River community hospital case study solution

Problem Solving (4)

Health Professions Press, Inc. Post Office Box 10624 Baltimore, Maryland 21285-0624

www.healthpropress.com

Copyright © 2017 by Health Professions Press, Inc. All rights reserved.

Manufactured in the United States of America by Versa Press, East Peoria, Illinois. Cover and interior designs by Erin Geoghegan. Typeset by Absolute Service, Inc., Towson, MD.

This casebook can be used alone or in conjunction with other texts. To help instructors use the cases most effectively in the classroom, the editors have prepared an instructor’s guide, Instructor’s Manual for Cases in Health Services Management, available to faculty as a downloadable PDF file from Health Professions Press (see website and address above or call 1-888-337-8808 or 1-410- 337-9585). Cases in Health Services Management can also be used in conjunction with the textbook, Managing Health Services Organizations and Systems, also published by Health Professions Press.

The cases presented in this volume are based on the case authors’ field research in a specific organization or are composite cases based on experiences with several organizations. In most instances, the names of organizations and individuals and identifying details have been changed. Cases are intended to stimulate discussion and analysis and are not meant to reflect positively or negatively on actual persons or organizations.

Library of Congress Cataloging-in-Publication Data Names: Darr, Kurt, editor. | Farnsworth, Tracy J., editor. | Myrtle, Robert C.,

editor. Title: Cases in health services management / edited by Kurt Darr, Tracy J.

Farnsworth, Robert C. Myrtle. Description: Sixth edition. | Baltimore : Health Professions Press, Inc., [2017] |

Preceded by: Cases in health services management / edited by Jonathon S. Rakich, Beaufort B. Longest, Kurt Darr. 5th ed. c2010. | Includes bibliographical

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http://www.healthpropress.com
references. | Description based on print version record and CIP data provided by publisher; resource not viewed.

Identifiers: LCCN 2017008811 (print) | LCCN 2017010156 (ebook) | ISBN 9781938870736 (epub) | ISBN 9781938870620 (pbk.)

Subjects: | MESH: Hospital Administration | Health Services Administration | Total Quality Management | Organizational Case Studies | United States

Classification: LCC RA971 (ebook) | LCC RA971 (print) | NLM WX 150 | DDC 362.10973—dc23

LC record available at https://lccn.loc.gov/2017008811

British Library Cataloguing-in-Publication data are available from the British Library.

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https://www.lccn.loc.gov/2017008811
To the Alumni of the GWU MHA Program (Dedication of Dr. Darr)

To my wife, Michelle; parents Karl and Jackie;

and children, Lindsey (Dan), Taylor (Jill), Rachel (Steven), and Dallin

(Dedication of Dr. Farnsworth)

To my students, who made this work possible (Dedication of Dr. Myrtle)

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Additional titles on healthcare management and administration

Managing Health Services Organizations and Systems (Sixth Edition)

Ethics in Health Services Management (Sixth Edition)

Climbing the Healthcare Management Ladder: Career Advice from the Top on How to Succeed

Superior Productivity in Healthcare Organizations: How to Get It, How to Keep It (Second Edition)

Becoming an Effective Leader in Healthcare Management: The 12 Essential Skills (Second Edition)

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Contents

About the Editors Contributors Preface Acknowledgments Introduction

PART I POLICY ENVIRONMENT OF HEALTH SERVICES DELIVERY

1 Carilion Clinic Alexandra Piriz Mookerjee and Kurt Darr Led by a new CEO, the efforts of a mid-Atlantic acute care hospital to develop a vertically integrated, clinic-driven health services system result in allegations of antitrust, excessive healthcare costs, disruption of physician referral patterns, and use of harsh collection practices, all of which cause a negative reaction in its service area.

2 Flu Vaccine Mary K. Feeney and Abigail Peterman Flu vaccine shortages in 2004–2005 caused by a major manufacturer’s problems with quality control result in federal and state efforts to secure supplies of the vaccine and raise public policy and resource-allocation issues that users can role-play in three scenarios.

3 Merck’s Crixivan Kimberly A. Rucker, Nora G. Albert, and Kurt Darr A pharmaceutical manufacturer encounters significant negative stakeholder reaction to its introduction of a new medication for the human immunodeficiency virus despite having met expectations for clinical rigor and carefully assessing stakeholders and the external environment.

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4 Pineridge Quality Alliance: A Case Study in Clinical Integration and Population Health Tracy J. Farnsworth A new CEO urges his board to move toward becoming an accountable care organization and promoting regional population health, which demands choosing among three common approaches to navigating the challenges and opportunities of developing a clinically integrated network.

5 Hawaii Health Systems Corporation: The Politics of Public Health Systems Governance Earl G. Greenia A healthcare executive facing continual public policy restructuring of Hawaii’s Health Systems Corporation must develop strategic options for his board to consider in response to this environmental uncertainty.

PART II STRATEGIC MANAGEMENT

6 Riviera Medical Center Michael J. King and Robert C. Myrtle The CEO of a 350-bed hospital explores strategic alternatives to enhance its financial situation and reputation by asking the hospital board to approve a worksite wellness program to be marketed to area companies to improve workers’ health and decrease employers’ healthcare costs.

7 Edgewood Lake Hospital: Leadership in a Rural Healthcare Facility During Challenging Economic Times Brent C. Pottenger, Douglas Archer, Stephen Cheung, and Robert C. Myrtle The new CEO of a 30-bed, not-for-profit rural hospital faces a turnaround situation to make the hospital profitable after 3 years of losses. Problems include challenging payer mix, employee overstaffing, and difficulty recruiting physicians.

8 Klamath Care: Targeting and Managing Growth and Company- Wide Development Tracy J. Farnsworth, Leigh W. Cellucci, and Carla Wiggins

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The CEO of a growing system of urgent care centers recounts the organization’s development over a decade while considering strategies and options for future growth in an increasingly crowded marketplace with an analysis that uses financial, market share, and demographic data.

9 Hospital Consolidation Tracy J. Farnsworth This case focuses on the relationship healthcare providers have with their local and regional markets and the need to balance organization and community interests when making decisions that affect the healthcare marketplace.

10 Service Area Management Tracy J. Farnsworth Users are challenged to analyze, prioritize, and use disparate information common to a dynamic and competitive healthcare marketplace as part of an organization’s strategic planning and marketing processes.

11 Western Healthcare Systems: A Healthcare Delivery Continuum Robert C. Myrtle Western Healthcare Systems was creating an integrated delivery system when an opportunity to acquire a large multispecialty group arose, but it may be imprudent to proceed because of hospital and multispecialty group physician resistance.

PART III ORGANIZATIONAL MANAGEMENT

12 Hartland Memorial Hospital: Part 1, In-Box and Prioritization Exercise Kent V. Rondeau, John E. Paul, and Jonathon S. Rakich The VP for nursing services of a 285-bed for-profit hospital must decide what actions to take regarding her in-box, which includes e- mail, correspondence, and phone messages that communicate various challenges, such as two angry nurses, a wandering patient, staff shortages, and increasing numbers of OR infections. Emphasizes priority setting, decision making, and delegation.

13 Bad Image Radiology Department

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Kurt Darr Management of a community hospital is unwilling to recognize and address major problems in its radiology department, which is directed by a radiologist whose disruptive behavior and preoccupation with income and stock market speculation have diminished the quality of radiograph readings with tragic results.

14 Westmount Nursing Homes: Implementing a Continuous Quality Improvement Initiative Kent V. Rondeau The future of a total quality management initiative is threatened when the CEO has to overcome more than the expected barriers and pitfalls in a chain of seven nursing homes and the initiative becomes entangled in negotiations with the union representing nurses.

