managing the unmanageable: public hospital systems

INTERNATIONAL JOURNAL OF HEALTH PLANNING AND MANAGEMENT, VOL. 6,143-154 (1991)

SHORT COMMUNICATION

MANAGING THE UNMANAGEABLE: PUBLIC HOSPITAL SYSTEMS

Jo IVEY BOUFFORD King’s Fund College, King Edward’s Hospital Fund for London, 2 Palace Court, London. WI2 4HS,

England

SUMMARY There are significant challenges to those who work in large public health care delivery systems: political imperatives; resource constraints; sometimes rigid personnel systems; and, the reality that everything occurs in a public forum. The fact that many nations are reviewing and, in some instances, restructuring their national health care systems, has added to the complexity and feeling of continual turbulence experienced by their managers. State run systems like that in the United Kingdom are introducing market forces to increase effectiveness and value for money; while market systems, like that in the United States, are increasing regulatory interventions to achieve the kind of cost control available to countries with large public systems which operate with global budgets.

Public hospitals in the United States offer examples of public institutions operating in a highly competitive market environment. A decade of management changes under- taken to enhance the efficiency and effectiveness of the New York City Health and Hospitals Corporation (HHC), the largest public hospital system in the United States, is presented as a case study of public health services and public management in a market environment.

KEY WORDS: Public Management; Public Hospitals; Hospital Systems

INTRODUCTION

Managers in large public health care delivery systems face significant management challenges as part of the normal responsibilities they assume; indeed, there are time when the obvious good thing to do for the system seems almost impossible to achieve. Recently, the task has become even more complex due to the enormous pressures for re-examination and restructuring of national health care systems, in response to high cost and increasing public and professional dissatisfaction. Traditionally, state run delivery systems are looking to the market to inject efficiency through competition; more pluralistic systems, like the United States, are looking to control costs through regulation and increased centralisation of financial control, if not more direct management.

0 1991 by John Wiley & Sons, Ltd. 0749475319 1 /020 143-1 2$06.00

144 J. I . BOUFFORD

Recent reforms in the United Kingdom seek ways to improve quality, efficiency and value for money in the National Health Service (NHS). The most visible proposals have been those for introducing an internal market by separating the role of purchaser and provider at the District level; by developing contracts between the District purchaser and provider units for clinical services that maximise value for money; and, by the re-organisation of hospital governance to create self governing trusts with potential to spin off from the NHS and further enhance competition among providers. Other proposals for general practice fund holding and community care reorganisation are no less complex in the UK context.

Central and Eastern European countries (Czechoslovakia and Hungary) are also looking to market incentives to enhance efficiency and increase flexibility in previously centrally administered health service bureaucracies. Others (Sweden, Netherlands, Israel, Spain) are either studying their health care delivery systems or are at different stages of implementing reforms. A strong con- sideration in most reviews is abandoning public management because of concerns over inefficiency and unresponsiveness.

For the past several months, I have had the opportunity to observe, talk to and participate with senior health service managers at a variety of levels in the NHS as they work to plan and begin to implement the changes envisioned in the United Kingdom. I have also had the opportunity, albeit more briefly, to work with managers in Czechoslovakia, Israel, and Spain as they contemplate or implement reforms. These managers (will) face simultaneous and often competing demands to maintain existing services at acceptable levels of efficiency; to develop the new organisational, managerial and resource distribution models needed to achieve the desired future system, and often in a very short time frame; and, to stay within their limited budgets while avoiding politically embar- rassing crises. For many senior managers, such demands are not new; but, in times of continual turbulance, managers at all levels are increasingly faced with new challenges and stress.

My own experience of four years as President of the New York City Health and Hospitals Corporation (HHC), the public hospital system of New York City, operating in a complex market driven system and a sometimes volatile political environment, may serve as a useful case study to generate ideas about management practises that can enhance institutional efficiency, service delivery, and strategic planning in what are sometimes considered ‘unmanageable systems’.

