The logic of transaction cost economics in health care organization theory.

Health care is, at its core, comprised of complex sequences of transactions among patients, providers, and other stakeholders; these transactions occur in markets as well as within systems and organizations. Health care transactions serve one of two functions: the production of care (i.e., the laying on of hands) or the coordination of that care (i.e., scheduling, logistics). Because coordinating transactions is integral to care delivery, it is imperative that they are executed smoothly and efficiently. Transaction cost economics (TCE) is a conceptual framework for analyzing health care transactions and quantifying their impact on health care structures (organizational forms), processes, and outcomes.

Guideline for the management of pediatric idiopathic constipation and soiling. Multidisciplinary team from the University of Michigan Medical Center in Ann Arbor.

OBJECTIVE: To develop an evidence-based guideline for the primary pediatric care of children (birth to 18 years old) with idiopathic constipation and soiling. DATA SOURCES: References were identified through a MEDLINE search from January 1975 through January 1998 to address 3 focus questions: (1) the best path to early, accurate diagnosis; (2) best methods for adequate clean-out; and (3) best approaches to promote patient and family compliance with management. DATA SELECTION: Twenty-five references were identified. DATA EXTRACTION: References were reviewed by a multidisciplinary team and graded according to the following criteria: randomized controlled trial; controlled trial, no randomization; observational study; and expert opinion. Evidence tables were developed for each focus question. DATA SYNTHESIS: An algorithm and clinical care guideline were developed by consultation and consensus among team members. Emphasis was placed on methods to promote early identification of pediatric idiopathic constipation and soiling, to recognize points of referral, and to increase patient and family compliance with treatment through use of education, developmentally based interventions, and variables for tracking success of management. CONCLUSION: An algorithm and guideline for pediatric idiopathic constipation and soiling are presented for use by primary care physicians.

The multidisciplinary melanoma clinic: a cost outcomes analysis of specialty care.

The traditional process of melanoma care delivery can differ substantially among providers regarding screening laboratories, staging work-ups, surgical margins, and outpatient versus inpatient surgical management. It has been suggested that multidisciplinary care may provide a more cost-effective management approach. We sought to evaluate whether coordinated multidisciplinary melanoma care that follows evidence-based, consensus-approved clinical practice guidelines at a large academic medical center can provide a more efficient alternative to traditional community-based strategies with clinical outcomes that are at least equivalent. The University of Michigan Multidisciplinary Melanoma Clinic (MDMC) possesses a database of demographic, clinical, and treatment information for all patients seen since its inception. A consecutive sample of 104 patients with local disease who were treated in the Michigan community were compared with 104 blindly selected subjects treated at the MDMC during an identical time period, matched for Breslow depth and melanoma body site. Patients treated in the MDMC would save a third party payer roughly $1600 per patient when compared with a similar group treated in the Michigan community. Surgical morbidity, length of hospitalization, and long-term survival of MDMC patients were similar to those reported in the literature. The cost discrepancy is explained by the fundamental differences in the usage pattern of health care resources exhibited by the MDMC compared with the community setting.

Clinical practice guidelines: quality improvement tools versus legal norms.

The role of clinical guidelines in malpractice litigation has been controversial. The primary purpose of guidelines as a quality improvement tool must be sustained, and applications of guidelines beyond this purpose must be done carefully, with full recognition of inherent limitations.

Downsizing and financial performance in rural hospitals.

This article examines the association between downsizing and financial performance in a national sample of 797 U.S. rural hospitals from 1983-1988. The results indicate that downsizing occurred in about 15 percent of all rural hospitals and that a positive association between downsizing and financial performance was unconfirmed.

Potential effects of managed care on specialty practice at a university medical center.

BACKGROUND: The growth of managed care presents a challenge to academic medical centers, because the demand for the services of specialists is likely to continue decreasing. We estimated the number of enrollees the University of Michigan Medical Center would need in its health maintenance organization (HMO) system in order to provide revenue equivalent to the total revenue it received for professional specialty care in 1992. METHODS: Rates of utilization and payment were based on the medical center's experience with managed care in 1992 in its independent practice association HMO, in which 25,000 members had capitated coverage and received primary and all specialty care from university physicians, and 15,000 members received primary care and most specialty care from physicians outside the university. We assumed that persons not enrolled in Medicare were all enrolled in managed-care plans. Primary care activity was excluded from the calculations of expense, revenue, and numbers of faculty members. RESULTS: If all specialty services were provided by the university to HMO members, all the 21 specialties examined except obstetrics and gynecology and emergency services would require an enrollment of more than 250,000 to support the 1992 level of professional revenue and maintain the number of faculty members. If university services were provided only for referrals from a loosely affiliated network of community physicians in the HMO system, all the 19 specialties examined except plastic surgery would require an HMO enrollment of more than 1 million. In a combined model in which all specialty services were provided to 100,000 HMO members and network referrals were provided to 500,000 members, substantial changes in faculty composition would be needed in all the departments studied. CONCLUSIONS: Because of the large number of HMO members required, unless other changes occur, it is unrealistic to expect that the University of Michigan Medical Center could create an HMO or network large enough to support the specialty practice of the current number of faculty members at the 1992 level of financing.

