Explain the iron triangle of healthcare

CHAPTER 12 Understanding the Executive Roles of Health Leadership

Necessity does the work of courage.

George Eliot, Romola

This chapter examines the complex cycle of relationships within health organizations. The needs and desires of nurses, physicians, administrators, and medical function leaders are presented. This chapter also places special emphasis on the relationships between major stakeholders within health entities. For the purpose of this discussion, we designate major health organization stakeholders as payers, providers, patients, and organizational entities. We additionally elaborate on the complexities of stakeholder relationships as they are concerned with cost, quality, and access issues. Finally, the chapter presents a conceptual model called the “parity of health care” that combines stakeholders and stakeholder issues into one schematic that assists in explaining and forecasting relationships in the dynamic world of the health industry.

LEARNING OBJECTIVES

· 1. Identify the steps, characteristics, and behaviors a health leader should take to build relationships with internal, “interface,” and external stakeholders.

· 2. Explain the Parity of Health Care model and its usefulness to health leaders.

· 3. Construct a health organization stakeholder list and predict at least two motivations of each stakeholder considering cost, quality, and access to health services and products.

· 4. Compare and contrast internal health organization stakeholder motivations and issues.

· 5. Combine two or more theories or models into a practical stakeholder management and relationship development model.

· 6. Evaluate internal and external health organization stakeholders, and justify their motivations, needs, and aspirations with regard to health services and products.

LEADERSHIP FOR PHYSICIANS, NURSES, ADMINISTRATORS, AND MEDICAL FUNCTION DIRECTORS

Health leadership is situational and contextual, influenced by cultural constructs, and moderated by relational factors. The myriad of internal stakeholders and their differences are complex in both breadth and depth. In simple terms, health leaders need to lead people and manage resources so as to direct the collective energy of the organization toward successfully achieving the mission of the organization. This mission is always to serve patients and the community. This idea may be simple to state, but it is difficult to realize in practice. Similar to a conductor leading an orchestra, health leaders must ensure a seamless and harmonious operation such that all participants are collectively moving forward to accomplish the mission of the organization simultaneously. To do so, leaders must understand and motivate the various stakeholders in different ways while staying true to the organization’s preferred strategies, goals, and objectives. Stakeholders hold differing views, have differing incentives and motivations, and serve differing roles in the health organization; leaders understand these differences and integrate the value and efforts of stakeholders to achieve the mission and aspire to reach the vision of the organization.

Physician Leaders

Health leaders need physicians to diagnose, treat, and refer patients to their organization. Without physicians, health organizations would not receive reimbursements or other revenues for the patient care process. With this point in mind, health leaders need to create a symbiotic, trusting, and integrity-based relationship with physicians. This is especially true of physician leadership. Health leaders should visit and know all physicians who practice and refer patients to their organization; these visits should be regular events that occur at times when physicians are not engaged in patient care. Health leaders should seek input from physician leadership on important decisions within the organization and provide frequent feedback on the decision process as well. The relationship a health executive builds with the physician leadership is critical.

It is always very important to respect a physician’s education, background, decision-making priorities, and skills. A health leader should constantly be communicating the organization’s vision, strategies, goals, and objectives in a clear and consistent manner while weaving the value of physician involvement and work into the discussion. Health executives should also try to maximize physicians’ time to diagnose, treat, prescribe, and refer patients by creating or reengineering processes and systems that focus on their skills.

One of the greatest fears that physicians have with regard to any proposed “national healthcare” system is that they might lose control of their clinical practice autonomy. Physicians believe that any time spent away from direct patient care on additional bureaucratic requirements lowers patient care quality. Additionally, providers view decreased patient contact as inhibiting access to patients. Organizations can alleviate some of this fear by continuing to solicit physician input in all policy analyses and decision making that affect the care process or the logistics of the care process. For example, provider participation in policy making and strategic planning are essential to program success. To discount physician involvement and influence in health policy will ultimately doom policy implementation. Include physicians in all health and care delivery policy decisions that might affect their day-to-day autonomy or decision making.

