Hospitals And Health Research Paper

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During the second half of the twentieth century, the dominant mode of health care delivery in the United States has evolved from individual, patient–physician relationships to care provided by organizations (Starr 1982). At the same time, social scientists have moved from examining hospitals as closed systems, which operate independently of their environment, to seeing them as open systems, both affected by and responding to external forces (Scott 1998). This perspective assumes that structural forms and organizational behavior in the healthcare sector are influenced by factors such as regulation, change in professional power, competition among providers, and mutualistic behavior among different types of providers. The context in which hospitals operate has been described as having two essential components: the technical environment and the institutional environment. The technical aspects of an organization’s task environment involve the production of products and services and the market forces that reward the efficient and effective production of those products and services. Institutional environments encompass the rules and requirements to which organizations must conform if they are to receive the social and political support and legitimization needed to survive.

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Organizations in the health care sector have traditionally been subject to both strong institutional and strong technical pressures. These forces have operated in separate but parallel fashion to shape the practices and structures of hospitals (Alexander and Scott 1984). For example, hospitals traditionally maintained very loose control over physician staff as a reflection of strong professional requirements for autonomy. At the same time, they were accountable for the ‘technical’ quality of care through legal and quality assurance controls. Recently, market forces have played a more visible role in shaping national policy debate concerning healthcare access, quality, and costs. In view of this, some have argued that the influence of traditional institutional structures and practices, such as regulation, professional norms, and local control, have weakened and are now subordinated to the technical demands of the market. However, there is sustained evidence that historical institutional forces have not been eliminated, but instead are interacting with the new ‘market’ ethos to constrain and shape the structures and practices of hospitals, including those originating in the corporate sector. These interactions have given rise to a unique set of changes and practices that differ from both those common to the corporate sector and those common to hospitals in more institutionally dominant eras.

1. Institutional Environment Of Hospitals

Institutional environments feature elaborate rules and requirements to which individual organizations must conform if they are to receive support and legitimacy. Attention is directed away from control and coordination of technical processes and towards conformity to externally defined requirements or regulations. The more institutionalized the environment of an organization, the more its structures and procedures are governed by external controls. This control requires specific arrangements in the organization that are independent of contributions to technical performance (Scott 1995). For much of the twentieth century and up until today, hospitals and other healthcare organizations have been subject to strong institutional pressures, including a broad array of governmental regulations and requirements. Further, numerous professional specifications have governed what types of personnel might be hired, how tasks are distributed among them, and what procedures must be followed in performing these tasks.

The healthcare field in the US has long been characterized by institutional pressures that are both strong and heterogeneous (Stevens 1989). All branches of the federal government make decisions centrally that affect the entire healthcare sector. Local and state governments also exercise authority to regulate health care. This fragmented structure of authority makes it possible for various actors to pass laws to meet particular needs, and regulations are therefore uncoordinated, at best, and inconsistent or conflicting, at worst. Further, a long tradition of volunteerism in American hospitals has complemented the inculcation of professional norms into the institutional structure of these organizations. The notions of local control, community accountability, and philanthropic support of hospitals have served to keep decision-making from becoming overly centralized. At the same time, this has discouraged the formation of a cohesive, integrated healthcare system.

2. Technical Environment Of Hospitals

Notwithstanding the institutional demands on hospitals, the technical requirements of modern medicine are considerable and often require tight internal controls and careful coordination if performance is to be effective. Hospitals have also increasingly been pressured to improve efficiency in the use of resources. Retrospective cost reimbursement was singled out as the primary explanation for both rising costs and inappropriate utilization. Critics also identified professional specialization and hospital-based care as major contributors to rising costs. Growing specialization and fragmentation in delivery rendered services increasingly impersonal, while the predominance of inpatient services threatened accessibility and provision of comprehensive, family-oriented care.

Historically, political attention had focused on expanding access to health care, as exemplified by the passage of legislation in the 1960s extending health insurance coverage to many of the elderly (Medicare) and the poor (Medicaid). The 1980s, however, marked the beginning of a new era that shifted the focus to controlling costs (Scott et al. 2000). Several years of double-digit increases in prices threatened the economic interests of actors who paid for health care; in response they initiated policies and practices to control costs. In 1984, the federal government’s Medicare program became the first major payer to attempt to control hospital costs by paying a fixed fee for each service, rather than the ‘usual and reasonable’ fees that hospitals routinely charged. This key change in payment policy had significant financial and market effects for hospitals. The resulting reductions in payments to hospitals and other organizational providers cut their budgets and contributed to cash flow problems. Hospitals and other providers tried to compensate by increasing their patient and service volume. In turn, this created more competition for patients.

