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PubMed1998

Is your organization strategically prepared to be a Medicare PSO?

The new Medicare+Choice managed care program authorized by the Balanced Budget Act of 1997 affords hospitals and physicians an opportunity to contract directly with HCFA to provide services to Medicare beneficiaries through a provider-sponsored organization (PSO). Developing and operating a Medicare PSO is a complex process, however, and organizations that lack certain strategic and operational "readiness" characteristics may encounter significant barriers to success. To ascertain their readiness to form a Medicare PSO, providers should assess their capabilities in six key strategic areas: culture and governance, organizational and legal structure, market position and strategy, provider network, risk-contracting experience and supporting infrastructure, and capital resources and fiscal soundness.

Capitation Fee↗
PubMed1996

Capitation: selecting the method, determining the rates. Can providers share risk without excessive financial exposure?

Healthcare providers in markets with a high degree of managed care penetration, such as western states, are aggressively pursuing capitated contracts that are comprehensive in scope and that assume a significant amount of risk sharing. Providers in other parts of the country, however, still are determining how much risk they can assume safely. Integral to this assessment is consideration of two factors: the form of the capitated payment and the capitation rate. Providers must understand the two forms of capitated payment--per member per month and percent of premium--and how each is affected by changes in market levels before they can choose the one best suited to the amount of risk they can assume. Findings from a study of capitation rates utilized by 10 large national or multiregional HMOs may serve as a point of reference for providers.

Capitation Fee↗
PubMed1988

Product line management in oncology: a Canadian experience.

More competition for finite resources and increasing regulation have led many hospitals to consider a strategic reorganization. Recently, one common reorganization strategy has been"product line management." Product line management can be broadly defined in terms of centralized program management, planning, and marketing strategies. In Canada, while strategic driving forces may be different, a product line management alternative has arisen in one of the most potentially complex product lines, cancer services. This article compares and contrasts the theoretical model for product line management development, with special reference to cancer services, to the experience of one Canadian medical center and cancer center.

Ambulatory Care Facilities↗
PubMed1996

A tripartite regulation of health networks.

With the Republicans in power, market-driven forces of managed care plans, capitated payment, and the regional networks (alliances) are likely to serve as centerpieces for improving the organization, financing, and delivery of our nation's health services. These "voluntary" alliances of health providers and health insurance underwriters foreshadow the powerful, geographically linked regional health networks that are now becoming oligopolies. As a result of these providers developing monopolistic practices, state health services commissions will be formed to regulate market share, the scope of health services, reimbursement rates, and profits. State departments of public health will continue to focus on broader community health initiatives such as access and quality. Complexities of relationships among those regulated by these responsible agencies, and the interfacing of these state health services commissions and state departments of public health and insurance, with their potentially conflicting goals and political forces, are expected.

Antitrust Laws↗
PubMed2006

Lift outs: how to acquire a high-functioning team.

More and more, expanding companies are hiring high-functioning groups of people who have been working together effectively within one company and can rapidly come up to speed in a new environment. These lifted-out teams don't need to get acquainted with one another or to establish shared values, mutual accountability, or group norms; their long-standing relationships and trust help them make an impact very quickly. Of course, the process is not without risks: A failed lift out can lead to loss of money, opportunity, credibility, and even native talent. Boris Groysberg and Robin Abrahams studied more than 40 high-profile moves and interviewed team leaders in multiple industries and countries to examine the risks and opportunities that lift outs present. They concluded that, regardless of industry, nationality, or size of the team, a successful lift out unfolds over four consecutive, interdependent stages that must be meticulously managed. In the courtship stage, the hiring company and the leader of the targeted team determine whether the proposed move is, in fact, a good idea, and then define their business goals and discuss strategies. At the same time, the team leader discusses the potential move with the other members of his or her group to assess their level of interest and prepare them for the change. The second stage involves the integration of the team leader with the new company's top leadership. This part of the process ensures the team's access to senior executives-the most important factor in a lift out's success. Operational integration is the focus of the third stage. Ideally, teams will start out working with the same or similar clients, vendors, and industry standards. The fourth stage entails full cultural integration. To succeed, the lifted-out team members must be willing to re-earn credibility by proving their value and winning their new colleagues' trust.