15 District Hospital: A Lesson in Governance Cynthia Mahood Levin and Kurt Darr A tax district community hospital has major problems with its governance structure because of historical animosities among internal stakeholders, medical staff politics, weak and ambivalent senior management, and a disruptive member of the medical staff who has ambitions to attain major power in the hospital.

16 Restructuring Decision Making at Holy Family Hospital: Overcoming Resistance to a Shared Governance Program Kent V. Rondeau A change initiative introduced to democratize decision making and improve clinical care in a healthcare organization is met with staff suspicion, derision, and resistance.

PART IV ORGANIZATIONAL EFFECTIVENESS

17 Attica Memorial Hospital: The Ingelson Burn Center Bonnie Eng-Suess and Robert C. Myrtle After the merger of two hospitals, planning must include how to consolidate duplicated services and realign units, including a burn center, while considering the center’s financing and community and organizational impact.

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18 Pediatric Dental Care Center Eleanor Lin A not-for-profit pediatric dental care center that has struggled financially for years as it serves a Medicaid population is offered the opportunity to become part of a federally qualified health center, but to do so requires expanding services and significantly changing its governance structure.

19 Radical Innovation on the Idaho Frontier: Bengal Telepharmacy Julie Frischmann, Neil Tocher, and Alexander R. Bolinger Efforts to provide pharmacy services in a rural community are successful because of creative thinking, perseverance, political deal making, and using telepharmacy in a unique and effective way.

20 Structure and Funding of Hospitalist Programs John E. Paul and Gillian Gilson Watson An academic medical center must decide how to structure and fund hospitalist services in the context of its relationship with an affiliated school of medicine; the history and content of hospitalist functions; and other revenue that might be derived from hospitalist services, even while considering several alternate strategies.

21 Appian Health Systems Robert C. Myrtle A negotiation simulation allows participants to assume union and hospital roles to work toward an acceptable collective bargaining agreement.

22 Evolution of the Healthy Communities Initiatives Barry Ross Several years after initiating healthcare services for diverse, underserved communities, hospital leadership is planning how to take its activities to a level with greater impact and sustainability.

PART V LEADERSHIP CHALLENGES

23 Hospital Software Solutions (A) Elizabeth M. A. Grasby and Jason Stornelli A software company supplying information technology services to

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Ontario (CN) hospitals has an ill-defined structure and controls that frustrate a new employee with conflicting demands from the firm’s managers, including expectations inconsistent with her job description.

24 The Case of Tim’s Last Years Kurt Darr and Carla Jackie Sampson Declining physical health forces an accomplished retired professor to enter a life care community in which his diminished independence leads to conflicts with management and staff even as further health problems result in an apparently willed death.

25 Autumn Park Cara Thomason Embry and Robert C. Myrtle The executive director and the director of assisted living in a community for independent and assisted living must resolve a disagreement as to the appropriate level of care for a difficult resident.

26 Appalachian Home Health Services Kathryn H. Dansky A not-for-profit home health agency faces a controversial choice after learning its best applicant for a nursing position is a convicted felon, and a review by management shows more widespread problems with recruitment and staffing.

27 Suburban Health Center Bruce D. Evans and George S. Cooley The supervisor of the suburban branch of a city health department faces problems with an insubordinate and possibly incompetent nurse, even as the lack of authority and inadequate support from superiors are complicated by the absence of employee performance evaluations.

28 Team Building: From Success to Failure in 24 Hours Cherie A. Hudson Whittlesey What starts as a highly successful team-building exercise becomes problematic when one physician challenges the process and forces the facilitator to consider underlying issues and then devise responses

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that will preserve team cooperation.

PART VI ETHICS INCIDENTS

29 Ethics Incidents Kurt Darr Twelve mini-case studies cover the spectrum of administrative and clinical ethical issues, from conflicts of interest to dishonest contractors and from infection control to advance medical directives.

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Administrative Ethics Incident 1: Borrowed Time Incident 2: ED Repeat Admissions: A Question of Resource Use Incident 3: The Administrative Institutional Ethics Committee Incident 4: Bits and Pieces Incident 5: A Potentially Shocking Revelation Incident 6: Intensive Care Unit Dysfunction

Clinical Ethics Incident 7: Protecting the Community Incident 8: Decisions Incident 9: The Missing Needle Protector Incident 10: To Vaccinate, or Not Incident 11: Demarketing to Avoid Bankruptcy Incident 12: Something Must Be Done, But What?

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About the Editors

Kurt Darr, JD, ScD, LFACHE, is Professor Emeritus of Hospital Administration, and of Health Services Management and Leadership, Department of Health Services Policy and Management, School of Public Health, The George Washington University. Dr. Darr holds the Doctor of Science from The Johns Hopkins University and the Master of Hospital Administration and Juris Doctor from the University of Minnesota. His baccalaureate degree was awarded by Concordia College, Moorhead, MN.

Dr. Darr completed an administrative residency at the Rochester (MN) Methodist Hospital and subsequently worked as an administrative associate at the Mayo Clinic. After being commissioned in the U.S. Navy during the Vietnam War, he served in administrative and educational assignments at St. Albans Naval Hospital (NY) and Bethesda Naval Hospital (MD). He completed postdoctoral fellowships with the U.S. Department of Health and Human Services, the World Health Organization, and the Accrediting Commission on Education for Health Services Administration.

Dr. Darr is admitted to practice before the Supreme Court of the state of Minnesota and the Court of Appeals of the District of Columbia. He was a mediator for the Civil Division of the Superior Court of the District of Columbia and has served as a hearing officer for the American Arbitration Association. Dr. Darr is a member of hospital committees on quality improvement and on ethics in the District of Columbia metropolitan area. He is a Life Fellow of the American College of Healthcare Executives.

Dr. Darr’s teaching and research interests include health services management, administrative and clinical ethics, hospital organization and management, quality improvement, and applying the Deming method in health services. Dr. Darr is the editor and author of numerous books, articles, and cases used for graduate education and professional development in health services.

Tracy J. Farnsworth, EdD, MHSA, MBA, FACHE, is President and

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Chief Executive Officer of the Proposed Idaho College of Osteopathic Medicine Dr. Farnsworth has served as Director and Associate Dean of the School of Health Professions, Division of Health Sciences, Idaho State University (ISU [Pocatello]) since 2010. He is Associate Professor in the Health Care Administration Program at ISU and has served as Program Director.

Dr. Farnsworth is a graduate of Brigham Young University. He received master’s degrees in Business and Health Services Administration from Arizona State University and the Doctor of Education in Educational Leadership from ISU. In 2014, Dr. Farnsworth was awarded the Kole- McGuffey Prize for excellence in education research, and in 2016 he received the J. Warren Perry Distinguished Author Award from the Association of Schools of Allied Health Professions.

Prior to becoming an educator, Dr. Farnsworth had executive-level appointments with Intermountain Healthcare, Catholic Healthcare West, the City of Hope National Medical Center, and other public and private healthcare systems.

A Fellow of the American College of Healthcare Executives, Dr. Farnsworth has written and spoken widely on subjects related to hospital and health systems performance improvement, healthcare reform, medical education, healthcare leadership and governance, and interprofessional education/collaboration.

Robert C. Myrtle, DPA, is Professor Emeritus of Health Services Administration, Sol Price School of Public Policy, University of Southern California. Dr. Myrtle received a bachelor’s degree in business administration from the California State University, Long Beach, and a master’s and doctoral degree in public administration from the University of Southern California. During 41 years at the University of Southern California (USC), Dr. Myrtle co-authored two books on management; 18 book chapters; 51 articles in journals, including Health Care Management Review, Health Policy and Planning, Public Administration Review, Social Science and Medicine, and The Gerontologist; and 70 conference papers and professional reports. He has academic appointments in the Leonard Davis School of Gerontology and the Marshall School of Business and is a Visiting Professor in the Institute of Health Policy and Management at the National Taiwan University.