A series of remedies have been proposed to deal with the cost escalation crisis. The solutions imposed have often clashed with the historical institutional functions of hospitals, namely, providing care to the community, running on a voluntary basis and engaging in philanthropic enterprise. Direct regulatory approaches to containing costs in the 1970s have shifted to greater emphasis on legal, budgetary, and market responses to addressing these issues. Taken as a whole, these remedies fall under the general rubric of a competitive approach to controlling costs, even though all involved substantial government oversight and occasionally intervention. Such approaches are consistent with a general societal shift toward privatization and market solutions to larger social problems. While recently court rulings have relaxed some regulations stifling collaboration among doctors and organizational providers, new regulations have reduced price-fixing and other forms of anticompetitive behavior. Together these rulings have provided both inducements and constraints on organizational behavior, such as severe limitations on hospital acquisitions and mergers.

Budgetary remedies have been applied at both the federal and state levels. At the federal level, the government has budgeted a fixed reimbursement for each inpatient admission based on diagnosis. States have also enacted rate-setting programs that prospectively set reimbursement levels for hospitals and other providers. These budgetary interventions have forced healthcare providers to attend to efficiency and have raised the level of competition among these providers. Finally, market remedies have included the introduction of so-called ‘managed care’ strategies, designed to reduce utilization and thereby costs. Examples of these strategies have included competitive bidding and selective contracting in government programs and the use of preferred providers and risk-based financial incentives by private insurance firms. Both state and federal governments have begun to publish information on the performance of healthcare providers, aimed at redressing the traditional asymmetry of information between providers and consumers of health care.

As expected, these interventions have lowered healthcare costs and decreased utilization (Robinson 1996). But there have also been other, unanticipated effects. At the field level, the 1990s have witnessed an increasing number of entries and exits of new and existing organizational forms into the healthcare system. Although most hospitals and other organizational providers that have closed have tended to be primarily inner-city and rural institutions and have done so for primarily technical/rational reasons, many others have remained operating despite financial losses and technical inefficiencies. The survival of so many marginal institutions in the face of increasing pressures from a market-based system clearly reflects the importance of local/community support for these institutions, and the salience of legitimacy in organizational survival (Rohrer 1989). This illustrates well the complex combination of technical and institutional forces that shape organizational life in the healthcare sector.

3. Hospital Responses To Hybrid Environments

A fundamental question becomes, how do organizations operating within such hybrid environments accommodate different environmental demands that are often diametrically opposed to each other? The convergence of traditional institutional and new technical forces impinging upon hospitals has created new organizational, strategic, and survival challenges for healthcare providers. Neo-institutional theory suggests that organizations functioning in sectors that are highly developed both institutionally and technically will develop more complex and elaborate administrative systems and will experience higher levels of internal conflict (Scott 1995). Historically, we know this to be true for many organizations in the healthcare sector. Hospitals, for example, have typically operated within a dual hierarchy of control, represented on the one hand by hospital administration and on the other by hospital medical staff and physicians. These dual lines of control operate in parallel with each other but rarely have intersected in such a way as to disrupt the relative spheres of influence over issues related to control, resource allocation and professional prerogatives.

Conflict has been expressed in hospitals largely through increasing parity between managerial and professional logic and ideologies. The emphasis of managerial ideology on rational systems and cost-effective care has increasingly conflicted with the professional orientation toward individual doctor/patient relations and the micro delivery of specific medical services (Goodrick et al. 1997). Conflicting claims to the right way to deliver health care, the presence of alternative rationales for organizing work (professional vs. managerial), and the inherent conflicts between technical and institutional pressures in the healthcare sector have eroded the legitimacy of hospitals. This has opened the way for a number of new organizational forms, practices, and strategies, particularly those that have symbolically represented the new ethos of privatization and corporate rationality. For example, health organizations are increasingly lobbying government and engaging in marketing campaigns in order to influence legislation and public opinion. Rather than being passive recipients of institutional changes in the broader environment, they seek actively to shape societal beliefs toward health care and the way health care is organized.