CHARACTERISTICS OF THE UNITED STATES HEALTH CARE DELIVERY SYSTEM

To provide a context for the HHC case study, there are several features of the United States health care delivery system which are important:

1. Heterogeneity and the lack of central planning for facilities, services and health personnel. There is no central financing of the service delivery func-

MANAGING THE UNMANAGEABLE 145

tion; and, until the US Surgeon General’s report of 1979, Healthy People (linked to the WHO ‘Health For All’ programme initiative), there was no centrally articulated health promotion or disease prevention goals for the nation.

2. It’s health insurance system is largely an employment based system, with other programmes developed by Government to fill in the gaps for special population groups. Most notable are Medicare, a Federally-funded health insurance programme for the elderly and disabled; and Medicaid, a health insurance programme for certain categories of the poor, financed jointly by Federal and State governments with eligibility levels and services covered that vary from State to State.

3. Health dollars and financing programmes have tended to focus on institutional acute care and, more recently, institutional long term care, resulting in a delivery system that is badly out of balance (dominated by the acute hospital and technology) and very expensive. While it is estimated that 30-35 million Americans have no health insurance, there may be up to 70-75 million with inadequate insurance. They are more likely to be insured for inpatient or emergency care than ambulatory care, and almost never for preventive services.

4. Finally, with over 11 per cent of the GNP going to health care costs, the major US health policy for the past decade has been cost containment. As a result, the United States has an alphabet soup of financing and organisational models-DRGs, HMOs/PPOs/IPAs-and regulatory review programmes-UR/UM, PROs-aimed at lowering costs and, to some degree, promoting quality control through financial disallowances for unnecessary or inappropriate services.

Though the Federal government maintains a directly-managed system of hospitals for veterans, there are only about 1700public acute general hospitals among more than 6000 acute hospitals in the US. Usually directly managed by munici- palities or counties, these institutions, especially the 100 or more public hospitals in the large urban areas, serve as the ‘safety net’ for the uninsured or inadequa- tely insured because they exist to provide care regardless of the patient’s ability to pay and are publicly accountable for that role. Recently, due to the combined effects of cost containment and market incentive driven competition, the pressure on these institutions has increased; in consequence, driving up occupancy rates and outpatient/emergency service utilisation even in cities with relatively low hospital occupancy and outpatient activity rates in the non-public sector.

There are several reasons for this trend. First, the numbers of uninsured and underinsured have increased as states and employers have started to try and control the costs of health benefits. Further, complex and, therefore, expensive patients who are unattractive to hospitals competing in the relatively fixed price ‘cost per case’ DRG system are sent to these institutions. Finally, services that are not adequately reimbursed through the various insurance systems and, therefore, too expensive for other providers, such as burn care, trauma services, and neonatal intensive care units, are often only provided in these safety net institutions.

146 J . I . BOUFFORD

NEW YORK CITY’S PUBLIC HOSPITAL SYSTEM

In the context of this national picture, New York City is atypical in that, historically, it has supported the largest directly-managed public hospital system in the United States. The New York City Health and Hospitals Corporation (HHC) was created by an act of the New York State Legislature in 1970, as a public benefit corporation to assume the responsibility for the management of the City’s public hospitals, previously managed by a City agency, the Depart- ment of Hospitals. The goal of the governance change was to free the system from the sometimes negative features of the City bureaucracy: by permitting it increased flexibility in purchasing, personnel systems, and capital and facilities’ financing and management.

The mission of the HHC is to provide quality care to all regardless of their ability to pay (eg to guarantee access to the citizens of New York). A 16 member Board of Directors was created with fiduciary responsibility for the system. Its members have four year staggered terms. Though, originally, a more inde- pendent Board was envisioned, a political compromise resulted in a Board consisting of: the chair; a deputy mayor; the three health and human service commissioners of New York City agencies; five other direct Mayoral appoint- ments; and, five individuals nominated (one each) by the five borough-based City Council delegations and confirmed by the Mayor. The President is elected by the Board but is, de facto, a Mayoral appointment. While some of the structural independence was realised, political independence and related flexibility in budget and labor relations matters has varied with the Mayoral will. Thus, the managerial goals of the re-organisation of governance were, in this instance, only partially realised.