Nurse Leaders

Nurse leaders are important to the health organization in that they provide care for patients on an ongoing basis. In most health organizations, nurses account for the largest personnel expense for the entity as a whole. Nurses are needed to “staff” hospital beds, work in health programs, provide home health services, and perform any number of other jobs in health entities. Nurse leaders, like physician leaders, want to be respected, trusted, and sought out for input into decisions affecting the care process. Nurses want good work environments, with reasonable patient care loads (usually four to six patients per nurse per shift for average-acuity patients); they want to be treated with respect by administrators, physicians, and other medical staff personnel, and to have some level of self-governance (e.g., nurse education, scheduling).

Building a solid relationship with nurse leaders is like building a relationship with anyone else: Trust, respect, and honesty form the foundation for interaction. As with physicians, health leaders should meet with nurse leaders and ask how to best build great relationships. Most nurses will respect the health leader’s courage and intent to build a good relationship within the organization.

Administrative Leaders and Medical Function Leaders/department Heads

Building professional and effective relationships with administrators and medical function leaders (e.g., pharmacists, laboratory staff) are important in building a cohesive team of superiors, peers, and subordinates. Relationships with these leaders should be built on trust, respect, and honesty. However, different leaders will have different foci and motivations. For example, the finance leader is concerned with the bottom line and efficient use of resources. The pharmacist may be interested in error-free operations and streamlining supply chain logistical tasks. The laboratory leader may be focused on acquiring new capital equipment to keep up with the technology diffusion in this field. As this discussion suggests, administrators’ and medical function leaders’ “wish lists” are both dynamic and nearly endless. As a result, managing these competing interests and priorities is challenging for any health leader. Even so, regardless of their job and organizational placement within the facility, it is important to listen to, respect, and understand the needs of these stakeholders.

Stakeholder Dynamics

Stakeholder dynamics are critically important for leaders of health organizations. This reality becomes more salient as leaders rise to positions of greater responsibility within the health organization. Key stakeholders in any health entity will include groups, individuals, and associations. Within these three classifications, stakeholders can further be defined as internal, interface, and external stakeholders.

In a health organization, internal stakeholders operate within the organization and consist of management and professional and nonprofessional staff. Interface stakeholders function both internally and externally to the organization; they include medical staff, the governing body, and, if applicable, stockholders. External stakeholders include patients and their families, suppliers, third-party payers, competitors, special-interest groups, regulatory and accrediting agencies, local communities, and labor organizations. 1 ,2 All of these stakeholders exert an influence on every issue and must be recognized and evaluated for their potential to support or threaten the organization and its competitive goals. 3 ,4

Health organizations have a particularly complex set of stakeholders. They include patients and families; payers; buyers (employers); regulatory agencies, such as The Joint Commission; community groups, such as public health departments, local employers, churches and civic organizations; providers, including medical staff members, employees, and volunteers; suppliers and financing agencies; associate organizations such as physician professional organizations; as well as other providers, including competing organizations and agencies whose service lines may be either competing or complementary, such as home care agencies and primary care clinics. 5

Key stakeholders are those most important to health organizations. These stakeholders directly or indirectly control reimbursement, information, approvals, or other resources valued by the organization, or are in a position to impose costs on the organization. 6

Although the number of stakeholders in health organizations may be high, four main types of stakeholders should be considered in any healthcare decision making: patients, payers, employers, and providers. These four stakeholder groups have recently been labeled with a new term in managed care—the managed care quaternion. 7 Collectively, the stakeholders in the managed care quaternion affect all aspects of health organizational life, including patient care, payment, reimbursement arrangements, external costs, and other policy affecting organization survivability. Patients, payers, employers, and providers all play a vital role in the operations of any health organization. With any one of the four major stakeholders of the managed care quaternion omitted in the decision-making process for a healthcare entity, failure at some level is highly probable.

The Managed Care Quaternion and the Iron Triangle

The managed care quaternion (MCQ) model was developed in the early part of 2003 by Coppola. 8 It has since gained popular support within governmental organizations, as well as within some state Medicaid agencies, as an aid to health planning and policy making. It has also been used to forecast future healthcare needs. Furthermore, the MCQ concept is slowly working its way into the mainstream of health education. It will be an important model for health leaders to become familiar with as a tool for decision making in the next decade. However, the MCQ model alone cannot be used as a basis for policy or decision making. Instead, it is more beneficial to view this model in concert with the Iron Triangle of health care.

