2. Factor in additional people and pets, if your plan allows your staff to bring them into your facility. 3. Recognize that much of your patient load will be unmanaged chronically ill patients whose lives have been disrupted by events. 4. Engage in discussions with your suppliers about their disaster plans and potential events, which might cause delays in serving your facility. Supplies required for a minimum of 10 days include pharmaceuticals, food, water, and other mission-critical supplies. This dialogue needs to include a discussion about events outside of your area, which could still impact your supply chain. We learned long ago that a storm in Puerto Rico would disrupt our supply chain for certain items manufactured on the island. From a pandemic perspective, the need to understand and manage current suppliers and create alternative supply chains is essential. 5. A final recommendation is to discuss supply-chain assistance with your county or state public health departments. As part of the overall disaster preparedness, these entities have worked toward building supply caches and delivery capability. Their contacts will prove valuable during this time of unusual need.

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How Do You Get Transportation and Fuel? You and your staff will need to find a way to work, and your discharged patients will need transportation to home or alternative care facilities. Mother Nature often impacts roadways and interferes with the operation of gasoline stations. Viable transportation solutions include public service announcements for individuals with four-wheel drive vehicles or vans to pick up staff in a carpool type of arrangement. In addition, there may be social support organizations and county or municipal government entities that have transportation available. Your local emergency management agency and public health department can communicate this information and assist. Fuel, on the other hand, often proves a difficult commodity. During Katrina, hospitals relied on an informal sharing of information based upon advanced knowledge of specific gasoline stations next in line for fuel shipments. A more sophisticated approach implemented by Ocean Springs Medical Center in Ocean Springs, Mississippi, is to purchase fuel that would be delivered within 48 hours after landfall of any storm. Billing and invoicing options need to be addressed as well.

Will Our Facilities Be Appropriate? There are a number of leadership considerations when facilities are reviewed. First, the structural integrity of the facility will be a fundamental determinant during a natural disaster of whether to remain or evacuate. Among the commonsense issues are those in or surrounded by low-lying flood-prone areas. One of the planning challenges to Ocean Springs Medical Center was the potential flooding of roadways in and out of the facility. Therefore, evacuation decisions must be timely made. Another structural challenge is the ability of large glass atriums and other similar structures to withstand wind loads. Although a hospital or office building may choose not to evacuate because of an atrium, consideration must be given to altered traffic flow and other challenges. Although there are a number of considerations regarding evacuation, it may not mean the entire facility should be evacuated. Possibly, only certain units should be moved from outside walls into interior spaces for safety. Regardless, all components of your facility must be evaluated to determine how to best use or preserve the space. Facilities also play a role in a number of other issues. For instance, the need for a family plan for your staff is critical. If family members of your staff will not be allowed into your facility, then you must help them identify alternative sites to accommodate their family members or themselves if their own homes are impacted or unreachable. Or your workers may not wish to bring their families into your facility because of infection risk and other dangers. If either occurs, alternate sites become critically important as a planning tool. These sites might include wellness centers on the hospital’s property, the local YMCA and other gyms, and schools.

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Finally, the need is paramount to recognize that alternate sites can play a strong role in surge capacity. Before Katrina struck and even before it landed on August 28, 2005, West Jefferson Medical Center’s caseload averaged 150 patients daily. Since then, that number has climbed to more than 450. West Jefferson managed this increase in surge capacity through a number of novel approaches. One was identifying an available, abandoned nursing home across the street from the hospital and negotiating with a community health center to establish a presence there.15

Is Our Security Adequate? Safety of your facility, patients, and staff is of paramount importance during and after an event. Amid reports of robbery, assault, and rape, there is much debate about what actually occurred at the Superdome and Convention Center in New Orleans. One definite outcome was the great fear of social disruption and personal safety that arose in the hearts of healthcare workers as hurricane reports were shown on television. Against this backdrop of social disorder, three hospitals—Ochsner Clinic, East Jefferson Medical Center, and West Jefferson Medical Center—were able to stay open because of their being able to locate dependable security. There are four avenues to obtain personnel to secure your facility. 1. First, your own workforce could be employed during times of crisis. Hospitals, office buildings, and other locations often have existing guards or security personnel. Adequacy of numbers, training, and their own employee attendance should be evaluated ahead of time. 2. The second choice is to rely on local, county, or state police for assistance if there is a specific advance agreement for them to do so. 3. The third choice is to hire private companies for specific event protection. During natural disasters, large hotel chains often rely on these companies with great success. 4. The fourth choice is to negotiate a mutual aid agreement or use other creative means to provide security. In New Orleans, West Jefferson Medical Center had a prior existing agreement with a military police unit of the Louisiana National Guard, which provided security throughout the duration of the early days of Katrina. Reciprocally, West Jefferson volunteered space and sleeping quarters to law enforcement personnel assigned to New Orleans to restore civil order.16

What Communication Tools Should We Use? Can we talk? Or rather, why can we not talk? There are three principles to effective communication and each is equally important. The first principle is what is in your hand when you are trying to communicate. Do you have to rely on electric

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power as your energy source of communication? We know in a natural disaster that electric power is the enemy of communication. At the Strong Angel III exercise referenced earlier in this chapter, which was led by Commander Eric Rasmussen, MD U.S. Navy, he illustrated how the absence of electric power crashed virtually every communication system. Oftentimes, cell phones are subject to power outages and will not operate, particularly if the cell tower (or the phone) loses battery power and digital phones lose data lines to the Web. Satellite phones will work at times, especially if you are outdoors. Analog phones and ham radios can also be operational, which proves that older technology can be a lifeline in desperate occasions. Today, every hospital with a well-honed disaster plan has established a relationship with ham radio operators to use their expertise during times of disaster. In addition, most states are having dialogue with talk providers who will be delivering disaster-hardened networks. For instance, the Alabama Department of Public Health is using federal disaster funding to procure talk radios for every hospital and community health center in the state. The second principle of communication is the language used. Basic English should be the standard protocol, but local, state, or federal responders often communicate with acronyms, no matter to whom they are speaking. A number of good Web sites offer a glossary of current terms, but another equally valued approach is to insist on an acronym free environment (AFE). Clarity and accuracy of communication in times of crises are far more important than following normal communication policies. Finally, the most important principle of communication is knowing who to call when you are looking for help or offering to help. During these calls, you will discuss situational awareness, supplies, staffing, and patients. The Alabama Department of Public Health has created a Patient Transfer Unit (formerly the Medical Transfer Center mentioned previously), a central entity designed to deal with disaster-related health events. Before a disaster strikes, leaders will identify a wide range of entities that can provide help when disaster occurs.

Who Sues? Healthcare is a heavily regulated industry. At work against a system of integrated care during a disaster are three statutory/regulatory barriers or risk challenges. The first is the Emergency Medical Treatment and Leave Act (EMTALA), which is found in the Social Security Act (42 U.S. Code 1395 dd) and requires an emergency patient to be treated and stabilized upon delivery and before being transferred to another facility. Although most emergency physicians view EMTALA primarily in the light of financial issues, it has other ramifications from a disaster perspective. If implemented as written, it can serve as a barrier to safe, effective patient routing from hospitals that have exceeded their surge capacity.

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In an informal guidance by the Center for Medicare and Medicaid Services (CMS) on November 8, 2001, it was recognized that EMTALA had not contemplated public health emergencies. Through a series of subsequent pronouncements, the CMS intimated that initial screening requirements could be limited in presidentially declared disasters. During Hurricane Katrina, Section 1857 sanctions were waived for redirection of patients not stabilized. Another perceived challenge to effective communication during disaster response is found within the Health Insurance Portability and Accountability Act (HIPAA), 45 C.F.R. Parts 160 and 164. Recently, the U.S. Department of Health and Human Services (HHS) released a new Web-based interactive decision tool designed to assist emergency preparedness and recovery planners in determining how to access and use health information about some persons. This tool can be found at http://www.hhs.gov/ ocr/hipaa/decisiontool/. As a general rule, HIPAA provides that covered entities (public health agencies and providers) may use or disclose protected health information for treatment, including the provision, coordination, and management of healthcare and related services. Finally, there is the possibility of malpractice events arising out of the provision of care during a disaster. There is no safe, all-encompassing guideline that can cover every potential event and no guarantee prospectively or retrospectively that there will be broad agreement on any rule set. Good preevent communication and planning, however, can at least mitigate any postevent litigation risk. This planning should center on the following: 1. Triage efforts will need to focus on maximizing the number of lives saved. 2. Triage decisions will affect allocation of resources across the spectrum of care. 3. Current patients have needs also that must be met. 4. The usual scope of practice standards may not apply. 5. Equipment and supplies may have to be rationed. 6. There may not be enough staff or enough trained staff. 7. Surge capacity may create backlogs and delays. 8. Providers may have to make treatment decisions based on best clinical judgment without the help of lab or imaging studies. 9. Standards for documentation may be difficult to maintain.17

Who Pays? The ability of any healthcare provider to provide needed services in a disaster will last only as long at its ability to make payroll and purchase supplies and services. Katrina demonstrated the fragility of the financial state of healthcare facilities, as will future pandemics. Well-directed leaders will take several steps before a disaster hits to meet the sudden interruption of cash flow and the associated increases in operational expenses.

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The first step is to review the business interruption policies in force and in effect for the enterprise. Of particular note is the challenge embedded in some insurance policies that tie business interruption to physical damage. In a pandemic or for some facilities after Katrina, their businesses were interrupted and financial losses occurred. Because of lack of physical damage, however, their insurer was slow to respond. Second, it is vital to review the facility’s borrowing authority. For facilities, there are two keys: a good banking relationship and the borrowing authority approval in place before the disaster hits.18 A strong relationship with banks can also create an ability to literally have cash delivered when required. When the power goes out, we become a cash-driven society. Availability of cash will keep employees at work and mitigate the stress associated with the need to meet short-term obligations. Another short-term remedy is to establish a foundation that can raise cash and donations of both money and goods that can be distributed directly to the staff. It is rare that a donation plan is found in a hospital or healthcare-planning document, but it can truly have a significant impact in meeting the cash and clothing/supply needs in cases of emergency. Third, consider the opportunity to create a disaster-ready foundation to solicit donations from others. Both West Jefferson Medical Center and Hancock Medical Center established foundations to ask for cash to assist in rebuilding. In West Jefferson’s case, the money went to the employees.19 Hancock Medical Center gave donors options of contributing to rebuilding the facility, to donating to the employees of the facility, or to assisting the community physicians with total losses of practices and homes.20 Generous contributions from many Americans had a significant, positive impact on the individuals at these medical centers who had lost so much and yet even in their loss stayed in their communities to assist others. Fourth, where there has been a sudden change to your county or region demographics a consideration changing the hospital’s licensure or status might also prove valuable. After Hurricane Katrina, Hancock Medical Center realized its county had suffered a significant loss of population. The hospital leaders considered a number of options available to keep the facility open. For them, the correct decision was to convert to a critical access hospital and reduce its bed size from 100 to 24 beds to meet the needs of its much smaller community. Flexibility in sizing and creative measures in staff retention will pay dividends during the postevent recovery period.

How Do We Overcome Psychological and Psychosomatic Issues? Leadership in a disaster recognizes that psychosocial issues will be present in patients, providers, and staff. In addition to post-traumatic stress disorders suffered by patients, there will be the need to deal with a sense of fear or dread about the event, particularly in events such as a pandemic or terrorist attack. Finally, challenges around blame, stigmatization, isolation, and personal and even facility resilience must be addressed as patients continue to be fearful. As your own staff members experience a variety of emotions, personal counseling might be

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necessary to deal with loss, grief, and mourning. Fortunately, there are materials available through the Centers for Disease Control and Prevention entitled “Crisis and Emergency Risk Communications.” These and other resources should be gathered before a catastrophe strikes.21

How Is a Level Playing Field Created? Leadership in a disaster is about recognizing the source of possible assistance and asking for assistance when needed. Witness common comments from Katrina: “No one helped us” and “Why did they get evacuated first?” Frustration, discontent, and a sense of discrimination can erode confidence in leadership. In outbreaks, this will also include stigmatization, blame, and a collapse of social cohesion. These challenges should lead to at least three steps to create a level playing field, in which individuals take as much responsibility for their own actions as possible. First, we use a term in planning called YOYO, or “you are on your own,” to create a sense of resilience. Though difficult to attribute the phrase to any one person, seasoned disaster professionals use it frequently to lower the expectation that the cavalry is going to ride over the hill to rescue those in distress. As the phrase resonates from their leader as a battle cry, staff members realize that they have much of the power in their hands to control much of their destiny. The second recommendation is for leaders to adopt the so-called natural leader or soccer mom strategy.22 Within your organization, identify formal and informal individuals who are trustworthy, calm, and controlled. They are emotional leaders who can be counted on during disasters to convey information, calm the fears of workers, and mitigate the personnel criticisms. Finally, the need of the leader is to produce. It is vital for you to provide clear direction and articulate the needs of your organization to others who can help. During times of crisis, it is essential for the leader of the organization to draw upon his or her personal strengths to effectively lead. Good leadership recognizes it will take more than a plan on paper to solve each of these 11 issues when a disaster hits. Deal with personnel issues in advance, anticipate challenges in your daily operations, prepare for the long term, and create a thoughtful approach to problem solving.

TOOLS THAT ENHANCE RESPONSE Leaders lead best when planning and thought precede decision making. The tools of choice begin with a hazard, threat, and vulnerability analysis (HVA). An HVA is that moment when your leadership team gathers to discuss a wide range of prospective challenges, ranging from man-made to natural disasters. The team begins to ask fundamental questions, including the likelihood of human, property, or business loss. Also to be addressed is your facility’s ability to respond internally to the disaster and your community’s ability to assist in your response. Most HVA forms offer a scoring methodology to highlight specific threats to review further. When completed, an HVA forms the chapters of your disaster plan. Although there are multiple schools of thought on the desired length, you

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should be more concerned with the initiation of the process. Once the initial document is developed, it will be reviewed and revised as necessary. There are other tools useful to disaster response. In some states, there is a unified Disaster Response Incident Management System. These systems promote focused exchanges of staff, supplies, patients, and event data between providers and responders. Another lesson learned from Katrina was the impact of a healthcare system existing more on paper than on servers. In all states, Katrina displaced more than 1 million persons on August 29, many of whom who were poor, underfunded, and beset with a litany of chronic diseases. Overall, 250,000 of those displaced persons ultimately required some type of care. Among the challenges presented was the inability of the patients to articulate all of their known conditions and medications. In response, a truly Herculean effort by the Health and Human Services Office of the National Coordinator for Health Information Technology (ONCHIT), the Markle Foundation, and many others created a special Web site, http://www.katrinahealth.org. This Web site aggregated pharmacy data for many of those displaced and allowed providers an access point to search the medication history of these displaced persons. Clearly, almost any disaster will put patients in motion. Patients with multiple comorbid conditions will present to your office, emergency room, or medical needs shelter. Many of these patients will be unable to fully articulate their conditions and perhaps even less likely to articulate their full complement of current medications. Because these are patients that will be new to you, gaining at least some information about their medication history or known conditions will be valuable in providing care. In the future, we will have a better electronic record system available to providers that will at a minimum contain medication histories of patients.

THE ROLE AND CHALLENGES OF THE COMMUNITY PHYSICIAN Many of the previous suggestions and recommendations are well suited for hospitals and emergency department physicians who are often real heroes in managing through difficult events. But how should community-based physicians and their experiences move forward after a catastrophe?

Issues Relevant to Practicing Physicians Hospitals and physicians must realize the sense of loss of the private practicing physician. Gone in an instant may well be his or her home, office, records, and patients. Not gone in an instant or at any other time are their debts and liabilities or the desire to determine as quickly as possible whether recovery is possible. Unlike hospitals, community-based private practice physicians often find that the disaster response and federal resources are not available to them. In many cases, well-intended volunteer help may negatively impact private practitioners trying to

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rebuild their practices. Attempting to compete with so-called free healthcare just down the street becomes a challenge and a source of contention. To the private practitioner, the issue begins with “Where have my patients gone, and are they coming back?” Many physicians in New Orleans who witnessed the widespread movement of their patients to Baton Rouge now believe that a large segment of their practices will not be returning at all or at least in the short term. To those physicians, that realization means either relocating their practices to reunite with their patients or considering out-of-area recruiting offers. To the physicians who choose to remain, there are three steps that should be considered concurrently to assist in their journey toward economic recovery: 1. Become involved early in the disaster response dialogue. Most emergency medical operations centers or community hospitals hold at least daily meetings on what is happening with patients, supplies, resources, assistance, and needs. Decisions about the need for out-of-town or out-of-state medical volunteers are often made at these meetings, many times without realizing that there are community-based private practitioners willing to become involved. Moreover, these meetings are a time for you to express your needs for supplies and assistance. 2. If you play a role in your hospital’s emergency call roster and you see a diminution in your payer mix, as we have witnessed in New Orleans, then negotiate a paid call relationship with the hospital. Be sure to articulate your needs as often as possible so as not to be ignored during the long-term planning of the medical community. I make this recommendation knowing that the local hospitals will also be struggling with financial challenges, but it is far easier to create an ongoing permanent bond with private physicians who are committed to your community. For rebuilding to occur, healthcare will need to be present and there will be a time (perhaps too long in coming for many local physicians) when the volunteer medical care will return home. 3. If you are a physician who has lost nearly everything, there will be a time of personal and professional reconstruction. One solution that seemed to work at Hancock Medical Center in Bay Saint Louis, Mississippi, was to offer employment to physicians under terms that would allow an exit from the employment if the physician felt his or her practice had recovered. These agreements, although not perfect, seem to be a fair balance of the needs of the parties. I summarize this particular section with an admonition that private practitioners are often the least prepared for disaster response and yet they often suffer the greatest impact from the event. Although many private physicians are other

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directed in volunteering for Medical Reserve Corps or other charities, time needs to be spent considering the rebuilding or relocating of your own practices. Does your hospital have a plan to help you? Have you found where and how to make your voice heard? Are there untapped sources of assistance that can be channeled toward your practice in the event of a calamity? If you have to relocate out of the area, are there resources available to help with that decision? Today might be a good day to ask.

Case Studies in Preparedness and Leadership West Jefferson Medical Center The motto of West Jefferson Medical Center (WJMC) is “To CURE Sometimes, To RELIEVE Often, and To COMFORT Always.” During the early days of September 2005, that motto should have been amended to read: “and To SURVIVE Somehow.” Located in Marrero, Louisiana, on the west bank of the Mississippi River in Jefferson Parish, this 425-bed hospital found itself as one of only three hospitals in the greater New Orleans area that remained continuously open throughout all of the difficult days of the Katrina recovery. One common denominator with success stories in disaster is a strong leadership team. Gary Muller, the hospital’s CEO; Erie Hebert, the chief operating officer; and Mitch Leckelt, head of risk and recovery, all provided strong leadership and steady hands during the difficult days in September. Without power and water and with shortages of food and staff, WJMC remained open for business as usual; however, the staff saw its emergency room visits climb from an average of 150 daily patients to more than 450 daily patients for nearly every day in September and early October. In many ways, WJMC exemplifies many of the best practices in disaster response discussed within this chapter. With an interesting sense of clairvoyance, WJMC had signed an agreement with the Louisiana National Guard to deploy a security unit at the hospital just prior to the storm. The presence of this unit gave the employees a sense of safety and security when televised reports and observed events showed an increasing element of social disruption in the city. These feelings made it easier for employees to remain on the job and care for patients during the time of extreme chaos. As the patient numbers swelled, WJMC established relationships with both federal response entities, such as Disaster Medical Assistance Teams, and a community health center group that was able to establish a primary care center just slightly away from the WJMC campus. WJMC was also able to create a drive-through form of triage to reduce the number of patients presenting for care at its emergency room. Nurses literally met cars in the parking lot or driveway to assess if the individuals needed care or were merely looking for a shelter.

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Because of the chaos in and around New Orleans in those early days, WJMC looked more to its relationships with friends or contractors for assistance. For instance, a CEO of another hospital outside the area was able to reach WJMC with a truckload of supplies. Sodhexho, a hospital supply company, was able to provide emergency support, and the U.S. Navy provided generator fuel. Creativity became the rule of operation for the hospital as red bags were used for personal body waste, flashlights helped illuminate operating rooms, and the concept of clean linens was but a memory as the hospital’s laundry had floated away during the storm to downtown New Orleans. To attempt to reduce staff exhaustion, the concept of A and B 12-hour shifts was introduced to employees. This allowed overworked personnel an opportunity to get some rest during this horrific time. Many on the staff had suffered total loss or damage to their homes. WJMC, in turn, established a foundation to raise money, which was subsequently disbursed to staff members in need. To assist its community physicians who had seen a significant decrease in patients with means to pay for healthcare services, WJMC began to pay doctors to take call. This helped WJMC keep physicians in the community at a time when they were being recruited by other states or facilities. Of critical import is also the recognition that Katrina recovery is ongoing even these many months later. New Orleans will be decades in its recovery, and decisions made in a healthcare setting must recognize the changed universe. As such, WJMC continues to seek collaborative relationships with other hospitals and universities.

Lessons Learned • Good planning recognizes the need for physical and financial security during the disaster and the recovery. • Good leadership recognizes the need to think both in the sense of immediate concerns and survival in the long term. • Good leadership in a disaster recognizes that social networks among friends and suppliers are often more effective in responding than organized response structures. • Cooperation with other facilities or providers (instead of competition) can often be invaluable in recovery. • Creativity and resourcefulness are valued tools for survival.

Hancock Medical Center On August 28, 2005, Hancock Medical Center (HMC), located in Bay Saint Louis, Mississippi, was a 104-bed full-service hospital employing more than 500 persons and enjoying an average daily census of approximately 60 patients. County owned, self-sustaining, and supported by a medical staff of 25 members, HMC was emblematic of the string of Gulf Coast hospitals stretching along the entirety of the coastline, which served retirees, vacationers, casino employees, and other workers

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in the tourist industry. In addition, it serviced residents of a rising upscale development community nearby that was thriving before Katrina hit. Hal Leftwich, the CEO, had come to manage HMC from Florida. As Katrina approached, neither he nor anyone on his staff could imagine that, within a few short hours, life would drastically change—perhaps for decades—in Bay Saint Louis. Katrina’s landfall placed HMC in a head-on collision of her fury. Because the hospital lies at the intersection of Bay Saint Louis and Waveland, it was ground zero for the landfall of the storm. HMC has been recognized as the single mostdamaged healthcare facility among many along the Gulf Coast. During the height of the storm surge, nine feet of water filled the outside of the hospital grounds, washing away or covering all of the cars in the parking lot. The water swallowed up and destroyed the emergency power generator and cut HMC off from the outside world. Six feet of water made it into the hospital, destroying all of its imaging equipment, walls, beds, commons areas, kitchen, and emergency room. As the storm passed and as the water receded, patients began to arrive, some literally swimming in to seek care. Against the backdrop of nearly total devastation, the leadership of the hospital had to think of both immediate and long-term implications for disaster response.

Immediate Needs to Deliver Care Without power, water, supplies, communication, or diagnostic equipment, the hospital staff of about 80 who had weathered the storm undertook two tasks simultaneously. First, they had to consider the care and limited treatment of those patients arriving. A hospital worker explained, “We were left with our stethoscopes and assessment skills.” Fortunately, that was enough for the first few hours, and CEO Leftwich is quick to credit the emergency room doctors and emergency room staff with calm, effective professionalism during this early time of catastrophe. The task was made more difficult, however, as a result of poor communication with other agencies. Rather than receiving patients into their facilities, many hospitals were actually dropping off rescued patients to HMC in the early hours after the storm hit. The second and more difficult task was seeking to transfer the 34 patients who had remained at HMC when Katrina made landfall. This effort, though ultimately successful, was made more difficult because of lack of communications, the temporary displacement of the Hancock County Emergency Management Agency as a result of its own damage, poor support from outside agencies, and a lack of transportation vehicles.

Lessons Learned • Priorities are critical in the early stages of disaster and, hopefully, will be covered in the facility’s disaster plan.

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• Communication must be redundant and should include ham radio operators or other options when normal telecommunications networks are not operational. • Transfer agreements and hardened support functions around a designed incident management system are a requirement. These agreements should expand beyond the normal, territorial borders and should be supported by a state or regionwide patient transfer system capable of quick response in a widespread disaster.

Long-Term Needs and Recovery Perhaps the most important decision made by Leftwich within hours of the storm’s passing was to focus the efforts of his staff on the rebuilding of the facility. Hope and a promise of a future proved to be the most important commodity in holding his team together as they were surrounded by horror and fear. Around the hospital was the total devastation of the Mississippi Gulf Coast. Pictures cannot do justice to the horrific images of miles of coastline suddenly swept clean of its buildings and people. The leadership of HMC had to make some difficult decisions to maintain its financial viability. The community that HMC had served prior to Katrina no longer existed. Overnight, Hancock County had lost a large percentage of its population and had become a rural county in the eyes of Medicare. Therefore, the first decision was to apply for status as a critical access hospital, which would enhance the chances of financial survivability. The second decision was to reduce the hospital’s bed size from 104 to 20 and the staff to less than 50 percent of the prestorm employment. This task was made a bit easier because many of the staff had left the area; however, pink slips were distributed to about 25 percent of the remaining employees. With fewer patients to treat, Leftwich and his board decided to use staff members to do much of the rebuilding of the hospital. Though this would later cause the Federal Emergency Management Agency (FEMA) angst and result in significantly less federal reimbursement grant dollars for the hospital, the decision nevertheless proved outstanding in that it gave the employees compensated work, a sense of rebuilding, a vision of the future, and a strong voice in the direction of recovery efforts. Given that more than 70 percent of the staff, including Leftwich, had lost their homes, hope for the future was greatly needed. With this direction, HMC was able to reopen for surgical cases in only three months. No one would have dared believe this was possible in the wee hours after the storm hit! During the rebuilding, the continuity of caring for the remaining community was provided through the presence of Disaster Medical Assistance Teams and faith-based or other not-for-profit community health centers that were spread around the county.

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HMC was able to establish regular daily meetings with the response agencies at a set-up outdoor café, which was serving fresh baked cookies from a gas oven that was still working. This informal meeting setting proved invaluable to creating a supportive bond between the hospital and the responders. Though others along the Gulf Coast have less than positive stories to share about interactions with outside response agencies, HMC proved a model of collaboration in most cases. The practices of private physicians were also greatly impacted. Admirably, more than 85 percent of the HMC community doctors returned to Hancock County, though other communities suffered a loss of their physicians to neighboring states or facilities. However, there was virtually no federal support to help Hancock County doctors rebuild their practices. The hospital itself was struggling with what would ultimately be a $30 million rebuilding cost—much of it unreimbursed. Moreover, many of the same free clinics that had been deployed to Hancock County were now actually seeing patients who had previously been treated by the community doctors. Frustration built, and concerns were aired. Clearly, physicians were critical to the future of the facility if the community was to be rebuilt. Once again, HMC came up with an appealing response to the challenge. It offered employment to the doctors at 60 percent of the Medical Group Management Association (MGMA) market basket index, plus a productivity bonus. The hospital also took on all of the risk of loss from unfunded patients. In addition, it offered easy opt outs if the physician desired to return to private practice. Finally, in addition to using its foundation to raise funds for its hospital rebuilding and staff support, HMC also assisted in soliciting for contributions to assist these community doctors in rebuilding their practices.

Lessons Learned • Have a postevent plan and vision and act upon it quickly. • Be flexible and recognize that your employees will have needs—both financial and psychosocial—that must be met. • Have a strong financial recovery plan that realizes that insurance, aid, or other traditional sources of dollars may not be enough. • In the hospital business, doctors are the lifeblood of the facility and caregivers to the community. Have a plan that expands your efforts beyond the brick and mortar of your walls and reaches into the community.23

CONCLUSION This chapter has provided a brief summary of major issues around disaster response. It is meant to be a guide to encourage practice and organization leaders on a path toward readiness. Every disaster is different, every community unique, and hence no chapter or book can, or even should, attempt to deliver canned solutions as if they were handed down from Mount Sinai. Rather, any

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writer on this subject should share lessons learned with others in need in hopes of providing a basis for asking questions, testing assumptions, and taking on the mantle of leadership when called upon. One of the true strengths of healthcare providers is that they are problem solvers. Physicians are trained to examine patients and make recommendations for care. These same skills in examining events and making recommendations are the essence of disaster response. Good physicians, however, become great caregivers when their ability to examine a situation is supported by good training, valid experience, competent support, correct information, and appropriate tools. Leadership in disaster response is organized from the basis that each of those components—training, experience, support, information, and tools—must be planned in advance and/or obtained during a disaster and managed in a way that achieves the overarching goal of healthcare leaders in disaster response. That goal, simply put, is: to maximize the lives saved. The following closing key concepts form a good beginning checklist for disaster leadership.

Key Concepts • Communication before the event needs to be mission number one. This builds social interaction with your community around disaster response and exposes opportunities to work together during times of crisis. • Trust is the most valued commodity. Can you count on others to assist when needed? • Although healthcare is fragmented and competitive, it is the wise practitioner who finds ways to cooperate around disaster response. • Remain flexible. Though the previous examples and case studies are merely guides, circumstances and the nature of the event will dictate your response and how you lead your facility. • When in doubt, keep the response simple. Stay focused on the need to protect yourself and your employees and to maximize the numbers of lives saved. • Look for redundancy in relationships and communication. Take time out of your busy schedule to meet individuals within the community who will be needed by your facility in times of disaster. • Above all else, lead or follow well. Both are equally important—at different times.

ACRONYMS ADPH: Alabama Department of Public Health. CMMS: Center for Medicare and Medicaid Services. DMAT: Disaster Medical Assistance Team. DMORT: Disaster Mortuary Operational Response Teams.

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EMA: Emergency Management Agency. EMAEOC: Emergency Management Agency Emergency Operations Center. EMTALA: Emergency Medical Treatment and Leave Act. EOP: Emergency operations plan. ESF: Emergency support function. FEMA: Federal Emergency Management Agency. FRP: Federal response plan. HEICS: Hospital Emergency Incident Command System. HICS: Hospital Incident Command System. HIPAA: Health Insurance Portability and Accountability Act. HRSA: Health Resources and Services Administration. HSPD-5: Homeland Security Presidential Directive 5. HVA: Hazard, Threat, and Vulnerability Analysis. ICS: Incident Command System. JCAHO: Joint Commission on Accreditation of Healthcare Organization. MMRS: Metropolitan Medical Response System Program. MTC: Medical Transfer Center. NIMS: National Incident Management System. NPS: National Pharmaceutical Stockpile. ONCHIT: Office of the National Coordinator for Health Information Technology. PTU: Patient Transfer Unit. SNS: Strategic National Stockpile.

NOTES 1. Harari, 2005. The Powell Principles—24 Lessons from Colin Powell. New York: McGraw-Hill, 79. 2 Larson, 2006. Isaac’s Storm. New York: Vintage Books, 6. 3. Ibid., 14. 4. Mikawa, S., ed. 2006. “Integrated Disaster Response Demonstration.” Paper presented at Strong Angel III, San Diego, CA.

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5. United States Department of Homeland Security. 2004 [2006]. “National Response Plan.” Washington, D.C. 6. Minyard, E. 2006. “Mobile Emergency Communication Services: The New Orleans Experience.” Presentation to Distributed Medical Intelligence Conference 9, New Orleans, LA. 7. Wallace, D. and C. Taylor. 2005. “After Action Report of Hurricane Ivan.” Unpublished report prepared for the Alabama Department of Public Health. 8. Select Bipartisan Committee to Investigate the Preparation for and Response to Hurricane Katrina. 2006. A Failure of Initiative: Final Report of the Select Bipartisan Committee to Investigate the Preparation for and Response to Hurricane Katrina. Washington, D.C.: U.S. Government Printing Office. 9. U.S. Department of Homeland Security (DHS). 2004 [2006]. National Response Plan. Washington, D.C.: U.S. Government Printing Office. 10. The Joint Commission. 2005. Standing Together: An Emergency Planning Guide for America’s Communities. Chicago: Joint Commission Resources. 11. McGlown, K. J., ed. 2004. Terrorism and Disaster Management—Preparing Healthcare Leaders for the New Reality. Chicago: Health Administration Press, 64–65. 12. Taylor, C., and H. Leftwich. 2006. Personal interview with the author, November 2. 13. Nordqvist, C. 2006. “Many Health Workers Would Not Respond to Flu Pandemic.” Available at: http://www.medicalnewstoday.com/articles/41796.php. Accessed April 18, 2006. 14. Commission Established by the Government of Ontario Canada to Investigate the Introduction and Spread of Acute Respiratory Syndrome. 2003. Presentation of Barbara Wahl President of the Ontario Nurses Association, Toronto, ON, September 20, p. 13. 15. Hebert, E. 2006. “Lessons Learned from Katrina.” Speech to Mobile Health Care Providers, Mobile, AL. 16. Ibid. 17. Agency for Healthcare Research and Quality. 2005. Healthcare Research and Quality: Altered Standards of Care in Mass Casualty Events. Gaithersburg, MD: AHRQ Publications, 9–10. 18. Loper, S. 2006. “Lessons Learned from Katrina.” Speech to Advanced Regional Response Training Center Focus on Financial Resiliency in Disasters Meeting, Mobile, AL. 19. Herbert. 20. Taylor, C., and H. Leftwich. 2006. Personal interview with the author, November 2. 21. Center for Disease Control and Prevention. “Crisis and Emergency Risk Communication.” Available at: http://www.bt.cdc.gov/erc. 22. Prior, S. D. 2006 “Managing In a Pandemic,” Presentation to the Advanced Regional Response Training Center Focus Meeting on Pandemic Preparedness, Mobile, AL. 23. As I end these case studies, I would like to extend my sincere gratitude to the leaders of these two hospitals impacted by Hurricane Katrina: Gary Muller, Erie Hebert, Mitch Leckelt, and Jennifer Steele of West Jefferson Medical Center and Hal Leftwich of Hancock Medical Center. Both of these hospitals and their leaders graciously took time out of their busy schedules to provide information and insight into their disaster responses for this chapter. I wish you continued success with the operation and

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recovery of your healthcare facility. Also Commander Eric Rasmussen MD U.S. Navy whose thoughts and leadership and suggestions are found throughout this chapter. Finally, thanks to Dr. David Wallace, the Director of Training at the Advanced Regional Response Training Center at the University of South Alabama, whose work gave rise to the appendix and whose classes formed the basis for many of the lessons learned and now shared.

APPENDIX: EMERGENCY OPERATIONS—FEDERAL, STATE, AND LOCAL STRUCTURES You are not alone when disasters come, whether in planning, preparing, questioning, or responding. Although it is incomplete to suggest that all disaster planning falls into federal, state, and local efforts, understanding the continuum and the structure response is important. At the center of the national effort lies the National Response Plan; this dictates the lead agency accountable for certain emergency support functions. At the base of this effort is Emergency Support Function 8, which requires the 50 state departments of health to be accountable for managing and coordinating medical care during emergencies. To facilitate this effort, all state departments of public health have received funding from the Health Resources and Services Administration (HRSA) to prepare both themselves and surrounding hospitals. Prudent states have used these dollars to improve public health, increase provider communication, and create a common organizational response chart for disaster response. This chart, called an Incident Command System, outlines the primary leadership positions required to manage catastrophes. These positions are discussed more fully later in this appendix. Visit the California Emergency Medical Services Authority (http://www.emsa.ca.gov/hics/hics.asp) to review the most recent version of a Hospital Incident Command System (HICS or HEICS).

THE THEORETICAL TIERED RESPONSE TO A HEALTHCARE DISASTER Hospitals in the United States are self-reliant and self-sustaining, but many leaders of such organizations have been unaware of the vital need to fit into a comprehensive and coordinated community or regional disaster response system. The lack of recognition has resulted in an extremely inefficient way to manage surge capacity and capability during a mass casualty event. Soon after the first Gulf War ended in 1991, the federal government declared that the continental United States was at significant risk of a terrorist attack. At the same time, officials acknowledged that the public health and healthcare systems were woefully unprepared to respond and care for large numbers of casualties resulting from a catastrophic event, either natural or man-made. As a result of these conclusions, the federal government began what is now a 10-year effort to improve the overall response capability of the United States healthcare system. In the mid-1990s, chemical and biological terrorist attack response training programs began to sweep the country. Millions of dollars were

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spent at the local level on personal protective equipment for hospitals and other healthcare facilities. For the first time, hospital personnel were expected to be proficient in taking care of patients while wearing fully protective chemical suits, a real change in the mindset of healthcare providers and administrators. By 1996, the Metropolitan Medical Response System (MMRS) program had been established. The MMRS program set goals of creating uniform response networks using common plans laid out by the federal government with written assistance by local planners. The ultimate goal was to have the 120 largest metropolitan areas in the United States prepared to respond in a consistent manner. If federal assets were deployed to assist the local response, it was hoped those responders would better understand and fit into a system they had helped develop. Out of the MMRS program evolved the National Pharmaceutical Stockpile (NPS) program, now known as the Strategic National Stockpile (SNS) program. Federal response teams were also created, most notably Disaster Medical Assistance Teams (DMATs) and Disaster Mortuary Operational Response Teams (DMORTs). The healthcare disaster preparedness theme that continued into the latter half of the 1990s and the first five years of the twenty-first century were twofold: (1) to enhance a healthcare system that became advanced in its capability and capacity and (2) to improve coordination of all required agencies from the community level to the national level. The terrorist attacks of September 11, 2001, were the first test for the so-called new healthcare disaster response system. The ultimate test of preparedness began in 2004, however, with multiple hurricanes devastating areas of Florida and culminating with the Hurricane Katrina catastrophe of New Orleans in 2005. There is still great debate on whether the National Response Plan helped or caused more harm and confusion during and after this disaster. The relationship between federal responders and state and local governments has vacillated over the past 10 years. In the early 1990s, the governmental response was “We know best and we’re here to take over” when called to become involved in local disasters. There were times when response coordination went well, but it is also fair to speculate those relationships were frequently strained. As time passed and the government promoted its emergency response programs, however, the relationship between the local and federal agencies began to develop positively. Naturally, the monetary awards associated with such governmental programs contributed to their relational reciprocation. Until August 2005, it appeared a decade of disaster response planning had actually been successful. Some believe, however, the pendulum is moving back toward negative feelings as the aftereffects, disasters, and response failures of various agencies during the Katrina legacy continue to be evident. Hopefully, time will continue to heal all wounds and agencies at all levels will resume dialogue and work at preparing their city for the next disaster in a positive, planned, and organized way. The National Response Plan (formerly the Federal Response Plan) lays out a global view for federal agencies by mandating: (1) their responsibilities to respond,

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(2) their unique role, (3) their initiations and responses, (4) the organization and method of their responses, and (5) how the federal responders fit into regional, state, and local response plans. Theoretically, the federal response is initiated by a request from a state governor upon the advice of health and emergency planners. This is the appropriate activation process, but it can create confusion, in particular to the levelness of the playing field. The request for federal assistance during a catastrophic event may become politicized because of inadequate plans developed by local and state agencies and ineffectual leadership on their part. Though this is not the best option, requests may even be initiated by the federal government. Ideally, it will be crystal clear what is needed when a state has an effective and efficient plan, the planners and responders are well organized, and the federal government understands its role is to assist during times of disaster rather than take over and operate the disaster plan. All emergency management response plans, specifically local, area, and state plans, commonly referred to as emergency operations plans (EOPs), follow the same format as the National Response Plan. The plans define 15 emergency support functions (ESFs). Each ESF is a predefined set of tasks and assigns those responsibilities to the appropriate department or agency to manage. The following is the most current list of ESFs, which are incorporated into emergency management response plans: 1. Transportation: Department of Transportation. 2. Communications: Department of Homeland Security/National Communications System. 3. Public works and engineering: Department of Defense/Army Corps of Engineers. 4. Firefighting: Department of Agriculture. 5. Emergency management: Department of Homeland Security/Federal Emergency Management Agency (FEMA). 6. Mass care, housing, human services: Department of Homeland Security/FEMA. 7. Resource support: General Services Administration. 8. Public health and medical services: Department of Health and Human Services. 9. Urban search and rescue: Department of Homeland Security/FEMA. 10. Oil and hazardous materials response: Environmental Protection Agency. 11. Agriculture and natural resources: Department of Agriculture. 12. Energy: Department of Energy. 13. Public safety and security: Department of Justice. 14. Long-term community recovery: Department of Homeland Security/ FEMA. 15. External affairs: Department of Homeland Security.

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These responsible agencies are national-level departments. State and local planners must apply these concepts and assign the authority to carry out these tasks to the appropriate state or local agencies or departments. At the state and local level, the public health department is generally responsible for coordinating ESF 8, public health and medical services. Every tier of response under ESF 8 is organized, managed, or coordinated by public health. It is essential that each healthcare facility mesh its plans into ESF 8, set aside old habits of independent responses, cooperate rather than compete, share information and resources, and insist on an efficient community-wide healthcare system response. There are six tiers or levels of healthcare response. Planning and coordination has to occur at each of the levels. Each level must know how to support the next lower level and how to access help from the next higher level. The six tiers from lowest to highest are the following:

Tier 1: Individual Facility Level Tier 1 is the individual healthcare facility, such as a hospital, public health department, community health center, or nursing home. These facilities will activate and manage their disaster plan in response to a local event. This is an everyday event in healthcare, because of surge capacity/surge capability minidisasters. At some point during the crisis, the local facility will return to regular activities or activate its hospital incident command system when the event surges beyond its capacity. When the event exceeds the capability of the facility, the next tier of response occurs by notifying other healthcare facilities, the public health department, and emergency management agencies.

Tier 2: Local Coalition or System of Individual Facilities Level Tier 2 is a healthcare system, such as a collection of hospitals, community health centers, nursing homes, and the public health department(s) in a localized area. This organization of community healthcare assets gathers to respond in a systemwide manner. ESF 8 preevent planning and coordination must have already occurred at this tier. Common communications and incident command systems are critical for this level of response. If the event exceeds the capabilities of this local system, the next tier of response occurs by notifying the public health department and emergency management.

Tier 3: Area Coalition or System of Individual Facilities Level Tier 3 is an area healthcare system, such as a collection of local systems in a larger area than Tier 2 (i.e., substate region). This area system will provide support and resources from a larger geographic area of the state without having to draw on all statewide resources. ESF 8 preevent planning and coordination must have

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also occurred at this tier and usually involves the state public health department, the state Emergency Management Agency (EMA), and other needed state-level agencies. Common communications and incident command systems are critical for this level of response. If the event exceeds the capabilities of this area system, the next tier of response occurs by area or substate regional public health departments and emergency management notifying the appropriate state agencies.

Tier 4: Statewide Coalition or System of Individual Facilities Level Tier 4 is a state healthcare system made up of a statewide collection of healthcare facilities, resources, and personnel. The state system will provide support and resources from the entire state and will be a combination of governmental and private responders and volunteers. ESF 8 preevent planning and coordination must have also occurred at this tier and involves the state public health department, the state EMA, the state governor’s office, and other state-level agencies. Common communications and incident command systems are absolutely essential for this level of response. If the event exceeds the capabilities of this state system, the next tier of response occurs by the state public health department, emergency management, or governor’s office notifying the appropriate multistate and federal response agencies.

Tier 5: Multistate Coalition or System of Individual Facilities Level Tier 5 is a multistate healthcare system made up of regional states’ healthcare facilities, resources, and personnel. The multistate system will provide support and resources for a state or states impacted by a mass casualty disaster. ESF 8 preevent planning and coordination must have occurred at this tier and involves the state public health department, the state EMA, the state governor’s office, other state-level agencies from numerous states, and regional national response agencies. Common communications and incident command systems are absolutely essential for this level of response. If the event exceeds the capabilities of this area system, the next tier of response occurs by regional national response agencies notifying the appropriate national response agencies.

Tier 6: Federal Regional or National System of Individual Facilities Level Tier 6 is the federal regional and national healthcare systems. The regional or national response will provide federal healthcare resources and personnel to support the healthcare needs of a state or states. ESF 8 preevent planning and coordination must have also occurred at this tier and involves the state public health department, the state EMA, the state governor’s office, other state-level agencies from multiple states, and federal response organizations, including FEMA, the

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Department of Homeland Security, and the Department of Health and Human Services. Common communications and incident command systems are essential for this level of response. Once a healthcare facility commits to implementing its role in a tiered response system, it is essential that incident management tools be developed and implemented that are consistent throughout the United States. The National Incident Management System (NIMS) and the Hospital Emergency Incident Command System (HEICS) are those two tools. NIMS was established in Homeland Security Presidential Directive 5 (HSPD-5) by President George W. Bush in 2004 and is a comprehensive national approach to incident management. It is basically creating and mandating simultaneously a National Incident Command System. It is the system to more effectively coordinate and integrate federal, state, area, and local plans and resources and responses. In the past, the federal government has encouraged healthcare disaster response planning in two ways: (1) awarding grants and contracts and (2) encouraging those involved to do the right thing when disaster hits. NIMS has now tied participation of hospitals and other healthcare facilities to financial incentives, primarily a continuation of federal funding of healthcare disaster preparedness, including equipment, supplies, training, and exercises. For hospitals and other healthcare facilities to be in compliance, they must do the following: 1. Adopt the concept of NIMS and become familiar with the National Response Plan. 2. Develop and adopt a Hospital Emergency Incident Command System (HEICS). 3. Make HEICS a part of their disaster plan. 4. Ensure the completion of training for key staff. 5. Participate in local and regional planning and exercises. The first phase of compliance should have been completed by September 30, 2007. The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) will continue to require emergency preparedness planning, training, and exercises. It will be critical for NIMS and JCAHO requirements to be synchronized. It is central that all responding agencies at the local level, including healthcare, be represented at the county or city Emergency Management Agency Emergency Operations Center (EMAEOC). The Incident Command System (ICS) is the core of a coordinated local response. When an individual agency uses its incident management system, it is referred to as an incident command. When a group of agencies gather at the EOC and work together, it is referred to as a unified command. ICS and HEICS are the same system, but HEICS is the specific name given to the hospital version of ICS. Hospitals are being asked to develop and incorporate HEICS into their disaster response plans. The purpose is to create a common incident management system for all hospitals, but it is also to have a tool in place to plan, prepare, respond, and

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communicate using the same language as other response agencies, particularly all public safety, EMA, and volunteer agencies. HEICS is divided into five sections with corresponding personnel for each: 1. Command and Control Section: The facility incident commander is in charge; the public information officer disseminates the message to all facets of the public; the liaison officer of your facility communicates with other liaison officers of other agencies; and the safety and security officer secures both the facility and the personnel. 2. Logistics Section: The Logistics Team chief is responsible for the building, resources, supplies, food, transportation, and communications equipment. 3. Planning Section: The Planning Team chief is responsible for collecting and managing information, keeping all necessary personnel informed of the facility’s status, managing the response plan, predicting the next steps, and providing personnel. 4. Finance (Administration) Section: The Finance Team chief is responsible for the budgeting for personnel time, procurement, claims, costs, and the business management of the facility. 5. Operations Section: The Operations Team chief provides healthcare during the disaster event. All other sections either provide overall command, control, and/or support to the Operations Section. Disaster preparedness for healthcare facilities of all types, specifically hospitals, is not an option. Success or failure will depend on the facility’s commitment of time, money, personnel, and philosophy of the need to be prepared. Recent events have made an impact on the medical community, and agencies of all levels are encouraging all healthcare facilities to implement necessary procedures for disaster preparedness. When, not if, the next disaster comes, we will see if hospitals are able to function and remain open independently or if they have planned to survive together. Hopefully, the healthcare system in the United States will be adequately prepared.

CHAPTER 2

Healthcare Insurance: The Massachusetts Plan Michael T. Doonan and Stuart H. Altman

H

ealth insurance protects against catastrophic loss and high medical costs associated with illness, accidents, or diseases. Health insurance is also paying for a larger share of preventive care and prescription drugs. Studies show that, all things being equal, people without health insurance are sicker and more likely to die earlier because of medical problems.1 In April 2006, Massachusetts passed a healthcare reform proposal with the goal of moving toward universal coverage. The plan is based on the principle of shared responsibility and asks more of government, business, and individuals. The most unique feature of the plan is a mandate that everyone who can afford it purchase health insurance. This plan builds off the base of the existing health financing system and earlier state reforms. It was a bipartisan proposal supported by a broadbased coalition. In the first year, more than 100,000 previously uninsured people obtained coverage as a result of these reforms. This reform makes Massachusetts the first state since Hawaii in 1974 to enact a plan targeted at or near universal coverage. Massachusetts helped trigger a round of state healthcare reform initiatives across the United States and also holds potential lessons for future national reforms. Elements of the Massachusetts plan are being considered by a host of other states. This chapter examines the goals and context behind this reform, including an examination of the history of healthcare reform in the state and the policy environment in Massachusetts. We then provide details of the plan and an initial assessment of the first year of implementation.

HISTORY Massachusetts has a long history of innovation in the area of healthcare. The Boston Public Health Commission was the first in the newly founded nation and 35

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headed by Paul Revere in 1799. The first permanent marine hospital was authorized to be built in Massachusetts in 1803. The first state board of health was created in Massachusetts in 1869. Massachusetts is home to some of the most advanced medical research in the world and boasts world-famous teaching hospitals. The state also has some of the highest-ranked health plans in the country. Three of the largest health plans in Massachusetts were ranked in the top 10 nationally for quality and enrollee satisfaction. Massachusetts also has some of the highest healthcare costs in the country. Healthcare is also a huge part of the state’s economy, responsible for the employment of more than 12 percent of the employment in the state. Massachusetts has a history of innovation in the area of cost control and coverage expansion. Greater effort and success have been achieved in efforts to cover the uninsured than in controlling healthcare costs. In the 1970s, Massachusetts attempted to control healthcare costs by instituting government-regulated regional hospital rate setting. Toward this end, it also embraced managed care along with deregulation and competition between hospitals as rate regulation was repealed in the 1990s. Efforts to expand access to care can be seen in the development of the Uncompensated Care Pool, also know as the Free Care Pool, in 1985 and major healthcare coverage expansions and reforms in 1988, 1996, and 2006. These programs and policies demonstrate a commitment to innovation and experimentation and set in place program and political constituencies that could be built on over time. They are important to understanding the current reform. In 1975, Massachusetts joined Maryland, New York, and New Jersey in establishing a hospital rate-setting program. This program set annual revenue caps for every acute care hospital in the state.2 Rate setting was precipitated by the rapid rise of healthcare costs in the 1970s driven by public coverage expansions (Medicare and Medicaid), increases in medical technology, and inflation. This initiative was supported by business and their concern about spiraling healthcare costs. It was successful in curbing medical costs, but only in the short term.3

UNCOMPENSATED CARE POOL In part to mitigate the impact of rate-setting regulations, the Uncompensated Care Pool was established in 1985. This pool pays hospitals for the care of lowincome uninsured people and in effect made access to hospital and community health center services available to everyone in the state who meets residency and income criteria (less than 200 percent federal poverty level, or FPL, or $27,380 for a family of two in 2007). This program also made the cost of the uninsured explicit, and this helped shape and drive later reforms. The Uncompensated Care Pool, funded at more than $800 million in fiscal year 2006, collects revenue through hospital assessments, surcharges on payers (insurers, health plans, and individuals), general state revenue, and federal Medicaid matching funds. Federal funds are secured through intergovernmental transfers that are part of an 1115 state waiver demonstration program with the federal government. The 1115 waivers allow states to disregard many of the rules of the

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traditional Medicaid program in order to expand coverage and/or reduce costs in an innovative way. The structure of the Uncompensated Care Pool changed in the 1990s from one that paid only for hospital services to a program with registration providing a broad range of inpatient and outpatient services to the low-income uninsured not eligible for other state programs. It still does not pay for physician services, nonacute hospitals, or prescription drugs. The majority of pool funds are for hospital outpatient services (61 percent in fiscal year 2001), followed by inpatient services (34 percent) and community health centers (4 percent).4 Although the program has had tremendous success in expanding access to care, there have been ongoing concerns about equity and accountability of pool funding at the state and national level.5 First, although the uninsured are more evenly distributed throughout the state, most of the people covered by this program are in the Boston area and distributed to two large safety net providers, Boston Medical Center and the Cambridge Health Alliance. Second, since 1990 the cost of uncompensated care in most years exceeded available funds, so hospitals still needed to cover some uncompensated care.6 Third, it has been difficult to track funding provided to these facilities and understand how the money is directly linked to services provided. Fourth, the federal government as part of the waiver renewal in July 2005 threatened to end this type of institutional funding. Federal officials wanted more of the money to go toward the direct purchase of insurance coverage for low-income individuals and families. As detailed in the following sections, this federal pressure helped ignite the latest round of reform.

EMPLOYER MANDATE AND DUKAKIS REFORMS IN 1988 The current round of reform builds on past efforts. In 1988, Massachusetts passed significant health reform including a so-called pay-or-play employer mandate requiring all employers with six or more employees to provide health insurance or pay into a fund. Employers with more than six employees would have to pay up to $1,680 per uninsured worker per year into a state fund. The legislation also included Medicaid expansions and new programs to cover children and pregnant women, children and adults with disabilities, and the long-term unemployed. It required that all full-time college and university students purchase health insurance. In addition, small businesses were offered tax incentives to help them offer coverage to employees. The law aimed to achieve universal coverage by April 1992.7 Those still without employer-sponsored coverage would be able to buy insurance through a newly created Department of Medical Security. Premiums were to be on a sliding scale based on income, but the subsidies were not specifically defined in statute. The new department was required to use managed care products to reduce healthcare costs. The program relaxed hospital rate-setting standards and hoped that competition between hospitals would help reduce excess hospital bed capacity and ultimately lower costs.8 This legislation passed with the strong support of the governor and presidential candidate Michael Dukakis. In contrast to the next two rounds of reform, however, there was significant opposition to this legislation in the state legislature, the

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small-business community, and the Republican Party. One person close to the process characterized this as “the most controversial and heavily fought battle in the past 25 years in the Massachusetts State House.”9 Dukakis lost the presidential election in 1988, and the economy in Massachusetts went into recession. A Republican, William Weld, was elected governor in 1990. The employer mandate was to take effect in 1992 but was delayed three times by the legislature and finally repealed as part of a reform package in 1996. The threat of retaining the mandate was used as leverage by the legislature with Governor Weld to help propel the 1996 reforms.10 Some of the elements of the Dukakis reform that were retained include: Medicaid enrollment expansions, new programs for people with disabilities, assistance for the long-term unemployed, and coverage mandate for college students.11 Without these earlier coverage expansions, passage of the current reform, including the viability of an individual coverage mandate, would have been more difficult.

MANAGED CARE GROWTH Hospital rate regulation ended altogether under the Weld administration in 1991 in a general trend toward competition and managed care. Managed care growth exploded in Massachusetts during this period and for a time was successful in keeping medical inflation under control. Health insurance premiums were held flat in the late 1990s but would experience double-digit growth from 2000 to 2007. Throughout the 1990s, consumer and provider backlash against managed care and the assertion of hospital systems substantially weakened the ability of managed care organizations to manage care and costs. Signs that managed care was weakening could be seen even as it was continuing to grow. The decline in managed care actually started in 1994 when the state passed an “any willing provider” law requiring all HMOs to contract with all pharmacies willing to take their price.12 Also in 1997, New England Medical Center won a battle with Harvard Pilgrim Health Care Plan to limit the health plan’s ability to exclude hospitals from coverage.13 The development and success of integrated healthcare delivery systems helped push back against managed care. The largest integrated healthcare delivery system in Massachusetts is Partners HealthCare System. It was formed by the Brigham and Women’s Hospital and Massachusetts General Hospital in 1994. It has been joined by a number of hospitals in eastern Massachusetts and has 4,000 affiliated physicians. An example of their growing strength in the market can be seen in the showdown between Partners HealthCare System and Tufts Health Plan in 2001.14 In October 2001, Tufts and Partners terminated their contract. Partners wanted a 29.7 percent increase in payments over three years. Blue Cross Blue Shield of Massachusetts had previously agreed to double-digit increases in payments. Tufts, facing pressure from employers and enrollees about being excluded from the prestigious Partners HealthCare System, capitulated to the health system’s demands. Later, Partners received significant payment increases from Harvard Pilgrim. This example reflected a shift in the balance of power from the health plans

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back to the providers, and this was reflected in sharp increases in private healthcare premiums.

MASSACHUSETTS MASSHEALTH WAIVER AND COVERAGE EXPANSIONS IN 1996 Another major round of reform was enacted in 1996. Massachusetts extended coverage to nearly all uninsured children through the creation of a waiver demonstration program and the adoption of the Children’s Medical Security Plan. In an innovative approach, legislators combined an increase in coverage for kids with a cigarette tax. It was pitched as a “good versus evil” story that proved politically powerful. This reform was seen as a blueprint for other states and national reform.15 It was a precursor to the 1997 federal State Children’s Health Insurance Program (SCHIP), which is a nationwide program designed to provide health insurance coverage to millions of children. As part of the waiver demonstration program, the state created the MassHealth program and began implementation in 1997. The waiver and state legislation extended Medicaid coverage to children younger than 19 with family income below 133 percent of the federal poverty level. It made coverage available to all children younger than 12 with family income below 200 percent of the federal poverty level. It also created the Children’s Medical Security Plan, which would make primary and preventive care available to all children on a sliding fee scale based on family income. In addition, the law created a pharmacy assistance program for low-income seniors and maintained and extended coverage to disabled adults and the long-term unemployed. These coverage extensions, like the ones before, would build the foundation for the next round of reform in 2006. The program was funded through increased federal money, a 25 cent increase in the tobacco tax, and some general revenue. The Weld administration had been working on a waiver since 1994.16 One crucial success in negotiating with federal officials was setting the baseline level for budget neutrality. States seeking Medicaid waivers must meet the condition of budget neutrality, which requires Medicaid programs not to exceed what they would be without the waiver. How fast the program would have grown absent a waiver and many other variables for calculating a baseline are critical, and the process is often as political as it is mathematical. Federal officials agreed with the Weld administration that expansions for children and pregnant women would not be counted against the state’s budget neutrality cap because states are allowed to increase coverage for these groups under federal law Section 1902a(r) (2). The bottom line is that the state could expand eligibility and capture significantly more federal funds. These reforms were made possible in part by the governor’s efforts to obtain a waiver and by strong and persistent leadership in the legislature for expanded health insurance. Representative John McDonough and Senator Mark Montigny, chairs of the legislature’s Joint Committee on Health, brought together a broad coalition that was essential for passage. They developed the strategy of

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linking coverage for children with a tobacco tax. Seniors were brought into the coalition with the new prescription drug program. Business supported the legislation’s repeal of the employer mandate. Providers and particularly pediatricians and children’s hospitals were strong proponents. Massachusetts also has a strong consumer organization, Health Care for All, that coordinated a powerful lobbying campaign. Legislation passed by wide margins in both chambers. In the end, Governor Weld vetoed the legislation because it increased the cigarette tax. The veto was easily overridden in the House of Representatives by a vote of 117 to 40 and in the Senate by a vote of 32 to 7.17 This success was achieved through a sophisticated political strategy, bipartisan support, and a broad-based coalition. Passage was achieved through a broad-based bipartisan coalition that included support from advocates, seniors, healthcare providers, hospitals, and business. Finally, the coverage expansions were financed through the tobacco tax and with federal money secured through an 1115 waiver demonstration program. With the exception of the tobacco tax, each of these strategies would be used to achieve the 2006 reforms.

1115 State Healthcare Reform Waiver Demonstration Projects The number of uninsured in Massachusetts and in the nation rose in the early 1990s. President Bill Clinton’s healthcare reform plan in 1993 was designed to extend coverage and to protect people from the fear that they might lose the health insurance coverage they have when they most need it. With the defeat of the Clinton plan, attention turned toward the states. The Clinton administration was very supportive of 1115 state waiver demonstrations that could extend Medicaid coverage while keeping costs similar to what they would have been absent reform. Many states, including Massachusetts, took advantage of waivers to shift a substantial portion of their Medicaid populations from fee-for-service to managed care and used the savings to extend coverage to a greater portion of the uninsured. The Massachusetts waiver resulted in major coverage expansions. The number of uninsured in the state rose to 683,000 in 1995. At this time, Medicaid enrollment was 655,000. By 2004, the number of uninsured was down to 460,000. The 1115 waiver was responsible for the additional coverage of some 300,000 people in the state’s MassHealth Program. The number of total MassHealth enrollees grew to 972,000 by the late 1990s and today covers more than 1 million people of a total population of 6.4 million.18

MASSACHUSETTS HEALTHCARE ENVIRONMENT This section provides background on the healthcare environment in Massachusetts. It examines the hospitals, health plans, healthcare costs, and the importance of healthcare to the local economy. It examines the problems and challenges that

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help prompt reform. This is followed by a discussion of the details of this plan and how it has influenced other state efforts to expand healthcare coverage. Massachusetts has some of the most advanced and expensive healthcare in the world. Healthcare and education drive much of the Massachusetts economy, and they are related. The educational facilities and teaching hospitals help develop the personnel and technology that drives healthcare advancements and costs. Massachusetts has four medical schools at Boston University, Harvard, Tufts, and the University of Massachusetts. Massachusetts General Hospital (MGH), Brigham and Women’s, and Beth Israel Deaconess Medical Center, all associated with Harvard Medical School, have international reputations and date back to the 1800s.19 In the greater Boston metropolitan region, 14 teaching hospitals generated an estimated $24.3 billion in economic activity in 2006. Teaching hospitals in the state are responsible for the direct and indirect employment of more that 200,000 people.20 The Milken Institute ranked the Boston metropolitan area as the leading healthcare center in the United States. Healthcare premiums in Massachusetts, as in the rest of the nation, rose by double digits each year in the 2000s. In Massachusetts, health insurance premiums for families rose 69.2 percent between 2000 and 2006.21 Over the same period, median income rose just 10.7 percent. For the nation as a whole, the premium growth rate was 89 percent, with average wages growing at slightly less than 20 percent. In dollars, the average annual family premium in Massachusetts, including employer and employee share, rose during this period from $7,341 to $12,419. According to Mercer Health and Benefits, the average healthcare costs of an employee, including dental and dependent coverage, was $9,428 in 2006. Massachusetts is ranked fourth nationally behind Alaska, New Hampshire, and Wisconsin in healthcare costs.22

HEALTH PLANS The Massachusetts healthcare system is dominated by not-for-profit hospitals and health plans. Compared to other states, the healthcare delivery system has traditionally had higher costs and lower provider margins. The state has higher than average income, traditionally higher rates of insurance coverage, disproportionately more specialists and physicians per capita than the nation, more and highercost teaching hospitals, and higher frequency of outpatient office visits and greater use of nursing homes. Although the health plans in Massachusetts are routinely ranked among the best in the nation, they also suffered from the consumer backlash against managed care that developed in the mid-1990s. Thus the regional managed care organizations (MCOs) of today are less aggressive in their attempts to limit the growth in healthcare spending. It became difficult for managed care organizations to compel physicians to control costs by limiting access to specialists or being strong gatekeepers. In addition, MCOs no longer have the market clout to obtain deep discounts from physician groups, hospitals, and healthcare systems.

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The Business of Healthcare

Currently, Massachusetts’s health plans have open access to a broad range of physicians and hospitals. Toward the end the 1990s and into 2000, employers were limiting options to one plan, so, in order to accommodate employees, plan networks were widened. Plans no longer controlled networks, and premiums grew at double-digit rates throughout the 2000s. The top four health insurers by membership in the state are Blue Cross Blue Shield of Massachusetts (3 million), Harvard Pilgrim Health Plan (1 million), Tufts Health Plan (600,000), and Fallon Community Health Plan (less than 200,000). All four plans have announced double-digit increases for 2007, for the seventh year in a row.23 Massachusetts health plans have consistently ranked among the best in the country by the National Committee on Quality Assurance annual assessment reported in U.S. News and World Report. For 2006, Harvard Pilgrim ranked number 1 nationally, Tufts number 2, Blue Cross Blue Shield number 4, and Fallon number 11.24 Plans were ranked based on access to care, member satisfaction, delivery of preventive services, and treatment (outcomes or protocols).

