Creating a company culture for security design document

Professor Robert S. Kaplan, Fellow Mary L. Witkowski, and Research Associate Jessica A. Hohman prepared this case, with the assistance of Gisele Charron, Ron Heald, and Drs. Von Nguyen, Apurva Shah, and Megan Abbott. Internal company data in the case have been disguised. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

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Boston Children's Hospital: Measuring Patient Costs

Our review shows that the current system of health care payment is not always value-based, and health care providers throughout the state are compensated at widely different rates for providing similar quality and complexity of services. … To control cost growth, we must shift how we purchase health care to align payments with value, measured by those factors the health care market should reward, such as better quality.

— Office of the Attorney General Martha Coakley, Commonwealth of Massachusetts1

Boston Children’s Hospital (BCH) aimed to be a worldwide leader in improving children’s health through the provision of high-quality care, cutting-edge research, teaching, and local community outreach. As one of the largest independent pediatric medical centers in the United States, BCH offered a complete range of health care services for children from all over the world (see Exhibits 1- 3). BCH was also the provider-of-last-resort for children with rare diseases, such as Wiskott Aldrich (blood disease) and Bubble Boy Syndrome (combined immunodeficiency) and had highly-specialized physicians and expensive equipment available at all times. In 2011, U.S. News & World Report ranked BCH as the top pediatric hospital in the U.S., with more top-ranked specialties— Heart and Heart Surgery, Neurology and Neurosurgery, Cancer, Orthopaedics, Urology, and Kidney Disorders—than any other pediatric hospital.2

Patients made over 500,000 visits to BCH’s 228 specialized clinical programs in 2011, and its surgeons performed more than 26,000 procedures. The majority of BCH’s care was provided at its main campus in Boston’s Longwood Medical Area. It also delivered regional care at six community hospital locations and several specialty care centers in eastern Massachusetts and New Hampshire. BCH treated 90% of the most critically ill children in Massachusetts and was the largest provider for low-income families in the state, with 30% of its patients covered by Medicaid.3

BCH also contained the world’s largest pediatric hospital-based research center, with $225 million in annual funding and over 1,100 scientists. Its laboratory researchers and physician investigators had identified novel treatments and therapies for a wide range of debilitating pediatric conditions, from Nobel Prize-winning work in polio to the more recent discovery of genetic variants linked to appetite control and obesity.4

For the exclusive use of Y. Tao, 2019.

This document is authorized for use only by Yinfeng Tao in ACC 843-Fall-2019-MS Accounting taught by RANJANI KRISHNAN, Michigan State University from Aug 2019 to Feb 2020.

112-086 Boston Children's Hospital: Measuring Patient Costs

2

BCH Physicians were employed by 15 Foundations, not the hospital itself. Each clinical department had a Foundation that ran the physician practices, independently of both the hospital and each other. A Foundation rented clinical space from the hospital and charged patients for the professional services rendered by its physicians, a charge separate from that charged by BCH for non- physician services. While financially and legally distinct, the 15 Foundations were organized into one central Physician’s Organization (the “P.O.”). The P.O. oversaw collective contracting and shared management initiatives. The P.O. had a defined working relationship with the hospital; P.O. directors served on the hospital’s board of directors and hospital executives served on the P.O.’s board.

Local and National Market for Pediatric Care

In 2006, Massachusetts began enacting health reforms that expanded insurance coverage to all residents through a combination of mandates and subsidies. In 2008, the state formed a Special Commission on the Health Care Payment System to address rising health care costs. The commission’s final report recommended a transition to risk-adjusted global payments for all providers in the state.5 Many believed that the health reforms in Massachusetts foreshadowed coverage expansions and new national payment models in response to rising cost pressure.

BCH, the only freestanding pediatric hospital in Boston, had historically reported higher costs (and prices) than local pediatric wards embedded within adult hospitals. One local alternative, Tufts’ Floating Hospital for Children, a unit embedded within the much larger Tufts’ Medical Center in downtown Boston, had been recognized for charging prices 50% lower than BCH’s while producing comparable outcomes.a,6 Floating Hospital had seen its volume and revenue from pediatric care grow significantly over the last few years. Payors, reacting to BCH’s higher prices, began excluding BCH from certain offerings while simultaneously increasing cost sharing in their tiered/limited network plans that still included BCH. In 2012, these tiered/limited network plans represented almost 15% of the Massachusetts market.7

BCH executives clearly saw the challenge of sustaining its industry-leading ranking and research agenda amidst the intense local and national pressure to reduce costs. They knew that their prices were comparable to other free-standing pediatric hospitals around the country, and suspected that the costs reported by pediatric wards within full service hospitals might be under-reported due to cross-subsidies from more lucrative adult departments. They knew, however, that BCH did incur higher costs to fulfill its substantial research and teaching missions and to care for a significantly more complex and resource-intensive patient population.