The concept of the Iron Triangle was developed by Kissick in the early 1990s during the managed care revolution in the United States. 9 Kissick coined the term Iron Triangle to demonstrate the difficulty in selecting priorities for health as they relate to healthcare costs, quality, and access. Kissick suggested that an understanding of these resource elements would assist managed care organizations in establishing their logistical priorities.

For example, Kissick recognized that cost is only one important resource for the healthcare industry. In the Iron Triangle, costs form one angle of the three points, with quality and access being the other two resource priorities. These three factors together are kept in balance by the expectations, cultural goals, and economics of the society that supports the industry. Any angle (or construct) in the triangle can be increased, but only at the expense of the other two. For instance, quality in the U.S. health industry can be improved through large expenditures for additional technology or in training allied health providers; however, the increased expenditures may result in restricted access of this improved health care to only those persons who can pay for the higher quality of care. Put simply, the normal increase in one construct may adversely affect some combination of equifinality of the other two.

The concept of the Iron Triangle has been used by health leaders for more than a decade to guide development of strategic plans, organizational vision, and mission statements. Furthermore, this notion has become a staple and core competency in most health and business programs in the United States. Every young graduate student in this country should be familiar with the Iron Triangle—and be able to relate it to resource priorities in organizational analysis.

Kissick’s model is a vital tool to health leaders; however, the model itself fails to take into account outside actors and agents. In this regard, it is incomplete as a means for conducting dynamic organizational analysis. When the Iron Triangle and the MCQ model are combined, they form a dynamic model called the Parity of Health Care. This model describes, explains, and can forecast competing issues and organizational dynamics in the healthcare arena ( Figure 12-1 ). The Parity of Health Care model is explained in more detail later in this chapter; we present it here for visual stimulation. Readers of this chapter should refer back to this model as the various components are described later in this chapter.

FIGURE 12-1 The Parity of Health Care model.

Optimally, it will be every health leader’s goal to deliver high-quality care, services, or products, while simultaneously increasing access to services or products and lowering costs. Unfortunately, as health leaders try to make improvements in one area, there is often a tradeoff consideration in another area. For instance, increasing access to pharmacy benefits by opening an after-hours pharmacy window may improve access and be seen as a quality initiative, but this service may not generate enough new revenue to pay for itself. If the pharmacy window continues to draw scarce resources from other areas in the health facility, its growing drain on the overall fitness of the organization may result in negative influence on other areas—perhaps in professional development and training opportunities, for example. In this case, the decreased opportunities for continuing health and medical education may translate into lower-quality outcomes for customers. The decrease in quality outcomes may be the result of the organization failing to take advantage of industry best practices that peer organizations have implemented due to their emphasis on professional development and training.

This complicated relationship forces health leaders to think conceptually and in nonlinear approaches. As a result, they must perform careful analyses of new policy ideas or agendas to ensure that the organization will maintain an effective balance between health costs, quality, and access. The cost, quality, and access tradeoffs associated with the interrelationships among actors must be considered.

The following sections provide an overview of the key stakeholders of the MCQ model, relating them to various dynamics of the Iron Triangle. The goal here is to illuminate the complicated and delicate nature of health dynamics.

Payers

Payers are a key stakeholder because they provide reimbursement for services and products provided by health organizations. This group of stakeholders includes patients (who may pay for at least some, if not all, of their expenses on an out-of-pocket basis); governmental insurance programs, including Medicare and Medicaid; and private health insurers. Payer organizations attempt to keep the cost of care as low as possible and, more recently, have begun their own efforts to improve the quality and safety of care. 10

Payers seek the lowest costs possible for health services and products and are usually willing to sacrifice the time costs of patients to achieve that goal. Accordingly, access is a secondary issue to the cost of care; the quality tradeoff is only marginally discussed after the cost of care. Although risk management issues certainly come into play with large-scale health-based plans, the payer will, unfortunately, often go with the lowest physician bidder who can validate equally effective health outcomes in an environment of acceptable access. Such is the paradox and dilemma of being a large-scale health payer.

