Chapter 3: Healthcare Organizations

Learning Objectives

Introduction

Some facts are necessary to set the stage for this chapter. Healthcare in the United States has evolved from a scattering of healthcare providers and hospitals that met local needs to a major industry that continues to expand and evolve. In 2011 about 7.5 million people were employed as healthcare practitioners and technicians¹ in 5,724 hospitals,² and national healthcare expenditures in the United States totaled $2.7 trillion. Because 20% of these expenditures went to physicians and clinics and another 31% paid for hospital care,³ hospitals and physicians are the focus of this chapter. Other healthcare organizations and services are addressed in Section 3, Management in Specific Healthcare Settings.

The Healthcare Challenge

Contemporary healthcare systems are challenged to show the value (quality divided by cost) of the services that they deliver for that $2.7 trillion. This value is linked to the three long-standing goals of healthcare policy—improve access to care, improve the quality of care, and reduce cost and cost acceleration. Healthcare organizations can influence their value by either delivering a higher level of quality at the same or lower cost or by delivering the same level of quality at a lower cost. Although important to the fiscal bottom lines of healthcare organizations, their broader social responsibility to contribute to the well-being of the communities they serve also depends on quality and cost of the services they provide. However, controlling the acceleration of costs is no small challenge because of the following characteristics of the business of healthcare:⁴

• The development of new healthcare technology increases the demand for services. In response, insurance premiums are raised to pay for those services.

• New technology increases competition among healthcare systems and does not decrease the need for healthcare workers.

• Consumers cannot easily assess quality, but they expect it.

• Consumers use other products and services more consistently and more often than they use healthcare services.

• There is a tendency to practice defensive medicine (use of medical testing and treatments to safeguard against malpractice lawsuits rather than to meet the needs of patients).

• There is poor communication among providers and with their patients, sometimes resulting in duplication of services.

• There are wide geographical variations in the costs and availability of healthcare.

• Moral hazard may result from consumer isolation from the actual costs ...