4. Organizational Heterogeneity

Health care delivery has been dominated traditionally by hierarchical organizations such as hospitals and healthcare systems. However, as competitive pressures and the demands of managing care under limited resources have increased over the past decade, a wide variety of new organizational forms have emerged. These range from managed care organizations, physician–hospital arrangements, and physician practice management companies, to diagnosis-specific service contracts with specialized providers, such as home health care and rehabilitation firms.

As traditional institutional norms and practices have eroded and have been replaced by a stronger corporate rationality, we have observed greater heterogeneity among organizations in the healthcare sector. This new ethos suggests there is no one best way to organize in order to achieve technical efficiency and positive performance in the marketplace. More variation in organizational forms is exhibited as hospitals become less concerned with mapping the characteristics of the institutional environment onto their own structures, and more concerned with achieving technical efficiencies and buffering their technical cores from environmental disturbances.

A clear response to the new market forces in health care has been the adoption of structures and practices from the corporate sector (Burns 1990). These structures include multidivisional organizational designs, parent holding-company arrangements, contract management of facilities, and vertical integration across a number of different service lines. While these practices clearly have gained popularity during the 1990s, there is limited evidence that they actually improve the quality or lower the cost of care. Neoinstitutional theorists have argued that whereas early adopters of these corporate structures may have done so for technical/rational reasons, later adopters may have viewed them as the prevailing institutional practices under the new market-based health care environment.

5. Hospital Governance

Historically, most nonprofit hospitals were overseen by autonomous governing boards composed largely of representatives of the communities the hospitals served. This type of governance arrangement reflected a longstanding institutional belief that the control of nonprofit hospitals should be vested in local communities. However, during the 1980s and 1990s, two developments have altered this traditional governance model of nonprofit hospitals, both of which are part of a larger trend toward the so-called ‘corporatization’ of health care. One development is the consolidation of over 40 percent of US hospitals into complex healthcare systems. In such systems, the locus of control for member hospitals is shifted to varying degrees outside local communities to system-level governing boards and corporate offices (Toomey and Toomey 1993). Another development is corporate restructuring of hospitals where hospital assets and decision-making authority are transferred to multiple corporate entities that may include a parent holding company and various subsidiaries. Such restructuring often entails the creation of multiple governing bodies that can attenuate the decision-making authority of the provider’s community-based board.

Under a traditional model of governance, nonprofit hospitals resemble consumer cooperatives in that community representatives are in a position to determine hospital policies. As such, a traditional form of governance is arguably a constraint on hospital price inflation, since community representatives have an incentive to resist price increases that they ultimately will incur in the form of higher insurance premiums. Also, form of governance may impact the accessibility of hospital services since a community-based board may be inclined to invest resources to expand the accessibility of hospital services to its own community (e.g., through the provision of uncompensated care). Policymakers have expressed concern that system membership and corporate restructuring are diminishing the role of communities in the control of nonprofit hospitals, and government agencies that have oversight responsibilities for nonprofit hospitals are currently examining alternatives.

6. Physician–Organization Structures

As managed care and competitive pressures have compelled hospitals to consolidate and provide services along a broad continuum of care, the need to integrate formerly loosely coupled elements of these organizations has increased. Perhaps the most problematic aspect of such integration is the alignment of incentives and strategic goals between delivery organizations and physicians. Hospitals seek to engage in strategic relations with physicians in order to: (a) protect against the risks of agency from physicians who have traditionally borne little risk for the care of patients, (b) reduce transaction costs by developing economies of scale and integrating physicians into the structure of the delivery organization, (c) achieve market power both up and down stream over suppliers and customers respectively, and (d) develop capabilities that differentiate systems from competitors in the areas of innovation, technology, and quality. While these market-driven reasons are clearly critical to hospitals and healthcare systems, the alignment of economic and strategic interests between organizations and physicians is difficult given the differences in cultural context, socialization, orientation to patient care, and economic incentives.