Commerce↗
PubMed2002

Quality standards and incentives in managed care organizations' specialty contracts for behavioral health.

BACKGROUND: In the US, most privately insured individuals are enrolled with managed care organizations (MCOs), and a majority of these organizations have subcontracted responsibility for behavioral health care to specialized vendors. Based on economic theory, we anticipate that MCOs should be more likely to require quality standards in contracts that transfer all financial risk to the vendor. AIMS OF THE STUDY: To test whether use of quality standards in behavioral health subcontracts differs between MCOs that transfer full financial risk and other MCOs. Similarly, to test for differences between for-profit and nonprofit MCOs. METHODS: Bivariate tests and logistic regression analysis of the use of five quality-related standards, and the use of any standard, in a nationally representative sample of commercial MCO products in 60 US market areas. Statistical controls include MCO size, chain affiliation, region and market size. RESULTS: All five standards we examined were widely used in behavioral health subcontracts (varying from 47% to 70% of products). However, contrary to our hypothesis, the standards are not more commonly used by MCO products with unlimited capitated contracts for behavioral health. In most cases the opposite is true. In addition, for-profit plans were more rather than less likely to use several of the standards. DISCUSSION: MCOs that transfer full risk may be using mechanisms other than quality standards (e.g. periodic rebidding) to prevent skimping; may be less concerned about quality anyway; or may be more skeptical about the value of existing standards. The fact that for-profit plans are equally or more likely to use these standards may reveal that their objectives are not different from those of nonprofits, or that competition is constraining them to adopt standards anyway. Limitations of this study include the lack of more detailed data on the nature of financial risk-sharing, and on the types of financial penalties associated with each standard. IMPLICATIONS FOR HEALTH POLICY: Pressure for accreditation appears to be an effective vehicle for encouraging the spread of standards. It would be useful to know how far use of these quality standards in contracts is linked to better quality of care. IMPLICATIONS FOR FUTURE RESEARCH: Further studies should examine the relationship between quality standards and quality of care

Behavior Therapy↗
PubMed2004

When to walk away from a deal.

Deal making is glamorous; due diligence is not. That simple statement goes a long way toward explaining why so many companies have made so many acquisitions that have produced so little value. The momentum of a transaction is hard to resist once senior management has the target in its sights. Companies contract "deal fever," and due diligence all too often becomes an exercise in verifying the target's financial statements rather than conducting a fair analysis of the deal's strategic logic and the acquirer's ability to realize value from it. Seldom does the process lead managers to kill potential acquisitions, even when the deals are deeply flawed. In a recent Bain & Company survey of 250 international executives with M&A responsibilities, only 30% of them were satisfied with the rigor of their due diligence. And fully a third admitted they hadn't walked away from deals they had nagging doubts about. In this article, the authors, all Bain consultants, emphasize the importance of comprehensive due diligence practices and suggest ways companies can improve their capabilities in this area. They provide rich real-world examples of companies that have had varying levels of success with their due diligence processes, including Safeway, Odeon, American Sea-foods, and Kellogg's. Effective due diligence requires answering four basic questions: What are we really buying? What is the target's stand-alone value? Where are the synergies--and the skeletons? And what's our walk-away price? Each of these questions will prompt an even deeper level of querying that puts the broader, strategic rationale for acquisitions under a microscope. Successful acquirers pay close heed to the results of such in-depth investigations and analyses--to the extent that they are prepared to walk away from a deal, even in the very late stages of negotiations.

Commerce↗
PubMedDate not supplied

Strategy as a portfolio of real options.