A model for practice guideline adaptation and implementation: empowerment of the physician.

The Medical Center model of practice guideline adaptation and implementation uses local clinical leaders to evaluate nationally endorsed guidelines, adapt those guidelines for use in the local setting, work with support staff to develop and apply methods for guideline implementation, and assist the evaluation of clinical practice and outcomes data. The model described here combines the guideline dissemination techniques of clinical leadership, implementation, and data support and feedback. This model overcomes the failures of previous models by incorporating local physician involvement during every step of practice guideline selection, adaptation, implementation, and evaluation, and by supporting the physician leaders with quality data, resources to support guideline implementation, and outcomes assessment and feedback.

Strategic activity and financial performance of U.S. rural hospitals: a national study, 1983 to 1988.

This study examines the effect of 13 strategic management activities on the financial performance of a national sample of 797 U.S. rural hospitals during the period of 1983-1988. Controlled for environment-market, geographic-region, and hospital-related variables, the results show almost no measurable effect of strategic adoption on rural hospital profitability and liquidity. Where statistically significant relationships existed, they were more often negative than positive. These findings were not expected; it was hypothesized that positive effects across a broad range of strategies would emerge, other things being equal. Discussed are possible explanations for these findings as well as their implication for a rural health policy relying on individual rural hospital strategic adaptation to environmental change.

Selection in a preferred provider organization enrollment.

OBJECTIVE: The study was conducted to determine whether favorable or adverse selection occurred in a preferred provider organization (PPO) enrollment. DATA SOURCES AND STUDY SETTING: Secondary data sources were used to conduct a retrospective study of the utilization of health services and the demographic characteristics of the population involved in the first open enrollment in a new university-based PPO. The PPO under study, sponsored by the University of Michigan (UM) Medical Center, was offered to all 43,005 UM employees, dependents, and retirees. STUDY DESIGN: We analyzed insurance company payments during the one-year period prior to the enrollment to compare the utilization patterns of those who enrolled in the PPO with those who did not. DATA COLLECTION: Prior health care utilization data were obtained from Blue Cross-Blue Shield of Michigan on the entire university population for one year prior to the start of the PPO. Demographic data were obtained from the personnel office of the university. PRINCIPAL FINDINGS: The PPO group had a younger median age than the non-PPO group; the sex distribution was roughly similar for the two groups. In the PPO group 57 percent of all contracts were family contracts compared with only 30 percent in the non-PPO group. The PPO group experienced 20.6 percent lower inpatient payments per member, and 9.4 percent lower outpatient payments per member in the year prior to the enrollment. These differences resulted in an overall 18.7 percent lower payment per member for the PPO group in the year prior to their enrollment. CONCLUSIONS: The results show, based on prior insurance payments, that this PPO received favorable selection during the open enrollment, a finding consistent with favorable selection found in early HMO enrollment.

Rural hospital administrators and strategic management activities.

This study examines the association of characteristics of rural hospital administrators and the adoption of seven strategic activities in a national sample of 797 U.S. rural hospitals during the period 1983-1988. Based on the premise that managerial activities can affect organizational change, we test five hypotheses relating head administrator characteristics to strategic adaptation, controlling for environment-market and hospital-related variables. Bivariate analysis of the strategic adoption showed a positive association with administrative turnover and a negative association with head administrator age. Multivariate logistic regression showed that only high levels of turnover were associated with strategic activities, net of control variables. The implications of these findings and the lack of predictive power of other rural hospital administrator characteristics--especially affiliation with the American College of Healthcare Executives--are discussed within the context of a "strategic management policy" for rural hospitals.

Financial impact of the Medicare Fee Schedule on a department of anesthesiology in an academic medical center: two scenarios.

The purpose of this study was to model the financial impact of the Medicare Fee Schedule (MFS) on an anesthesiology department in a large academic medical center under two different scenarios. Scenario 1 assumes continued use of actual-time units throughout the five-year transition period. Scenario 2 assumes a change to the use of average-time units by the time the MFS is fully implemented in 1996. Twelve months of actual payments and frequencies for services billed to Medicare in 1991 were used as baseline data. It was assumed there would be no change in volume of services, billing practices, or staffing patterns. It was estimated that upon full implementation of the MFS, the anesthesiology department that was studied would lose $244,000 (13%) under Scenario 1 and $945,000 (51%) under Scenario 2. There is a full transition to final fee schedule rates in Year 1 of the MFS transition under Scenario 1, whereas there are additional incremental losses in each successive year under Scenario 2. This study shows that HCFA's future policy decisions with regard to anesthesiology reimbursement will have substantial financial consequences for many practicing anesthesiologists.

Financial impact of the Medicare Fee Schedule on a large multispecialty faculty practice in an academic medical center.