Leaders of health organizations need to be aware that large insurance companies may be more interested in health costs as opposed to outcomes of health services or products. This tendency is somewhat due to the migration of beneficiaries from plan to plan over short time periods; most health insurance plans are focused on medical expense ratios and maintaining profit margin because long-term prevention and outcomes linked to beneficiaries are rarely beneficial to the health insurance plan in which the beneficiary is enrolled at the time. Furthermore, although interested in health policy as a vehicle to lowering costs, the legislation that surrounds policy making is only a means to an end when it comes to cost controls. However, purchasers of health care may see reasonable price controls as a quality indicator and demand to see comparative data from different organizations. Such has been the case lately with many car insurance companies, which freely offer their prices for automobile insurance to consumers, allowing them to compare these prices against those offered competitors. This transparent and open system of pricing not only translates into an imprimatur of honesty and candidness for the organization, but also can be perceived as an effort to promote a partnership in the insurance industry rather than advocate for a cost-driven industry.

Accordingly, leaders of health organizations in the current decade may be placed in situations where they are forced to provide comparative data. Comparative data in health may include information to assist the purchaser to distinguish between health organizations’ quality outcomes and services delivered. The payer, if not an individual patient, may also be concerned about the total cost per employer per year and acuity-adjusted disability periods if economies of scale are achieved to negotiate large-scale discounts of fees for services. As a result, health organizations need a strategy that allows them to know ahead of time how to implement a partnership with outside purchasers that is seen as a cooperative relationship rather than a utilitarian, profit-driven liaison.

Importance of Medicare and Medicaid

Two of the largest payers that early career health leaders and established leaders will most commonly deal with today in the United States are Medicare and Medicaid. Many issues play a role in the development of policy, payment decision making, and resource management for these payer organizations.

Medicare

Medicare is an entitlement program where beneficiaries are required to “pay into” the system to be entitled to Medicare coverage once eligibility criteria are met. Medicare is administered through a series of intermediaries. Organizations such as Trail Blazers, Blue Cross and Blue Shield, and Aetna act as Medicare agents in determining interpretations of Medicare law and case management of patients. This system allows individual health organizations to work with one primary organization for funding and regulation compliance rather than all organizations going through one central Medicare supplier in Washington, D.C. The downside to having a larger number of agencies administering this program is that each agency has its own interpretation of the Medicare law, and some lack of consistency across the nation is found.

Medicare has gone through many permutations over the past four decades. The Balanced Budget Act of 1997 brought Medicare, the federally funded healthcare payer, to this point in history: Medicare has 43 million beneficiaries and is the United States’ largest health insurance program. With estimated costs of $430 billion per year, spending is growing more rapidly than revenue. If current trends continue, the program will be unable to pay for all medical bills by 2018. 11 Leaders need to keep this point in mind in any analysis that incorporates the payer cost mix within the organization.

The Medicare system is under constant construction and renovation, with the most recent efforts being directed at the Medicare disability programs. This portion of Medicare provides health services for Americans who are declared disabled through the Social Security Administration. With the re-election of President Barack Obama, lawmakers and more than 75 disability advocacy groups have begun lobbying Congress to decrease the wait time for Medicare’s disability benefits to take effect. 12

Medicaid

Medicare is the federally funded insurance plan for Americans age 65 or older as well as some other groups, such as those individuals with kidney failure. In contrast to Medicare, Medicaid services are provided through individual states and supplemented with federal dollars through a block grant program. Medicaid is a welfare program that requires beneficiaries to meet state-based criteria for coverage. Leaders of local state-funded hospitals need to be keenly aware of the varying payments and restrictions that are found in their state.

Medicaid funds are geared toward low-income individuals and often pay for basic health service and product needs. The one exception is children younger than age 18, who often receive dental and vision care as well as the standard medical care through Medicaid and/or the Children’s Health Insurance Program (CHIP). Medicaid programs are often difficult to navigate for leaders of health organizations, health providers, and patients alike. The bureaucracy limits options for services due to the difficult requirements for becoming part of the system. Many physicians do not accept assignment for services because of low reimbursements and slow payment for services provided. As part of current legislative efforts, policy makers have been focusing on increasing reimbursement rates as a means of encouraging provider participants and building a more extensive provider network for beneficiaries. Also, many states have moved to Medicaid managed care plans in an effort to rein in costs and stabilize quality.