In financial terms, a business strategy is much more like a series of options than like a single projected cash flow. Executing a strategy almost always involves making a sequence of major decisions. Some actions are taken immediately while others are deliberately deferred so that managers can optimize their choices as circumstances evolve. While executives readily grasp the analogy between strategy and real options, until recently the mechanics of option pricing was so complex that few companies found it practical to use when formulating strategy. But advances in both computing power and our understanding of option pricing over the last 20 years now make it feasible to apply real-options thinking to strategic decision making. To analyze a strategy as a portfolio of related real options, this article exploits a framework presented by the author in "Investment Opportunities as Real Options: Getting Started on the Numbers" (HBR July-August 1998). That article explained how to get from discounted-cash-flow value to option value for a typical project; in other words, it was about reaching a number. This article extends that framework, exploring how, once you've worked out the numbers, you can use option pricing to improve decision making about the sequence and timing of a portfolio of strategic investments. Timothy Luehrman shows executives how to plot their strategies in two-dimensional "option space," giving them a way to "draw" a strategy in terms that are neither wholly strategic nor wholly financial, but some of both. Such pictures inject financial discipline and new insight into how a company's future opportunities can be actively cultivated and harvested.

Decision Making, Organizational↗
PubMed1992

Hospitals seek new ways to integrate health care.

In the 1980s, many CEOs and senior management teams operated in isolation. A reimbursement system designed to encourage competition led to a "survival-of-the-fittest" mentality that prompted many managers to develop "competitive strategies" and look for "niche opportunities." In many cases, the end result was a fragmented delivery system with--in some instances--gaping holes. Now, CEOs are looking for ways to put the pieces back together. The first part of this cover story examines the issues surrounding the rapidly emerging trend of regional delivery systems; the second part, which begins below, looks at four case histories of different types of integrated systems at various stages in their development.

American Hospital Association↗
PubMed1999

Financial and organizational determinants of hospital diversification into subacute care.

OBJECTIVE: To examine the financial, market, and organizational determinants of hospital diversification into subacute inpatient care by acute care hospitals in order to guide hospital managers in undertaking such diversification efforts. STUDY SETTING: All nongovernment, general, acute care, community hospitals that were operating during the years 1985 through 1991 (3,986 hospitals in total). DATA SOURCES: Cross-sectional, time-series data were drawn from the American Hospital Association's (AHA) Annual Survey of Hospitals, the Health Care Financing Administration's (HCFA) Medicare Cost Reports, a latitude and longitude listing for all community hospital addresses, and the Area Resource File (ARF) published in 1992, which provides county level environmental variables. STUDY DESIGN: The study is longitudinal, enabling the specification of temporal patterns in conversion, causal inferences, and the treatment of right-censoring problems. The unit of analysis is the individual hospital. KEY FINDINGS: Significant differences were found in the average level of subacute care offered by investor-owned versus tax-exempt hospitals. After controlling for selection bias, financial performance, risk, size, occupancy, and other variables, IO hospitals offered 31.3 percent less subacute care than did NFP hospitals. Financial performance and risk are predictors of IO hospitals' diversification into subacute care, but not of NFP hospitals' activities in this market. Resource availability appears to expedite expansion into subacute care for both types of hospitals. CONCLUSIONS: Investment criteria and strategy differ between investor-owned and tax-exempt hospitals.

Cross-Sectional Studies↗
PubMed1997

The importance of preparing medical students to manage different types of uncertainty.

Price competition and other aspects of the changing health care environment are threatening many academic health centers (AHCs) and causing them to reassess their education and research missions. In order to design effective AHCs for the next century, medical leaders must define the unique competencies needed by tomorrow's physicians and describe the educational enterprises required to produce physicians with these competencies. Two of the most important of these competencies are the ability to manage the uncertainty associated with creating clinical paradigms and the ability to manage the uncertainty associated with managing care delivery. Creating clinical paradigms involves (1) developing knowledge about disease categories and (2) developing knowledge about the most appropriate therapy for a disease in a particular category. Both these tasks involve uncertainty. The second type of uncertainty is associated with managing care delivery and is largely a matter of optimizing current clinical paradigms. The challenges are (1) to correctly assign patients' diseases to existing disease categories, and (2) to correctly choose and manage the delivery of the most appropriate therapies to these patients. Currently, AHCs are more competent in managing--and educating students to manage--the uncertainty involved in creating clinical paradigms. But there is an increasing demand for physicians who manage the second type of uncertainty associated with care delivery. The authors conclude that in order to remain viable, AHCs, and particularly their medical schools, must broaden their educational goals so that students can learn to manage both forms of uncertainty.