IMPORTANCE OF HEALTHCARE TO THE ECONOMY Healthcare is a vital and growing portion of the Massachusetts economy and employed 12.2 percent of the population in 2003, which represented an increase of 26.6 percent since 1990.25 In 2004, Massachusetts received more funding for research ($2.3 billion) from the National Institutes of Health (NIH) than any other state but California ($3.6 billion). NIH funding accounted for 40 percent of total federal healthcare research funding in the state in 2004. Massachusetts is losing population as a percentage of total U.S. population. In 2004, per capita income in Massachusetts was $42,000, compared to the national average of $33,000.26 The state has less poverty and is more highly educated than the nation as a whole. The state has one of the highest HMO penetrations in the United States (37 percent compared to 23 percent nationally).27 Massachusetts has 27.1 specialists per 10,000 people, compared to just 14.4 for the country.28 Drugs and nondurable medical expenditures soared through the 1990s. In 1994, they accounted for 7.8 percent of medical expenditures; in 2004, they accounted for 12.0 percent of healthcare expenditures in Massachusetts.29

IMPETUS FOR REFORM There was a confluence of political and economic factors that made 2006 an opportune time for healthcare reform in Massachusetts. The underlying problem was the number of uninsured and the likelihood that as healthcare costs continued to grow, this problem would worsen. Estimates of the number of uninsured in the state in 2004 were approximately 500,000, or close to 10 percent of the population. The urgency behind reform in 2006 was the threat of losing significant federal money. The federal government 1115 waiver with the state was up for review and would not be renewed under the existing conditions. Specifically, the state

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was in danger of losing $358 million annually in federal funds if they did not make significant changes to the intergovernmental transfer mechanism used to capture federal funds to help fund the Free Care Pool. The state spends more than $1 billion a year to provide services to the uninsured through the Uncompensated Care Pool, Medicaid disproportionate share hospital payments, and other safety net supports.30 Much of this money was federal, and it was in jeopardy. This existing safety net system was inefficient and unsustainable. The state was given a deadline of July 1, 2006, to modify its waiver and direct less of its money to large institutions providing uncompensated care and more money to provide or subsidize individual insurance. A number of factors made healthcare reform easier in Massachusetts. First, the state has a strong safety net and an Uncompensated Care Pool. This pot of money could be drawn on to fund expansion. Second, it has a relatively low number of uninsured compared to other states (8 percent to 10 percent compared to 16 percent nationally). Third, it has one of the highest rates of employer-provided coverage. All firms with more than 50 employees in Massachusetts offer health insurance coverage, compared to 96 percent for the rest of the country. Furthermore, 52.4 percent of employers with fewer than 50 employees offer insurance, compared with only 41.9 percent for the rest of nation.31 Fourth, insurance in the individual and small-group market is regulated and more broadly available than in other states. The state requires insurance companies in the small-group market to use a modified community rating system, making it easier for older people with preexisting conditions to purchase care. Fifth, Massachusetts has a strong Medicaid program that provides coverage to more than 1 million residents. Strong pubic and private coverage keeps the rate of uninsured down, reducing the number that would have to be covered through reform. Sixth, the state has a history of healthcare reform, and coverage expansions enjoy strong public support. Finally, the state is more affluent than average and at the time of reform had a strong economy and a budget surplus. In 2007, however, the budget surplus turned into a $1 billion shortfall, and an economic downturn could jeopardize coverage expansion progress.

LEADERSHIP AND THE ROADMAP TO COVERAGE Political leadership helped move insurance reform onto the political agenda. Strong leadership was essential from the governor, legislature, advocacy groups, business, and health plan and healthcare system communities. Political leadership was prodded and given a stage by the Blue Cross Blue Shield of Massachusetts Foundation in a series of three events called the Roadmap to Coverage. Events were held at the John F. Kennedy Library, and healthcare leaders from all sectors were invited. These events garnered considerable media attention on local television, radio, and newspapers. Each event had three important elements: new research and data, a top-ranking official keynote, and an audience that included the range of healthcare leaders in the state. The first event on November 16, 2004, featured Senate President Robert Travaglini. He previously did not have a significant health insurance reform plan.

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The Business of Healthcare

He used this opportunity to promise to cover half the uninsured in the state in two years. Governor Mitt Romney was working on a plan and Speaker of the House Sal DiMasi was interested in significant reform, so the engagement of the Senate president dramatically increased the chances of reform. This pronouncement convinced many that a real opportunity existed to pass reform in the current legislative session. The Senate president’s speech received considerable press attention, and Governor Romney, who had been working for some time behind the scenes, was quick to release his own plan in an Op-Ed in the Boston Globe shortly after this event.32 The first Roadmap event included a research piece from the Urban Institute, “Caring for the Uninsured in Massachusetts: What Does it Cost, Who Pays, and What Would Full Coverage Add to Medical Spending?”33 This report outlined the current state and federal resources that could be reconfigured to help pay for coverage expansions. The report concluded that more than $2 billion was spent on care for the uninsured in 2004, including $1.1 billion in uncompensated care. This breaks down to $800 million spent by hospitals, $155 million by community health centers, and $123 million by physicians. The report further estimated that between $374 million and $539 million in new funding would be required to cover the uninsured if existing funding could be reallocated. Total economic and social benefits of covering the uninsured were estimated at between $1.2 billion and $1.7 billion annually. The greatest value of the report was that it made the cost of the uninsured explicit. Uncompensated care is never free, and this report documented how these funds might be redirected toward more rational and appropriate care. The second Roadmap event on June 21, 2005, featured the governor, who used the opportunity to fill in some additional details of his plan, but much remained undefined. The governor’s plan included an individual mandate with penalties of withholding tax refunds and garnering wages. He characterized this as a conservative proposal rooted in individual responsibility. It would provide lowcost limited benefit plans in a comprehensive, market-based approach to make insurance more available and affordable. He noted that 160,000 of the uninsured were currently eligible for Medicaid, many of the uninsured with incomes more than 300 percent of the federal poverty level could afford insurance, and a new program would be designed to help people with incomes less than 300 percent of the poverty level who cannot afford care. He believed this could be done with existing funds and without new revenue. The Blue Cross Blue Shield of Massachusetts Foundation and the Urban Institute released its second report, which detailed a wide range of policy options for covering the uninsured. The report evaluated expanding access to MassHealth (the state Medicaid program), tax credits, individual mandates, employer mandates, voluntary purchasing pools, and government-funded reinsurance. The most significant finding was that voluntary programs even with significant subsidies would cover less than half the uninsured. They concluded that an individual mandate was necessary for substantial progress toward covering all the uninsured.

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This report helped raise support for the individual mandate proposed by the governor.34 The keynote at the third event on October 7, 2005, was Speaker of the House Sal DiMasi. The speaker did not release details of the House plan. Details were released later in the month and then quickly passed by the House on November 8, 2005. Foreshadowing difficult negotiations between the branches of the legislature and the governor, the speaker warned against “fuzzy math” and to be realistic about the revenue that would be required to truly expand coverage. He emphasized the notion of shared responsibility of individuals, business, and government. The governor and the Senate president were reticent about new revenue and employer responsibility. These issues would stall progress until the legislation ultimately passed the legislature on April 4, 2006. At this meeting a report was also released on implementation issues.35 Equally important to the process was pressure for change from a coalition of consumer groups. Massachusetts has a strong healthcare advocacy organization, Health Care for All. The executive director, John McDonough, is an expert on state healthcare issues and also has firsthand experience in the legislature. As the House chair of the Joint Committee on Health, McDonough took the lead in orchestrating the political strategy and coalition building necessary for the 1996 reforms. In 2005, Health Care for All organized a larger association of advocates known as MassACT (Affordable Health Care Today). This association includes the Greater Boston Interfaith Coalition, labor unions, community health centers, pubic health advocates, and a wide range of organizations focused on consumers and healthcare coverage expansion. This was the first time the faith-based community was directly and actively involved in healthcare reform, and they added significantly to the political dialogue pushing for passage and actively monitoring implementation. Advocates had a three-pronged strategy. First, Health Care for All introduced its own comprehensive plan. The plan expanded Medicaid to all people in families with income less than 200 percent of the poverty level, provided sliding-scale subsidies for people between 200 percent and 400 percent of the poverty level to purchase care, and strengthened the affordability of coverage for small business. It was financed through a 60 cent increase in the cigarette tax and a payroll tax assessment that would fall on employers that do not provide health insurance. Further, in an effort to reduce premiums, the bill would provide state-sponsored reinsurance for all high-cost patients. Under the reinsurance plan, the state would cover high-cost cases. This would make healthcare costs lower and more predictable for insurers and reduce health insurance premiums for the public. Second, the coalition pressured the legislature and helped organize a grassroots campaign through a ballot initiative. The ballot initiative would have mandated much of what was in their legislative proposal. The coalition organized more than 2,000 volunteers and collected more than 112,000 signatures. They had enough signatures to put the initiative on the ballot but withdrew it when they saw significant legislative progress. The threat of going forward with the initiative helped

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The Business of Healthcare

spur legislative action. Third, the volunteers and network they created through the process of collecting signatures was used to lobby for coalition positions. Massachusetts health reform was stalled for four months in a conference committee between the House and Senate as differences were ironed out. One major sticking point was employer responsibility. The House bill included a payroll tax of 5 percent for employers with 11 to 100 employees and 7 percent for employers with more than 100 employees. The tax would be refunded if the company provided health insurance. The Senate bill had limited employer responsibility. Employers with more than 50 employees would be required to contribute if their employees used the state’s Free Care Pool. Business leaders, including health plans and healthcare systems, helped broker a compromise that broke the stalemate. The compromise was a $295 annual fair-share surcharge for employers not providing insurance for each full-time employee. The details are described in the following section. Surprising little debate and opposition developed around the individual mandate.

PLAN DETAILS The plan36 requires everyone who can afford insurance to purchase it. Government provides new programs, regulations, and a healthcare connector in order to make insurance more available and affordable. Businesses with 11 or more employees that do not provide insurance are subject to a fair-share assessment. Most businesses will also be required to establish cafeteria plans to enable pretax deductions of employee health insurance premiums. Many businesses will also be indirectly impacted by several provisions in this law. Employers that offer insurance that does not meet state standards may feel pressure to upgrade coverage. More employees will opt to sign up for employer-sponsored insurance, which could increase employer cost significantly.

INDIVIDUAL RESPONSIBILITY The individual mandate for health insurance applies only to those who can afford it and began July 1, 2007. This begs a number of questions. What type of insurance can satisfy the requirements of the mandate? Would a catastrophic barebones plan suffice? What is considered affordable and for whom? What are the penalties for noncoverage? The Connector Board determined the minimal coverage required to meet the mandate, and it is fairly comprehensive. No bare-bones plans were allowed. Minimum coverage must include: • Prescription drug coverage. • Annual out-of-pocket cap of $5,000 for an individual, $10,000 for a family. • Deductibles cannot exceed $2,000 per individual and $4,000 per family unless combined with a medical savings account.

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• Coverage of preventive physician visits prior to any deductible. • No limits on per year or per sickness. Plans may have a lifetime cap. Currently, an estimated 360,000 people in Massachusetts, including a Connector Board member, have lifetime benefit caps. Still with these stipulations, an estimated 240,000 currently insured people will have to increase their coverage to meet the requirements of the mandate. These reforms may also pressure employers to change coverage to meet these standards. The penalty for noncompliance with the mandate in the first year is loss of the individual state tax exemption, worth about $200 per person. The second year, however, the penalty is half the cost of an available low-cost plan, which could run into thousands of dollars. Health plans and other insurers will be required to send individuals and the State Department of Revenue proof of coverage. Similar to a W-2 form, the proof of coverage must be attached to tax returns. One of the most difficult decisions the Connector Board made was on affordability and who would be exempt from the mandate. In a unanimous vote, resulting from a series of compromises, the Connector Board recommended an affordability schedule that applies the mandate to 80 percent of the uninsured and close to 99 percent of the public. At the same time, the board provided full premium subsidies to qualified uninsured people with family income up to 150 percent of the federal poverty level (up from 100 percent of the federal poverty level, or FPL). They also increased premium subsidies for people between 150 percent and 200 percent of the FPL. For people less than 300 percent of the federal poverty level who qualify for subsidized coverage through the Connector, care is considered affordable and therefore mandatory. For people with family income greater than 300 percent, a sliding-scale affordability schedule was recommended. For example, an individual making three times the poverty level, $34,341, will be required to purchase coverage if it is available for $210 dollars a month or less. If an employer offers coverage and the employee’s share is less than $210, the employee will be obligated to have insurance. If the employee’s obligation is more than $210, he or she will be exempt from the mandate. The affordability standard increases to $500 for an individual at six times the poverty level, or $60,001 annual income. The Connector will also develop a case-by-case waiver and appeal process for individuals and families at any income level who believe that insurance is unaffordable for them. The Connector staff’s goal is for this process to be “lenient and efficient.” With this safety value and the increased low-income subsidies, the individual mandate will be applied broadly to nearly 99 percent of the total Massachusetts population.

GOVERNMENT RESPONSIBILITY The state took on responsibilities for substantially increasing its Medicaid program, MassHealth, and for developing two new programs to be run by the Commonwealth Health Insurance Connector Authority. The law also created the Health Safety Net Trust Fund to replace the Uncompensated Care Pool. The

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state expanded the Insurance Partnership Program, which provides subsidies and incentives for employers and employees to provide and enroll in employersponsored insurance. Further, it made significant reforms in the individual and small-group market. The law created a Cost and Quality Committee to implement sections of the law and make future recommendations.

MASSHEALTH REFORMS A number of expansions to the MassHealth program were implemented shortly after reform passed on July 1, 2006. This resulted in new coverage for more than 40,000 uninsured and was an early success of the program. Further, the legislation restored MassHealth benefits that were cut in 2002 to help close a budget shortfall. This restored coverage for dental, vision, chiropractic, and prosthetics. Eligibility for children was raised from 200 percent to 300 percent FPL. The legislation also provided $3 million for MassHealth outreach funding targeted to community organizations. It increased the enrollment caps for several targeted programs that had been closed for enrollment. These changes will eliminate the waiting lists for these programs and will make all who applied and are currently eligible able to enroll. • The MassHealth Essential cap, a program for the long-term unemployed, elderly, disabled, and special-status immigrants, was raised from 44,000 to 60,000. • The CommonHealth cap, a program for children and adults with disabilities but with income too high to quality for MassHealth, was raised from 14,000 to 15,600. The program will be able to accommodate all people currently eligible. • The HIV+ program enrollment caseload cap was raised from 1,050 to 1,300, and eligibility for this program was raised to 200 percent FPL. Reform also included $3 million in new funding to reach out to uninsured people and enroll them in MassHealth or one of the new programs. Most of this money went to grassroots groups in the community, but some went to statewide advocacy groups to help organize and coordinate the message. These funds were rescinded by Governor Romney before leaving office and restored by incoming Governor Deval Patrick. This approach has shown early success. This is reflected in the better than expected enrollment of low-income uninsured people in the new Commonwealth Care program.

COMMONWEALTH HEALTH INSURANCE CONNECTOR The Commonwealth Health Insurance Connector is an independent public authority with primary responsibility for implementing Chapter 25, Massachusetts Health Care Reform. The Connector is governed by a 10-member board that

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includes state administrative officials and representatives of various interests appointed by the governor and attorney general. The Connector has a broad set of statutory requirements. Major responsibilities include: • Develop and run the Commonwealth Care Insurance Program, which will provide subsidized insurance options for uninsured people with family income less than 300 percent of the federal poverty level. • Develop and run the Commonwealth Choice Program, which will provide health insurance options for small businesses and uninsured individuals with family income greater than 300 percent of the federal poverty level. • Provide a Seal of Approval for health plans offered through the Connector. • Establish a young-adult plan for people between 19 and 26 years of age. • Define minimum health insurance coverage required to meet the mandate “Minimum Creditable Coverage.” • Develop rules for implementing the individual mandate. The law requires everyone who can afford it to purchase health insurance. • Support public outreach and awareness. • Create a business strategy to be financially self-sustaining. • Become a healthcare broker and purchasing agent. The Connector has many faces. It acts much like a state agency when it is administering the subsidized Commonwealth Care program. Commonwealth Care makes subsidized insurance available to people with family income up to 300 percent of the poverty level. The Connector acts like a healthcare broker or purchasing agent when running Commonwealth Choice. This program will provide a range of plans through the Connector for the uninsured and small businesses with 50 or fewer employees, with enrollment to begin May 1, 2007, and coverage to start on July 1, 2007. This is also the date that the individual mandate takes effect. There are no subsidies, but the Connector has some leverage to negotiate lower premiums and has had some initial success. The Connector has a staff of 45 with a mix of public- and private-sector experience reflecting the varied Connector responsibilities. It is overseen by Executive Director Jon Kingsdale and Chief Operating Officer (COO) Rosemarie Day. The organization is designed around staff and program functions. The COO, general counsel, planning and development officer, chief communications officer, and chief marketing officer report directly to the executive director. The director of human resources, chief financial officer, chief information officer, and directors of each of the major programs—Commonwealth Care and Commonwealth Choice—report to the COO. Contractors are used to determine eligibility, enroll people, and perform customer services for the Commonwealth Care program. The Connector also subcontracts with the Small Business Service Bureau in Worcester, Massachusetts, to assist with the implementation of Commonwealth Choice.

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FINANCING THE CONNECTOR The Connector is required to be self-funding and predicts that revenue will exceed costs by 2009. It received $25 million in initial funding from the legislature and will have spent $18 million over by the end of state fiscal year (SFY) 2007.37 Revenue will come primarily from administrative fees charged to health plans in both Commonwealth Care and Commonwealth Choice. Commonwealth Care administrative fees are equal to 5.0 percent, 4.5 percent, and 4.0 percent of premiums for SFYs 2007, 2008, and 2009, respectively. Commonwealth Choice administrative fees will be equal to 4.5 percent and 4.0 percent of premiums for SFYs 2008 and 2009, respectively. Projections are based on enrollment; staff run moderate and conservative estimates, but there is the possibility that estimates are inaccurate. In the event that the Connector experiences a temporary cash shortage, it has made arrangements with banks for short-term loans to fill any funding gaps. The Connector will be seeking an additional $1.5 million to $2 million from the legislature for providing new public information and responding to the appeals process.

COMMONWEALTH CARE Commonwealth Care provides comprehensive coverage to people with incomes less than 300 percent of the FPL with no deductibles or coinsurance. In the first three years of the program, bidding to offer coverage to these people was restricted to the state’s four Medicaid Managed Care Organizations. Two of these plans, Boston Medical Center and Cambridge Health Alliance, will be able to enroll people they previously treated through the Free Care Pool. Type one plans, comprehensive coverage with no premiums, are available to people with family income less than 100 percent of the FPL. This type of coverage was extended to people with incomes up to 150 percent of the FPL on April 12, 2007. The first phase of the program began enrolling qualified people with incomes less than 100 percent of the FPL on October 1, 2006, less than four months after the first Connector meeting. They were already enrolled in the Free Care Pool that made them easier to reach. These people are also more likely to have chronic illnesses and have the most to gain from greater access to primary care. Commonwealth Care plans two through four, available for eligible people with family income between 100 percent and 300 percent of the FPL, became available on January 1, 2007. The Connector negotiated capitation rates with the four Medicaid managed care organizations (MMCOs) eligible to bid on Commonwealth Care. Bids came in two stages with a 10-day window between rounds. The difference between initial and second bids resulted in $50 million in savings for the state. The Connector had negotiating leverage by guaranteeing the lowest-cost plan the automatic assignment of people who fail to select a plan. This was modified by the so-called spitting-distance rule that allows plans close to the lowest bid to receive a portion of automatic enrollment assignments. MMCOs will be paid different capitation rates based on age, sex, and geography, but the enrollees in plans two through

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four will pay the same premium. If enrollees who have a choice of plans (types two through four) and chose a more expensive plan, however, they will pay the difference. This provides additional incentives to be the low-cost plan. Negotiations were so successful that there was concern that the plans bid too low. As a safeguard, the Connector instituted stop-loss and other protections to safeguard the health plans if they significantly underestimated costs in order to gain market share. The issue of how much of the premium should be charged to people with family income between 100 percent and 300 percent of the FPL was the subject of considerable debate. A compromise was reached between stakeholders and is reflected in the premium schedule in the following list. The schedule was changed on April 12, 2007, when the board defined affordability for the mandate. People with incomes up to 150 percent of the FPL will pay no premiums, and premiums for people with incomes less than 200 percent of the FPL will have premiums reduced by $5. These new rates are considered affordable, and so the mandate for coverage and penalties will apply to people at these income levels.

Commonwealth Care Monthly Premium Contribution Schedule, January 2007 Percentage of the FPL

Adult Contribution

Two-adult Family

100.1%–150% 150.1%–200% 200.1%–250% 250.1%–300%

$18 or 1.76% of the FPL $40 or 2.8% of the FPL $70 or 3.8% of the FPL $106 or 4.7% of the FPL

$36 or 2.6% of the FPL $80 or 4.2% of the FPL $140 or 5.6% of the FPL $212 or 7.0% of the FPL

COMMONWEALTH CHOICE The Connector also faces the challenge of becoming a broker and purchasing agent while becoming financially self-sufficient. The vehicle for doing this is the Commonwealth Choice program, which will provide a range of health plan options to the uninsured and small businesses with 50 or fewer employees. The Connector may also serve larger companies by helping provide coverage for parttime or seasonal workers. The challenge is to find an advantage in a market already providing these services. Moreover, the statute requires that products available inside the Connector must be available outside the Connector at the same price, so they cannot compete on price. Legislators included this provision to protect the existing health insurance marketplace. The hope is that the Connector will provide value through administration and the range of plans it can offer to employers, employees, and the uninsured. People who have multiple employers or shift from one small business to another, may still be able to retain the same healthcare coverage through the Connector.

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It is hoped that value will be created through choice of health plans and various options within particular health plans. In negotiations with the plans, the Connector staff encouraged health plans to develop options with selective provider and hospital networks in order to lower costs. Four plans came in with limited networks, and others are considering doing so as well. No real limited network plans are currently offered in the marketplace. In the current market, employers generally have reduced choices of health plans, and are often limited to one, and this requires health plans to have broad networks to meet the diverse needs of employees. This trend reduces the leverage of health plans and leads to higher costs and fewer choices of health plans for enrollees. The Connector can offer a choice of health plans, and employees can select limited network plans that include providers of their choice. The employer will contribute a set amount per employee (at least 50 percent of the cost of coverage), and employees will pay more for more expensive plans. This may push efficiency, broaden options, and possibly make lower-cost, limited network plans available outside the Connector. The value proposition remains untested. There was a compressed schedule for receiving bids, evaluating submissions, and awarding the Connector Seal of Approval. This seal enables plans to offer products through the Connector. Interested bidders were required to submit five coverage options: one premier plan, two value plans, one basic plan, and one young-adult plan. All plans provide similar benefits (with the exception of the young-adult plan). Differences comprise monthly premiums, deductibles that need to be paid before coverage begins, coinsurance or a percentage of costs for which members are responsible, co-payments that are paid at the time of services, and how broad or narrow the provider and hospital networks are. The premier options have the highest monthly premiums but very limited cost sharing with no deductible. The value plans have midlevel premiums with deductibles between $500 and $1,000, possibly limited networks, and higher co-payments. These plans are similar to what most people with insurance have today. The basic plans will have the lowest premiums and the highest out-of-pocket costs. Unlike the other plans, the young-adult plan has limited benefits and will only be offered through the Connector. Plans were evaluated based on costs and plan design, which included innovation, network, marketing, network coverage, and geographic coverage. The Connector Seal of Approval was provided to 7 of 10 plans that applied: Blue Cross and Blue Shield of Massachusetts, ConnectiCare, Fallon Community Health Plan, Harvard Pilgrim Health Care, New England Health, Neighborhood Health Plan, and Tufts Health Plan. The MEGA Life and Health Insurance Company, the Mid-West National Life Insurance Company, and United HealthCare received scores significantly below the top seven and did not receive approval at the time this chapter was published.38 The Connector conducted research on the market and held focus groups with target customers and found that people wanted choice but a limited set of highquality plans. They also wanted individual attention and assistance with plan choice. At this point, seven plans each offer five options for a total of 35 possible

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options. Not all options will be available in all regions, however, and the young adult plans are targeted to 19- to 26-year-olds, and it is not expected that there will be a high demand for premier plans. This will reduce the number of choices. The availability of help in plan section, experience, and enrollment patterns will be necessary to determine if this is the right amount of choice for consumers. The Connector will also use a subconnector as well as brokers to make these plans more widely available. After bidding the project, the Connector selected the Small Business Service Bureau of Worcester, Massachusetts, as the subconnector. It has experience in servicing this community and was by far the lowest bidder. Responsibilities will include: 1. 2. 3. 4. 5. 6.

Customer service. Eligibility determination/enrollment. Web portal online enrollment. Premium billing. Collection remittance. Helping businesses establish cafeteria plans that will enable the pretax premium contributions. 7. Liaison between brokers and the Connector. The Connector will also work with individual brokers who will receive a $10 per member per month fee for the people they help enroll in insurance through the Connector. This rate is near the bottom of what brokers generally receive. The law also calls for the Connector to make a young-adult-only plan available through the Connector for people between the ages of 19 and 26 who have no other source of health insurance. This will be the only place where such plans can be purchased. These plans may have more limited coverage and include caps on of $50,000 per illness or per calendar year. They must provide all mandatory state benefits, and insurers offering in this market must have one plan that offers prescription drugs. Bids submitted to the Connector show a range of prices for these plans between $100 per month without prescription drugs to more than $200 per month. The goal is to make insurance affordable for this group and make having insurance a habit. The downside is that there will be some people in this group who have expenses over the limits who will be underinsured.

EMPLOYER IMPACT AND UNDERSTANDING Business in Massachusetts will be affected by reform in a number of direct and indirect ways. Direct requirements include: fair-share assessment contributions, efforts to extend tax deductibility to more employees, reporting requirements, and new antidiscrimination provisions. Indirectly, as the individual mandate kicks in, employers may experience a jump in the number of employees enrolling in company-sponsored coverage. This may significantly increase costs and may have a far greater economic impact than the $295 assessment described in the following section. Further, reform sets

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minimum coverage levels that all people will need to have to satisfy the mandate. Employers that currently do not provide insurance that meets this standard may want to adjust coverage to meet this standard. Employer awareness and response will be critical to the future success of reform. To that end, the Connector partnered with Associated Industries of Massachusetts (AIM) to hold information sessions for small businesses throughout the state. These forums are expected to reach a minimum of 500 small employers. Other information is available through the Connector Web site, but the extent to which businesses are aware of and prepared for these changes is still uncertain.

Fair-Share Assessment Companies with 11 or more employees that do not make a “fair and reasonable” contribution to their employees’ health insurance will be assessed a maximum fee of $295 per uninsured employee. The $295 amount was established to equal the per capita costs to the Uncompensated Care Pool of employees currently uninsured. This provision broke a major logjam over what employer responsibility should be. The state Division of Health Care Finance defined fair and reasonable as having a minimum of 25 percent of a company’s full-time employees enrolled in their health plan or paying at least 33 percent of employees’ premiums. Full time was defined as 35 or more hours a week. Consumer groups, labor, and key legislators objected that these regulations were too narrowly configured. Legislative leaders believed legislative intent was to take into consideration part-time employees or full-time equivalents and that employers’ contribution should be more on the magnitude of 50 percent.

Section 125 plans Reform legislation required businesses with more that 10 employees to establish Section 125 cafeteria plans. These plans would enable insurance premiums to be deducted from employee wages on a pretax basis. This money is not subject to federal, state, or Social Security taxes. It will result in significant savings for employees and also reduce the payroll taxes businesses have to pay. Failure to comply with this requirement may subject employers to a “free rider surcharge.” This charge will be calculated, in part, based on the money uninsured employees draw from the Free Care Pool, now known as the Health Safety Net Trust Fund.

Health Insurance Responsibility Disclosure Forms The Division of Health Care Finance and Policy held hearings on draft regulations regarding the information that would be required from employers with respect to employee coverage. Regulations were subsequently withdrawn, in part, because of concern about the magnitude of information required. In technical corrections legislation, the reporting requirement date was postponed from

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January 1, 2007, to July 1, 2007. This legislation also required employers to provide an annual written statement to employees with employer-sponsored coverage by January 31 each year. Employers must also report similar information to the Commission on Revenue. Falsification of this information could result in fines between $1,000 and $5,000.

Nondiscrimination Rules Nondiscrimination rules will effectively require employers to provide the same benefits and make the same contribution to all full-time employees. Employers will not be able to pay more of the health insurance costs for employees making higher wages. Specifically, the legislation prohibits health plans from contracting with employers that do not make their products available to all full-time employees and that do not make a similar contribution to all company enrollees. The technical corrections legislation extended the compliance date to July 1, 2007, and further details are expected from the Department of Insurance.

Insurance Partnership Program The Insurance Partnership program helps small businesses (50 or fewer employees) provide insurance to their uninsured employees. It also assists lowincome self-employed people who are uninsured. Reform expanded eligibility for employees with family income up to 300 percent of the FPL. This brings subsidies in line with those offered through the Commonwealth Care program.

INSURANCE REFORMS The new law merges the individual and small-group insurance markets but has created a commission to conduct a feasibility and impact study prior to implementation. A small group is defined as coverage of 50 or fewer employees. The commission hired an actuarial firm and released its findings in December 2006.39 The study found that rates in the individual or nongroup market would decrease by 15 percent as a result of moving individuals into a larger group, but rates in the small-group market would increase by 1 percent to 1.5 percent as more higher-risk individuals join this group. Nongroup reductions vary by carrier, and savings from certain health plans could be as high as 50 percent. On the other end, increase in some small-group insurance rates could increase as much as 4 percent. Because the findings did not predict major increases in the small-group market, the merger went ahead as scheduled on July 1, 2007. At this date, the nongroup or individual market was closed to all new enrollees. The law also requires Massachusetts licensed carriers to allow young adults to remain covered on a parent’s insurance plan for up to two years after the loss of dependent status or until their 26th birthday, whichever comes first. This went into effect on January 1, 2007. Health plans may restrict coverage to young adults who remain in the plan’s service area.

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QUALITY AND COST The legislation created a number of councils and committees. The Quality and Cost Council is charged with setting cost and quality goals for the State of Massachusetts and developing strategies in these areas. It is chaired by the secretary of Health and Human Services and will report its recommendations by the end of 2007. The law provides $1 million in new funding to the State Department of Public Health to create an infection prevention and control program. A task force was developed to recommend mechanisms for collecting and reporting data on infection rates and best-practice guidelines for prevention. Healthcare reform also increases Medicaid payment to hospitals but makes these payments contingent on meeting quality standards. The Executive Office of Health and Human Services is charged with setting quality benchmarks and payfor-performance measures. The statute requires that benchmarks include improvement in racial and ethnic disparities in healthcare services.

FUNDING AND SUSTAINABILITY ASSUMPTIONS Financial sustainability will require a reduction in uncompensated care costs, enhanced federal and state funding, high enrollment in the new programs, and macroeconomic stability. It may also require stability in the rate of healthcare inflation. Reform is partially funded by transferring funds from the Uncompensated Care Pool, which was replaced by the Health Care Safety Net Trust fund. Successful funding will require uncompensated care spending to decrease to subsidize insurance coverage. Federal safety-net funds made possible through the 1115 waiver and additional federal matching for the increased Medicaid and State Children’s Health Insurance Program (SCHIP) funding are also essential to fund this program. The state 1115 waiver program needs to be renewed again by July 2008, the SCHIP program is up for renewal in 2007, and current levels of funding will need to remain at approximately the same level. In addition, $129 million per year for three years in new state general revenue was pledged for this program. This funding will need to be maintained at or around the same level, unless an alternative revenue source can be identified. Surveys show that many of the uninsured are unaware of the coverage requirement and that there is the possibility that a portion of the population will balk at the individual mandate. Finally, an economic downturn could increase the number of uninsured and reduce the availability of state funding.

CONCLUSION Massachusetts has a long history of healthcare innovation. The current round of reform builds on a solid foundation of public and private health insurance. It also builds on a strong safety net, the costs of which were made explicit through the state’s Uncompensated Care Pool. The number of uninsured is low compared

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to the nation. Many are still without health insurance, however, which entails social and economic costs and consequences. The healthcare sector in Massachusetts is a driver of the state’s economy. The state has a number of world-class medical schools and teaching hospitals. This educational system has advantages, but the state also has high healthcare costs. The dominant health plans in the state are not for profit and rank at the top in the United States in terms of quality and member satisfaction. The latest round of reform was driven by political leadership, activist consumer organizations, and the threat of losing significant amounts of federal money. Legislative success was achieved through a broad-based coalition of consumers, providers, health plans, healthcare systems, and the business community. The strategy was shared responsibility, asking more of individuals, government, and business. The individual mandate is the most innovative piece and is essential to getting near-universal coverage. The coalition that made reform possible has held together through the first year of implementation. Compromise on key issues kept reform on track. These included setting subsidy levels, outlining benefits, and defining affordability and the required minimum level of insurance. The current Massachusetts experiment is being closely followed by other states and may help spark the next round of national reforms. Although other states can learn from the particulars, more can be learned from the process. Because Massachusetts builds off the base of its existing system, it would be difficult to adopt wholesale. What can be replicated is the notion of shared responsibility, developing broad coalitions, and building on the success of existing programs. Mandates are difficult but essential to sustained progress. Massachusetts also separated coverage expansion from cost and quality reform. Many believed that they had to be addressed together, but it was not politically viable at the time. Dealing with access brings more people under the tent but does not hold the uninsured hostage to these more difficult issues. Ultimately, continued progress and sustainability at the state level are predicated on financing, which may drive necessary national reform.

NOTES 1. Collins, S. R., C. Schoen, D. Colasanto, et al. 2003. On the Edge: Low-Wage Workers and Their Health Insurance Coverage. New York: The Commonwealth Fund. 2. McDonough, J. E. 2004–2005. “The Road to Universal Health Coverage in Massachusetts.” New England Journal of Public Policy 20: 57–62. 3. Ibid. 4. Seifert, R. 2002. “The Uncompensated Care Pool: Saving the Safety Net.” Massachusetts Health Policy Forum 16: 5. 5. Office of the Inspector General Commonwealth of Massachusetts. 2005. “Ongoing Review of the Uncompensated Care Pool Pursuant to Chapter 240 of the Acts of 2004.” Publication No. CR-1111-69-25-11/05-IGO. Boston: Office of the Inspector General.

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6. Seifert, 16. 7. McDonough, J. E. 2006. “The Third Wave of Massachusetts Health Care Access Reform.” Health Affairs—Web Exclusive, September 14: 421. 8. Sager, A. 1989. “Making Universal Health Insurance Work in Massachusetts.” Law, Medicine and Health Care 17 (3): 270. 9. Ibid., 269. 10. McDonough, J. E. 2004–2005. 57–62. 11. Ibid., 60. 12. Massachusetts Division of Health Care Finance and Policy. 2006. Massachusetts Health Trends: 1990–2005. 3rd ed. 2. Boston: Massachusetts Division of Health Care Finance and Policy. 13. Ibid. 14. Strunk, B. C., K. J. Devers, and R. E. Hurley. 2001. “Health Plan-Provider Showdowns on the Rise.” Center for Health Care System Change, Issue Brief No. 40: 3. 15. Greenberg, J., and B. Zuckerman. 1997. “State Health Care Reform In Massachusetts: How One State Expanded Health Insurance for Children.” Health Affairs 16 (4): 188–93. 16. Massachusetts Medicaid Policy Institute. 2005. The MassHealth Waiver. Boston: Massachusetts Medicaid Policy Institute. 17. Greenberg and Zuckerman, 190. 18. McDonough, 2004–2005. 60–61. 19. DeVol, R., and R. Koepp. 2003. The Economic Contributions of Health Care to New England. Cambridge, MA: Milken Institute, New England Health Care Institute Cambridge. 20. Ibid. 21. Families USA. 2006. “Premiums versus Paychecks: A Growing Burden for Massachusetts Workers.” Families USA Publication No. 06-106MA (October, 2006). 22. Krasner, J. 2006. “Study: Mass. Healthcare Costs Are 4th Highest.” Boston Globe (November 20). Available at: http://www.boston.com/business/globe/ articles/2006/11/20/study_mass_healthcare_costs_are_4th_highest/. 23. Ibid. 24. “Best Health Plans 2006.” 2006. U.S. News and World Report. Available at: http://www.usnews.com/usnews/health/best-health-insurance/hr_commercial_plan_ 2006.htm. Accessed May 20, 2007. 25. Massachusetts Division of Health Care Finance and Policy. 2006. Massachusetts Health Trends: 1990–2005. 3rd ed. 8. Boston: Massachusetts Division of Health Care Finance and Policy. 26. Ibid., 15. 27. Henry J. Kaiser Family Foundation. 2006. “Trends and Indicators in the Changing Health Care Marketplace Project.” The Henry J. Kaiser Family Foundation Publication No. 7031, Washington D.C. 28. Massachusetts Division of Health Care Finance and Policy. 2006. Massachusetts Health Trends: 1990–2005. 3rd ed. 38. Boston: Massachusetts Division of Health Care Finance and Policy. 29. Ibid., 58. 30. Holahan, J. L. J. Blumberg, A. Weil, et al. 2005. “Road Map to Coverage: Synthesis of Findings.” Blue Cross Blue Shield of Massachusetts Foundation. Available at: http://www.roadmaptocoverage.org/pdfs/Roadmap_Synthesis.pdf.

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31. Agency for Healthcare Research and Quality, Center for Financing. 2004. “Access and Cost Trends: 2004.” Washington, D.C.: Medical Expenditure Panel Survey-Insurance Component, Agency for Healthcare Research and Quality, Research in Action Issue 17. 32. Romney, M. 2004. “My Plan for Massachusetts Health Reform.” Op-Ed, Boston Globe (November 21). 33. Holahan, J., R. Bovbjerg, J. Hadley, et al. 2004. “Caring for the Uninsured in Massachusetts: What Does It Cost, Who Pays and What Would Full Coverage Add to Medical Spending.” Blue Cross Blue Shield Foundation of Massachusetts. Available at: http://www.roadmaptocoverage.org/pdfs/roadmapReport.pdf. Accessed June 1, 2007. 34. Blumberg, L., J. Holahan, A. Weil, et al. 2005. “Building the Roadmap to Coverage: Policy Choices and the Cost and Coverage Implications.” Blue Cross Blue Shield Foundation of Massachusetts. Available at: http://www.roadmaptocoverage.org/ pdfs/BCBSF_Roadmap2005.pdf. Accessed June 1, 2007. 35. Weil, Alan. 2005. “You Can Get There from Here: Implementing the Roadmap to Coverage.” Blue Cross Blue Shield Foundation of Massachusetts. Available at: http://www.roadmaptocoverage.org/pdfs/Roadmap_Implement.pdf. Accessed June 1, 2007. 36. Massachusetts Legislature. 2006. “An Act Providing Access to Affordable, Quality, Accountable Health Care.” Acts of 2006, Chapter 58. 37. Kingsdale, J. 2006. “SFY 2007 Budget and Preliminary Three-Year Financial Projections Commonwealth Health Insurance Connector Authority.” Board of Directors Meeting; Holland, P. 2007. Personal interview with the author, March 13. 38. More detailed information can be found on the Commonwealth Connector Web site. Available at: http://www.mass.gov/?pageID=hichomepage&L=1&L0= Home&sid=Qhic. Accessed July 27, 2007. 39. Gorman Actuarial LLC, DeWeese Consulting Inc., Hinckley, Allen & Tringale LP. 2006. “Impact of Merging the Massachusetts Non-Group and Small Group Health Insurance Markets.” Report prepared for the Massachusetts Division of Insurance and Market Merger Special Commission.

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CHAPTER 3

Quality in Healthcare: Concepts and Practice Phil Buttell, Robert Hendler, and Jennifer Daley

I

n the healthcare industry, quality of care is more than a concept. It has become essential to patient well-being and financial survival. This chapter will discuss the complex concept and multiple definitions of quality of care and evaluate how it has become an increasingly important factor in the delivery of healthcare. We will start by providing a historical perspective to help readers understand the evolution of quality in the healthcare industry. This perspective will include landmark reports and events that have helped shape the role quality of care currently plays in the industry. We will then explore the key principles and definitions that are essential to healthcare quality. After reviewing the key principles, we will explore a case study that illustrates the impact that quality improvement is having on a particular company within the industry. Last, we will speculate on the role quality will play as the healthcare industry continues to evolve. The authors of this chapter are involved daily in the complexity of designing systems and motivating people to achieve the desired goal of high-quality, highly safe, and efficient healthcare. We believe that this goal is important for both human and business reasons. Imagine a hospital system in which proper processes are delivered in a timely fashion for the many different types of patients and disease processes. Imagine a hospital with no hospital-acquired infections, no staff-related oversights leading to complications during difficult deliveries, no wrong-site surgeries, and no medication errors. A system that demonstrates this type of success has lowered the cost of providing care while maximizing the quality of care. We all want to be treated at such an institution. Employers would demand that their patients use this system because they no longer wish to bear the cost of poor outcomes, complications such as congestive heart failure following inadequate or delayed reperfusion of a coronary vessel in an acute heart attack, or

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hospital-acquired infections. Clearly, hospitals and physicians that provide costeffective quality care will have made the business case for quality of care and be rewarded with higher volumes of patients and better reimbursement.

QUALITY IN HEALTHCARE: WHAT IS IT? To begin this discussion, we must have a shared definition of quality and understand the strengths, weaknesses, and misconceptions of commonly held concepts about quality in healthcare. When a group of healthcare professionals is asked what quality means, there may be as many definitions as people in the room. And differing definitions can and will lead to different priorities and different goals, depending on the perspective of the constituent: patients, their families, healthcare providers and professionals, regulators, insurers, and employers. W. Edward Deming, who led the quality revolution in Japan and the United States, said, “A product or service possesses quality if it helps somebody and enjoys a good and sustainable market.”1 Note that he does not define quality directly but references the value of a product or service in terms of its ability to both help the consumer as well as its marketability. Donabedian, a leading figure in the theory and management of quality of healthcare, has previously suggested that “several formulations are both possible and legitimate, depending on where we are located in the system of care and on what the nature and extent of our responsibilities are.”2 Different perspectives on and definitions of quality will logically call for different approaches to its measurement and management.3 Another author recognizes the inherent problem in defining quality by stating, “It would be difficult to find a realistic definition of quality that did not have, implicit within the definition, a fundamental expression or implied focus of building and sustaining relationships.”4 Understanding differing perspectives about quality does not prevent success in achieving quality of care as long as key principles and concepts of quality are identified, understood, and used. The most durable and widely cited definition of healthcare quality was formulated by the Institute of Medicine (IOM) in 1990. According to the IOM, quality consists of the “degree to which health services for individuals and populations increase the likelihood of desired health outcomes and are consistent with current professional knowledge.”5 Other authors have recognized Deming’s appreciation of the importance of the market. They refer to care that meets the expectations of patients and other customers of healthcare services.6 Therefore, for the purposes of this discussion, we have expanded the IOM definition. Quality consists of the degree to which health services for individuals and populations increase the likelihood of desired health outcomes (quality principles), are consistent with current professional knowledge (professional practitioner skill), and meet the expectations of healthcare users (the marketplace).

THE EVOLUTION OF AWARENESS OF QUALITY IN HEALTHCARE AMONG THE PUBLIC The public has become more aware of the role quality of care plays in healthcare. The definition has not changed, but the public and the industry’s awareness

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certainly has. High-profile patient safety failures have had a profound impact on the evolution of the public’s awareness of quality of care. Patient safety plays an important role in quality performance, but it is important to note that quality and safety are not the same thing. Patient safety is a subset of the larger, much more complex and multidimensional concept of quality. Highly publicized patient care failures, however, were the catalysts that prompted a national evaluation of the patient safety issues troubling healthcare. On December 3, 1994, a 39-year-old cancer patient died of complications of an overdose of cyclophosphamide, a chemotherapeutic agent she received at the DanaFarber Cancer Institute (DFCI) in Boston for treatment of widely metastatic breast cancer. Another patient at DFCI also suffered an overdose of cyclophosphamide and experienced serious heart damage. According to James B. Conway, DFCI’s chief operating officer, and Dr. Saul Weingart, director of the Center for Patient Safety at DFCI, “Both errors involved breakdowns in standard processes, and both raised issues of trainee supervision, nursing competence, and order execution.”7 The media reported the event with 28 front-page headlines over the next three years, partially because the patient who died, Betsy Lehman, was a healthcare reporter for the Boston Globe. Although medical professionals have always known about deadly errors in complex healthcare systems, the public at large reacted to the events at Dana-Farber with shock and disbelief. They want a safe environment for themselves and their families, and these incidents were clear examples that hospitals are often unsafe, even at highly respected institutions. Regardless of the magnitude of the errors or the ability of the media to relay the message to a local community or an entire nation, these incidents and medical errors put quality and patient safety on the front page of every newspaper in the United States. Numerous other high-profile and fatal medical errors continue to be reported on an almost weekly basis, contributing to a general loss of trust among patients and their families when they experience serious illnesses.

THE INSTITUTE OF MEDICINE RESPONDS: TO ERR IS HUMAN In response to the incident at Dana-Farber and many other facilities, the IOM began a thorough examination of patient safety, which resulted in the report To Err Is Human: Building a Safer Health System.8 To Err Is Human brought patient safety into the mainstream of healthcare in academic centers, community hospitals, physician and nursing professional meetings, as well as on the front page of every newspaper in the United States. This report had a tremendous impact on the safety of healthcare delivered in the United States. As we will later see, the impact has not been as deep or as significant as one might have hoped, but the report changed the way people think about healthcare and their fundamental perceptions of the safety of healthcare delivery. This report was the first in a series of reports produced by the Quality of Health Care in America Project. “The Quality of Health Care in America project

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was initiated by the Institute of Medicine (IOM) in June 1998 with the charge of developing a strategy that will result in a threshold improvement in quality over the next ten years.”9 The authors of To Err Is Human suggested that anywhere from 44,000 to 98,000 Americans die each year as a result of medical errors in hospitals. This number was derived from two parallel studies, one of which was conducted in Colorado and Utah hospitals and the other was a study based on data from New York State hospitals. The numbers were staggering and equivalent to a 747 airliner full of patients crashing every day. The New York study analysis suggested that serious adverse events occur in 3.7 percent of all hospitalizations.10 The New York study was replicated in Colorado and Utah and found that serious adverse events occurred in 2.9 percent of hospitalizations.11 Although many healthcare professionals were aware of the potential for serious safety problems in U.S. hospitals, few lay people realized the full magnitude of the risk and the deadly outcomes of flawed hospital systems. Academics, lawyers, state and federal legislators, and healthcare professionals involved in the complex workings in healthcare organizations were faced with the realization that something was broken in a system in which the goal was to alleviate suffering and save lives. The IOM report made the following (see table 3.1) recommendations based on their review of patient safety: 1. 2. 3. 4.

Improve leadership and knowledge. Identify and learn from errors. Set performance standards and expectations for safety. Implement safety systems in healthcare organizations.

These recommended actions are critically important to the development of a safe healthcare environment. A continued focus on these objectives will help create a much more quality-driven industry and a much safer environment in which to receive care. The recommendations made by the IOM serve as useful starting points to improve patient safety, and several changes have been made to address these recommendations. Not enough, however, has been accomplished to change the culture of patient safety in the industry overall. Leadership is vital to improving the focus as well as the performance in patient safety. Leaders help shape the agenda in our industry by a single-minded focus on patient safety that is shared among all participants and constituents in the healthcare system. An increased focus on patient safety in the industry will need to be supplemented with additional knowledge and understanding of the specific elements that promote patient safety. This singleminded goal drives the evolution of policy and creates a culture that values the role quality and patient safety play in the care of patients. Identification of serious errors is also important when attempting to improve patient safety through root cause analysis. In addition, so-called near misses— patient safety system failures that do not result in injury to patients—also provide

Table 3.1 To Err Is Human Recommendations Improve Leadership and Knowledge Recommendation 4.1: Congress should create a Center for Patient Safety within the Agency for Healthcare Research and Quality. The Center for Patient Safety should: • •

Set the national goals for patient safety, track progress in meeting these goals, and issue an annual report to the president and Congress on patient safety. Develop knowledge and understanding of errors in healthcare by developing a research agenda, funding Centers of Excellence, evaluating methods for identifying and preventing errors, and funding dissemination and communication activities to improve patient safety.

Identify and Learn from Errors Recommendation 5.1: A nationwide mandatory reporting system should be established that provides for the collection of standardized information by state governments about adverse events that result in death or serious harm. Reporting initially should be required of hospitals and eventually should be required of other institutional and ambulatory care delivery settings. Recommendation 5.2: The development of voluntary reporting efforts should be encouraged. Recommendation 6.1: Congress should pass legislation to extend peer review protections to data related to patient safety and quality improvement that are collected and analyzed by healthcare organizations for internal use or shared with others solely for purposes of improving safety and quality. Set Performance Standards and Expectations for safety Recommendation 7.1: Performance standards and expectations for healthcare organizations should focus greater attention on patient safety. • •

Regulators and accreditors should require healthcare organizations to implement meaningful patient safety programs with defined executive responsibility. Public and private purchasers should provide incentives to healthcare organizations to demonstrate continuous improvement in patient safety.

Recommendation 7.2: Performance standards and expectations for health professionals should focus greater attention on patient safety. Recommendation 7.3: The Food and Drug Administration (FDA) should increase attention to the safe use of drugs in both pre- and postmarketing processes through the following actions: • •

•

Develop and enforce standards for the design of drug packaging and labeling that will maximize safety in use. Require pharmaceutical companies to test (using FDA-approved methods) proposed drug names to identify and remedy potential sound-alike and look-alike confusion with existing drug names. Work with physicians, pharmacists, consumers, and others to establish appropriate responses to problems identified through postmarketing surveillance, especially for concerns that are perceived to require immediate response to protect the safety of patients.

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Table 3.1 To Err Is Human Recommendations (continued) Implementing Safety Systems in Healthcare Organizations Recommendation 8.1: Healthcare organizations and the professionals affiliated with them should make continually improved patient safety a declared and serious aim by establishing patient safety programs with defined executive responsibility. Patient safety programs should: • Provide strong, clear, and visible attention to safety. • Implement nonpunitive systems for reporting and analyzing errors within their organizations. • Incorporate well-understood safety principles, such as standardizing and simplifying equipment, supplies, and processes. • Establish interdisciplinary team training programs for providers that incorporate proved methods of team training, such as simulation. Recommendation 8.2: Healthcare organizations should implement proved medication safety practices.

an opportunity to prevent errors. The industry has the ability to learn much from errors and near misses, and those learning opportunities need to be identified and capitalized on at the time of the safety system failure. Unfortunately, in our society, it is difficult to create a blame-free environment without incurring legal liability for negligence. Safety theory in other high-reliability industries such as commercial aviation and nuclear power strongly suggests that human error is typically related to system problems and human behavioral and cognitive patterns rather than mistakes by individual providers because of lack of knowledge or carelessness. To compound the naturally occurring problem of human error, healthcare providers have a professional and humanitarian responsibility for human life in which doing no harm is a basic ethical principle. Take, for example, an individual in an assembly line responsible for making stuffed animals. If this individual makes an error, there are few complications that will result, except perhaps lower productivity and an unhappy customer. In healthcare, mistakes can cause loss of life. Creating an environment that embraces error as an opportunity for improvement rather than an opportunity for blame and punishment is essential to promoting patient safety and safer healthcare for both patients and healthcare workers. The authors of the To Err Is Human report recognized the capacity for forgiveness and healing by choosing the title of the IOM report from a common phrase, “To err is human; to forgive, divine.”12 According to the IOM, setting performance standards and expectations is another essential element to improving patient safety. This is an area that has been somewhat disorganized, as institutions were often responsible for setting their own patient safety agenda resulting in great variation among facilities. Resources were not always uniform, nor were they utilized in appropriate ways to set a safety agenda. There is value to creating standards and expectations that are universal. Creating standards and universal areas of focus help provide legitimacy

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and a target area. The Joint Commission on the Accreditation of Healthcare Organizations (JCAHO) has taken a leadership position in setting the patient safety agenda by promulgating new patient safety goals every year around common patient safety problems in hospitals (e.g., wrong-site surgery, illegible and nonstandard abbreviations, and preventions of falls among hospitalized and nursing home patients). The last area of focus the IOM recommended was the implementation of patient safety systems in healthcare organizations. Implementing reliable systems that prevent human error in emergency rooms and intensive care units will improve patient safety in the U.S. healthcare delivery system.

AFTER TO ERR IS HUMAN: WHAT HAVE WE LEARNED AND WHAT HAVE WE DONE? It is clear that the healthcare industry is not where it needs to be when perceived from a patient safety perspective. Medical errors continue to happen every day, and people are still at risk whenever they enter the healthcare system for care. The public is more aware of issues that have been played out in the media, and the IOM report has improved the awareness of the problem, but still too little is being done to transform healthcare. The patient safety agenda has been promoted by accrediting bodies, professional and hospital associations, and the myriad of public and private institutions whose main goal is to improve patient safety and the quality of healthcare in the U.S. system.13 Five years after To Err Is Human, “the impact on attitudes and organizations has been profound. . . . In sum, the groundwork for improving safety has been laid these past 5 years but progress is frustratingly slow. Building a culture of safety is proving to be an immense task and the barriers are formidable.”14 Still, problems exist. “Little evidence exists from any source that systematic improvements in safety are widely available.”15 Improvements are happening every day, but the changes are limited to small improvements at local and individual levels. Some hospitals are achieving groundbreaking improvements in patient safety, but these are the exception rather than the rule. The changes need to be industry-wide for the value to really be seen by the public.

CROSSING THE QUALITY CHASM: A ROAD MAP FOR IMPROVING QUALITY OF CARE A second major report by the IOM’s Committee on the Quality of Health Care in America—Crossing the Quality Chasm—followed To Err Is Human. This report focused on the quality of care currently present in the U.S. healthcare system. The first sentence of the report reads, “The American health care delivery system is in need of fundamental change.”16 The committee outlined an agenda to improve quality. Table 3.2 outlines this agenda. This report expands the work outlined in To Err Is Human in regard to improving patient safety because it focuses on a redesign of the entire industry around

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Table 3.2 Crossing the Quality Chasm Agenda •

That all healthcare constituencies, including policy makers, purchasers, regulators, health professionals, healthcare trustees and management, and consumers, commit to a national statement of purpose for the healthcare system as a whole and to a shared agenda of six aims for improvement that can raise the quality of care to unprecedented levels.

•

That clinicians and patients and the healthcare organizations that support care delivery adopt a new set of principles to guide the redesign of care processes.

•

That the Department of Health and Human Services identify a set of priority conditions upon which to focus initial efforts, provide resources to stimulate innovation, and initiate the change process.

•

That healthcare organizations design and implement more effective organizational support processes to make change in the delivery of care possible.

• That purchasers, regulators, health professions, educational institutions, and the Department of Health and Human Services create an environment that fosters and rewards improvement by (1) creating an infrastructure to support evidence-based practice, (2) facilitating the use of information technology, (3) aligning payment incentives, and (4) preparing the workforce to better serve patients in a world of expanding knowledge and rapid change.

a culture of improving quality of care. The committee proposed six components that define quality in healthcare. High-quality healthcare should be: • Safe: Avoiding injuries to patients from the care that is intended to help them. • Effective: Providing services based on scientific knowledge to all who could benefit and refraining from providing services to those not likely to benefit (avoiding underuse and overuse, respectively). • Patient centered: Providing care that is respectful of and responsive to individual patient preferences, needs, and values and ensuring that patient values guide all clinical decisions. • Timely: Reducing waits and sometimes harmful delays for both those who receive and those who give care. • Efficient: Avoiding waste, including waste of equipment, supplies, ideas, and energy. • Equitable: Providing care that does not vary in quality because of personal characteristics such as gender, ethnicity, geographic location, and socioeconomic status. Arguably, hospitals and other healthcare institutions have been addressing these areas of quality improvement for decades. Yet, in 2003, the RAND Corporation published a study of representative populations of patients in the United States and discovered that only 54 percent of the recommended treatments were provided.17 Why have we seen little progress? The use of measurement for the continuous improvement of high-quality process—quality management—that revolutionized manufacturing and service industries in the 1980s appears to have

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had little or no effect on the healthcare sector.18 Once an innovation has been adopted by the first 15 to 20 percent of a field or industry, it becomes an almost unstoppable process.19 Despite the enormous efforts to date, the strong resistance to change in healthcare suggests we have not reached the breakthrough point. Resistance can occur for many reasons. Among them are the technical challenges in distinguishing quality across physicians and other healthcare providers; the unwillingness of hospitals, patients, and physicians to use the information derived from quality management; and the fear among physicians that quality indicators may increase litigation risks if plaintiffs’ attorneys use the information as evidence to bolster malpractice claims.20 Probably the most compelling reason we have seen little progress is that medicine is still a so-called cottage industry with very little standardization across physicians, nurses, or hospitals in how to deliver high quality of care. In fact, autonomy among individual providers—the ability to practice individual discretion within professionally accepted boundaries in the care of an individual patient—is a treasured value. Reinertsen and Schellekens pointed out the paradox of physician autonomy, in that as patients suffer injury, physician autonomy is reduced through regulatory and health plan oversight of medical decision making.21

PRINCIPLES ESSENTIAL TO PROMOTING QUALITY OF CARE Improving quality of care in the healthcare system is still a work in progress. Having a robust definition of the dimensions of quality care is insufficient to accomplish the goal of continuous improvement. As stated earlier, quality consists of the degree to which health services for individuals and populations increase the likelihood of desired health outcomes (quality principles), are consistent with current professional knowledge (practitioner skill), and meet the expectations of healthcare consumers (the marketplace). Successful healthcare organizations—be they hospitals, physicians’ offices, pharmacies, nursing homes, or ambulatory centers—will have understood, identified, and put into practice all of the following essential principles: 1. 2. 3. 4. 5.

Leadership. Measurement. Reliability. Practitioner skills. The marketplace.

KEY PRINCIPLE 1: LEADERSHIP In its simplest definition, leadership is the ability to influence behavior. The reason for changing behavior is to reach specific goals within an organization. The published literature on leadership is based on anecdotal and theoretical discussions. Less than 5 percent of these articles are empirically based, and most are based on demographic characteristics or personality traits of leaders.22 Despite

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this, publications describing methods of personal development of leadership skills fill the shelves of bookstores. This discussion attempts to summarize briefly the basic and practical elements consistently associated with strong leaders. a. Theories of Leadership In 1977, a long-standing debate among the faculty of U.S. business schools began when a Harvard Business School professor published an article entitled “Managers and Leaders: Are They Different?”23 In 1990, Kotter, a highly regarded thought leader in change theory, differentiated leadership from management and cautioned businesses to avoid confusing the two.24 Management copes with the existing and growing complexity of our organizations, and leadership copes with change and transforming organizations to a vision with specific goals.25 Kotter asserted that most U.S. corporations were overmanaged and underled and that both strong leadership and management were essential to success.26 Leadership is not managing a spreadsheet but, rather, dealing in a disciplined manner with the complex world of human drives, desires, inspiration, and vision. Berwick—a pediatrician and international thought leader in quality improvement in healthcare—questioned the common practice of defining healthcare improvement as changing regulatory, payment, and organizational structures under which care is given.27 In many cases, this results in an emphasis on cost management and organizational downsizing with an associated loss of quality and safety. Berwick, now president of the Institute of Healthcare Improvement, stated that the failure to move the quality agenda forward was due to the failure of leadership and the inability of medical administrators and the professional workforce to innovate.28 In 2005, Freed, in his detailed review of hospital turnovers, summarized the issue of leadership and management succinctly. He stated that hospitals that are underled may not do the right things and can find themselves at an eventual competitive disadvantage.29 Hospitals that are undermanaged may not do things right and can find themselves eventually unable to execute.30 b. The Individual Characteristics of Successful Leaders Harsdorff and colleagues evaluated approximately 800 acknowledged leaders from different U.S. business sectors, including healthcare.31 The universal finding or traits that correlate with successful leaders are: • Absolute personal integrity, including the ability to keep confidences. • The ability to innovate. • The ability to build partnerships in times of limited resources. • Superior intelligence. • The ability to hire and develop the best talent available.

Quality in Healthcare

Personal integrity must include an uncompromising approach to matters of safety, service, and quality of care. Careful listening to what physicians, consumers and patients, and the hospital staff desire and expect is required. Innovation and superior intelligence include the ability to project a specific vision and its practical goals to every individual in the organization as well as generate a very high percentage of strong buy-in by the employees. “The process of developing a winning strategy is . . . messy, experimental, and iterative and it is driven from the bottom up.”32 So-called transformational leaders, as opposed to those who manage by command and control, have the ability to transform cultures to create a context more conducive to the integration of evidence into clinical and management practice.33 The ability to build partnerships through personal relations and highly effective meetings can lead to the empowerment of staff and a sense of ownership that drives the passion for high-quality care as well as high sensitivity to possible areas of risk. This unleashes the innovative potential of the staff in a way that is not common in healthcare. The ability to hire and develop the best talent available provides amplification of all of the previous activities and moves the organization toward a continuous cycle of improvement in multiple areas of caregiving, quality service, safety, and cost-effectiveness. All of these steps help lead to a highly effective organizational memory. Other characteristics of transformational leaders include discipline and humility. “Disciplined attention is the currency of leadership” summarizes one of the characteristics contributing to a turnaround agent’s efficacy in getting the attention he or she needs.34 “The most powerfully transformative executives possess a paradoxical mixture of personal humility and professional will. They are timid and ferocious. Shy and fearless. They are rare—and unstoppable.”35 The turnaround agent is Level 5; he subordinates his role to that of the hospital for which he is clearing a safe path. c. Leadership and Change Coping with change is an essential focus of the effective leader. Every healthcare leader rapidly discovers that making a significant change (to transform or transition) is usually difficult to achieve and even harder to sustain. Often the toughest task for a leader in effecting change is mobilizing people throughout the organization to do adaptive work. “Adaptive work is required when our deeply held beliefs are challenged, when the values that made us successful become less relevant, and when legitimate, yet competing, perspectives emerge.”36 “You don’t have to be managing people for long before you find out that people don’t like change.”37 Hospital medical staff members’ failure to follow national guidelines to provide beta blockers or aspirin after a heart attack, failing to immunize patients with pneumococcal vaccine under Centers for Disease Control

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and Prevention and Medicare guidelines, or continuing antibiotics longer than recommended by their own surgical societies with the associated risk of resistant organisms are examples of resistance to change. Some medical staff meetings can become war zones of resistance as checklists to remind physicians of evidence-based care are denounced as so-called cookbook medicine. Of interest, when education and negotiation have failed, regulation, such as incorporating quality goals into hospital policies or medical staff bylaws and increasing peer accountability, makes these issues vanish with no evidence of patient injury. If resistance is a consequence of the lack of clear goal setting and compelling objective information,38 the essential role of the leader is to provide clear goals as well as the empirical information to help in clinical and administrative decision making. Individuals in hospitals, as in many other organizations, find it hard to believe that “change is the only constant.”39 But other industries have gone further than healthcare in recognizing that “individuals and organizations that are good react quickly to change. Individuals and organizations that are great create change.”40 The rapid rate of change in healthcare makes the ability to accomplish appropriate change an essential skill for all healthcare administrators, medical staffs, and clinical staffs. An important role of leadership is to set organizational goals and through communication (dissemination) guide the organization to accomplish the needed change (adherence).41 Kotter’s eight-stage process is an effective tool for coping with change.42 In brief, his eight-stage process to create change can be summarized as: 1. Establish a sense of urgency. 2. Create the guiding coalition. 3. Develop a vision and strategy. 4. Communicate the change vision. 5. Empower broad-based action. 6. Generate short-term wins. 7. Consolidate gains and produce more change. 8. Anchor new approaches in the culture. In many situations, however, an effort to improve a process may stall for unknown reasons. A practical and useful tool called the ADKAR model has been developed by Prosci, an independent research company. More than 300 organizations were surveyed, and Prosci found that there are five stages that a group must pass through to accomplish a sustainable change.43 Different members of the group may be at different stages at different times, causing the process to stall. The ADKAR psychological model can be used to accelerate the change process.

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• • • • •

73

Awareness of the need to change. Desire to participate and support the change. Knowledge of how to change. Ability to implement the change. Reinforcement to keep the change in place.

In evaluating a hospital management team or any group of people essential to a change process, each element can be rated on a scale of 1 (no awareness) to 5 (complete awareness). The strength of this tool is that it turns opinion into observable fact and can be used by anyone involved in the change process for self-assessment or for organizations undertaking transformation. After the rating process (which can include averaging several observers’ ratings), any element with a rating of 3 or less needs attention. The focus must be sequential, and awareness of each step is a prerequisite to the next. Complete implementation of change is highly unlikely until each element is accomplished. This simple tool allows the quantification of each stage, understanding what awareness or skills the group or individuals possess or lack. It also guides priority setting because teaching new skills to individuals who have neither the awareness nor the desire for change is a futile effort. Examples of airline success in safety and innovation are being discussed more frequently in healthcare. It is worthwhile to read about the early days of Southwest Airlines and note that all the elements of leadership noted previously are now considered routine in their company culture.44 The durability of the Southwest Airlines culture appears to be because of these elements. But after the early days of struggle, one element seems to stand out in the employees’ interactions with customers, both as a reason for initial success and sustainability. The paramount key to Southwest Airlines’ success is the employees taking pride of ownership in the service they provide. Compare the Southwest approach to the healthcare industry with its shortage of workers, intense bidding for personnel such as nursing, declining revenues leading to cutbacks in benefits, and a premium on productivity to the point of mandated nursing-patient ratios. If a healthcare organization does not state outright that ownership of the process and outcome of the services we deliver is impossible, we certainly act as if it is. In fact, the concept of providing and promoting job security to a permanent core of employees as a form of ownership for healthcare workers is simply not part of the culture in many healthcare institutions. Many healthcare institutions act as if they are entitled to their patients’ loyalty because of their mere presence in the marketplace and do not act as an entrepreneurial organization trying to earn and retain the loyalty of their patients and their families. Genuine leadership in healthcare drives success through all the elements mentioned previously, but it is sustained by the promotion of a sense of personal ownership of the processes and outcomes for the patients cared for in our institutions. Personal ownership is an extraordinary potential force in healthcare organizations. It drives process improvement, risk awareness, communication, and innovation to achieve the levels of service and clinical performance that patients desire and that we all want for ourselves and our loved ones. Kotter clarifies: “What’s crucial about a vision is not its originality but how well it serves the interests of important

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constituencies—customers, stockholders, employees—and how easily it can be translated into a realistic competitive strategy.”45 No one is better qualified than those same constituencies to participate actively in vision formulation. Participation in vision formation generates personal and organizational ownership.