Dr. Myrtle’s key research interests are leadership, executive development, and organizational and management effectiveness. Current research includes the influence of managers’ behavior on perceptions of

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overall leadership effectiveness; examining factors influencing the performance of surgical teams; and assessing factors influencing organizational legitimacy during and following major natural disasters.

Dr. Myrtle is the recipient of the Academy of Management’s Health Care Division’s Teaching Excellence Award and the American Society for Public Administration’s Los Angeles Chapter Harry Scoville Award for Academic Excellence. He was named Professor of the Year at USC and has three times been named Most Inspirational Business Professor. He is the recipient of the American College of Healthcare Executives Regents Award, and the Hubert H. Humphrey Award for best article of the year appearing in the Journal of Health and Human Services Administration.

Dr. Myrtle was chair of the Los Angeles County Hospitals and Health Services Commission. He was board chair for SCAN Health Plan and was a member of the board of directors for the Huntington Medical Foundation. He has served as board chair of Health and Human Services for the City of Long Beach (CA).

Professor Emeritus Darr coauthored the textbook, Managing Health Services Organizations and Systems, Sixth Edition (2014), with Beaufort B. Longest, Jr., published by Health Professions Press. This health services management textbook should be used as a complement to Cases in Health Services Management.

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Contributors

Nora G Albert, MHA Project Manager Children’s National Health System 111 Michigan Ave, NW Washington, DC 20010

Douglas Archer, MHA Hospital Administrator Sutter Health-Memorial Hospital–Los Banos 520 West I St. Los Banos, CA 93635

Alexander R Bolinger, PhD, MBA Associate Professor of Management Idaho State University 921 S. 8th Ave. Pocatello, ID 83209–8020

Leigh W Cellucci, PhD, MBA Professor and Program Director Department of Health Services and Information Management East Carolina University Greenville, NC 27858–668

Stephen Cheung, MHA, DDS School of Dentistry State Capital Center School of Policy, Planning, and Development University of Southern California Sacramento, CA 95811

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George S Cooley Long Green Associates, Inc. Long Green, MD 21092

Kathryn H Dansky, PhD Associate Professor Emerita Department of Health Policy and Administration College of Health and Human Development Pennsylvania State University 201 Main University Park, PA 16802

Kurt Darr, JD, ScD, LFACHE Professor Emeritus, Hospital Administration Dept. of Health Services Management & Leadership The George Washington University 2175 K Street, NW Suite 320 Washington, DC 20037

Cara Thomason Embry, MSG, MHA, RN Sol Price School of Public Health University of Southern California Los Angeles, CA 90089–0626

Bonnie Eng-Suess, MHA Director of Hospital Risk Contracting and Operations Dignity Health 251 S. Lake Ave., Ste 700 Pasadena, CA 91101

Bruce D Evans, MBA Professor of Management University of Dallas Satish & Yasmin Gupta College of Business 1845 E. Northgate Dr. Irving, TX 75062

Tracy J Farnsworth, EdD, MHSA, MBA, FACHE

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Associate Dean and Director Kasiska School of Health Professions Division of Health Sciences Idaho State University 921 South 8th Ave. Pocatello, ID 83209–8090

Mary K Feeney, PhD Associate Professor and Lincoln Professor of Ethics in Public Affairs School of Public Affairs Arizona State University 411 N. Central Ave., Suite 450 Phoenix, AZ 85004

Julie Frischmann Instructor/Academic Coach Student Success Center Idaho State University 921 S. 8th Ave. Pocatello, ID 83209–8010

Elizabeth M A Grasby, PhD c/o Richard Ivey School of Business The University of Western Ontario 1151 Richmond Street North London, Ontario N6A 3K7 CANADA

Earl G Greenia, PhD, FACHE Professor, Healthcare Administration & Management Colorado State University–Global Campus 7800 E. Orchard Road Greenwood Village, CO 80111

Michael J King, MHA Chief Financial Officer, Shared Services Division Tenet Healthcare Corporation 1445 Ross Ave., Suite 1400

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Dallas, TX 75202

Eleanor Lin, MHA, DDS Children’s Dental Health Clinic 455 E. Columbia St. Long Beach, CA 90806

Cynthia Mahood Levin, MHSA Healthcare Consultant Palo Alto, CA

Nova Ashanti Monteiro, MD Children’s National Medical Center 111 Michigan Avenue NW Washington, DC 20010

Robert C Myrtle, DPA Professor Emeritus, Health Services Administration Sol Price School of Public Policy University of Southern California 105 Siena Drive Long Beach, CA 90803

John E Paul, PhD, MSPH Clinical Professor and Associate Chair for Academics Department of Health Policy and Management Gillings School of Global Public Health University of North Carolina at Chapel Hill 135 Dauer Drive. Chapel Hill, NC 27599

Abigail Peterman Center for Science, Technology and Environmental Policy Studies Arizona State University University Center 411 N. Central Ave. Phoenix, AZ 85004

Alexandra Piriz Mookerjee, MHSA

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Administrator Westminster Communities of Florida Magnolia Towers 100 E. Anderson St. Orlando, FL 32801

Brent C Pottenger, MD, MHA Dept. of Physical Medicine & Rehabilitation Johns Hopkins Medicine 707 North Broadway Baltimore, MD 21205

Jonathon S Rakich Professor Emeritus Indiana University Southeast 4201 Grant Line Road New Albany, IN 47150

Kent Rondeau, PhD Associate Professor School of Public Health University of Alberta Faculty of Extension, Enterprise Square 10230 Jasper Ave., Room 2–216 Edmonton, Alberta T5J 4P6 CANADA

Barry Ross, MPH, MBA Vice President, Healthy Communities St. Jude Medical Center 101 E. Valencia Mesa Dr. Fullerton, CA 92835

Kimberly A Rucker Healthcare Consultant Washington, DC

Carla Jackie Sampson, MBA, FACHE Graduate Research Associate

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Florida Center for Nursing 12424 Research Pkwy, #220 Orlando, FL 32826

Jessica Silcox, RN, MSN Staff Development Educator & Stroke Coordinator Sentara Northern Virginia Medical Center 2300 Opitz Blvd. Woodbridge, VA 22191

Jason Stornelli c/o Richard Ivey School of Business The University of Western Ontario 1151 Richmond Street North London, Ontario N6A 3K7 CANADA

Neil Tocher, PhD Professor of Management Idaho State University 921 S. 8th Ave. Pocatello, ID 83209–8020

Gillian Gilson Watson, MHA Department of Hospital Medicine University of North Carolina Hospitals 101 Manning Dr. Chapel Hill, NC 27599–7085

Cherie A Hudson Whittlesey, ML Director, Organizational Learning and Effectiveness St. Jude Medical Center 101 E. Valencia Mesa Dr. Fullerton, CA 92835

Carla Wiggins, PhD Professor and MHA Program Director Weber State University

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3875 Stadium Way, Dept. 3911 Ogden, UT 84408

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Preface

Like its predecessors, the sixth edition of Cases in Health Services Management describes management problems and issues in various healthcare settings. The primary criterion to select a case was that it had to be rich in applied lessons. Case selection was tempered by the editors’ 90 years of combined experience in teaching and using the case method. The result is a comprehensive set of health services management cases in one volume.

