Cite this article as: N Kane, R J Blendon and S K Madden Tracking the progress of academic health centers Health Affairs 11, no.2 (1992):181-192 doi: 10.1377/hlthaff.11.2.181
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At the Intersection of Health, Health Care and Policy
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GrantWatch
Tracking The Progress Of Academic Health Centers by Nancy Kane, Robert J. Blendon, and Susan Koch Madden The decade of the 1980s was marked by a resurgence of confidence in the value of marketplace competition. In the health care industry, many believed that certain health system goals such as efficiency, cost containment, and responsiveness to local health needs could be achieved more effectively through competition than through the government intervention and regulation that characterized the 1970s. However, academic health centers (AHCs) feared that price-sensitive competition, fostered by government, would drive patients and their associated revenues away from teaching hospitals and toward community hospitals. In the spring of 1984, into this. procompetitive atmosphere, The Commonwealth Fund introduced an ambitious grant program to “encourage fundamental change in the provision of clinical care, medical education, and biomedical research for the benefit of society through cooperation between academic-health centers and other medical institutions.” The emphasis on cooperation envisioned by the fund contrasted directly with the prevailing national policy and reflected concern about the continued health and success of academic health centers during a time of marketplace competition. By proposing that academic health centers cooperate with community hospitals, the fund offered a new strategy to help academic health centers preserve their viability and to align them more closely with the “public good.” Overview Of Grants Program Purpose of grants. Nine grants were awarded to institutions repre1 senting a wide range of situations and program objectives. Despite the diversity of grantees, all were required to develop a cooperative relationNancy Kane is assistant professor of management and Robert Blendon is chairman of the Department of Health Policy and Management, Harvard School of Public Health. Susan Koch Madden is a consultant with John Snow Inc. in Boston.
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I. ESSAY
182 HEALTH AFF AIRS | Su mmer 1992
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ship with two or more independently owned and managed medical institutions that would work together to achieve fundamental change. The goals of the cooperative ventures spanned three levels: programs, institutions, and communities. At the program level, medical education and patient care programs were funded if their purposes represented AHCs’ cooperative efforts to achieve socially desirable changes. For instance, in medical education, specialty residency programs were to be consolidated rather than increased; primary care programs were to be expanded and coordinated by tertiary care centers cooperating with community-based training sites. In patient care, regionalization, consolidation, and protocols for patient transfer and referral were among the objectives of cooperative efforts. Institutional goals were often quite disparate even among cooperative partners. Some AHCs entered into cooperative programs with community hospitals to obtain resources or political credibility from state or public agencies. Others aimed to enhance competitive position. Only one AHC entered into a cooperative relationship out of critical institutional necessity. However, many more community hospitals cooperated with AHCs because such cooperation was key to their survival. Community goals included improving the efficiency (through regionalization and consolidation) and effectiveness (through physician education, communication, and/ or protocol development) of the delivery system, or saving community-oriented institutions that provided opportunities or services to disadvantaged groups. Study methodology. Our evaluation of the grants program involved researching and writing case studies of each of the nine sites awarded funds, whether or not the projects were fully implemented. The case studies were carried out at least one year after the grant period had ended, usually three to five years after the grant period began. Thus we intended to capture the lasting effects of inter-institutional cooperation, after the final reports to The Commonwealth Fund had been written. For each site, we conducted ten to fifteen interviews with key actors in the cooperative effort: AHC presidents; hospital trustees and chief executive officers; academic chiefs; clinical chiefs; chiefs of staff in community hospitals; managers in the areas of planning, nursing, and finance; and project staff directly responsible for implementation of the grants. We also reviewed relevant documents such as feasibility studies, governance agreements, reports to The Commonwealth Fund, financial statements, residency accreditation reports, state planning documents, press releases and newspaper articles, and other similar materials that shed light on how the cooperative venture had progressed. We then wrote a case study of each site, following a standard outline addressing