KEY PRINCIPLE 2: MEASUREMENT Quality of care can theoretically be measured by outcomes (a healthcare outcome is the change in the health status of the patient that is a direct result of care provided) or process (what providers do to and for patients). Outcome measurements have been a powerful tool in cardiovascular surgery and hospital-acquired infections (see figure 3.1).

Figure 3.1 An Example of Coronary Artery Bypass Graft Mortality Variation among California Hospitals1

Volume

California State Average = 2.91%

146 222 308 158 239 63 527 198 0%

2%

4%

6%

8%

10% 12% 14% 16% 18%

1 Parker, J. P., Z. Li, B. Danielsen, J. Marcin, et al. 2006. The California Report on Coronary Artery Bypass Graft Surgery 2003 Hospital Data. Sacramento, CA: California Office of Statewide Health Planning and Development. Available at: http://www.oshpd.state.ca.us/HQAD/ Outcomes/Studies/cabg/2003Report/2003Report.pdf. Accessed December 17, 2006.

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The majority of our discussion, however, will be describing process measurements because they are the most common and are more easily measured than changes in patient health status. Measurement of process is often preferred because process is under relatively greater control of providers, needs a shorter time frame for results, can directly inform improvement, and may not require statistical adjustment for severity of illness.46 Stated simply, certain evidence-based interactions with the patient are performed appropriately in a timely fashion or they are not. In a patient with pneumonia, either the antibiotic was given on time or it was not. In a patient with a heart attack, either an aspirin was given within a specific time period or it was not. These processes are examples of the nationally reported core measures reported by hospitals on a quarterly basis to JCAHO and the Centers for Medicare and Medicaid Services (CMS). The quality indicators have become a significant part of hospital and physician assessment. Clinical studies are appearing correlating quality of care with patient survival.47 When paired with cost or efficiency of care, quality indicator graphs provide striking visual correlations (see figure 3.2). Who is the doctor in the upper right quadrant offering risk-adjusted high-quality care at the greatest efficiency? These individuals are good for the healthcare system and provide evidence that high-quality care can be given without increases in marginal costs.

Figure 3.2 Physician Performance Disclosure Using Quality and Cost Metrics (adapted from Regence Blue Shield)1

1

Milstein, Arnold. 2004. “Clinical Climate Change: How Purchasers Will Hinge Provider Revenue on Superior Cost Efficiency and Quality.” Available at: http://council.brandeis.edu/ pubs/Princeton%20XI/Arnold%20Milstein.pdf. Accessed December 12, 2006. Reproduced by permission of the author.

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The government and commercial payers have identified the value of measurement, whereas healthcare providers are less certain. Quality measures are reportable to the public in the form of core measures. These indicators have had a tremendous impact on how our industry cares for patients and are directly related to the IOM’s “effective” characteristic of quality care. There has always been resistance when anyone in the industry (hospitals, patients, or payers) suggests that medicine should be practiced in a more predictable and reliable way. So-called cookbook medicine has developed a negative connotation to some healthcare providers. Opponents of practicing evidence-based medicine claim that practicing medicine cannot be defined in such simple terms as these evidence-based processes. But the use of processes demonstrated in randomized controlled trials that lead to better patient outcomes promote better health and outcomes. The CMS has helped bring about a change in the acceptance of the processdefined approach to quality. The publicly available core measures are a set of processes that improve the care we provide patients. To date, these measures have improved clinical outcomes in some of the highest-volume illnesses, namely pneumonia, congestive heart failure, and acute myocardial infarction, and surgical-site infection. New measures in surgical care improvement, childhood asthma, and behavioral health are also in development. The measures are based on extensive clinical research, are evidence based, and have a focus on improving patient outcomes. The core measures have created the foundation for evidence-based metrics that meet the IOM definition of effective care in some prevalent medical conditions. CMS makes these metrics transparent to the public on the Department of Health and Human Services Hospital Compare Web site, http://www. hospitalcompare.hhs.gov. They require participation by the hospital in order to receive yearly payment increases for the care of Medicare patients. The Web site allows any individual with access to the Internet to compare how hospitals perform these certain processes. According to the Web site, “Hospital Compare is a consumer-oriented website that provides information on how well hospitals provide recommended care to their patients.” CMS has partnered with the Hospital Quality Alliance (HQA) in this project. The HQA is a public-private collaboration established to promote reporting on hospital quality of care. The HQA consists of organizations that represent consumers, hospitals, doctors, employers, accrediting organizations, and federal agencies. Similar public reporting initiatives are being promoted by states and multiple managed-care payers.

KEY PRINCIPLE 3: RELIABILITY Underlying nearly every identified problem in the hospital setting is the problem of reliable process. In evaluating highly reliable organizations, five principles have been found to be universal. They are command and control, risk appreciation, a specific quality component of the industry, metrics driving management, and reward.48

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• Command and control: Performance goals shared and agreed upon throughout the organization. • Risk appreciation: Whether there is knowledge that risk exists, and if there is knowledge that risk exists, the extent to which it is acknowledged and appropriately mitigated and/or minimized. • Quality: Policies and procedures for promoting high-quality performance. • Metrics: A system of ongoing checks to monitor hazardous conditions and used as the basis for accountability. • Reward: The payoff an individual or organization receives for behaving one way or another; expected social compensation or disciplinary action to correct or reinforce a behavior, and the most powerful is recognition. Of interest, the term command and control was used originally because preceding studies on reliability were on aircraft carriers.49 This is not intended to suggest that each hospital leader should function in an inflexible military command and control demand mode. In fact, a highly reliable organization (HRO) must have mechanisms to support flexibility, organizational support for constrained improvisation on the part of lower level people, and cognition management methods.50 The principles of an HRO have been applied and monitored for a decade in one healthcare organization and may be used as its own control to compare outcomes once the principles were stopped. A large pediatric intensive care unit (PICU) providing care for a large geographic area applied the Libuser principles of an HRO to support the bedside caregiver from 1989 to 1999. Admissions, daily census, ventilator use, and pediatric transports to the unit went up, and mortality and consequential events (events that lead to an increased level or amount of care, neurological injury, or death) went down. Additionally, nursing turnover was very low (approximately 5 percent). After the two champions of HROs left the PICU, the new intensivists did away with the high-reliability strategy. Admissions, daily census, transports, and children on ventilators went down, whereas mortality, consequential events, and employee turnover went up.51 Although reliability has been successfully achieved by anesthesiologists52 and discussed by the Agency for Healthcare Research and Quality53 in its effort to promote patient safety, healthcare in general has not applied all of the Libuser principles consistently. This may be one of the reasons for the lack of progress pointed out previously by Leape and Berwick.54 The organizational efforts of identifying the rules and principles essential to reliable care and institutionalizing them in job descriptions, measuring adherence to these job elements, allowing constrained or supervised innovation at the bedside, and rewarding good results are not standard in the healthcare industry. Healthcare has been moving in a better direction through the work of the Institute for Healthcare Improvement (IHI) and the IOM, however. Further study into successful high reliability organizations and innovative appropriate application of their ideas into healthcare may accelerate the process of beneficial change.

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In figure 3.3, different areas of healthcare are compared with other industries and activities. The relative risk of death in an airplane crash is 1 in 1 million, whereas the risk of death from climbing in the Himalayas is 1 in 100. Note that anesthesiology and the transfusion process are ultrasafe as opposed to the other healthcare areas. These ultrasafe areas have evolved through a focus on reliable and standardized processes similar to the airline industry. One of the challenges in creating reliable processes is variability. When measured, healthcare processes and outcomes have always demonstrated wide variability. The principles of risk adjustment in large samples have provided a degree of comparability previously unavailable. The use of easily understandable visual presentations have allowed physicians to compare their performance against what they may or may not agree is a best practice. Figure 3.4 demonstrates wide variability in the total charges and length of stay in a single diagnosis related group (DRG) among a group of physicians. Five variables are presented in this simple picture: physician (each circle), number of cases for each physician (represented by the size of the circles), adjusted length of stay, and adjusted charges (as a surrogate for cost). Length of stay and total charges are adjusted for patient risk. The graph demonstrates wide variability in both adjusted length of stay and total charges. Potential causes of the wide variability are different practice patterns among the physicians, inappropriate utilization of services, inefficient consultative services, or prolongation of hospitalization for social reasons.

Figure 3.3 Average Rate per Exposure of Catastrophes and Associated Deaths in Various Industries and Human Activities1 Fatal iatrogenic adverse events Cardiac surgery in patient in ASA 3–5

Blood transfusion Anesthesiology in patient in ASA 1

Medical risk (total)

Chartered flight

Himalayas mountaineering Microlight aircraft or helicopters

10⫺2 Very unsafe 1

10⫺3

Road safety

Commercial large jet aviation

Railways

Chemical industry (total) 10⫺4

10⫺5 Risk

Nuclear industry 10⫺6 Ultrasafe

Amalberti, R., Y. Auroy, D. Berwick, and P. Barach. 2005. “Five System Barriers to Achieving Ultrasafe Health Care.” Annals of Internal Medicine 142 (9): 756–64. Copyright ©2005, American Medical Association, Chicago, IL.

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Hospitals have approached these issues primarily through utilization management that appears to have been most successful following the institution of DRGs. Because physicians have often been reluctant to judge their colleagues’ practice patterns, the effectiveness of utilization management and review in hospitals is far from consistent. Because of the complexity of utilization management and review, the primary approach of healthcare payers has been to deal with cost control rather than the complex underlying causes of cost expansion. Policies to reduce inappropriate variation in processes—be they HMOs with their own medical management programs, capitation, discounted contracting, or federally mandated reductions in physician payments—may have slowed the rise in medical costs and reduced inappropriate variation in utilization, but they have been far from successful.55 Value-based purchasing—achieving the highest possible quality at the lowest possible cost—is being adopted by Medicare and many managed care payers as the next wave in healthcare purchasing. The concept is intuitively powerful to patients and insurers; this will be the standard against which all hospitals and physicians will be measured for the foreseeable future. Purchasers and consumers will seek the providers with the highest possible quality at the lowest possible cost and reward them with both volume and incremental bonuses of money or

Figure 3.4 Variability in DRG 89 at a Single U.S. Hospital (information derived from public data)1

1

Variability similar to this can be seen in almost any DRG measured at any facility.

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access to service (e.g., clinical information technology). Those providers who have low-quality scores and high costs will be assumed to have less value to purchasers and consumers, and those providers, be they physicians or hospitals, will see their market share shrink. Transparency to the public on both cost and quality through public reporting on Web sites and in the media will presumably encourage consumers to make educated choices about seeking value in their choices about where to seek care. The advent of high-deductible insurance products and health spending accounts may encourage consumers to act more rationally—in the economic sense—in choosing providers.

KEY PRINCIPLE 4: PRACTITIONER SKILLS The process of achieving consistently high quality of care in a reliable way consists of “doing the right thing right.” To do the right thing requires that physicians, nurses, and all healthcare providers make the right decisions about appropriateness of services and care for each patient (high-quality decision making), and to do it right requires skill, judgment, and timeliness of execution (high-quality performance).56 The IOM characterized the threats to quality into three broad areas that affect practitioners: overuse (receiving treatment of no value), underuse (failing to receive needed treatment), and misuse (errors and defects in treatment).57 The physicians and practitioners that are making treatment decisions must be doing so in a way that appropriately utilizes resources without overuse, underuse, or misuse. This is difficult to control because of variability in physician treatment practices. Evidence-based medicine has made its way into mainstream health decision making to reduce this variability. The concept relies on evidence to help practitioners decide on the appropriateness of services and care and how to execute the patient’s care appropriately. Both overuse and underuse represent limitations in the practitioners’ decision making ability. Both areas focus on the competence of the practitioners and their ability to utilize resources appropriately. Questions to ask when evaluating whether overuse or underuse has occurred are: 1. 2. 3. 4.

Do they utilize resources appropriately? Are they ordering too many tests? Are they ordering too few tests? Is therapy appropriate and consistent with individual patients’ riskbenefit calculus?

Once a treatment decision is made, the duty of quality falls on the performance of the individuals providing the care to the patient (high-quality performance) and the systems in which they work. In the treatment phase of the care cycle, the providers must have processes and practices in place to ensure the treatment protocols are completed and there is no misuse. When errors and defects occur, quality is suboptimized (not an on-off switch but, rather, a spectrum) and patient safety is at risk.

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KEY PRINCIPLE 5: THE MARKETPLACE The marketplace has had a profound effect on moving hospital quality forward, and it is essential to understanding the role of quality of care in the current environment of healthcare. Despite the studies cited earlier,58 quality metrics have been improving primarily by public transparency and the promise of improved payment and patient volumes. The value proposition of quality and efficiency and tying reimbursement to reporting or excelling in performance on specified quality metrics (pay for performance) has been accepted by nearly all third-party payers and has become a significant force in healthcare. This model has gained considerable attention by employers and payers for the following reasons. First, healthcare premium costs have continued to rise at rates as high as 14 percent per year. Although there have been some decreases in recent years in premium costs, workers are still only earning an additional 2.1 percent to 3.8 percent per year (see figure 3.5). The additional costs must be absorbed by one of two parties: the individual or the insurer. Additionally, the number of uninsured has continued to rise to a high of 45 million Americans, and that number is expected to increase to 51 million by 2010.59 The basic economics in healthcare are similar to most industries and involve the management of three main principles: cost, volume, and revenue. We must understand the role quality plays in the market because it is fundamental to the environment in which we operate. Quality is an important component in several areas: from the basic business model of healthcare and the financial impact on the industry (practitioners, facilities, and customers) to the public opinion driving decisions for treatment plans and treatment locations. For the industry to adopt changes, institutions must “realize a financial return on investment in a reasonable time frame, using a reasonable rate of discounting. This may be realized as ‘bankable dollars’ (profit), a reduction in losses for a given program or population, or avoided costs. In addition, a business case may exist if the investing entity believes that a positive indirect effect on organizational function and sustainability will accrue within a reasonable time frame.”60 The industry faces many challenges when it comes to costs. One problem is the significant variation of cost in U.S. healthcare.61 Some hospitals perform better quality care at a much lower cost than others. The industry also faces high fixed costs and a highly paid professional workforce, so it takes significant economies of scale to realize all the value. In addition, the cost of treating clinical complications is very high and contributes significantly to the rising cost of healthcare. One study indicated that between 10 percent and 20 percent of patients receiving greater than 48 hours of mechanical ventilation will develop ventilator-associated pneumonia (VAP). Treatment of VAP costs between $10,019 and $13,647 in additional hospital costs during the prolonged hospital stay.62 One key element to the economic model that quality should help improve at facilities is volume. Practitioners and treatment facilities are consistently judged by visitors based, in large part, on the quality of care they are providing. Although some practitioners are able to thrive because of their technical proficiency, patients

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Figure 3.5 Yearly Percentage Increase of Wages Compared to Healthcare Premiums1

1

Henry J. Kaiser Family Foundation and the Health Research Educational Trust. 2006. “Employer Health Benefits: 2006 Annual Survey.” This information was reprinted with permission from the Henry J. Kaiser Family Foundation. The Kaiser Family Foundation, based in Menlo Park, California, is a nonprofit, private operating foundation focusing on the major healthcare issues facing the nation and is not associated with Kaiser Permanente or Kaiser Industries. * Estimate is statistically different from estimate for the previous year show at p < .05. No statistical tests are conducted for years prior to 1999. ? Data on percentage increase in workers’ earnings are seasonally adjusted data from the Current Employment Statistics Survey (April to April.) Note: Data on premium increases reflect the cost of health insurance premiums for a family of four. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999–2006; KPMG Survey of Employer-Sponsored Health Benefits, 1993, 1996; Health Insurance Association of America (HIAA), 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1988–2006; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April), 1988–2006.

return and also refer their friends based on the quality experiences they have had. If a patient has a bad experience and receives the wrong drug at a facility (a misuse) or finds out a physician did not order a test another physician thought was indicated (underuse), the patient may be less likely to seek care at that facility or from that physician in the future. Additionally, patients will tell their friends about the bad experience they had. Although opportunities for service recovery exist, many patients and managed care plans are not returning to physicians and hospitals that provide poor quality of care.

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All healthcare providers, physicians included, will soon be impacted by the financial impact of improving quality of care. Many have already felt the impact of pay for performance. Managed care plans and Medicare are offering financial and volume referral incentives to physicians and hospitals that demonstrate superior adherence to evidence-based practices and better outcomes. In some pay-forperformance plans, the higher performing entities receive greater than average payments, whereas the poorer performers will receive less than the average payment. The federal government is committed to developing more quality metrics in more diagnostic and therapeutic categories and is poised to implement pay-forperformance bonuses to hospitals and physicians in 2008 or 2009.63

Tenet Healthcare and the Commitment to Quality: A Case Study Formed in 1996 in the merger of two for-profit healthcare systems, American Medical International and National Medical Enterprises, Tenet Healthcare enjoyed rapid growth with the subsequent acquisition of more than forty hospitals until 2002. Hospital volumes were growing rapidly, and the profitability of its hospitals and the holding entity was at an all-time high. In fall 2002, however, Tenet faced serious and, to some observers, fatal charges against it and some of its hospitals. Based on analysis by independent observers, Tenet was reported to have escalated its charges so that, in a substantial minority of its hospitals, the hospitals were receiving an unacceptably high proportion of Medicare outlier payments. In the same week, the Federal Bureau of Investigation raided a Tenet hospital in Redding, California—Redding Medical Center—based on allegations of overuse and inappropriate utilization of invasive cardiac procedures such as cardiac catheterization and coronary artery bypass graft surgery. Subsequently, in 2006, Tenet settled with the federal government for $750 million to settle all charges lodged against it by the federal government related to these and other issues. In late 2005, Tenet also settled multimillion dollar liability claims by patients who had been treated for cardiac disease at Redding Medical Center. In early 2003, the new senior leadership of Tenet recognized that perceptions of the quality of care in its hospitals constituted a serious threat to its long- and shortterm viability. Supported by the board of directors, Tenet and its leadership committed to making substantial improvements in the quality of care provided in its hospitals and associated healthcare institutions. This new initiative—known as the Commitment to Quality (C2Q)—had as its sustaining mission the improvement of every aspect of care. Recognizing the rising demands for both improvement and transparency in quality and safety of care from regulators, payers, patients, and employers, Tenet and its leadership committed to supporting and sustaining improvement in six dimensions of quality of care: evidence-based medicine, patient safety, physician excellence, nursing excellence, patient flow and capacity management, and clinical resource management. Subsequently, in 2005, additional dimensions of improvement were added to the Commitment to Quality. Service

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excellence, which had been a focus of improvement in Tenet Healthcare since 2000 in its Target 100 program, merged with the Commitment to Quality. Senior management requested an evaluation of the quality of care for each hospital in the identified dimensions as well as a plan to improve the quality of care— consistent with evidence-based goals for quality and safety—that Tenet hospital leaders would be held accountable for achieving. Senior leaders recognized that the change management process around the Commitment to Quality programs would be both significant and difficult but insisted on sustainable and measurable progress in return for providing the resources to improve the quality of care. Establishing ongoing communication and dialogue about the strategic implementation plan for the Commitment to Quality among senior and midlevel leaders in the corporate and hospital leadership structure was a critical first step in the implementation of C2Q. Daylong meetings were held in national and regional venues to vet the initiative and solicit input and feedback from corporate and hospital leaders. Initial reactions to the initiative were enthusiastic but tempered by concerns about draining resources from bedside care to improve quality. Financial officers were skeptical that the proposed investment in improving quality and safety did not have sufficient financial return to the hospitals. Historically, Tenet had a decentralized model of corporate oversight in clinical care and quality improvement. Some leaders expressed concern about a broad initiative developed by corporate management being undermined by staff and leadership in the hospitals. They requested the right to prioritize the quality initiatives based on both the hospitals’ baseline performance and readiness for change. One apparent barrier to launching the Commitment to Quality was the lack of standardized metrics in many of the dimensions of the program across the hospitals. Although many of the higher-level metrics that were reported through common reporting systems (e.g., length of stay) to regional and corporate leaders, in some dimensions—especially in detailed operational metrics such as emergency room dwell time or operating room start and stop times—little or no standardization across the hospitals existed. One of the first tasks was to establish a common set of metrics for each goal and objective and provide standard rationales, definitions, data collection protocols, as well as data reporting guidelines. Each hospital spent one month collecting and validating each metric in the complete list prior to beginning implementation. The hospital leadership teams also raised significant issue about the resources available at each hospital to implement the changes necessary to achieve rapid but sustainable change in quality and safety. They expressed concern that diverting hospital resources toward improvement compromised the ability to deliver care by midlevel managers and frontline staff. They also acknowledged that detailed expertise in change management, improvement methods and techniques, and deep knowledge of hospital systems was not uniformly available or of the same quality across all Tenet facilities. They did agree that the transfer of such knowledge to

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the senior leadership, midlevel managers, and frontline staff would be required to create a sustainable improvement in performance as well as a change in the culture of improvement in the hospitals. To address these concerns, an implementation vehicle known as the C2Q Transformation Team was created. Each of the four geographic regions in the Tenet Healthcare system has an improvement team known as a Transformation Team. Each team is staffed by a regional team leader, typically an experienced hospital senior manager (e.g., hospital chief operating officer, chief nursing officer). The team is also staffed by subject matter experts—typically nurse leaders—in case management, emergency room management, and operating room management. After the in-depth monthlong self-assessment, the C2Q Transformation Teams spend eight weeks full-time on-site at each hospital working side-by-side with their hospital counterparts to achieve improvement on a set of mutually agreed upon goals established during the first week on-site. The regional Transformation Team is then available to the hospitals through multiple communication vehicles and returns to conduct sustainability visits every 8 to 12 weeks. A second round of four-week on-site visits was begun in 2005 with the goals of integrating Tenet’s service quality initiatives with C2Q and focusing on length of stay reduction and pharmacy safety as well as continuing to improve performance in the initial six C2Q dimensions. Examples of specific projects and goals in each dimension of quality are described in table 3.3.

Table 3.3 Quality: Goals and Targets Commitment to Quality Dimension

Example of Goal

Associated Metric

Example of Target

Evidence-based medicine

Improve core measure Number of times the Greater than or equal performance in acute patient received to 95% adherence myocardial infarcappropriate treatto evidence-based tion (AMI) ment / Number of op- standards portunities to provide evidence-based treatment appropriate for the patient

Patient safety

Reduce hospitalNumber of patients acquired infections with central venous (e.g., central venous catheter–associated catheter–associated bloodstream infecbloodstream infections / 1,000 tions (CVCBSI) patient days with device in place

Reduce CVCBSIs to top decile performance in national comparative databases

Table 3.3 Quality: Goals and Targets (continued) Physician excellence

Implement and moni- Percentage of all new 100% timely and accutor timely physician and reappointment rate credentialing and privileging and crecredentialing and privileging dentialing privileging completed within time specified by hospital and medical staff bylaws

Nursing excellence

Improve nursing satis- Employee satisfaction Improve nursing satisfaction and increase scores faction scores by 20% nursing retention for nurses Reduce new-hire and rates Percentage turnover veteran turnover rates for new hires (within to 10% year one) Percentage turnover for all nurses

Capacity management Improve capacity and patient flow management in the emergency room (ER)

Utilization management and review

Left without being LWBS ≤ 2% seen (LWBS) Patient ER dwell time (disdwell time in ER for charged) ≤ 2 hours patients who are dis- ER dwell time (adcharged from the ER mitted) ≤ 4 hours Patient dwell time in the ER for patients who are admitted to the hospital

Insure that all patients Percentage of patients 95% undergoing percuundergoing the protaneous angioplasty cedures that are Class and/or coronary I or Class IIA (ACC/ artery bypass graft AHA guidelines) and/or cardiac valve replacement receive the procedure consistent with American College of Cardiology/American Heart Association (ACC/AHA) appropriateness guidelines

Clinical resource man- Reduce variable cost Percentage of all agement per case of highfirst-time total hip volume, high-cost replacements using procedures while clinician-approved maintaining clinicost-effective proscal effectiveness for theses patient process and outcome (e.g., total hip replacement)

86

90%

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Among the positive forces at work in the Commitment to Quality in Tenet Healthcare is leadership. Involvement by the most senior leaders at Tenet in communicating and reinforcing key strategies and demanding accountability for results has been vital to the success of the C2Q initiative in promoting change. The board of directors has adopted an incentive compensation system based on a so-called balanced scorecard of results that emphasizes clinical quality, safety, and service excellence equally with financial results. Transparency among the hospital leaders about their quality performance has also promoted healthy competition to achieve higher and higher levels of performance. Both transparency and accountability have accelerated change and improvement in the hospitals. Commencing with the collection of core measure data for heart attack in mid-2003 with adherence rates of about 50 percent for the initial measure set, adherence to the CMS expanded core measures in heart attack was 95 percent among the 20,000 patients treated in 2006 in Tenet hospitals. Leadership and commitment must be accompanied by resources to achieve results. Tenet commits more than $60 million a year in corporate and regional resources to supporting quality and quality-related initiatives on an annual revenue base of $9.5 billion. More than one-third of these resources are committed to developing informatics infrastructures that enable consistent and accurate data collection, information transfer, and rapid sharing of both results and improvement strategies over a corporate-wide intranet. Significant investments are made in supporting the regional quality improvement infrastructure, including regional chief medical officers and regional directors of clinical quality improvement, who work collaboratively with the regional Transformation Teams to sustain and improve quality, safety, and cost-effectiveness. Collaboration between the hospitals and the regional teams has promoted a 33 percent to 50 percent reduction in hospital-acquired infections such as catheter-associated bloodstream infections with almost half the hospitals recording no catheter-associated bloodstream infections for more than a year. Initially, the Commitment to Quality was envisioned as a corporate initiative that would be implemented in similar ways in each hospital. Acceptance at the hospital level was markedly enhanced by standardized metrics and goals but with customization of the improvement initiatives at the local level. In order to prevent each hospital from reinventing the wheel, so to speak, when addressing similar issues, success stories and failures are shared among the hospitals, creating a virtual network of improvement teams that share strategies, tactics, and knowledge. For example, in order to achieve 95 percent adherence to the acute myocardial infarction (AMI) core measures, several hospitals redesigned their relationships with their local emergency medical services to permit transmission of electrocardiogram tracings from the field to the emergency department, allowing identification of ST-segment elevation heart attacks in the field. Hospitals alerted to a ST-segment elevation AMI are able to mobilize cardiac catheterization teams that are ready when the patient arrives at the hospital and have reduced the average so-called door-to-balloon time to an average of 45 minutes. The emergency department and cardiology staff in those hospitals conduct national

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Web-enabled presentations to all the other hospitals and are available to mentor other Tenet hospitals that are working to reduce door-to-balloon times. These strategies are shared among regional improvement teams and utilize the Tenet intranet to catalog the experiences and lessons learned across the system. Many common improvement ideas and strategies evolved, but unique and innovative solutions to common problems continue to be reported after several years of implementation. One hospital, which had implemented the Institute of Healthcare Improvement bundles to reduce catheter-associated bloodstream infections, was frustrated by its inability to reduce the rate of infection. In frustration, the chief medical officer insisted that every physician placing central venous access be retrained and recertified. A core team of four physicians was certified and observed by infection-control practitioners to monitor technique and the sterility of the placement process. Within eight weeks, the rate of bloodstream infections associated with placement of central catheters had dropped 90 percent and achieved performance equal to the lowest decile performers in the National Nosocomial Infections Surveillance (NNIS) database. Providing an initial assessment for each hospital granted excellent opportunities for the hospital medical staff and clinical and administrative leadership to address issues they mutually determined to be important to the success of the hospital and the care of the patients. Although many hospitals faced similar challenges in improvement in evidence-based medicine and patient safety, different challenges were observed in capacity management and patient flow. Standardized goals and metrics help identify opportunities for improvement, but the solutions—although having some common features—are primarily the result of frontline employees and midlevel managers conducting multidisciplinary improvement efforts. One hospital experienced unacceptably high rates of diversion of ambulances from its emergency room—in some months approaching 200 hours. Careful mapping of the flow and timing of patient movement from entering the emergency room through admission to a patient care floor or intensive care unit identified several barriers to patient flow, including poor communication between the emergency room staff and the receiving units and long delays in the turnover of rooms by environmental services. Mapping and measuring the times associated with each part of the patient flow process resulted in new communication protocols between the emergency room and the receiving care units and service standards about response time. Hospital managers also reorganized the staffing and team structure of environmental services to meet peak demand in patient room cleaning and turnover. As a result, the hospital has less than ten hours of diversion a year and has consistently met the established goals of fewer than 2 percent of all patients entering the emergency department leaving without being seen and average dwell times of less than two hours for patients seen and discharged and less than four hours for patients seen and admitted. Continuous communication at every level of the organization and through multiple mechanisms is also vital to the success of C2Q. Repetition of the key messages in multiple forums and through e-mails, conference calls, regional and national

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meetings, corporate and local hospital written and in-person presentations, and in face-to-face meetings is vital. Presentations and question-and-answer periods with the hospital governing boards and medical staff, as well as employee forums with frontline employees and midlevel managers, proved invaluable.

THE BUSINESS CASE FOR QUALITY Healthcare has had a difficult time demonstrating the business case for quality because of the complexity of care and difficulty in capturing the real fixed and variable costs of caring for patients. Other industries have long accepted the theory first described by Deming that improvement in quality leads directly to a decrease in cost. Better quality results in less rework, fewer mistakes and delays, and a better use of time. Productivity improves as a result. By improving quality, the industry captures the market with better quality and lower price, is able to innovate in the business and clinical practice of medicine, and so can provide more jobs.64 The difficulty in demonstrating the business case in healthcare may be the result of healthcare not having yet reached the level of quality that triggers the results as defined by Deming. Healthcare lags significantly behind many industries in rates of errors and the ability to capture the measures that permit maximal management of the complex healthcare process. The ability to provide timely and detailed measurement in healthcare is time and personnel intensive because of insufficient real-time information technology. In fact, as overburdened as healthcare workers feel while manually gathering quality-related data, we are obtaining and using only a small fraction of the information necessary for maximizing the management of high-quality care. What is the cost of quality? Does it raise the price of goods and services? Are huge savings possible by implementing continual improvement efforts? These questions are not easy ones, but quality is becoming increasingly measurable as are its costs. In healthcare, the failure to prevent serious complications, such as a hospital-acquired infection, may cost the patient his or her life, prolonged disability, and thousands of dollars in treatment. Avoidable surgical complication may prolong hospitalization, result in disability or death, and cause great expense and repeated procedures. Healthcare organizations, however, have been reluctant to implement improvements because better quality has not been accompanied by better payment or improved profitability. The most recent business case for quality has been driven by employers and third-party payers seeking value-based purchasing. Serious doubts about the long-term sustainability of rising healthcare costs, the accelerating numbers of uninsured, and the double-digit increases in healthcare premiums are driving employers and health plans, as well as federal and state governments, to demand cost-effective, safe, and patient-centered care. Both physicians and hospitals are being assessed with a combination of quality and efficiency (cost) measures

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and these measurements are being used to include or exclude both hospitals and physicians from healthcare plans. The current business case for quality is straightforward. Access to the patient (both by volume and payment level) is being determined by demonstrating high quality and cost efficiency. A clear understanding of the history and development of the concept of quality patient care and the ability to understand, identify, and utilize the key principles will help create successful healthcare organizations.

CONCLUSION There has been a change in healthcare since the mid-1990s that will shape the future of the industry. As Leape stated, “Ten years ago, no one was talking about patient safety. Five years ago, before the IOM report, a small number in a few pioneering places had developed a strong commitment, but its impact was limited and most of health care was unaffected. Now, the majority of health care institutions are involved to some extent and public awareness has soared.”65 Many exciting changes have occurred in the industry because of the increased focus on safety and quality. Some of these changes may be short-lived, but some will truly revolutionize the way healthcare is provided. Quality and safety are important factors shaping the future of the industry for hospitals and medical care providers. Quality metrics will shape physician practices as well as the processes in place at the hospitals in which they practice. Quality will define both success and failure for physicians, hospitals, and the executives who lead in the healthcare industry.

Key Concepts • Quality consists of the degree to which health services for individuals and populations increase the likelihood of desired health outcomes (quality principles), are consistent with current professional knowledge (professional practitioner skill), and meet the expectations of healthcare users (the marketplace). • Successful healthcare organizations—be they hospitals, physicians’ offices, pharmacies, nursing homes, or ambulatory centers—will have understood, identified, and put into practice all of the following essential principles: leadership, measurement, reliability, practitioner skills, and the marketplace. • Access to the patient (both by volume and payment level) is being determined by demonstrating high quality and cost efficiency. A clear understanding of the history and development of the concept of quality patient care and the ability to understand, identify, and utilize the key principles will help create successful healthcare organizations. • Quality metrics and practices will help define both success and failure for physicians, hospitals, and the executives who lead in the healthcare industry.

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NOTES 1. Deming, W. E. 1994. The New Economics. 2nd ed. Cambridge, MA: SPC Press. 2. Donabedian, A. 1988. “The Quality of Care: How Can It Be Assessed?” Journal of the American Medical Association 260: 1743–48. 3. Ibid. 4. Winder, Richard E., and Daniel K. Judd. 1996. “Organizational Orienteering: Linking Deming, Covey, and Senge in an Integrated Five Dimension Quality Model.” Available at: http://www.ldri.com/articles/96orgorient.html. Accessed August 3, 2007. 5. Lohr, K. N., M. S. Donaldson, and J. Harris-Wehling. 1992. “Medicare: A Strategy for Quality Assurance. V. Quality of Care in a Changing Health Care Environment.” Quality Review Bulletin 18: 120–26. 6. Laffel, G., and D. Blumenthal. 1989. “The Case for Using Industrial Quality Management Science in Health Care Organizations.” Journal of the American Medical Association 262: 2869–73. 7. Conway, J. B., and S. N. Weingart. 2005. “Organizational Change in the Face of Highly Public Errors. I. The Dana-Farber Cancer Institute Experience.” Agency for Healthcare Research and Quality, Morbidity and Mortality Rounds on the Web. Available at: http://webmm.silverchair.com/perspective.aspx?perspectiveID=3. Accessed August 3, 2007. 8. Kohn, K. T., J. M. Corrigan, and M. S. Donaldson. 1999. To Err Is Human: Building a Safer Health System. Washington, D.C.: National Academy Press. 9. Ibid., p. 5. 10. Brennan, T. A., L. L. Leape, N. M. Laird, et al. 1991. “Incidence of Adverse Events and Negligence in Hospitalized Patients: Results of the Harvard Medical Malpractice Study I.” New England Journal of Medicine 324: 370–76. 11. Thomas, E. J., D. M. Studdert, H. R. Burstin, et al. 2000. “Incidence and Types of Adverse Events and Negligent Care in Utah and Colorado.” Medical Care 38(3): 261–71. 12. Pope, A. 1711. An Essay on Criticism 1. Line 525. 13. Leape, L., and D. Berwick. 2005. “Five Years after To Err Is Human: What Have We Learned?” Journal of the American Medical Association 293: 2384–90, 2384. 14. Ibid., 2384–85. 15. Ibid., 2384. 16. Institute of Medicine. 2001. Crossing the Quality Chasm: A New Health System for the 21st Century. Washington, D.C.: National Academy Press, 1. 17. McGlynn, E. A., S. M. Asch, J. Adams, et al. 2003. “The Quality of Health Care Delivered to Adults in the United States.” New England Journal of Medicine 348: 2635–45. 18. Coye, M. J. 2001. “No Toyotas in Healthcare: Why Medical Care Has Not Evolved to Meet Patients’ Needs.” Health Affairs 20 (6): 44–56. 19. Rogers, E. M. 1995. “Lessons for Guidelines from the Diffusion of Innovations.” Journal on Quality Improvement 21 (7): 324–28. 20. Kesselheim, A. S., T. G. Ferris, and D. M. Studdert. 2006. “Will PhysicianLevel Measures of Clinical Performance Be Used in Medical Malpractice Litigation?” Journal of the American Medical Association 295 (15): 1831–34. 21. Reinertsen, J., and W. Schellekens. 2005. 10 Powerful Ideas for Improving Patient Care. Chicago: Health Administration Press, 36–37.

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22. Vance, E., and E. Larson. 2002. “Leadership Research in Business and Health Care.” Journal of Nursing Scholarship 34 (2): 165–71. 23. Zalesnik, A. 1977. “Managers and Leaders: Are They Different?” Harvard Business Review 15 (3): 68–78. 24. Kotter, J. P. 1990. “What Leaders Really Do.” Harvard Business Review 68 (3): 103–11. 25. Ibid. 26. Ibid. 27. Berwick, D. M. 1994. “Eleven Worthy Aims for Clinical Leadership of Health System Reform.” Journal of the American Medical Association 272 (10): 797–802. 28. Galvin, R. 2005. “Interview. A Deficiency of Will and Ambition: A Conversation with Donald Berwick.” Health Affairs Web Exclusive. January 12. Available at: http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.1/DC1. Accessed August 3, 2007. 29. Freed, D. H. 2005. “Hospital Turnarounds: Agents, Approaches, Alchemy.” Health Care Manager 24: 96–118. 30. Ibid. 31. Harsdorff, C., and D. Hamel. 2005. Personal communication with the authors. 32. Campbell, A., and M. Alexander. 1997. “What’s Wrong with Strategy?” Harvard Business Review 75 (6): 42–51. 33. Schein, E. H. 1985. Organizational Culture and Leadership. San Francisco: Jossey-Bass. 34. Heifetz, R. A., and D. L. Laurie. 1997. “The Work of Leadership.” Harvard Business Review 75 (1): 124–34. 35. Collins, J. 2001. “Level 5 Leadership: The Triumph of Humility and Fierce Resolve.” Harvard Business Review 79 (1): 66–76, 67. 36. Heifetz and Laurie, 124. 37. Miller, J. 1997. “Lead, Follow, or Get out of the Way.” Hospital Material Management Quarterly 19 (1): 63–67. 38. Rhydderch, M., G. Elwyn, M. Marshall, and R. Grol. 2004. “Organizational Change Theory and the Use of Indicators in General Practice.” Quality and Safety in Health Care 13: 213–17. 39. Cohen, W. D., and M. H. Murri. 1995. “Managing the Change Process.” Journal of American Health Information Management Association 66 (6): 40, 42–44, 46–47. 40. South, S. F. 1999. “Managing Change Isn’t Good Enough.” Clinical Laboratory Management Review 13 (1): 22–26. 41. Redfern, S., and S. Christian. 2003. “Achieving Change in Health Care Practice.” Journal of Evaluation in Clinical Practice 9: 225–38. 42. Kotter, J. P. 1996. Leading Change. Boston: Harvard Business School Press, 21. 43. Hiatt, J. M., and T. J. Creasey. 2003. Change Management. Loveland, CO: Prosci Research. 44. Freiberg, K., and J. Freiberg. 1997. Nuts? Southwest Airlines’ Crazy Recipe for Business and Personal Success. New York: Bantam Doubleday Dell. 45. Kotter, J. P. 1990. “What Leaders Really Do.” Harvard Business Review 68 (3): 103–11.

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46. Higashi, T., P. G. Shekelle, et al. 2005. “Quality of Care Is Associated with Survival in Vulnerable Older Patients.” Annals of Internal Medicine 143: 274–81. 47. Ibid. See also Bradley, E. H., J. Herrin, et al. 2006. “Hospital Quality for Acute Myocardial Infarction: Correlation among Process Measures and Relationship with Short-Term Mortality.” Journal of the American Medical Association 296 (1): 72–78. 48. Libuser, C. B. 1994. “Organizational Structure and Risk Mitigation.” PhD dissertation, University of California, Los Angeles. 49. Rochlin, G. I., T. R. La Porte, and K. H. Roberts. 1987. “The Self-Designing High-Reliability Organization: Aircraft Carrier Flight Operations at Sea.” Naval War College Review 40 (4): 76–90. 50. Bigley, G. A., and K. H. Roberts. 2001. “Structuring Temporary Systems for High Reliability.” Academy of Management Journal 44: 1281–1300. 51. Roberts, K. H., V. Desai, and P. Madsen. 2006. “Reliability Enhancement and Demise at Back Bay Medical Center’s Children’s Hospital.” In Handbook of Human Factors and Ergonomics in Health Care and Patient Safety, ed. P. Carayon. Mahwah, NJ: Erlbaum. 52. Amalberti, R., Y. Auroy, D. Berwick, and P. Barach. 2005. “Five System Barriers to Achieving Ultrasafe Health Care.” Annals of Internal Medicine 142 (9): 756–64. 53. Pizzi, L. T., Goldfarb, N. I., and Nash, D. B., eds. 2001. “Promoting a Culture of Safety.” In Evidence Report/Technology Assessment No. 43, Making Health Care Safer: A Critical Analysis of Patient Safety Practices. AHRQ Publication No. 01-E058. Rockville, MD: Agency for Healthcare Research and Quality. 54. Leape, L., and D. Berwick. 2005. “Five Years after To Err Is Human: What Have We Learned?” Journal of the American Medical Association 293: 2384–90, 2384. See also Freed, D. H. 2005. “Hospital Turnarounds: Agents, Approaches, Alchemy.” Health Care Manager 24: 96–118. 55. Catlin, A., C. Cowan, S. Heffler, B. Washington, and the National Health Accounts Team. 2007. “National Health Spending in 2005: The Slowdown Continues.” Health Affairs 26 (1): 142–53. 56. Palmer, R. H. 1991. “Considerations in Defining Quality of Health Care.” In Striving for Quality in Health Care: An Inquiry into Policy and Practice, ed. R. H. Palmer, A. Donabedian, and G. J. Povar, 1–53. Ann Arbor, MI: Health Administration Press. See also Blumenthal, D., and A. C. Scheck, eds. 1995. Improving Clinical Practice: Total Quality Management and the Physician. San Francisco: Jossey-Bass. 57. Chassin, M. R., R. W. Galvin, and the National Roundtable on Health Care Quality. 1998. “The Urgent Need to Improve Health Care Quality: Institute of Medicine National Roundtable on Health Care Quality.” Journal of the American Medical Association 280: 1000–1005. 58. McGlynn, E. A., S. M. Asch, J. Adams, et al. 2003. “The Quality of Health Care Delivered to Adults in the United States.” New England Journal of Medicine 348: 2635–45. See also Coye, M. J. 2001. “No Toyotas in Healthcare: Why Medical Care Has Not Evolved to Meet Patients’ Needs.” Health Affairs 20 (6): 44–56. 59. Commonwealth Fund Commission on a High Performance Health System. 2005. A Need to Transform the U.S. Health Care System: Improving Access, Quality, and Efficiency. New York: Commonwealth Fund. 60. Leatherman, S., D. Berwick, D. Iles, et al. 2003. “The Business Case for Quality: Case Studies and an Analysis.” Health Affairs 22 (2): 17–30, 18.

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61. Davis, K., C. Schoen, and S. C. Schoenbaum. 2004. Mirror, Mirror on the Wall: Looking at the Quality of American Health Care through the Patient’s Lens. New York: Commonwealth Fund. See also Fisher, E. S., D. E. Wennberg, and T. A. Stukel. 2003. “The Implications of Regional Variation in Medicare Spending: Part I. The Context, Quality, and Accessibility of Care.” Annals of Internal Medicine 138: 273–311. 62. Safdar, N. 2005. “Clinical and Economic Consequences of VentilatorAssociated Pneumonia: A Systematic Review.” Critical Care Medicine 33 (10): 2184–93. 63. Centers for Medicare and Medicaid Services. 2005. “Medicare ‘Pay for Performance (P4P)’ Initiatives.” Press release, January 31. Baltimore, MD. Available at: http://www.cms.hhs.gov/apps/media/press/release.asp?Counter=1343. Accessed December 18, 2006. 64. Deming. 65. Leape, L., and D. Berwick. 2005. “Five Years after To Err Is Human: What Have We Learned?” Journal of the American Medical Association 293: 2384–90, 2387.

CHAPTER 4

Adapting Proven Aviation Safety Tools to Healthcare: Improving Healthcare by Changing the Safety Culture Jack Barker and Greg Madonna

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t about 6:15 P.M. Pacific standard time on December 28, 1978, United Airlines flight 173 crashed into a wooded, populated area, killing 8 passengers and 2 crew members and seriously injuring 21 passengers and 2 other crew members. The National Transportation Safety Board (NTSB) determined that the probable cause of the accident was the failure of the captain to monitor properly the aircraft’s fuel state and to properly respond to the low fuel state and the crew members’ advisories regarding fuel state. This resulted in fuel exhaustion to all engines. Contributing to the accident was the failure of the other two flight crew members to fully comprehend the criticality of the fuel state or to successfully communicate their concern to the captain. The NTSB believes that this accident exemplifies a recurring problem: a breakdown in cockpit management and teamwork during a situation involving malfunctions of aircraft systems in flight.1

HISTORY OF AVIATION SAFETY CULTURE CHANGE Flying has always been a high-risk endeavor. In the early days of aviation, airplanes would frequently crash because of a sheer lack of understanding of aeronautics as well as because of technological limitations. Engineering technology such as metallurgy of aircraft materials, as well as operational technology such as navigation and meteorology, was in its infancy. Airplanes would often fly into conditions that overwhelmed their performance capabilities and crash or literally fly off never to be heard from again. As commercial aviation matured in the post–World War II years, there were an alarming number of aircraft accidents. Airplanes were becoming more reliable, yet the number of fatalities grew exponentially. Aviation safety developed into

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a science, and researchers found increasing evidence that human factors played a major role in causing accidents. After several costly and preventable high-profile crashes in the 1970s, the science of Crew Resource Management (CRM) was developed to provide solutions to the human aspect of aviation safety.2 CRM is a system that teaches teams to make optimum use of all available resources— equipment, procedures, and people—to promote safety and enhance the efficiency of flight operations. Large commercial aircraft have multiple crew members, and this fact presented a perplexing phenomenon: In aviation, analyses of aircraft accidents and incidents indicate that the majority of civilian accidents result from failures in crew coordination and that lack of technical proficiency, equipment problems, and environmental factors such as severe weather are of secondary importance.3

Why would more than one pilot in the same cockpit all agree to a decision, which would ultimately lead to their doom? The answer to this question was not clear. In many of the accidents, it was found that at least one member of the crew knew something of the situation was going awry but failed to effectively communicate it to the captain. Because of professional cultural pressures and a hierarchal societal structure, subordinate crew members were hesitant in probing a questionable decision made by the much more senior captain or, worse yet, failing to point out an error. As the result of numerous aircraft accidents not related to mechanical failures, United Airlines developed and instituted the first CRM program in 1979 integrated with their ongoing simulator training.4 They used a novel training concept called line-oriented flight training (LOFT) that involved a complete mission without interruption during simulator training. Previous training was focused more on the individual pilots’ technical skills and their ability to effectively deal with many different contingencies that at times became unrealistic. The LOFT scenarios were realistic and required the crew to work as a team to complete the missions safely. It was recognized that checking for technical skills alone in the simulator was not a guarantee of safety in the real-world environment. LOFT scenarios created subtle problems that required pilots to work as a team in order to successfully reach a safe conclusion to the flight. These scenarios were modeled after actual incidents that, depending on the crew’s teamwork and decision making, could result in either a safe landing or a catastrophe. The scenarios allowed for either result, which was entirely up to the crew. This enabled the crews to utilize their newly developed CRM skills and, moreover, see the consequences of successfully using CRM skills. Initially, CRM was met with resistance from financially conscious managements and even more so from old-school captains who resented the concept, or rather misconception, of having to bring others into the decision-making process.5, 6 CRM was born out of the necessity to establish clear channels of communication among the crew members. The human-factor mistakes they were making were costly. Ultimately, the correctness of teamwork, collaborative decision making, and CRM was recognized by the Federal Aviation Administration (FAA) and

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became mandated for the entire industry. Since the inception of CRM, aviation accidents have decreased.7 Air travel, as we know it today, has become the safest mode of transportation as a result of changing the culture of safety.

DOES CRM WORK? The aviation industry has dedicated training resources to safety programs and in particular CRM. The question remains, “Does CRM decrease errors and reduce accidents?” Airline accidents are an infrequent event, with only 2.6 accidents per 1 million flight hours occurring in 20017 and therefore make for criteria that are difficult to study via the scientific method. Controlled studies such as implementing CRM at airline X and not at airline Y and comparing their accident rates a few years later go against FAA regulations. We are left with anecdotal evidence that CRM initiatives improve safety. Figure 4.18 summarizes the impact of CRM training on accidents by several flying organizations. A significant reduction in accidents occurred in these disparate organizations following CRM training. Additionally, since United Airlines began CRM training, it has not experienced any crew-caused accidents. The NTSB report on the United Airlines DC-10 that crashed-landed in Sioux City, Iowa, in 1989 stated that the flight crew interactions were “[i]ndicative of the value of Cockpit Resource Management Training.”8, 9

CONTINUED CRM TRAINING Figure 4.2 illustrates an important consideration for organizations that attempt to change their safety culture utilizing CRM concepts. The U.S. Army

Figure 4.1 Impact of Various CRM Training Programs on Accidents

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Figure 4.2 Army Aviation Accidents by Year, 1993–1999

From Grubb, Gary, John C. Morey, and Robert Simon. 2001. “Sustaining and Advancing Performance Improvements Achieved by Crew Resource Management Training.” In Proceedings of the 11th International Symposium on Aviation Psychology. Columbus: Ohio State University, 4. Used with permission.

initiated their CRM training called Aircrew Coordination Training (ACT) in 1994 for both their fixed-wing aircraft and helicopters. This program included only a one-time training event with no continuation or refresher training. The following year’s results showed a significant decrease in overall accident rates. By 1999, however, the accident rates had increased back to baseline. Therefore, any attempt to use CRM training should contain a comprehensive plan to reinforce and build on the initial training.10

RELEVANCE TO HEALTHCARE Since the mid-1990s, there have been several attempts to adapt aviation safety practices, including some aspects of CRM, to healthcare. One of the first programs involved team-based collaborative rounds at Concord Hospital in Concord, New Hampshire.11 The results of this program included a 50 percent decrease in mortality rates for cardiac surgery patients, patient satisfaction rates above the 97th percentile nationally, and an increase in provider quality of work life. Another study found that teams practicing good leadership and team skills learned new procedures faster than other teams.12 At Johns Hopkins, average length of patient stay in the intensive care unit was reduced by one day by improving communication through the use of daily patient goals.13 Beth Israel Deaconess Medical Center in Boston, Massachusetts, had a 53 percent reduction in adverse events for their obstetrics department following team training.14 The following case presentation illustrates how aviation safety tools can be implemented in a healthcare setting and some of the expected results.

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Case Presentation and Analysis The following case and analysis is used with permission from Health Administration Press: Kenneth H. Cohn and Jack Barker, “Improving Communication, Collaboration, and Safety Using Crew Resource Management,” in Collaborate for Success! Breakthrough Strategies for Engaging Physicians, Nurses, and Hospital Executives by Kenneth H. Cohn (Chicago: Health Administration Press, 2006), 35–40. Leaders of a northeastern otolaryngology department selected a CRM approach to improve communication and teamwork in their department of more than 150 surgeons, nurses, audiologists, psychologists, office staff, and physician assistants. The metrics that they sought to improve included throughput, patient and worker satisfaction, and safety culture perception, measured by the Agency for Healthcare and Research Quality (AHRQ) safety climate survey.15 Everyone in the department completed the survey, which surveyed agreement with statements such as, “I would feel safe being treated here as a patient.” Survey data provided a baseline measurement of the organization’s safety culture. The survey was repeated at the end of program implementation to determine the efficacy of the interventions. Only 69 percent of the survey respondents initially viewed the safety climate in the department as positive. Approximately 10 percent of the department was interviewed to identify core issues that surfaced in the survey data, such as teamwork challenges, disagreement on sedation procedures, and management of clinical protocol violations. Teams were observed so that training could be tailored to departmental strengths and weaknesses. All personnel attended a one-day CRM seminar that explained basic error management, teamwork, and leadership concepts and that used role-play and discussion to reinforce these concepts. Participants used in-house case examples to demonstrate how to improve teamwork. One commented enthusiastically, “I have worked in healthcare for over 20 years and have never spent this much time with a surgeon. . . . [N]ow I understand better my role in patient care and how to work more collaboratively with others on our team.” After the seminar, a senior surgeon exclaimed, “I have never seen a group of people in healthcare so enthusiastic over a training program.” Over a period of several months, follow-up included more comprehensive workshops providing information on communication, collaboration, leadership, workload management, and conflict resolution. Trained observers watched teams in action and provided oral and written debriefs to enhance participants’ ability to employ newly acquired skills. Selected participants took additional training to become resident CRM experts, to nurture desired behaviors in their department, and to begin a hospital-wide training program. After approximately a year of CRM training, the percentage of survey participants who felt that their department had a positive safety climate increased from 69 percent to 91 percent. As a result of improved collaboration and service quality, patient volume increased from 17,000 to 18,355 in one year, resulting in a 30 percent increase in revenue. Referring physicians rated the department as one

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of the best services in the hospital, and practice administrators who were initially skeptical became advocates for extending the program.

Case Analysis CRM training helps people feel more comfortable about intervening in patient safety matters despite perceived differences in status. An audiologist commented, “Before the CRM training, I would have minded my own business, but I overheard two anesthesiologists discussing dosage and realized they were about to overdose an infant. I decided to speak out as my CRM training taught me, and I know I saved that baby’s life.” The formal and informal mechanisms specified in the six steps of implementation allow people to train and become confident in approaching patient care in a systematic way that heightens communication, improves teamwork, and reduces the risk of error. Most programs begin after leaders attend conferences or read about CRM in the medical literature. For some institutions, a sentinel event provides the motivation to change, as with aviation during the twentieth century. The six phases of CRM training include organizational assessment, team training, targeted workshops, facilitated debriefs, coaching, and outcomes assessment.

CRM PROGRAM IMPLEMENTATION Phase 1: Organizational Assessment The purpose of this phase is to understand the organizational culture, obtain buy-in from leaders and staff, and agree on metrics that define success, such as patient throughput, satisfaction scores, and clinical and financial outcomes. Participants answer the AHRQ safety perception questionnaire, as described in the case history. The data from questionnaires help define team issues that are unique to each organization. The organizational assessment phase is an opportunity to determine the organizational strengths and weaknesses that will influence the design of the next phase. Organizational assessment also allows leaders to gauge readiness to undergo cultural change.

Phase 2: CRM Team Training The goal of this phase is to introduce the concepts of CRM and specific aviation safety tools, such as briefing, debriefing, and recognition and handling of adverse situations. All personnel participate in an interactive seminar that lasts approximately six hours, as outlined in sidebar 1. Medical error studies and examples of medical successes achieved through CRM help overcome initial skepticism that CRM is a fad. The goal of having everyone present is to stimulate dialogue and reduce the influence of hierarchy in multidisciplinary processes that affect patient safety.

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Sidebar 1: CRM Seminar Outline • Rationale • History of CRM • Principles of CRM communication (improving safety by enhancing skill sets in decision making, performance feedback, cross-checking and communication, creating and managing teams, recognizing adverse situations, and managing fatigue) • Error chains • Workload management • Recognition of adverse situations (red flags) • Role of briefing and debriefing sessions

Phase 3: Targeted Workshops In this phase, participants build on insights learned during the survey and seminar. The purpose of this phase is to continue the cultural change toward a more teamwork-oriented and safety-conscious organization and address specific unit CRM needs. These two- to four-hour workshops are generally conducted in smaller groups of 10 to 15 people. Typical workshops cover communication strategies, conflict management, checklist design, and leadership development. These workshops become a permanent part of the organization’s CRM curriculum, repeated as necessary.

Phase 4: Facilitated Debriefs The goal of this phase is to observe teams in action and provide feedback to team members and the organization. Briefing and debriefing sessions also can be conducted in association with simulated activities. Briefings clarify who will be leading the team, prepare the team for the flow of the procedure, delineate expectations, and provide opportunities to discuss potential contingency plans.16 Healthcare team briefings and debriefings take little time to perform, help build shared team mental models, and reduce errors, when performed as indicated in sidebars 2 and 3.8, 17

Sidebar 2: Healthcare Team Briefing Format • Write out team member names. • Clarify team member roles and responsibilities and state expected outcome. • Obtain consensus on task to be performed. • Promote open communication. • Encourage team members to ask questions to clear up ambiguities.

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• Ask team members to please speak up if uncomfortable with any aspect of a task. • Identify potential problems. • Brief team regarding contingencies for potential problems. • End with, “Any Questions?”

Sidebar 3: Debriefing Format • Review. • What went well? • Preferences for amendment based on what could have gone better. • Team’s communication processes and outcomes. • Ability of team to share the same mental model. • Focus on team, not individual, issues. • End with, “What did we learn to improve individual and team performance next time?”

Phase 5: CRM Coaching The purpose of ongoing coaching is to sustain momentum and help teams overcome obstacles. Research in both aviation and healthcare indicates that an organization will revert to old habits if no one reinforces organizational change.8 After implementation of CRM training in 1994, the U.S. Army realized a 50 percent reduction in accidents. Without ongoing training and coaching, however, the accident rate reverted to preintervention rates within five years.10 Individual coaching for key leaders and change agents provides the skill set to nurture desired CRM behaviors and embed change throughout organizations.

Phase 6: Outcomes and Assessments The goal of this phase is to determine the efficacy of the cultural change process using a pretest and posttest model. Results from this phase are used to update and make appropriate changes to the CRM program. The initial program will last 12 to 18 months, depending on organizational size and complexity. True cultural change takes longer, however, and requires ongoing training and feedback, as discussed in Phase 5.

UNIQUE CHALLENGES OF APPLYING CRM TO HEALTHCARE Adapting aviation safety programs to healthcare requires an understanding of the differences between the professions. Organizations such as the FAA

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develop and enforce aviation regulations, and the NTSB investigates accidents. Furthermore, in aviation, the Aviation Safety Reporting System (ASRS) reports near misses and errors that impact safety. Widespread use of medical guidelines and acceptance of a process for reporting all medical errors that are not subject to legal discovery have not yet occurred.18 Examples of teamwork failure in medical settings include failures to brief teams of plans for operation, speak out regarding potential work overload or patient concerns, discuss alternatives and advocate a course of action, establish leadership and resolve conflicts, debrief actions after performing procedures, and provide adequate team training and supervision for residents and other new healthcare professionals.19 Barriers to implementing healthcare CRM training include: • • • •

A blaming culture. Lack of sustained leadership. Limited physician engagement. Inadequate funding of safety initiatives.

The trade-offs between safety and productivity create a dynamic tension in a profession that celebrates autonomy. Healthcare professionals face difficult transitions in changing their status from craftsmen to people who value safety and interchangeability.20

OVERVIEW OF SAFETY TOOLS THAT HELPED CHANGE AVIATION SAFETY CULTURE CRM became the cornerstone of most aviation organizations, including the military safety programs during the 1980s. Other aviation safety tools have been developed in conjunction with CRM or as a result of information learned following a major accident. These include checklists, briefings and debriefings, standard operating procedures (SOPs), error-reporting systems, simulation and line observation safety audits (LOSAs). The combination of CRM and effectively using all other aviation tools has helped make aviation one of the safest industries.4, 21 Next we will describe in depth these aviation safety tools.

Crew Resource Management CRM is a process for improving safety by enhancing skill sets in decision making, performance feedback, cross-checking and communication, creating and managing teams, recognizing adverse situations (red flags), and managing fatigue.8, 22 The goal of CRM is to complete a mission safely and efficiently by utilizing all available resources. This leads to accurate, effective decision making by providing the key decision maker with all inputs. Most CRM training programs incorporate the following principles: command, leadership, resource management, workload management, situational awareness, and decision making.23 Our discussion of these concepts will include both aviation and healthcare examples.

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Command Before we discuss leadership, we address a closely related but significantly different concept: command. We discuss the concept of command first to dispel any misconceptions that CRM weakens the final decision maker’s authority. An individual takes command whenever exercising the formal duties of a team leader. So, although CRM does empower all team members to offer their input, the final judgment call remains the prerogative of only one individual. Command involves a governing authority granting an individual the power to exercise authority in a formal and, oftentimes, impersonal way. Command is prevalently addressed in military, aviation, and some business circles, but it is infrequently discussed in the healthcare setting. However, the mere anointing as the one in command does not automatically ensure that the person so selected will be good at it. It requires formal, stand-alone training, coaching, and follow-up. Because many different specialties often collaborate on a case, it is common for people of equal rank to compete for final authority. If a team or an organization can formalize who is in command for any given procedure, however, more effective teamwork is possible. Compared to an intensive care unit, the operating room or a cardiac catheterization laboratory are environments in which it is much more evident who will be in command. Nonetheless, that individual selected to command the procedure must still serve as a good leader by adhering to the behaviors described in the following section on leadership. Even in less formal settings, it is still important for one person to be designated as “in command.” Good teamwork is not anarchy; it is not even democracy, “one man, one vote.” It is the effective coordination of everyone’s insights and efforts by the person in command. Once the leader chooses a course of action, his or her next responsibility is to get the team to rally around the decision. At the same time, individuals who take command in team situations also must be willing to assume responsibility and accountability for their team’s actions. The team should view them as the final authority, and they should ensure that all of the colleagues’ efforts are coordinated to provide maximum efficacy. Often team processes break down as a result of nobody being formally in charge of the situation, as in the care of patients with multiple comorbid conditions or the designated commander not fulfilling his or her responsibility. Again, no direct parallel exists in healthcare, but the federal regulations and company manuals that apply to aviation all state unequivocally that the captain is in command and is responsible for the safety of the passengers, crew, cargo, and aircraft. The captain is accountable for every aspect of a flight. Although we encourage maximum collaboration, for a team to operate effectively there must be one, and only one, final decision maker.

Leadership Leadership is the most complex principle of CRM because individuals do not realize that everyone involved in patient care has a leadership role. Leadership is

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defined by the commander’s willingness to let team members exercise their rights and responsibilities to ensure a safe and positive outcome. Although there can be only one commander, anyone on the team can exhibit leadership. Leadership is both a right and a responsibility. Team members may have a right to speak up, but they also have a responsibility to do so—a responsibility to the patient, to fellow team members, and to their own conscience. In our classrooms, we hear from senior surgeons that they often hold their tongue regarding a colleague in the interest of professional courtesy. Team training is designed not to create a perfect world but to improve synergy in an imperfect world. To reduce errors, different individuals will need to be share information with team members to improve outcomes. Leaders promote and maintain a team climate that is conducive to open communication. Leadership means that: (1) individual team members have a right and responsibility to voice their opinions and concerns and (2) the formally designated team leader must create such an environment. Encouraging and promoting teamwork does not weaken the respect for whoever is in command. Helmreich and Merritt19 showed that pilots in command who exhibited collaborative leadership styles engendered far more professional respect than those who did not. Indeed, our experience suggests that those who encourage teamwork engender higher levels of respect among peers.24

Leadership Characteristics Teams that have effective leadership are distinguished by the following characteristics: a positive team climate, briefings, and professionalism. A good leader fosters a positive team climate that allows for a free and synergistic exchange of ideas. Think about the different teams on which you have served. How did the teams with a positive climate differ from those with a poor climate? Which ones functioned better? Healthcare research shows that positive team climate can speed up team learning for new procedures.12 Ginnett25 showed that the long-term outcome of a team’s performance could be determined within their first 90 seconds together. A team with a leader who gathers the team together to discuss the procedure beforehand generally performed better than a team that skipped the preflight briefing. Briefings allow the team to review the case and set expectations. They also include discussion of contingency plans in the event of complications. Ginnett’s study also showed that teams that conducted briefings performed better when faced with an unexpected situation, even if the contingency plan discussed was not the one actually used. Time-outs are already used in the operating room, but we recommend taking this process one step further and expanding them into more comprehensive briefings. A briefing does not have to be exhaustive. An exchange of first names, a brief synopsis of the case, and anticipated outcomes in both normal conditions and abnormal conditions are all that are necessary. People respect strength and humanity. It is a very powerful combination, and briefings provide an opportunity for the person in command to project these traits. A study at Concord Hospital

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in Concord, New Hampshire, showed that briefings were either time neutral or even saved time because of better understanding of expectations.11 Briefings are an effective means of building loyal, highly functioning teams, and they establish the attending surgeon as the leader. Leadership is also defined by professionalism. Interestingly, the first definition of a profession in the dictionary centers on the act of taking of vows in a religious community. Like religious leaders, professionals in other fields typically have high regard for their calling and will strive to meet the toughest standards. Although it is important that we have these expectations of ourselves, leaders also seek to draw excellence from their team members.

Communication Communication is the single most important component of CRM. A pilot or doctor can have the best technical skills, finely tuned situational awareness (i.e., understanding what is happening in the external environment), advanced equipment, and excellent decision-making abilities, but without the ability to communicate effectively, all other attributes are diminished. Communication is the glue that holds teams together. When high-performance teams interact effectively, everything else falls into place. Conversely, teams that fail to communicate have suboptimal outcomes. Communication in CRM involves the effective and timely exchange of ideas, information, and instruction. Such interactions ensure that messages are clearly received and understood, are two-way, and are of benefit to both parties. The exchange must occur in a timely and effective way to ensure a positive outcome. For example, if during a deep-lobe parotidectomy for a recurrent tumor the assistant notices that the surgeon is about to cut a main branch of the facial nerve, she should issue an assertive and confident warning to prevent the patient suffering facial paralysis. Saying, “Stop. I believe that is a branch of the facial nerve,” would be more effective than saying, “Shouldn’t we be trying to identify the branches of the nerve?” Many accidents in aviation and healthcare occur because the communication is not sufficiently direct to change behavior.