As managed care organizations and health care regulators have recognized the need to align the economic incentives of providers with the goals of cost containment and high quality, they have changed methods of provider compensation from simple discounting to risk sharing (e.g., capitation, per diem, or per case reimbursement for hospitals). Providers under these systems assume actuarial and utilization risk and reward. In principle, risk sharing promotes appropriate behavior, since high utilization and costs will result in deficits for either the physician group or its physicians. In practice, the physician group’s form of compensation, incentives, and governance moderate these effects. For example, the incentives inherent in risk sharing can be lost if individual physician compensation is not strongly linked to holding costs below the group’s fixed budget. Alternatively, if physicians feel they have no say in the formulation of incentives in compensation systems, they may be less willing to abide by them. These examples suggest that the incentives created by risk sharing are effective only under certain conditions. Several authors have recognized that the effects of such payment mechanisms may partially depend on organizational factors such as type of governance, physician leadership, information dissemination, sanctions, and organizational culture (Kralewski et al. 2000, Alexander et al. 2000).

Physicians and organizational healthcare providers recognize the need to work together to acquire managed care contracts and to manage risk. To facilitate such contracting, avoid institutionalized constraints inherent in hospital-medical staff relations, and develop the administrative infrastructure necessary for managing service delivery, many healthcare systems have established market-based organizational arrangements that link the delivery organization with one or more physician groups. Market-based arrangements are different from internal hospital structures in that they tend to be formally structured, contractual in character, corporate in organization, and include physicians outside the formal membership of the medical staff.

Given fundamental differences between methods of organizing by physicians and delivery organizations, however, it is highly questionable whether structural solutions to achieving greater integration between physicians and delivery organizations can be completely effective. There is only limited evidence to suggest that structural solutions work and considerably more evidence that self-selection by physicians into closely aligned structural arrangements may account for more of the explained variance in alignment than structure itself. Hospitals’ attempts to integrate and align with physicians have not always rationalized the delivery of health care, but instead in many cases have made it more complex. Physicians and their interests vary widely, and hospitals have discovered that no one structural vehicle best accommodates the interests of all physician subgroups. Consequently, it is not uncommon for multiple market-based arrangements to exist within a single organization. This makes the coordination of care and alignment of incentives at least as difficult, if not more so, as it has been under the traditional medical staff model.

7. Organization Of Work In Hospitals

Largely as a result of increasing competitive pressures and external emphases on cost containment, the organization of work within hospitals has shifted. Two trends are particularly in evidence: (a) the use of teams to perform managerial and clinical work, as opposed to performing such work individually, and (b) the use of contracts to obtain labor externally rather than to hire employees.

Because of demands by managed care firms and integrated healthcare systems to provide comprehensive care to patients and/or enrollees in health plans, there is growing recognition that patients need comprehensive care in order to address their multiple problems effectively. Given the broad spectrum of knowledge necessary for comprehensive care, there is growing belief that teams of practitioners with complementary roles and skills are best suited to providing high quality, cost-effective patient care (Fried and Rundall 1994). Teamwork in the clinical round is also perceived as an antidote to fragmentation in services, a traditional problem in healthcare delivery. For example, repeated patient assessments by various healthcare providers add unnecessary costs to patient care, when one combined assessment would suffice. Advocates of team-oriented care cite studies that consistently show that collaboration among physicians, nurses, and other healthcare personnel enhances the quality of care and patient satisfaction (Nikolaus et al. 1999, Le et al. 1998).

Team-based care stands in marked contrast to the traditional hierarchical work relations in most hospitals, which accord the physician a role of absolute autonomy and control over patient-care processes. The growing emphasis on prevention, wellness, and cost-effectiveness in care delivery make this hierarchical structure outmoded. Flatter structures and more collegial relations among providers appear to be the developing norm. For example, many nurses advocate a collaborative relationship with physicians where nurses have primary responsibility for health maintenance, prevention, and diagnosis and treatment of routine cases, while physicians retain responsibility for the diagnosis and treatment of complex cases and the prescription of medications.

Contracting for labor services as an alternative to employment stems from the need for more flexibility in an increasingly competitive environment. Hospitals need to be able to make rapid changes in their workforce in response to demands from a volatile market. Rather than staffing to accommodate periods of peak demand with attendant down time for slack periods, hospitals have increasingly adopted a contingent approach to staffing, responding to the particular needs of the organization at a given time (Katzman 1999, Rizzuto et al. 1999). Contracting typically occurs in housekeeping, business, and clinical services. Proponents argue that contracting frees top managers to concentrate on core services, brings specialized expertise to the organization, improves flexibility through the ability to terminate contracts, reduces supply costs through superior purchasing power, and promotes the recruitment of specialists who may be in short supply. Critics argue, however, that the contract-management firm and the contracting organization may fail to clarify performance goals or that contracted staff may have difficulty working with other departments and full-time personnel. Perhaps most importantly, some believe that contracting for a wide variety of services without a clear strategy risks damaging organizational coherence and control (D’Aunno et al. 1996).