Cases vary in length and complexity and are grouped into six parts. Of the 28 cases in this edition, 14 are new. There are two new ethics incidents. Cases and ethics incidents that have stood the test of time and use were retained in this edition. All have been updated and edited to make them as streamlined as possible. Consistent with the evolving healthcare delivery system, half the cases are set outside of acute care hospitals. Those include a long-term care facility, a health network, a continuing care retirement community, an emergency department, a hospital burn unit, a dental clinic, a pharmaceutical company, a city health department, a home health agency, and a software company.

Acute care hospital cases include a range of sizes, types, ownerships, and geographic locations, including rural and inner-city settings. One hospital case is set in a multi-institutional system; another applies the principles of continuous quality improvement. An in-box exercise set in a hospital simulates the time pressures that confront managers and the importance of prioritizing the issues, and a labor relations role-play case creates a powerful learning experience that emphasizes the challenges and dynamics of any negotiated relationship.

Depending on depth of analysis and time available for out-of-class preparation, most cases can be analyzed in two hours, or less. A few cases are short and have one issue. Most, however, are integrative and complex and involve multiple problems and issues. As a result, analyses will often require applying concepts from different disciplinary fields and knowledge areas. This may require users to synthesize and apply knowledge, skills, and experience from the social and health sciences in their analyses and

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discussions. The primary use of this book of cases is the education of health

services managers. Case analysis bridges theory and practice. In this regard, students studying health services management, as well as experienced managers, will find the cases informative as they hone analytical and problem-solving skills. These cases can also be used in continuing professional development for practicing managers.

By their nature, cases present events, situations, problems, and issues. The dynamics of the analysis, including the group discussion, make the case method a powerful and rich tool for learning. Users are urged to review the Introduction, which describes the case method and case analysis.

The cases included in this volume are intended to stimulate discussion and analysis. In most instances, the names of organizations and individuals are disguised. In all instances, authors of the cases have prepared well- written, factual situations that are based on field research in a specific organization, or a composite case based on experience with several organizations. No case is meant to reflect positively or negatively on actual persons or organizations, or to depict either effective or ineffective handling of administrative situations.

The 28 cases and 12 ethics incidents are organized into six parts:

Part I: Policy Environment of Health Services Delivery (five cases)

Part II: Strategic Management (six cases)

Part III: Organizational Management (five cases)

Part IV: Organizational Effectiveness (six cases)

Part V: Leadership Challenges (six cases)

Part VI: Ethics Incidents (12 statements of fact that show ethics issues)

The case synopses in the table of contents identify organizational setting, dominant themes, and managerial problems. The core task of teaching effective health services management is to hone the ability to identify and define problems as well as sharpen the judgment and ability to apply the skills and methods to solve them. As experiential learning in health services management education has given way to more discipline-based didactic preparation, and as younger, less-experienced students have entered graduate programs, cases that apply didactic work have become more important. Using these cases following a comprehensive academic

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grounding in the health services and management disciplines will prepare users for the types of problems they will encounter as health services managers. With instructor or seminar-leader guidance, cases such as those in this volume can make an important contribution to that goal.

TEXTBOOK SUPPLEMENT AND INSTRUCTOR’S MANUAL A useful supplement for instructors using the case method is Managing Health Services Organizations and Systems, Sixth Edition, published by Health Professions Press. This textbook grounds students in the health services system and gives them the knowledge needed for case analysis. Chapter 6, “Managerial Problem Solving and Decision Making,” is especially helpful in preparing to use the case method.

An Instructor’s Manual, available as a downloadable PDF file from Health Professions Press, can be used by faculty in teaching from Cases in Health Services Management, Sixth Edition. It contains the teaching notes prepared by the case authors and is available without charge to instructors who adopt the casebook. Use the following web address to request the Instructor’s Manual: http://www.healthpropress.com/instructor-materials/

The Instructor’s Manual also contains follow-up case supplements to the following cases in the casebook:

1. Hartland Memorial Hospital (Part 2: Organizational Diagnosis and Social-Networking Exercise)—follow up to case #12

2. Hospital Software Solutions (B)—follow up to case #23.

Instructors who use the follow-up cases are invited to reproduce them for classroom use.

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http://www.healthpropress.com/instructor-materials
Acknowledgments

The editors gratefully acknowledge the contribution of authors whose cases are included. The authors are listed alphabetically beginning at page xix. We thank them for allowing us to use their cases. In addition, thanks are owed to the publishers who granted permission to reprint the cases to which they hold copyright.

We are indebted to the staff of Health Professions Press for their help in producing this casebook, specifically Mary Magnus, Director of Publications; Cecilia González, Editorial and Production Manager; Kaitlin Konecke, Marketing Manager; and Lisa Minick, Sales and Brand Manager.

The editors gratefully acknowledge the contributions made by two of the editors who collaborated in preparing previous editions of this casebook, Jonathon S. Rakich, Ph.D., and Beaufort B. Longest, Jr., Ph.D. Professor Emeritus Rakich, Professor Longest, and Professor Emeritus Darr edited the first five editions of Cases in Health Services Management, which were published over three decades. The participation and historic roles of Drs. Rakich and Longest in setting direction, selecting cases, and working as part of a team to produce a high-quality casebook can be seen even in this edition. The editors of the Sixth Edition thank them.

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Introduction

For decades, the case method has played an essential role in the study of law, medicine, and business. It has become an established part of education in healthcare management programs and similar types of educational activities. The cases in this volume were selected for use in healthcare management education because they describe problems and situations managers have faced in the past and provide meaningful learning opportunities for the managers of tomorrow. This discussion uses “student(s)” in its broadest definition to include all who are learning to become managers of health services, or learning to improve their ability to manage.

The cases facilitate the following:

Assist students to develop the assessment, analytical, and conceptual skills necessary for effective problem solving and decision making Support students as they synthesize and integrate theory and its application Encourage dynamic and interactive discussion among students that challenges their experience and values Allow students to quickly acquire knowledge and insights.

Traditional didactic education provides background and foundation in disciplines and methodologies relevant to health services management. Fellowships, residencies, internships, and similar types of field experience supplement didactic learning for many students. Case studies blend didactic and experience-based learning; both are enhanced in the process.

This introduction (1) describes the types of cases in this volume, (2) lists benefits of the case method, (3) discusses the roles of students and instructors in using cases, and (4) outlines a methodology for case analysis.

TYPES OF CASES

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Cases are situation-specific descriptions of management issues and problems that students identify and evaluate. By definition, cases describe past events. They do, however, reflect contemporary situations, issues, and problems that confront managers. Thus, cases impart valuable lessons and insights that are relatively unfettered by temporal change. The lessons learned analyzing and evaluating cases have enduring value and are applicable throughout a manager’s career.

Some cases in this volume are comprehensive and integrative and reflect functional areas as well as issues and problems that affect the whole organization. Others are narrowly focused. The cases enable students to do the following:

Operationally define the issue(s) or problem(s) present Identify facts and distinguish them from assertions, opinions, and hearsay Separate facts important to solving the problem from facts that are unimportant Distinguish relevant facts from irrelevant facts When necessary, make assumptions that are supported by facts Apply relevant management disciplines and methodologies Take the role of managers or external consultants when considering alternatives, offering recommendations, and planning implementation

In sum, case studies and the case method offer a disciplined approach to, and methodology for, problem solving and thereby enrich the learning experience.

BENEFITS OF THE CASE METHOD The case method has numerous benefits. None is more important than giving students the opportunity to develop and sharpen their analytical skills and thought processes. The essence of case analysis is assessment and problem solving. Thus, cases enable students to hone skills in situation assessment, problem diagnosis and definition, alternative solution evaluation and selection, and development of plans to implement solutions and evaluate the solution(s) after implementation. Students must articulate and justify their recommendations; this enhances logic, argumentation, and communication skills, as well.