Inquiry Team members need to be sensitive to the information that is being relayed. Not all are effective advocates of their position. An effective communicator will understand that good communication involves being receptive and seeking meaning. For instance, in the previous example of the parotidectomy, a surgeon who is an effective communicator, upon hearing the vague statement, “Shouldn’t we be trying to identify the branches of the nerve,” would be hearing alarm bells and ask, “What are you trying to tell me?” or “Are you seeing something I’m not?” Inquiry is an open process to foster the exchange of ideas.26

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Advocacy Advocacy is the ability to offer information in a way that is tactful, timely, and effective, ensuring that a free flow of information will continue. Inquiry and advocacy are both used to develop a shared mental model of a situation. They differ in that inquiry utilizes questions to understand someone else’s mental model and advocacy uses statements to share our mental model of the situation with someone else.

The Assertiveness Continuum Advocacy must be accomplished in a respectful way. Assertiveness is a learned skill and must be practiced. People may make their point in a passive way, thinking they may be inoffensive, but passivity is inefficient and leads to suboptimal outcomes. Asking a tentative question at a critical moment is putting too much responsibility for the receiver to correctly interpret the intent. Aggressiveness is at the other end of the assertiveness continuum and also has problems. Saying something like “HEY STUPID! STOP!” raises barriers and limits future communication. Properly assertive behavior is respectful but also aware of the criticality of the moment. It is properly assertive to exclaim “WAIT! STOP!” if an irreversible mistake is imminent. Properly assertive behavior adjusts the sense of urgency and volume accordingly. CRM training is designed to help people know the difference.

Timeliness Many a time as a copilot, we have sat in the cockpit not saying anything, exchanging glances with other crew members and watching the captain go down a questionable path. Error chains that lead to an accident usually take some time to play themselves out. Advocating a concern should be done as soon as possible, before it becomes a crisis, and early enough so that measures can be taken place to counter the initial error that do not interfere with teamwork and camaraderie. If a problem is not identified in a timely manner, then often it is either too late to correct the error or the error can only be avoided or mitigated by crisis measures. Even if a person is unsure, he or she should voice his or her uneasiness. This can facilitate good communication, helping the team understand the problem.

Effectiveness Effective advocacy requires one to succinctly state information to others. Indirect communication is not effective when advocating. In both aviation and healthcare mishaps, indirect or poor communications have been a causal factor in the mishap. If you see the problem clearly, then state it. Be assertive. Be polite, but be assertive. Effective advocacy relates to leadership that if you are aware of some

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information that can improve patient safety, you have both the right and the responsibility to speak up and communicate clearly, assertively, and respectfully.

Barriers Barriers to effective communication can be physical or interpersonal. Common physical barriers are physical distance, facing away from one another while at respective stations, surgical masks, and the inability to read nonverbal clues. Interpersonal and environmental barriers are more subtle and therefore more dangerous. These barriers include fatigue, stress, cultural differences (both corporate and national cultures), status differences, age, and gender. These barriers are overcome by emphasis on protocols, checklists, team briefings, leadership, and a strong team dynamic. Overcoming these barriers creates an environment of psychological safety for the team that can improve performance.12

Situational Awareness Situational awareness (SA) is an understanding of what is happening in the external environment. To achieve optimal SA, everyone on the team must remain attentive and continually seek out information. If one is unaware or has incomplete understanding of the situation, the team member cannot make effective decisions. No one is omniscient. An effective leader relies on the team to promote SA through effective communication about what is occurring. An effective team will support one another by cross-checking information and admitting when team members are confused about the situation. Complacency leads to a loss of SA and team effectiveness. A key to SA is judgment from reviewing the past and using that knowledge to draw conclusions about the present scenario. Individuals who have good SA go on to monitor the current circumstances, accurately predict what is likely to happen next, and prepare the team for the anticipated outcome. One never knows exactly when one begins losing SA. One usually comes to the realization of something being amiss well after the error chain has progressed into a dangerous spiral of decreasing SA and increasing mistakes. The best way to prevent loss of SA is by adhering to protocols and having a strong team and cross-checking work as it progresses.

Workload Management Workload management involves organizing tasks in such a way that tasks are distributed equitably among team members. An effective team is ready for contingencies and prevents individuals from becoming overwhelmed while others have fewer tasks. Effective team leaders plan the work and work the plan. A comprehensive briefing before a procedure ensures that everyone is doing the right job at the right time. Effective communication and SA throughout the procedure allow

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everyone to stay on task. Effective leaders also know how to delegate to make certain neither they nor anyone else on the team is overtaxed. When people become overloaded, important work may get missed and people may become fixated on one particular thing and begin losing overall SA. One of the greatest detriments to effective workload management is people’s reluctance to speak up when overloaded. In both the aviation and healthcare environments, people do not want to appear as incompetent and, therefore, are hesitant to show weakness. A positive team climate can reduce this resistance and improve the team’s overall workload management.

Resource Management Resource management is the optimal use of all assistance available to the team. Resources include supplies, equipment, training, and individual and group expertise. Like workload management, resource management calls for making maximal use of what is available to create a positive outcome. During the preprocedure briefing, the team should spend time discussing potential needs and identifying the resources available to satisfy those demands. If a resource is not immediately available, the team should determine how to access it. The team leader should think ahead about which resources will be of greatest necessity and make sure that the people using supplies and equipment understand their functions and how to use them.

Decision Making Decision making is the process of determining and implementing a course of action and evaluating the outcome. If communication is the glue that holds a team together, good decision making is the desired end product of healthcare team training. There are three approaches to decision making, each of which has its place and its advantages and disadvantages: • Collaborative: The method under which every person has a say. The goal is to reach team consensus. This process takes time and should be avoided if the situation requires a quick decision. • Unilateral: One person makes the decisions. This method is fast and effective, but problems arise when team members are not fully trained to step in should something prevent the leader from completing the mission; over time, it inhibits group cohesion, creativity, and ownership. In the unilateral model, effective teamwork begins to break down. • Consultative: The leader establishes a collegial rapport with the team members and captures their collective wisdom. The leader must know when and how to stop gathering data and avoid letting perfection be the enemy of good.

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Ultimately, we have found that the consultative approach is most effective in coordinating high-performance teams of intelligent, skilled professionals.

CRM Training Now that we have explained the basic concepts of CRM, we will discuss how to integrate these principles in a typical training program. Most training programs incorporate the CRM principles explained earlier along with other aspects of team training. These other areas may include understanding error chains and how to break them, stress management, understanding and learning to control hazardous attitudes and behaviors, risk management,8 and interpersonal skills.27 The training methods used for CRM training include didactic instruction, role-playing, case studies, and simulation.28 There is a wide variation among both aviation and healthcare CRM programs. This variation is important so that team-training programs can be customized to the organization’s culture. Many organizations are performing some components of teamwork well, and training should build upon what is working well to minimize resistance to learning. A one-day healthcare CRM training program might include the following modules: • • • • • • • • • •

Motivation/introduction: Identify the need for team training. CRM history: How the safety culture in aviation changed. Principles of healthcare team training. Error chains: Define and understand how to break error chains. Communication: Understand tools and barriers to effective communication. Leadership. Situational awareness. Workload management. Briefing and debriefing. Summary.

Checklists Checklists are communication tools that ensure attention to mission-critical items that need to get done. For the most safety-critical items, the concept of dual concurrence is used. Two people must independently verify an item is completed to satisfaction and report that fact to each other. The person charged with completing an item does it and subsequently the item is verified completed by the checklist. Checklists open a two-way flow of communication between the team leader and members. Most checklists use the challenge-and-response method. Typically, junior team members are charged with the responsibility of challenging the team leader, and the team leader or other appropriate person replies that the item is completed to satisfaction. This allows junior members a system-designed way of questioning a

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leader without making a personal affront or seeming insubordinate. The following is an example of a checklist that would be used before an operation:

Checklist Challenge

Reply

Attending physician confirmed Patient name and procedure Operative site verified Lab data Informed consent form Family counseling Operator personal factors Team briefing

I am Dr. Smith and I am the attending Ms. Jones for a LEFT hip replacement Verified Reviewed Completed Completed Briefed and noted Completed

If the proper response is not given, the junior team member is given a systemdesigned way to challenge the response and ensure that it is completed correctly. In the previous example, the team member reading the checklist challenge also has the responsibility to check to see if, in fact, the reply is correct or has been done satisfactorily. It is this dual concurrence that is another system design used to catch any errors by the person replying. Checklists are an aid to reducing errors, but even the best checklist is useless if it is not used. Many individuals might refuse to use a checklist or only partially follow the checklist because they feel they do not need it.29 An organization with a mature safety culture mandates that checklists are used all the times and followed completely. The experience in aviation is that a complacent safety culture that leaves the checklist unused is the culture more prone to error.7

Briefings and Debriefings According to J. Richard Hackman, in his book Leading Teams: Ginnett observed this inability (or unwillingness) to self-correct among those captains in his study who had been nominated by their peers as marginal team leaders. Although there was as much variation in briefing style among the marginal captains as among those who were viewed as excellent team leaders, there were two major differences between the two groups. First, no matter what style they used in conducting their crew briefings, the marginal captains failed to establish the conditions needed for a good team launch. Second, all of them, again in their own ways, exhibited significant problems with control that made it nearly impossible for them to use their experiences to become more effective. Some of these captains were persistently overcontrolling, not asking for input from other team members and ignoring or diverting any suggestions that members did manage to make. Others were persistently undercontrolling, so

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democratic or laissez-faire in conducting their briefings that crew members were left uncertain about how the team was supposed to operate. Worst of all were captains who vacillated between overcontrolling and undercontrolling in ways and at times that could not be anticipated, which in some cases nearly incapacitated team members in carrying out their own parts of the work. Ginnett’s observations documented that even though these captains’ briefings did not go well, they either did not recognize the dysfunctional effects of their style or they were unable (or unwilling) to alter it. How they led was how they led, no matter what consequences ensued.30

Briefings are a powerful skill in building a team dynamic that will allow different types of people to work together during normal duties and unexpected when unexpected problems arise. Briefings: 1. Establish the leader of the team, so that other team members know whom to look to for guidance. 2. Open lines of communication among team members to take advantage of team members’ knowledge. They set the tone for the upcoming procedure. Protocols are discussed, and learning is reinforced. Responsibilities and expected behaviors are discussed. Misconceptions can be cleared up before they interfere with the accomplishment of the mission. 3. Prepare the team to better understand what is expected to happen and when in the flow of the procedure. 4. Discuss possible contingencies and how to deal with those contingencies. Teams that discuss potential problems ahead of time perform better even when an unexpected, unbriefed problem occurs because briefings create a culture within the team that facilitates exchange of communication and ideas.25 In aviation, briefings are conducted at different times among teams and subteams. Upon arrival at the airplane, the pilots and flight attendants discuss issues such as potential delays, turbulence, and security issues. Before takeoff, the pilots and flight attendants, separately, discuss issues specific to their duties. Whenever a new crew member enters the dynamic, that person is briefed, so she fully understands the situation solidifying her place on the team. Healthcare team briefings should be used during critical junctures of a patient’s care, such as prior to the start of any procedure, handoffs, change in patient status, or discharge. In summary, briefings are effective in creating a strong team. They open lines of communication. They allow everyone on the team to know his or her role on the team, understand the procedure, and clear up misconceptions. They can prevent errors due to misconceptions long before the misunderstanding becomes critical.

Standard Operating Procedures Standard operating procedures (SOPs) are the so-called painted lines of teamwork. The painted lines a driver sees that delineate individual lanes were designed

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by traffic engineers to give drivers the safest path to a destination. So it is with SOPs in a particular operation. Engineers, researchers, and analysts have studied the data and have come up with procedures and best practices to give the best possible outcome. When we follow SOPs, we achieve success more often then when we do not use a proven system.29,31 Do SOPs require slavish and rote movement? Absolutely not. As tacticians practicing in the real world every day, we are still expected to draw on all our knowledge, expertise, and judgment, but following SOPs makes our lives easier. We follow a well-delineated path, reserving our limited cognitive resources to coordinate the efforts of our team and resolve contingencies. An additional and very important benefit of SOPs is that the entire team is expected to follow these well-defined procedures. Everyone has a well-defined expectation so that when a person deviates from the expected path and ventures into potentially unsafe territory, others can note the protocol violation and be able to advocate a return to the expected SOP.

Error Reporting Systems Adverse events do not happen without warning. Usually, a series of errors lead up to the event. Referred to colloquially as “the holes in the Swiss cheese lining up,” this concept applies at the individual level and at the macro level.32 Error reporting systems are nonpunitive mechanisms that allow for the identification of undesirable trends or safety problems visible only to those at the front line. In aviation, these reports go to a committee comprised of FAA inspectors and members of airlines and union safety committees. The system is nonpunitive as long as people self-disclose and the error was unintentional; there has been a tremendous amount of valuable data that has resulted from this system. If trends are recognized and dealt with, an accident can be averted. For example, in the late 1980s, United Airlines noticed a trend of airplanes making navigational errors at night or in bad weather and coming dangerously close to mountains while descending into airports. They changed their navigation protocols and saw the trend recede. Another airline noticed the same trend but took no action and lost two airplanes over the next five years due to collision with high terrain. In a more recent example, trend monitoring over the past few years predicted that the next major accident would involve a runway intrusion. The recent Comair crash in Lexington, Kentucky, in July 2006 was an instance of the pilot losing situational awareness while taxiing, being confused about the runway assignment and position on the airport, and taking off on the incorrect and too-short runway.33

Simulation Aviation has been using simulators since the mid-1950s. At first, they were used to practice crisis-type emergencies that were too dangerous to do in the airplane, such as engine failure or a tire failure on landing. Since the early 1990s, they have been used to train and evaluate leadership skills. Oftentimes, training and

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check rides will consist of virtually normal flight, so that the crew can learn how to work together in normal environments, deal with small problems, and learn how to stop them before they turn into a crisis.

Line Observation Safety Audits (LOSAs) In line observation safety audits (LOSAs), neutral third-party observers ride in the cockpit and observe the crews for compliance with protocols and any dangerous trends. Because major accidents are a rare event (see figure 4.3), they are only the tip of the iceberg. Organizations that commit more errors than others are more likely to have a catastrophic event. By analyzing the LOSA data, an organization can make system changes to avert major events.34

Research Questions Although we have mentioned several successes involving healthcare organizations adapting aviation safety tools and concepts, many unanswered questions remain. What are the specific tools, and how should they be implemented in a healthcare system? Are there any interventions that might induce system errors? Often in healthcare we find institutional changes that are meant to reduce errors actually increase errors in unexpected ways by distracting professionals from established routines.35 Previously in this chapter, we discussed how a one-time team training intervention may cause some initial outcome improvements, but without any follow-up or continuation training the effect will diminish over time.17 What type and frequency of continuation training will maintain and improve an organization’s safety culture?

Figure 4.3 Accidents Are Only the Tip of the Iceberg

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CONCLUSION Many authorities have suggested aviation safety concepts can help reduce errors.17,36 In the 1970s, the aviation industry realized that technical proficiency alone could not prevent accidents. Mishap investigations suggested that a breakdown in communication and teamwork was a causal factor in many accidents. Aviation embarked on a quest to change its culture of safety by implementing CRM programs, improving checklists and standard operating procedures, implementing safety-reporting systems, and continuously developing aviation safety tools. Autocratic behaviors in the cockpit that were considered acceptable, even lauded, twenty years ago would now make one an outcast among peers. Today, even the most hardened, grizzled veteran would say, without equivocation, that these modern human behavior standards, despite the initial cultural and sometimes visceral resistance, have made aviation a more progressive and safer industry. The culture of safety has changed in aviation. Multiple healthcare organizations have implemented aviation safety concepts with successful outcomes. The safety culture of our medical community is often equated to the safety culture that existed prior to CRM’s introduction to aviation. It has been almost thirty years since the first CRM programs were developed and implemented in the airlines. The process of culture change is difficult and requires time. The medical community has begun the long process of changing its safety culture, which may take decades to complete.

Key Concepts • Aviation successfully changed its culture of safety by developing and implementing Crew Resource Management (CRM) programs and other aviation safety tools. • CRM and selected aviation safety tools have been successfully adapted to healthcare, demonstrating potential for improving outcomes by building a culture that emphasizes safety. • Effective communication pays dividends in many areas of healthcare by: • Improving outcome and cutting expenses associated with preventable medical errors. • Facilitating recruitment, retention, and competitive positioning.

REFERENCES 1. National Transportation Safety Board. 1979. Aircraft Accident Report No. AAR79–7. Washington, D.C.: NTSB Bureau of Accident Investigation. 2. Stone, R. B., and G. L. Babcock. 1988. “Airline Pilot’s Perspective.” In Human Factors in Aviation, ed. Earl L. Wiener and David C. Nagel, 529–60. San Diego: Academic Press. 3. Cooper, G. E., M. D. White, and J. K. Lauber. 1979. “Resource Management the Flight Deck.” Paper presented at the NASA/Industry Workshop, San Francisco. NASA Conference Publication 2120.

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4. Helmreich, R. L., and H. C. Foushee. 1993. “Why Crew Resource Management? Empirical and Theoretical Bases of Human Factors Training in Aviation.” In Cockpit Resource Management, ed. E. L. Wiener, B. G. Kanki, and R. L. Helmreich, 3–43. San Diego: Academic Press. 5. Helmreich, R. L., A. C. Merritt, and J. A. Wilhelm. 1991. “The Evolution of Crew Resource Management Training in Commercial Aviation.” International Journal of Aviation Psychology 1 (4): 287–300. 6. Helmreich, R. L., and J. A. Wilhelm. 1991. “Outcomes of Crew Resource Management Training.” International Journal of Aviation Psychology 9 (1): 19–32. 7. National Transportation Safety Board. 2006. U.S. Air Carrier Operations, Calendar Year 2001. Annual Review of Aircraft Accident Data NTSB/ARC-04/01. Washington, D.C.: NTSB Bureau of Accident Investigation. 8. Diehl, A. 2001. “Does CRM Really Work?” In Culture, Environment, and CRM, ed. Tony Kern, 33–51. New York: McGraw-Hill. 9. National Transportation Safety Board. 1990. Aircraft Accident Report—United Airlines Flight 232, McDonnell Douglas DC-10-10, Sioux Gateway Airport, Sioux City, Iowa, July 19, 1989, Report No. NTSB/AAR-90106. Washington, D.C.: NTSB Bureau of Accident Investigation. 10. Grubb, G., J. C. Morey, and R. Simon. 2001. “Sustaining and Advancing Performance Improvements Achieved by Crew Resource Management Training.” In Proceedings of the 11th International Symposium on Aviation Psychology. Columbus: Ohio State University. 11. Uhlig, P. N., J. Brown, A. K. Nason, et al. 2002. “M. Eisenberg Patient Safety Awards. System Innovation: Concord Hospital.” Joint Commission Journal of Quality Improvement 12 (12): 666–72. 12. Edmondson, A., R. Bohmer, and G. Pisan. 2001. “Speeding Up Team Training.” Harvard Business Review 79 (10): 125–32. 13. Pronovost, P., S. Berenholtz, T. Dorman, et al. 2003. “Improving Communication in the ICU Using Daily Goals.” Journal of Critical Care 18 (2): 71–75. 14. “Ob-Gyns Investigating Model Reforms to Avoid Medical Error.” 2004. Managed Care Weekly Digest, May 24. 15. Agency for Healthcare and Research Quality. “Safety Climate Survey.” Available at: http://www.ihi.org/NR/rdonlyres/145C099B-5FB4-46EA-8CFD D08D3CE9082C/1704/SafetyClimateSurvey1.pdf. Accessed March 25, 2005. 16. Healy, G. B., J. M. Barker, and G. G. Madonna. 2006. “Error Reduction through Team Leadership: Applying Aviation’s Team Model in the OR.” Bulletin of the American College of Surgeons 91 (2): 10–15. 17. Musson, D. M., and R. L. Helmreich. 2004. “Team Training and Resource Management in Healthcare: Current Issues and Future Directions.” Harvard Health Policy Review 5 (1): 25–35. 18. Gallagher, T. H., and W. Levinson. 2005. “Disclosing Harmful Medical Errors to Patients: A Time for Professional Action.” Archives of Internal Medicine 165 (16): 1819–24. 19. Helmreich, R. L., and A. C. Merritt. 1998. Culture at Work in Aviation and Medicine: National, Organizational, and Professional Influences. Aldershot, UK: Ashgate.

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20. Amalberti, R., Y. Auroy, D. Berwick, and P. Barach. 2005. “Five System Barriers to Achieving Ultrasafe Health Care.” Annals of Internal Medicine 142 (9): 756–64. 21. Baker, D. P., S. Gustafson, and J. Beaubien. 2003. “Medical Teamwork and Patient Safety: The Evidence-Based Relation.” Report prepared for Center for Quality Improvement and Patient Safety Agency for Healthcare Research and Quality. Washington, D.C.: American Institute for Research. 22. Grogan, E., R. Stiles, D. France, et al. 2004. “The Impact of Aviation-Based Teamwork Training on the Attitudes of Health-Care Professionals.” Journal of the American College of Surgeons 199 (6): 843–48. 23. United Airlines. 1998. Command/Leadership/Resource Management Reference Manual. Denver: United Airlines C/L/R Department. 24. Cohn, K. H., and J. Barker. 2006. “Improving Communication, Collaboration, and Safety Using Crew Resource Management.” In Collaborate for Success! Breakthrough Strategies for Engaging Physicians, Nurses, and Hospital Executives, ed. K. H. Cohn, 33– 44. Chicago: Health Administration Press. 25. Ginnett, R. C. 1987. “First Encounters of the Close Kind: The Formation Process of Airline Flight Crews.” PhD dissertation, Yale University. 26. Garvin, D. A., and M. A. Roberto. 2001. “What You Don’t Know about Making Decisions.” Harvard Business Review 9 (9): 108–16. 27. Kanki, B. G., and M. T. Palmer. 1993. “Communication and Crew Resource Management.” In Cockpit Resource Management, ed. E. L. Wiener, B. G. Kanki, and R. L. Helmreich, 99–136. San Diego: Academic Press. 28. Jensen, R. S. 1995. “Crew Resource Management.” In Pilot Judgment and Crew Resource Management, 115–49. Aldershot, UK: Ashgate. 29. Wachter, R. M., and K. G. Shojania. 2004. “A Culture of Safety.” In Internal Bleeding: The Truth behind America’s Terrifying Epidemic of Medical Mistakes, 347–53. New York: Rugged Land. 30. Hackman, J. R. 2002. Leading Teams: Setting the Stage for Great Performance. Boston: Harvard Business School Press, 221. 31. National Transportation Safety Board. 1994. Safety Study: A Review of Flight Crew-Involved Major Accidents of U.S. Air Carriers, 1978 through 1990, Report No. NTSB/. Washington, D.C.: NTSB Bureau of Accident Investigation. 32. Reason, J. 1990. Human Error. Cambridge: Cambridge University Press. 33. Associated Press. 2006. “Kentucky Plane Crash Kills 49; Crew Member Is Only Survivor.” Available at: http://www.foxnews.com/story/0,2933,210650,00. html. Accessed January 13, 2007. 34. Helmreich, R. L., and J. A. Wilhelm. 2001. “System Safety and Threat and Error Management: The Line Operations Safety Audit (LOSA).” In Proceedings of the 11th International Symposium on Aviation Psychology. Columbus: Ohio State University, 1–6. 35. Wachter, R. M., and K. G. Shojania. 2004. “The Forgotten Half of Medication Errors.” In Internal Bleeding: The Truth Behind America’s Terrifying Epidemic of Medical Mistakes, 83–98. New York: Rugged Land. 36. Kohn, L. T., J. M. Corrigan, and M. S. Donaldson, eds. 2000. To Err Is Human: Building a Safer Health System. Washington, D.C.: National Academy Press.

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CHAPTER 5

Healthcare IT Solutions Barry P. Chaiken

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nformation technology (IT) greatly impacts quality and cost in industries from automobiles to banking. With the recent significant investment in healthcare information technology by both public and private sectors, corporations, government, and citizens maintain high hopes that healthcare will soon experience the same advances secured by other industries. The path to success is not expected to be easy. Stories of failed system implementations, limited clinician adoption and worsened patient safety fill many pages of industry journals. That said, many of us in the informatics world believe that one day, clinical information technology will dramatically improve healthcare clinical and financial outcomes; and that day is soon to be here. In this chapter, we explore some of the foundations of the medical informatics world. This includes electronic medical records (and its various siblings), clinician portals that leverage Web technology, the medication management process, computerized practitioner order entry, the National Health Information Network, clinical decision support, and some simple tips on how to purchase a clinical information system.

PHASES OF TECHNOLOGY IN HEALTHCARE The first phase of modern technology-driven medicine began with the discovery of penicillin in 1928. Although technology such as X-rays was used for imaging many decades before, the discovery and industrial production of antibiotics offered real cures that greatly reduced the impact of diseases that ravaged previous generations.

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The invention of various imaging modalities, such as computerized tomography (CT) and magnetic resonance imaging (MRI), coupled with the building of new medical machines (e.g., laparoscopes, artificial joints) in the 1980s signaled the second phase of modern medicine. In this era, technology offered advances in diagnosis and treatment of disease, reducing both morbidity and mortality. The development and deployment of clinical information technology today ushers in the third phase of modern medicine in which life science technology merges with information technology to revolutionize the roles and responsibilities of physicians, nurses, and other healthcare professionals. For the purposes of this chapter, the focus is on clinical information technology and its impact on quality, patient safety, and healthcare costs. Administrative tools such as practice management systems, coding tools, and financial systems are not included.

DEFINING CLINICAL INFORMATION TECHNOLOGY Clinical information technology tools encompass a rather large and diverse set of applications. The release of the 1999 Institute of Medicine (IOM) report on patient safety, titled To Err Is Human, focused most healthcare providers on software products that regularly impact care delivered by physicians, nurses, pharmacists, and other healthcare professionals.1 These systems include electronic medical records, computerized practitioner order entry, pharmacy systems, medication administration systems, and imaging storage and retrieval systems. To foster patient safety and reduce medical errors, organizations implement a variety of clinical information technology tools to achieve specific results. These systems include applications that address accessibility of clinical patient information, medication management, and support of the clinical decision-making processes.

ELECTRONIC RECORDS OF PATIENT MEDICAL INFORMATION Electronic health records (EHRs) form the basis of the movement to a paperless healthcare delivery and management system. Multiple definitions exist for EHRs and related items such as electronic medical records (EMRs). Experts differ on definitions. The Health Information Management Systems Society (HIMSS), a nonprofit association that brings together all stakeholders in healthcare information technology issues, defines EHRs as follows: The Electronic Health Record (EHR) is a longitudinal electronic record of patient health information generated by one or more encounters in any care delivery setting. Included in this information are patient demographics, progress notes, problems, medications, vital signs, past medical history, immunizations, laboratory data and radiology reports. The EHR automates and streamlines the clinician’s workflow. The EHR has the ability to generate a complete record of a clinical patient encounter, as well as supporting other care-related activities directly or indirectly via interface—including evidence-based decision support, quality management, and outcomes reporting.2

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Personal health records (PHRs) are similar to EHRs, although they are usually referenced in this manner when they are in the possession of or owned by the consumer or patient. Additionally, the continuity of care record (CCR) is defined as an electronic document standard for the summary of personal health information. Clinicians and patients can use it to help promote continuity of care, quality, and patient safety. The standard was developed jointly by the American Society of Testing and Materials International (ASTM), the Massachusetts Medical Society, HIMSS, the American Academy of Family Physicians, and the American Academy of Pediatrics.

INTERNET PORTALS FOR CLINICIANS TO ACCESS PATIENT DATA Clinicians also access clinical information via Internet portals. These portals aggregate patient information from multiple data sources generated in a variety of care venues (e.g., hospital, clinic, physician’s office) and present it in a single-viewer application. Often, single sign-on and authentication is used to facilitate use and reduce the work flow burden on clinician users. (Work flow is defined as the sequence of activities required of one or more participants in the healthcare delivery process [e.g., clinicians and patients] to accomplish a patient care task or group of tasks.3) In addition, these portals use off-the-shelf Web technology, such as Internet browsers and the multitude of available plug-ins. This offers clinicians easy-to-use interfaces that are similar to applications commonly used by the general public. Utilizing familiar technology reduces the training necessary to use these systems and allows for personalization of the working environment. Customization of interfaces by users, allowing them to be personalized to the needs of the clinician, greatly facilitates clinician adoption.

MEDICATION MANAGEMENT PROCESS AND INFORMATION TECHNOLOGY The focus on medication management promoted the deployment of a variety of interrelated systems. Generally, the medication management system encompasses four key areas: prescription, transcription, dispensing, and administration. Prescription covers the writing of patient medication orders. Transcription includes the transfer of orders to generate review and formulation activities in the pharmacy. Dispensing encompasses the preparation of the medication for delivery to the patient. Medication administration covers activities related to giving a medication to a patient.

Prescription Electronic prescription occurs through the use of computerized practitioner order entry (CPOE) systems. The functionality inherent in these systems varies

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greatly depending upon the intended user (e.g., physicians, ward clerks). CPOE often includes clinical decision support (CDS). CDS during medication management regularly utilizes medication databases that provide drug-drug interaction and allergy and dose checking information during the phase of medication prescription.

Transcription Transcription utilizes pharmacy systems that help pharmacists process medication orders and assist in pharmacy management. In addition, these systems often offer medication order checking through the use of medication databases similar to those used during the prescription phase of medication management.

Dispensing Dispensing of medications can occur through the use a variety of hardware devices that are tied to the pharmacy system. These include robots that pick single-dose medications and package them together for delivery to patients and dispensing cabinets located in inpatient areas that facilitate the accurate picking of medications. These cabinets, containing the most frequently administered medications, use a visual cue, such as an automatically lighted tray or a single opened drawer, to indicate to the nurse the location of the correct patient medication. The cabinets use patient information, obtained manually from the nurse and entered into a computer linked to the cabinet or, more accurately, obtained electronically from the pharmacy system, to drive the cabinet logic.

Administration Administration works to ensure the five rights of medication administration: right patient, right drug, right dose, right route, and right time. Systems employed during this phase often utilize bar coding of both patients and medications to ensure accuracy and tracking of medication administration. In addition to bar codes, radio frequency identification (RFID) tags are currently being deployed to assist in medication management. The tags consist of a microchip with an antenna that interacts with electromagnetic waves to exchange information. The capabilities of these tags vary from passive fixed data devices to self-powered data modifiable chips. RFID is also used for tracking of both people and supplies.

PATIENT ORDERS: COMPUTERIZED PRACTITIONER ORDER ENTRY CPOE systems (sometimes the word practitioner is substituted with the word physician or provider) offer those entering patient orders, usually in an inpatient setting, the ability to place those orders directly into a clinical information technology

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system. These applications assist practitioners in creating and managing medical orders and include such functionality as electronic signature and clinical decision support (CDS), a sequence of activities required of one or more participants in the healthcare delivery process to accomplish a patient care task.4 CPOE systems eliminate the need to transcribe written orders thereby avoiding handwriting recognition errors and ensuring a higher level of order accuracy. CPOE systems are often paired with CDS modules. Broadly speaking, CDS refers to applications that provide clinicians with targeted patient-specific medical knowledge at the point of care by intelligently utilizing all available patient information. CDS utilizes clinical guidelines and databases to identify and present this patient-relevant and circumscribed medical information and advice to the clinician during diagnostic and therapeutic decision making. Clinical decision support systems work to encourage the use of evidence-based medicine (those methodologies that have been proved through scientific rigor to be of value) and care activities that support organizational strategies of patient safety, quality, and care efficiency. The clinical content embedded in clinical decision support systems comes from both commercial sources as well as from institutional committees of experts. Alerts and reminders form a subset of clinical decision support. Although clinicians use CPOE, alerts inform the practitioner of items that may require evaluation or review. These include such things as unexpected out-of-range lab results and the monitoring of specific blood parameters. Implementation of alerts and reminders regularly proves challenging for organizations. Experts struggle to identify the proper balance between too many and too few alerts and reminders.5 In addition, patient variability greatly impacts the value of each alert and reminder, thereby making the process of identifying when to fire an alert very complicated. For example, elevated creatinine levels in a young, healthy patient may be very significant, whereas the same levels in a patient with end-stage renal disease may not.

STORAGE OF MEDICAL DIGITAL IMAGES During the second phase of medical technology innovation, imaging systems became commonplace during both diagnostic and therapeutic interventions. These imaging systems advanced to embrace higher resolution, use of color and 3-D images, and video. In addition, the morbidity and costs associated with these procedures dropped dramatically. The consequence of these advances is not only an increase in the number of imaging studies completed but also the number of images and sizes of files for each study. Organizations providing access to these procedures saw exponential growth in the need for storage space for all these images. With cost of storing images threatening to make these procedures economically prohibitive, organizations began turning to digital storage of images and videos in what are called picturing archiving and communication systems (PACS). These storage systems allow radiologists, pathologists, and other clinicians to

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quickly store, search for, and retrieve images for evaluation, documentation, and review. PACS store images from a variety of generating sources including radiography, CT, MRI, ultrasonography, endoscopy, positron emission tomography (PET), and a number of instruments used in the pathology lab (e.g., microscopes). Computer networks allow these images to be shared throughout an organization as well as remotely with both consulting and attending physicians. Limitations on the quality of the images viewed are a function of the equipment utilized at the viewing site.

EXCHANGING PATIENT DATA VIA A NATIONAL NETWORK Prompted by the IOM report To Err Is Human6 as well as other previously published studies that outlined problems with quality of care and medical errors, the National Committee on Vital and Health Statistics (NCVHS) advanced a series of recommendations to the U.S. Department of Health and Human Services (DHHS) to develop an “effective, comprehensive health information infrastructure that links all health decision makers, including the public.”7 The 2001 report, Information for Health: A Strategy for Building the National Health Information Infrastructure, detailed the positive impact of clinical information technology on both quality of care and costs.8 Acting on these recommendations, the DHHS began to form the National Health Information Infrastructure (NHII). In 2004, President George W. Bush established, by executive order, the Office of the National Coordinator for Health Information Technology (ONCHIT) to work toward facilitating the use of information technology throughout healthcare. The coordinator led the federal effort to create interoperable health information systems able to seamlessly share individual health information. A nationwide health information network (NHIN) would link disparate healthcare information systems to allow patients, physicians, hospitals, public health agencies and other authorized users across the nation to share clinical information in real-time under stringent security, privacy and other protections. The NHIN is described in greater detail in the framework for strategic action: The Decade of Health Information Technology: Delivering Consumer-Centric and Information-Rich Health Care.9 Mounting evidence suggests that interoperable health information systems will generate considerable quality of care, patient safety, and financially responsible spending gains by reducing the payment for duplicate and lost healthcare information (tests, radiographs, clinical evaluations, etc.). The January 2005 issue of Health Affairs consolidated policy positions, a preliminary business case, and field-based perspectives on interoperable healthcare systems. The article by Jan Walker and colleagues articulated a $77.8 billion net savings per year attributable to provider, laboratory, hospital, free-standing clinic, radiology center, pharmacy, and payer connectivity.10 Although the magnitude of the projected savings may be challenged, the contributing authors agree that health information technology has the potential to redefine how healthcare is delivered, managed, and used to inform decision making.

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Within the DHHS, the Centers for Disease Control and Prevention (CDC) are developing an interoperable health information systems strategy through the creation of the Public Health Information Network (PHIN) initiative. The objectives of the PHIN are to support detection and monitoring efforts, analytic needs for real-time and aggregate information, information resource and knowledge management, alerts and communications for public health professionals and their partners, and response to community health needs and policy recommendations.

FOSTERING ELECTRONIC HEALTH RECORDS THROUGH THE U.S. HEALTH INFORMATION COMMUNITY In 2005, the secretary of the DHHS formed the American Health Information Community (AHIC), bringing together private industry, academia, payers, consumers, and government leaders to achieve the president’s goal of having most Americans using EHRs within 10 years.

Certification of Software for Interoperability In addition to the AHIC, other organizations were formed to work on the interoperability challenge. The Certification Commission for Health Information Technology (CCHIT), a private nonprofit organization, develops criteria for the “efficient, credible and sustainable mechanism” for certifying healthcare information technology products.11 The CCHIT evaluates both ambulatory and hospital EHR products submitted by vendors for compliance with its established standards. For its criteria, the CCHIT obtains input from all stakeholders while focusing on the key areas of software functionality, interoperability, and security.

Setting Standards for Interoperability With a $3.3 million contract from the DHHS in 2005, the American National Standards Institute (ANSI), a nonprofit organization that administers and coordinates voluntary standardization activities in the United States, convened the Health Information Technology Standards Panel (HITSP) to develop, prototype, and evaluate a harmonization process for achieving widely acceptable health information technology standards.12 Establishment of credible standards assists in supporting interoperability among all healthcare software applications.

Establishing Privacy and Security Rules for Interoperability In addition to the HITSP, the DHHS awarded an $11.5 million contract to the Health Information Security and Privacy Collaboration (HISPC), a partnership

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consisting of a multidisciplinary team of experts and the National Governors’ Association.13 The HISPC works with state and territorial governments to assess and develop plans to address variations in business policies and state laws that impact privacy and security. This work is framed to address challenges to health information interoperability.

Regional Efforts to Build Electronic Patient Records On a local level, regional health information organizations (RHIO) are being formed to allow the interchange of health information among all stakeholders while allowing secure access to all patients. Although RHIOs form an important foundation for the building of comprehensive EHRs, experts continue to work through the various issues of information exchange architecture, security, privacy, and funding. Currently, two major models exist for the formation of RHIOs: a distributed database model—often referred to as the federated model—and the centralized model.

RHIO Models The distributed model assumes that all patient information resides in the computer systems of the provider that collected the information. In effect, each piece of data that makes up the electronic health record of each patient is stored separately. Formation of a comprehensive medical record requires access to each system in which each piece of information is stored. In some variations of this model, a centralized database maintains an index of all the systems in which data for a given patient resides, allowing each provider system to be polled only for existing information on a particular patient during the effort to build a complete electronic medical record. In other models, every provider system is polled for information on a patient for every search utilizing a patient identifier. Availability of patient information is dependent upon the reliability of each independent provider system and its level of compliance with interoperability standards. Access to patient information, including the use of polling for data, is not limited to a region but would need to occur nationally. The centralized model establishes a regional, centralized database for storage of all patient information. Providers, irrespective of their location, submit patient information utilizing interoperability standards to a centralized health record bank, where it is securely stored. Access to this comprehensive electronic health record by other providers, family members, and others is completely and securely controlled by each patient. As patient information is submitted to the health record bank soon after each patient encounter, future polling of provider systems for patient data is not necessary. Most versions of the centralized model use principles established by financial institutions in the formation of credit reporting agencies, in which reporting of a financial encounter to a centralized entity eliminates the need for a response to future query requests.

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LEVERAGING INFORMATION TECHNOLOGY THROUGH PATH INNOVATION In a study published in the Journal of the American Medical Association, Koppel and colleagues reported how a CPOE system installed at an academic medical institution increased medication errors.14 The authors attributed many of the 22 types of errors to a variety of factors, including poor system design coupled with incompatible care delivery processes. These results highlight the importance of processes in the delivery of expected outcomes (see table 5.1). It is well known that the application of best practices and evidence-based medicine can significantly improve clinical and financial outcomes. Many informatics experts have long thought that the implementation of clinical information technology systems would bring these best practices more effectively to the physician, thereby reducing unnecessary variation in care, accelerating the adoption of new, proved diagnostic and therapeutic approaches, and decreasing costs associated with ineffectual or inappropriate care. What we are finding is that the results delivered by this new technology are falling far short of the promise. The failure of these clinical information technology tools to deliver safer, more efficient care is due to many factors, yet all of them have origin in the concept inherent in the phrase path innovation. Although the theories and expertise that form the basis of path innovation are not new, their interaction with and subsequent impact on clinical information technology is.

Three Key Factors of Path Innovation Path innovation is dependent upon three key factors: (1) process improvement or reengineering; (2) clinical guidelines, clinical paths, and evidence-based medicine; and (3) information technology system design. Although subject matter experts exist in all these areas, it is unclear how well these experts historically worked together in the design and implementation of clinical information technology systems. Process improvement experts understand how processes impact outcomes and what analytical steps are needed to evaluate processes. They are able to suggest changes in processes and predict the potential improvements such changes will deliver. Experts in clinical content understand what various clinical paths deliver as outcomes. They are able to link various interventions with probabilistic results. Designers of information technology systems understand the flow of digital information within computer systems and the user interfaces that receive and deliver data to users. They are able to conceptualize how a data point can be stored or reformatted with other data points.

Independent Experts Share Knowledge Almost universally, these experts work and apply their expertise independently of one another. Information technology system designers develop these systems

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Table 5.1 Examples of the Facilitation of Medical Errors through CPOE Description

Event

Impact

Information errors: Fragmentation and systems integration failure Medication discontinuation failures

Change in the dose of a medication from every 4 hours to every 6 hours

Overdose of medication as it is then administered ever 4 hours and every 6 hours

Antibiotic renewal failure

House staff use computer system to enter antibiotic orders while alert to the automatic discontinuation of some antibiotics after three days placed as a sticker in paper chart

Antibiotic inadvertently discontinued

Allergy information delay

Alerts related to drug allergies only appear after drug is ordered

Drug allergies missed due to clinician user scrolling to other parts of the online record before the allergy alert appears

Human-machine interface flaws: Machine rules that do not correspond to work organization or usual behaviors Patient selection

Choose the wrong drug and patient

Small font and location of patients and drugs near one another on computer screen leads to clinician users ordering the wrong medications for patients

Wrong medication selection

Clinician users choose incorrect medications for patients

Poorly designed medication screens that require scrolling to other screens for medication information prove confusing and lead to medication and drug dosing errors

Late-in-day orders lost for 24 hours

Newly admitted patients experience a 24-hour delay in receiving care from orders

Patients admitted late in the day (e.g., near midnight) might have their orders entered into the system the next day so that any orders written for “tomorrow” will not occur until more than 24 hours later, whereas the intent was to have the order delivered the next morning

Inflexible ordering screens, incorrect medications

Nonformulary medications entered on screens located in a separate section of the CPOE module

Orders lost, ignored by nursing, and failed to be dispatched to the pharmacy (e.g., nonformulary organ rejection medications)

Source: Adapted from Koppel, R., J. P. Metlay, A. Cohen, et al. 2005. “Physician Order Entry Systems in Facilitating Medication Errors.” Journal of the American Medical Association 293 (10): 1197–1203.

using specifications developed by product managers who attempt to bridge information technology with healthcare. These product managers are rarely experts in clinical medicine or clinical processes. Clinical content experts develop clinical content focused solely on clinical issues, rarely incorporating information technology system design or clinical process

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considerations in their work. This is evident in the effort invested by many organizations to modify existing guidelines to fit their newly implemented clinical information technology systems. Their reported struggles are indicative of the difficulty of this type of work. Process redesigners often appear on the scene late in implementations, if at all. Working within the environment as presented to them, they try to change existing processes without the advantage of being able to change the inputs (e.g., clinical path) or tools (e.g., system functionality) of the processes. To implement and effectively leverage clinical information technology systems, a new approach in the use of experts is required. Path innovation integrates different subject matter experts in unique ways to leverage their expertise throughout the design and implementation of clinical information technology systems. Even for systems already built, path innovation can be used to leverage existing functionality in these clinical information technology systems. It can help enhance outcomes while reducing the probability of unacceptable results such as systemrelated medical and medication errors.

Teams Necessary to Achieve Path Innovation Path innovation requires the formation of a team of subject matter experts who apply their skills during an entire clinical information technology system project. During the system design phase, clinical and process design experts share their understanding of their discipline with the information technology system developer. During the implementation phase, the information technology system designer and the clinical content expert act as consultants to the process redesigner to develop new processes that are both radically different from existing processes and that could only be implemented utilizing functionality made available by the new clinical information technology system. In addition, the clinical content expert can use this functionality to conceive of clinical paths impossible without this digital healthcare capability. Although path innovation builds upon existing approaches, it reflects a new way of thinking and approaching problems. Instead of looking at how an existing process could be modified, path innovation gives birth to brand new processes, formerly impossible in the institution before the installation of the new clinical information technology system. To accomplish this, organizations need to identify subject matter experts who are also able to achieve a basic understanding of the disciplines of their expert colleagues. Then together, these experts work to create new processes that incorporate the needs of the institution with the promise of new information technology systems and clinical content. Don Berwick, MD, founder of the Institute for Healthcare Improvement, once said, “[E]very system is perfectly designed to achieve exactly the results it achieves.”15 Assuming this to be true, only through the creation of truly new systems (e.g., processes and information technology) using path innovation can we expect to impact results to achieve the safer and higher quality healthcare that we all desire.

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CLINICAL DECISION SUPPORT For more than two decades, clinicians struggled to use evidence-based guidelines. Ever since Wennberg’s work back in the 1970s demonstrating the huge practice variation seen even in relatively small geographic areas, quality experts have worked to promote guideline use among physicians to ensure that interventions on patients actually did them some good.16 Throughout the 1980s, managed care organizations did everything possible to get physicians to use guidelines in an effort to enhance quality and control costs. Their efforts included education, guideline distribution, economic incentives, and patient education. Unfortunately, the evidence on guideline use shows poor acceptance.17,18 In addition, physician adoption of new clinical knowledge tends to be inconsistent and unpredictable In the meantime, patients receive inappropriate, unhelpful, or even harmful care while valuable resources are wasted.

Difficult to Remain Up-to-Date The rapid advancement of medicine makes it nearly impossible for any physician to remain completely up-to-date on clinical progress. Also, with such rapid change, it is difficult for physicians to separate the valuable information from the less valuable or even suspect medical knowledge that deserves little attention. Last, the structure in which medical information normally comes, journal articles and medical reports, is in the wrong information format to be integrated into a typical medical practice. For example, it requires a huge effort for a physician to evaluate a single peer-reviewed article on a specific aspect of a disease process and then apply that single bit of knowledge to a small subset of patients within a practice panel. Clinicians who previously worked on guideline development generally find that about 80 percent of the guideline is developed quickly, whereas the remaining portion is labored over for weeks, months, or even years. Often, the guidelines are never completed or, if completed and disseminated, rarely used. Researchers know that it is easy to develop guidelines but very hard to develop high-quality, respected, and, most important, usable ones. In addition, upkeep of the guidelines usually never gets done to include clinical evidence available in new studies. With the advent of CPOE and high-capacity personal digital assistants (PDAs), there is technology that can effectively deliver guidelines. The challenge exists to develop high-quality, effective, and easy-to-use guidelines that can be deployed intelligently, consistent with work flow, and at the point of care.

Clinical Evidence Through an effort begun in 1995 by the United Kingdom’s National Health Service and the British Medical Journal (BMJ) Publishing Group, there now exists

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a formulary of evidence-based medical knowledge. The current iteration of the guidelines, named Clinical Evidence, covers more than 180 clinical conditions and evaluates more than 2,500 treatments.19,20 Major disease categories covered are listed in table 5.2. Clinical Evidence is available in two print versions, full and concise. The release of each version is staggered so that any changes in the guidelines can be included in the next version. It is also available online via a Web-based interface (http:// www.clinicalevidence.org) as well as through a synchronized PDA device. Guidelines are updated continuously with full literature searches on each topic every 12 months. As new information becomes available, it is incorporated into the Web-based version of Clinical Evidence and subsequently the next print version. Clinical Evidence focuses on outcomes that matter to the patient and the physician, such as severity of illness, quality of life, disability, and survival. Guidelines include a list of outcomes and how they are measured. Proxy outcomes such as decreased lipid levels or blood pressure are of lesser interest to the researchers as they are less clear on their true impact on the individual. Guideline developers mainly utilize the Cochrane Library, Medline, and Embase, looking for high-quality reviews of randomized clinical trials. The evidence is then summarized and peer-reviewed by the section advisors, at least two external expert clinicians, and an editorial committee that includes both Table 5.2 Major Disease Categories Covered in Clinical Evidence Blood and lymph disorders Cardiovascular disorders Child health Digestive system disorders Ear, nose and throat disorders Endocrine disorders Eye disorders HIV and AIDS Infectious diseases Kidney disorders Men’s health Mental health Musculoskeletal disorders Neurological disorders Oral health Perioperative care Poisoning Pregnancy and childbirth Respiratory disorders (acute) Respiratory disorders (chronic) Sexual health Skin disorders Sleep disorders Women’s health Wounds

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expert clinicians and epidemiologists. A standardized process allows for collection of comments by Clinical Evidence users. Through the generous support of the United Healthcare Foundation, Clinical Evidence is available free to all physicians in the United States. Additionally, through other supporting organizations, it is free to physicians in England, Wales, Italy, and developing countries. It regularly is translated into French, Spanish, Italian, Japanese, and German.

The National Guideline Clearinghouse The National Guideline Clearinghouse (NGC), an initiative of the DHHS, is a comprehensive database of evidence-based clinical practice guidelines and related documents (http://www.guideline.gov). The NGC was originally created in conjunction with the American Medical Association and the American Association of Health Plans (now America’s Health Insurance Plans, or AHIP). The NGC works to provide clinicians and their organizations with objective, detailed information on clinical practice guidelines and to further their dissemination, implementation, and use. This clinical content comes in the form of structured abstracts (summaries) and links to full-text guidelines or their sources. A guideline comparison utility gives users the ability to generate side-by-side comparisons of guidelines. In addition, the NGC staff produces comparisons called Guideline Synthesis that compare guidelines on similar topics, noting the areas of similarity and difference. The NGC also provides an annotated bibliography database in which users can search for citations on guideline development, methodology, evaluation, and implementation. Unlike Clinical Evidence, guidelines included in the NGC database are submitted by outside professional organizations. After a high-level review of corroborating documentation, the guideline is included in the database. Therefore, the NGC database has multiple versions of guidelines on specific topics. As are the guidelines for Clinical Evidence, these guidelines are not specifically developed for use in computerized clinical decision support systems and, therefore, will need extensive modification to fit the new work flow dictated by clinical information technology systems.

SECURING CLINICIAN ADOPTION Nothing is more critical to obtaining value from a clinical information technology system than the securing of adoption of the new system by clinicians. Deployment of clinical information technology is inherently disruptive, especially when patient care cannot cease to allow the unfettered deployment of the new technology. Often, parallel systems must run for a short period of time to allow the transition to the new system. This, in every instance, places additional burdens and work flow challenges on the clinicians asked to use the new technology.

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Successful deployment of new information technology systems requires clinicians to be involved early in the planning process. As these clinicians are experts in the work flow critical to care delivery, their input into the required, newly designed work flow increases the probability that the new processes will be embraced by other clinicians. This, in turn, helps ensure the delivery of quality and cost benefits expected from using the new system. Deployment plans must first focus on initiatives that deliver value to the clinicians using the system rather than solely on the needs of the institution. By offering this value to these new users, the organization is able to secure their support for the new technology early in the deployment process. In addition, it establishes a level of dialogue that can be used to refine the deployment of additional functionality to maximize the benefit to the institution and patient. Organizations that have included clinicians early in the deployment process and secured their involvement throughout deployment more often struggle trying to keep up with the demands of the clinicians for additional functionality rather than trying to force clinicians to use the system. In summary, successful deployment of clinical information technology systems requires the early and continued involvement of clinicians throughout the design and implementation phases. Such involvement helps ensure a high probability of a successful implementation and deployment with the expected significant financial and quality of care benefits.

BUYING A CLINICAL INFORMATION TECHNOLOGY SYSTEM Buying a clinical information technology system challenges every organization’s senior management team. Unlike other administrative applications that help manage a facility, the clinical information technology system touches directly the lives of patients and the work flow of physicians, nurses, and other clinicians. Careers and entire organizations can be ruined by poor vendor choices and botched implementations (i.e., installation of the software and hardware) and deployments (i.e., introduction of applications to end users). Poorly chosen clinical information technology systems can drive physicians to competitor institutions, impact facility accreditation, and in some cases invite litigation due to unexpected morbidity or mortality. As frightening as this task is, the best way to be successful is to be humble. Senior executives must accept the fact that full investigation of the features and functionality of clinical information technology systems before purchase is impossible. No individual or committee has the technical expertise and available time to effectively evaluate and fully review the capabilities of a comprehensive clinical information technology system. Therefore, organizations must base their decision to purchase systems on factors that function as surrogates for the usefulness and appropriateness of the systems in its institutions. These may include such items as the source of clinical content included with the system, list of organizations using the system, and perceived ease of use of the application.

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Evaluate Live Systems Although information technology vendors utilize demonstrations of their software to educate clients about their products, viewing working systems deployed in patient care areas offers the most valuable information. Unfortunately for both vendors and purchasers, the competitiveness of the healthcare information technology marketplace, coupled with the complexity of these systems, encourages vendors to showcase software products during demonstrations that are either partially completed or are in a beta version. Therefore, often what is seen in these demonstrations does not accurately represent the features and functionality currently available. It is important to take vendors at their word when they declare that the demonstrated software is representative of features and functionality under development.

Focus on Deployed Working Systems Only To increase the probability of purchasing a product that will satisfy the needs of an organization, institutions must focus on existing, working, deployed, and implemented versions of the applications being considered for purchase. The best way to evaluate current-state versions of applications is to visit current clients of each vendor and to witness the daily use of the various applications. Organizations must be patient and allocate adequate time to see the systems working under all conditions. This includes visiting multiple hospitals and various patient care areas throughout each hospital.

Forge Solid Vendor Relationships For most organizations, it is more prudent to engage in relationships with vendors that have established working applications that can be immediately deployed and utilized. Although working, released software will have its inevitable share of problems, it is likely there will be fewer problems and solutions will be readily found. In some cases, it may be advantageous to engage in relationships with vendors that are offering software that has just been released or is under development. In these instances, organizations must enter the agreement recognizing the potential benefits from such arrangements but also the problems and delays in the software that may be associated with purchasing new, untested information technology products. Organizations that do not have extensive information technology infrastructure and departments should be wary of entering into these types of arrangements. The following sections outline a recommended process for choosing clinical information technology for an institution.

Review and Embrace Strategic Vision The purchase of all clinical information technology tools must be driven by the clinical strategic vision of the organization. The strategic vision represents the

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views and aspirations of the board of directors, the medical staff, and other clinical professionals in the organization. Clearly, cost control is always a consideration, but the importance of patient safety and quality healthcare overwhelmingly drives decision making.

Broadly Explore Options A high level of evaluation of your organization will quickly identify the potential suppliers of the application software required. In almost all cases, there will be a relatively small number of vendors who provide software that meets the needs of an organization. Identification of these vendors can be done through a request for information process (RFI), searching the Internet, and contacting colleagues at institutions similar to one’s own.

Understand the Vendor As relationships with application vendors extend far beyond the implementation phase, a strong, open, and trusting relationship is necessary to be able to ensure that implemented software will deliver the expected results to an organization. Because problems will arise, a positive relationship is required to ensure that problems are resolved. A good working relationship with a vendor, as exhibited by respectful and honest interactions with all representatives of the organization, unequivocally trumps perceived advantages in features and functionality that might be seen in other products.

Evaluate the Product The best way to evaluate clinical information technology applications is to actually see them functioning in a real working environment. Unless an organization is working as a development partner with a vendor, various client organizations, comparable to the purchasing institution, should be available to be visited to observe the applications being used by clinical professionals. Purchasing organizations must budget more than one day to visit these client organizations and see the applications being used at a variety of times during the day. Workloads vary, with morning physician rounds often presenting the greatest demands upon systems because of their high number of new patient orders and the need for patient care documentation. In addition, evening use represents a time when information technology staffing may be low or system maintenance may occur. Organizations should request that their representatives be allowed to visit patient care areas unencumbered and be able to ask questions of the various users of the applications. The more institutions visited, the better the information that can be collected to evaluate the applications and the vendor.

Understand Pricing Vendor pricing is greatly influenced by the level of ongoing maintenance payments, the strategic value of the organization to the vendor, and market forces.

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Therefore, in negotiating contracts with vendors, be sure to take a very broad and considered view of the products, services, and support being provided. Cost of ownership includes not only the purchase price of the software but also the ongoing maintenance fee to the vendor and the cost of implementing, deploying, and maintaining the system during its life. Finally, the importance of the quality of the relationship with the vendor cannot be overemphasized, as it will have the greatest impact on the success of implementation and, eventually, clinician adoption.

Secure Adoption Implementing clinical information technology without broad involvement and support by the clinical staff—requiring focus on all stakeholders, including physicians, nurses, pharmacists, therapists, and other health professionals—all but guarantees a failed and wasteful deployment. Clinical information technology systems alone do not fix clinical problems, advance safety, or reduce costs by themselves. These systems provide tools that can be used by clinicians to change how they deliver care. Only with clinician creativity, insight, and experience molding the implementation can new processes deployed with these tools deliver acceptable work flows and generate good outcomes. If deployment is poor and disruptive, clinicians will create work-arounds to these failing system processes, a development that guarantees medical errors and unacceptable waste. By securing adoption, organizations can be assured of usable systems that are embraced by clinicians and that are able to deliver expected and much-needed clinical and financial outcomes.

Case Study In 2003, Vinnez Valley Hospital (VVH, a pseudonym), a 345-bed nonprofit community hospital embraced a five-year strategic plan to enhance quality, improve patient safety, and increase efficiency in all its inpatient and outpatient areas. Recognizing that information technology plays a key role in improving patient care while offering opportunities to streamline work flow, the chief executive officer of the hospital hired a board-certified physician trained in informatics at a leading academic medical center to lead the information technology purchase, implementation, and deployment processes as chief medical informatics officer (CMIO). Understanding the huge task ahead, the CMIO identified several overriding activities to realize a successful information technology purchase. They included: 1. Completing a comprehensive inventory of existing information technology systems that documented current functionality, cost of ownership, role in patient care delivery, and planned upgrades of the software. 2. Identifying with the hospital’s senior management team and clinical leadership the information technology needs of the organization.

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3. Reviewing the current thought leadership on information technology systems and its role in enhancing patient safety, improving quality, and increasing efficiency. 4. Prioritizing the needs of the organization based upon review of items 1 through 3. 5. Developing a budget and implementation plan for the purchase of information technology systems. 6. Researching the currently available commercial applications that offer the capabilities to satisfy the needs of the organization. 7. After choosing the systems, creating a detailed plan for technical implementation, migration of old applications to newer systems, and clinician deployment. 8. After deployment, monitoring the impact of the systems on patient safety, quality, and care efficiency and regularly reporting these results to senior management, the board of trustees, the employees, and the clinicians working in the hospital. Upon the completion of the evaluation of the existing systems, the CMIO identified the following systems that required replacement either because of limited functionality or the loss of vendor support. These included the order management, pharmacy management, and laboratory management systems. Robust discussions with clinical leadership helped identify additional needs. Of most interest was nursing documentation and electronic medical record systems. Although physicians, in general, expressed enthusiasm for information technology and its potential positive impact on patient care, they remained concerned about the impact of electronic medical records and computerized physician order entry on the efficiency of their work flow. After approximately three months of information gathering by the CMIO, next steps required the formation of a diverse advisory committee with members representing varied stakeholders within the hospital. Representatives were chosen from nursing, the medical staff, information technology, finance, laboratory, pharmacy, radiology, and clinical services. The committee met each week to discuss information technology options, decide strategy, and work on action items. At the end of 2003, the committee delivered to the senior management team and the VVH board of trustees a comprehensive information technology wish list prioritized by need, impact on patient care, and estimated cost. In addition, the committee estimated the work flow impact on staff and clinicians for each system. After review by the senior team and the board, the committee was given a budget and list of systems to work toward implementing. Less than what the committee requested, the hospital purchased in 2004 new laboratory, pharmacy, and electronic medical record systems. The electronic medical record system included a module for provider order entry.

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Understanding that implementation and transition to these new systems could take a substantial period of time, the committee developed a three-year implementation and deployment plan that allowed the staggered roll out of the new systems. Laboratory and pharmacy were chosen to be installed first, as they had the least immediate impact on the medical staff. The CMIO recognized that an EMR system, especially with provider order entry, would cause the greatest changes in work flow for admitting physicians. The laboratory and pharmacy systems were researched with emphasis on user recommendations and visits to live hospital sites. Although labor intensive for the hospital information technology team, the installation of both these systems went smoothly over a period of nine months, with systems live by April 2005. Choosing and installing the electronic medical record proved considerably more challenging. After researching available systems through requests for proposals, product demonstrations, vendor discussions, and multiple visits to similar hospitals running the various vendor systems, a single system was deemed to offer the best fit for the needs of the hospital. Approved by the committee and the senior management team, the committee then focused on securing support from the medical staff. The committee realized that the implementation of the electronic medical record without adoption by the medical staff would end in failure. To achieve this end, the committee identified the leaders of the medical staff, including all specialties, and key physicians who admitted large numbers of patients to the hospital. Over a period of three months, representatives of the committee met with 27 of the 32 influencers identified as key opinion makers. During these one-hour sessions, each committee member: (1) presented an overview of the clinical information technology strategy for the hospital, including the process followed to develop the strategy; (2) reviewed the high-level features of the chosen clinical information products; and (3) explored deployment issues important to the opinion leader. At the conclusion of these meetings the committee felt comfortable that they had identified the most important issues concerning deployment of the system. Deployment of the electronic medical record system began with a pilot project on one ward in the hospital. After this two-month pilot in which implementation and deployment issues germane to the hospital were identified, the system was then rolled out to the rest of the hospital at a pace of one ward per week. At the end of four months, every inpatient unit had the system live. To support system users, committee members provided 24-7 help line coverage to address any clinical issues that arose because of the new system. In addition, hospital information technology staff provided around-the-clock user support for technical and usability issues. Short of the usual struggles that occur in any major system installation, the information technology work with its concurrent clinical work flow change went relatively smoothly. At present, the organization is collecting both process and outcome measures to calculate the impact of the clinical information technology on

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patient safety, quality of care, and costs. In the meantime, the organization believes that it has improved its competitiveness in the marketplace, as its success rate in attracting young, well-trained specialists to the hospital has improved with several important recruitment wins over its crosstown rival.

CONCLUSION Clinical information technology offers healthcare a powerful but complex tool to address issues of patient safety, quality of care, and cost. Although requiring significant changes in a clinician’s approach to treating patients, it offers opportunities for enhancement of care that cannot be achieved without the technology. Clinical information technology alone will not solve healthcare’s current challenges, but combined with a creative mindset of embracing new ways of doing things, it does offer the means to radically transform medical care both in the United States and around the world.

Key Concepts • Information technology offers healthcare a powerful tool to address issues of patient safety, quality of care, and cost. • Interoperability, the foundation of regional health information organizations and the National Health Information Network, allows the sharing of patient data across care settings, thereby offering the means to construct a complete electronic health record. • The formation of multidisciplinary teams of experts that follow the principles of path innovation offers the best approach to developing, implementing, and deploying clinical information technology systems. • Clinical decision support provides clinicians with a powerful tool to improve quality of care, reduce medical errors, and decrease unnecessary care by supplying evidence-based, patient-specific, relevant information at the point of patient care.

NOTES 1. Kohn, L. T., J. M. Corrigan, and M. S. Donaldson, eds. 1999. To Err Is Human: Building a Safer Health System. Washington, D.C.: Institute of Medicine, National Academy Press. 2. Health Information Management Systems Society. 2006. HIMSS Dictionary of Healthcare Information Technology Terms, Acronyms and Organizations. Chicago: Health Information Management Systems Society. 3. Osheroff, J. A., E. A. Pifer, J. M. Teich, et al. 2005. Improving Outcomes with Clinical Decision Support: An Implementer’s Guide. Chicago: Health Information Management Systems Society. 4. Ibid.

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5. Ibid. 6. Kohn, Corrigan, Donaldson, To Err Is Human. 7. Lumpkin, J. R., NCVHS Workgroup on the National Health Information Infrastructure. 2001. Information for Health: A Strategy for Building the National Health Information Infrastructure. Washington, D.C.: National Committee on Vital and Health Statistics, U.S. Department of Health and Human Services. 8. Ibid. 9. Thompson, T. G., and D. J. Brailer. 2004. The Decade of Health Information Technology: Delivering Consumer-Centric and Information-Rich Health Care. Available at: http://www.hhs.gov/healthit/documents/hitframework.pdf. Accessed July 30, 2007. 10. Walker, J., E. Pan, D. Johnston, et al. 2005. “The Value of Health Care Information Exchange and Interoperability.” Health Affairs Web Exclusive, January 19: W5-10–W5-18. 11. Certification Commission for Healthcare Information Technology. 2007. Available at: http://www.cchit.org. Accessed February 20, 2007. 12. American National Standards Institute. n.d. Healthcare Information Technology Standards Panel. Available at: http://www.ansi.org/standards_activities/standards_ boards_panels/hisb/hitsp.aspx?menuid=3. Accessed July 30, 2007. 13. Health Information and Privacy Collaboration (HISPC). 2007. “Health Information Security and Privacy Collaboration Hosts National Meeting to Discuss Stakeholder Concerns.” RTI International. Available at: http://www.rti.org/page. cfm?objectid=09E8D494-C491-42FC-BA13EAD1217245C0. Accessed February 20, 2007. 14. Koppel, R., J. P. Metlay, A. Cohen, et al. 2005. “Physician Order Entry Systems in Facilitating Medication Errors.” Journal of the American Medical Association 293 (10): 1197–1203. 15. Berwick, D. M. 1996. “Education and Debate: A Primer on Leading the Improvement of Systems.” British Medical Journal 312: 619–22. Available at: http:// www.bmj.com/cgi/content/full/312/7031/619. Accessed July 30, 2007. 16. Wennberg, J., and A. Gittelsohn. 1973. “Small Area Variations in Health Care Delivery.” Science 182: 1102–8. 17. Lomas, J., G. M. Anderson, and K. Domnick-Pierre. 1989. “Do Practice Guidelines Guide Practice: The Effect of a Consensus Statement on the Practice of Physicians.” New England Journal of Medicine 321: 1306–11. 18. Kosecoff, J., D. E. Kanouse, and W. H. Rogers. 1987. “Effects of a National Institutes of Health Consensus Development Program on Physician Practice.” Journal of the American Medical Association 258: 2708–13. 19. BMJ Clinical Evidence. 2007. Available at: http://www.clinicalevidence.com. Accessed December 15, 2006. 20. Godlee, F., and D. Tovey, eds. 2004. Clinical Evidence Concise, 11. British Medical Journal.