Academic Medical Centers↗
PubMed1998

Clinical research: assessing the future in a changing environment; summary report of conference sponsored by the American Medical Association Council on Scientific Affairs, Washington, DC, March 1996.

Concerns about funding of clinical research underlie all other problems identified at the Council on Scientific Affairs conference. Future National Institutes of Health (NIH) budgets are likely to be constant at best, and the general public expects cost containment to be an ongoing goal; this is exacerbated by the impending Medicare Trust Fund crisis. Meanwhile, traditional financial support of clinical research in academic medical centers (AMCs) through cross-subsidization is imperiled by competitive pressures largely caused by managed care. Although managed care organizations (MCOs) are potentially rich sources of funding and other resources, and some not-for-profit companies are conducting some research, for-profit MCOs have not demonstrated an understanding of the importance of clinical research. Young physicians are being discouraged from careers as clinical researchers and established investigators are "dropping out" because of demands for clinical productivity and competition for research grants, loss of patients/research subjects to managed care, perceived lack of status and compensation, and overall uncertainty about continued financial support. Efforts to assist current and potential clinical investigators are discussed in this report. Loss of patients, denial of reimbursement, and competition with MCOs and contract research organizations (CROs) have placed AMCs under unprecedented pressure. However, research centers located in AMCs have allowed investigators to conduct clinical research by providing a "protected environment." Furthermore, many AMCs are determined to continue conducting clinical research and are addressing related problems. Although the NIH will continue to be a major source of funding for clinical research, partnerships between various private and public entities provide important opportunities to maximize the productivity of all individuals and institutions involved. Potential partnerships include MCOs, AMCs, CROs, pharmaceutical companies and other industry, the Department of Defense, the Veterans Health Administration, practice-based physicians, and private foundations and patient support groups. "Partnerships in advocacy" for clinical research will be essential. Efforts to recruit for-profit MCOs to the clinical research endeavor identified in this report include (1) emphasizing issues of interest to them (eg, outcomes research); (2) stressing the significance of some research to the marketplace; (3) developing criteria to distinguish individual MCOs on the basis of their contribution to the public interest; (4) equating money spent on research with "R&D dollars" spent in nonmedical business enterprises; and (5) educating purchasers of health care (eg, corporate health plan directors) about clinical research. Conducting clinical research in all managed care settings requires leadership, the understanding and cooperation of physicians and support staff, wise use of limited resources (ie, funding only the best research projects), sound methodology, and above all, the perception that the research will ultimately improve patient care.

American Medical Association↗
PubMed1989

Contract that says vendor must be price-competitive may give hospital an out.

A hospital has a long-term contract with a supplier for all of the hospital's requirements of certain items at set prices. The contract has three years yet to run. The contract has a clause saying that the supplier will remain price competitive. The hospital's materials manager learns that, by joining a group purchasing association for all of a large number of items, the items covered by the long-term contract can be purchased at better prices. The supplier refuses to release the hospital from the long-term contract. In this dialogue, Dr. Decker discusses the legal issues raised by this situation and makes some suggestions for dealing with the problem.

Contract Services↗
PubMed2000

Trends in US medical school faculty salaries, 1988-1989 to 1998-1999.