The HHC system currently consists of 11 acute care hospitals providing about 20 per cent of NYC’s inpatient activity; 5 long term care facilities repre- senting about 5 per cent of the city’s total long term care capacity; over 40 community health centres which, when combined with the volume of visits at hospital outpatient departments, provide about 3.8 million ambulatory care visits per year. With an additional 1.4 million emergency room visits per year, this represents a total of nearly 48 per cent of all institutionally-based ambulatory care provided in the City of NY. The HHC system also directly manages the NYC ambulance service (EMS), providing over 900,000 ambulance calls in Fiscal Year (FY) 1989. Thus, the public sector is a significant component of the New York City health eare delivery system.

Each hospital and long term care facility, and the larger community health centres, has a statutorily determined Community Advisory Board appointed jointly by HHC Administration, the local borough (County) president, and with cross representation from Community Planning Boards.

HHC’s operating budget for FY 1989 was $2.3 billion, of which about 23 per cent was directly paid by NYC tax levy. The balance was collected through billing of third party insurers, primarily Medicaid.

All HHC facilities are directly managed. The President appoints the executive directors of each facility and there are about 45,000 direct employees (97 per


cent unionized) and about 5000 employees working in the system under so-called affiliation contracts. In FY 1989, approximately $350 million was paid through these affiliation contracts for physician and professional, technical and supervi- sory staff to six of the seven medical schools in NYC, two major teaching hospitals, and two professional physician corporations (FCs). All but two of HHC’s acute care hospitals are major teaching hospitals. HHC’s facilities employ over 3500 residents and fellows, in virtually all of the major sub-special- ties of medicine and dentistry.

Two other factors are important in the NYC health care environment. Firstly, New York State has one of the most highly regulated health care systems in the US, in terms of both cost containment and quality assurance. Public hospitals (unlike the Veterans Administration (VA) System operated by the Federal Government) are subject to all Federal and State regulations including outside inspections and the same financial pressure as all other hospitals in the industry. State reimbursement rate regulation and Medicaid program reduc- tions have kept New York hospital revenues against costs well below those in many other states.

Secondly, due to past State restrictions on the development of long term care capacity and a failure to enhance ambulatory care reimbursement, there has been increasing pressure on the acute hospital. For the past two years there has been a relative bed availability crisis in NYC, with occupancy rates averaging 90-95 per cent in most acute care hospitals and some patients waiting days in the emergency room for beds that are not available.

In 197475, NYC was in the depths of a fiscal crisis; one of the major contribu- tors to this crisis was HHC, which, between overspending its budget and under- collecting projected revenue, was nearly a $100 million problem. There were virtually no internal accounting/management information systems; little effort was made to determine patient eligibility for insurance and consequently maximise third party collections; hospital accreditation was spotty; and, residency programme accreditation was poor. The system had lost its previously delegated power to handle its own labour negotiations, and HHC was a serious political liability for the Mayor. As a result, a major effort was begun to develop and strengthen its management infrastructure and systems and their effectiveness, with positive results. A quick overview of progress made in several key management areas since that time demonstrates these advances.

Finance

Beginning in 1978, an HHC-wide automated billing system was introduced and responsibility was decentralised to hospitals for billing, cost reporting and third party collections. Hospitals were given expense budgets and revenue col- lection targets for the fiscal year, and performance was monitored on-line by the Central Office computer system links. More than a change in organisational systems, this represented a major change in organisational culture-the idea of asking patients if they could pay took fully five years to take hold. As a result of these efforts, city tax levy dependency fell from 31 per cent of budget


in FY 1980 to 23 per cent in FY 1988. Third party revenue increased from $87 million in FY 1980 to $1.82 billion in FY 1988. By 1985, HHC’s credit worthiness allowed it to enter the private capital market issuing its own bonds (which received a triple A rating) for $68 million dollars for capital equipment purchases.

Capital programme delivery

After the fiscal crisis of the 1970s, there was little or no preventive mainten- ance or investment in any segment of the public service infrastructure in NYC. Until 1983, HHC had no ten year capital plan; by FY 1989, it had a ten year commitment of $2.58 billion from NYC. In FY 1984, HHC’s annual capital commitment (funded and delivered) was $86.9 million; for FY 1988 it was $164.7 million and for FY 1989 it was $197 million. HHC’s routine re-construc- tion and capital equipment replacement cycle for FY 1989 was approaching US hospital industry standards, and there was agreement with the City to rebuild the oldest acute hospitals and expand the long term care infrastructure.