FURTHER READING Chaiken, B. P. 2001. “Evidence-Based Medicine: A Tool at the Point of Care.” Nursing Economics 19 (5): 234–35. Chaiken, B. P. 2002. “Clinical Decision Support: Success through Smart Deployment.” Journal of Quality Health Care 1 (4): 15–16.

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Chaiken, B. P. 2002. “Opinion: Clinical Guidelines at Point of Care Needed to Improve Quality, Safety.” iHealthbeat, California Healthcare Foundation. Available at: http://www.ihealthbeat.org/articles/2002/10/11/Clinical-guidelines-at-pointof-care-needed-to-improve-quality-safety.aspx. Accessed July 30, 2007. Chaiken, B. P. 2004. “Useable Clinical Evidence-Based Guidelines . . . For Real.” Patient Safety and Quality Healthcare 2 (1): 14–16. eHealthTrust. Available at: http://www.ehealthtrust.com. Garg, A. X., N. K. Adhikari, and H. McDonald. 2005. “Effect of Computerized Clinical Decision Support Systems on Practitioner Performance and Patient Outcomes.” Journal of the American Medical Association 293: 1223–38. Healthcare Information and Management Systems Society. Available at: http://www. himss.org. National Guideline Clearinghouse. Available at: http://www.guidelines.gov. Slawson, D. C., A. F. Shaughnessy, and J. H. Bennett. 1994. “Becoming a Medical Information Master: Feeling Good about Not Knowing Everything.” Journal of Family Practice 38: 505–13. U.S. Department of Health and Human Services, Health Information Technology. Available at: http://www.hhs.gov/healthit. Wears, R. L., and M. Berg. 2005. “Computer Technology and Clinical Work.” Journal of the American Medical Association 293: 1261–63.

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CHAPTER 6

Market Dynamics and Financing Strategies in the Development of Medical Technologies Jonathan Gertler

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lthough issues of access and resources remain in the forefront in the delivery of clinical care, many technical product innovations may change the method by which care is delivered and facilitate a quality-cost paradigm shift that is critical in many disease states. The moves to minimally invasive surgery, greater diagnostic and therapeutic accuracy, and personalized medicine are but a few of the aspects of clinical care that technical innovation can influence. Many individual physicians may contribute significantly to this through the generation of the primary idea or through a more direct contribution on an entrepreneurial level by assuming a role of advisor or central part of the management team. In order to facilitate this contribution, a thorough understanding of the market and financing dynamics critical to the success of these ventures is necessary. This chapter will discuss the evolution of medical technology, financing medical innovations, and errors made in company development.

THE EVOLUTION OF MEDICAL TECHNOLOGY Traditionally, medical devices have been viewed as implantables, disposables, or capital equipment assuming a permanent place in the delivery network. Examples of these include fixed items such as MRIs, CT scanners, laser devices, as well as disposables or implantables such as catheters, pacemakers, defibrillators, ventricular assist devices, ablation devices, biopsy devices, and diagnostic and imaging adjunctive reagents, IT infrastructures, or film. Although therapeutics or more biologically or chemically derived compounds often are considered separate from the engineering solutions listed, in fact the mechanistic conversion of biology and engineering into biomedical device and technology products is increasing. For

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example, antiproliferatives, biomaterials, sensing feedback, tissue stimulation, and cell-based molecular diagnostics and therapeutics have had significant impact on cardiovascular, orthopedic, cancer, and diabetes management as well as an increasing role in drug discovery and acceleration of drug development. With this in mind, it is helpful to attempt to separate invention or innovation into several categories that, in turn, may drive some of the regulatory, investment, and market development risk associated with innovation. As depicted in the figure 6.1, medical technology development may be subdivided into three major categories: category 1, a disruptive technology with huge technology value; category 2, a paradigm shift based on established clinical principles; and category 3, variations on existing clinical themes. Significant disruptive technology values are often characterized by a large and unmet clinical need, new clinical principles applied, a complete shift of patient control, or significant behavioral shifts of care delivery. Examples of this on the medical-device level can include the progression of angioplasty versus surgery during the era in which angioplasty was first introduced, the aggressive monitoring and control of diabetes that gave birth to significant changes in the development of glucose monitoring devices once the Diabetes Control and Complications Trial (DCCT) was published in 1994, as well as endoscopy for gastrointestinal therapy and diagnosis during the early days of this development. Category 2, which entails a paradigm shift based on established clinical principles, more commonly involves the conversion of well-established techniques to a minimally invasive method, ease of use with improved outcomes, or extensions of established techniques to new indications. Category 2 extensions may emanate from category 1 disruptions. For instance, endovascular ancillary interventions including atherectomy and even stent placement can be thought of as disruptive at their onset but ultimately represent a paradigm shift based on established clinical principles once these techniques had taken hold. Similarly, the advent of endovascular aneurysm repair techniques, which were an Figure 6.1 Categories of Medical Technology Development

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extension of early endovascular angioplasty techniques, are supplanting open surgical interventions. In like manner, treatment of intracranial aneurysms and intracranial arterial interventions has advanced with both biomaterials and engineering solutions for vascular malformations, carotid angioplasty has extended coronary angioplasty to a new territory, and endometrial ablation for hemorrhagic dysfunctional menstrual bleeding was an extension of established gynecologic surgical techniques. Category 3 encompasses variations on an existing theme; they simply invoke incremental improvements that can still have an impact on ease of use, cost, and safety. In addition, improvements in ancillary devices associated with category 1 and category 2 developments after they are long adopted can have an impact. Examples in this category include second- and third-generation femoral artery closure devices, improvements in cardiac rhythm monitoring, and the ever-changing extension and ergonomic improvements in endoscopic and laparoscopic instrumentation.

FINANCING MEDICAL INNOVATIONS Utilizing the previous categorization criteria, this chapter will now review the aspects of financing that are critical to the development of any new enterprise. Although frequently not thought of as a core or primary strategy for the development of new companies, financial support and proper capitalization are the lifeblood of any new technology development. This section will outline the sources of capital and how they relate to the stage of company development, delve more deeply into the diligence process by which companies are funded and value is created, discuss the means by which invested capital gains liquidity (i.e., is able to return capital to the primary investors), and review some of the more common mistakes committed by inexperienced entrepreneurs.

Stage of Corporate Development Stages of corporate development can be also arbitrarily divided into four general areas as depicted in figure 6.2. The seed or start-up stage is the initial stage of corporate development. In this circumstance, the company has a concept or product under development but is probably not fully operational. It is often in existence less than 18 months as a corporate entity. In the early stage, the company may have a product or service in preclinical testing. It is unlikely that the company will have advanced to either the development or capitalization stage in which actual testing in humans has been established. It is also not likely to be generating revenues, although strategic partnerships with more developed companies may be providing financial support that does not entail partial ownership in the company but does contribute financially to the company’s cash position. Although usually in business less than three years, depending on financing strategy, many such companies may languish for extensive periods of time in this stage.

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Figure 6.2 Stages of Company Development Seed/Start-Up Stage • The initial stage. The company has a concept or product under development, but is probably not fully operational. Usually in existence less than 18 months. Early Stage • The company has a product or service in preclinical testing. May or may not be generating revenues based on strategic partnerships. Usually in businesss less than three years. Expansion Stage • Later stage clinical trials. The company demonstrates significant potential with promising trial(s), and has stable financing Usually in business more than three years. Later Stage • Nearing launch, partnering of new drug with other trials coming up the pipeline of development. Company has established investors, a public market, strategic partnerships. May includes pine-outs of product from existing private companies.

In the expansion stage, the company is often in clinical trials and moving toward definitive abilities to bring a product to approval and therefore to commercialization. Financing is often stable and well established, and the management team is usually mature and experienced and able to marshal the company through such development. Later-stage companies are often nearing launch or have launched their product or products in the commercial markets and often have a pipeline of new development behind the established or lead product. Investors are professional and have significant funds available. The company may or may not have a public market presence and may have well-defined strategic partnerships with larger companies. This stage may also include products from existing private or public companies with a much larger portfolio of offerings that have been sold to a management team or investors to fill a stand-alone developing company.

Funding Options at Each Stage It is critically important for the stage of capital to be matched to the stage of the company life cycle. This is further depicted in figure 6.3. Angel investment capital has primarily been designed for the start-up, preclinical, and early stages of clinical development of a seed or early-stage company. Angel investment by definition is noninstitutional private money invested in companies either by

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Figure 6.3 Stages of Company and Correlating Capital Sources

high net worth individuals or consortia of high net worth individuals. Although some companies have attempted to use angel capital through the later stages of development, this can pose significant problems. Given that the capital needed to bring a medical-device company to maturity may extend into the hundreds of millions of dollars, and pharmacological solutions or convergence technologies involving biological or chemical entities regulated through a drug rather than device method may run close to a billion dollars, angel investment clearly will not have the sustainable sources of funds to bring a company through to maturity. Although it may be appropriate for less capital-intensive, single-product development through the late clinical stage, angel investment can frequently jump-start a company but also can undermine a company through inadequate capitalization should the company require greater support to prove its value and therefore develop liquidity for investors. Therefore, angel investment is traditionally limited to the earlier stage, both of corporate and clinical development. Venture capital is an institutional supply of money that may be embedded in very large funds with deep pockets. Venture capital, however, may also involve smaller funds that seek to return capital to institutional investors through emphasis on the early stage. Therefore, depending on the size of the fund and the expertise of the investors associated, venture capital may run the route from the start-up through the clinically mature company and increasingly may be seen investing in public companies of a smaller stature and nature that require long-term and dedicated investment to either reposition or relaunch product lines or corporate strategies. Public invested capital is usually relegated to the late stage of clinical development. It is very difficult for a medical-device company to become a public entity offered to the general investing retail and institutional public until it is either at a late stage of

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clinical development with a highly innovative and disruptive category 1 platform or generating significant revenues based on either a category 1 or category 2 innovation. Category 3 innovations as stand-alone single-product companies tend not to be able to mount a public invested capital base unless they are part of a significantly larger and more diversified product portfolio or platform of development. The growth drivers for life-science funding are primarily driven by perceived adoption cycles. Although the risks of the separate categories of development were outlined in the first section of this chapter, a review of the diligence criteria is helpful to the inventor or would-be entrepreneur to define clearly the criteria by which any idea or business plan will be judged. The following list is not complete, as each circumstance drives specific and individualized diligence efforts by investors; certain basic principles, however, need to be followed.

Due Diligence Issues For the development of an idea into an investable proposition and, therefore, one that will be capitalized through its proper development, it is critical to understand the method by which new medical devices are evaluated by the investment community. The previously mentioned categories can be utilized to assess the risk of several critical aspects of diligence done by investors or strategic acquirers of a new technology. The criteria by which these categories are judged include the clinical and scientific principle on which the device is based, the market size and unmet need, reimbursement hurdles, regulatory hurdles, the quality of the intellectual property, development time, manufacturability, and impediments to sales into the adopting clinical community. Inevitably, category 1 technologies are higher risk in all of these categories than are those characterized by category 2 and category 3 definitions. These issues are summarized in figure 6.4. The process includes but is not limited to the following: • • • • • • •

Technology and products. Comparison to current existing therapies. Proprietary defensible conditions (i.e., intellectual property). Scientific review. Regulatory challenges and expectations. Manufacturability and cost of goods. Management capability, experience, and integrity.

The first step in identifying whether your product can be a serious and credible entry into the marketplace rests with the technology base itself. The technology must have a credible clinical application in which an unmet need is clearly present. It may be incremental, additive, or disruptive; that is, category 3, 2, or 1. Although engineering solutions can be arrived at in the production or design of a new medical device, these solutions often are severely limited by a misunderstanding of the clinical scenario at which they are directed. Invention in search of an application or market leads either to increasing cost in our healthcare system without the benefit

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Figure 6.4 Diligence Issue, Risk, and Category of Technology

of improved quality or safety, or it leads to investment failure either financially or ethically with regard to promotion of an inappropriately supported device. Products need to address a real clinical need. In addition, drivers of adoption are multiple and varied and need to be considered alongside the immediate clinical question: • Acceptance of gold standard therapies and clinical community view as to their effectiveness. • Epidemiology of target population including projected growth of the clinical problem or the population itself. • Opinion leader commitments and biases. • Patient advocacy forces. • New competitive development. • Reimbursement and distribution channels. • Historical failures and successes. Intellectual property is the core competitive issue in most device-based solutions. Patent filings with regard to earliest proof of concept, date of provisional filings, date of final filing, breadth of claims, and type of patent (design, materials, manufacturing, use, method, etc.) are all critical in an area in which intellectual property rights will allow market dominance. Clear delineation of academic parent institution rights or prenegotiated licensing arrangements, early filings with the patent office, and thorough notebook validation of times of concept and date of invention are cornerstones of protection in an increasingly litigious space. Current competitive or accepted therapies need to be compared to any proposed innovation using randomized studies or meta-analyses when feasible. As much of medicine is still not evidence based, the literature may reflect long-standing

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clinical assumptions rather than demonstrated effectiveness. Adoption is driven by numerous factors, including but not limited to the therapeutic window for existing and new approaches, ease of use, learning curve, quality of life, discomfort level, required ancillary services, and the specialty controlling the patient flow. The due diligence process for any investor will examine the data generated to date by the founding scientist, clinician, company, or early investors. These will need to demonstrate logical mechanical, physiological, and engineering support for the concept that may be derived from several sources, including computer modeling, prototype development with in vitro testing, early animal validation, and later-stage clinical trials. Determination of the class of device is critical to the time to market launch. The regulatory classification is critical given the length of time and complexity for different classes of devices to reach approval, thus driving valuation assessment. By the time the medical device has reached the maturity to attract outside investors, experienced business development personnel assume management of the project. Inventors, scientists, and clinicians responsible for the original development of the device or technology and question often have been relegated to the role of either chief scientific officer, director of research and development, or head of a scientific advisory board. The structure of companies even at an early stage will therefore involve people well schooled and experienced in the process of fundraising, human resource management, overall company vision, engineering, and the core, driving clinical or scientific competence that initiated the company in the beginning. Therefore, a long track record should be available for all the involved personnel, and this must be examined to determine the capability for execution, work ethic, behavioral code, management and scientific integrity, and previous successes and failures of the assembled team. Direct meetings, review of previous accomplishments, and interviews can accomplish this diligence with both identified and unidentified referees for the individuals in question. New products must be physician and patient enabling to merit adoption; that is, they must fit an unmet need. This can take the form of increasing capability of a physician or medical center for complex interventions in therapies that lower the skill level because of the innovation’s attributes, improvement of outcomes, increasing access for patients, and addressing problems heretofore untreated. Similarly, for medical centers to adopt a physician- or patient-enabling product, the product may be considered attractive if it increases market share because of innovation, increases throughput for diagnostic and therapeutic processes, reduces the per-procedure cost, and improves patient safety and other clinical outcomes. Finally, for strategic partners to invest or codevelop a technology, the presence of state-of-the-art materials, new therapies, synergies, and the ability for the partner to develop new platforms must all be attractive.

Liquidity and Exits as Drivers of Investment Once the diligence process is understood, it is more easily tied to the chain of funding; that is, tied to the type and stage of investors appropriate to the company

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stage, who in turn are driven by the need to return their invested dollars at a multiple either to themselves or to the people for whom they are investing. The chain of funding ultimately has many sources as well as many drivers and goals. Many physicians think of policy makers as sources of funding for scientific development, much as businesspeople think of various sources of capital as funding for business and development. Each of these sources of funding has an end result they are attempting to accomplish. For instance, policy makers and sources of scientific grants such as the National Institutes of Health, National Science Foundation, and NASA are driven by a desire to improve social and scientific programs by addressing unmet needs with economically sensible and technologically advanced solutions. Although the end result or exit is not a financial reward, these sources of funding view the end result of scientific insight and disseminated knowledge as the exit or the goal of their grant making. Similarly, institutions such as universities, medical centers, and consortia of multidisciplinary scientists seek as their drivers institutional revenues and grants to fuel intellectual as well as institutional passion for the development of chosen fields of study. The exits for these groups include institutional revenues and recognition, as well as the potential for departmental and individual clinician scientist return. At a later stage of technology funding, investors ranging from private angel investors to public market institutional investors seek opportunities by which to grow the capital that they either possess individually or have been entrusted by consortia of financial sources. In this setting, the exit driver is a return of the investment that can be accomplished through several mechanisms. These drivers of investment at both the public and private level are depicted in figure 6.5. We will discuss two primary exit modalities: the sale of a company to a larger company or to another group of investors and the emergence of the company into the public markets with the ability for the shares of the company to trade openly among public investors. Each of the categories that have served as the basis for the discussion so far can also be viewed as having significant implications for the way a company is valued and the means by which it can exit. Although it is axiomatic that it is very difficult for small companies without significant development to be attractive to institutional investors in the public markets as there are certain hurdles that must be met before an initial public offering can be contemplated and successful, there is no restriction whatsoever as to the stage of a company at the time of its sale. Thus, category 1, 2, and 3 companies may find themselves sought after by larger acquiring companies for different reasons. Category 3 companies that are often single-product-focused companies with incremental improvement are able to enter the public markets only if the technology is approaching such a large clinical and economic opportunity that revenues are being generated with great certainty and at a high level. This is rare. For the most part, this category of company is acquired by a larger company with a wellestablished sales force that in turn seeks to integrate the product offering into its platform to enhance revenues as well as enhance the productivity of individual salespeople approaching the clinician community.

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Figure 6.5 Drivers of Funding in Private, Academic, and Public Sectors Sources

Drivers

Surveillance/Vision Policy Makers

• Unmet need

• • • • •

Institute of Medicine National Institute of Health National Science Foundation NASA IDN’s/Academic Consortiums

• Mandated solutions • Quality/Cost

Vision/Execution Technology Initiators • • • • • •

Technology transfer Institutional venture Institutional Consortiums (e.g. CMIT) Incubators Entrepreneurs Inventive clinicians/scientists

• Institutional revenues • Grant renewal • Individual returns

Execution/Portfolio Management Traditional Partners • • • •

Venture allies Ongoing concerns Limited/Strategic partners Entrepreneurial network

• ROI • Business Leadership • Innovation

NASA: National Aeronautics and Space Administration ROI: Return on Investment CMIT: Center for Minimally Invasive Technologies IDN: Integrated Delivery Networks

Category 2 companies in which development is expensive and adoption hurdles may be more profound are also likely drivers of acquisition activity. Given the relative regulatory and adoption risks associated in this category, however, it is likely that the company will need to be significantly more mature to demonstrate that it will be a long-term attractive investment for any acquiring company. Similarly, as these companies are much more expensive to take through development than are category 3 companies, the expectations for return on investment by the investors will be higher, the price to be paid will therefore be higher, and the proof of market acceptance and wisdom of investment will necessitate the company being more mature before it is embedded in a larger entity. Category 1 companies are high risk/high return. Because the failure rates of trying to change medical and scientific paradigms are high and the rate of adoption of

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new technologies is low, it is the rare company in this category that returns invested capital. However, it is also this category of company that creates so-called home runs for the investor community when things do work right. The category 1 company that has demonstrated clinical success even in a preapproved mode, and certainly one that has achieved regulatory status that allows commercialization, may represent such a huge potential market shift that both public and private investors (e.g., the public company exit or the acquiring large company) may be willing to take a chance and provide an exit for the company in question. Examples of successful companies in this category include drug-eluting stent companies that have entered the public market and sold as public entities to even larger companies and diabetes-monitoring companies with radical new methods of improving glucose control that have been acquired at huge premiums to their last stated value. As investors determine where to place their bets, the observations on return of capital usually create a mindset of portfolio management. Some will mix categories to hedge against the high-risk/high-reward events that dominate category 1 companies, others will emphasize only the high risk, whereas others will be inclined to emphasize a slow, steady approach to investing that supports incremental improvement but does not risk capital on highly speculative ventures. Finding the right investor philosophy is as much a process of network and advice as it is understanding the type of company that is being offered at the various stages of development.

ERRORS MADE IN COMPANY DEVELOPMENT Now let us look at classic entrepreneurial mistakes. These mistakes emanate from clinical and scientific supposition to financing strategy errors. All can be damaging, sometimes fatal mistakes. From a clinical or development perspective, understanding the diligence process can help avoid the following red flags: • Technology in search of an indication, rather than an attempt to fill an unmet clinical need. • The proposed intervention driven by an unexplained phenomenon (i.e., those engineering technologies that appear to have a clinical effect, the cause of which is not fully understood). • The diagnostic in search of a therapeutic (e.g., an ability to diagnose a genetic trait that is not understood with regard to either its prognosis or the need to develop or apply a specific clinical therapy). • The improvement that requires salesmanship to prove value (i.e., the platform that flies in the face of current clinical practice without a rational plan for developing data to displace the gold standard). Similarly, financing errors that can be fatal to a business plan include: • A lack of understanding of the milestones that will create value in a company and not linking them to expected rounds of financing; a lack of

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honest self-appraisal of a company’s technology and commercial worth at any given time in the investment cycle. • An investment management approach that overspends or undercapitalizes, thus preventing an opportunistic exit or the preservation of an investment position while value is accruing. The return on investment sought and the tolerance for risk balanced against potential gain is an independent portfolio management decision, but a consistent philosophy should be adhered to. • Unreasonable valuation expectations. A better return on investment is provided by giving up a larger piece of the company in exchange for having sufficient capital to drive high exit returns. Holding onto greater equity share while preventing the company from having sufficient funds to grow and develop is deleterious to investors and management in the long run. • Lack of a clear use of proceeds for any projected investment round: • Unattainable milestones. • Poorly focused effort. • Inadequate personnel to achieve goals. • Not being open in any plan to changes in the business model or the technology platform. • Lack of realism about adoption rate or regulatory hurdles to overcome.

CONCLUSION Medical-device development is driven by numerous factors: entrepreneurial zeal, clinical insight, investor desire for significant returns, government policies that reflect unmet needs, and technology opportunities. It is a process unlike many other commercial exercises, in which the marriage of ethical, clinically driven, data-seeking behavior is closely monitored by government agencies and in which adoption is unofficially but completely driven by patients and physicians whose complex needs cannot be fully legislated. Capitalization of these companies, which are predicated on expensive and often difficult-to-prove value propositions, is a critical but frequently underemphasized ingredient for commercial success. As the process of invention, development, regulatory approval, and widespread dissemination by commercial means is the process that reduces good and useful ideas to the bedside, it is imperative for the clinician inventor, healthcare executive, and patient advocate, among others, to be cognizant of the dynamics that drive ideas into the market.

Key Concepts • Look for the technology that reflects physiological understanding and a therapeutic approach that is consistent with acceptable standards of medical practice.

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• Continually review stage and breadth of company offerings as you plan your investment and exit-management strategy. • Build the company’s resources (technology, management, board of directors, strategy), continually reassessing progress within the company and alignment to the clinical and financial needs of the targeted market. • Never forget that financing strategy is critical to a company’s success; technology and management are the engines for great investor returns, but financing provides the fuel.

FURTHER READING Blowers, Stephen C., Peter H. Griffith, and Thomas L. Milan. 1999. The Ernst and Young LLP Guide to the IPO Value Journey. New York: Wiley. Gertler, Jonathan, and James Garvey. 2001. “From Idea to Product: Financing and Regulatory Issues in Product Development.” In Surgical Research, ed. Wiley W. Souba and Douglas W. Wilmore, 1405–14. San Diego: Academic Press. Higgins, Robert C. 2004. Analysis for Financial Management. New York: McGrawHill. Lajoux, Alexandra Reed. 1998. The Art of M&A Integration: A Guide to Resources, Processes, and Responsibilities. New York: McGraw-Hill. Moore, Geoffrey A. 1995. Inside the Tornado: Marketing Strategies from Silicon Valley’s Cutting Edge. New York: HarperCollins.

APPENDIX 1: GLOSSARY Angel investment: High net worth individual investors. Dilution: Equity-reducing investment. Exits: Liquidity events either by merger/acquisition/public offering. IP: Intellectual property. IPO: Initial public offering. Nondilutive financing: Non-equity-affecting inflow of funds. Private equity: Late-stage, usually growth capital/leveraged-buyout investors. • Public equity: Public company investment. • Strategic partnership: Marketing, development, and financing relationship with a larger company. • Valuation: • • • • • • •

• Premoney: Value of company before investment dollars. • Postmoney: Value of company including new investment. • Venture capital: Professional, private investors.

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CHAPTER 7

Improving Outcomes and Reimbursement: Outpatient Management of Pediatric Diabetes and the Implications for Chronic Illness Karen Rubin, Jayne Oliva, and Debi Croes

D

elivering care to youth with diabetes in an outpatient setting promotes prevention and self-management and generally results in improved outcomes and fewer complications and hospitalizations. Connecticut Children’s Medical Center (CCMC), like institutions nationwide, however, found that delivering quality outpatient care to children was simply not profitable. In fact, if near-term profitability was the organization’s sole goal, children would be managed as inpatients where care was more favorably reimbursed. What a vexing and at times heartbreaking medical conundrum for providers and patients alike, given the alarming escalation of diabetes in the United States and the high cost of acute care. Since the early 1990s, the number of people in the United States with diagnosed diabetes has more than doubled, and an estimated 175,000 people aged 20 years or younger have diabetes. One in three U.S. children born in 2000 could develop diabetes during their lifetime.1 Studies prove that dollars invested wisely in prevention can pay big dividends in health and cost savings. The estimated annual cost for ongoing outpatient care of the child with diabetes is $2,021, whereas a single hospitalization averages $5,915.2 Despite this and other similar studies, most insurers are far more inclined to cover the cost of complications but skimp on the prevention. Unwilling to deliver anything less than the best care from the most appropriate provider and determined to more closely involve patients and their families, CCMC set out to challenge the status quo. Staff embarked on a mission to make a case to payers for a different reimbursement structure by developing an outpatient model that demonstrated cost-effective care delivery and improved outcomes. Additionally, in light of burgeoning costs for chronic illness nationwide, the authors raise what we believe is a compelling case for applying the lessons learned in managing and recouping costs for diabetes to other chronic illnesses as well. 157

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This chapter outlines the process CCMC used for converting childhood diabetes coverage from an unprofitable fee-for-service (FFS) structure to a model that addresses, at a more favorable reimbursement rate, the chronic, continuous requirements for youth with this debilitating chronic illness.

CCMC’S INITIAL OUTPATIENT MODEL Motivated by the goal of doing right by its youngsters with diabetes, CCMC set out to build an outpatient pediatric diabetes program that: • Improved care quality and patient outcomes. • Empowered patients and families for enhanced self-management and compliance. • Reconfigured staff performance expectations to provide the right care at the right time. • Delivered profitable reimbursement. CCMC’s approach to care capitalized on findings from the 1993 diabetes control and complications trial (DCCT), embraced by the medical community as the gold standard for treating youth with type 1 diabetes mellitus (T1DM).3 This trial showed that intensive insulin regimens for adolescents and adults dramatically reduced A1C levels—a marker of improved metabolic control—which in turn slowed the progression of microvascular complications. Hailing the value of a multidisciplinary team, the trial proved that intense care, together with focused consultation, educational services, and family involvement, could reduce complications and dramatically improve patients’ quality of life.

Children Are Unique Unlike most adults, children with newly diagnosed T1DM (and some with type 2 diabetes) require immediate initiation of insulin treatment. Additionally, youngsters and their families need intense individualized instruction in diabetes management skills. After about three months, patients are generally medically stable and families sufficiently comfortable and competent to handle the routine associated with daily diabetes management. Nationwide, approximately 25 percent of children with newly diagnosed diabetes present with ketoacidosis and require stabilization in the hospital, often in an intensive care unit. The remaining 75 percent of newly diagnosed children are medically stable enough to be safely managed in an ambulatory care setting, provided the diabetes care team has the resources it needs to provide intense outpatient management.4

A Phalanx of Support at CCMC Connecticut Children’s Medical Center, combining the pediatric services from three separate institutions, opened its doors in a brand-new building in 1996.

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The only freestanding independent hospital in Connecticut that exclusively serves children, it is also the home of the University of Connecticut School of Medicine Department of Pediatrics and its pediatric residency program. Outpatient services include a primary care practice that serves nearly 15,000 children from the greater Hartford area and a wide array of pediatric specialties. The endocrinology practice at CCMC had the resources it needed to deliver high-quality outpatient multidisciplinary care. Team based and focused, CCMC’s intense proactive and multilayered approach helped shorten or prevent the inpatient stay for hospitalized youths and shifted care to the ambulatory setting as soon as patients were medically stable. Patients benefited from a team of specialists that included endocrinologists, advanced practice registered nurses (APRNs), registered nurses (RNs), nurse/ nutrition educators, registered dietitians (RDs), psychological support specialists, and medical assistants. Additionally, all nonphysician team members were certified diabetes educators (CDEs).

Patient Management Newly diagnosed patients received close medical supervision, delivered face-toface or non-face-to-face, depending on the services required, as follows: • Face-to-face visits included the initial comprehensive team assessment at diagnosis, laboratory confirmation of diabetes with glucose and A1C level, and four subsequent scheduled visits with team members. Postdiagnosis visits were necessary so the team could extend and reinforce the initial education in diabetes self-management skills and provide psychosocial support to the patient and family. • Non-face-to-face care included initial phone contacts with the endocrinologist on call for daily insulin doses for three or more days, followed by at least weekly phone contact with the case manager preceding a two-week postdiagnosis visit with the team. Frequent phone contacts to adjust insulin dose, answer diabetes management questions, respond to acute metabolic changes, and assist with sick-day management represented most of the non-face-to-face care the team dispensed during the initial three months of treatment.

Meeting American Diabetes Association Guidelines CCMC structured its ongoing care for established patients to meet American Diabetes Association guidelines for pediatric diabetes treatment: • Comprehensive diabetes visits every three months with on-site, pointof-care A1C testing. These visits encompassed ongoing diabetes selfmanagement education, nutrition counseling, and psychological support as needed. Psychosocial support helped address, among other things, the

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increased incidence of depression and eating disorders in adolescents and the additional stressors that the disease imposed on the family. Team members scheduled additional visits with patients who fared poorly, used continuous home glucose monitoring with a sensor, or switched from conventional insulin therapy to an intensive insulin regimen using multiple injections. • Twenty-four-hour phone availability so the team could immediately address insulin dose adjustment, sick-day, and perioperative insulin management; hypoglycemia and early diabetic ketoacidosis (a life-threatening medical condition); insulin pump failures; and other emergencies as required. • Coordinated team outreach to the staff of schools, day-care centers, and residential settings to enable them to better meet patient healthcare needs.

Insulin Pumps An important part of the diabetes care the team delivered was pump therapy. The insulin pump is intensive treatment that offers youth with diabetes and their families greater lifestyle flexibility. Children on insulin pumps typically have more stable blood glucose levels with less hypoglycemia because the pump delivers a steadier dose of insulin matched more precisely to food. It was not surprising that many children with diabetes found the pump liberating, as did their parents. Pump therapy was not without its pitfalls, however. Because the pump uses only short-acting insulin, there was an increased danger that users could develop diabetic ketoacidosis. Therefore, the team carefully screened all pump candidates and their families for motivation and skill readiness and then taught those who qualified how to manage any potential medical complications. The three-pronged process included: 1. Pump therapy option: The CCMC pediatric endocrinologists discussed pump therapy with each established patient as a possible option and provided a team-designed pump information packet. 2. Pump information/education session: Interested patients and their families attended an educational program to help them decide if they wanted, and were able, to pursue pump therapy. 3. Insulin pump initiation program: Candidates who qualified received: • • • • •

The individual pump assessment visit. Pump nutrition visit. Practice pump start with saline. Actual insulin pump start. Daily non-face-to-face contact via phone, fax, or e-mail for up to one week.

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• Follow-up visits at two and six weeks. • A three-month visit with an endocrinologist. The increasing sophistication and features of recent pumps led the CCMC team to incorporate patient and family attendance at an advanced pump class during the three-month insulin pump initiation period.

Service Glitches As the diabetes program grew over the years to meet demand, CCMC identified several issues that affected service delivery: • Provider resources were not clearly or consistently allocated to services in the best way possible to meet patient needs. • The existing diabetes care delivery model placed conflicting demands on providers and staff, resulting in significant stress and inefficient operations. • Although staff estimated volume growth for the service to be relatively slow (4 percent annually), new-onset diabetes patient referrals required sufficient resource allocation to manage an unpredictable but urgent need. • Wait times on insulin pump starts for T1DM patients were longer than desirable, sometimes as much as a year.

A NEW WAY OF DOING BUSINESS Delivered by competent and credentialed professionals—not all of whom were physicians—outpatient services included urgent and scheduled care, phone contacts, response to e-mails and faxes, diabetes and nutrition self-management counseling, and educational materials. Herein was the reimbursement hitch: Many of the diabetes-related services the team provided, crucial to better outcomes, fell into the payer-defined category of nonphysician or noncovered care. Patients continued to receive the finest treatment from a team of dedicated professionals, but the program itself was sinking financially. Either nonphysician providers delivered care that was not reimbursed or physicians stepped in; either way costs escalated. Initially, the resulting deficits were covered by hospital funding and/or indirectly through research dollars. CCMC could not continue to absorb these costs, however, posing a real threat to the sustainability of the pediatric diabetes program. Could CCMC make care delivery profitable in order for its program to be self-sustaining? The answer was yes, but not without a lot of soul searching and elbow grease. With hard work and gritty determination, physicians and staff, with assistance from consultants, redesigned operations and staffing to meet patient needs more effectively and profitably, use provider resources efficiently, actively involve patients

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and families and caregivers to boost compliance, and track resource utilization and measure outcomes. Accomplishing these goals required creation of: • An efficient, patient-focused service delivery model that reorganized existing services into business lines and allocated providers and resources effectively to maximize productivity. • Physician and nonphysician provider capacity and commitment agreements to detail provider resource allocation to services, thus ensuring delivery of quality patient care by the most appropriate provider resource, allot provider clinical time, and delineate performance expectations. • Financial and volume projections to identify associated costs and revenue. • Outcomes and cost tracking by all multidisciplinary diabetes team members, to monitor the continuous care provided (both face-to-face and non-face-to-face), associated costs, and disease outcomes.

Three Business Lines The first step in the process to reconfigure care delivery was to parse existing services for all of its patients into three distinct business lines: • Urgent new-onset diabetes care. • Established care of diabetes patients. • Insulin pump initiation. Working as a team, and aided by consultants, staff then undertook the at-times arduous task of meticulously documenting the type of service and patient visit that took place within each business component. As staff documented the services currently provided, discussions also centered on the team’s opinion as to what was, in truth, the very best way to manage patient care in each of the three areas, without forgetting how visit predictability figured into the equation. For example, new patients presenting with diabetes required that staff complete an immediate overall patient evaluation, develop a care plan, educate patients and families, and organize supporting services. The team had no control over when new patient referrals would arrive at the door. But they knew they had to see these T1DM patients immediately, and it required an average of two days of on-site evaluation and care plan development to do so.

Naming Names After describing actual and desired services within each business line, the next step in the process was to determine which team member delivered the actual care. Was it the physician, registered nurse, or dietitian? It was critical that CCMC clearly understand everyone’s role in order to ensure correct staffing, bill for its services, and collect payment.

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In the case of the new, emergent T1DM patient, team-based care was the preferred approach. Rather than a physician taking a lead on the team, however, an APRN organized and coordinated team-based care with on-call physician oversight. This arrangement brought a whole new approach to managing and delivering care in this business line that, although treating a relatively small number of patients, was both urgent and unpredictable. Now instead of interrupting a physician from a very busy schedule, which also tended to upend the equilibrium in the clinic, the APRN managed the emergent patients with a team of caregivers that included a certified diabetes educator, social worker, and nutritionist, seeking physician guidance only when necessary. The same APRN-led configuration applied to insulin pump initiation. To best deliver this service, the APRN assembled a team that included a certified diabetes educator, social worker, dietitian, and nurse—no physician needed. And in terms of predictability, all insulin pump visits could be scheduled. These team assignments left the physicians more uninterrupted time for care oversight and management of the scheduled medical visits for established patients, which helped streamline clinic operations and improve service predictability for patients. The clinical pathways for each business line, with team assignments, are delineated in figures 7.1, 7.2, and 7.3.

Capacity and Commitment Agreements Staff now had a comprehensive, written, and consistent understanding of what service was delivered and by whom. Now it was time to commit more formally to performance expectations, assign clinical roles, and allot provider time for every member of the team. The diabetes team at CCMC started by examining the current and future service and staffing agreements, and determining how many physicians, nurses, registered dietitians or others it took to deliver on those care delivery promises. For example, the team committed to assigning each patient a designated primary physician, as well as a CDE for both visits and phone support. To tackle the challenge of responsiveness to fax and telephone referrals from community physicians, the team reassigned an APRN to manage initial feedback.

Physician Buy-In Physicians at the endocrinology practice agreed to adhere to the faculty practice plan’s norm of allocating 70 percent of their time to clinical activity and 30 percent to teaching, research, and administration. They then helped create, and thus support, productivity expectations during diabetes clinic time (of two visits per hour) and agreed that a standard ambulatory session would be three-and-a-half to four hours long. Operational redesign increased access—each endocrinologist had 30 percent more available slots—and an additional physician was added to manage increased volume.

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Figure 7.1 New-onset Care: Clinical Care Pathway

On the nonphysician side, CCMC defined specific roles and the expected time required to complete each task. APRNs, for example, were responsible for new T1DM patients, pump starts, and initial management of new referral calls. The APRNs had no regularly scheduled visit sessions, but they could be assigned other clinical tasks, such as when they were not tied up with urgent new patients. The team completed the same analysis for every service in each of the business lines within diabetes care. CDEs agreed to reconfigure their responsibilities to spend half their time responding to telephone calls and half their time conducting on-site patient education. Registered dietitians expanded their duties so they had

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Figure 7.2 Established Care: Clinical Care Pathway

time to see scheduled diabetes and endocrine patients, coordinate lipid disorder patients, and help with scheduled insulin pump starts. Again, this task assessment was critical when the team moved forward to negotiate reimbursement for care delivered by staff other than physicians.

Financial and Volume Projections Armed with a clear understanding of how to deliver care in each business line, financial and volume projections were developed to identify associated costs and revenues and to be certain CCMC had enough staff to meet current and future demand.

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Figure 7.3 Insulin Pump Initiation: Clinical Care Pathway

An Operational Turnaround The reconfigured operational model, developed with and welcomed by the endocrinology physicians and staff, significantly improved practice operations, specifically: • Physicians’ weekly schedules were more predictable and their on-call duties more efficiently configured. • Routine scheduling decisions were managed by support staff because appointment availability was built into normal weekly schedules rather

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•

• • •

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than determined by individual physicians on a case-by-case basis, as was previously done. Assigning T1DM patient referrals to APRNs utilized a more costefficient provider resource for a significant portion of an unpredictable but urgent patient care service, yet retained care oversight by the on-call physician. Separation of ambulatory referral management from other traditional on-call duties improved the ability of on-call physicians to respond to true urgencies and inpatient needs. Assignment of designated physicians for all patients and availability of ancillary providers, particularly CDEs, improved patient service. Patient access and service improved, due to elimination of specialty clinics and opening of all sessions to all types of patients. Allocation of adequate and appropriate resources to insulin pump starts significantly reduced the excessive backlog, and growing demand eventually stabilized.

Improved Outcomes Having accomplished the considerable challenge of retooling for operational efficiency, CCMC now had to demonstrate improvement in pediatric diabetes outcomes and assemble the data needed to approach payers with a persuasive argument for rethinking reimbursements, rewarding and compensating CCMC and its providers for the use of proven treatment protocols that resulted in improved outcomes. The CCMC pediatric diabetes team built a clinical database to provide staff with immediate access to a variety of patient outcomes, including episodes of hypoglycemia, diabetic ketoacidosis, hospitalizations, emergency department visits, and A1C levels. Team members checked the database frequently to assess outcomes and continue to improve patient care. At the core of data collection was a system to track all diabetes care provided by all team members for both patient visits and non-face-to-face contacts. The tracking system required team members to complete contact sheets, which were filed in the patient’s medical record and entered into the database during the next medical visit. Meticulous record keeping allowed the team to accurately track staff time for any patient encounter and then correlate time spent to outcome. But getting everyone to be consistent about reporting took a fair amount of effort. It required constant monitoring and reinforcement about the importance of gathering the information. Indeed, once staff understood the patient benefits of having this data readily available for quality improvement purposes, they became more invested in the collection process. This storehouse of data, compiled without the benefit of an electronic medical record, demonstrated sustained improvement of all outcomes over the prior five years in the context of steady increases in patient volume. Furthermore, analysis

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of trends in metabolic control in various patient subsets had resulted in patient, family-, and friend-centered improvement initiatives for both adolescents and minorities. For instance, to address the disparities in metabolic control observed in adolescents and Medicaid T1DM patients, CCMC undertook two performance improvement initiatives: First, the team’s psychological support specialist provided coping skills training for adolescents; second, all diabetes team members enhanced their outreach to Medicaid patients and families for implementation of more intensive insulin regimens and insulin pump therapy. Figures 7.4, 7.5, and 7.6 demonstrate the improvement achieved.

NEGOTIATING A GLOBAL RATE CCMC wanted a pay-for-performance, global rate model that appropriately reimbursed the team for the quality care it provided. The database proved crucial in that quest for two reasons. In capturing outcomes, it was a highly effective tool for continuous quality improvement. And it also provided payers with a snapshot of their covered patients, showing low A1C levels coupled with low rates of emergency department visits and hospitalizations. Compared to the national average of 13 hospitalizations and 29 emergency department visits of diabetic children per 100 person-years,5 the CCMC averaged 2.3 and 15, respectively, in 2006. Referencing its business lines and services, CCMC could explain the continuous care children with diabetes required. And the team could back up the benefits of Figure 7.4 Trends in Metabolic Control in Adolescents with T1DM

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Figure 7.5 Trends in Metabolic Control in Medicaid Patients with T1DM

such care with demonstrated outcome improvements. The result? Payers were open to replacing the fee-for-service structure with a viable alternative: a global rate model that would be a better fit for the continuous care requirements of youth with diabetes.

Pitching the Argument Armed with a model of care that demonstrated improved outcomes for pediatric diabetes patients, the CCMC team was ready to take its case for a global rate structure to Connecticut’s major insurers. Using contacts it made in the Connecticut State Legislature, CCMC gained access to insurance industry connections and an attorney specializing in managed care lobbying. Through these efforts, CCMC held a statewide forum to educate the major payers about pediatric diabetes care and the proposed global rate reimbursement model. CCMC’s presentation gave all payers baseline information about the impact of pediatric diabetes and laid the groundwork for the individual contract negotiations that followed. Citing its clinical database, CCMC was able to show how intensive diabetes management on an outpatient basis would decrease hospitalization rates and emergency department visits. Additionally, by referencing the growing trend in outpatient volume for patients with T1DM, the team provided the rationale for a

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Figure 7.6 Trends in Metabolic Control for Pump Therapy Patients

shift in care from inpatient to an ambulatory setting for the majority of new-onset patients. This rationale was the first step in making a case for a global rate reimbursement model that would reallocate dollars accordingly.

Negotiating the Contract The CCMC team developed specific global rate dollar amounts for each of the three business lines, based on the true cost of delivering multidisciplinary care and demonstrating the cost savings for each insurer’s enrolled patients. CCMC then negotiated the actual global rate for each business line with individual payers, settling on an amount that was proprietary between each payer and CCMC. During annual contract negotiations, the intention is for CCMC to share outcome data with insurers and request that rates be adjusted accordingly. The CCMC team developed a process for negotiations that helped keep their eyes on the desired end result: • Understood their go and no-go rate. CCMC approached the process with patience and flexibility, but the team had a specific goal in mind when it sat down to bargain. They aimed high in their initial rate request but allowed sufficient wiggle room to negotiate. They knew where they

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could be flexible with their counteroffers and where they had to stand firm to make the new reimbursement system work. • Transacted with the power players. CCMC brought its decision makers to the negotiations and requested that each payer do the same. The nature of CCMC’s unique provider-payer agreement demanded that only the key decision leaders should sit at the table in order to hammer out the details of the contract then and there. • Focused on the right picture. The team kept discussions focused on the strategic reasons for a reimbursement change (e.g., cost savings and improved outcomes) rather than on the operational issues that could stand in the way of implementing a new rate structure. Once agreement was reached in principle to change the payment model, both sides worked to resolve the operational hurdles of implementing a new system.

A New Dynamic Even as CCMC lobbied to change the reimbursement model, it sought to transform the dynamic among all parties in the process—providers, patients, and payers—by establishing a truly collaborative relationship. CCMC’s multidisciplinary team approach to care provided the clinical, educational, and support services necessary to teach and empower patients and families to be more involved in—and responsible for—improving their health. By transitioning to a global rate, the team could continue to provide these services, project revenues more accurately, and improve program quality to further enhance patient care. The new reimbursement structure allowed CCMC to maintain and improve a cost-effective model of quality care, which in turn ensured fewer health problems for diabetes patients and decreased costs for payers.

Smoothing the Way Payers responded positively to CCMC’s proposal for a global reimbursement rate, but there were also some concerns. The insurers understood the strategic reasons and the logic for changing the payment process. The snags centered on the mechanisms required to implement the change. Specifically, the insurers felt that they could not easily manage global rate billing within their current systems. To sidestep the barriers, CCMC worked out a five-step process to ensure a seamless interface with each insurer’s current billing systems. First, recognizing that the diabetes care providers could easily revert to old habits, CCMC put internal safeguards in place to prevent team members from submitting fee-for-service bills for services covered under the global fee. Second, although the diabetes program was under the auspices of the endocrinology service, a private practice division of CCMC’s faculty practice plan, a hospital-based global rate program was preferable to a physician practice-based global rate program. The new model required an automated, recurring billing

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system that generated monthly bills, and the hospital had such a structure in place. This involved: • Only the initial referral from the primary care provider. • No co-payment. • A global rate program that was an addendum to the annual hospital contract with the payer so that renegotiation of contract was unnecessary. Third, the model, designed as a monthly rate for each covered patient in each of the three business lines (new onset, established care, and insulin pump start), simplified the following operational issues: • It avoided need to prorate charges if a patient left the program. • It was easy for patients to transition from one type of care to another (e.g., new onset patients moving to established care). • It identified a dedicated staff person to verify and submit the monthly global bills. Fourth, the hospital bill was unitized, or showed a recurring charge with start and end date versus a daily accounting of episodic visits. As a result, the patient does not need to reregister at each office visit. (For any services not covered under the global rate [e.g., lab, radiology], however, the patient does need to reregister, and bills are submitted.) Fifth, Level II Healthcare Common Procedure Coding System (HCPCS) codes were the best fit for interfacing the global rate model with the insurers’ current systems, specifically: • New onset care: G-9001 (coordinated care fee, initial rate). • Established care: G-9002 (coordinated care fee, maintenance rate). • Insulin pump initiation: G-9003 (coordinated care fee, risk adjusted high, initial).

A Win-Win for All CCMC has now successfully negotiated several global rate contracts, with enough improvement in the revenue stream to ensure the viability of its diabetes care program. Global rates proved to be a win-win for all concerned: for CCMC’s patients and its bottom line and for payers. CCMC can continue to provide evidence-based care, which means a healthier life with fewer complications for youngsters with diabetes. And healthier patients mean significant reimbursement savings for insurers. On average, it costs more than $5,000 to hospitalize a patient with diabetes,6 compared to an average cost of $1,500 per patient for new onset, established, and pump infusion phases of the CCMC diabetes care program.

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Learning Curve As with any new initiative, the work to change from established fee-for-service reimbursement to a global rate model was a learning exercise. CCMC gleaned several important lessons: • Hold annual meetings with the insurers. Reviewing outcome data should be part of the agreement. A yearly reassessment binds both parties to track and report outcomes, reaffirms the program’s success, and provides an opportunity to make any needed adjustments in the care or reimbursement model. • Protect the global rate from deductibles, co-pays, or other allowances that could affect the revenue stream. Decision leaders on both sides should understand that a global fee is based on the cost of service delivery and is already efficient and streamlined. • Set up revenue tracking systems to correlate to the clinical database. • Recalculate the global fee on a regular basis. Costs and service delivery can change. Although it may not be necessary to renegotiate annually, there should be a clause in the contract that allows for a reevaluation at specified periods.

APPLYING LESSONS LEARNED: A PRIMER FOR RETHINKING CHRONIC CARE DELIVERY CCMC succeeded where others had failed in creating a new model of care for diabetes, one of the most debilitating and chronic illnesses facing the United States. Clinicians redesigned service delivery, empowered patients, and convinced insurers to manage and pay for care in an entirely different fashion. Can the lessons CCMC learned for improving profitability, productivity, patient access, care coordination, outcomes, and reimbursements—in the outpatient setting—resonate for other chronic illnesses as well? In truth, the care model, operational improvements, and reimbursement structure that CCMC undertook to create a profitable service, with outstanding patient outcomes, could be replicated in other settings. Specifically, the model is applicable for any chronic illness or disease that requires: • Intensive face-to-face services delivered in an ambulatory setting. • Non-face-to-face services for maintenance, support, or management of acute episodes. • Services that could be delivered by either physician or nonphysician providers. Chronic illnesses that meet these criteria include the care and treatment of cystic fibrosis, obesity, and early metabolic syndrome (prediabetes).

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Here are five lessons learned at CCMC that could be applied in the chronic illness outpatient realm: 1. Develop categories of care. CCMC created three business lines—new onset, established, and insulin pump care—to describe its patient panel. Other organizations have sorted care into chronic, complex, and episodic treatment. Create the categories that work best for the type of patients served and the care delivered. Classifying care delivery is important because it provides the framework for assembling the right operational and staffing support by patient type to ensure high-quality care, a smooth patient encounter, and maximum provider productivity. 2. Determine who and when. For each category created, determine who delivers what, when, and for how long. Does the physician need to deliver the service, or can the APRN better manage the care? Is the visit scheduled or on an emergent basis? And is the patient treated within the hour or in the clinic for a two-day evaluation? Knowing the flow and approximate duration of the patient’s visit is critical to this process. Have all the providers in the practice, from physicians to nutritionists, estimate what it takes to care for patients in each of the respective care categories. 3. Set performance expectations. Delineate and, if necessary, realign tasks for each category of care to be sure the right clinician delivers the right treatment at the right time. This information is crucial to understanding staffing and capacity requirements. Remember also to keep the physicians’ time pure, so when doctors are with patients they provide care and treatment and do not get distracted by tasks that support staff could easily handle, such as finding the medical chart or chasing lab results. 4. Capture and analyze outcomes. Put data management systems in place to capture statistics that demonstrate improved outcomes. Readily accessible outcome data allow clinicians to continually monitor care quality and adjust care plans as needed for better results. And this is precisely the information that leadership takes to the table when it comes time to negotiate with insurers over reimbursement fees. 5. Lobby for a global rate. The traditional fee-for-service reimbursement structure may not be the best model for managing chronic illness. The very nature of these debilitating conditions requires preventive care before complications set in, regular and/or continuous attention, and oftentimes care delivery from staff other than physicians (that is, noncovered providers). Educate insurers about the nuances of care delivery for the chronic illness that are managed and then work together with decision makers to advance a more equitable reimbursement structure.

CONCLUSION: NO SHRINKING VIOLETS Completely reorganizing and overhauling patient management is tough work, but the rewards are sweet for providers (improved care and revenue), patients

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(better health), and payers (decreased costs) alike. Organizations that challenge assumptions and aim high can succeed. CCMC believed in the quality of diabetes care it delivered. Even as other outpatient programs struggled and sank, CCMC persisted on its path to improved performance. When others said it could not be done, CCMC took on the insurance giants and won their support for an entirely different reimbursement system. Sweeping change requires commitment to common ground and common goals, for the greater good. Who can quibble with improving care, relieving suffering, maintaining good health, and decreasing costs? Proving it, as CCMC was able to do in the outcome data it captured, brought payers on board to reward demonstrated performance. CCMC united providers, patients, and payers in a new patient-responsive dynamic to manage and pay for chronic diabetes care with a process that could shed better light on caring for chronic illness nationwide.

NOTES 1. National Center for Chronic Disease Prevention and Health Promotion. 2006. “Diabetes: Disabling, Deadly, and on the Rise 2006.” Centers for Disease Control and Prevention. Available at: http://www.cdc.gov/nccdphp/publications/aag/ddt.htm. Accessed July 30, 2007. 2. Klingensmith, G. J., and H. F. Allen. 2001. “The Cost of Providing Care to the Pediatric Patient with Diabetes.” The Endocrinologist 11 (1): 41–47. 3. Diabetes Control and Complications Trail Research Group. 1993. “The Effect of Intensive Treatment of Diabetes on the Development and Progression of LongTerm Complications in Insulin-Dependent Diabetes Mellitus.” New England Journal of Medicine 329: 977–86. 4. Klingensmith and Allen, 41–47. 5. Levine, B. S., B. J. Anderson, D. A. Butler, J. E. Antisdel, et al. 2001. “Predictors of Glycemic Control and Short-Term Adverse Outcomes in Youth with Type 1 Diabetes.” Journal of Pediatrics 139 (2): 197–203. 6. Klingensmith and Allen, 41–47.

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CHAPTER 8

Healthcare as an Economic Engine R. Donald McDaniel Jr., Anirban Basu, David I. Kovel, and Ian Batstone

T

he purpose of this chapter is twofold: to describe the key components of the U.S. healthcare system in an economic context and to define the economic magnitude of the industry and its critical importance to the overall U.S. economy. It will provide an overview of the key economic units that participate in healthcare delivery and financing in the United States and how they are organized. Second, it will describe the interdependence of the various actors and provide an overview of the collective economic impact of the industry. This chapter will present the factors that lead people to refer to healthcare as an “economic engine of growth.”

THE CHALLENGE AND THE OPPORTUNITY But the very real problems with the health care system mask a simple fact: Without it the nation’s labor market would be in a deep coma. Since 2001, 1.7 million new jobs have been added in the health care sector, which includes related industries such as pharmaceuticals and health insurance. Meanwhile, the number of private-sector jobs outside of health care is no higher than it was five years ago.1

Healthcare in the United States is a conundrum, and one’s perspective of its virtues or pitfalls may depend solely on the lens through which one views it; a highly compensated practitioner, administrator, or therapist may be quite happy with their profession and industry, whereas a policy maker, employer, or consumer may be quite concerned about growing costs, sometimes substandard care, and general inconsistency in delivery of health services. The system is widely viewed

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as the best for specialty, tertiary, and quaternary care, yet it also is the only system in a developed country that does not provide health insurance to all its citizens. In fact, between 2000 and 2005, some 7 million Americans lost their health insurance coverage, according to the U.S. Census Bureau. At the end of 2005, Americans without health insurance totaled 47 million. So it seems that the predominant problem with the current U.S. healthcare system is that there is too much spending and too little productive output. As a study by IBM, titled “Healthcare 2015: Win-Win or Lose-Lose?” states, the “U.S. spends 22% more than second-ranked Luxembourg . . . and 2.4 times the OECD [Organization for Economic Cooperation and Development] average. Yet the World Health Organization (WHO) ranks it 37th in overall health system performance.”2 Specifically, the WHO ranking refers to measures used to indicate comparable health status performance and trends among different countries. Comparably, the OECD collects data on different aspects of the performance of health systems among its member countries, including data on life expectancy, mortality from specific diseases (e.g., cardiovascular diseases and cancer), external causes of death, infant mortality, infant birth weight, and dental health among children. The United States performs poorly in almost every indicator measured relative to the amount of spending on healthcare, which would lead one to believe that the investment in health services does not generate a commensurate return. The exploration of this discussion is beyond the scope of this chapter but is an important concept to garner: that the consumption of health services in the United States is not really value driven. Fixing the paradox that is the U.S. healthcare system is not easy, however, principally because tinkering comes at a risk. A major reason that larger-scale reform attempts to date have not been effective is the concern about the one big potential unintended consequence: that somehow such reform could severely harm the healthcare economy, possibly the major industry contributor to the overall health of the U.S. economy. The health industry in the United States contributes mightily to the overall health of its economy on many levels. On a direct basis, the health sector makes major contributions to U.S. income and employment. For example, the U.S. Bureau of Labor Statistics predicted that 16 percent of all new jobs created by 2012 will be in the health services arena and that until 2012, 10 of the 20 fastest growing occupations will be in a health services industry, including job growth of almost 60 percent in the home healthcare services industry.3 Further, because of the interconnectedness of the economy as a whole, continued growth in the healthcare sector creates an economic ripple effect; that is to say, a dollar of revenue in the healthcare industry creates something more than a dollar of activity in the community that surrounds various healthcare entities. In many smaller communities, for example, healthcare institutions (predominantly hospitals) are typically the largest employer. Interestingly enough, they are often the largest exporter to other nearby communities. Many hospital systems, particularly academic medical centers, expand with an outpatient center expansion strategy, branding freestanding health centers in proximate communities. Additionally,

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health institutions might simultaneously employ both the best and brightest among us as well as the least-educated workers, making it an exceptionally attractive industry for many constituents, including workforce development advocates and policy makers. For example, although hospitals engage a great many high-income physicians, nurses, technical staff, allied health professionals, and administrators, the modern hospital also requires health assistants and technicians, nursing support personnel, janitorial staff, and a bevy of clerical and lower-level administrative support resources. On any given day, even a suburban hospital in the most affluent area will simultaneously house an employee parking area with expensive cars and a series of bus stops that facilitate transportation for the lowerwage earners, often coming from geographically proximate urban areas. From 1990, annual growth in healthcare and related spending of more than 9 percent has outstripped the overall economic growth of approximately 3.5 percent, meaning that in every budget year a larger portion of scarce resources are being applied to the health industry, at the expense of resource allocations to other industries. This has many impacts. Federal, state, and local governments are faced with an ever-increasing cost of healthcare in the face of modest revenue growth. Specifically, the Medicare and Medicaid programs are growing quite aggressively. During federal fiscal year 2005, the Medicare program generated benefit payments to participants of more than $330 billion, and the Medicaid program, a joint federal-state-funded initiative, generated federal benefit payments of more than $170 billion. All told in fiscal 2005, spending on healthcare initiatives constituted 20 percent of total federal spending.4 In the private sector, companies, especially those with fewer than 100 employees, are faced with tough decisions about how to deal with health insurance premium increases. Strategies include cutting other expenses, reducing wages, reducing or eliminating health and other benefits, and shifting increasing costs to employees in the form of larger health co-payments and deductibles. Regardless, all of these approaches may be problematic for employers, and such forced austerity in the face of potential growth opportunities could be recessionary. Additionally, rapidly rising healthcare costs and insurance premiums are generally thought to depress wage growth and overall employment, simultaneously retarding gross domestic product (GDP) growth and raising inflation. On the other hand, many view increased healthcare spending as at worst neutral and sometimes positive; one individual’s medical spending is another’s personal income. Finally, there are many qualitative reasons why healthcare is important to communities beyond its economic impact. Leading healthcare organizations and a strong healthcare infrastructure enhance a community’s attractiveness as a home, a place to locate a business, or as a place to retire. Healthcare is clearly one item on everyone’s checklist when contemplating where to live. Further, a powerful healthcare presence in a community is important to businesses because of the industry’s economic stability. Healthcare has often been referred to as recession proof because the volume of health services is not very dependent upon exogenous factors and patients who have acute health needs are not dissuaded during economic downturns.

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The Industry The healthcare industry is complex and unique among other U.S. industries in terms of its organization, the actors that shape the industry, the role that nonprofit entities play, and the seemingly disparate economic incentives in place. It employs a paradoxical mix of the latest in medical technology and the necessary human touch, corporate formalization and cottage-industry inefficiency, high quality and low quality, and sophistication and naïveté. As stated already, the industry is a major jobs creator and provides the economic anchor for many communities throughout the United States. The actors in U.S. healthcare are numerous: providers (including hospitals, solo physicians and physician group practices, dental practices, nursing and residential care facilities, diagnostic, ancillary and other service providers), payers (including health insurers, employers, and government), policy makers and regulators, and consumers. Current estimates peg healthcare spending at 15 percent of GDP, which is the highest in the world. Healthcare’s concentration of the U.S. economy is projected to grow to almost 20 percent by 2016.5 In 2004, the healthcare industry provided 13.5 million jobs, making it the largest industry in the United States. According to the Bureau of Labor Statistics, the industry will create about 19 percent, or 3.6 million, of the new jobs between 2004 and 2014, which does not fully account for its impact, as this projection does not include consulting and independent contracting fees. Table 8.1 presents the various healthcare entities and their relative distribution by organization type and employment. Of the 545,000 firms operating in the healthcare industry, approximately 76 percent are offices of physicians, dentists, or other health practitioners. Many of these practices are small groups of practitioners. In some cases, the groups are one singular economic entity, such as a professional association, but in many cases several individual practitioners physically aggregate their respective practices to share expenses and pool staff support. Conversely, hospitals constitute only 1.9 percent of total healthcare establishments, but

Table 8.1 Percentage Distribution of Wage and Salary Employment and Establishments in Healthcare, 2004 Establishment Type

Establishments

Employment

Hospitals, public and private Nursing and residential care facilities Offices of physicians Offices of dentists Home healthcare services Offices of other health practitioners Outpatient care centers Other ambulatory healthcare services Medical and diagnostic laboratories

1.9% 11.6% 37.0% 21.0% 3.0% 18.7% 3.2% 1.5% 2.1%

41.3% 21.3% 15.5% 5.7% 5.8% 4.0% 3.4% 1.5% 1.4%

Source: Bureau of Labor Statistics.

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employment in hospitals equals more than 41 percent of the employment base for all health workers. The United States is the only industrialized country that does not offer universal health insurance coverage but offers certain publicly funded programs to provide healthcare for the elderly, disabled, and poor. This leaves more than 45 million people currently uninsured, according to the U.S. Census Bureau (see figure 8.1). Currently, about 85 percent of U.S. citizens have health insurance, either through their employers or purchased individually. Access to health insurance in the United States is uniquely tied to employment; many U.S. citizens are offered health insurance through their employer, and employers negotiate with health insurers to secure coverage for their employees. Additionally, health insurance purchased through an employer is tax advantaged, utilizing pretax dollars, whereas individual purchases are not. This tax subsidy creates another incentive to purchase insurance and demand more medical services, as eloquently described by Duke University professor Clark C. Havighurst: The tax subsidy thus introduces new “moral hazards” into health care decisionmaking. Not only are employers, union leaders, legislators, and courts happy to commit employee-voters’ money in ways that make themselves appear to care about health above all things, but their stake in not having to say “no” to more and better health care also coincides perfectly with the preferences of the politically powerful health care industry. For these reasons, the tax subsidy

Figure 8.1 Number of Uninsured Americans 45

Millions of people

* 40 * The break in the line in 1999 reflects a change in the U.S. Census Bureau’s survey methodology. New verification questions resulted in a revision of the reported number of uninsured Americans.

35

30 0 1987

’89

’91

’93

’95

’97

’99

’01

’03

’05

The number of uninsured Americans rose from 31 million in 1987 (13 percent of the population) to 46.6 million in 2005 (16 percent). During that time period, the U.S. population grew from 242 million to 296 million. Source: U.S. Census Bureau, Current Population Survey, 1988 to 2006 Annual Social and Economic Supplements.