Patients

Ironically, the term patient was derived from a Latin verb meaning to suffer. It is used to describe those persons who are recipients of care. The patient is an individual who will use some part of the health system in a facility for reasons known only to that person and his or her caretakers. Patient needs, interests, and expectations vary depending on the problem and the patient’s past experiences. Understanding patients is important to health leaders because they are the individuals who use the facilities and ultimately pay for services and products. 13 ,14

Traditionally, health patients have been more interested in the indicators of satisfaction, access to care, facility accommodations, and service quality than in how an organization is structured to provide that care. This is especially true if the patient has insurance resulting in little to no out-of-pocket cost; moral hazard is a phenomenon that explains the increase in health services and product utilization noted when the patient incurs few financial demands at the time of service or product delivery. Now, however, a new era of health consumerism exists. Patients, who have learned to expect more from the products and services they purchase, are beginning to benchmark their health services against similar services they receive from the best organizations outside the health industry. They are using their experiences and observations to ask pointed questions in this growing era of patient autonomy. For example, if a package shipping company can answer calls in one ring, why can’t the insurance claim center meet the same standard? If an investment advisor can offer a convenient after-hours appointment within a week, why can’t a physician do so? If a company will accept without question the return of a product that doesn’t fit properly, why won’t the triage center trust a consumer who shares information about medical symptoms?

The health industry has not kept pace with the expectations of increasingly demanding patients. Complaints about quality and access to care are common. Making convenient appointments with the “right” practitioner remains a challenge for the average patient. Administrative minutiae have become more time consuming than the actual delivery of health services, and stories of medication errors and the lack of patient safety in different settings are increasingly prevalent. In the midst of this turbulence, organizations known for health excellence, such as Harvard Pilgrim Health Care and many Blue Cross and Blue Shield plans, are falling on hard financial times. As a result of these trends, health leaders who do not control costs while simultaneously managing patients’ expectations of quality and access will fail to receive the confidence of their patients, and their organizations may find themselves facing the problems of financial instability and lower revenues. To quell this possibility, health leaders must manage patient expectations of access and quality, all the while controlling costs, if they want to compete and survive in this highly competitive dynamic health environment. 15

Hospitals spend countless hours creating surveys, working on process improvement issues, and studying best practice alternatives. The information gained through these efforts is then used to identify what a patient actually needs to have in order to be processed through the service line comfortably and effectively. A patient’s wants and needs are important to identify within the realm of the hospital’s community. For instance, a hospital located within an oil-producing area should have the capability of dealing with the problems commonly experienced in this area—this is a need. An example of a want would be fresh flowers in an inpatient room every day or covered parking for all patient and guest vehicles. These concerns are important to patients, and patients realize that major changes will affect the cost of health services and products. Therefore, a patient’s wants and needs must be carefully analyzed and implemented to benefit the needs of the patient, while simultaneously maintaining or exceeding the professional standard of care.

As previously stated, patients have traditionally been more interested in access to care and quality than in how an organization is structured to provide that care. Today, these issues are still important to patients, but now patients are requesting a voice in how their local organizations are run. This voice and input may include demands for services not offered and extended hours for services not currently offered. Patients also want to be treated as individuals; the health industry needs to respect their cultures. 16 Leaders also need to know that many patients are surfing the Internet for published service and product benchmarks. One survey found that Internet users were successful in locating many of the hospital benchmarks they were interested in with regard to certain health issues in less than 6 minutes. 17 Given the ready access patients have to this information, health leaders need to be aware of what is written about their organizations and what is publically available.

Health leaders are always striving to provide the necessities that patients need. One important necessity is the role that hospitals have in treating patients as individuals. Treating patients as individuals, and not just as a medical record numbers, means that facilities must respect all patients’ values, privacy, and culture. Culture refers to a cohesive body of learned behaviors, taught from one generation to the next. One’s culture constitutes one’s rationale and rules for living; it makes experiences meaningful. Cultures are not simply a hodgepodge of disparate habits. 18 ,19

Providing cultural satisfaction is a complex issue because all patients have cultural views that may or may not be congruent with those of the health organization’s staff. Ultimately, it is important for the leader to set aside cultural differences and to accommodate and incorporate cultural satisfaction into his or her health organization; after all, to maximize a patient’s recovery is to make the patient as comfortable as possible.