Hospital management

In 1978 only half of all HHC facilities were accredited by the United States Joint Commission on Accreditation of Hospitals (now JCAHO). Today all have full accreditation. A centralised purchasing service for the system now manages over 1200 competitively bid contracts for goods and services. Because of excellent prices due to volume discounts, HHC actually sells its purchasing services to the non-public hospital sector in the city. In 1985, HHC began installing automated clinical information systems for labs, radiology, pharmacy, physician credentialing and quality assurance systems. Automated medical records services and coding systems were installed in 19868.

Human resources

The HHC System as a whole uses uniform personnel policies and procedures, and much effort in the last several years has focused on computerisation of payroll and personnel systems and decentralisation of as much of the Human Resources function as possible to the facility level. Human Resource development is a critical area requiring significantly greater attention. A Corporate centre for recruitment, training and career development of staff within the HHC system was established in 1984 and a system wide Employee Assistance Unit, to provide personal and family liaison and mental health counselling and assure services and benefit information, was implemented in 1988.

Progress in the above areas generally reflected the application of sound management principles, no different from those used in the private sector, to achieve greater efficiency, accountability and an improved working and patient care environment. This was done without changing the financial incentives to managers or institutions to reflect the financial incentives of the market. Had HHC, in fact, been forced to adapt to a competitive, market driven strategy for selection of clinical programs based on revenue available under the current


US reimbursement system, it could not have maintained its mission to guarantee access to those without insurance. It would also have found it difficult if not impossible to achieve its goal to increase and improve those services needed by its patients, eg., ambulatory care, obstetrics and gynaecology, long term care and mental health.

As the largest single institutional provider of ambulatory care in NYC, this was a logical service area to emphasise. It had been neglected due to the histori- cal focus of medical school affiliates on inpatient services, and was the area of greatest financial loss due to the lack of health insurance coverage. In the market driven system, many hospitals are ‘demarketing’ or closing out-patient services and shifting resources to those highly reimbursed tertiary care services. With additional dollars from the City, a three phase programme was designed to make HHC ‘NYC’s Family Doctor’ in the inner city communities it served.

First, it re-organised traditional high-volume clinics in internal medicine, pediatrics and OBGYN into team-oriented primary care services, and moved to link networks of off-site clinics to hospitals to maximise community-based service provision. The second phase involved setting up systems to triage non- urgent patients (about 60 per cent of visits) out of the emergency services and into these primary care systems. The final phase was to strengthen the role of the primary care gatekeeper in determining a patient’s need for access to a specialist. Performance indicators were developed and showed improvements in continuity of care, waiting times, and certain defined standards of clinical care.

With 35 per cent of the births in the City-a very large number to the highest risk poor and minority women and teenagers,-another logical focus was Women’s Health. HHC moved to strengthen obstetrical case management throughout pregnancy, promote early entry into prenatal care, encourage breast feeding and postnatal, community based follow-up. Again, in the US health care market, these services are financial loss leaders.

Finally, the area of long term care had been neglected. After taking over a very badly managed facility from another City agency and turning it around, HHC’s management credibility in the area was achieved. In addition, the financial burden of long stay patients on the acute hospital helped to convince the City budget office to support major improvements and expansions in long term care, home-care services and discharge planning capacity to maximise early and appropriate discharge from the acute hospital.

During this same period, HHC was actually involved in the development of a strategic plan for the future of the HHC system: to shift its emphasis from an organisation running large acute care hospitals to one that would increasingly shift its financial and management investment into community- based primary care system development.

SOME NOTES ON KEY LEARNINGS AS A PUBLIC MANAGER

1. The nature of public and, therefore, politically accountable systems is that there is a short attention span. The planning horizon tends to be the length


of an electoral term; that is, two, four or six years. It can be interrupted at any point by a press crisis or political crisis, or if some visible performance markers are not available to document results. This fact often means that one is working in a time frame that is unrealistic if not down right hostile to planning and implementing lasting organisational change. Implementation of automated information systems, training managers to develop and evaluate staff in different ways, articulating a new direction or management philosophy that can permeate all levels of the organisation with a shared understanding of organisational goals and a new organisational culture, all take extended periods of time.