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has survived through political thick and thin even though every policy wonk knows that it is a principal cause of wasteful spending on health services. Liberals, of course, resist proposals to fix this glaring defect in the incentive system that drives health care spending. Why fix incentives to encourage consumers to make more appropriate health care choices when big government stands ready to choose for them?6

The Actors Healthcare organizations include those that provide preventive, diagnostic, therapeutic, rehabilitative, maintenance, or palliative care along with the sale or dispensing of a drug, device, piece of equipment, or other item ordered by a licensed practitioner. Major contributors to the healthcare engine include:

Hospitals Hospitals provide a broad range of medical care, including diagnostic services, surgery, and continuous nursing care. Some hospitals provide specialty services relating to the mentally ill, cancer patients, or children. Care may be on an inpatient or outpatient basis. There are several categories of hospitals, but the majority of hospitals are nonprofit, 501(c)3 organizations. They can be classified as community hospitals, religious affiliated, or academic affiliated. Of the more than 5,000 hospitals in the United States, almost 70 percent are owned by nonprofits, 16 percent are owned by state and local governments, and the balance are owned by corporate, for-profit entities. In fact, some 80 percent of all operating hospital beds in the United States are run by nonprofit hospitals or health systems.7 Hospital labor needs depend on many factors, including bed size, location, goals, philosophy, organization, and management style of the hospital. Hospitals employ workers with all levels of education and training. This diversification enables hospitals to provide a greater variety of services than is offered in other areas of the healthcare industry; hospitals also have a scale advantage when extending or adding new service lines in that their already-large labor base creates opportunities to leverage incumbent skills and already-developed infrastructure. About 3 in 10 hospital workers are registered nurses who, combined with other service and support occupations in the hospital setting, hold about half of all hospital jobs.8 Other employees include therapists and social workers. In recent years, several hospitals have expanded their long-term and home healthcare services as both a service line extension and a risk mitigation strategy. Throughout the 1990s, as hospitals’ censuses eroded in the face of aggressive managed care, they were forced to develop lower-cost, lower-acuity services that would be attractive to managed care organizations, organizations whose mantra became “anyplace but the hospital.” Arbitrarily moving patients from acute beds into less acute settings was ultimately proved to be shortsighted. Currently, hospitals across the United States are at or near capacity, both in emergency departments and acute

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care beds, particularly in metropolitan areas. Typically, the leading causes of these capacity issues are staffing shortages (especially in nursing), growing demand for hospital services, increased illness acuity, and insufficient space on the general medical surgical and intensive care floors and in the emergency departments.9

Nursing and Residential Care Facilities These facilities provide inpatient, postacute, skilled nursing, rehabilitation, and health-related personal care to individuals who require continuous nursing care but are not ill enough for hospital services. Nursing aides provide the majority of direct care. Other facilities, such as recuperative homes or assisted living facilities, cater to patients who require less assistance. These residential care centers can provide continuous social and personal care to those who have a limited ability to care for themselves, such as the elderly. These facilities also include alcohol and drug rehabilitation centers, group homes, and halfway houses.

Physicians The physician marketplace in the United States is dynamic, diverse, and growing, both from domestic and international labor sources. From 1980 to 2004, the total number of physicians in the United States increased from 467,679 to 884,974, whereas the physician-to-population ratio grew from 207 to 296 per 100,000 people.10 It is expected that similar growth in the physician workforce will continue for a number of years, based on current rates of physician training as well as the announced creation of at least five new medical schools in the United States. The influence of a growing physician workforce on healthcare delivery is somewhat unknown; if history is a guide, continued growth in the physician population should come with continued growth in health expenditures per capita—a cause and effect that flies in the face of the tenets of competitive market supply and demand. However, studies have shown that physician concentration is a key to overall economic performance in an area. This phenomenon derives from several factors, including the revenue generated by the physician’s practice, the role the high-income physician plays in the local economy, and the number of jobs created by the typical physician practice. Relative to the latter, the annual Medical Group Management Association Cost Survey presents data that shows that, on average, each practicing full-time equivalent physician in practice in the United States, across all specialties, requires four or more full-time equivalent support personnel.11 According to the Bureau of Labor Statistics, approximately 16 percent of all physicians in the United States in 2004 were employed by hospitals.12 Physician employment is more prevalent in academic medical center settings than in community hospitals. In the case of the former, physicians are often employed by the faculty practice plan of the affiliated medical college. Nonetheless, the predominant current model of physician as free agent in place in most communities creates unique challenges for hospital administrators. There is no industry in the United States in which the leader of the business does not control (i.e., through an employment or ownership arrangement) the principal means of production; in the case of physicians

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who are voluntary medical staff members of multiple hospitals, physicians are free to use any hospital available to them and their patients, and there is fierce competition among hospitals to woo the physicians who drive more acute patient volume. Despite the overall growth in physician supply, there is some evidence that the system is at risk for physician shortages, especially in certain specialties, including radiology, anesthesiology, cardiology, and rheumatology.13 Further, many physician professional associations have expressed concerns about potential shortages, including concerns that potential shortages may negatively affect the mission of medical schools. In an attempt to remedy this problem, the Association of American Medical Colleges (AAMC) has recommended increasing the number of medical graduates in the United States by as much as 30 percent, building new medical schools, and increasing enrollment in existing medical schools.14 Simply increasing the number of domestic candidates may not suffice, however, which will require continued growth in the number of foreign medical graduates (FMGs) to fill unmet need. FMGs have long been a valuable and reliable resource for U.S. physician workforce deficits, with the American Medical Association indicating that more than 215,928 FMGs were actively practicing in the United States in 2004, constituting almost 24 percent of the total physician workforce.15 Given projected shortfalls, it seems likely that FMGs will continue to serve the U.S. marketplace.

Health Insurers Health insurers have become more prevalent in the United States since the close of World War II. It was during that war that the U.S. government limited the ability of businesses to offer higher wages and created a tax advantage to health insurance benefits provided through employers. This advantage and the influence firms came to control over their employees’ healthcare decision making had more to do with the growth of insurance than any other single factor in the United States. Currently, roughly 60 percent of Americans who receive health insurance coverage do so from an employer, and about 9 percent purchase insurance individually. Government programs administer insurance to almost 30 percent of the insured population, predominantly in the Medicare and Medicaid programs and the variety of health insurance programs for active and retired military personnel. In 2004, private insurance paid for 36 percent of personal health expenditures, private out-of-pocket payments were 15 percent, and federal, state, and local governments paid 44 percent.16 Table 8.2 provides a breakdown of insurance classes, including uninsured, according to the U.S. Census Bureau. There has been much debate about the growth in health insurance premiums since the beginning of the twenty-first century. According to the Kaiser Family Foundation, hikes in health insurance premiums went from a low of 5 percent from 1998 to 1999 to a high of almost 14 percent from 2002 to 2003.17 Premiums for the foreseeable future are expected to grow approximately 7 percent per year, ensuring that the health insurance component of the health economy will double in the next 10 years. As one might expect, the growth in premiums

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Table 8.2 Number of Non-Elderly Americans by Health Insurance Status, 2001–2005

Uninsured

2005 2004 2003 2002 2001

Medicaid/ SCHIP

Employer- Individually sponsored purchased insurance insurance

Medicare

Military healthcare

Number (millions)

Percentage

Percentage

Percentage

Percentage

Percentage

Percentage

46.6 45.3 45.0 43.6 41.2

15.9 15.6 15.6 15.2 14.6

13.0 13.0 12.4 11.6 11.2

59.5 59.8 60.4 61.3 62.6

9.1 9.3 9.2 9.3 9.2

13.7 13.6 13.7 13.4 13.5

3.8 3.7 3.5 3.5 3.4

Source: U.S. Census Bureau.

has afforded commercial payers a concomitant improvement in profitability; according to Hoover’s data from January 2007, each of the Big Four health insurer monoliths—Aetna, Cigna, United Health Group, and WellPoint—experienced operating margins in the 8 percent-plus range for each of the years from 2004 to 2006.18

Employers Every year, human resource directors and benefits consultants work with insurers to limit the growth in increases for employers’ health insurance premiums. There are several reasons why premiums continue to increase, not the least of which is the growth in medical costs themselves. Among the various pressures that drive cost inflation in both insurance premiums and medical costs are new treatments, drugs, diagnostic tests, and medical device innovations; increased demand for services; and declining health status. To battle these cost increases, employers and other plan sponsors are increasing the level of cost shifting to employees, some by utilizing consumer-directed health plans that almost completely shift the decision-making burden for the first several thousands of dollars to the employee and his or her family. To date, these activities have not kept pace with increased medical spending trends, but there is an active movement to mitigate increasing expenses.

Why the Economic Engine Will Continue There are a multitude of reasons why healthcare will continue to be a major growth industry in the United States. They include: • Healthcare is labor intensive. The healthcare industry is highly labor intensive, especially so because of the industry’s historic underspending on information and other technologies that have enhanced labor productivity

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in other industries. As noted elsewhere, labor requirements in healthcare span from entry-level, low-paid positions that require little formal education to highly technical positions that require a high level of formal education and training, making the industry very attractive to workforce development advocates. Additionally, the third-party reimbursement system creates administrative complexity, particularly in terms of processing medical claims and the tracking and follow-up that occur in the provider’s business office related to payment status. Although it is true that the majority of medical claims are now submitted electronically (75 percent were submitted electronically in 2006, as opposed to 44 percent in 2002),19 it is still a very labor-intensive and costly effort by the provider’s business office and the payer’s claims departments to accommodate the volume of claims in the current system. As an example, it costs an insurer and a provider office roughly the same to process and track, respectively, a medical claim filed to an insurer in the amount of $200 as it does for a claim for $50,000. The current system that provides first-dollar payments by insurers requires significant administrative staff to manage. If the patient paid for all medical costs less than $500 at the point of service, millions of medical claims would be eliminated, thus significantly reducing administrative costs. • Employment is domestic. Relative to labor force issues in other industries that require high labor inputs, healthcare is unique in that much of the labor used in healthcare delivery has to be physically proximate to the employer. Although there are ongoing attempts to move certain laborintensive functions offshore (such as reading radiology films as well as administrative functions such as data entry and medical claims processing), the bulk of healthcare employment needs to be locally based. Therefore, a higher percentage of each new dollar of revenue generated by a healthcare provider organization is kept within the United States than is the case with other industries. • Healthcare is ubiquitous, and acyclical. Healthcare has a broader impact than other industries because, as a basic staple of life, its presence is inescapable. Every community in the United States, from the most affluent to the poorest, has some healthcare footprint, and planning for the provision of health services is always a top or near-top priority for community resource planners. Additionally, the frequency or intensity of health services is only weakly correlated with economic cycles or other exogenous factors; when healthcare is needed, it is needed, and the more acute the service, the less price sensitive the consumer. • There is an unwillingness to ration care. Many developed countries have tackled the issue of rationing healthcare, most in explicit ways. The United States has historically approached the issue of rationing with great trepidation, and in cases in which rationing is deployed, it is almost always implicit and often arbitrary. Such an unwillingness to face the

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obvious resource constraints will only become more problematic in the future, at the intersection of better life-preserving technology and a graying population. • New clinical and information technology will always be introduced. New medical devices, prescription drugs, and diagnostic technologies will continue to be used and highly valued, and the threat of defensive medicine will ensure that providers will continue to use the latest technology even in circumstances in which there is questionable marginal benefit. Also, the deployment of clinical decision support systems promises to arm providers with tools to ensure better patient compliance with appropriately indicated treatments, which may swell utilization of certain services for underserved populations. Another cost-expanding role that technology deployment may play is as a substitute for labor. As healthcare expenditures continue to grow, precipitating the need for ever-greater sources of labor, there will ultimately be a time when the provider sector makes an earnest commitment to replace labor with technology (or to make it more productive by investing more in information technology). “Low productivity in health is mostly a product of low investment,” says Harvard economist Dale Jorgenson.20 Although technology ultimately will greatly improve efficiency and reduce costs, technology deployment in the short run will come at a cost. • Advancements in medical science will accelerate. Medical spending over the past century has resulted in enormous financial and qualitative return on investment. Healthcare has enabled Americans to enjoy and sustain a very high quality of life, with relatively open access to the best that healthcare can offer. The most significant return on healthcare investment, however, has been the eradication or management of crippling and disabling illnesses (e.g., the discovery of insulin in 1922 or the discovery of the polio vaccine in 1954). More recently, there have been significant advancements in the sequencing of the human genome to identify predispositions to chronic diseases. These have all had a significant impact of the life expectancy of Americans; at the beginning of the twentieth century, life expectancy was 47 years, and by 2004, life expectancy had climbed to 78 years.21 Regardless of the discovery, however, there is one common theme historically: Advancements in technology and science have almost always driven new or enhanced demand for a series of clinical treatments, driving overall costs in the system. • There will be demographic pressures. Demographics in the United States will change dramatically during the next 20 years as more people reach their sixties, seventies, and beyond. The U.S. Census Bureau projects that the “number of Americans age 65 or older will swell from 35 million today to more than 62 million by 2025—nearly an 80 percent increase.”22 As people grow older, demand for health services increases dramatically.

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Specifically, long-term care is projected to grow very rapidly; a recent study by VHA suggests that between 2020 and 2030, expenditures on long-term care services will grow by more than 42 percent.23 • There will be health status pressures. Nonmedical social and behavioral factors such as smoking, obesity, alcohol use, and a sedentary lifestyle are causing nearly half of all annual mortality in the United States.24 However, a very small portion of the approximately $2 trillion spent annually on healthcare in the United States is devoted to reducing risks posed by these preventable conditions. As chronic disease rates continue to escalate and the social and cultural diversity in the United States continues to grow, the system will be prone to increased costs related to dealing with chronic conditions and increasing complex comorbidities. • Healthcare is political. As the saying goes, “All politics are local.” One could similarly adopt the saying, “All healthcare is local.” One of the toughest things to do in the United States is to close a community hospital, because of its importance to the psyche and the economic vibrancy of that community. In fact, in many communities that have suffered economic decline in manufacturing and other tangible-goods industries, healthcare, and specifically hospitals, have become the economic savior and predominant job creator. According to the American Hospital Association, in 2004 community hospitals generated 4.9 million direct healthcare jobs, approximately 8 million ripple-effect jobs created in the local economies that surround the hospitals, and a direct and indirect economic impact of more than $1.6 trillion.25 As many community hospitals are the community’s key local employer, in some markets with otherwise high unemployment the local economy would be crippled if the community hospital were shuttered.

The Economic Impact of a Hospital An applied economist would measure the economic impacts of a particular hospital or center of healthcare delivery by utilizing a series of multipliers that estimates the effects of hospital operations on a local or regional economy. Metaphorically, the economist strives to measure the cumulative impacts generated by the equivalent of an object falling into the center of a lake, with the initial splash representing the direct impacts and the concentric ripples that invariably follow representing a combination of indirect and induced impacts. The case of an individual hospital or medical center is instructive. Many hospitals employ hundreds of employees, some thousands. As noted earlier, in many communities the local medical center represents the single largest nongovernmental employer. The jobs at the medical center are classified as direct employment. The hospital also purchases goods and services from businesses, many of them local. These goods and services range from delivery services and office products to liability insurance and construction services. These business-to-business transactions are termed indirect effects, and at least theoretically they could be

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larger in magnitude than the direct impacts. Businesses conducting transactions with a medical facility will, in turn, have more income with which to purchase goods and services from other businesses, and these businesses, in turn, will have more income to spend and so on. The totality of this succession of business sales constitutes the indirect economic impact of the hospital. To the extent that employment is supported at entities that can trace a portion of their revenue base to the operations of a particular medical institution, that employment is classified as indirect employment. The economic impact does not end there; there are more ripples. Households in the vicinity of the hospital enjoy higher incomes than they would but for the hospital’s operations. Some of this augmented income is associated with hospital employees themselves, but another group of households enjoys higher income because of the fact that the entity with which they work generates greater revenue through hospital operations. A significant share of these incomes is spent among area businesses, including restaurants, movie theaters, dry cleaners, utilities and telecom providers, department stores, barber shops, boutiques, health clubs, contractors, landscapers, and automobile dealerships. The economic activity supported by the household income traceable to the hospital/medical center’s operations is termed the induced effects. As with direct and indirect effects, induced effects can be measured in terms of jobs, income, and business sales. Total economic impacts associated with a facility’s operations therefore equal the sum of direct, indirect, and induced impacts. The ratio of total impacts to direct impacts represents the multiplier. But there may be additional economic impacts beyond those described. For instance, many hospitals across the United States are undergoing significant facility upgrades. This investment creates a separate set of construction-related impacts that are above and beyond those associated with operations. Moreover, hospital operations and physical upgrades generate directly and/or indirectly tax revenues for local taxing entities, including through personal income taxes, retail taxes, residential transactions taxes, amusement taxes, and property taxes. This revenue provides government with a greater capacity to deliver services, which in turn creates a series of economic impacts on a local or regional economy by triggering additional hiring and procurement activity.

An Illustration: The Economic Impact of the Johns Hopkins Medical Institutions in Maryland Maryland is a relatively small state, with some 5.6 million residents. The state’s population concentration, as one would expect, surrounds the major urban areas; the Baltimore region boasts a population of just more than 2.6 million residents, and the Washington, DC, suburbs count almost 2 million residents. Healthcare and the broader life sciences field is one of the most important industries in Maryland’s economy. Among the largest employers in Maryland, 21 of the top 50 are healthcare institutions, including three Johns Hopkins–owned entities,

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two University of Maryland Medical System–owned entities, two MedStar Health System–owned entities, and the local Blue Cross Blue Shield affiliate, CareFirst BlueChoice. Further, institutions in Maryland are among the largest recipients of U.S. government grants for healthcare-related research; the two major academic institutions in Baltimore, the Johns Hopkins Medical Institutions and the University of Maryland Medical System and Medical School, drive much of that research. Geography is beneficial to the region; much of the federal government’s healthcare apparatus is in Maryland, including the Centers for Medicare and Medicaid Services (CMS) in a Baltimore suburb and the National Institutes of Health, based in the Washington, DC, suburbs. On a combined basis, these two subagencies of the Department of Health and Human Services employ more than 18,000 people, with bright employment prospects for the future; in particular, the CMS in managing the Medicare program and the new Part D drug benefit stands to require more human capital as the percentage of the population eligible for Medicare increases over the indefinite future. The need to attract the best and the brightest is also important for Maryland’s healthcare community. As stated throughout, hospitals are among the largest employers in their communities. “In Maryland alone, community hospitals directly produced approximately 80,672 full and part-time positions in 2002. Almost 8 percent of total employment for the state is supported by hospital employment when multiplier effects are taken into account. Maryland’s community hospitals have a yearly payroll of over $3.5 billion.”26

The Special Role of the Johns Hopkins Medical Institutions The Johns Hopkins Medical Institutions are a critical component of the Baltimore region and of Maryland’s economic health. The Hopkins medical complex consists of the Johns Hopkins University Medical School; the Johns Hopkins Health System, which includes three hospitals (the Johns Hopkins Hospital, Johns Hopkins Bayview Medical Center, and Howard County General Hospital); Johns Hopkins Geriatric Center; Johns Hopkins Home Health; Johns Hopkins Outpatient Center on the main hospital campus; several group practice locations in strategic areas around Baltimore; and 18 locations of Johns Hopkins Community Physicians. In January 2003, an economic consulting firm, Bay Area Economics (BAE), completed an economic impact analysis of Johns Hopkins’s role in the Maryland economy.27 In its report, BAE identified key economic contributions by Hopkins to the local and regional economy. They included: • Income: Hopkins institutions generated $7 billion in income to the Maryland economy in 2002—$1 of every $28 in the state’s economy. • Jobs: As the largest private employer in Maryland, the university boasted more than 43,000 employees in 2002, and since 1999 Johns Hopkins has added more than 1,000 jobs a year to its payroll.

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• Indirect employment benefit: According to Hopkins, its activities (direct employment and spending on goods and services from other employers) support more than 85,000 Maryland jobs. “More than three of every 100 people drawing paychecks in the state either work for Johns Hopkins or have a job because Johns Hopkins is here spending money.”27 • Construction activities: As Hopkins embarked on its new cancer research building, the state of Maryland committed $20 million to the project because the state knew the initiative would drive secondary economic development based on the Hopkins track record. That state investment allowed Hopkins to expand cancer research by $23 million a year, which, according to Hopkins, supports 690 new Maryland jobs and $31 million a year in income for other businesses, organizations, and individuals in Maryland. In addition, the Hopkins institutions spent more than $200 million on building or renovation projects in fiscal year 2002 alone, providing work for a variety of skilled tradesmen, drawing support from all areas of the state of Maryland. • International economic development: Every day Hopkins sees patients from all over the world, totaling some 126 countries to date. These patients bring their spouses, parents, and families with them, spending millions in Maryland restaurants, retail outlets, gas stations, hotels, and other establishments. • Research and new venture activity: Johns Hopkins attracts more federal research and development funding than any other U.S. university. In 2001 alone, Hopkins faculty won almost 100 patents and submitted more than 400 patent applications. Additionally, technology transfer activities at Hopkins have yielded the formation of more than 20 Maryland-based start-up ventures. • Workforce development: As a direct result of the development of the Hopkins biotechnology initiative in East Baltimore, the commercial construction industry in Baltimore is booming. In fact, there is currently more than 2 million square feet of commercial construction space being built in the Baltimore metropolitan area, much of which is related to Hopkins’s projects. This activity has allowed city and state urban planners to encourage workforce development focused on training people living in the neighborhoods affected by the construction. One such program, JumpStart, has been funded by the Annie E. Casey Foundation, and others to provide preapprenticeship construction craft training to underserved populations, including significant populations of exconvicts and those formerly addicted to drugs and alcohol. This program is attempting to fill the construction support positions most needed by the industry. JumpStart is expected to birth 40 to 60 new construction industry jobs per year, valued at $30,000 per job per year, for an annual direct compensation impact of approximately $1.5 million. This impact

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is from a segment of the population that has not been a positive economic contributor historically. • Charity care: Finally, Hopkins is also a prominent provider of healthcare services in Maryland to the indigent and in 2002 provided more than $144 million worth of uncompensated healthcare. In addition to its role as a major economic actor in Baltimore and surrounds, the Hopkins institutions serve as a major source of pride for the region and its residents. The hospital has been recognized for a number of years by U.S. News and World Report as the top-ranked hospital in the United States, with worldrenowned centers of excellence in a variety of clinical areas, including urology, ophthalmology, cancer, burn care, and pediatric specialty care. The recognition as a center of excellence serves to attract related industry and other businesses that want to operate in a city with a world-class medical institution.

CONCLUSION Despite all of the dysfunction in the current U.S. health system, its role as a major economic engine is without question. The United States is broadly regarded as an international leader in a variety of health services categories. International patients with a variety of ailments choose to travel to many of the U.S.-based healthcare epicenters, such as Boston, Baltimore, New York, or Rochester, Minnesota, home of the world-famous Mayo Clinic. Healthcare now constitutes almost 16 percent of the domestic U.S. economy and employees a sizable number of its citizens. The healthcare sector is one of the fastest-growing segments of the U.S. economy and employs millions of Americans and foreign nationals. Many industry leaders bemoan the increasing costs of healthcare as a driver of anticompetitiveness. One classic example is the auto industry. According to a recent publication by the Galen Institute, the cost of providing healthcare adds approximately $1,500 to the cost of each new vehicle General Motors (GM) sold in 2005, more per car than the cost of the steel used to construct the car.28 Further, GM projected spending almost $6 billion on healthcare in 2006. This compares very unfavorably with the foreign competition, according to Rick Wagoner, chief executive officer of GM, who said in a recent speech to the Economic Club of Chicago, “Our foreign domiciled competitors have just a fraction of these costs, because they have few, if any, U.S. retirees, and in their home countries, their governments cover a much greater portion of employee and retiree health care costs.”28 Those within the industry recognize that health supply, which is composed overwhelmingly of labor, fuels the consumption activity of health industry workers and those in related industries; one person’s expenditure is another’s income. To make wholesale changes to the healthcare landscape would run the risk of tinkering with the most prominent U.S. job producer and the industry most able to keep its spin-off economic activity within the borders of the United States. It is for this reason, along with the strong, entrenched political power of the key constituents and patrons of the industry, that any major reform initiatives seem

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highly unlikely. Regardless, the healthcare industry is a critical resource to the overall U.S. economy and a major factor in its citizens’ economic and social quality of life.

NOTES 1. Mandel, M., and J. Weber. 2006. “What’s Really Propping Up the Economy.” Business Week Online, September 25. Available at: http://www.business week.com/magazine/content/06_39/b4002001.htm. Accessed April 22, 2007. 2. Adams, J. 2006. “Healthcare 2015: Win-Win or Lose-Lose?” IBM Global Business Services. Available at: https://www-03.ibm.com/industries/healthcare/doc/content/ bin/Healthcare2015-Win-win_or_lose-lose72pg.pdf. Accessed April 15, 2007. 3. U.S. Department of Labor, Bureau of Labor Statistics. 2005. “Health Care.” Available at: http://www.bls.gov/oco/cg/cgs035.htm#outlook. Accessed May 24, 2007. 4. Centers for Medicare and Medicaid Services, Office of Financial Management. n.d. “Effects of Health Care Spending on the U.S. Economy.” Available at: http:// aspe.hhs.gov/health/costgrowth/report.pdf. Accessed May 24, 2007. 5. Poisal, J., C. Truffer, S. Smith, et al. 2007. “Health Spending Projections through 2016: Modest Changes Obscure Part D’s Impact.” Health Affairs 26 (2): W242–W253. 6. Kirkendall, T. 2007. “Houston’s Clear Thinkers.” blog.kir.com, July 2. Available at: http://blog.kir.com/archives/cat_health_care_finance.asp. Accessed April 16, 2007. 7. State Health Facts.org. 2005. “Hospital Beds per 1,000 Population by Ownership Type, 1999–2005.” Henry J. Kaiser Foundation. Available at: http://www. state healthfacts.org/cgi-bin/healthfacts.cgi?action=compare&category=Providers+%26+ Service+Use&subcategory=Hospital+Trends&topic=Beds+by+Ownership%2C+ 1999-2005. Accessed April 10, 2007. 8. Bureau of Labor Statistics, U.S. Department of Labor. 2005. “Career Guide to Industries, 2006–07 Edition: Health Care.” Available at: http://www.bls.gov/oco/cg/ cgs035.htm. Accessed May 25, 2007. 9. Bazzoli, G., L. R. Brewster, G. Liu, and S. Kuo. 2003. “Does U.S. Hospital Capacity Need to Be Expanded?” Health Affairs 22 (6): 40–54. 10. Pasko, T., and D. Smart. 2006. Physician Characteristics and Distribution in the U.S. Chicago: American Medical Association. 11. MGMA.com. Medical Group Management Association. Available at: www. mgma.org. Accessed April 1, 2007. 12. U.S. Department of Labor, Bureau of Labor Statistics. 2006. “Occupational Outlook Handbook: Physicians and Surgeons.” Available at: http://www.bls.gov/ oco/ocos074.htm. Accessed May 24, 2007. 13. Akl, E., R. Mustafa, F. Bdair, and H. J. Schünemann. 2007. “The United States Physician Workforce and International Medical Graduates: Trends and Characteristics.” Journal of General Internal Medicine 22 (2): 264–68. 14. Ibid. 15. Ibid. 16. National Center for Health Statistics. 2006. “Health, United States, 2006.”

Department of Health and Human Services, Centers for Disease Control and Prevention. Available at: http://www.cdc.gov/nchs/data/hus/hus06.pdf. Accessed May 24, 2007.

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17. Henry J. Kaiser Family Foundation. 2004. “Trends and Indicators in the Changing Health Care Marketplace.” Available at: http://www.kff.org/insurance/7031/ print-sec3.cfm. Accessed May 24, 2007. 18. American Hospital Association. 2007. “2007 Health and Hospital Trends.” AHA.org. Available at: http://www.aha.org/aha/research-and-trends/health-andhospital-trends/2007.html. Accessed May 24, 2007. 19. America’s Health Insurance Plans. 2006. “Electronic Processing of Health Claims Speeds Payments, Cuts Costs.” AHIP.org. Available at: http://www.ahip.org/ content/pressrelease.aspx?docid=16454. Accessed April 28, 2007. 20. Akl, Mustafa, Bdair, and Schunemann, 264–68. 21. Healthcare 2000: A Strategic Assessment of the Health Care Environment in the United States. 2000. Irving, Texas: VHA and Deloitte and Touche. 22. Surface Transportation Policy Partnership. n.d. “Aging Americans: Stranded without Options.” Transact.org. Available at: http://www.transact.org/library/ reports_html/seniors/Aging_exec_summ.pdf. Accessed May 24, 2007. 23. Healthcare 2000: A Strategic Assessment of the Health Care Environment in the United States. 2000. Irving, Texas: VHA and Deloitte and Touche. 24. Shodell, D. 2006. “Paying for Prevention.” Medscape Public Health and Prevention. Available at: http://www.medscape.com/viewarticle/544651. Accessed April 18, 2007. 25. American Hospital Association. 2006. “Beyond Health Care: The Economic Contribution of Hospitals.” AHA.org. Available at: http://www.aha.org/aha/content/ 2006/pdf/ECONRPT3.pdf. Accessed May 24, 2007. 26. Sage Policy Group. 2004. An Analysis of the Economic Impacts of Maryland’s Medical Liability Environment. Baltimore: Sage Policy Group, 28. 27. Johns Hopkins University. 2003. “Johns Hopkins Economic Impact in Maryland.” JHU.ed. Available at: http://www.jhu.edu/news_info/reports/impact/report5. html. Accessed April 18, 2007. 28. Turner, Grace-Marie. 2006. “Rules & Red Tape, Mandates: U.S. Industry Is in the Crosshairs of Bad Tax Policy.” Galen Institute. Available at: http://www.galen. org/redtape.asp?docID=859. Accessed May 24, 2007.

CHAPTER 9

Improving Systems of Care: A Patient’s Perspective Rudy Wilson Galdonik

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o try to describe what it means to be a patient, whether through illness or injury, is like summarizing all aspects of parenting in one paragraph. For many people, the word patient means nothing more than taking preventive steps or seeking treatment for a minor medical problem—a temporary inconvenience and expense. For others, becoming a patient is the result of a sudden life-changing event or diagnosis. For those living with a chronic condition, being a patient is a journey with varying stages, from routine to earth-shattering. Attempting to identify and examine all the intricacies of being sick is a mammoth if not impossible undertaking, because what is earth-shattering to one person may border on routine for another. For people working in healthcare, a personal journey into sickness is often the catalyst that enables them to understand issues involving the loss of health more fully. Medical providers look at the healthcare system with new respect and understanding once they have personally experienced the emotions, challenges, and opportunities of being sick. Susan Keane Baker, author of Managing Patient Expectations: The Art of Finding and Keeping Loyal Patients, states, “ ‘[O]ne size fits all’ satisfaction strategies cannot work for every patient because preferences are created and altered by individual experiences and influences.”1 Systems of care need to manage the expectations of patients and their caregivers. Walk in the shoes of a patient and his caregiver, and opportunities for improving systems of care will present themselves at every turn. In his article “A Hospitalization from Hell: A Patient’s Perspective on Quality,” Paul D. Cleary emphasizes, “Patients are the best source of information about a hospital system’s communication, education, and pain-management processes, and they are the only source of information about whether they were treated with dignity and respect.”2 Most improvements that have the greatest value for patients

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and their supporters are relatively easy and inexpensive to implement. For example, patients and their families need compassion and empathy. The first 60 seconds of every encounter are critical in laying the foundation for the patient’s feelings about the experience.3 A vital first step is for staff to greet patients with care and concern. This can be as simple as greeting patients with a smile and full attention.

ONE PERSON’S JOURNEY Expertise involves having or displaying special skill or knowledge derived from training or experience and skillfulness by virtue of possessing special knowledge.4 I have been a patient, the caregiver of a patient, and a worker in hospital human resources. I count myself an expert on being sick. Occasionally, I meet someone who states, “Oh, I’m so sorry for all you’ve been through.” However, I choose to count myself privileged to know what it means to be sick, because with that knowledge and understanding comes a myriad of gifts that I am able to embrace and share. The following will summarize my history as patient, caregiver, and hospital employee. I will then describe key elements that I believe are vital in assuring quality systems of care.

JOURNEY AS PATIENT I first became a patient in the mid-1950s when an atrial septal defect (ASD) was detected in my heart during my kindergarten medical exam. Open-heart surgery was not a viable option in the mid-1950s, so our family physician, whose practice was located in an extension of his home, gave my parents the best advice he could offer for the time: “Just don’t let her overdo it.” This translated to a sedentary childhood: no running, bicycling, swimming, or sports of any kind. I learned quickly that physical exertion of any kind would have to be relegated to those moments when I was down the street and around the corner from my mother’s watchful eye. Although exams were few and congenital expertise was almost nonexistent, I clearly remember the day I had my first chest X-ray. As I lay on the gurney, a mammoth machine was rolled into the examining room by a nurse clad from head to toe in starched white. Because this was the same lady who delivered injections, she and the Machine were immediately a threat. No one explained to me what was about to happen. I decided that the machine held no other purpose than to eat me. With childlike determination, I also decided I would not go down without a fight. Screaming, pleading, and thrashing filled the afternoon until finally a frazzled doctor told my mother he had the information he needed. I was alive, intact, and proud of my victory over the Machine. Upon my release, I learned that the doctor simply had wanted to look more closely at my insides. The Machine was nothing more than a camera for people’s insides. On the drive home, I pressed my swollen, pink face against the car window and thought, “They wanted to take a picture of my insides? Why didn’t they just say so, and save us all a lot of grief?” That experience, as does every experience one has within the healthcare system, laid the groundwork for the expectations I would have later as a patient.

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My health remained relatively stable until I turned 24. Then I began to feel arrhythmias: unexplained pounding and skipped heartbeats. I decided to seek a new physician because our family doctor, who was still practicing, was approaching 80. My new family practitioner took a baseline electrocardiogram (EKG). My irregular heartbeats caused the needle tracing the rhythm of my heart to fly off the paper. The doctor, convinced that his EKG machine was at fault, attempted to bring it back to its senses by banging the machine with his fist and then unplugging and realigning the tape, all to no avail. Finally, when the doctor told me his findings, he said open-heart surgery to repair my ASD and prolapsed mitral valve was clearly in my future. “Old age is going to be your worst enemy,” he said. Little did I know that old age would rear its ugly head one year later. As the arrhythmias continued to worsen, I attempted to control my bad beats and my fear by finding a rock that I would hold in the palm of my hand. I would stroke the rock’s smooth surface in an effort to calm my nerves, which I believed would reduce, if not eliminate, my arrhythmias. This layperson’s primitive form of treatment is called denial. Then in January 1978, Good Housekeeping magazine included an article about identical twin girls born with identical holes in their hearts.5 It described how open-heart surgery “fixed” the girls. I saw myself in every paragraph. A recent outof-state job transfer meant I would again need to find a new doctor. The Yellow Pages led me to a new physician. As I sat in his office, he inquired, “So what brings you here today?” “Sir, I think I need open-heart surgery,” was my response. With that, the doctor smiled and said, “Honey, you’ve just moved away from your mother. You are probably lonely. I would go home and have a baby if I were you.” My Yellow Pages doctor dispensed this advice without ever placing a stethoscope to my chest. This advice, had I followed it, would have killed both me and the recommended baby. Because my arrhythmias continued to worsen, within weeks I found myself at a cardiologist’s office. This doctor, an expert, was very intrigued by my EKG, yet his clinical expertise did not outweigh one personal drawback. He had dandruff, a condition that became increasingly apparent as he leaned close to my face to listen with his stethoscope. In my mind, clinical expertise was secondary to a cosmetic issue, and the doctor’s hygiene was critical. I decided to launch a quest for the perfect doctor, one who was knowledgeable and someone with whom I could establish a relationship based on respect and trust. Finally, a coworker who had had bypass surgery suggested her internist, whom I credit with saving my life. The day before my 26th birthday, I had open-heart surgery to patch my ASD and repair my prolapsed mitral valve. One year later, the pronouncement “You’re cured” and another move out of state became the catalyst for my dropping out of the healthcare system. For the next 22 years, the only doctor I visited was a gynecologist or a general practitioner for treatment of a specific, superficial complaint. I wanted to see myself as a healthy person, not one living with a chronic health condition. This changed in 1999 when I developed endocarditis. Following my openheart surgery in 1978, I had been told clearly of the risks for infection. As a

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preventive measure, I took oral antibiotics prior to every dental visit. In 1999, despite being on antibiotics, I developed a fever and flu-like symptoms shortly after a dental visit. Because I had had 22 years of uneventful health, endocarditis was never considered when I consulted an internist about my unexplained fever. The doctor ordered a regimen of antibiotics, which reduced the fever, but as soon as the regimen ended the fever returned. This continued for a month. When he suggested another round of antibiotics, I emphatically replied, “No. Something’s not right.” I knew in my gut something was very wrong. I insisted that more needed to be done to identify the source of my fevers. I listed every disease I could think of as a possible underlying cause, yet endocarditis was still not even on the radar screen. My physician listened. He saw my frustration and sensed my concern. He ordered a series of tests, and two days later a blood culture showed the growth of bacteria. An echocardiogram at a local cardiology practice confirmed endocarditis. My new cardiologist announced, “We have good news and bad news. We now know what’s wrong with you, and you’re not going home, you’re going straight to the hospital.” Ten days of hospitalization and a month of aggressive treatment with IV antibiotics successfully treated the infection in my heart. But four months later, I developed symptoms of heart failure, and tests showed I needed a second open-heart surgery to replace both my mitral and aortic valves with mechanical valves. Twentytwo years of bad blood flow, coupled with the infection, had taken its toll on my heart. Six months later, heart block required the installation of a pacemaker. Being a lifelong heart patient did not afford immunity from developing other problems. One year later, I was again rushed to the hospital by the same internist who performed the blood culture two years earlier. My complaint was only a random ache on my right side, but his exam suggested infection, and he immediately ordered a CAT scan. Those results suggested possible ovarian cancer or a burst appendix. At our local women’s hospital, it was confirmed that my appendix had burst and my body had walled off the infection. Two weeks of aggressive IV antibiotics preceded more surgery, which led to my new norm of living with chronic health issues.

JOURNEY AS CAREGIVER Significant events such as marriage or the birth of a child bring dreams of a joyous future. Our minds carry pictures of how life will play out. Whenever a person faces a health challenge, it often is accompanied by an innate sense of immunity from additional suffering. We assume there is a system of checks and balances that spreads the suffering around. When a new, unrelated trauma enters the scene, emotions of denial, anger, and sadness can be particularly strong. In 1975, I married my college sweetheart. We proclaimed our love and commitment “till death do us part.” The unspoken belief was that my congenital heart disease would determine the length and course of our life together. Three years after marrying, we faced my first open-heart surgery together. My husband spent countless hours at my side loving and supporting me. As my health returned, we considered ourselves fortunate to have faced this crisis early in our relationship, because it became the platform from which we embraced life. Heart disease had

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been a challenge we faced as a couple, and in our minds this precluded other hardships from entering our lives. We learned in time that life can be very unfair. I found myself in the role of caregiver in 1993 when my husband of 18 years woke one morning with a lump on his neck. For the first time, it was my turn to drive the patient to doctors and hospitals, to oversee billing and appointments, and to perform basic nursing duties for my husband’s care and comfort. In my role as caregiver, I held my husband’s hand as we heard the words, “There is nothing else we can do.” My role of caregiver continued as I stood at the edge of my husband’s open grave, clutching two children who were too young to understand why their daddy was no longer coming home. The role of caregiver is often more challenging than that of the patient. Caregiving is fraught with emotional, physical, and mental stress. When the relationship between the caregiver and the patient is positive, the caregiver experiences feelings of fear, sadness, anger, and general uncertainty. Stress from financial burdens is common. If the relationship between caregiver and patient is negative, resentment, anger, and guilt can enter the picture. The caregiver becomes the bridge between the sick world and the outside world. Maintaining balance between these multiple roles is crucial but often very difficult. Physical and mental exhaustion can make the caregiver sick. If caregivers place their own needs over those of the patient, they may feel guilt and remorse.

JOURNEY AS ADMINISTRATOR My role of hospital human resource professional came quite by accident. After college graduation, I spent several years in corporate human resources. In the years when I first began to notice arrhythmias, I received a promotion to a new job at a medical center campus of a state university. Initially, I walked through hospital corridors holding my breath. The hospital’s sights, smells, and sounds were overwhelming. Faces of tired, sick patients lining the clinic walls contributed to an “us” versus “them” attitude. I prided myself in the fact that I was not one of them. I created an invisible barrier between their sickness and my personal reality of relative activity and health. Then one day all that changed. My journey as patient, which began in a physician’s home office, would now take me to the doctor who would walk me through my first open-heart surgery, and late one afternoon I found myself being escorted to an assigned hospital bed. During that first night, I counted myself a prisoner in a place where people die. The system that seemed unfamiliar and frightening became my world. When I returned to my human resources job after my open-heart surgery, I was a different person with a new mission and passion. I felt privileged to play an administrative role in the business of saving lives. Strolling through hospital corridors afforded me opportunities to reach out, if only with a smile or to hold a door open for the people coming for treatment. Job placement, satisfaction, and personal fulfillment for the employees serving on the front line became critically important to me. I saw individuals working at the medical center as a family on a mission.

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LESSONS LEARNED Have my experiences within the healthcare system been completely smooth sailing? Absolutely not. There have been gaps in care. There have been mistakes, even mistakes that could have cost me my life or justified a malpractice claim. But it was during my first night as an inpatient prior to my first open-heart surgery that I realized I held the ability to choose how I would exist in a terrifying place where people go to die. I decided if I was going to be a patient, I was going to be a good one. I was going to join the team. I evolved from prisoner and victim to survivor and advocate. I credit my transformation to the myriad of doctors, nurses, and medical professionals, even including the transporter who befriended me on my many excursions through hospital corridors. Each individual had a job to do, and it became apparent with each day that they all wanted to use their professional skills and abilities to provide me with the best possible outcome. I credit my transformation to strangers who were committed to saving my life or making their best effort to extend it. Arthur W. Frank states in his book At the Will of the Body: Reflections on Illness, “Illness takes away parts of your life, but in doing so it gives you the opportunity to choose the life you will lead, as opposed to living out the one you have simply accumulated over the years.”6 I did not have a choice when it came to the diagnosis of heart disease. I did not have a choice when cancer entered my husband’s life. But I do have a choice on how I view those experiences, and I count it a privilege to share some of the lessons I have learned along the way.

LESSON 1: THE TIMES, THEY ARE A CHANGING In 1990, I purchased a small travel agency in a storefront location. On-time delivery of paper tickets was key to my customers’ satisfaction. Today, the travel industry is unrecognizable from 15 years ago. Paper tickets are becoming collectors’ items. And the speed with which all this change is occurring can only be described as breakneck. Healthcare is experiencing its own breakneck evolution. The difference is that in healthcare there is no shortage of sick people; just the opposite. More accurate diagnoses are resulting in new conditions. Improved treatments are keeping patients alive longer, creating whole new populations. For example, I am a member of one of the fastest-growing medical populations: congenital heart patients living into adulthood. Lifestyle issues such as obesity, smoking, and stress are producing patients in unprecedented numbers. In order for healthcare systems to function optimally, they need to embrace constant change.

LESSON 2: PATIENTS, THEY ARE A CHANGING Days of obedient patients who listen without question to professionals in starched, white uniforms are going the way of storefront travel agents. The white lab coat is no longer the symbol of total, unquestioned authority. Women, who make the vast majority of healthcare decisions, are becoming more empowered. As patients are becoming increasingly tech savvy, they are tapping into a mind-

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boggling array of healthcare information on the Internet. Technology is creating a standard of instant communication. Immigration is creating whole populations who require additional services, such as translation, to assure proper care and treatment. Books with titles such as You, The Smart Patient,7 The Intelligent Patient’s Guide to the Doctor-Patient Relationship,8 and Don’t Let Your HMO Kill You9 carefully spell out what patients and their caregivers can and should do. Patients and caregivers want answers. They are feeling empowered, and they want to step up and become more involved. When healthcare systems embrace individuality and the fact that patients and their caregivers are the ultimate consumers rather than objects of care, then together a team relationship can be formed to better meet and respond to the needs of everyone.

LESSON 3: DESPITE ADVANCES IN HEALTHCARE, LITTLE THINGS STILL MAKE A DIFFERENCE Despite the impact of science and technology on healthcare, meeting the basic needs of the patient still has the biggest impact on how patients and their caregivers perceive their experiences within a healthcare system. One of the most significant differences between a medical professional who is just doing a job and one who is making a difference is the ability to see the patient and his supporters as complex individuals with unique histories, fears, hopes, questions, and passions that profoundly affect who they are and how they will respond to care. Medical professionals who see the patient as a physical specimen, a sum of lab results and statistics recorded in a file, may get the job done, but the experience will be empty and prone to problems. When I underwent my first chest X-ray as a child, I was treated like an object not worthy of receiving an explanation of what was about to happen and why. Unfortunately, the trauma I experienced was not just the result of a 1950s attitude toward children. Sadly, patients of all ages, especially the aged and infirm, still feel as if they are being treated like children simply because information is not offered. Healthcare systems that have a policy of explaining every procedure and why it is necessary honor the patient’s right to know and solicit his understanding and cooperation. I experienced this during both of my open-heart surgeries. The first hospital had a policy of taking the patient and one caregiver on a tour of the surgical intensive care unit (ICU) prior to surgery. The tour included seeing the room where I would go immediately following surgery. I was introduced to the nursing staff and was shown some of the equipment that would help in my recovery. I was hesitant about taking the tour, but when I woke after surgery I had a clear sense of where I was and what was happening to me. Nurses assigned to my care said, “Hi, I’m Nancy, we’ve already met.” My second open-heart surgery was at a different hospital that also had a policy of clear communication, even if the patient appeared to be sleeping. I remember hearing nurses explaining why they were suctioning my lungs. The procedure was unpleasant, but because I was included as part of the team, I was able to offer my full cooperation.

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Communication is particularly important when a patient complains about his care. He is, at the outset, expressing a need for help to resolve a problem. He is saying, in effect, I want this relationship to continue, but I need you to help me. Patients who complain are actually more loyal to the medical staff than those who are dissatisfied but say nothing.10 The optimum solution is for patients, their support network, and medical professionals to come together and function as a team. Team players see themselves as united in one purpose: to achieve the best possible outcome for the patient and his caregivers. No one person decides and dictates how the patient’s care should be handled.

LESSON 4: LISTEN WITH COMPASSION Visit any medically oriented online message board such as WomenHeart.org, sponsored by the National Coalition for Women with Heart Disease, and the most common thread is one of communication. “ER says I’m female so problem not heart” and “How do I get my doc to listen?” are typical discussion topics. Just as patients are the sum of their experiences, medical professionals come to each patient encounter with their own set of notions and expectations. A 25-year-old female patient suggesting a course of treatment as outlined in Good Housekeeping magazine is seen by one doctor as suspect and is advised to become pregnant. A patient with flu-like symptoms is given a regimen of antibiotics without exploring the history of congenital heart disease coupled with a recent dental visit. A gifted professional perfects the art of listening in a way that demonstrates understanding and respect. This results in a rapport that becomes the foundation for effective care. For example, the internist who oversaw my care during my first open-heart surgery demonstrated this skill through words and actions. He would stroll into the examining room, look directly at me as he spoke, ponder, if only for a moment, what I was saying, and repeat my words to clarify that we understood each other. When our visit included longer discussions, the doctor would make a point to sit in a chair. Independently, these gestures seem small and insignificant, but together they spoke volumes. Thirty years later, I vividly remember how I felt. I knew this highly respected doctor had a full load of patients, yet his style of communication made me believe I was the only patient on his agenda. I believed this doctor cared for me and what was happening to me. I wanted to follow his orders and show the respect I had for him. We functioned as a team, and together I believed we would achieve the most favorable outcome. Contrast this with the obstetrician who delivered my second child. For nine months, each visit would begin with his rushing into the examining room. He would pause at the door and look at his watch. This entrance told me he had places to go and better things to do. As my ninth month approached, we decided that a Cesarean section would be necessary. Looking at the calendar, I suggested the first Friday after my due date. This would allow my husband to spend the weekend at the hospital. But my doctor said, “That won’t work. I play golf on Fridays.” If we shared an interest in golf, this comment might have been an opportunity to

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bond. But, because of the physician’s rushed style over the previous months, what I heard was lack of concern and availability on his part. Together, the physician’s rushed demeanor and “golf on Fridays” confirmed my earlier suspicions: I was an intrusion and not a priority. The agreed-upon Thursday delivery date arrived, and as I lay on the gurney waiting for the surgical suite to be made available, I had an anaphylactic reaction to vancomycin, a favorite antibiotic for heart patients, which my obstetrician had added to my IV. Because of my heart history, the doctor’s decision to use antibiotics was sound, but his lack of communication resulted in my being unaware that anything had been added to my IV. Precious minutes went by as the medicine entered my system before I realized something was very wrong. Fortunately, a quick response by the healthcare team averted a potential disaster. As the afternoon progressed, it was decided that I was in no condition to deliver a baby. My son was born the next day, Friday. Shortly after my son’s birth, I shared my feelings and frustrations with my internist, who had recommended this obstetrician. I suggested he not recommend this obstetrician again.

LESSON 5: EVALUATE SURROUNDINGS WITH CRITICAL EYES The impact of the physical environment should not be underestimated. Three recent visits to three different clinical settings left me with significantly different experiences based purely on physical settings. Recently, I was scheduled for the battery to be replaced on my pacemaker. The procedure was scheduled at my local hospital’s 10-story outpatient surgical center. Entering the building, I immediately noticed the first floor had recently undergone an impressive renovation. Floors, lighting, furniture, and even layout had been carefully designed with the latest in colors and textures in mind. My instructions were to arrive at admitting promptly at 7:00 A.M. It was apparent that lots of other patients had received the same instructions for their procedures. A long counter, separated by partitions, was available for admitting personnel to begin the requisite paperwork. But there was a problem. Designers included six partitioned areas, but only two people were working. And to make matters worse, patients whose numbers increased by the minute were forced to stand and wait their turn, even though they may have been sick, tired, and afraid. Although designers did their jobs in making the outpatient admitting area pretty, management forgot to ask themselves, “Why are we here, and what do those people need?” Just weeks earlier, I found myself at another major medical center as a visitor. A distant family member was in intensive care following a stroke. As family members maintained a vigil, they had two places to spend their time. One was a tiny waiting room down the hall from the ICU lined with tattered, straight-back chairs. The room was overflowing with a variety of family members who, I suspected, changed in identity over time but not in number. As hours turned to days, the only other place for people to maintain their vigil was the hospital cafeteria. An elevator ride down to the hospital’s basement opened into a dismal cinder-block corridor. One small sign

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pointed the way to the hospital’s cafeteria. As we groped and wove our way around abandoned wheelchairs, gurneys, and supply carts, the wall color changed from chipped gray to stained pastels. A cracked, stained linoleum floor guided us to our destination. A coat of paint, new flooring, equipment organization, and improved lighting would have sent the message, “We care,” to both staff and visitors. My third experience was my admittance to Women and Infants Hospital of Rhode Island, one of the nation’s leading specialty hospitals for women and newborns. In 2001, after experiencing a random ache in my side, CAT scan results suggested I had ovarian cancer or a burst appendix. As my husband and I walked in the door of Women and Infants, a woman in a business suit walked up and greeted us. She introduced herself as a member of the hospital’s management team and asked how she could help us. This woman’s job was in administration, but she also volunteered as a member of a team that greeted anyone walking into the hospital to make sure people felt welcome and knew where to go. We were directed to admitting, and a clerk was waiting. Even though I was being admitted as an emergency, my basic paperwork had already been started. In a matter of minutes, I was escorted to a medical floor. The nurse who escorted me to my room described some of the background of the hospital and its mission of honoring the patient. She acclimated me to my room and pointed out that everything had been designed with the patient’s needs in mind. Every room in the hospital was a private room with a large bathroom with a curtained door. Initially, I was surprised and uncertain about the curtained door. The nurse said this feature afforded easy access if a patient needed help. Designers thoughtfully provided ample fabric, which afforded privacy in addition to easy access. As my stay continued, I noticed that housekeeping personnel maintained a specific policy of respect for the patient. If I was sleeping, they would quietly leave the room and return later. When they did work in my room, they acknowledged me with a smile and a greeting. Food service checked to make sure my order was correct and the food satisfactory. One afternoon, my nurse came by and said, “I’ve got a little time, would you care for a back massage?” As an expert on being sick, I was intrigued and amazed. “Tell me about working here,” I asked several people who had some kind of role in my care. “Management cares,” I was told. “Management hears us.” “When they can’t meet our needs, we understand why.” Longevity on the job at this hospital was normal. Employees said they could not imagine working anywhere else. Medical professionals have the same basic needs of feeling validated and trusted in their roles just as patients and their caregivers do. When the staff feels recognized and appreciated, they in turn pass that on to the people they are trained to serve. Even though Boston’s world-renowned health centers are only one hour away, I continuously encourage women I meet to consider receiving care at Women and Infants in Rhode Island.

LESSON 6: BE OPEN TO HUMOR I learned the importance of humor the week I entered the seventh grade. Until then, most of my friends did not realize I was a heart patient. Few people

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suspected that I was living with a chronic, life-threatening health condition. When the seventh grade dawned, my doctor decided gym classes were too risky for me. This meant that I would not get an olive green jumpsuit that served as the gym uniform, and I longed for that jumpsuit more than anything. But there was no swaying school officials or my mother once the doctor said no. Instead, I was assigned the job of library monitor. I would get to shush my peers instead of kicking and running and jumping. I was doomed. The day the uniforms were handed out, my fellow seventh graders were quick to notice. They asked me, “Hey, why don’t you get a gym uniform? What’s wrong with you?” There is nothing more traumatic for a seventh grader than to be singled out as different from the group. I needed to respond on a level my peers could understand. “You know how your heart goes thump-thump?” I started. “Well, my heart goes thump-pssh, thump-pssh because I was born with a hole in my heart.” As my friends contemplated this, I decided to add a bit of drama. As I stared into my inquisitors’ faces, I added, “I could go like that!” With the snap of my fingers, I became walking death! A more mature, sophisticated mind might find this concept a bit repulsive, but in the mind of a seventh grader, walking death was cool. I went from sick dork to cool kid with the snap of a finger. That day, I learned one of the most valuable lessons of my life: I could not control many of the circumstances that would define my life. I could not prevent challenges, but I could control how I chose to look at those circumstances. I realized that if I looked at life through humorous eyes, I could have some control; otherwise I had none. Once when I was speaking at a conference, a woman said her husband had suffered a heart attack earlier that year. Because of other health issues, his prognosis was guarded. This man had a strong wit and quick sense of humor. Now, months later, he was beginning to incorporate humor into his changed circumstances, but his humor was difficult for his family to accept. They were still focused on the what-ifs. I suggested that if the woman and her family allowed her husband the opportunity to use humor, they would be giving him a valuable coping tool. Humor is a powerful tool that bridges relationships, promotes healing, and inspires control. After I developed heart block following my second open-heart surgery, my cardiologist said that my pacemaker would be managed by the office’s electrophysiologist. During our first discussion, I noticed a bulletin board behind his desk with many cartoons about medicine and cardiology. I knew before he opened his mouth that we would have a positive relationship. Healthcare professionals who take their professions seriously but themselves lightly will open doors of communication for the benefit of everyone.

LESSON 7: GRANT ME A GOOD DEATH Systems of care often focus only on recovery. Wellness or effective accommodations of the patient’s condition are the only acceptable outcome. People who spend their lives focused on health see death as a failure. Yet every person will

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die. Systems of care that view death as normal and acceptable create an environment in which the needs of the patient and his loved ones can be met at this very significant time. Six days before my husband’s death, exploratory surgery revealed that cancer was having a field day inside his gut. As the surgeon entered the waiting room, his eyes said it all. Nothing could be done to save my husband’s life. At that point, I decided that I would offer what little companionship and comfort I could. If my husband needed only a tissue, I was going to be there to give it to him. I grabbed sleep in increments of 15 minutes in a chemotherapy chair in my husband’s room. My love for him translated to a watchful vigilance that unfortunately was often abrupt and unfriendly. Finally, after six days of maintaining a vigil at his bedside with only brief trips home to give the kids a hug and take a shower, I took the nurses’ advice and went home to sleep. That night my husband passed away. At no time during those six days was hospice service or palliative care offered or suggested. Instead, the day before my husband’s death, an unfamiliar doctor walked into his room and announced that my husband’s case would be presented at the hospital’s next tumor board meeting. The purpose was to select some regimen of chemotherapy for my husband, even though every oncologist involved in his care had said chemo would have little if any effect. “Oh, and you know, we’re not thinking of a cure,” the doctor stated matter-of-a-factly as he turned and left the room. If hospice care had been made available, our family could have spent these last six days together focused on our love. My children would have had the opportunity to say good-bye to their daddy. Physical comfort for my husband would have been a top priority rather than an afterthought when I insisted upon it. My needs would have been addressed. Healthcare systems that view death as a sacred time rather than a failure of science honor the love, compassion, and needs of the people facing this ultimate end. Although healthcare systems are complex and require constant change, those that view patients as unique individuals and consumers will best be able to meet the needs of everyone involved. When honor and respect become the cornerstones for decisions within a healthcare system, patients, caregivers, and healthcare workers are able to function as team members, united in purpose and focused on the achieving the best possible outcome.

Key Concepts • Healthcare is experiencing its own breakneck evolution. In order for healthcare systems to function optimally, they need to embrace constant change, not stick to old patterns. • When healthcare systems embrace individuality and the fact that the patient and his caregivers are consumers rather than objects, then a team relationship can be formed to better respond to the needs of everyone. • It is crucial that medical professionals see the patient and his support network as complex individuals with unique histories, fears, hopes,

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questions, and passions that profoundly affect who they are and how they will respond to care. Healthcare systems that have a policy of explaining every procedure and why it is necessary honor a patient’s right to know and solicit his understanding and cooperation. The optimum solution is for patients, their supporters, and medical professionals to function as a team. Team players see themselves as united to achieve the best possible outcome for the patient and his caregivers. Healthcare systems that listen effectively will be more able to serve the patient’s needs. When a patient’s needs are met, the needs of the medical professionals are supported and encouraged. Healthcare systems that look at their practices and policies as well as physical environments through the eyes of patients will see opportunities for improvement. Humor is a powerful tool that bridges relationships, promotes healing, and inspires a sense of control. Healthcare professionals who take their professions seriously but themselves lightly will open doors of communication that will benefit everyone involved. Healthcare systems that view death as a sacred time rather than a failure honor love and compassion and the needs of people facing this ultimate end.

NOTES 1. Baker, S. K. 1998. Managing Patient Expectations: The Art of Finding and Keeping Loyal Patients. San Francisco: Jossey-Bass, ix. 2. Cleary, P. D. 2003. “A Hospitalization from Hell: A Patient’s Perspective on Quality.” Annals of Internal Medicine 138 (1): 33–39. 3. Baker, 48. 4. Merriam-Webster’s Online Dictionary. 2001. Springfield, MA: MerriamWebster. Available at www.m-w.com. 5. Keiffer, E. 1978. “Twin Miracles.” Good Housekeeping, January: 75, 129. 6. Frank, A. W. 1992. At the Will of the Body: Reflections on Illness. Wilmington, MA: Houghton Mifflin, 1. 7. Roizen, M. F., and M. C. Oz. 2006. You the Smart Patient: An Insider’s Handbook for Getting the Best Treatment. New York: Free Press. 8. Korsch, B. M., and C. Harding. 1997. The Intelligent Patient’s Guide to the Doctor-Patient Relationship. Oxford: Oxford University Press. 9. Theodosakis, J., and D. T. Feinberg. 2000. Don’t Let Your HMO Kill You. New York: Routledge. 10. Baker, 169.

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CHAPTER 10

Moving Ideas from the Laboratory to the Marketplace: How Scientists and Business Leaders Engage to Take Action Lynn Johnson Langer

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iotechnology is a relatively young industry that has evolved rapidly since its beginnings in the early 1970s. Since then, it has developed into a multibilliondollar industry with many commercial products that have contributed to society with new biopharmaceuticals, food, and energy products and processes. Although biotechnological research and development (R&D) have provided numerous benefits to society, many promising discoveries have not reached consumers because of the difficulties involved in bringing new technologies to market. The high costs and resources required in early-stage research, discovery, and development of new biotechnology ideas can be prohibitive for all but the most promising projects. The Tufts Center for Drug Development estimates that it costs more than $800 million to bring a biopharmaceutical product from the research bench to the consumer.1 However, this number probably includes the amortized costs of multiple failures and hundreds of millions in marketing costs. The biotechnology industry is highly dynamic, and improvements and changes in research methods occur frequently. New technologies used in drug discovery, for example, may completely change how scientists conduct their investigations. These new discoveries must be assessed and put through the development cycle as quickly as possible. Even so, it may take 10 years or more for new discoveries to reach consumers. For scientific discoveries such as therapeutics to leave the laboratory and be developed into products, scientists and business professionals must collaborate to bring new products through clinical trials and the regulatory process. The concept of collegial collaboration can be different for basic research scientists who may prefer to work in an environment that reduces their involvement with other scientists. Often, by nature, scientists tend to be more introverted. These differences between how scientists and business professionals interact may partially explain the

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challenges involving commercializing of new products. Many factors contribute to effective commercialization, but relatively little research has been conducted on what scientists must do to successfully move ideas out of the laboratory in ways that engage business leaders to take action. To understand the difficulty in moving ideas from the laboratory, we must first examine the culture in which research typically takes place. In a preliminary study, the author reviewed almost 300 research studies that yielded 13 articles related to how best to move ideas from the laboratory. Additionally, the author interviewed nine leaders from the biotechnology industry: Five were scientists holding doctorates of philosophy (PhD), one held a master’s of science (MS) in biotechnology and a juris doctorate, two held an MS in chemistry, and one was a nonscientist with a business background. Each respondent was asked, “What do scientists do to successfully move ideas from the laboratory and engage business leaders to take action?” Results from the interviews indicated a diversity of factors; however, the consistent, emergent theme was social interaction that permitted effective communication between both scientists and business professionals. This appears to be critical in moving ideas from the laboratory. Other themes also emerged in the literature and through the interviews: networking, culture, organizational processes, and leadership. These themes have different levels of influence on the process. Many scholars and practitioners agree that communication is the key element required for moving ideas out of the laboratory; however, several factors influence the organization’s and the individual’s ability to communicate effectively. These factors include the ability and encouragement to network in a culture conducive to open communication, and having formal organizational processes in place permits the flow of ideas out of the laboratory. Finally, these factors are directly affected by the organization’s leadership and its ability to set a tone that allows and encourages open communication. This chapter reviews the literature and assesses initial findings from interviews with science and business leaders in the biotechnology industry.

MARKETPLACE OF IDEAS Researchers and practitioners (e.g., those responsible for commercializing technologies) collaborate very differently when compared to how such exchanges may occur in purely research settings. The concept of collaboration is different for scientists, who often prefer to keep their findings to themselves until they are fully explored. Scientists also tend to prefer to limit their communications to other scientists. An example of this concept came from a discussion with a nonscientist senior executive in a leading biopharmaceutical company. This executive stated, “Frequent communications, networking, and relationships with frequent internal communication is necessary.”2 She continued that it is not just the idea but how well the scientist is able to communicate that idea and how well he or she can network internally. She discussed observing a research scientist at an informal company gathering. The scientist was excitedly explaining a new discovery to a group of scientists and business staff from different departments. The executive explained that the scientist was

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effective at moving ideas from the laboratory partly because of his ability to share his excitement over what he had discovered with others. Later that day, the executive mentioned the interchange to the company president. The president had also not heard about the idea but was interested to learn more. Had this conversation not been overheard, the idea may not have been developed. This example suggests two things. First, opportunities should be provided to scientists to share what they perceive to be exciting discoveries and, second, both formal and informal methods should exist for circulating these interactions within the organization. In 1981, Yin and Gwaltney described a theory that is appropriately here, called social interaction theory.3 They argue that the topic of communication between researchers and others in the organization does not need to be specific to the research at hand. Any communication between researchers and practitioners raises one another’s consciousness about the other. Yin and Gwaltney state that such communication “produces a ‘rich marketplace of ideas’ ” (21). This kind of workplace communication can have serendipitous effects. Researchers may change the focus of their research based on dialogue with end users. In addition, users may change future projections to reflect ongoing research. In this environment, acceptance of a new technology ultimately occurs (or does not occur) based on the effectiveness of ongoing communications. A better understanding of others’ ways of thinking is important in building trust and further increasing communication.

