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Who lost the health care revolution?

Who Lost the Health Care Revolution?

It is not easy to define the exact year when what Professor Regina E. Herzlinger refers to as a revolution in the health care delivery system actually began. She mentions the formation in the 1970s of entrepreneurial companies for the delivery of care, for upgrading the quality and accessibility of care, and for exploiting the explosive growth in health care technology as the preliminary stage in the revolution that was to have characterized the 1980s. These new companies--HMOs, nursing home chains, and other health-related businesses--were welcomed enthusiastically by the financial markets that the new companies needed for their growth, and both parties were amply rewarded for their efforts, in the beginning. Many entrepreneurs made very large sums of money in the beginnings of the revolution.

The purpose of the revolution, aided and abetted by government and other third-party payers, was to bring the costs of the health care system under control. The federal government's DRGs and private insurers' extensive use of audit and review were the main weapons in the control effort. "But the revolution failed," Professor Herzlinger says. "Despite the ability of the entrepreneurs, the enthusiasm of its powerful backers, the billions of dollars spent to fuel its engines, the nobility of the cause, and the clarity of the mandate, it failed. Despite the vaunted efficiencies to be created by new services and competition, costs proved intractable. Services remained inconvenient and variable in quality. The scientific breakthroughs that pioneers have created have yet to be reaped as effective medical technologies."

The failure, Professor Herzlinger says, "was almost entirely that of management, not of strategy." She says that the creators of these new organizations were "so blinded by the vision of the dazzling new world they hoped to forge that they neglected the details of management that would breathe life into their vision." The promise of the new organizations has been wasted, she says. The promise was more responsive, less expensive care, with a commitment to maintaining health as well as healing illness. The unwanted result has been discouragement and stagnation. Costs continue to rise, care is spotty for large groups of citizens, and the quality of care provided is under growing criticism.

A large measure of the reason for failure has been the entrepreneurs' "fixation" on marketing and finance. Very little thought was given to how these new enterprises would be run. And so they were run badly. One financial "fix" followed another as the organizations attempted to create growth and respond to competition, reduced utilization, and other external adjustments in the health care system. Professor Herzlinger also accuses some of the new companies of creative accounting to hide the truth of their individual failures.

While they were concentrating on finance and marketing, Professor Herzlinger says, the entrepreneurs failed to improve the "quality and efficiency of health care in four key areas:

* Operational administration. Too few of the new organizations organized their efforts with the convenience of their clients in mind. Some of the old arrogance of the health care system remained, and consumers were unimpressed. Those krganizations that tailored their offerings to the expressed needs and desires of the consumer were better rewarded.

* Management of human resources. No effort was made to correct the long-time disparity in pay for different workers within the health care system. Nowhere was this more true than for nurses, where another shortage soon arose. Institutions and organizations that were able to be more innovative in salary, benefits, and other programs for employees were less affected.

* Management control systems. Following a tradition of long standing in the health care field, many of the new anterprises had only the most tenuous grip on their costs. Adequate accounting and cost accounting systems were simply not in place. Costs and prices, if linked at all, were linked loosely. These organizations have not been able to withstand financial adversity very well.

Formation of a management philosophy. For many of the companies, perhaps in response to the health care field's aversion to "business approaches," every effort was made to avoid a businesslike stance. Decentralization became one of the bywords. For the most part, it didn't work, mainly because the companies were not set up operationally for it. Centralization was also no guarantee of success, as sitness Humana and Maxicare. Partly, these firms failed to plan for the development of management "stars" who could make the system work.

Dr. Herzlinger believes that a second stage of the revolution in the health care system will prove more successful--if the new wave of entrepreneurs will learn from the "painful experiences of their predescessors." If so, "they will be more focused and more businesslike in managing their organizations." They will exert strong financial controls. They will share power and rewards with employees. They will recognize the importance of employees' professional and personal development." Finally, these new entrepreneurs "will resist the seductive temptation to buoy earnings temporarily with financing and marketing schemes and instead will aim for substance, carefully building a sound structure."

Wesley Curry is Editorial Director of the American College of Physician Executives, Tampa, Fla.
COPYRIGHT 1990 American College of Physician Executives
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:Health Care Management
Author:Curry, Wesley
Publication:Physician Executive
Date:Mar 1, 1990
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