8. Quality Of Care In Hospitals

Another illustration of the organizational response to technical and institutional pressures lies in the area of healthcare quality. On the one hand, decline in public support and trust for hospitals has reduced their impetus to assure quality and discipline members of their organizations for lapses in quality. Responsibility for quality has begun to shift to the payers of health care and their agents (e.g., managed care organizations), as well as to the courts which adjudicate an increasing number of malpractice suits against hospitals and physicians. These trends reflect a growing tendency to think of health care as a commodity rather than an entrusted service provided by professionals and professional organizations. On the other hand, there is greater emphasis placed on quality improvement systems within organizations as a counterbalance to external controls over quality and as a response to market pressures to increase the efficiency and effectiveness with which care is delivered. Again, this duality of external control vs. internal control is a juxtaposition based in the competing demands placed on hospitals by institutional and technical forces.

Hospitals, in particular, are being challenged by increasingly competitive markets and regulatory changes to produce high quality care without raising costs. Given the multiple pressures and problems associated with healthcare quality, hospitals face the additional challenge of developing policies, procedures, and incentives to improve quality within a domain that has traditionally been the province of highly autonomous professionals. Quality improvement (QI) practices have emerged in recent years partially as an alternative to quality assurance and as a reaction to the shortcomings of outcome-based control. With mounting pressure to maintain or improve quality in the face of reduced resources, hospitals have begun to look to process improvements as a mechanism to provide high quality care while containing healthcare costs. While the adoption of QI appears to be an internally generated response to changing market conditions, for the most part, accrediting bodies such as the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) have also encouraged hospitals to adopt QI.

Given the traditional emphasis on provider–patient relations, individualized approaches to improving quality have received the vast majority of attention to date. Although the knowledge and practices of individual physicians are important for high quality care, increasingly clinicians practice within groups or systems of care. As such, the quality of care delivered depends critically on the ability of these groups or systems to prevent errors, coordinate care among settings and practitioners, and ensure that relevant, accurate information is available when needed.

One of the most promising recent developments is the effort to institutionalize quality improvement in hospitals as a coordinated, organization-wide approach to care strategies (Berwick et al. 1990, Gaucher and Coffey 1993, Carman et al. 1996). These practices, collectively, are designed to systematically examine and improve processes of care and care support in organizational settings. Typically, these quality improvement efforts are strongly rooted in evidence-based procedures and rely extensively on data collected from hospitals about care processes and patient outcomes.

9. Hospital Behavior In Other Nations

The focus of this research paper has been to associate change in hospital structure and behavior to change in the broader market and institutional contexts in which these organizations operate. The United States has been prominently featured in this discussion because of the somewhat unusual combination of strong technical and institutional pressures to which hospitals must respond. Other countries, however, may diverge markedly in the degree to which either institutional or market forces play a role in shaping hospital behavior. For example, in countries where healthcare delivery is highly centralized and funded exclusively by the government, we would expect to find much more structural homogeneity among hospitals, in marked contrast to the increasing diversity and differentiation among US hospitals. In other nations, where privatization and multiple sources of healthcare funding predominate, hospitals are more likely to resemble in their structure and behavior other commercial vendors of services to the market.

Recent trends in OECD countries would seem to indicate that they are facing technical pressures for increased efficiency similar to those in the United States (Normand 1993). Significant reductions both in the number of hospital beds per 1,000 and in average length of hospital stay have resulted, particularly in Scandinavian countries. In the countries of the former Soviet Union, on the other hand, average length of stay has not dropped, despite mounting financial strain due to economic instability. One potential explanation for this is lingering institutional norms regarding appropriate clinical practice (Hensher et al. 1999). This may illustrate how specific institutional beliefs about health and health care in a given nation may shape hospital behavior in ways that differ substantively from the ways in which institutional forces shape hospital behavior in the US. For example, in Taiwan, the deeply seated belief that family is the primary care giver is reflected in the hospital practices of incorporating family members in patient education, extended visiting hours, and even boarding with the patient during the hospital stay. Cross-national differences in hospital structure and behavior are thus likely to be a reflection of both the structure and content of the broader environment from which hospitals obtain patients, critical resources, and legitimacy.


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