As a senior manager in such a system, what can be done? * Try to bound crisis management activity so that it involves the least number

of staff. Use crisis teams to manage the problem with you, while a chief of staff or operating deputy supports others to keep working on the ongoing business of the organisation.

* Senior managers should be advised to work under the expectation that there will be no surprises for the boss, especially that may involve press, politicians etc., (especially since the ultimate boss is a politician). If you have a problem, it’s OK; but, if we don’t know about it before the press or politicians, there will be serious explaining to do!

* Avoid detailed lengthy planning processes from the ground up, but maximise involvement from all levels of the organisation within defined boundaries so that: staff buy in to the change effort; and, you take advantage of local expertise and reality testing on the feasibility of the desired programme. Identify a group to spearhead the analytical and organisational work of planning and protect them from other operational responsibility, but do not isolate them from reality.

* Set achievable intermediate goals that can be clearly understood by staff and, if necessary, that have public, political appeal (usually if you meet the first goal, you are rarely asked again). If you can keep performance indicators internal to the organisation, even better. You can become a prisoner of one public performance indicator eg., ambulance response time or waiting lists, and no matter how good the system, it is the only thing people want to know about and all new dollars will go to making it better whether they should or not.

2. The budget in the public sector is usually inadequate to the task. In the US, at the local level, health care is competing with other public services eg. police, education, housing, sanitation; and, because of the extreme privatisation of the US health care delivery system, it is not often seen as a natural public service. This usually means that it loses out to other demands on government resources.

As a senior manager in such a system, what can be done?

* In an organisation with limited resources, the rules for allocation must be clear and related to agreed upon and verifiable criteria. If not, people will


compete against one another within the organisation for the political influence necessary to win more resources rather than collaborating to make the available resources go as far as possible.

In HHC we objectified the facility budget methodology (in consultation with operational managers) and used the methodology to support policy and managerial objectives by increasing reward for medical records completion, coding, ambulatory care services, and so on. The budgetary rewards must drive the system in the same direction as the management agenda-you cannot ask people to do one thing and then financially reward another. The budget methodology was open for re-examination each year, criteria were public for all system managers as were overall facility budgets, and accountability and monitoring were key to the success of the process.

3. Most public bureaucracies have a history of rigid personnel systems and strong union influence. At the same time, management power is often judged by the numbers of staff or the size of the budget, with managers maintaining tunnel vision on the interests of their own unit or part of the organization.

As a senior manager in such a system, what cart be done?

* Try to break up the worst aspects of bureaucracy without confusing people on their reporting relationships for accountability purposes. Senior managers need to see their role and that of their division or facility in the context of the organizational big picture. Their responsibility is not just to those who work for them or to their boss to deliver their piece of the work, but rather to help the whole organisation or system to better serve the patients or citizens.

* Involve all relevant managers and staff in goal setting and make sure organisational goals are clear and that key managers have a vision of the end state desired-where you are going and how their part of the organisation fits into the overall organisational goals and process of change.

*Performance expectations and rewards must reflect not only an individual’s management accomplishments but also how each manager contributed to the team or organizational efforts.

* Over communicate-supply copies to those who should be collaborating on each other’s memos. The first time, they may wonder why they are getting it; the second time, they try to find out by talking with their colleagues. Bring senior managers together to discuss organizational problems or initiate collaboration, rather than relying on memos or 1: 1 meetings alone.

* Help your managers work with their staff to achieve the kind of collaboration that you are trying to model with them.

*Work with managers to overcome the often strongly ingrained belief that they cannot discipline or terminate anyone, no matter how justified. Be sure expert human resources consultation is available to advise managers on what they can do, that they receive training to manage such actions; and that, once they begin, they are supported from above.

4. In most large organisations, especially in the public-sector where accountabi-


lity for public dollars is critical and political influence is ever present, the rela- tionship of the central ofice to the field is problematic. At best, the central office is sometimes seen as a group of micromanagers to be avoided or circum- vented or, at worst, as the biggest obstacle to progress. It is often true that those in the central office of a health care delivery system do not feel the sense of urgency of those who are actually facing the patients, because they are more often facing different publics.