The case method requires students to synthesize and integrate

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knowledge. Compartmentalized subject areas and underlying disciplines, such as organizational behavior, accounting, economics, marketing, finance, and law must be linked, blended, and applied holistically during case analysis. Cases require that students apply management principles to actual settings. A case study is an opportunity to practice being a manager —it puts students at the scene of the events depicted and requires application of management theory. A case study exposes students to various organizational settings and managerial problems and provides a vehicle to introduce and discuss complementary subject matter relevant to the case, but not included in it.

Finally, cases allow students to learn and practice group interactive skills. The case method is used in group forums. Whether structured or unstructured, all participants discuss the case, present their analyses, and critique the analyses of others. The flow of facts, perceptions, and values results in productive student learning, including learning to work effectively in a group.

ROLES OF INSTRUCTORS AND STUDENTS In using the case method, instructors leave the usual role of lecturer and become discussion leaders and facilitators. The instructor’s task in the case method is to encourage students to think independently and to formulate and defend their analyses. The task of learning is the students’. Learning takes place most effectively in the case method if students use the opportunity provided by analysis and discussion to sharpen their skills.

Instructors are essential to the case method and contribute in several ways: selecting cases and the order in which they are assigned; structuring a teaching approach that permits students (in a classroom setting or online) to gain maximum benefit from the case analysis and interactive discussions; and giving direction to class discussion by expanding or contracting it, or changing the direction and focus, as appropriate. To effectively facilitate use of the case method, instructors must be thoroughly knowledgeable about the case—to the point of memorizing important facts and key elements. Only then can instructors correct misunderstandings and misperceptions, as well as provide information and facts that students may have missed or misunderstood. Instructors may also define and address collateral issues. Instructors can provide direction in the analyses by using the Socratic method to pose questions and focus analysis. Following discussion, the instructor should critique the group’s work by commenting on class discussion, the analytical process, elements

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ignored or those over- or underemphasized, and the quality of findings and recommendations. Critiques improve learning and the ability of students to use the case method effectively.

Instructors may use several criteria to evaluate student performance:

Mastery of the facts in the case—as well as of facts acquired by the student from other sources—and their use(s) Application of discipline-specific knowledge and analytical methodologies Soundness of assumptions, as supported by facts, and the logic of a student’s inductive or deductive reasoning Accuracy of identifying problems and the clarity and precision with which they are articulated Consistency and compatibility of analysis, recommendations, and whether the solution will solve the problem Quality of alternative solutions to the problem(s) identified and the comprehensiveness of decision criteria by which alternative solutions are judged Means to implement and evaluate the solution Degree to which the solution and implementation are feasible and relevant to the issue(s) involved and whether they consider internal and external forces, including stakeholders

Pedagogically, instructors may choose an unstructured or structured approach when using the case method. In the unstructured approach, the instructor assigns a case. Students read and prepare an analysis of the case for class discussion. The instructor initiates discussion by asking open- ended questions of the class in general, or of specific students: What is the problem in the case? What contextual aspects should be considered? What facts are there? Which facts are important, unimportant? If you were the decision maker, what would you do? Why? How would you implement your recommendation(s)?

The structured approach is more formal and requires that each student prepare a written report using a specific format or outline. The instructor initiates discussion by asking one or two members of the class to present their analysis. Alternatively, the instructor assigns the case to groups of students. Each group prepares a written analysis of the case. One group presents its analysis to the class, and this analysis is the basis for discussion.

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The pedagogical technique an instructor uses will be influenced by factors such as personal preference; class size and length of class period; and academic mix and previous experience of students, including their familiarity with the case method and their grounding in the underlying disciplines. Over time, the instructor’s approach may change from structured to unstructured depending on learning objectives, the degree to which the instructor introduces corollary subject matter through lectures or through controlled and directed discussion, and the progress students make in adapting to the case method.

Whatever the approach, two attributes of case study sometimes surprise students. First, it is impossible for case writers to include all relevant facts and circumstances of a situation. This means cases are incomplete. These gaps can be partially filled by making assumptions supported by facts available in the case. This situation is typical for managers, who rarely have all the facts they would like to have before making a decision.

Second, it is not uncommon that problems identified in cases have no right or wrong answers. This attribute makes case study dynamic, interesting, integrating, and powerful. Initially, students may be frustrated because answers to the problems in a case are elusive. Greater experience with case study will show them, however, that small differences in situation assessment, assumptions, or problem definition can lead to very different conclusions and recommendations.

The students’ role in case study is demanding. Because of the joint responsibility present in learning, this is as it should be. An often anxiety- laden aspect of the case method is that students must present their analyses and recommendations to the class and have their peers and the instructor challenge their work. If class discussion is to be productive, students must be well prepared and actively participate. Effective participation means contributing substance, not merely talking or restating points made by others.

METHODOLOGY FOR CASE ANALYSIS There are several effective case analysis models. Instructors may have developed their own. Commonly, instructors require students to assume they are part of the organization or setting of the case, take a manager’s perspective, and apply a systematic, analytical approach from that perspective.

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Typically, students begin their analysis by assessing the facts of a case and organizing them by category. Categories may include organizational objectives; expectations about performance held by internal and external stakeholders; past and present results of operations; internal organizational strengths and weaknesses; external influences, such as regulations or the actions of competitors; and similar, relevant aspects of the case. In some cases, each category may be important. For others, only some categories are important. Regardless, the initial task is to gather and organize facts, which allows the problem statement to be formulated.

The problem statement is the starting point for analysis. The case may have one problem or several, and problems may be explicit or implicit. Correctly stating the problem is a crucial aspect of the case method; it is a skill essential to effective management. It is not easy to state the problem, but that skill can be learned and is facilitated by prior use of the case method and work experience. Success depends on thoroughly and effectively assessing the facts in the case. Figure I.1 is a model of the problem-solving process.

Figure I.1. Problem-solving process model under the condition of deviation.

Care must be taken to distinguish the symptoms of a problem from its root causes. Exhibits and figures in a case must be thoroughly assessed. Data should be analyzed—to the point of performing calculations—so the

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case and the problems present can be understood. Making assumptions relevant to the problem statement follows. There

are three types of assumptions: structural, personal (about the problem solver), and problem centered. Facts must be available to support assumptions, which are inferences drawn from facts using deductive or inductive reasoning. Assumptions allow the problem solver to extend and enhance what is known from the facts in a case. Table I.1 provides further explication of the three types of assumptions.

The next step in case analysis is formulating alternative solutions that can solve the problem(s). Facts that delimit or distinguish infeasible alternatives from those that can be considered further are especially useful here. Facility expansion, for example, may be infeasible if assessment of the current financial situation shows capital funds are unavailable, or the organization’s market area will not sustain growth in capacity. Quantitative and financial analytical methods should be used to compare alternatives, as appropriate.

Table I.1. Attributes of the three types of assumptions

Assumptions Attributes

Structural Relate to context of problem—boundary assumptions Within (outside) manager’s authority Additional resources are (are not) available Other departments cause problem Problem caused by uncontrollable external factor(s)

Personal Conclusions and biases decision makers bring to problem Risk taker; risk averse Likely reactions of superiors, subordinates, stakeholders Anchoring—adjustments from past starting point Escalating commitment—unwilling to admit past mistakes Confirmation bias—notice more, give greater weight, or seek

evidence that confirms a claim/position

Problem Centered

Perceived relative importance of problem Degree of risk from problem How urgently solution is needed Economic cost and benefit Political cost and benefit Degree to which subordinates or superiors will accept solution

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Likelihood of success if solution implemented

After tentative alternative solutions have been developed, the analyst must evaluate them. Evaluating alternative solutions requires the application of decision criteria that judge relative merit and effectiveness in solving the problem. Figure I.1 shows two levels of applying decision criteria. In Part [3], general criteria are applied. For example, is the alternative unethical or illegal? Is it consistent with the organization’s values (philosophy), culture, and mission? Are there unacceptable financial or political costs? Is the alternative infeasible?