NETWORKING OR BRAGGING: THE CULTURAL DIVIDE According to Allen, “increased communication between R&D projects and other elements of the laboratory staff were in every case strongly related to project performance” (123).4 Allen’s 1984 book, Managing the Flow of Technology: Technology Transfer and the Dissemination of Technological Information with the R&D Organization, was the culmination of a 10-year research project that examined communication and organizational structure in R&D groups of scientists and engineers. Although increased communication is related to project performance, scientists who talk about their work prior to publication may be seen by other scientists as self-promoting when they communicate their ideas outside their own laboratory. One person we interviewed was a nonscientist leader within a successful biotechnology organization. She described the culture of communication among scientists as taking place within discrete groups that function as a so-called discourse community and operating differently from other networks. (A discourse community is a group with stated and unstated conventions and ways of communicating.) First, scientists tend not to be overly communicative on an informal basis. Second, because some scientists see the discussion of one’s discoveries as bragging, some scientists may feel inhibited from this informal communication. Based on our current research, we conclude that although some scientists are chastised for self-promotion, this type of communication needs to become a more natural style for scientists as part of their networking. Organizational leaders must continually work to facilitate, change, or create an organizational culture

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that values open networking and communication. Allen’s research confirmed that it is up to the leaders of the organization to provide multiple, different opportunities for scientists to network and share their results with others. She also said there is always a “tension” when scientists are seen as “overly communicative” and that leaders must constantly be aware of potential tensions created within the internal scientific discourse community. Another interviewee, a scientist, also discussed bragging, noting that although it is unacceptable for scientists to “brag too much or to talk too much” about the potential of one’s findings, in business the opposite is true.2 In a business environment, scientists are not thought of very highly if they do not champion their own ideas. The respondent noted, however, that there is a “continuum of personality types,” with scientists typically at one end of the continuum, and the “used-car salesman types” at the other end. Bringing science to commercial success requires people in the middle who are able to understand and bridge this divide. In a 2003 study conducted by BioPlan Associates of life science commercialization, a large majority of business professionals in life science organizations started their careers or completed their education in the sciences.5 Therefore, although the great majority of life science business professionals are trained in the sciences, shifting a scientist’s focus to business may create a divide between the scientists and their business counterparts. Scientists may feel that those who move into business are shifting their focus to less altruistic work and to more financial gain. Partly because of the cloistered nature of scientists and their research methods, cross-functional interaction does not happen frequently. Some business professionals may see scientists as introverted and disconnected with what needs to be done to effectively commercialize a product. Scientists may see business professionals as too interested in financial aspects, to the detriment of good science. One chief science officer (CSO) interviewed stated, “we [scientists] really are a very altruistic group, because we feel we are doing good.”2 Scientists fundamentally want to help society at large, even if it does not always make good business sense. The scientific officer explained how hard it can be for scientists to “learn the business.” He said, “One of the most important things for scientists to learn is how to develop a value proposition.” The CSO stated that making the transition from scientist to business requires a fundamental change in thinking. This change can be difficult for scientists who view technical improvements to a process or discovery as obviously valuable. They frequently cannot understand how such new ideas may not make business sense. The CSO recognized this attitude and explained that even when an idea has scientific merit, the company will not proceed with the research if there is not a large enough market. This difference in perception of what intrinsically makes up a good idea can be the source of friction between the scientific and business communities.

KNOWLEDGE TRANSFER AND NETWORKING The transfer of knowledge across departments can be difficult because knowledge is frequently tacit, not well defined, and difficult to articulate. As

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organizations grow, it becomes increasingly difficult to share knowledge on an informal basis. Argote and Ingram studied the transfer of knowledge within scientific organizations and found the need to provide multiple means of communication within and between groups.6 This view was described by one of our interviewees, who stated, “The easiest part is developing the new assay. The hardest part is trying to wrap it up in a bow and throwing it to the development people to get them to do something!”2 Therefore, to facilitate knowledge transfer, organizations need to provide a variety of ways in which communication can take place. Moving ideas out of the laboratory, or technology transfer, becomes more difficult as the level of technology increases, because there are fewer target audiences. The simpler the technology, the easier the process involved in transferring that technology to the business development professionals. This concept may help explain why it is difficult to move most scientific ideas involved in biotechnology and biopharmaceuticals from the laboratory because they are almost inevitably complex. A scientist’s social network plays an important role in knowledge transfer and provides links between scientists and groups within organizations to new sources of knowledge. This linking facilitates the integration of new technology and is particularly valuable with researchers compared with other organizational groups. Argote and Ingram note that members of a network identify most strongly with members of that group and may have a more difficult time communicating with those outside their own personal network.6 For science to be successfully transferred from the laboratory, scientists need to identify with the larger organization and not just with other researchers in their group. Other researchers found similar results. Kivimaki et al. conducted a quantitative study of 492 employees involved in R&D at 32 companies.7 The authors found that high levels of interaction and communication between departments is an important factor in innovation of ideas. Kivimaki et al. found that “a participative climate and interaction between the personnel in R&D, marketing and production were related to perceived innovative effectiveness” (3). A climate of frequent interaction fosters higher levels of communication, “which, in turn, may result in the cross-fertilization of ideas” (34). Their studies showed that effective internal communication that involves close interpersonal and interdepartmental contacts substantially contributes to successful problem solving, experimentation, and innovation. One business leader we interviewed from a small biotech organization felt, “Leadership from the top that encourages cross-functional networking and communication is critical. Whether it is a formal Monday staff meeting or a friendly Friday afternoon gathering, effective interdepartmental communications and networking is dependent on the culture of the organization.”2 However it fits, employees need to feel safe and encouraged to participate in open inter- and intradepartmental networking. The level of formality can be dependent on the specific organization. Studies by Hirst and Mann further suggest that important decisions are frequently made informally through networks.8 Hirst and Mann suggest that leaders should also be encouraged to build networks and provide multiple opportunities

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for employees to network. They suggest “in-house research forums and networking events, particularly for peer groups, provide an efficient means of developing leaders’ intra-company links and the potential pool of knowledge sharing resources” (156). Cross-functional teams provide an opportunity to network for scientists and business professionals. However, creating an environment in which cross-functional teams become self-sustaining and a positive influence on the organization and team members can be challenging. Nonaka describes organization knowledge as being created from the continuous incorporation and feedback of tacit to explicit knowledge throughout the organization.9 As organizations grow from small startup businesses, much of the organizational knowledge is tacit. As the company grows, more formal processes need to be implemented so that the organization’s knowledge becomes explicit. Explicit knowledge becomes possible partly by creating cross-functional teams that serve as the “basic building block for structuring the organization knowledge creation process” (24). According to Nonaka, teams induce a self-organizing process for the entire organization. This process benefits the organization by elevating the knowledge that resides at the group level to the organizational level. Networking can be encouraged by processes put in place to facilitate communication across functional areas.

FORMAL PROCESSES FOR COMMUNICATION Everett Rogers’s book, The Diffusion of Innovation, is widely considered a classic. He explains that diffusion is “the process in which an innovation is communicated through certain channels over time among the members of a social system” (5). Rogers describes two terms: homophily, in which individuals communicating are similar to one another, and heterophily, in which those communicating are different.10 Diffusion of ideas is easier for groups of homophilic individuals. The individuals share traits and trust one another. Because scientists are part of one homophilic group and business professionals are part of another, the two groups are prone to difficulties in communication. An example of this was described by one scientist respondent, who stated, “Scientists tend to be introverts who want to stick with their own. In order for a scientific idea to be noticed, a scientist has to be willing to be wrong.”2 This respondent claimed that PhD scientists are frequently accustomed to being right and said that, “[F]or scientists who are used to being the smartest people in a room, it can be difficult to take the risk of being wrong about a scientific idea for development.”2 When business professionals determine that a technically good idea will not be profitable, scientists are sometimes left at a loss to understand how such a technically superior product might not also be a commercially superior product. Scientists are not accustomed to the iterative process commonly used in business. Scientists, this respondent feels, are more comfortable with following protocols and making small adjustments to make sure things work. They are not trained for the often-fuzzy nature of business. Rogers states that for an innovation to be accepted and ultimately adopted, the individuals must go through an “innovation-decision process.”10 According

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to Rogers, this is “the process through which an individual (or other decisionmaking unit) passes from first knowledge of an innovation, to the formation of an attitude toward the innovation, to a decision to adopt or reject, to implementation and use of the new idea, and to confirmation of this decision” (20). The innovation-decision process is what business leaders use to determine whether they will take action on a new scientific idea. They must decide to adopt, reject, implement, or use the idea. Scientists and business professionals must develop interpersonal communication networks with one another to allow for easier understanding of ideas developed within the network. The decision to take action on an innovation can require a great deal of time and resources. Knowledge, persuasion, and decision are the stages in which scientists are most likely to effectively motivate business professionals to take action. Knowledge is more than exposure to an idea; rather, the individual understands how the idea will work. Persuasion comes when the person determines whether the idea has merit and a decision is made regarding further development of the idea. As discussed previously, companies with formal processes in place to evaluate new ideas are at an advantage when establishing effective cross-departmental communication processes. Scientists whom the author interviewed from several successful companies noted that their organizations have formal review processes in place for new ideas. In some, weekly meetings are held with people from different functional areas to determine if a new idea has merit. Business professionals and scientists may hold equal authority in these weekly meetings. Several interviewees mentioned that having formal processes in place makes communication between scientists and business professionals easier. Another scientist turned business leader stated that, in his organization, strategy is formulated with scientists and business professionals from the beginning of a research project. There are weekly update meetings with scientists and business professionals. If a scientist finds something unexpected, he or she would either wait until the weekly meeting or would approach the team leader about the finding. If the scientists report a new finding to the team leader, it is then brought to the attention of the chief science officer, who makes a determination as to whether the finding should be brought to the attention of the chief executive officer (CEO). Innovators are change agents and must persuade others to ultimately adopt their ideas. Interestingly, according to Rogers, “the most innovative member of a system is very often perceived as a deviant from the social system and is accorded a status of low credibility by the average members of the system. This individual’s role in diffusion (especially in persuading others to adopt the innovation) is therefore very limited” (26).10 Opinion or informal leaders of the group have the most sway in a group’s or individual’s decision about the innovation. Opinion leaders are generally informal leaders of a group and are not necessarily related to positional authority. Informal leaders become leaders through the trust of the individuals in the group. In organizations in which change and innovation are encouraged, opinion leaders tend to be innovative. If an organization does not encourage change, however, informal leaders are not encouraged

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to become innovative. Opinion leaders become role models for others who will mirror their innovative (or static, if that turns out to be the case) behavior. It is important, therefore, that scientists network with opinion leaders within the business decision-makers group. A high degree of interaction and communication is required of scientists and business professionals to build enough trust to adopt new ideas in highly uncertain situations. One former scientist turned business leader stated that, if the idea is at an early stage, the possibility of moving the idea from the laboratory was often dependent on the effectiveness of a previously developed partnership between the scientist and a business leader. Such partnerships might be established within a variety of departments, including marketing, manufacturing, or finance. To make these partnerships work, however, requires communication skills. Scientists are not always comfortable or capable of communicating with people with different styles and personalities. When there is no relationship, a transfer of knowledge is not likely to occur. The scientist must be capable of influencing the new person or group and must use information as part of his or her communication process. This information might include such things as social systems or personality profiles. Social systems would include the typical social network that the scientist already has in place. Understanding personality profiles such as those described by Myers et al. provides scientists with the tools to adjust their style to meet those with whom they are attempting to engage.11 One scientist interviewed is a manager at a highly successful biotechnology organization. This scientist stated that, every week, the company receives proposals for new product ideas from both inside and outside the company. A team meets weekly to review the new ideas. The team consists of a science officer and key business development professionals. The committee changes its composition depending on the kind of products being reviewed. The interviewee stated that this formally scheduled meeting creates an atmosphere of trust and shared language between the scientists and business professionals. Rogers also describes three types of knowledge associated with innovation:10 • Awareness knowledge: Information that an innovation exists. • How-to knowledge: Information that is necessary to use an innovation properly. • Principles knowledge: Information dealing with the functioning principles underlying how an innovation works. Change agents generally focus on awareness knowledge. Rogers argues that change agents would be most successful if they focus on how-to knowledge, because decisions to accept or reject an idea are most often made from how-to knowledge. If business professionals can more clearly understand how end users might value a technical innovation, they may be more likely to take action toward developing these technologies. Again, this process would involve extensive communication between the scientist and the potential business champion. Such processes can be facilitated by regularly scheduled meetings with cross-functional teams.

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Finally, Rogers argues that any innovation must be “consistent with the existing values, past experiences, and needs of potential adoptors” (241).10 The innovation must also be consistent with values of business professionals making the decision to move forward with a new scientific idea. For instance, an interviewee at one highly successful biotechnology organization stated that all new product ideas must be consistent with the mission of the company and must not have any existing competing alternatives. This is also consistent with the values of that organization. Even for ideas that are technically and commercially meritorious, if they are not aligned with the stated values of the organization, they are rejected.

LEADERSHIP Leadership directly affects the culture of an organization. One industry leader stated that it is up to the leaders within the organization to provide multiple opportunities for scientists to network and share their results with others. Scientific discourse communities function differently from other networks, and, as a result, scientists tend not to be overly communicative on an informal basis. It tends to be the responsibility of organizational leaders to help create an environment in which open communication is not just accepted but expected. Hirst and Mann reported on a longitudinal study to discover which communication variables most affected team performance.8 They evaluated 350 employees from 56 teams in 4 organizations. The researchers found that it is more important for the leader to “boundary span” than for members of the team to do so (147). Their study points to the importance of communication in facilitating innovation and performance. Hirst and Mann suggest that although leadership training programs may rightly teach leaders to stimulate debate and act as “devil’s advocates,” more attention to systemic issues is critical for long-lasting cultural and behavioral change to occur. In other words, leaders must be held accountable, and they must provide evidence of innovations being developed. The authors further suggest that mentoring and training programs are important for leaders to learn how to be most influential and to hone their “championing skills” (156). Leaders need to be encouraged and trained to network both formally and informally. One scientist turned business leader stated that his organization holds weekly meetings to discuss research findings, but that these meetings also serve as networking and team-building opportunities. Elkins and Keller reviewed literature related to management of research and development activities within organizations.12 They found two important insights similar to Hirst and Mann. First, Elkins and Keller uncovered a “small number of studies that examined leadership from a strategic perspective and found links between top management actions and R&D project performance” (600). Second, the authors concluded from their literature review research that “the leaders should also boundary span with important constituents outside the project group, such as managers and personnel in marketing, manufacturing, and operating divisions, as well as with customers from outside the firm. This kind of activity to champion the project can be critical to the survival and success of the project” (601). One

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scientist from a very successful, established biotechnology organization reiterated this idea. She said her organization also holds weekly meetings with leaders from across the organization to keep everyone up-to-date on existing and new projects. The scientist argues that these sorts of formal boundary-spanning opportunities lead to less structured, informal networking across the organization. Shim and Lee also did a comprehensive examination of influence styles of R&D project leaders.13 They collected data from 83 ongoing research projects to explore the behaviors of R&D project leaders by looking at social influences. They found that specific styles of influence work better in different organizations, although a mainly tactical approach was most often effective. Scientists would most likely be more effective at tactical styles of influence with other scientists, because of their communication and cultural similarities. The authors also found that, to be effective, project leaders must cross organizational boundaries to garner the necessary support for new ideas. This concept is supported by interviews with a scientist turned chief operating officer, who felt that team leaders are the true champions of new ideas, not the team members themselves. Many in the biotechnology industry have debated the need for scientist-managers. Some have advocated that more nonscientists must be brought in to improve the overall quality of management. One scientist we interviewed expressed the counter to this argument, that for science to be a commercial success, the CEO or other senior executives should be scientists. After having worked at several biotechnology organizations both large and small, this scientist noted that other companies founded at about the same time were not as successful. The differentiating factor, according to this respondent, was that the less-successful companies were run by business professionals who were not scientists. The CEO of this respondent’s current organization is a scientist and as such is able to understand which potential products have the greater likelihood of being successful. The scientist claims that the scientist-CEO has “a lot of respect for basic research” and has created an atmosphere of open dialogue. At other biotech organizations, the business professionals did not have the depth of experience necessary to bring a complicated product to market. This CEO has created a vision for the company that is well articulated and embraced by the employees, and the company mission statement requires that any new product they develop must not be already available elsewhere. Finally, this scientist has been working for a number of years on a product that will soon receive Food and Drug Administration (FDA) approval for marketing. The scientist claims that this success is a result of the company having the right cultural environment and because new products receive strong support from company leadership from the beginning through the development of the product. One might argue that the system created by the scientist-CEO is what has established this successful product development process. Had the same system been created by a nonscientist, would it have been adopted as readily and maintained as productively? The answer may be more an issue of effective leadership—a leader that is capable of instilling and maintaining a good product development process than of the exclusive need for the leader also to be a scientist. Perhaps being a scientist is primarily required only in building a cohesive

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discourse community. One may conclude, then, that it is not the scientific background that is creating success but the leader’s ability to create an atmosphere conducive to open dialogue. Tidd et al. studied 94 biotechnology start-up businesses and found that three factors were associated with success: location within a significant concentration of similar firms, quality of scientific staff (measured by citations), and the commercial experience of the founder.14 The number of alliances made between an organization with other organizations had no significant effect on success, and the number of scientific staff in the top management team had a negative association, suggesting that the scientists are best kept in the laboratory. Tidd et al. found other studies of biotechnology start-up businesses that confirm that too many scientists in senior management positions can be detrimental to the overall number of products under development.14 Although a scientist-heavy management team may not have the business acumen necessary for success, a balance of scientists and business professionals may be necessary to ensure sound scientific and strategic decisions. In addition, it may not matter if there is a scientist or business professional at the helm of the organization, provided the intra- and intercommunications between scientists and business professionals are effective. Other studies confirm the importance of leadership in the transition of ideas from the laboratory. Waldman and Atwater conducted a mixed-methods research study involving surveys and open-ended interviewing techniques to examine the development arm of three R&D organizations.15 They stress the importance of senior-level leadership in product development. “Leadership exhibited at higher organizational levels is significantly correlated with effectiveness” (233). However, their research showed that project-level leadership was not as critical on project success as was senior-level leadership. Interestingly, their research also found that, although ineffective leadership may be important in the death of a project, effective leadership may not be able to salvage a project. In other words, although leadership is important, other factors—particularly project feasibility and team synergy—may be more critical to the success of a project. Clearly, the leader has an impact on which projects are chosen for development and which are not. The decision to proceed with a project requires an understanding of both business and science. Many leaders within the biotechnology industry are trained in one area and not the other. Education of future leaders in both science and business will be a critical component to success of future biotechnology organizations.

MOVING TO THE MARKETPLACE Most authors and interview respondents argue that communication is one of the critical elements required to move ideas from the laboratory to the marketplace. However, most scientists are not typically trained in communication skills. One of the most significant insights from this research is that there is a deep-seated cultural bias favoring research over practice. Although scientists are not trained in the necessary communications skills to move ideas from the laboratory, the culture may be subtly inhibiting their ability and their desire to communicate effectively.

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Schon offers insight into a theory of practice versus academia that is important in understanding scientists in biotechnology. Biotechnology is based on the application of research discoveries. Schon states: [The] concept of “application” leads to a view of professional knowledge as a hierarchy in which “general principles” occupy the highest level and “concrete problem solving” the lowest. . . . The application of basic science yields applied science. Applied science yields diagnostic and problem-solving techniques which are applied in turn to the actual delivery of services. The order of application is also an order of derivation and dependence. Applied science is said to “rest on” the foundation of basic science. And the more basic and general the knowledge, the higher the status of its producer. (24)16

This concept may be the foundation of the divide between science and business. The highest status, in the minds of the scientist, belongs to basic research. The lowest status belongs to the application of the science. Schon later states: [T]his division of labor reflected a hierarchy of kinds of knowledge which was also a ladder of status. Those who create new theory were thought to be higher in status than those who apply it, and the schools of “higher learning” were thought to be superior to the “lower.” Thus were planted the seed of the Positivist curriculum, typical of professional schools in American universities, and the roots of the now-familiar split between research and practice. (37)

Scientists who start their careers by studying biochemistry and cell biology enter a culture in which hard science carries the highest status. Along with this status comes a culture that does not necessarily prepare scientists for the collaboration necessary to move science out of the laboratory. For the scientist to effectively bring science out of the laboratory, he or she must engage in reflective collaboration with practitioners. According to Schon: Researchers and practitioners enter into modes of collaboration very different from the forms of exchange envisaged under the model of applied science. The practitioner does not function here as a mere user of the researcher’s product. He reveals to the reflective researcher the ways of thinking that he brings to his practice, and draws on reflective research as an aid to his own reflection-in-action. Moreover, the reflective researcher cannot maintain distance from, much less superiority to, the experience of practice. . . . [H]e must somehow gain an inside view of the experience of practice. Reflective research requires a partnership of practitioner-researchers and researcher-practitioners. (323)

This concept of collaboration is very different for scientists who typically prefer to keep to themselves or to stay involved with other scientists. Biotechnology is creating the need for scientists who are more at ease working in applied fields, such as engineers and veterinarians. One scientist interviewee previously worked in a biotechnology organization that specialized in veterinary medicine. She stated that the organization did not seem to have many of the communication issues she finds common in other biotechnology organizations.

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She reflected that this could be because veterinarians are trained in business at the same time they are trained in veterinary medicine. It is expected that veterinarians will work in a private practice in which they will use skills in both science and business. According to a survey by BioPlan Associates,5 the majority of people involved in product commercialization in biotechnology were originally educated as scientists. Many of these scientists found the constraints of the research laboratory too confining and moved out of the laboratory and into the business environment. Many company founders and leaders were originally trained as PhD-level research scientists. These scientists believed that because they were the “smartest people in the room” (as one interviewee stated), they felt that running a business would not be as difficult as they may have presumed. The skills required of a business leader involve forms of communication that generally have not been culturally accepted or taught to scientists. Successful organizations require high-level understanding of both science and business, and it is unusual for people in general to be naturally talented in the communication modes necessary for effective process flow. For scientists to effectively move ideas from the laboratory to the marketplace, they must work within a culture that supports this effort. The culture of an organization is directly influenced by the leadership of the organization. The traditional research culture is not conducive to scientists communicating outside of this realm. Organizational leaders play a key role in developing the organization’s culture and can either support or inhibit effective communication across boundaries. Organization culture is certainly influenced by factors other than leadership, but the core of company culture comes from its leadership. Therefore, further study is needed to understand the role of the leadership and how it influences cross-boundary communication within the organization.

CONCLUSION AND AREAS OF FUTURE RESEARCH Little research has been done on the role of the leader in biotechnology organizations or on the leader’s impact on the success of an organization in terms of research and development of new ideas. Stacey reminds us that reality is constructed by the individual.17 Human interaction is nonlinear, and to study the movement of science from the laboratory, it is important to look on many levels, not just at the scientist or the leader, but on the complex process itself. Hirst and Mann state that their “study re-iterates the importance of communication in driving innovation and project performance. . . . [O]ur findings add that perceptions of performance are relative as different factors predict different stakeholders ratings of performance. Thus, there is an urgent research and practical need to understand why stakeholders adopt different perspectives” (157).8 Stakeholders include not only scientists and business professionals within the organization but also customers and investors. In addition to looking at the organization and its stakeholders, a particular focus of future research should be placed on the behaviors of its leader and what specific impact his or her actions have on the success of moving ideas from the lab.

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Scientist-leaders must develop interpersonal communication networks with business professionals to facilitate the processes needed to persuade business professionals to take action. A crucial component of the innovation-exchange process is the exchange of information in highly uncertain situations. A high degree of interaction and communication is required of scientists for their ideas to be developed. Scientists must learn the language of business and the styles of communication of business professionals to move ideas from the laboratory to the marketplace. The innovation must also be consistent with existing values of business professionals making the decision to move forward with a new scientific idea. Additional research is necessary to better understand ways to help leaders develop the skills necessary to maximize the development of the science. In summary, communication is a critical component in moving ideas from the laboratory to engage business leaders to take action. To understand what happens in organizations in which moving ideas is successful, however, one must consider not only the scientists but also the collective processes that include communication, networking, leadership, and organizational culture. The culture is deeply embedded in scientists, and as one interviewee stated, “[S]cientists who move into business or try to have their science translated into business think they are selling themselves to the devil.”2

REFERENCES 1. Tufts E-News. 2001. “The Ballooning Price Tag.” Available at: http://www. tufts.edu/communications/stories/120401BallooningCosts.htm. Accessed February 20, 2007. 2. Interview by the author with a biotechnology leader. All interviews were conducted in confidentiality, and the names of interviewees are withheld by mutual agreement. 3. Yin, R. K., and M. K. Gwaltney. 1981. “Knowledge Utilization as a Networking Process.” Knowledge: Creation, Diffusion, Utilization 2: 555–80. 4. Allen, T. J. 1984. Managing the Flow of Technology: Technology Transfer and the Dissemination of Technological Information with the R&D Organization. 2nd ed. Cambridge, MA: MIT Press. 5. BioPlan Associates, Inc. 2003. Commercializing Biotechnology and Life Sciences: A Survey of Education and Training Life Sciences Commercialization. Rockville, MD: Eric Langer. 6. Argote, L., and P. Ingram. 2000. “Knowledge Transfer: A Basis for Competitive Advantage in Firms.” Organizational Behavior and Human Decision Processes 82 (1): 150–69. 7. Kivimaki, M., H. Lansisalmi, M. Elovainio, et al. 2000. “Communication as a Determinant of Organizational Innovation.” R&D Management 30 (1): 33–42. 8. Hirst, G., and L. Mann. 2004. “A Model of R&D Leadership and Team Communication: The Relationship with Project Performance.” R&D Management 34 (2): 147–60. 9. Nonaka, I. 1995. “A Dynamic Theory of Organizational Knowledge Creation.” Organization Science 5 (1): 14–37. 10. Rogers, E. 2003. Diffusion of Innovation. New York: Simon and Schuster.

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11. Myers, I. B., M. H. McCaulley, N. L. Quenk, and A. L. Hammer. 1998. MBTI Manual (A Guide to the Development and Use of the Myers Briggs Type Indicator). 3rd ed. Palo Alto, CA: Consulting Psychologists Press. 12. Elkins, T., and R. T. Keller. 2003. “Leadership in Research and Development Organizations: A Literature Review and Conceptual Framework.” Leadership Quarterly 14 (4–5): 587–606. 13. Shim, D., and M. Lee. 2001. “Upward Influence Styles of R&D Project Leaders.” IEEE Transactions on Engineering Management 48 (4): 394. 14. Tidd, J., J. Bessant, and K. Pavitt. 2005. Managing Innovation, Integrating Technological, Market and Organizational Change. Chichester, UK: Wiley. 15. Waldman, D. A., and L. E. Atwater. 1994. “The Nature of Effective Leadership and Championing Processes at Different Levels in R&D Hierarchy.” Journal of High Technology Management Research 5 (2): 233–45. 16. Schon, D. 1983. The Reflective Practitioner: How Professionals Think in Action. New York: Basic Books. 17. Stacey, R. D. 2001. Complex Responsive Processes in Organizations: Learning and Knowledge Creation. London: Routledge.

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CHAPTER 11

The Cost of End-of-Life Care Kenneth A. Fisher with Lindsay E. Rockwell

D

eath is a natural process, a nonnegotiable part of the journey called life. Ninety percent of us would prefer to die peacefully at home, surrounded by family and friends, with minimal discomfort.1 In reality, 75 percent of us will die in some kind of institution, often receiving protracted and costly care, without the comfort and support of loved ones.2 Hospice, which accepts and honors our mortality, facilitates dying with dignity and grace, manages pain and discomfort, and supports and encourages family members through the process. However, fewer than one in five Americans die in hospice care.3 Inappropriate care of the dying is one of the most disturbing problems of the expensive U.S. healthcare system. Part of the blame lies with the Patient SelfDetermination Act, which created advanced directives and living wills. Quite simply, it does not work because only a fraction of the population has them, and, even when they do exist, many are not followed. It is also absurd to assume that patients and family members with no medical training can imagine future end-of-life situations and plan appropriately.4 Consequently, many physicians treating patients in end-of-life situations, especially if there is no advanced directive, assume the patient wants everything possible done and often propose options, some of which they know represent unrealistic goals. Thus, patients and their families, with no medical expertise, become consumers of medical services in much the same ways they are consumers of refrigerators, handbags, and golf shoes, and the physician becomes a technician following orders. At other times, physicians know there is no chance of recovery, but families or guardians refuse to accept this reality. Physicians and hospitals afraid of legal action continue heroic measures until eventually nature takes its course.

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This sense of consumerism has been reinforced by court actions such as in the Baby K case.5 In this case, the court supported the insistent mother of an infant who never developed the human part of her brain and was kept alive for twoand-a-half years at great cost, with no possibility of the child ever achieving any semblance of human life. Another example is the Terri Schiavo case.6 Because physicians and medical societies were largely silent during the highly visible national debate of these two cases, there was no significant discussion of the difference between being disabled and the lack of any human activity due to permanent loss of the cerebral cortex. Another factor in the dismal state of end-of-life care is money. Medicare has made across-the-board reimbursement cuts, forcing hospitals to stay viable by decreasing general floor care and promoting excessive use of intensive care units to allow for greater billing.7 Every year, thousands of patients languish in intensive care units with no chance of recovery. Many have bedsores, decaying digits, and other deforming maladies. In addition, fee-for-service payments for physicians and an escalating diagnosticrelated groups (DRG) payment system for hospitals mean the more that is done, especially more procedures, the more dollars for the hospital. Although it is true that patients are free to refuse any treatment a doctor might suggest, that does not mean physicians should be offering procedures that may not bring a desired result or consenting to treatment that would be considered medically futile (see table 11.1). The system is convoluted and extremely complex and open to varied interpretation when it comes to actual billing and payment for services. For instance, with our present DRG payment system, if a patient leaves the hospital for another facility, including out-of-home hospice, the hospital, depending on the particular situation, may be reimbursed a lesser amount for services rendered during the hospital stay. We need a medical profession that the public can trust to protect them from a painful and financially disastrous end of life, yet the Dartmouth Group has documented that our large teaching hospitals provide excessive nonbeneficial endof-life care,8 thereby teaching principles of aggressive end-of-life care to future generations of doctors. The former president of the Institute of Medicine, Dr. Kenneth I. Shine, said, “Our professional organizations must initiate efforts to help physicians and patients understand that more is not necessarily better,” and, “A physician in a continuously healing relationship has a responsibility to see that the patient receives appropriate evidence-based care, but does not receive care that adds no value.”9 We now spend almost twice as much for healthcare per person than any other industrialized country in the world.10 If we continue to practice our present style of end-of-life care, the costs to our society will become prohibitive as the baby boom generation reaches age 70 and beyond. Now is the time to begin making meaningful changes before a crisis occurs and the ensuing panic forces unwise decisions and hastily made solutions.

Table 11.1 Diagnostic-Related Group (DRG) Payment System: Hypothetical Case A 78-year-old woman with long-standing diabetes and coronary artery disease is admitted to the hospital because of severe diarrhea, secondary to antibiotics for lower-leg cellulitis. She develops an acute myocardial infarction (non-ST wave elevation), receives cardiac catheterization with stenting, and develops acute renal failure requiring dialysis and bleeds 8 units of blood from the catheterization site. She requires intensive care for shortness of breath, and after 8 days in the unit she dies. Her total hospital costs amounted to approximately $20,000. If a tracheotomy had been performed, the payment under other procedures would have been about another $100,000. Medicare DRG 557 Percutaneous cardiovascular procedure with drug-eluting stent with a major cardiovascular diagnosis CMS wt. 2.7616 A/LOS 4.1 G/LOS 3.0 Principal diagnosis 41041 Acute myocardial infarction, inferior wall, initial episode of care Secondary diagnosis 41401 Coronary atherosclerosis of native coronary vessel 9961 Mechanical complication of vascular device/implant/graft 5849 Acute renal failure, unspecified 25080 Diabetes mellitus with specified manifestation, type 2 or unspecified type, not stated as uncontrolled 6826 Cellulitis and abscess of leg, except foot 78791 Diarrhea Principal procedure 0066 Percutaneous transluminal coronary angioplasty (PTCA) or coronary atherectomy Other procedures 3723 Combined right and left heart cardiac catheterization 3607 Insertion of drug-eluting coronary artery stent(s) 0041 Procedure on two vessels 0046 Insertion of two vascular stents 3895 Venous catheterization for renal dialysis 3995 Hemodialysis 9903 Transfusion of whole blood 9604 Insertion of endotracheal tube 9672 Continuous mechanical ventilation for 96 consecutive hours or more I certify that the narrative descriptions of the principal and secondary diagnoses and the major procedures performed are accurate and complete to the best of my knowledge. ___________________________

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Physician’s Signature

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Source: Adapted from American Hospital Directory. 1983. “Medicare Prospective Payment System.” With help from the finance department at Bronson Methodist Hospital, Kalamazoo, MI. Available at: http://www.ahd.com/pps.html.

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So, let us ask ourselves some questions that can lead to meaningful solutions: 1. Is it possible that physicians could address patients’ wishes for beneficial care at each hospital admission? 2. Might we energize the neurological community to revisit the definition of brain death to include complete and permanent loss of the cerebral cortex even with a functioning brain stem? 3. Will the palliative care community form a speakers bureau to discuss end-of-life care with the elderly? 4. Can we stimulate chiefs of medicine and surgery to encourage hospice for end-of-life patients in critical care units and design a streamlined transition for appropriate patients from the intensive care unit setting directly into palliative care? 5. Can we foster better palliative care skills among our medical professionals? 6. Is it possible that our government might listen carefully to a dialogue regarding these issues and act wisely before a crisis is upon us? As we seek answers to these questions in this chapter, we will look at the present state of end-of-life care, the historical events that have brought us to this point, and offer some recommendations for meaningful change.

THE PRESENT: WHERE WE STAND NOW Where We Die and the Cost of Death in the United States According to the findings of a survey by Time/CNN conducted in 2000, approximately 75 percent of Americans die in a medical institution and onethird of these have spent at least 10 days in an intensive care unit (ICU). When asked, however, 75 percent would prefer to die at home.11 Medicare expenditures during the last year of life average from $28,00012 to $38,000.13 However, Medicare does not pay for all expenses (studies are not yet available since the inception of the Medicare drug benefit). An estimate of total cost (out of pocket and other insurance) is that approximately $50,000 is spent on medical care during the last year of life. This cost has been increasing faster than the rate of inflation. As the elderly become a greater fraction of our population, we will have three choices: a. Increase the fraction of gross domestic product (GDP) devoted to endof-life care. b. Lower the cost of end-of-life care by providing palliative approaches to end stage disease. c. A combination of a and b.

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Use of Technology Rather than Palliative Care in End-of-Life Situations Cardiopulmonary Resuscitation As it now stands, a physician, usually with patient and family discussion, must write a do not resuscitate (DNR) order to avoid cardiopulmonary resuscitation (CPR) in case of an in-hospital cardiac arrest. At Beth Israel hospital in Boston,14 294 consecutive patients received cardiopulmonary resuscitation after suffering a cardiac arrest. During the 18-month study, 44 percent responded, but only 14 percent survived to be discharged from the hospital. Ten percent were still alive after approximately one year. No patient with sepsis (with systemic signs of infection) survived. There was a 95 percent mortality for patients who were homebound, hypotensive, or had a diagnosis of renal failure, pneumonia, or cancer, versus a 34 percent mortality for patients without these comorbidities. In another study,15 89 patients with cancer had attempted resuscitation, but none survived to leave the hospital. Thirty-three were revived and had protracted ICU admissions. Only 1 of 73 patients (1.4 percent) with sepsis survived to leave the hospital. Similar findings have been obtained in other reviews.16,17 Writing in the New England Journal of Medicine, L. J Blackhall observes: Too often CPR just happens, without inquiry into the patient’s wishes or consideration of its chances of success. Both patient autonomy and physician responsibility are important factors in making decisions regarding CPR. In cases in which CPR has any potential for success, the principle of patient autonomy dictates the patient’s right to choose or refuse such treatment. The issue of patient autonomy is irrelevant, however, when CPR has no potential benefit. Here, the physician’s duty to provide responsible medical care precludes CPR, either as a routine process in the absence of a decision by a patient or as a response to a patient’s misguided request for such treatment in the absence of adequate information. In such cases the physician should not offer CPR. Both physicians and patients must come to terms with the inability of medicine to postpone death indefinitely.18

Many hospitals have policies regarding physicians writing DNR orders even against family wishes. Still, there are many barriers to withholding CPR:19 1. Covering physicians may be unsure of the patient’s or family’s wishes and opt for doing CPR. 2. Physicians may be unwilling to address these issues with patients and families they do not know and have not taken care of in the past. 3. Physicians might choose to perform CPR rather than face the possibility of a lawsuit. 4. Families may feel they are deserting their loved one if they authorize a DNR order. 5. The topic may not have been raised with the family and the patient may not be able to make decisions.

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6. Many teaching hospitals will not allow house staff to decide if CPR may be bypassed, and thus in off-hours and on weekends CPR takes place. This raises the concern that the act of doing CPR may become the default response to a critically ill patient rather than considering the potential futility of such heroic measures. The estimated cost in dollars as a result of the present U.S. CPR policy is approximately $26.3 billion (table 11.2). The present policy also fosters patient suffering and the development of physician callousness, along with excessive cost. It would be impossible to develop precise criteria for CPR so that it would be attempted only in those patients most likely to survive; however, it would be reasonable to change our hospital CPR policy to require orders to do CPR.20 A decrease in the performance of CPR by 50 percent by eliminating the most futile cases would increase the long-term survival rate to 20 percent. This single step could save the U.S. healthcare system approximately $13 billion per year.

Moving toward a New Policy on CPR Perhaps it is time to ask, “Under what circumstances might CPR be beneficial and therefore worth attempting?” Approximately 85 percent of patients who Table 11.2 Estimated Cost of In-Hospital Cardiopulmonary Resuscitation (Codes) per Year This cost estimation was gleaned from sources footnoted at the bottom of the table. 196 codes per year at one hospital (Beth Israel)a Of these codes, 21 patients were alive a year later (10.5%).a Estimated cost per code: $43,565b This cost includes not only the CPR but all of the care provided following resuscitation. Approximately 1,512,500 people die in hospitals per year (60.5% of all U.S. deaths).c 605,000 of those deaths came after at least one resuscitation.d Multiplying those deaths (605,000) by the estimated cost per code from the Beth Israel study ($43,565) yields the astounding figure of $26.3 billion as the estimated total expense of inhospital codes per year. a

Bedell, S. E., and T. L. Delbanco. 1983. “Survival after Cardiopulmonary Resuscitation in the Hospital.” New England Journal of Medicine 309: 569–76. b Lee, K. H., D. C. Angus, and N. S. Abramson. 1996. “Cardiopulmonary Resuscitation: What Cost to Cheat Death?” Critical Care Medicine 24: 2046–52. c Field, M. J., and C. K. Cassel, eds. 1997. “How People Die: Symptoms of Impending Death.” In Approaching Death, Improving Care at the End of Life. Washington, D.C.: National Academy Press, 45. d Thel, M. C., and M. D. O’Connor. 1999. “Cardiopulmonary Resuscitation: Historical Perspective to Recent Investigations.” American Heart Journal 137: 39–48.

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receive CPR on general inpatient services do not leave the hospital alive. It may be preferable on general inpatient services to inform all patients, or their surrogates, about CPR and to require a written order to attempt it. Institutions could have a panel of physicians serving as an appropriate-care committee, which would oversee that the withholding of CPR was indicated to be certain that decisions were not made inappropriately.

Intensive Care Units and End-of-Life Issues Fees for ICUs are significantly more than regular hospital care.21 Hospitals have been increasing their percentage of ICU beds while decreasing regular care beds.22 Is this practice in the patient’s and the nation’s best interest? Consider the following data. In a recent study23 to explain why Medicare expenditures during the last year of life have not decreased, in spite of the increasing use of hospice, the authors found that in their sample of inpatients, the cost increased about 60 percent from $58 billion (1985) to $90 billion in 1999. The proportion of patients with one or more intensive care unit admissions increased by approximately 5 percent among those who died, compared to approximately 2 percent among survivors. Patients who died had a 10 percent increase in procedures versus a 3 percent increase among survivors. In 1999, 50 percent of feeding tubes, 60 percent of intubations and tracheotomies (tracheotomies greatly increase payment in the present DRG system), and 75 percent of CPRs were in hospitalized patients who died during that hospitalization. Although the proportion of Medicare patients dying in a hospital decreased from 44 percent to 39 percent, those admitted to the ICU during their terminal admission increased from 38 percent to 40 percent, and the proportion of patients having an intensive care procedure increased from 18 percent to 30 percent. One-fifth of these patients received mechanical ventilation, although death was imminent. Per capita hospital expenditures, ICU admissions, and intensive care procedures were higher among patients who died. In another study,24 552,157 deaths in 1999 were reviewed from six states; 38 percent were in-hospital and 22 percent were after ICU admissions. It was projected that, nationwide, approximately 540,000 people die after ICU admission each year in the United States. The average length of stay was approximately 13 days, with a cost of about $24,500 per patient. It is estimated that 20 percent of Americans who die in the hospital do so in the ICU. With critically ill patients, is it feasible to determine that death is days, weeks, or, at most, months away? To a seasoned physician who has developed judgment after careful examination and discussion, in our opinion, it is possible to make this judgment in 85 percent to 90 percent of cases. In the remaining 10 percent to 15 percent, in time, usually in a week or two, this judgment becomes more obvious in all but a very few cases. In prior discussions with 15 ICU physicians from all over the United States, when asked, “About how many of your ICU patients should be in hospice?” The answer was approximately one-third. When physicians in training are asked about this problem, by far the most common

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response is, “We just do everything for everybody; we do not make judgment decisions.” Another study25 tested the hypothesis that patients dying in the hospital had informed discussions regarding palliative care before being admitted to the ICU. This was a chart review study from a teaching hospital. There were 252 hospital deaths during the study; 165 patients (65 percent) died in the ICU. There was no statistically significant difference between general floor and ICU patients with known terminal disease. The house staff referred more of these dying patients to the ICU than seasoned physicians. None of the terminal patients transferred to the ICU had discussions about palliative or end-of-life care as an option. Of those who died in the general wards, 25 percent had such a discussion. Patients who were treated in the ICU had more invasive tests performed and were less likely to have adequate pain control or be given the option of hospice. Of the dying patients transferred to the ICU, the cost was about $33,000 versus $8,500 for those treated on the general wards. Patients who died in the ICU did not live longer than general ward patients, had inadequate pain relief, and were not offered the alternative of palliative care. In a study26 conducted to determine whether six end-of-life care domains were documented in the charts of ICU patients, documentation was found infrequently as to: 1. Patient- and family-centered decision making (more about this in the next section). 2. Communication. 3. Continuity of care. 4. Emotional support. 5. Symptom management and comfort care. 6. Spiritual support.

Palliative Care Consultation Patients and families could benefit from active palliative care and ethics consultation in the ICU. A prospective randomized controlled study in seven U.S. hospitals tested the premise that ethics consultation in the ICU in patients who were terminally ill would improve care and shorten ICU stay.27 Five hundred fifty-one patients were identified for whom conflict arose between the physicians and patient and/or family regarding the discontinuation of aggressive care. Two hundred seventy-eight of these patients and/or families were offered ethics consultations, and the remaining 273 were given usual care. Mortality was not significantly different in either group; however, the group receiving ethics consultations had fewer ICU and hospital days. All parties reported that the ethics consultations were beneficial. When physicians come to the conclusion that there is no chance of survival, many families are unable to deal with this reality. Some hospitals have active

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ethics committees and do their best to settle these issues. The American Medical Association (AMA) has an accepted protocol that balances the families’ needs with physician professionalism,28 but it is frequently not used (figure 11.1). Many hospitals have suffered legal setbacks in dealing with these issues, as in the Baby K case.29 Many physicians go along with the family because they feel the hospital will not support them and that the hassle of a lawsuit is not worth the effort. Some hospitals misinterpret the Patient Self-Determination Act, thinking what the patient or the family wants is what must be done. Medical societies have not yet developed procedures to support physicians in these conflicts.

Toward a Different ICU Approach In 1995, a study looked at the relationship between resource use and two-year outcome in 402 ICU patients.30 As a result of a patient’s lack of response to medical intervention, they coined the term potentially ineffective care (PIC) and assessed its cost. They concluded that patients who received PIC constituted 13 percent of the patients and used 32 percent of resources devoted to critical care at an academic teaching hospital. They recommend that ICUs should assess ineffective care based on outcome, resources used, and a patient’s response to treatment over time. Medicine is not an exact science, of course; judgment is needed in interpreting the facts for every individual case.

Figure 11.1 Fair Process for Considering Futility Cases

Source: Adapted from “Medical Futility in End-of-Life Care; Report of the Council on Ethical and Judicial Affairs.” Journal of the American Medical Association 281 (10): 937–41. Copyright © 1999 American Medical Association. All Rights Reserved. Used with permission.

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The authors published a follow-up article in 1997.31 Their impression was that the worst outcome for ICU patients is not death but rather an extended dying process in which suffering has been prolonged by ineffectual care. They found that PIC was delivered in 4.8 percent of all Medicare patients admitted to the ICU and that these patients consumed 21.6 percent of all ICU resources for the period of study (all California patients in the year 1994). In 2001, total healthcare costs in the United States reached $1.4 trillion, 14 percent of the GDP, double the per capita healthcare spending of most other Western nations.32 According to the World Health Organization (WHO), however, the United States ranked 37 out of 191 in disease-adjusted life expectancy.33 They studied data from 1999 and found that the cost for inpatient Medicare service was $90 billion, one-quarter of which was spent on those who died. Approximately $9 billion was spent in the last month of life, and 40 percent of these patients were admitted to ICUs during their terminal illness.34 Medical judgment is required to appropriately use these technologies. We must teach our younger doctors these lessons and provide high-quality, humane, and realistic care to our patients. We and our medical societies must also educate the public about medical reality, so that patients and families have more realistic expectations about end-of-life care. Other studies have also concluded that it is appropriate to treat acute illness rather than terminal illness in ICU settings.35 Consequently, physicians must develop better judgment and acuity as to which patients will benefit from being in the ICU environment. Such understanding is gleaned from years of treating patients. It is from these insights that clinical wisdom grows. Seasoned physicians are an important resource for teaching new doctors how to evaluate and decide what may constitute appropriate care.

Variability in End-of-Life Care in the United States and Its Effect on Physician Training Cost comparisons of regional variations in cost for the last six months of care for three diagnoses—colon cancer, heart attack, and hip fracture—revealed that residents of high-spending regions received 60 percent more care but did not have better quality of life or better outcomes. The highest spending areas were in more heavily populated cities with large tertiary care facilities.36 These hospitals are where most of the training for young physicians takes place, and the study brings home the importance of reexamining the training of doctors regarding appropriate end-of-life care choices. Kenneth I. Shine, MD, a cardiologist and past president of the Institute of Medicine, adds weight to these findings in his editorial in the Annals of Internal Medicine.37 He points out that: • The greater the availability of hospital resources and physicians (specialists and subspecialists), the more they will be used, whether they provide any benefit to the patient.

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• Medical societies should begin to teach their members and the public that, in end-of-life situations, appropriate care is not more technological care but, rather, palliative care. • Care that adds no value should be avoided and could save about onethird of our total healthcare costs. • Physicians should lead in this effort to provide appropriate care because the government and insurance carriers are not equipped to perform this task. • Physicians must engage and educate the public, explaining to them that this is about better care, not rationing. We need large tertiary care referral hospitals that are also the site of high-quality physician training. These hospitals are frequently called places of last resort, where the most difficult cases are sent for resolution. These institutions also need senior physicians with proven judgment who can help decide which patients are candidates for curative care and which are candidates for thoughtful, compassionate palliative care. Fisher and colleagues’ research demonstrates that this kind of thinking is not taking place at our tertiary centers38 but, rather, is a mentality that drives the wheels of referrals forward, enabling the use of every known modality to keep the patient alive in spite of an underlying awareness that such efforts are of little value.

Judgment Needed in End-of-Life Situations Dialysis It is not uncommon for octogenarians to be placed on chronic hemodialysis. Chronic dialysis now accounts for about 5 percent of the entire Medicare budget and is growing faster than the increase in Medicare itself. Is it possible to select which patients will benefit from dialysis? In a study of patients with end-stage renal failure, it was found that those patients recommended for palliative care had a lower Karnofsky score (i.e., more functionally impaired), were older, and diabetic.39 In these patients, dialysis did not prolong life but was associated with poorer palliative care. This finding is supported by another study, which found that a modified Karnofsky score of <70 was associated with early mortality.40 Prominent ethicist A. H. Moss wrote: “Deciding not to offer dialysis is a fundamental responsibility of nephrologists. If nephrologists fail to make these decisions, patients, their families, other patients, dialysis staff, society and nephrologists can be harmed.”41 The United States Congress funded chronic dialysis in 1972 and mandated that nephrologists screen candidates for appropriateness. The Institute of Medicine has sought, and the dialysis community has responded with, guidelines for determining when the burdens of dialysis outweigh the benefits.42 However, there is no oversight by the organized nephrology community helping to enforce these guidelines.

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Cancer Care A study of 1996 data revealed that 22 percent of Medicare patients start a new chemotherapy regimen in the last month of life; within two weeks of death, the total is 18.5 percent.43 This was regardless of whether the cancer was considered responsive or unresponsive to chemotherapy. The study concluded: “More people are now starting chemotherapy regimens closer to death with unintended consequences of delayed hospice referral, escalating costs” and suboptimal quality of life.

Long-Term Acute Care Long-term acute care is a new category of care for patients deemed no longer to require acute hospital services but in need of extended medical and nursing care. Patients needing this level of care are considered to be too ill for discharge to a nursing facility, an acute care rehabilitation hospital, or their homes. Long-term acute care facilities have an average length of stay greater than 25 days and have been increasing in number and Medicare expenditures over the last few years. It is expected that Medicare will spend $2.96 billion for these facilities in 2006. The 2006 payment by Medicare is $37,975 per patient, with outlier (a statistical term for patients having a protracted hospitalization) payments beginning at an additional $11,544.44 For the appropriate patient, there is the opportunity for excellent care, but for the patient and/or family with unrealistic expectations, long-term acute care can provide a setting for a protracted death with great emotional cost to the family and great financial cost to society. Appropriate-care committees would also be helpful in this setting. Many patients in long-term acute care require prolonged mechanical ventilation (recently defined as 21 days or more for at least 6 hours per day 45), and the majority do not survive.46 In this group of patients, those older than 74 years of age and those 64 years and older not functionally independent had a 95 percent (84 percent to 99 percent) one-year mortality.47 Thus the need to be careful when selecting patients for long-term acute care to those who have a reasonable chance of recovery.

Impact of Aggressive Nonbeneficial End-of-Life Care The Public A survey of family members and significant others of 1,578 deceased patients was conducted to determine the quality of physical and emotional support to the patient, whether decision making was shared, if the dying person was treated with respect, if the families’ emotional needs were met, and whether care was coordinated.48 Most patients (67 percent) died in an institution, whereas 16 percent died in hospice care. Those dying at home with hospice were felt to have received excellent care more frequently than those dying in other situations, such as hospitals or nursing homes.

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Medical School Options for palliative care are not currently covered extensively in the training of new physicians in end-of-life care. Using the palliative education assessment tool for medical education (PEAT),49 New York medical schools had enhanced the palliative care content in their curricula. A curriculum for teaching palliative care to medical students has been developed50 and should become a part of every prospective doctor’s training.

Resident Physicians A review of the literature from 1966 to February 2005 found that residents were unprepared to handle patient end-of-life decisions and misinterpreted DNR orders and the concept of nonbeneficial care.51 The residents found that the end-of-life decision-making process did not reflect in practice what had been taught in their formal curriculum.

Practicing Physicians A 2004 survey of 1,236 physicians from different specialties investigated their perceived adequacy of training in 10 competencies in the care of patients with chronic illness, geriatric syndromes, chronic pain, nutrition, developmental milestones, end-of-life care, psychological issues, patient education, assessment of caregiver needs, coordination of services, and interdisciplinary teamwork. Most physicians thought their training in these areas was inadequate.52 In another study,53 the three greatest barriers to appropriate end of life care were: 1. Physicians’ reluctance to make referrals to hospice. 2. Physicians’ lack of understanding about the availability and usefulness of hospice. 3. The association of hospice with death.

HISTORICAL PERSPECTIVE After World War II, the United States embarked on a medical research program unparalleled in human history. The National Institutes of Health, pharmaceutical companies, foundations, and citizens (through organizations like the March of Dimes) funded this work. It was, and still is, primarily focused on the mechanisms of disease and their treatments. Many of the problems we have today with end-stage chronic illness are a result of the success of these programs’ ability to prolong life.54 With the advent of Medicare and Medicaid in 1964, a fee-for-service payment schedule was adopted. Payment for procedures was reimbursed at a higher rate than areas such as critical thinking, time speaking to patients, and preventive care. In the 1980s, hospitals started to be reimbursed using diagnostic-related groups (table 11.1), but physician reimbursement remained fee for service. As Medicare

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and Medicaid budgets have grown, politicians have chosen to make across-theboard cuts instead of dealing with high-cost issues involving end-of-life care. Medicare has also decreased funding for graduate medical education. The Balanced Budget Act of 1997 had a planned decrease of indirect medical education reimbursement (IME) funding from 7.7 percent to 5.5 percent of an intern/ resident-to-bed ratio. Although some funding has been restored, hospitals are still receiving less than they did in 1996. Subspecialty training direct medical education reimbursement (DME) is now at a lower amount than in 1996.55 These cuts have led academic medical centers to increase the volume of patient care to prevent deficits, given their high fixed costs. It has also resulted in less time for teaching and personal supervision and more reliance on tests and technology. This trend results in inefficient, expensive care and patient dissatisfaction. Many people have criticized medical education for emphasizing scientific knowledge instead of biologic understanding, clinical reasoning, history taking, physical exam skills, and the development of character, compassion, and integrity. There is a new “harsh commercial atmosphere,” with students hearing about throughput, market share, units of service, and the bottom line, which overwhelms concentrating on prevention and relief of suffering, caring, and compassion.56 To appropriately train physicians, teachers need time and resources to teach students how to integrate evidence-based medicine with individual patients.

The Patient Self-Determination Act and Advanced Directives Since World War II, a large research effort has led to advances that have radically transformed our understanding of the nature of life and death. It takes wisdom and time to learn how to apply these advances in a proper and humane manner. We have learned how to postpone death. In some cases, this ability is marvelous; in others, it is inappropriate. Experience and judgment are required to know when to pursue the marvelous and avoid the inappropriate. We as a society have not yet reached that level of wisdom. An attempt was made in 1990 when Congress passed the Patient Self-Determination Act (PSDA), but it has led to profound, unintended negative consequences. Here is an example of the misinterpretation of the absence of an advanced directive and the subsequent involvement of the courts.57 It points out the need for workable systems and procedures for handling these situations in the best interest of the patient. In the following case, the absence of a known advanced directive led to an unfortunate outcome for a 97-year-old woman. The woman had a recent heart attack, failing kidneys, and progressive loss of mental activity. She was being sustained by a feeding tube. Frequent spillage of gastric contents into her lungs required a breathing tube down her windpipe, and a ventilator helped sustain her breathing. Because of infections, she was also treated with a series of potent anti-infectious agents. Her attending physician in the intensive care unit of a smaller community hospital asked the probate court to allow her full code status to be changed, her

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breathing tube removed, and measures instituted to make her comfortable. The doctor noted that it was a struggle for the hospital staff to walk in the room. The patient pushed away staff, writing, “I want tubes out, and I want to die, help me.” The newspaper reported that the patient was not married, had no children, and had outlived all of her friends. Her care was directed by a court-appointed guardian. The judge refused the petition, saying a ruling by a previous state attorney general, now governor, that, “Only adults of sound mind may execute a Do Not Resuscitate order, and may do so only on their own behalf. The legislature has not authorized a guardian to sign a DNR order on behalf of his or her ward.” The judge in this case felt that the doctor was overstepping his bounds in making the request.58 He stated that a physician should not advocate to the court for the removal of apparatus being used to keep his or her patient alive and that the physician’s role should be to advise the family or guardian and, at most, offer an opinion. After approximately one month at the smaller hospital, her guardian had her transferred to a larger referral hospital, insisting that every possible measure be done regardless of her overall condition. At the referral hospital, she was transferred to the intensive care unit the day after admission, was again intubated (breathing tube down her throat), placed on a respirator, and given various antibiotics. Because the court ruled that everything should be done to save her life, the hospital staff felt they were unable to follow her wishes to die. She was discharged from the referral hospital to her nursing home but was returned to the larger hospital after only three hours. She was severely malnourished and had developed antibiotic-resistant bacteria in her respiratory and urinary tracts. She had severe dementia, fluid retention, and renal failure and was referred to another chronic care facility at the request of the guardian approximately oneand-a-half months after admission to the smaller hospital. After one month in the new facility (two-and-a-half months after initial admission), she had no awareness of her surroundings, still needed mechanical ventilation, and required a feeding tube and multiple antibiotics. The new physician caring for her also felt this was abuse of a dying woman but that his hands were tied because of the court’s actions. Although both medicine and law deal with judgment, medicine must consider not only the physical manifestations and potential consequences of a disease process but also the personal context in which illness occurs. Judges do not examine patients; they are trained to interpret legal precedent, not to integrate the multiple factors that go into a medical decision.

The Meaning of Advanced Directives The meaning of advanced directives and patient autonomy, for patients, physicians, and the United States, has been misinterpreted. The current understanding, by many physicians and hospitals, unless an advanced directive is present limiting care, is that all possible therapies, regardless of their merit or beneficence, must be undertaken. Families are baffled that their loved ones are being treated in this

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manner. The patient undergoes a needlessly protracted death, the family is in turmoil, the medical staff is demoralized, and as a consequence the U.S. healthcare system has less funds devoted to caring for the under- and uninsured, medical education, and primary care.

Genesis of the Patient Self-Determination Act In 1968, in response to the need to define a more humane definition of death and to help procure organs for transplantation, an ad hoc committee of the Harvard Medical School developed guidelines to define brain death. These guidelines have been accepted worldwide as standard medical care. The committee based its recommendations on the premise that with the loss of total brain activity coma was irreversible and further care futile.59 Now almost forty years later, it is time to revisit this issue. Much has been learned in this area; acquired evidence from the fields of neurology, biology, and physiology point to the location of self, or personhood, as being in the cerebral cortex rather than in the total brain. Loss of the cerebral cortex should be defined as death, the absence of life. The total brain death definition left open the possibility of loss of the more sensitive cerebral cortex but maintenance of the brain stem and respiration, leading to what we now call a persistent vegetative state, as in the Terry Schiavo case. In April 1975, Karen Ann Quinlan, at age 21, had a transient episode of lack of oxygen supply to her cerebral cortex, causing permanent loss of function. Her brain stem, however, was still functional, and thus she did not meet the criteria of brain death. Technology kept Quinlan’s bodily functions intact (i.e., blood pressure, digestion, urine output, etc.), although with the loss of her cerebral cortex the person Karen Ann Quinlan was gone. Quinlan’s physician, the local prosecutor, and the New Jersey attorney general opposed Quinlan’s father, who wanted to continue medically administered nutrition and water but discontinue artificial respiration. The New Jersey trial court denied the father’s appointment as legal guardian and ruled that the attending physician and prevailing medical standards should prevail. The New Jersey Supreme Court reversed the trial court and appointed Quinlan’s father as guardian. She was weaned from the respirator but was given nutrition and water. Her body slowly deteriorated and ceased to exist 10 years later. Another widely publicized case occurred in 1983. Nancy Cruzan, at age 25, was thrown from her car and experienced inadequate oxygen to her brain, resulting in permanent nonfunction of her cerebral cortex. She was resuscitated and had only brain stem activity. Because the cerebral cortex is the thinking, feeling, speaking, and motioncontrolling part of the brain, without a cerebral cortex one may see what looks like a person, but what we call human is absent. This is not a disability; the person is gone. As with Karen Quinlan, the roots of society’s and medicine’s conflict regarding the definition of death were revisited as Nancy Cruzan’s bodily functions were maintained though she ceased to exist as a person. Cruzan’s parents, knowing

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their child would not wish to be slowly decaying when in fact she no longer had awareness or any other human trait, sought to have her feeding tube and other support measures stopped. Because she was in a state hospital and, in part, because medical societies had not yet (even to this day) organized to teach the public about lack of cerebral function and personhood, the case was appealed to the Missouri Supreme Court asking to remove her support systems. This court agreed that a person had the right to refuse treatment but did not feel Cruzan had made her wishes “clear and convincing.” 60 The court decided that this was not a case of right to die but the right of others to take her life. The court’s finding that at issue was the right of others to take her life was flawed. She in fact had no life to take. The U.S. Supreme Court in 1990 heard the case and did codify the right of a competent individual to refuse any lifeprolonging treatment. In the case of incompetent people, a state could insist on clear proof of a person’s preference.61 This decision was made on legal grounds and with little attention to medical knowledge. The Supreme Court sent the case back to the Missouri Supreme Court, which in 1990 did allow the support services to be removed. Cruzan’s body quickly ceased to exist. The dissenting Supreme Court opinion of Associate Justice John Paul Stevens quotes Judge Charles B. Blackmar of the Missouri court, who said, “The Missouri policy was illegitimate because it treats life as a theoretical abstraction, severed from and indeed opposed to, the person of Nancy Cruzan.” In response to these two cases, with input from a presidential commission, the U.S. Congress on November 5, 1990, as a part of the Omnibus Budget Reconciliation Act, passed the Patient Self-Determination Act (PSDA) to go into effect on December 1, 1991. This act stated that patients have the right under state law to create advanced directives stipulating what they wish done in an end-of-life situation. Although many medical ethicists state that medical judgment must be used and physicians should not offer nonbeneficial care, other well-known physicians argue that we must err on the side of patient or family choice if a patient’s wishes are unknown.62 This concept is further reinforced by the decision in the Baby K (1993) case in which first the trial court63 and then the U.S. Court of Appeals ruled that a baby born with only a brain stem should have mechanical respiration applied in the emergency room if needed.64 The court made this decision based on the Emergency Medical Treatment and Active Labor Act,65 a decision made in spite of the medical knowledge that such an infant can never become a person and cannot survive. Paraphrasing a review of the Baby K case, to avoid medicine being a commodity and becoming unbearably expensive or having the government set arbitrary standards, physicians must set standards for medical practice and follow them.66 Unfortunately, organized medicine has not yet addressed this problem.

Revisiting the Definitions of Life and Death Many of the arguments in the Quinlan and Cruzan cases dealt with the questions of what is life and what is death. It may be time to revise these definitions.

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The current legal definition of brain death is “total and irreversible cessation of all brain function, including the brain stem.” The cerebral cortex is the thinking, feeling, speaking, and motion-controlling part of the brain. Without the cerebral cortex, one may see what looks like a person, but what we call human is gone, even if the brain stem is still functioning. The cerebral cortex is the most complex of human organs, with neurons making billions of interconnections and developing as we age. The variations and numbers of those interconnections are what make us different: our personalities, memories, and intelligence, everything that makes us human, unique. Once these neurons and their person-specific interconnections are lost, there is no possibility of their return. Even if at some time in the future we could inject new neurons that were from a stem cell line identical to ourselves and these young neurons started to grow and make new connections, who and what would we be? Would we be the same person? We would have no memory or experience; we would be newborns in the body of an older individual. Our personhood would be completely different because our connections would be different. When families visit these patients, the sheets are usually pulled up to the neck. What are unseen are the decubiti (skin breakdown); dying fingers and toes; swollen, lifeless limbs; and body discoloration. Is it fair to that individual who has no chance of recovery to put his or her body through such degradation? If the standard of human life were to be addressed by legislators, maybe these tragedies could be avoided. Hopefully, in the future, our medical societies will embrace the opportunity to grapple with difficult issues and help society develop a more rational approach, based on scientific information.

Problems with the Patient Self-Determination Act In May 1991, in anticipation of the PSDA becoming effective that December, Kevin O’Rourke, OP, JCD, STM, the director of the Center for Health Care Ethics, Saint Louis University, University Medical Center, Saint Louis, Missouri, wrote that the PSDA used a sledgehammer approach to a delicate situation. “Potentially, the most serious ethical issues resulting from PSDA is the implied assumption that physicians are simply to carry out the wishes of the proxy.”67 Physicians must listen to the patient or proxy to learn as clearly as possible what the patient does and does not want, but they ultimately must do what is medically appropriate for the patient. Patient wishes must be interpreted in light of medical knowledge. Other authors have found serious problems with the PSDA as well.68 The PSDA has not significantly increased the use of written advanced-care documents, nor has it increased discussion between physicians and patients regarding end-oflife issues.69 After a few years, the PSDA contributed to the illusion that death is an option and that life can be prolonged indefinitely.70 The choice paradigm (patient autonomy) presents options that are not real, such as the option of not dying of

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a terminal illness and that patients and families who have a positive end-of-life experience choose to accept death as the final stage of life. When used with judgment, lifesaving measures engender and restore faith in medical prowess and offer second chances to patients and families. They also exemplify the reason that medical training attracts bright, well-meaning students: to make a difference in patients’ lives. If, however, the same measures are employed in a situation with little or no chance of recovery, then the potential to cause harm rather than do good is great. The consequences to patients, families, colleagues, and physicians are innumerable. The PSDA, in its attempt to provide for patient autonomy, oversimplified the complex dynamics of the dying process. It needs to be revisited. A possible amendment, for example, might replace specific medical terms, such as the use of drugs or a ventilator, with the requirement that physicians document with each hospital admission that a conversation has taken place explaining to family members and patients that individually tailored beneficial care based on sound medical principles will be offered. The patient, however, has the right to refuse any aspect of that care. Part of the intent of the PSDA was to encourage communication by the medical providers with the patient and family in the midst of challenging emotional circumstances. Conversations about death and dying occur rarely. A so-called appropriate death in the context of our medical culture, intensive care units, oncology units, and fluorescent-laden medical wards is impossible without continuous guidance and support from physicians, nurses, discharge planners, and hospital support staff. Each member plays a pivotal role in the experience of dying. Each must be embraced as we consider reconfiguration of responsibilities and open lines of communication. The role of medical societies in such a paradigm shift could be one of leadership, exemplifying clarity while also fostering the rekindling of honesty and compassion in the patient-physician relationship. Facilities have to inform patients of their rights under state law to make decisions about their medical care, including the right to refuse care and to formulate an advanced directive.71 There is a significant difference between refusing or limiting care and directing care.