Although there have been preliminary studies of the financial impact of the Medicare Fee Schedule (MFS) on specialty-specific groups of practicing physicians in an academic setting, there has been no published report of the financial impact of the MFS on an entire multispecialty academic faculty practice. This 1992 study reports the estimated financial impact of the MFS on the faculty practice at the University of Michigan Medical School (UMMS). The authors calculated the difference between the Medicare payments to be received when the MFS is completely implemented in 1996 and the payments received in 1991, and then repeated this process for each year of the transition period, 1992-1996. The UMMS will experience a $1.2 million (-4.7%) loss under the fully implemented MFS. The medical departments project an 8% gain, while substantial losses are projected for the surgical departments (-10%) and hospital-based departments (-15%). Projections indicate that obstetrics-gynecology and ophthalmology will lose nearly 20% and that surgery will lose 9%. But large percentage gains are projected for neurology (+43%), physical medicine (+25%), and family practice (+17%). Analysis of the MFS transition's effects shows an abrupt and unpredictable financial impact in the first year. Faculty practice plans may be more disadvantaged under the MFS than other physician groups, yet the uncertain impact of the MFS in the first year (1992) may inhibit accurate financial planning for all physician groups.

Horizontal and vertical integration-diversification in rural hospitals: a national study of strategic activity, 1983-1988.

This study examines both the magnitude of and factors influencing the adoption of 13 horizontal and vertical integration and diversification strategies in a national sample of 797 U.S. rural hospitals during the period 1983-1988. Using organization theory, hypotheses were posed relating environmental and market factors, geographic location, and hospital characteristics to the adoption of horizontal and vertical integration and diversification. Results indicate that only one of 13 strategies was adopted by more than 50 percent of all rural hospitals during the study period, and that most of the directional hypotheses were not confirmed using Cox's proportional hazards models. In particular, environmental and market factors were unrelated to the strategies studied. Issues of methodology and theory are discussed; however, during an historically turbulent period, both relatively low levels of rural hospital strategic activities and lack of predictive power of the theory suggest caution in relying heavily on a policy for rural hospital survival that is dependent on individual market-oriented strategic behavior.

The effects of a low-cost intervention program on hospital costs.

OBJECTIVE: To assess the impact of a low-cost education and feedback intervention designed to change physicians' utilization behavior on general medicine services. DESIGN: Prospective, nonequivalent control group study of 1,432 admissions on four general medicine services over 12 months. Two services were randomly selected to receive the intervention. The other two served as controls. Admissions alternated between control and intervention services each day. Results were casemix-adjusted using diagnosis-related groups (DRGs). Three internists blinded to patient study group assignment assessed quality of care using a structured implicit instrument. SETTING: Four general medicine services at a university hospital. INTERVENTIONS: A brief orientation, a pamphlet of cost strategies and common charges, detailed interim bills, and information about projected length of stay and usual hospital reimbursement for each patient. PATIENTS/PARTICIPANTS: Each service was staffed by a full-time internal medicine faculty member, one third-year and two first-year internal medicine houseofficers, three medical students, and a clinical pharmacist. Physicians were assigned to services for one-month periods by a physician unaware of the study design. To prevent crossover, houseofficers assigned to a service returned to the same service for all subsequent general medical inpatient assignments. MEASUREMENTS AND MAIN RESULTS: Geometric mean length of stay was 0.44 days (7.8%) shorter for the intervention services than for the control services (p less than 0.01), and geometric mean charges were $341 (7.1%) less (p less than 0.01). Effects persisted despite using a more precise cost estimate or casemix adjustment. Intervention houseofficers demonstrated superior cost-related attitudes but no difference in knowledge of charges. Audits of quality of care detected no significant difference between groups. CONCLUSION: This low-intensity intervention reduced length of stay and charges, even under the cost-constrained context of the prospective payment system.

Meeting of the minds. Two Catholic organizations come together to strengthen the ministry and each other.

As the result of a study, in 1982 St. Benedict's Hospital, Ogden, UT, reorganized as St. Benedict's Health System. The results of the reorganization were disappointing, however. Within three years, major financial difficulties, the lack of success in diversification on programs and facilities, continuing environmental pressures, and unrest within the organization led St. Benedict's to seek assistance. After contacting a number of Catholic systems, St. Benedict's chose the Holy Cross Health System, South Bend, IN, as the preferred partner. In mid-June 1986 the two systems began negotiations on a possible affiliation. Holy Cross sent an acquisition team to St. Benedict's to obtain a perspective on mission continuity, profitability, market share, and operations. Discussions continued through July, with neither system proposing an affiliation agreement. St. Benedict's was still considering other options, while Holy Cross was concerned about the financial ramifications. On Aug. 20, 1986, the two negotiating teams met face to face for the first time, with a Catholic Health Association representative acting as facilitator. The two teams met again on September 8, and St. Benedict's accepted Holy Cross's terms. While awaiting antitrust review of the affiliation, Holy Cross operated St. Benedict's under a management contract. The consolidation was formally completed on Dec. 1, 1986. Holy Cross took over ownership of St. Benedict's Health System, cosponsored by the Sister of the Holy Cross and the Sisters of the Order of St. Benedict. Holy Cross established tactical objectives aimed at stabilizing and enhancing St. Benedict's Hospital. The new owners and managers report they have achieved the objective which has improved St. Benedict's operations.