Part [4] of Figure I.1 shows application of relevant, specific criteria to the tentative alternative solutions that have met the general criteria of Part [3]. Arraying the decision criteria and alternative solutions in a matrix facilitates comparison. Categories of criteria include the following:

Which alternative provides the greatest benefits of all types? What are the relative quantitative and nonquantitative costs of each alternative? Are internal capabilities to implement alternatives equal? Will external influences constrain or support implementation of alternatives differently?

Answers to these and similar questions will determine which solution is selected. Table I.2 is a sample decision matrix.

Once chosen, the solution must be implemented. The plan of implementation should identify the means, methods, and staff to evaluate the solution when implemented. Evaluation must answer the question, How will we know the problem has been solved? The primary focus of some cases is implementation. Others emphasize evaluating alternative solutions and choosing one. Implementation of solutions is addressed more generally in this volume. Regardless of emphasis, however, the analysis must give attention to implementation and evaluation of the solution. This makes case analysis more realistic, which is, after all, the central reason for using the case method.

OTHER RESOURCES IN USING THE CASE METHOD A generic model for case analysis includes the following:

1. Students must identify their role in the analysis because their

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perspective of the problem will be a function of whom they are. 2. State the problem to be solved: “In what ways can I (we) …?” 3. Summarize, organize, and number the facts relevant to the problem

statement. 4. Draw inferences (make assumptions [as shown in Table I.1]) relevant

to the problem statement: a. Structural assumptions (context, resources, constraints, laws,

regulations) b. Personal assumptions about the problem solver (biases, risk

taker, risk averse, escalating commitment, anchoring, confirmation bias)

c. Problem-centered assumptions (urgency, time frame, importance, degree of risk)

5. Link the facts to the inferences (assumptions) by citing the numbers of the facts that support the inferences.

6. Identify tentative alternative solutions. 7. Use general, broad-based criteria to perform initial screening of

tentative alternative solutions (Part [3] in Figure I.1). 8. Develop a decision matrix—see Table I.2—to compare and apply

specific decision criteria to select the solution to be implemented (Part [4] in Figure I.1).

9. State in general terms how and by whom the solution will be implemented.

10. Identify how and by whom the solution will be evaluated after it is implemented.

Table I.2. Decision matrix from evaluating alternative solutiona

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Conclusion: Alternative solution 3 accepted. Adapted from Arnold, John D. The Complete Problem Solver: A Total System

for Competitive Decision Making, 62. New York: John Wiley & Sons, 1992. aKey: 5 = Solution fully meets decision criterion. 3 = Solution partially meets decision criterion. 1 = Solution fails to meet decision criterion.

Additional information about problem solving and using the case method can be found in Chapter 6, “Managerial Problem Solving and Decision Making,” of Managing Health Services Organizations and Systems, Sixth Edition (2014, Longest & Darr), published by Health Professions Press, Baltimore, MD.

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PART I

Policy Environment of Health Services Delivery

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1

Carilion Clinic

Alexandra Piriz Mookerjee Westminster Communities of Florida, Orlando, FL

Kurt Darr The George Washington University, Washington, D.C.

CASE HISTORY/BACKGROUND Nestled in the Commonwealth of Virginia between Salem and Vinton is the city of Roanoke, whose population was approximately 98,000 in 2010.1 The metropolitan area population was about 309,000.1 Bisected by the Roanoke River and circled by the Blue Ridge Mountain Parkway, Roanoke is the commercial and cultural hub of western Virginia and southern West Virginia.1,2

The community that became Roanoke was established in 1852.1 Early economic development of Roanoke resulted from its importance as the junction point for the Shenandoah Valley Railroad and the Norfolk and Western Railway.2 These railroads were essential for transporting coal from western Virginia and West Virginia.2 Roanoke’s service area includes a regional airport, shopping malls, a regional hub for United Parcel Service, and manufacturing plants for General Electric, Yokohama tires, and Dynax, a maker of friction-based automobile parts.2,3

CARILION CLINIC Carilion Clinic employs almost 12% of Roanoke’s population. The Clinic includes 9 freestanding hospitals, 7 urgent care centers, and 220 (and

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increasing) practice centers, and it employs over 650 physicians in more than 70 specialties.4 The Clinic has 1,026 licensed beds, not including 60 neonatal intensive care unit beds.4 The Clinic had 48,659 admissions in fiscal year 2014–15.4

The Clinic’s joint ventures and related companies include the following:

Carilion Clinic Physicians, LLC (real estate holding company)

Carilion Emergency Services, Inc.

Carilion Behavioral Health, Inc.

In March 2010, the same month and year the Affordable Care Act became law, the Clinic was ordered by the Federal Trade Commission to divest itself of an outpatient surgical center and an imaging center.5 Both had been acquired as it sought to re-create “The Mayo Clinic” medical delivery model.

Led by Edward G. Murphy, M.D., from 1998 to 2011, Carilion Health System became Carilion Clinic, a vertically integrated healthcare system. During Murphy’s tenure the system expanded to include graduate and undergraduate medical education programs, a school of medicine (through a partnership with Virginia Polytechnic Institute and State University Virginia Tech), and, perhaps most impressively, Carilion established an accountable care organization in partnership with Aetna insurance company.4,5

Dr. Murphy’s total compensation was almost $2.3 million in 2007. Nancy Agee, the Clinic’s chief operating officer at the time, earned the next highest salary of about $800,000.6 When Murphy resigned in 2011, Ms. Agee was promoted to president and CEO. In fiscal 2014, Carilion Clinic net revenue was $1.5 billion.5 Agee’s salary was $1.9 million.7

CONTROVERSY IN ROANOKE Despite its philanthropic mission and positive effect on Roanoke, Carilion Clinic has not always enjoyed a good relationship with its community. (Carilion Clinic’s mission, vision, and values are shown in Appendix 1.)

In May 1988, the U.S. Justice Department’s Antitrust Division sought to prevent the merger of Roanoke’s two hospitals: Memorial Roanoke Hospital and Community Hospital of Roanoke Valley. The lawsuit sought

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to block the merger because of the monopoly it alleged would result. Less than one year after the suit was filed, the Fourth Circuit U.S. Court of Appeals found for defendants Memorial Roanoke Hospital and Community Hospital of Roanoke Valley.

[T]he merger between defendant hospitals would not constitute an unreasonable restraint of trade under the Sherman Act §1. The merger would strengthen the competition between the hospitals in the area because defendant hospitals could offer more competitive prices and services.8

In the two appeals that followed, courts found for defendant hospitals, which then merged and were named Carilion Health System. The decision provided a legal basis for what is now the Carilion Clinic.

IN A MARKET: WHAT CONSTITUTES A MONOPOLY? A monopoly occurs when one or more persons or a company dominate an economic market. This market domination results in the potential to exploit or suppresses those in the market or those trying to enter it (supplier, provider, or consumer).9

During the 19th century, the U.S. government began prosecuting monopolies under the common law as “market interference offenses” to block suppliers from raising prices. At the time, companies sometimes sought to buy all supplies of a certain material or product in an area, a practice known as “cornering the market.”