Expansion of managed care, intensified price competition, and the introduction of the Medicare Fee Schedule have all affected physician compensation during the past decade. We examine trends in the salaries of medical school faculty, particularly MD clinical faculty, based on a more extensive salary database than has been used previously. Data collected through the Association of American Medical Colleges' Faculty Salary Survey for the academic years 1988-1989, 1993-1994, and 1998-1999 were analyzed, and inflation-adjusted salary growth rates for clinical and basic science faculty during two 5-year periods, 1988-1993 and 1993-1998, compared across faculty ranks, departments, and various school characteristics. The comparison showed that, between 1988 and 1998, the actual median clinical faculty salary increased from $101,000 to $150,000, and the actual median basic science faculty salary increased from $52,000 to $78,000. Bivariate and multivariate analyses showed that the proportionate change in real mean salary (base year, 1988) in each 5-year period was related to department and faculty rank for clinical faculty (P<.001) and faculty rank for basic science faculty (P<.001). The inflation-adjusted annualized compound growth rate of clinical faculty salaries declined from 1.9% per year (1988-1993) to 0.2% per year (1993-1998), while the growth rate of basic science faculty salaries increased from 0.3% per year (1988-1993) to 1.3% per year (1993-1998). From 1993 to 1998, inflation-adjusted annualized salary growth rates in several clinical departments were negative (anesthesiology, -1.1%; obstetrics and gynecology, -0.5%; radiology, -0.4%; and neurology, -0.1%) but were positive for family practice (+2.7%). Significant differences in salary growth related to school characteristics (eg, geographic region, public vs private, community based vs non-community based, and research intensity) were specific to particular study periods. Overall, while actual average medical school faculty salaries are increasing, the real growth rate of average clinical faculty salaries is declining and that of basic science faculty increasing. JAMA. 2000;284:1130-1135

Data Collection↗
PubMed2000

Can cost shifting continue in a price competitive environment?

Both Medicare and Medicaid are reducing payments to hospitals, and there is widespread concern that hospitals may respond by increasing prices to privately insured patients. Theoretical models of hospital behaviour have ambiguous predictions as to whether, and under what circumstances, hospitals will shift costs to private payers. This paper extends previous theoretical models and then tests empirically using data from California for the 1983-1991 period, a time of increasingly intense price competition. Hospitals did increase their prices to private payers in response to reductions in Medicare rates; they had far smaller and generally insignificant responses to changes in Medicaid reimbursement. Hospital ownership and the competitiveness of the hospital market both affected this behaviour, but there was no significant change over time. The results suggest the need to broaden our models of hospital behaviour to 'embed' them in their local markets.

California↗
PubMed1999

State hospitals in the new millennium: rehabilitating the "not ready for rehab players".

Over the past ten years, FSH has seen the initial implementation of the SLP grow from a single ward in the maximum-security forensic unit to include three additional wards within that unit, two wards on the medium-security forensic unit, and two wards within the general adult psychiatric service. There are now four FSH group homes, which admit clients from the hospital's forensic as well as nonforensic populations. Six to eight clients live in each home and function in a relatively self-sufficient manner, and many more (including forensic clients) have been discharged from the group homes and now live independently in the community. They work in supported employment or competitive job settings and manage their own households. Several of our discharged clients even return to visit us from time to time. The FSH administration remains solidly committed to being a rehabilitation-ready facility. We have had a number of positive outcomes over the years (Baldwin and others, 1992; Beck and others, 1991; Beck and others, 1997; Finnell, Card, and Menditto, 1997; Menditto, Baldwin, O'Neal, and Beck, 1991; Menditto, Valdes, and Beck, 1994; Menditto and others, 1996; Menditto, Beck, and Stuve, in press; Pestle, Card, and Menditto, 1998), and we regularly host visitors from other state hospitals seeking consultation on how to make their own facilities rehabilitation-ready. Recently, we were featured on a segment of the nationally broadcast medical education program psychLINK (Glazer, 1998), where it was suggested that rehabilitation programming models such as ours represent the future of state hospitals. The "Not Ready for Rehab Players" think so too.

Adult↗