RECOMMENDATIONS FOR CHANGE What Remains to Be Done to Decrease the Cost of Dying Change the Policy of CPR by Default The protocol for CPR should be changed. It should be ordered if indicated, with the default position being no resuscitation. The present policy of performing CPR on all in-hospital patients unless a DNR order is in place originated in the mid-1960s before the advent of Medicare.72 Although the hospital population is now different, with many frail and end-of-life patients, this policy is still in place. This action alone could decrease by half the number of resuscitations attempted

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in the United States, thereby alleviating patient and family suffering and saving approximately $13 billion per year.

Establish Appropriate-Care Committees Appropriate-care committees made up of experienced physicians at the hospital, state, and national level should be created to help individual doctors and families decide that the dying process has begun and palliative, not curative, care is now appropriate. Presently, it is estimated that more than 500,000 Americans die in intensive care units yearly, experiencing extended suffering at tremendous cost, both emotional and financial.73 Congress, through Medicare and Medicaid, could create and fund a system of appropriate-care committees to ensure a standard of medical care and amend the PSDA to include, “care that is beneficial according to the best available medical evidence, adapted to the individual.”

Amend the Definition of Brain Death Another step is to revisit the Harvard Medical School committee definition of end-of-life to include loss of the cerebral cortex, even with a functioning brain stem. In the United States, there are now tens of thousands of patients in a longterm persistent vegetative state with no blood flow to the cerebral cortex.74

Extend the Reach of Palliative Care Good palliative care does not shorten life but does help the patient die with dignity and as symptom free as possible.75,76 Hospice and palliative care options in the United States are available to all. Engage the Association of Professors of Medicine and Surgery, the American Hospital Association, and the American Academy of Hospice and Palliative Medicine to create programs to educate the public about care options, encourage more training and funding for graduate medical training in palliative care, and promote the inclusion of palliative care teams in hospitals, including rounds in ICUs. Although the challenges are substantial, an improved approach to end-of-life care will result in improved quality of care, less suffering for patients and families, and substantial savings that can be invested in research and improved processes of care.

NOTES 1. Field, M. J., and C. K. Cassel, eds. 1997. “How People Die: Symptoms of Impending Death.” In Approaching Death, Improving Care at the End of Life. Washington, D.C.: National Academy Press. 2. Barnato, A. E., M. E. McClellan, C. R. Kagay, and A. M. Garber. 2004. “Trends in Inpatient Treatment Intensity among Medicare Beneficiaries at the End-ofLife.” Health Services Research 39: 363–75. 3. Field, M. J., and C. K. Cassel, eds. 1997. A Profile of Death in America, In Approaching Death, Improving Care at the End-of-Life. Washington, D.C.: National Academy Press, 40–41.

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4. Drought, T. S., and B. A. Koenig. 2002. “ ‘Choice’ in End-of-Life Decision Making: Researching Fact or Fiction.” Gerontologist 42 (3): 114–25. 5. Annas, G. J. 1994. “Asking the Courts to Settle Standard of Emergency Care— The Case of Baby K.” New England Journal of Medicine 330: 1542–45. 6. “Terri Schiavo.” n.d. Wikipedia. Available at: http://en.wikipedia.org/wiki/ Terri_Schiavo. Accessed November 15, 2006. 7. Barnato, McClellan, Kagay, and Garber, 363–75. 8. Fisher, E. S., D. E. Wennberg, T. A. Stukel, et al. 2003. “The Implications of Regional Variations in Medicare Spending, Parts I and II.” Annals of Internal Medicine 139: 273–98. 9. Shine, K. I. 2003. “Geographical Variation in Medicare Spending.” Annals of Internal Medicine 138: 347–48. 10. Reinhardt, U. E., P. S. Hussey, and G. F. Anderson. 2004. “U.S. Health Spending in an International Context. Why Is U.S. Spending So High, and Can We Afford It.” Health Affairs 23: 10–25. 11. Cloud, J. 2000. “A Kinder, Gentler Death.” Time. Available at: http://www. time.com/time/printout/0,8816,997968,00.html. Accessed November 12, 2006. 12. Emanuel, E. J., A. Ash, W. Yu, et al. 2002. “Managed Care, Hospice Use, Site of Death, and Medical Expenditures in the Last Year of Life.” Archives of Internal Medicine 162: 1722–28. 13. Hoover, D. R., S. Crystal, R. Kumar, et al. 2002. “Medical Expenditures during the Last Year of Life: Findings from the 1992–1996 Medicare Current Beneficiary Survey.” Health Services Research 37: 1625–42. 14. Bedell, S. E., T. L. Delbanco, E. F. Cook, and F. H. Epstein. 1983. “Survival after Cardiopulmonary Resuscitation in the Hospital.” New England Journal of Medicine 309: 569–76. 15. Taffet, G. E., T. A. Teasdale, and R. J. Luchi. 1988. “In-Hospital Cardiopulmonary Resuscitation.” Journal of the American Medical Association 260: 2069–72. 16. McGrath, R. B. 1987. “In-House Cardiopulmonary Resuscitation—After a Quarter of a Century.” Annals of Emergency Medicine 16: 1365–68. 17. Thel, M. C., and M. D. O’Connor. 1999. “Cardiopulmonary Resuscitation: Historical Perspective to Recent Investigations.” American Heart Journal 137: 39–48. 18. Blackhall, L. J. 1987. “Must We Always Use CPR?” New England Journal of Medicine 317: 1281–85. 19. Murphy, D. J., and T. E. Finucane. 1993. “New Do Not Resuscitate Policies: A First Step in Cost Control.” Archives of Internal Medicine 153: 1641–48. 20. Alpers, A., and B. Lo. 1995. “When Is CPR Futile?” Journal of the American Medical Association 273: 156–58. 21. Frezza, E. E., D. M. Squillario, and T. J. Smith. 1998. “The Ethical Challenge and the Futile Treatment in the Older Population Admitted to the Intensive Care Unit.” American Journal of Medical Quality 13: 121–26. 22. Halpern, N. A., S. M. Pastores, H. T. Thaler, and R. J. Greenstein. 2006. “Changes in Critical Care Beds and Occupancy in the United States 1985–2000: Differences Attributable to Hospital Size.” Critical Care Medicine 34: 2105–12. 23. Barnato, McClellan, Kagay, and Garber, 363–75. 24. Angus, D. C., A. E. Barnato, W. T. Linde-Zwirble, et al. 2004. “Use of Intensive Care at End-of-Life in the United States: An Epidemiologic Study.” Critical Care Medicine 32: 638–43.

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25. Rady, M. Y., and D. Johnson. 2004. “Admission to Intensive Care Unit at the End-of-Life: Is It an Informed Decision?” Palliative Medicine 18: 705–11. 26. Clarke, E. B., J. M. Luce, J. R. Curtis, et al. 2004. “A Content Analysis of Forms, Guidelines and Other Materials Documenting End-of-Life Care in the Intensive Care Units.” Journal of Critical Care 19: 108–17. 27. Schneiderman, L. J., T. Gilmer, H. D. Teetzel, et al. 2003. “Effects of Ethics Consultations on Nonbeneficial Life-Sustaining Treatments in the Intensive Care Setting: A Randomized Controlled Trial.” Journal of the American Medical Association 290: 1166–77. 28. “Medical Futility in End-of-Life Care: Report of the Council on Ethical and Judicial Affairs.” 1999. Journal of the American Medical Association 281: 937–41. 29. Barnato, McClellan, Kagay, and Garber, 363–75. 30. Esserman, L., J. Belkora, and L. Lenert. 1995. “Potentially Ineffective Care: A New Outcome to Assess the Limits of Critical Care.” Journal of the American Medical Association 274: 1544–51. 31. Cher, D. J., and L. A. Lenert. 1997. “Method of Medicare Reimbursement and the Rate of Potentially Ineffective Care of Critically Ill Patients.” Journal of the American Medical Association 278: 1001–7. 32. Reinhardt, U. E., P. S. Hussey, and G. F. Anderson. 2004. “U.S. Health Spending in an International Context. Why Is U.S. Spending So High, and Can We Afford It.” Health Affairs 23: 10–25. 33. World Health Organization. 2000. “World Health Organization Assesses the World’s Health Systems.” Press release, June 21. Available at: http://www.who.int/ inf-pr-2000/en/pr2000-44html. Accessed November 17, 2006. 34. Barnato, McClellan, Kagay, and Garber, 363–75. 35. Esserman, Belkora, and Lenert, 1544–51. 36. Fisher, Wennberg, Stuckel, et al., 273–98. 37. Shine, K. I. 2003. “Geographical Variation in Medicare Spending.” Annals of Internal Medicine 138: 347–48. 38. Fisher, Wennberg, Stuckel, et al., 273–98. 39. Smith, C., M. Da Silva-Gane, S. Chandna, et al. 2003. “Choosing Not to Dialyze: Evaluation of Planned Non-Dialytic Management in a Cohort of Patients with End-Stage Renal Failure.” Nephron: Clinical Practice 95: C40–C46. 40. Ifudu, O., H. R. Paul, P. Homel, and E. A. Friedman. 1998. “Predictive Value of Functional Status for Mortality in Patients on Maintenance Hemodialysis.” American Journal of Nephrology 18: 109–16. 41. Moss, A. H. 2003. “Controversies in Nephrology: Too Many Patients Who Are Too Sick to Benefit, Start Chronic Dialysis, Nephrologists Need to Learn to ‘Just Say No.’ ” American Journal of Kidney Diseases 41: 723–27. 42. Renal Physicians Association and American Society of Nephrology. 1999. Clinical Practice Guideline on Shared Decision-Making in the Appropriate Initiation of and Withdrawal from Dialysis. Clinical Practice Guideline No. 2. Washington, D.C. 43. Matsuyama, R., S. Reddy, and T. J. Smith. 2006. “Why Do Patients Choose Chemotherapy Near the End-of-Life? A Review of the Perspective of Those Facing Death from Cancer.” Journal of Clinical Oncology 24: 3490–96. 44. U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services. 2005. “Medicare Proposes Payment Changes for Long-Term Care Hospitals for Rate Year 2006.” Press release, January 28. Available at: http://www.cms. hhs.gov/apps/media/press/release.asp?Counter=1339. Accessed September 2006.

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45. MacIntyre, N. R., S. K. Epstein, S. Carson, et al. 2005. “Management of Patients Requiring Prolonged Mechanical Ventilation: Report of NAMDRC Consensus Conference.” Chest 128: 3937–54. 46. Carson, S. S. 2006. “Outcomes of Prolonged Mechanical Ventilation.” Current Opinion in Critical Care 12: 405–11. 47. Carson, S. S., P. B. Bach, L. Brzozowski, and A. Leff. 1999. “Outcomes after Long-Term Acute Care, Analysis of 133 Mechanically Ventilated Patients.” American Journal of Respiratory and Critical Care Medicine 160: 1788–89. 48. Teno, J. M., B. R. Clarridge, V. Casey, et al. 2004. “Family Perspective on End-of-Life Care at the Last Place of Care.” Journal of the American Medical Association 291: 88–93. 49. Wood, E. B., S. A. Meekin, J. J. Fins, and A. R. Fleischman. 2002. “Enhancing Palliative Care Education in Medical School Curricula: Implementation of Palliative Education Assessment Tool.” Academic Medicine 77: 285–91. 50. Quill, T. E., E. Dannefer, K. Markakis, R. Epstein, et al. 2003. “An Integrative Biopsychological Approach to Palliative Care Training of Medical Students.” Journal of Palliative Medicine 6: 365–80. 51. Gorman, T. E., S. P. Ahern, J. Wiseman, and Y. Skrobic. 2005. “Residents End-of-Life Decision Making with Adult Hospitalized Patients: A Review of the Literature.” Academic Medicine 80: 622–33. 52. Darer, J. D., W. Hwang, H. H. Pharm, E. B. Bass, and G. Anderson. 2004. “More Training Needed in Chronic Care: A Survey of U.S. Physicians.” Academic Medicine 79: 541–48. 53. Feeg, V. D., and H. Elebiary. 2005. “Exploratory Study on End-of-Life Issues: Barriers to Palliative Care and Advanced Directives.” American Journal of Hospice and Palliative Care 22: 119–24. 54. Lynn, J. 2004. Sick to Death and Not Going to Take It Anymore. Berkeley and Los Angeles: University of California Press. 55. Rich, E. C., M. Liebow, M. Srinivasan, et al. 2002. “Medicare Financing of Graduate Medical Education: Intractable Problems, Elusive Solutions.” Journal of General Internal Medicine 17: 283–92. 56. Cooke, M., D. M. Irby, W. Sullivan, and K. M. Ludmerer. 2006. “American Medical Education 100 Years after the Flexner Report.” New England Journal of Medicine 355: 1339–44. 57. Agar J. 2006. “Judge Rules Lawton Women’s Life Must Be Preserved.” Kalamazoo Gazette, April 25, 2006. 58. American Medical News, June 12, 2006. 59. Doig, C. J., and E. Burgess. 2003. “Brain Death: Resolving Inconsistencies in the Ethical Declaration of Death.” Canadian Journal of Anesthesia 50: 725–31. 60. Cruzan v. Harmon, 760 S.W. 2d 408, 427 (Mo. 1989) (en banc). 61. Cruzan v. Director, DMH, 497 U.S. 261 (1990) at 284. 62. Quill, T. E. 2005. “Terri Schiavo, a Tragedy Compounded.” New England Journal of Medicine 352: 1630–33. 63. In the Matter of Baby K. 832 F. Supp. 1022 (E.D. Va. 1993). 64. In the Matter of Baby K. 16F. 3d 590 (4th Circ. 1994). 65. Emergency Medical Treatment and Labor Act, P.L. 99-272, 42 U.S.C. Sec. 1395 dd (1985)(renamed in 1989). 66. Annas, G. J. 1994. “Asking the Courts to Settle Standard of Emergency Care— The Case of Baby K.” New England Journal of Medicine 330: 1542–45.

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About the Editors and Contributors

KENNETH H. COHN, MD, MBA, FACS, is a board-certified general surgeon. He obtained his medical degree from Columbia College of Physicians Medical School, completed his residency at the Harvard-Deaconess Surgical Service, and performed fellowships in endocrine and oncological surgery at the Karolinska Hospital and at Memorial Sloan-Kettering Cancer Center, respectively. He was assistant professor of surgery at the State University of New York Health Science Center at Brooklyn and later moved to Dartmouth-Hitchcock Medical Center as associate professor of surgery and chief of surgical oncology at the Veterans Administration Hospital at White River Junction. With the change in the medical economic climate, Dr. Cohn entered the MBA program of the Tuck School at Dartmouth and graduated in June 1998. He worked initially as a consultant at Health Advances, assisting six firms to commercialize new products. Since joining the Cambridge Management Group, he has led change-management initiatives for physicians at affiliated hospitals within the Yale New Haven, Banner Colorado, Cottage Santa Barbara, and Sutter Sacramento health systems. He remains clinically active, covering surgical practices in New Hampshire and Vermont. Dr. Cohn has written forty articles published in peer-reviewed medical journals and two books, Better Communication for Better Care: Mastering Physician-Administration Collaboration and Collaborate for Success! Breakthrough Strategies for Engaging Physicians, Nurses, and Hospital Executives. His Web site is http://www.healthcarecollaboration.com. DOUGLAS E. HOUGH, PhD, is associate professor and chair, The Business of Health, at the Carey Business School of Johns Hopkins University. He is responsible for eight programs, including the innovative Hopkins Business of Medicine, a

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four-course graduate certificate program and an MBA program with concentration in medical services management, designed for experienced physicians (offered in partnership with the Johns Hopkins University School of Medicine). Dr. Hough has more than twenty-five years of experience in industry and academia. He has been a research economist at the American Medical Association, a manager in the healthcare consulting division of Coopers and Lybrand, and a partner in two healthcare strategy consulting firms. His research interests are in identifying the optimal size and structure of a physician practice and in determining the impact of changing physician demographics on the structure of medical practices. His consulting interests focus on methods of strengthening hospital-physician relations (e.g., the development of integrated delivery systems, physician-hospital initiatives, and management service organizations) as well as the organization and strategic direction of physician practices. Dr. Hough is a frequent speaker and author on healthcare issues related to physicians. His research has been published in such professional journals as the Journal of the American Medical Association, the Journal of Human Resources, and the Journal of Medical Practice Management. Dr. Hough earned his MS and PhD in economics from the University of Wisconsin. He received his BS in economics from the Massachusetts Institute of Technology. He is a member of Academy Health, the American Economic Association, the International Health Economics Association, and the Medical Group Management Association. STUART H. ALTMAN, PhD, is dean of the Heller School for Social Policy and Management and Sol C. Chaikin Professor of National Health Policy at Brandeis University. He has an MA and PhD in economics from the University of California, Los Angeles, and he taught at Brown University and the Graduate School of Public Policy at the University of California, Berkeley. Dr. Altman is an economist whose research interests are primarily in the area of federal and state health policy. In June 2004, he was awarded the AcademyHealth Distinguished Investigator Award, and in 2003, 2004, and 2005, Modern Healthcare named him among the 100 Most Powerful People in Healthcare. From 2000 to 2002 he was cochair for the Legislative Health Care Task Force for the Commonwealth of Massachusetts. In 1997, he was appointed by President Bill Clinton to the National Bipartisan Commission on the Future of Medicare. Dr. Altman was dean of the Florence Heller Graduate School from 1977 until July 1993 and interim president of Brandeis University from 1990 to 1991. He served as the chairman of the congressionally legislated Prospective Payment Assessment Commission for 12 years. Dr. Altman is a member of the Institute of Medicine of the National Academy of Sciences and its Committee on the Future of Emergency Care in the United States; a member of the Board of Tufts-New England Medical Center in Boston, Massachusetts; and cochairman of the Advisory Board to the Schneider Institute for Health Policy at the Heller School. In addition, Dr. Altman has served on the board of the Robert Wood Johnson Clinical Scholars Program and on the governing council of the Institute of Medicine. He is the chair of the Robert Wood Johnson Foundation–sponsored Council on Health Care Economics and Policy.

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He is also chair of the Health Industry Forum, which brings together diverse group leaders from across the healthcare field to develop solutions for critical problems facing the healthcare system. Between 1971 and 1976, Dr. Altman was deputy assistant secretary for Planning and Evaluation/Health at the Department of Health, Education, and Welfare. JACK BARKER, PhD, is an Airbus pilot and aviation safety instructor at United Airlines. He develops and teaches Crew Resource Management (CRM) courses to pilots, flight attendants, and ground personnel. Prior to joining United Airlines, Dr. Barker spent 17 years on active duty in the United States Air Force. During his military career, he served as an aircraft maintenance officer, piloted several different aircraft, and taught as a professor of psychology at the United States Air Force Academy. As a professor, he was involved with NASA-sponsored highperformance team research and organizational development consulting. He is the chief executive officer of Mach One Leadership, Inc. Mach One adapts the aviation safety model to other organizations that use high-performance teams. He has successfully adapted aviation safety tools for the past five years in various healthcare settings, including helping the American College of Surgeons develop and implement crew resource management programs. Dr. Barker has a BS in human factors engineering from the United States Air Force Academy and a PhD in cognitive psychology from Florida State University. ANIRBAN BASU serves as chairman and chief executive officer (CEO) for Sage Policy Group, Inc., an economic research firm. Prior to founding Sage, Mr. Basu was chairman and CEO at Optimal Solutions Group, a company he cofounded. Prior to that, Mr. Basu oversaw the Regional Economic Studies Institute at Towson University. His clients included Fortune 500 companies such as BGE, the St. Paul Companies, and BP as well as numerous government agencies and associations. Mr. Basu has conducted numerous economic and fiscal impact analyses and has conducted seminars on the economy. His forecasts are used by numerous businesses as well as Maryland’s Office of the Comptroller. Mr. Basu is a faculty member at the Johns Hopkins University, where he teaches micro-, macro-, and international economics. Frequently quoted in the media, including the Washington Post and Baltimore Sun, he is host of the Morning Economic Report, a radio spot that is heard weekdays on WYPR, Baltimore’s National Public Radio station. Mr. Basu is on the boards of Union Memorial Hospital and Chesapeake Habitat for Humanity, among others. He is currently president of the Baltimore Economic Society and chairman of the Baltimore County Economic Advisory Committee. Mr. Basu received a bachelor of science in foreign service from Georgetown University, a master in public policy from the John F. Kennedy School of Government at Harvard University, a master of arts in mathematical economics from the University of Maryland, and a Juris Doctor from the University of Maryland School of Law. He is currently a candidate for a doctor of philosophy in health policy from the University of Maryland, Baltimore County.

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IAN BATSTONE is a research analyst with Sage Policy Group, Inc. He is completing his BS degree at Johns Hopkins University. Prior to entering the undergraduate program, he enlisted in the U.S. Air Force. He joined Sage in 2007. PHIL BUTTELL, JD, MHSA, is the vice president for business development at Creighton University Medical Center. Previously, he was chief operating officer at Centennial Medical Center (CMC) in Frisco, Texas, a subsidiary of Tenet Healthcare. He had been with Tenet since June 2002 and joined CMC soon after the hospital opened in June 2004. In addition to the management of day-to-day hospital operations, Mr. Buttell also consults in the development of new medical facilities and the transformation and implementation of advanced technologies. BARRY P. CHAIKEN, MD, MPH, FHIMSS, is associate chief medical officer in the healthcare practice at BearingPoint, Inc., an international professional-services consulting firm. He has lectured extensively on medical quality, patient safety, and the use of information technology in healthcare, and he writes a regular column on healthcare quality and information technology for Patient Safety and Quality Healthcare. Dr. Chaiken serves on the board of directors of the Health Information Management Systems Society (HIMSS). He also sits on the editorial boards of the Journal of Patient Safety and Patient Safety and Quality Healthcare and is conference chairperson of the Digital Healthcare Conference held each spring at the Fluno Center, University of Wisconsin, Madison. He holds an appointment as adjunct assistant professor in the Department of Public Health and Family Medicine at Tufts University School of Medicine. Dr. Chaiken is board certified in general preventive medicine and public health as well as healthcare quality management; he has delivered more than fifty continuing medical education (CME) lectures and authored more than sixty original articles. Dr. Chaiken received his MD from the State University of New York Downstate Medical Center in New York City and his masters in public health from the Harvard School of Public Health. DEBI CROES, MBA, a principal of the Croes•Oliva Group, is a nationally recognized expert in the field of medical group management. Prior to founding the Croes•Oliva Group with partner Jayne Oliva, Ms. Croes was director of provider relations at Maxicare, director of practice management services at a Boston-area healthcare organization, and director of a nonprofit health agency in western Massachusetts. She also managed her own $4 million billing service. Her twenty-plus years of experience with top academic medical centers and integrated delivery systems nourish a profound insight. She is an expert in reconfiguring operations and developing strategies that boost profitability and protects her commitments to teaching and research. Armed with deep understanding of the forces at work in today’s healthcare marketplace, she finds effective ways to deal with the unique pressures medical organizations face. A sought-after consultant and writer, Ms. Croes is also a respected, motivating speaker and teacher. She regularly addresses the Medical Group Management Association and its subgroup, the Academic Practice Association, as well as the Healthcare Financial Management

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Association’s Annual National Institute (ANI). She has taught a graduate-level physician practice management course, and her articles and commentary have appeared in American Medical News, the Medical Group Management Journal, Group Practice Journal, and the Boston Globe. Ms. Croes earned an MBA from Simmons College Graduate School of Management in Boston and her BA from Boston University. JENNIFER DALEY, MD, FACP, is the chief medical officer of Tenet Healthcare in Dallas, Texas. She is responsible for the development and implementation of the Commitment to Quality, a system-wide initiative that promotes evidence-based clinical practice, patient safety, standards-based quality assessment in high-volume and high-cost clinical product lines, clinical resource management including care coordination and utilization management, and physician excellence. The author of more than 140 original contributions, book chapters, and clinical reports, she was the recipient of a Senior Career Development Award in Health Services Research from the Department of Veterans Affairs from 1990 to 1996. She is also an adjunct associate professor of community and family medicine at Dartmouth Medical School in Hanover, New Hampshire. MICHAEL T. DOONAN, PhD, is an assistant professor at the Heller Graduate School at Brandeis University, the executive director of the Massachusetts Health Policy Forum, and director of the Council for Health Care Economics and Policy. Dr. Doonan has in-depth knowledge of the Massachusetts healthcare system, with particular expertise in federalism and federal-state relations. His PhD from Brandeis is in both political science and health services research. His research and publications focus on issues related to access to healthcare, Medicaid, SCHIP, federal-state relations, prescription drugs, public health, and the economics of health system change. Dr. Doonan worked as program specialist for the Centers for Medicare and Medicaid Services (CMS) in the area of Medicaid managed care and state healthcare reform. He served as a member of President Bill Clinton’s Health Care Taskforce, working primarily on the Low-Income and Working Families work group, and as a member of the Taskforce Speakers Bureau. He also worked as a fellow for the U.S. Senate Finance Committee as it considered national reform in 1994. He began his career as a legislative aide for Senator John Kerry, where he worked on health and environmental issues. He has a master’s degree in public administration from the George Washington University and an undergraduate degree in political science from St. Anselm College. KENNETH A. FISHER, MD, is a nephrology consultant for the Borgess and Bronson Hospitals in Kalamazoo, Michigan. For more than thirty years he has served in a variety of clinical, teaching, and research positions, including chief resident in medicine at Mount Sinai Hospital, assistant professor of medicine at the University of Chicago Pritzker School, director of internal medicine at Michigan State University, and director of the fellowship program at Henry Ford Hospital. He was also professor of medicine at the Chicago Medical School and at Michigan

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About the Editors and Contributors

State University School of Medicine. He has written dozens of scientific and policy articles in such publications as Clinical Nephrology, American Journal of Physiology, American Journal of Medicine, and American Journal of Obstetrics and Gynecology. Dr. Fisher is coauthor of the forthcoming In Defiance of Death: Exposing the Real Costs of End of Life Care (Praeger, 2008). RUDY WILSON GALDONIK is a professional speaker and author of Take Heart! a compilation of humorous essays that look at life through menopausal eyes. Ms. Galdonik is a three-dimensional expert on being sick: She has been the patient, the caregiver of a patient, and a former hospital human resources manager. She understands the challenges, emotions, and issues of being sick. She understands the pressures endured by caregivers and the problems and challenges of doctors, hospitals, and medical personnel. Her passion is to couple this expertise with humor to encourage people to take charge of their health. Ms. Galdonik has served as cochair of the American Heart Association Rhode Island Chapter’s Women and Heart Disease Committee. In 2003, Rudy received the American Heart Association’s Heart of the Year Award. She has served on the national board of directors of the Adult Congenital Heart Association and is an advocate for WomenHeart. org, the National Coalition for Women with Heart Disease. She is a member of the Association for Applied and Therapeutic Humor. JONATHAN GERTLER, MD, MBA, joined Leerink Swann as managing director and head, BioPharma Investment Banking in 2007. He had been managing director in investment banking at Cowen and Company after serving for many years as head of life science investment banking at Adams Harkness. Before he began his investment banking career in 2001, Dr. Gertler was director of the Surgical Intensive Care Unit at Yale New Haven Hospital (1986–87), and chief of vascular surgery at SUNY-HSCB in New York (1988–92). From 1992 to 2001, he was one of five vascular surgeons at the Massachusetts General Hospital in Boston and associate professor of surgery at Harvard University. Additionally, Dr. Gertler was associate director of the clinical and research vascular laboratories at the Massachusetts General Hospital. He is the author or coauthor of more than one hundred articles, abstracts, and chapters centered on clinical vascular surgery, vascular biology, and life science entrepreneurship. Dr. Gertler retains appointments at both the Massachusetts Institute of Technology and Harvard Medical School, where he is on the advisory board of the Biomedical Enterprise Program. Dr Gertler is a frequent lecturer on the financing of life science technologies as well as growth strategies for public and private biotechnology and medical technology companies and investors. From 1998 until 2001, in addition to his surgical and academic responsibilities, Dr. Gertler was a venture partner for Schroder Ventures Life Science Fund, one of the world’s largest dedicated life sciences and healthcare private equity funds and was also the founding inventor and president of Cardiovascular Technologies. Dr. Gertler holds a BA from Wesleyan University, an MD from Columbia University College of Physicians and Surgeons, and an MBA in health policy and management from Boston University.

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ROBERT HENDLER, MD, is vice president of clinical quality and chief medical officer of the Texas Region for Tenet Healthcare. He has been involved in quality initiatives, physician relations, technology assessment, and hospital/corporate operations since 1998. Prior to that, he was in active practice as a gastroenterologist for 20 years and was assistant clinical professor at University of Texas Southwestern Medical School for 15 years. As a vice president, he serves as a corporate medical consultant to other Tenet departments. As chief medical officer for Texas, he is responsible for promoting high-quality medical care through interactions with hospital medical staff, hospital administrative leadership, other regional leadership, and hospital staff in support of clinical quality initiatives throughout the Texas region. His research interests include relational coordination, high reliability, and quantification of healthcare processes. DAVID I. KOVEL is chief operating officer and chief information officer at Sage Growth Partners. Over his career, he has served in leadership roles in a variety of healthcare delivery, service, and technology organizations, and he is recognized for his expertise in business process innovation, IT management, systems integration, data warehousing, and strategic architecture design. Mr. Kovel, a cofounder of Sage, is responsible for enterprise operating, transaction, and information systems. Prior to his role with Sage, Mr. Kovel was chief information officer for Lighthouse Risk Solutions; director of health services for IWIF, one of the largest workers’ compensation insurers in the United States; lead data warehouse architect at Kaiser Permanente; and chief information officer for Ascendia Healthcare, Inc. Mr. Kovel is a member of the information technology faculty at the Johns Hopkins University. He is a member of the Healthcare Information and Management Systems Society, the Medical Group Management Association, and the Data Warehouse Institute. He received his bachelor of science in biochemistry from the University of Maryland, Baltimore County, and a master of information systems, also from the University of Maryland, Baltimore County. LYNN JOHNSON LANGER is senior associate program chair for Advanced Biotechnology Studies at Johns Hopkins University. She develops curriculum and is responsible for the master of science in bioscience regulatory affairs, the joint degrees MS/MBA in biotechnology, the certificate in biotechnology enterprise, and the regulatory affairs and enterprise concentrations in the MS in biotechnology. She has published more than fifty articles, mainly in business areas of biotechnology, and has taught a variety of graduate courses in biotechnology and business. Prior to working and teaching at Johns Hopkins, she worked in senior marketing and management positions at several biotechnology organizations. GREG MADONNA is a 777 pilot for a major U.S. airline and the founder and former practice leader of Mach One Leadership, Inc., which provides leadership and error management training to teams in high-risk industries. Mr. Madonna is an accomplished and sought-after teacher and public speaker, having delivered keynote addresses and instructed at Harvard Medical School, Royal Caribbean

256

About the Editors and Contributors

Cruise Lines, the University of Miami, and the American College of Surgeons. His students have seen 50 percent reductions in human errors. R. DONALD MCDANIEL Jr. is president and chief executive officer of Sage Growth Partners, LLC. He has played a leadership role in a variety of healthcare, insurance delivery, service, and technology organizations. Prior to his role with Sage Growth Partners, he was chief executive and general manager of Lighthouse Risk Solutions, a business unit of IWIF. Additionally, he has served as president, Integrated Solutions Group, Ascendia Healthcare Management, and vice president, Business Strategy, for Bon Secours Baltimore Health System. Prior to that, he was vice president, Managed Care Operations, for Liberty Medical Center in Baltimore, Maryland, and founder and partner of the Healthcare Consulting Group, a management and technology consulting firm. Mr. McDaniel served as chairperson of MedBank of Maryland, Inc., and is currently a director of Goodwill of the Chesapeake, Inc., and an advisory board member of Cura Management Technologies, LLC, a health technology and business process outsourcing firm. He is an advisory board member at the University of Baltimore’s Merrick School of Business and a member of the faculty at Johns Hopkins University’s Business of Medicine Program, where he teaches health economics. JAYNE OLIVA, MBA, is founder and principal of the Croes•Oliva Group, a medical practice-management consulting firm that helps clients boost performance in the areas of profitability, productivity, patient access, and practice operations. Her work has been showcased in Health and Hospital Networks, The Wall Street Journal, and numerous other national and local publications. Ms. Oliva uses her twenty-plus years of experience to help senior administrators, physician leaders, and practice managers achieve performance improvements previously thought unattainable. In addition to her consulting work, she writes and teaches graduatelevel practice management courses. Recent articles have appeared in The Physician Executive and Group Practice Journal. She frequently addresses hospital associations and physician organizations, including the Academic Practice Assembly, American College of Healthcare Executives, Connecticut Hospital Association, Governance Institute, Healthcare Financial Management Association, and Massachusetts Medical Society. Prior to founding the Croes•Oliva Group with partner Debi Croes, Ms. Oliva was vice president of a Boston-area hospital system, where she started a division of physician-practice support. At the Research and Educational Trust of the American Hospital Association, she was responsible for identifying and informing hospital leaders of emerging health trends and strategies. Ms. Oliva received her MBA from Northwestern University’s Kellogg Graduate School of Management in Chicago and her BS from Boston University. LINDSAY E. ROCKWELL, DO, is a hematologist/oncologist in private practice in Northampton, Massachusetts. She received her training in internal medicine and hematology/oncology through Tufts University’s Baystate Medical Center in Springfield, Massachusetts. She received her doctorate in medicine from the

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University of New England College of Osteopathic Medicine. She has been published in the Journal of Clinical Oncology, is actively involved in teaching and breast cancer research, and has a special interest in palliative care and end-of-life issues. Dr. Rockwell is coauthor of the forthcoming In Defiance of Death: Exposing the Real Costs of End of Life Care (Praeger, 2008). KAREN RUBIN, MD, is medical director of the Division of Pediatric Diabetes and Endocrinology at Connecticut Children’s Medical Center (CCMC), Connecticut’s only freestanding children’s hospital. CCMC is the home of the Department of Pediatrics at the University of Connecticut School of Medicine and the pediatric residency training program. Dr. Rubin is professor of pediatrics with a joint appointment as professor of ob-gyn, Division of Reproductive Endocrinology, at the University of Connecticut School of Medicine. Dr. Rubin’s pediatric endocrine practice provides multidisciplinary team care to nearly 800 children and adolescents with type 1 diabetes. Dr. Rubin’s clinical focus has been on the development of innovative models of care in the pediatric ambulatory care setting, including the outpatient management of diabetes and the transition of adolescents with complex chronic conditions from pediatric to adult care. She has spoken nationally on the topics of outpatient diabetes management and on transition from pediatric to adult care. She has authored papers that have appeared in the Journal of Pediatric Endocrinology and Metabolism and the Journal of Pediatrics. Recognition of her contributions to improving chronic disease care include the Humanitarian Award, Juvenile Diabetes and Research Foundation, 2003; Best Doctor, Hartford, 2005; and honoree, Women in History at the University of Connecticut Health Center, 2007. CARL W. TAYLOR, JD, is the assistant dean of the University of South Alabama College of Medicine and director of the Center for Strategic Health Innovation. Under his direction, the Center for Strategic Health Innovation has won two innovator of the year awards for its work in patient-centric e-health strategies. He has received commendations from the U.S. Senate and the governor of Louisiana for deployment of software tools, advice, and training to support Hurricane Katrina relief. Mr. Taylor leads the team that created the Advanced Incident Management System and operates the Advanced Regional Response Training Center, a facility dedicated to training healthcare professionals to assume leadership roles in disaster response. A frequent speaker and e-health consultant, he also serves on the Health and Human Services Gulf Coast IT Task Force and cochairs its clinical adoption work group.

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Index

Aircrew Coordination Training (ACT), 97–98 Alabama Department of Public Health (ADPH), 6 Allen, T. J., 211 American Diabetes Association, guidelines from, 159–60 American Health Information Community (AHIC), 125 American National Standards Institute (ANSI), 125 American Society of Testing and Materials International (ASTM), 121 AMI. See Acute myocardial infarction Annals of Internal Medicine (Shine), 234–35 ANSI. See American National Standards Institute APRNs. See Advanced practice registered nurses Argote, L., 213 Arrhythmia, 197 ASD. See Atrial septal defect ASRS. See Aviation Safety Reporting System Assertiveness, 107 Assessment, 54, 73, 88, 167, 174, 237; for reimbursement, 168–70; of U. S.’s uninsured, 181. See also Evaluation; Measurement

AAMC. See Association of American Medical Colleges Accidents, 95–98, 114 Acquisition, in companies, 151–53 Acronym free environment (AFE), 14 ACT. See Aircrew Coordination Training Acute myocardial infarction (AMI), 87 Administrators, medical, 136–37, 199, 212 Adolescents, diabetes program for, 168 Adoption, of technology, 132–33, 136, 138, 149–50 ADPH. See Alabama Department of Public Health Advanced directives: misinterpretation and, 239–40. See also Patient SelfDetermination Act Advanced practice registered nurses (APRNs), 159, 163–65 Advocacy, for communication, 107 AFE. See Acronym free environment Affordability, of insurance, 45, 47, 49 Agency for Healthcare and Research Quality (AHRQ), 99 AHIC. See American Health Information Community AHRQ. See Agency for Healthcare and Research Quality AIM. See Associated Industries of Massachusetts

259

260 Associated Industries of Massachusetts (AIM), 54 Association of American Medical Colleges (AAMC), 184 ASTM. See American Society of Testing and Materials International Atrial septal defect (ASD), 196–97 At the Will of the Body: Reflections on Illness (Frank), 200 Atwater, L. E., 219 Autonomy, physician, 69 Aviation, 113; FAA for, 96–97; LOSAs for, 103, 114; teamwork for, 96. See also Safety, aviation; Southwest Airlines; United Airlines Aviation Safety Reporting System (ASRS), 103 Awareness, public, 62–67 Baby K, 226, 241 BAE. See Bay Area Economics Baker, Susan Keane, 195 Barker, Jack, 99–100 Bay Area Economics (BAE), 190 Behavior, healthcare and, 188 Berwick, Don, 70, 129 Billing systems, insurers’, 171–72 Biopharmaceutics, 209 Biotechnology, 210, 213–14, 217–19 Blackhall, L. J., 229 Blue Cross Blue Shield of Massachusetts, 43–45 BMJ. See British Medical Journal Brain death, 242 Briefings, 111–12. See also Debriefs British Medical Journal (BMJ) Publishing Group, 130–32 Business(es), 54; healthcare’s quality and, 61–62, 89–90; “innovation-decision process” for, 214–15; lines for, 162; persons vs. scientists, 212, 221; teamwork for, 214, 216. See also Biopharmaceutics; Biotechnology; Corporation; Employers; Hospital(s) C2Q. See Commitment to Quality Cancer care, 236 Capital, 146–48 Cardiopulmonary resuscitation (CPR), 229–30, 243–44 Care, end-of-life, 42–43, 198–99, 225, 227– 28, 236; CPR and, 229–30, 243–44; death’s redefinition for, 240, 241–42, 244; ethics consultation for, 232–33,

Index 242–43; ICUs and, 231–34; laws and, 226, 233, 238–40; money in, 226, 234; physicians and, 234–35, 237; U.S.’s history of, 237–43. See also Advanced directives; Baby K; Cruzan, Nancy; Quinlan, Karen Ann Caregiver, spouse as, 198–99 Care model, for chronic diseases, 173–74 Catastrophes, death and, 78 CCHIT. See Certification Commission for Health Information Technology CCMC. See Connecticut Children’s Medical Center CCR. See Continuity of care record CDC. See Centers for Disease Control and Prevention CDEs. See Certified diabetes educators CDS. See Clinical decision support Centers for Disease Control and Prevention (CDC), 125 Centers for Medicare and Medicaid Services (CMS), 15, 75, 190 Certification Commission for Health Information Technology (CCHIT), 125 Certified diabetes educators (CDEs), 159, 164–65 Change, 69, 71–73, 77, 130, 200–201. See also Reform Chief medical informatics officer (CMIO), 136–37 Chief science officer (CSO), 212 Children, 38–39, 56, 154, 158, 196. See also Adolescents; Children’s Medical Security Plan; Connecticut Children’s Medical Center; Massachusetts Plan; MassHealth Children’s Medical Security Plan, 39 Cigarettes. See Tax, tobacco Cleary, Paul D., 195 Climatology, medical, for disasters, 2 Cline, Isaac, 2 Clinical care, disaster response vs., 1 Clinical decision support (CDS), 123 Clinical Evidence, 130–32; clinicalevidence. org as, 131 Clinician, IT’s adoption by, 132–33, 136, 138 Clinton, Bill, 40 CMIO. See Chief medical informatics officer CMS. See Centers for Medicare and Medicaid Services Coalitions, 31–32, 39–40, 45–46 Cohn, Kenneth H., 99–100

261

Index Collaborate for Success! Breakthrough Strategies for Engaging Physicians, Nurses, and Hospital Executives (Cohn), 99–100 Collaboration, 4, 99–100, 209–11, 220 Command, 28, 33–34, 104 Commitment to Quality (C2Q), 83–89 Commonwealth Care Insurance Program, 49, 50–51 Commonwealth Choice, 51–53 Commonwealth Health Insurance Connector, 48–50, 52 Communication, 87–89, 96, 107–8, 110– 12, 205, 210–11, 213–19; CRM for, 99–100, 106; in disaster response, 3–8, 13–14; PACS for, 123–24; teamwork and, 202, 207. See also Compassion; Ethics consultation; Listening; Networking; Patient Self-Determination Act Compassion, 202–3, 206 Computerized practitioner order entry (CPOE), 122–23, 127, 128 Computerized tomography (CT), 120 Conflicts, 3–4 Connecticut Children’s Medical Center (CCMC), 161, 166–67, 171–73; diabetes’ programs at, 159–60, 168–70; global rate’s negotiations at, 168–73; personal ownership at, 174–75; personnel at, 162–63; resources at, 158–59 Connector. See Commonwealth Health Insurance Connector; Connector Board Connector Board, 46–47 Consumerism, 225–26 Consumers, 40, 124. See also Marketplace; Purchasing, value-based Continuity of care record (CCR), 121 Control, 111–12, 125, 144, 158, 204–5 Coordination, 33, 163. See also Aircrew Coordination Training; Health and Human Services Office of the National Coordinator of Health Information Technology Corporation, for technology development, 145–46. See also Development, corporate Cost, 41–42, 44, 51, 81, 124, 154, 179, 180, 187, 192, 209, 230, 234, 236, 238; in disaster response, 15–16; of end-of-life care, 226–28, 234; ICUs and, 231–32; of IT system, 135–36; pay-for-performance as, 83, 93, 168; of quality, 88–89; rate setting for, 36, 38; value-based purchasing as, 79–80. See also Affordability; Billing systems CPOE. See Computerized practitioner order entry

CPR. See Cardiopulmonary resuscitation Crew Resource Management (CRM), 96–103, 104–6, 110, 115 CRM. See Crew Resource Management Crossing the Quality Chasm, 67–68 Cruzan, Nancy, 240–41 CSO. See Chief science officer CT. See Computerized tomography Culture, of scientists, 211–12, 221 Damage, physical, 16 DCCT. See Diabetes Control and Complications Trial Death(s), 64, 78, 206; location of, 228, 236; redefinition of, 240, 241–42, 244. See also Brain death; Disaster Mortuary Operational Response Teams; Mortality Debriefs, 101–2 The Decade of Health Information Technology: Delivering Consumer-Centric and Information-Rich Health Care, 124 Decision making, 109–10 Deming, W. Edward, 62 Demographics, healthcare and, 187–88 Department of Health and Human Services (DHHS), 76, 124 Development, corporate, 145–50 Development, medical technology, 144, 155; acquisition for, 151–53; adoption of, 132–33, 136, 138, 149–50; corporation for, 145–46; errors in, 153–54; for standards, 145, 154 DHHS. See Department of Health and Human Services Diabetes, 154, 157, 160, 168–70; CDEs for, 159, 164–65; DCCT for, 144, 158. See also Dialysis; Type 1 diabetes mellitus Diabetes Control and Complications Trial (DCCT), 144, 158 Diagnosis related group (DRG), 78–79, 226, 227 Dialysis, 235 The Diffusion of Innovation (Rogers), 214 DiMasi, Sal, 44, 45 Direct medical education (DME), 238 Disaster Medical Assistance Teams (DMATs), 29 Disaster Mortuary Operational Response Teams (DMORTs), 29 Disaster response, 1–8, 12, 14–17, 21, 23; community physicians in, 18–20, 24; from government, 28–34; security for, 13, 20; staff, 9–11; transportation/fuel in, 12; YOYO for, 17

262 Disasters, 1–34; damage and, 16; malpractice and, 15; National Response Plan for, 28–30; staff’s attendance in, 9–11; volunteers in, 4. See also Disaster Medical Assistance Teams; Disaster Mortuary Operational Response Teams; Disaster response; Leadership, disaster Diseases, 131, 200; ASD as, 196–97; care model for, 173–74. See also Care model; Diabetes; Endocarditis DMATs. See Disaster Medical Assistance Teams DME. See Direct medical education DMORTs. See Disaster Mortuary Operational Response Teams DNR. See Do not resuscitate Doctors, 24 Donabedian, A., 62 Donations, for disaster’s staff, 15, 20 Do not resuscitate (DNR), 229, 243. See also Cardiopulmonary resuscitation DRG. See Diagnosis related group Drivers, for investment, 150–53 Due diligence, 148–50 Dukakis, Michael, 37–38 Economy, 189–91; healthcare for, 41, 42, 177–79, 185–88, 192–93; in Massachusetts, 42; physicians and, 183. See also Incomes; Wages Education, 41, 173, 184, 200; CDEs for, 159, 164–65; IME/DME in, 238; PEAT for, 237. See also Harvard Medical School; Institute of Medicine EHRs. See Electronic health records EKG. See Electrocardiogram Electrocardiogram (EKG), 197 Electronic health records (EHRs), 120 Electronic medical records (EMRs), 120, 137 Elkins, T., 217 EMA. See Emergency Management Agency EMAEOC. See Emergency Management Agency Emergency Operations Center Emergencies: ESF for, 28. See also Disasters; Emergency Management Agency; Emergency Management Agency Emergency Operations Center; Emergency Medical Treatment and Active Labor Act; Emergency Medical Treatment and Leave Act; Emergency operations plans; Emergency Support Function 8 Emergency Management Agency (EMA), 31–32

Index Emergency Management Agency Emergency Operations Center (EMAEOC), 33 Emergency Medical Treatment and Active Labor Act, 241 Emergency Medical Treatment and Leave Act (EMTALA), 14–15 Emergency operations plans (EOPs), 30 Emergency Support Function 8 (ESF 8), 28, 30–31 Employees, 73–74, 204 Employers, 53–55; health insurance and, 37–38, 43, 46, 185 Employment, medical, 177, 182–84, 186, 189, 191 Empowerment, of patients, 200–201 EMRs. See Electronic medical records EMTALA. See Emergency Medical Treatment and Leave Act Endocarditis, 197–98 Environment, physical, on patients, 203–4 EOPs. See Emergency operations plans Error(s), 63–66, 80, 161; for accidents, 114; in medical technology development, 153–54; medication, 127, 128; reporting systems, 113. See also Failures ESF 8. See Emergency Support Function 8 Ethics consultation, for end-of-life, 232–33, 242–43 Evaluation, 84, 85–86, 134–35, 137 Exits, for investment, 151–53 Expenditures, medical, 42 FAA. See Federal Aviation Administration Facilities: for disasters, 12–13; federal regional, 32–34; individual, 31. See also Coalition; Hospital(s) Failures, 63, 103 Family, 9–10, 198–99, 206, 240–41 Federal Aviation Administration (FAA), 96–97 Federal Emergency Management Agency (FEMA), 23 Federal poverty level (FPL), 36, 47, 51 Fee-for-service (FFS), 158 FEMA. See Federal Emergency Management Agency FFS. See Fee-for-service Finances, 34; for medical innovations, 145– 53. See also Funding; Rate setting FMGs. See Foreign medical graduates Foreign medical graduates (FMGs), 184 FPL. See Federal poverty level Frank, Arthur W., 200 Free Care Pool, 42–43

Index Freed, D. H., 70 Funding, 28, 33, 42, 56, 152; for corporation, 146–48; errors in, 153–54; for Uncompensated Care Pool, 36, 37. See also Capital; Due diligence; Risk; Tax, tobacco General Motors (GM), healthcare in, 192 Ginnett, Robert C., 105, 111–12 Global rate, 168–73, 174 GM. See General Motors Government, 37, 190; disaster response from, 28–34; Massachusetts Plan and, 47–48. See also Facilities; Law(s); Politics; Reform Gross domestic product (GDP), 179, 180, 228 Guidelines: for diabetes, 159–60; guideline. gov for, 132 Gwaltney, M. K., 211 Hackman, J. Richard, 111–12 Hancock Medical Center (HMC), 6–7, 21–24 Harvard Medical School, on death’s definition, 240, 244 Havighurst, Clark C., 181–82 Hazard, threat, and vulnerability analysis (HVA), 17–18 HCPCS. See Healthcare Common Procedure Coding System Health and Human Services Office of the National Coordinator of Health Information Technology (ONCHIT), 18, 124 Healthcare, 38, 63, 98–103, 108–9, 190; cost of, 179, 234; demographics and, 187–88; for economy, 41, 42, 177–79, 185–88, 192–93; GDP and, 179, 180, 228; Massachusetts’ environment for, 39–43; pay-for-performance in, 83, 93, 168; reforms, 39–40, 42–43; response, 31–34; value-based purchasing in, 79–80. See also Care, end-of-life; Insurance, health Healthcare Common Procedure Coding System (HCPCS), 172 Health Care for All, 40, 45–46 Health industry, 178–85 Health Information Technology Standards Panel (HITSP), 125–26 Health insurance. See Insurance, health Health insurers, 184–85 Health plans, 41–42

263 Health Resources Services Administration (HRSA), 28 HEICS. See Hospital Emergency Incident Command System; Hospital Incident Command System HHS. See U.S. Department of Health and Human Services HICS. See Hospital Incident Command System Highly reliable organization (HRO), 76–80 Hippocrates, 2 Hirst, G., 213–14, 217, 221 HITSP. See Health Information Technology Standards Panel HMC. See Hancock Medical Center Homeland Security Presidential Directive 5 (HSPD-5), 33 Hospice, 206, 225, 237, 244 Hospital(s), 5–6, 12, 28, 33–34, 78–79, 182–83, 199, 204; economics of, 188– 89; hospitalcompare.hhs.gov for, 76; incomes and, 189; in Maryland, 189–92; status/disasters and, 16, 23; tertiary care, 235. See also Connecticut Children’s Medical Center; Johns Hopkins Medical Institutions Hospital Emergency Incident Command System (HEICS), 33–34 Hospital Incident Command System (HICS) (HEICS), 28 Hospital Quality Alliance (HQA), 76 HQA. See Hospital Quality Alliance HRO. See Highly reliable organization HRSA. See Health Resources Services Administration HSPD-5. See Homeland Security Presidential Directive 5 Humor, for patients’ control, 204–5 Hurricane Katrina, 3–4, 6–7, 13, 20–24 Hurricanes, 29. See also Hurricane Katrina HVA. See Hazard, threat, and vulnerability analysis ICS. See Incident Command System ICU. See Intensive care unit IHI. See Institute for Healthcare Improvement IME. See Indirect medical education “Improving Communication, Collaboration, and Safety Using Crew Resource Management” (Cohn and Barker), 99–100 Incident command, 33 Incident Command System (ICS), 33 Incomes, hospitals and, 189

264 Indirect effects, of hospitals’ business-tobusiness, 188–89 Indirect employment, 189, 191 Indirect medical education (IME), 238 Induced effects, from hospitals, 189 Industry, biotechnical, communication for, 210, 213–14, 217–19 Information, 126, 135, 137, 212–14; from CCR, 121; DDHS for, 76, 124; disaster leadership without, 3–4; errors, 128; HHS for, 15; patients and, 195–98, 201–2, 207; redundancy for, 7–8. See also Information technology Information for Health: A Strategy for Building the National Health Information Infrastructure, 124 Information technology (IT), 119–20, 123– 26, 211; clinicians’ adoption of, 132–33, 136, 138; path innovation for, 127, 129, 139; prescriptions and, 121–22; system, 133–39, 137 Ingram, P., 213 Innovations, medical, 145–53, 214–15 Innovators, 214–15, 216–17. See also Innovations, medical; Path innovation Institute for Healthcare Improvement (IHI), 77 Institute of Medicine (IOM), 62, 63–68, 120 Insulin pumps, 160–61, 163, 166 Insurance, health, 41–42, 50–55, 81, 178, 181, 184–85; affordability of, 45, 47, 49; billing systems of, 171–72; employers and, 37–38, 43, 46, 185; global rate for, 168–73; individuals’ mandate for, 46–47; for pregnant women, 39; reform, 38–40, 43–45. See also Coalition(s); Law(s); Medicaid; Medicare; Premiums, insurance; Reform; Tax, tobacco Intensive care unit (ICU), 201, 231–34. See also Pediatric intensive care unit International economics, 191 Internet, 121, 131, 132 Investment, medical, 150–54 IOM. See Institute of Medicine JCAHO. See Joint Commission on Accreditation of Healthcare Organizations Jobs, healthcare, 177 Johns Hopkins Medical Institutions, 189; BAE for, 190; indirect employment from, 191; workforce from, 191–92

Index Joint Commission on Accreditation of Healthcare Organizations (JCAHO), 33, 67 Journal of the American Medical Association, 127, 128 Karnofsky score, 235 Keller, R. T., 217 Kivimaki, M., 213 Koppel, R., 127, 128 Kotter, J. P., 70, 72, 73–74 Law(s), 14–15, 35, 48; end-of-life care and, 226, 233, 238–40; mandates as, 37–38, 46–47. See also Advanced directives; Patient Self-Determination Act; Reform Leaders, 17; briefings and, 111–12; integrity for, 71; opinions of, 214–16; scientists as, 221–22. See also Leadership Leadership, 64, 69–74, 104–6, 108–10; for biotech’s industry, 213–14, 217–19; for C2Q, 84–85, 87; for R&D, 217–19; scientist-managers for, 218–19. See also Command; Leadership, disaster Leadership, disaster, 2–11, 17, 25 Leading Teams (Hackman), 111–12 Leape, L., 90 Lee, M., 218 Line observation safety audits (LOSAs), 103, 114 Line-oriented flight training (LOFT), 96 Liquidity, for investment, 150–53 Listening, 202–3 LOFT. See Line-oriented flight training LOSAs. See Line observation safety audits Magnetic resonance imaging (MRI), 120 Malpractice, 15, 83 Managed care, 38–39 Managed care organizations (MCOs), 41. See also Medicaid managed care organizations Management, 24, 33, 120, 204, 211; medication, 121–22; patient, 159, 195; of resources, 84, 86, 87, 109; workload, 108–9. See also Crew Resource Management; Emergency Management Agency; Emergency Management Agency Emergency Operations Center Managing Patient Expectations: The Art of Finding and Keeping Loyal Patients (Baker), 195

265

Index Managing the Flow of Technology: Technology Transfer and the Dissemination of Technological Information with the R&D Organization (Allen), 211 Mandate, health insurance, 37–38, 46–47; for individuals, 46–47 Mann, L., 213–14, 217, 221 Marketplace, 81–89, 210, 218, 219–20 Maryland, 189–92 Massachusetts, 44–46, 54; healthcare’s environment in, 39–43; healthcare’s history in, 35–36; Medicaid in, 39–40, 43; Uncompensated Care Pool in, 36–37, 43. See also Children’s Medical Security Plan; Massachusetts Plan; State Children’s Health Insurance Program Massachusetts Plan, 46–48, 53–57 MassACT (Affordable Health Care Today), 45 MassHealth, 39, 40, 44, 48 Measurement: of mortality, 74; of outcomes, 74–76; of physicians’ performance, 75; of quality, 89–90 Medicaid, 39–40, 43, 50–51, 169. See also Centers for Medicare and Medicaid Services Medicaid managed care organizations (MMCOs), 50–51 Medical climatology, 2 Medical Group Management Association (MGMA), 24 Medicare, 15, 75, 190; for end-of-life care, 227, 228, 236 Medicine, 160–61; change in, 130; errors, 127, 128; evidence-based, 76, 226. See also Annals of Internal Medicine; Biopharmaceutics; Institute of Medicine; Prescriptions Metrics, 84, 85–86, 99 Metropolitan Medical Response System (MMRS), 29 MGMA. See Medical Group Management Association MMCOs. See Medicaid managed care organizations MMRS. See Metropolitan Medical Response System Money: in end-of-life care, 226, 234. See also Capital; Cost; Donations; Funding; Incomes; Investment, medical; Tax, tobacco; Wages Mortality, measurement of, 74 Moss, A. H., 235

MRI. See Magnetic resonance imaging National Committee on Vital and Health Statistics (NCVHS), 124 National Guideline Clearinghouse (NGC): guideline.gov from, 132 National Health Information Infrastructure (NHII), 124 National Incident Management System (NIMS), 33 National Institutes of Health (NIH), 42 National Nosocomial Infections Surveillance (NNIS), 88 National Pharmaceutical Stockpile (NPS), 29 National Response Plan, 28–30 National Transportation Safety Board (NTSB), 95 Nationwide health information network (NHIN), 124 NCVHS. See National Committee on Vital and Health Statistics Networking: bragging vs., 211–12; scientists and, 210–14 NGC. See National Guideline Clearinghouse NHII. See National Health Information Infrastructure NHIN. See Nationwide health information network NIH. See National Institutes of Health NIMS. See National Incident Management System NNIS. See National Nosocomial Infections Surveillance Nonaka, I., 214 Nondiscrimination, in health insurance, 55 NPS. See National Pharmaceutical Stockpile NTSB. See National Transportation Safety Board Nurses: retention of, 86. See also Advanced practice registered nurses; Nursing facilities Nursing facilities, 183 Obstetrician, disrespect from, 202–3 OECD. See Organization for Economic Cooperation and Development ONCHIT. See Health and Human Services Office of the National Coordinator of Health Information Technology 1115 State Healthcare Reform Waiver, 39–40, 42–43 Operations, for HEICS, 34

266 Options, healthcare, 51–53 Organization for Economic Cooperation and Development (OECD), 178 O’Rourke, Kevin, 242 Outcomes, 74–76, 102, 167–68 Outpatient model, 158–61 Ownership, personal: as administrators, 199; at CCMC, 174–75; for quality’s improvement, 73–74 PACS. See Picturing archiving and communication systems Palliative education assessment tool (PEAT), 237 Partners, for investment, 151–52 Partners HealthCare System, 38 Partnerships, leaders on, 71 Path innovation, 127, 129, 139 Pathway, clinical care, 165–66 Patient(s), 63, 64, 199, 205–6; compassion for, 202–3; consumerism for, 225–26; education of, 200; empowerment of, 200–201; hospice for, 206; information and, 195–98, 201–2, 207; management, 159, 195; physical environment on, 203–4; teams’ communication for, 202, 207. See also Care, end-of-life; Outpatient model; Patient Self-Determination Act; Safety, patient Patient Self-Determination Act (PSDA), 225, 238, 240–43 Pay-for-performance, 83, 93, 168 Payment, in disaster response, 15–16 PEAT. See Palliative education assessment tool Pediatric intensive care unit (PICU), 77 Performance, 65–67, 75, 83, 93, 168, 178, 234 Personal health records (PHRs), 121 Personnel, 162–63, 174 PHRs. See Personal health records Physicians, 69, 75, 99–100, 163–64, 183– 84; community, 18–20, 24; CPOE for, 122–23; end-of-life care and, 234–35, 237; obstetrician as, 202–3. See also Obstetrician PIC. See Potentially ineffective care Picturing archiving and communication systems (PACS), 123–24 PICU. See pediatric intensive care unit Plans, healthcare, 51–53. See also Insurance, health Plans, Section 125, for insurance, 54 Policy makers, 152

Index Politics, 188; for insurance reform, 43–46, 56–57; waivers and, 39–40. See also Law(s) Potentially ineffective care (PIC), 233–34 Powell, Colin, 1 Practitioner skills, 80, 86 Premiums, insurance: FPL and, 51; rise in, 184–85; wages’ increase and, 82 Prescriptions, 121–22 Processes, 135, 214–17; measurement of, 75; variability in, 78–79 Property, intellectual, 149 PSDA. See Patient Self-Determination Act Psychology, disasters and, 16–17 Purchasing, value-based, in healthcare, 79–80 Quality and Cost Council, 56 Quality, healthcare, 63–68, 82–88, 204; business and, 61–62, 69, 81, 89–90; leadership for, 69–74; measurement of, 74–76, 89–90; reliability for, 76–80 Quality of Health Care in America Project, 63–67 Quinlan, Karen Ann, 240 Radio frequency identification (RFID): for medication, 122 RAND Corporation, 68 Rate setting, for healthcare costs, 36, 38 R&D. See Research and development RDs. See Registered dietitians Reform, 38–40, 42–46, 48–50, 54–57 Regional health information organizations (RHIO), 126 Registered dietitians (RDs), 159, 164–65 Regulations, for disaster response, 14–15 Reimbursement, 161, 168–73. See also Global rate Relationships, 3–4, 6, 8, 16, 20–21, 171 Request for information process (RFI), 135 Research, AHRQ for, 99 Research and development (R&D), 209–10, 217–19. See also Communication Residential care facilities, 183 Resources, 28; at CCMC, 158–59; management of, 84, 86, 87, 109. See also Crew Resource Management; Facilities; Money Responsibility, for health insurance, 54–55 Retention, 11, 86 RFI. See Request for information process RFID. See Radio frequency identification RHIO. See Regional health information organizations

Index Risk, 149, 214. See also Risk, relative Risk, relative, 78 Roadmap to Coverage, 43–45 Rogers, Everett, 214, 216–17 Romney, Mitt, 44 SA. See Situational awareness Safety, 63–67, 73, 103, 110–11. See also Accidents; Error(s); Safety, aviation; Safety, patient Safety, aviation, 73, 95–97, 103, 114. See also Crew Resource Management; Federal Aviation Administration Safety, patient, 64–67, 78, 85–86 SARS. See Severe acute respiratory syndrome SCHIP. See State Children’s Health Insurance Program Schon, D., 220 Science, 215, 219–20. See also Biotechnology; Scientist-managers; Scientists Scientist-managers, for R&D, 218–19 Scientists, 209–16, 220–22. See also Chief medical informatics officer; Chief science officer Security, 13, 20, 33. See also Children’s Medical Security Plan Service, 73–74 Severe acute respiratory syndrome (SARS), 9 Shim, D., 218 Shine, Kenneth I., 226, 234–35 Simulation, for aviation, 113–14 Situational awareness (SA), 7, 108–9 SNS. See Strategic National Stockpile Social interaction, 210, 218; theory, 211. See also Communication SOPs. See Standard operating procedures Southwest Airlines, safety in, 73 Staff, 9–11, 15, 21, 49, 199; APRNs as, 159, 163–65; CDEs as, 159, 164–65; doctors as, 24; employees as, 73–74, 204; nurses as, 86; obstetrician as, 202–3; personnel as, 162–63, 174; RDs as, 159, 164–65; workforce as, 191–92. See also Physicians Standard operating procedures (SOPs), 103, 112–13 Standards, 65–67, 145, 154 State Children’s Health Insurance Program (SCHIP), 38, 56 Status, of scientists, 220 Strategic National Stockpile (SNS), 29 Supplies, for disasters, 11 Surge capability, 6 Surge capacity, 5–6, 12

267 T1DM. See Type 1 diabetes mellitus Tax, tobacco, for health insurance, 39–40, 45 Teamwork, 96, 99–101, 103–6, 108, 110, 129, 163–65; for communication, 202, 207; for scientists’ business, 214, 216; SOPs for, 112–13. See also Collaboration Technology, 143–45, 146, 213; adoption of, 132–33, 136, 138, 149–50; healthcare’s cost in, 187. See also Biotechnology; Development, medical technology; Information technology; Research and Development Tenet Healthcare, 83–89 Terrorism, 29 Therapy, insulin, 160–61 Tidd, J., 219 To Err Is Human: Building a Safer Health System, 63–67 Training, 96–98, 100–101, 110, 237, 238 Transcription, 121, 122 Transportation/fuel, in disaster response, 12 Type 1 diabetes mellitus (T1DM), 158, 161, 163–66, 168–73 Uncompensated Care Pool, 36–37, 43 Unified command, 33 Uninsured, 37, 39, 40, 43, 181 United Airlines, 96–97 United States (U.S.), 181, 234; Americans’ health insurance in, 178, 184–85; endof-life care’s history in, 237–43. See also Government; U.S. Army; U.S. Department of Health and Human Services U.S. See United States U.S. Army, 97–98 U.S. Department of Health and Human Services (HHS), 15 VAP. See Ventilator-associated pneumonia Variability, 78–80 Vendors, of IT systems, 134, 135 Ventilator-associated pneumonia (VAP), 81 Volume, quality for, 81–82 Volunteers, 4, 18–19 Wages, 82, 180–81 Wagoner, Rick, 192 Waiver, 39–40, 42–43 Waldman, D. A., 219 Weld, William, 38–40 West Jefferson Medical Center (WJMC), 20–21 WHO. See World Health Organization

268 WJMC. See West Jefferson Medical Center Women and Infants Hospital of Rhode Island, 204 Women, pregnant, health insurance for, 39 Workforce, Johns Hopkins, 191–92 Workload management, 108–9 World Health Organization (WHO), 178, 234

Index Yin, R. K., 211 “You are on your own” (YOYO): for disasters, 17 YOYO. See “You are on your own”