In 1887, Congress passed the Interstate Commerce Act in response to railway companies’ monopolistic practices in small, local markets.10 This legislation protected small farmers who were being charged excessive rates to transport their products. Congress addressed monopolistic practices further by passing the Sherman Antitrust Act of 1890, which limited anticompetitive practices of businesses. The act blocked transfer of stock shares to trustees in exchange for a certificate entitling them to some of the earnings.10 The Sherman Act was the basis for the Clayton Antitrust Act of 1914, the Federal Trade Commission Act of 1914, and the Robinson-Patman Act of 1936, which replaced the Clayton Act.9

Antitrust or competition laws address three main issues:

1. Prohibit agreements or practices that restrict free trade and competition among business entities

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2. Ban abusive behavior by a firm dominating a market, or anticompetitive practices that tend to lead to such a dominant position

3. Supervise the mergers and acquisitions of large corporations, including some joint ventures10

The Herfindahl-Hirschman Index (HHI) helps implement these laws by providing a mathematical method to determine market “density,” or the concentration of the market. Antitrust laws and methods of calculating market density, such as the HHI, are imperfect and can leave gaps that may be exploited. The HHI is discussed in Appendix 2.11

Since its establishment, the mission of the Federal Trade Commission has remained largely unchanged. Laws affecting private enterprise and government agencies have not. It is possible this mal juxtaposition underlies many of the difficulties in the healthcare industry.

VERTICAL INTEGRATION: THE MAYO CLINIC MODEL The Mayo Clinic is the leading example of vertical integration in the delivery of healthcare in the United States. Founded in Rochester, Minnesota, in 1863, the Mayo Clinic began as the medical practice of William Worrall Mayo and his two sons, who were also physicians. It grew to include a comprehensive array of specialties.12 Mayo developed different levels of care across the health services continuum. The result was a vertically integrated health system.12 Mayo physicians are salaried at market levels, and they control the management structure.12

Mayo Clinic is headquartered in Rochester, Minnesota; it has satellite clinics elsewhere in the United States. In addition, Mayo and various medical centers worldwide have consulting and referral relationships. Mayo provides excellence and dedication in delivery of services with a constant, and self-admittedly stubborn, commitment to core values, which include that the needs of the patient come first, the integration of teamwork, efficiency, and mission over profit.13

Mayo has been long recognized for high performance, research, and innovation. It has ranked at or near the top of “Honor Roll” hospitals through the history of U.S. News and World Report’s best-hospital rankings. In 2015–2016, Mayo Clinic had more number one rankings than any U.S. hospital or system. Eight specialties were ranked number one:

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diabetes and endocrinology, gastroenterology and gastrointestinal surgery, geriatrics, gynecology, nephrology, neurology and neurosurgery, pulmonology, and urology.

FORESHADOWING A MAYO CLINIC CLONE Even before Murphy took the helm in 2001, Carilion Health System actions had stirred significant, but manageable, controversy in the community. Much of the controversy resulted from the antitrust case in 1988. After the court ruled that the merger did not violate federal law because it posed no threat of monopoly, the hospital continued its previous work in the community.

After becoming CEO, Murphy began to vertically integrate the Carilion Health System. His formal plan was presented in fall 2006. Part of evolving to a Mayo-style organization included acquiring physician practices in the community; some were closed after acquisition.

WHO IS EDWARD G. MURPHY, M.D.? Edward G. Murphy earned his BS from the University of Albany, New York, and his medical degree (with honors) from Harvard University Medical School.7 Although he never practiced medicine, Murphy was a clinical professor at the University of Albany School of Public Health and an adjunct assistant professor at Rensselaer Polytechnic Institute School of Management.14 Before leaving New York state he was also a member of the New York State Hospital Review and Planning Council, and he served on its executive committee as the vice chair of the fiscal policy council.14

From 1989 to 1991, Murphy served as the vice president of clinical services at Leonard Hospital, a 143-bed facility north of Albany, New York.15 In 1991, he was promoted to president and CEO of Leonard Hospital until it merged with St. Mary Hospital to form Seton Health System in 1994. Murphy became president and CEO of that new health system and stayed with Seton until 1998, when he relocated to Roanoke to head Carilion Health System.14,16

During his tenure at Carilion Clinic, Murphy managed the growth of that two-hospital health system into a vertically integrated model of healthcare delivery anchored by a 500-physician specialty group practice that included nine not-for-profit hospitals, undergraduate medical

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programs, an array of tertiary referral services, and a multistate laboratory service.14 In 2007, Murphy announced plans for The Virginia Tech Carilion School of Medicine, which opened in 2010.17 In 2010, Murphy was paid $2.27 million ($1.37 million in salary and $900,000 in benefits).18

Murphy’s other roles in the Roanoke community included memberships on the boards of Healthcare Professionals Insurance Company and Trust; Luna Innovations, Inc.; and Home Town Bank. He is past chair of the Art Museum of Western Virginia. He also served in an influential position with the Council on Virginia’s Future, which works to frame the growth and progress of the state, including businesses, people, and the health of the population.14

Murphy left Carilion to become chairman of Sound Physicians, a national provider of intensivist and hospitalist services. In 2012, he became the operating partner of Radius Ventures, a venture capital firm that invests in health-related companies.19,20

VERTICAL INTEGRATION: BECOMING A “CLINIC” Murphy was always clear about his plans for Carilion Health System. In an August 2006 interview, he stated, “Right now … our core business is hospital services. In the new model, the core business will be physician services; the hospital will become ancillary.”21 In a 2007 interview for Health Leaders Magazine, Murphy explained, “I’ve been enamored of this model of healthcare delivery for a long time.”21

In Fall 2006, Murphy, his staff, and the leadership board of Carilion Health System announced their plan to create a new model for Carilion’s management characterized by teamwork and salaried physicians and other caregivers focused on patients across the spectrum of care.22 Murphy explained:

The essence of the clinic model is that hospitals stop becoming independent businesses and start becoming ancillary services to the physician practice…. If hospitals eventually want to provide better and more cost-effective healthcare, it’s a necessary shift.22

The transformation was planned for seven years with an 18-month phase- in of its new name, Carilion Clinic. Plans for Carilion Clinic included a

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50–50 partnership with Virginia Tech University in Blacksburg, Virginia, to establish a private, not-for-profit clinical research institute and a new medical school. Further, from 2007 to 2012 Carilion Clinic would add four or five fellowships for physicians to support its mission.22

Ground was broken for the much-anticipated university in early 2008.23 On July 20, 2009, the Virginia State Council for Higher Education approved the Virginia Tech Carilion School of Medicine as a postsecondary institution.24 It’s first class matriculated in fall 2010.24

THE WALL STREET JOURNAL EXPOSÉ Usually, an organization is pleased if the Wall Street Journal publishes an article about it. That is, of course, unless the story ignites a firestorm that leads to separate citizen and physician coalitions working against the organization and raises the specter of a word from Carilion Clinic’s prehistory: monopoly.