* Decentralise as much authority and responsibility to the field as possible, but with clear performance indicators and the means (information systems) to track them that allows you to intervene before problems (eg. overspending) reach a crisis level.

* Plan the decentralization process and timetable carefully in advance with operational managers to reality test the capacity of the individuals and systems to assume the new responsibilities. The plans should be reviewed against actual progress in the operating units on a regular basis.

*The role of the central office should generally be: policy direction; global budget allocation against a formula that supports policy priorities; technical assistance; and, monitoring and evaluation against clear performance criteria.

* People in the central office should, whenever possible, have operational experience and credibility with those in the operating units.

*Where appropriate, senior managers in the field and those in the central office should be involved in the process of mutual evaluation. This really sends a signal around expectations for teamwork and mutual support.

* Maximise social interaction among key central and operating unit managers to facilitate the team approach.

5. Salaries and benefits in the public sector are generally not competitive, and it is often hard to recruit and retain key staff.


* Fight for fair base compensation and merit-based enhancement, but capitalise on the values orientation of those who work in the public sector. They are, in fact, committed to public service and are, in general, not there only for the money.

* Develop people. Provide necessary training opportunities to teach new skills and enhance existing ones to maximise career mobility and job satisfaction. Bring in organisational development consultants or programmes to develop your team and encourage them, and provide the resources so that they can develop their own teams.

*Give managers the freedom to take risks in the context of the no surprises approach mentioned above. Agree on goals in advance and support them, especially in public.

* Be consistent in applying goals and criteria for rewards and discipline to all managers.


6. Everything in the public sector is on the record, and everybody has an opinion about public services; the criticisor is usually always right from the media point of view; and, good news is no news. As a result, staff often feel frustrated; they think they are doing a good job and know how hard they work, but they get no positive recognition.


*Provide resources so that those managers who must deal directly with the media are prepared to do so. If they are not comfortable with or appropriate for the task, well informed spokespersons or other senior managers in the organisation should be made available.

*Try a positive public relations thrust with a simple theme or label that is easily remembered, and repeat it over and over. HHC selected ‘HHC as The Family Doctor’. At least there is a positive public image out there.

* Develop an effective internal communication vehicle to get accurate and important information out to staff; and, when necessary, use it to let people know that you are defending them against unwarranted attacks or that proper corrective action is being taken.

*Answer every letter; return every phone call; write a reply to every newspaper that publishes a negative story.

* Develop agreed upon mechanisms to handle enquiries and/or pressure by elected officials. Constituent complaints should be effectively handled at the local level; but, questions about policy, budgetary and personnel issues should be able to be quickly referred to the appropriate level in the organisation. Again, protect the operational units from distractions.

CONCLUSION

Clearly, public sector health care organisations respond to most of the same management interventions as private sector ones with resulting improvements in efficiency, effectiveness and quality over time. The introduction of market mechanisms4ompetitive purchasing of services via contracts, price negotia- tion, and institutional restructuring to enhance efficiency-certainly have a place in the public sector as well, but it should not be assumed that these mechanisms are anything other than strategies or methods for better management and ambitious ones at that. They must be pursued on a solid foundation of managerial expertise, adequate management information systems and clear means for monitoring costs and quality of service. If not, the outcome of a poorly articulated or poorly managed contract will be just as bad as the outcome of a poor directly managed service with poorly articulated goals. The same holds true for a restructured facility if the new governance structure and incentives do not clearly enhance the desired functions of that organisation.

In these complex and challenging environments, the most important focus for all health service managers must be the overall goal of better service delivery


to improve the health of the communities they serve. In most countries, the public sector will continue to play a significant role in health care delivery as a payor, provider and/or regulator. Those charged with the responsibility for managing such institutions will continue to face complex challenges; how- ever, the publicness of these institutions is an important factor in both assuring degrees of outside accountability not always possible in private or privatized organizations. In addition, management for social purpose is very difficult without direct public management control in the market environment, unless the incentives of the market move the institutions in the desired directions. Commitment to publicly-managed services can be combined with a variety of management approaches that will enhance our ability to manage the unmanageable.

managing the unmanageable: public hospital systems

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