“Nonprofit Hospitals Flex Pricing Power. In Roanoke, Va., Carilion’s Fees Exceed Those of Competitors: The $4,727 Colonoscopy” was published on the front page of the Wall Street Journal August 28, 2008 (see Appendix 3). The author, John Carreyrou, explored Carilion’s history, including the 1989 antitrust case, its expanding “market clout,” and the strides toward its goal of vertical integration. The article suggested that some of the means used were questionable.25

Carreyrou asserted that skyrocketing healthcare costs in Roanoke were partially caused by, or possibly even led by, Carilion Clinic.25

In a press release, Carilion Clinic denied monopolistic practices or exploitative pricing and claimed it faced robust competition from Lewis- Gale Medical Center located in nearby Salem, Virginia.26 (See Appendix 4, and the link to general information about Lewis-Gale Medical Center in Appendix 5.) Carilion Clinic defended its pricing practices by noting it must cross-subsidize emergency departments and care for the uninsured.26

Unsettling to some, however, was Carilion’s practice of suing patients for unpaid medical bills. After Carilion obtains a court judgment, a lien is placed against the patient’s home. A lien on real property puts a “cloud” on the title, which prevents the owner from conveying the property with a clear title until the lien has been satisfied. Responding in the Wall Street Journal, Murphy stated,

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Carilion only sues patients and places liens on their homes if it believes they have the ability to pay…. If you’re asking me if it’s right in a right- and-wrong sense, it’s not…. But Carilion cannot be blamed for the country’s “broken” healthcare system.24

Murphy asserted that Carilion’s efforts to protect its financial interests meet legal requirements, but may be morally flawed. This position appears inconsistent with Carilion’s mission that “Patient Care Comes First.”

WHERE WERE THE LOCAL MEDIA? As reported by Carreyrou, Carilion Clinic complained several times to editors of the Roanoke Times regarding reporter Jeff Sturgeon’s coverage of the system. Shortly after the complaints, and mainly in response to a May 2008 article by Sturgeon, Carilion greatly reduced advertising in the Roanoke Times. About the same time, Sturgeon, the paper’s longtime health issues writer, was reassigned. (See the article referenced in Appendix 6.)

Even after Sturgeon’s reassignment, Carilion continued to be frontpage news in the Roanoke Times. Reporter Sarah Bruyn Jones covered community reaction to the Wall Street Journal article and the impetus it gave to local coalitions. Her articles included the following: “Carilion Critics Draw Hundreds to Meeting” (September 2008); “Fed Agency Looks into Carilion Purchase” (September 2008); “Carilion Footprint Expands in Deal” (August 2008); and “Carilion to Buy Cardiology Practice” (August 2008). Jones’s reporting put Carilion’s practices at the forefront for Roanoke’s citizens, but, as noted by Carreyrou, Carilion’s growth seemed unstoppable.

THE BACKLASH The August 2008 Wall Street Journal article resulted in a community uproar and fueled physicians’ efforts to air their concerns about Carilion, including its anticompetitive actions and unfair pricing, and their desire to have open referrals for patients from outside Carilion’s health network.27 Citizen and physician coalitions met in hotel conference rooms and community centers to discuss the “unfair practices and behaviors” of Carilion Clinic. One, the Citizens Coalition for Responsible Healthcare, sponsored a petition that read as follows:

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To Dr. Murphy and the Carilion Health System Board of Directors:

Please reconsider your Carilion Clinic plans. I want to keep my right to choose my doctor, even if he or she is an independent physician. Please rethink spending $100 million of my community’s money on a Clinic model that could ruin our hospitals! Monopolies are never good for healthcare.27

The coalition’s website offered copies of the Wall Street Journal article, video recordings of their meetings, information about a new forum program, and a membership form for those who wished to join their efforts.

The citizen coalitions stated they intended to focus on the negative impact of Carilion’s transformation to a physician-led clinic that they asserted will increase costs and drive out many local physicians.27 Murphy’s plan was to bring into Carilion as many physicians as possible; all of whom will be salaried. The concerns of citizen coalitions stemmed from the scope of the effort, which resulted in closure or sale of many physician practices. Unaffiliated physicians asserted they could not compete. Further, Carilion’s system of internal referrals, added to the purchase of existing practices, gave many specialists no choice but to leave, or stay and fight.27

Despite the controversy, Carilion has shown no signs of slowing; it has stayed the course outlined in Fall 2006.

CARILION’S RESPONSE On August 28, 2008, less than 24 hours after publication of Carreyrou’s Wall Street Journal article, Carilion responded. Statements published in newspapers and posted on Carilion’s website, as well as press releases, stated the allegations and conclusions drawn from them were misleading and misinformed.

In response, Carilion directed readers’ attention to the Virginia Hospital and Healthcare Association PricePoint website. It showed that Carilion’s prices are comparable to surrounding hospitals and are generally lower than its closest competitor, Lewis-Gale Medical Center in neighboring Salem, Virginia.26 To support their position on pricing, Carilion stated, “Medical care in hospitals is more expensive … having staff and technology at the ready has its costs.”25 Also mentioned was

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Carilion’s Life-Guard helicopter, which is a subsidized service.26 Carilion provided $42 million in charity care in 2007 and an additional $25 million in free care (bad debt written off), thus illustrating its dedication and support of its service area.26 Carilion supports research and education— substantial resource commitments that add major costs to the organization and provide subsidized services to the community.26

In explaining the policy to sue patients, Carilion stated that efforts are made to qualify patients for public programs, as needed. Further, Carilion said only “a small fraction of the nearly 2 million” patient billings each year go to court.26

Court filings are a final resort, and we try to be flexible. If the judgment includes a lien on an individual’s property, we do not foreclose on the lien. The lien is satisfied if and when the property is sold.26

In response to concerns about its internal referral practice, Carilion stated that referrals are sent from physician to physician in the system with the intention of sending patients to better, more-qualified physicians who have “earned” the referral. This “earn, not force” mentality contributes to the goal of well-coordinated care and service, which is the first choice of patients.26

Carilion’s press release closed by describing a wasteful and poorly organized U.S. healthcare system that it hoped to improve with the vertically integrated clinic model of providing care.26 The hope is that comprehensive, high-quality, and cost-effective care will put the patient first. The reader of the press release is reminded that what happened at Mayo could be replicated at Carilion.

CURRENT SITUATION IN ROANOKE As noted, Carilion Clinic has a medical school partnership, an expanding physician practice with a robust specialty list, and its own accountable care organization, which continues to show progress and increased membership.

Three decades after the hospital merger controversy began in Roanoke, Virginia, the economic and healthcare environments have changed, the population is increasing, and healthcare costs are rising.25 When the antitrust case was brought in 1988, Roanoke had among the lowest health

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insurance premiums in Virginia; now, they are among the highest.28,29

DISCUSSION QUESTIONS 1. Identify the problems Carilion Clinic faces as it seeks to become a

comprehensive, vertically integrated healthcare provider. Rank these problems in terms of their difficulty of solution.

2. Develop arguments to support Carilion Clinic’s efforts to become a comprehensive, vertically integrated healthcare system.

3. Identify reasons why competition is useful and why it is not useful in terms of healthcare cost, quality, and access.

4. Why could Mayo Clinic develop a comprehensive, vertically integrated healthcare system, whereas Carilion Clinic has had so much difficulty?

5. Identify the advantages and disadvantages of developing specialty services internally to achieve vertical integration compared with obtaining the same services by acquiring existing providers.

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APPENDIX 1 Carilion Clinic

Mission Improve the health of the communities we serve.

Vision We are committed to a common purpose of better patient care, better community health, and lower cost.

Values

CommUNITY—Working in unison to serve our community, our Carilion family, and our loved ones Courage—Doing what’s right for our patients without question Commitment—Unwavering in our quest for exceptional quality and service Compassion—Putting heart into everything we do Curiosity—Fostering creativity and innovation in our pursuit of excellence

Retrieved May 9, 2016 from https://www.carilionclinic.org/about-carilion- clinic#sthash.pvG4Jrd2.dpuf

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https://www.carilionclinic.org/about-carilion-clinic#sthash.pvG4Jrd2.dpuf
APPENDIX 2 Herfindahl-Hirschman Index