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how well the cooperative effort had achieved stated program, institutional, and community goals, as well as the extent to which it involved 2 our five attributes of fundamental change. We sent completed case studies back to our primary site contact, usually the person responsible for implementation of the grant, and incorporated the comments we received into the final case study report to The Commonwealth Fund. An appendix to that report summarizes the case study findings. Conclusions. Only two or three of these projects were successful in forging true cooperation between partners and achieving fundamental change. The reasons for the failures were many, but two factors outweigh all others. First, the health care environment turned out not to be hostile to AHCs as had been predicted. By the end of the decade, resources gained by AHCs exceeded all expectations, while many community hospitals bore the brunt of changes in health care payment and 3 delivery systems and were struggling to survive. Strikingly, these gains for AHCs occurred without fundamental changes in missions or strategies. They were due in large part to unforeseen developments in the environment. Medicare payments to teaching hospitals were more generous than the diagnosis-related group (DRG) fixed price by billions of dollars. Managed care plans chose hospitals that enhanced enrollee market appeal; institutional and physician reputation, not price, drove the market, and reputation became strongly associated with major teaching hospitals in many communities. Technology pushed much of community hospitals’ inpatient business into outpatient and nonhospital sites. What remained inpatient became increasingly resourceintensive, requiring tertiary-level services, and therefore was more appropriately delivered in major teaching hospitals. The traditional missions of the AHCs were thus reinforced by their market and financial success. So, despite dire predictions, AHCs were incredibly successful throughout the 1980s, doing just what they had always done. Cooperation was not only unnecessary but in many cases represented a radical shift in a proven and successful strategy. The second factor affecting the program’s success was that cooperation was successful in only a few circumstances. A foundation grant that represented only a small portion of an institution’s budget could not overcome strong market forces or institutional self-interest to reshape a major health care institution. Cooperation occurred naturally only under specific market conditions–for example, when hospital occupancy levels were low or declining and managed care programs had a large market share, or when an institution’s survival was at stake. Otherwise, strong incentives– financial or political– were needed to “force” cooperation on what were otherwise competing and successful institutions.
184 HEALTH AFFAIRS | Summer 1992 Findings And Analysis
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Programmatic goals. Seven of the nine grantees focused their efforts on medical education. Three of these sought to make incremental improvements in shared residency programs– consolidating specialty training at one site, or expanding primary residency programs into community hospitals. The other four had more ambitious goals: saving an independent residency program through closer affiliation with an academic health center, or combining two independent residency programs into one. Somewhat surprisingly, only one of the three sites proposing incremental changes made notable progress toward achieving its goals. Meanwhile, all four of the more ambitious sites underwent major efforts to save or integrate programs. Despite the greater efforts, only two of the four succeeded even partially; in the other two sites, the weak independent programs lost their accreditation, which adversely affected the institution’s ability to remain viable and independent. In the patient care area, one set of grantees tried to improve the volume, cost, and quality of patient care by reducing competition. These AHCs sought cooperative ventures with lower-cost community hospitals in the hope that they could make up in tertiary referral volume what they had to give away in more price-sensitive primary and secondary care. Two of these tried to set up a controlled referral pattern using a “tertiary hub” concept, in which the AHC negotiated for and accepted tertiary referrals from the community’s secondary and primary care providers and returned those patients to the community providers when tertiary treatment was complete. Two others attempted cooperative relationships that would enable the AHC and its community hospital partners to divide up subspecialty “centers of excellence” among themselves. A goal of a second set of grantees was to upgrade the community hospital to a higher teaching status through stronger affiliations with AHCs. Three commnunity-oriented hospitals with independent or fragmented residency programs and financially marginal patient mixes sought to upgrade themselves into major tertiary teaching affiliates to compete more successfully for patients and physicians. Ironically, these patient care goals were achieved only when “cooperative” relationships evolved into unilaterally controlled mergers, or when strong political intervention existed on behalf of the community hospital. The major factor hampering success was that competition for patients was driven primarily by quality and reputation, rather than by price. This often placed community hospitals at a disadvantage in relation to AHCs and undermined one of the motivating factors for coop-
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eration by AHCs. Price-sensitive competition existed only in certain local markets where there was excess hospital capacity and a high degree of market penetration by managed care programs. Institutional goals. For some of the Commnonwealth projects, the cooperative venture was perceived as central to institutional survival, and the impetus for cooperation came from within the institution. For others, the cooperative venture was not vital to the participant’s selfinterest; motivation to participate came from external pressures. Between these two extremes were the institutions that entered into cooperative ventures with self-improvement rather than self-preservation in mind. Three AHCs fell into the category of participating in the cooperative venture in response to external demands. Two of these were subject to strong state political pressures, which threatened to hold up the AHCs’ access to projects they wished to undertake. A third AHC was pressured by diffuse political and community pressures to share its patients with another residency program to maintain the viability of an institution serving disadvantaged populations. All three of those institutions succeeded in achieving their goals: certificates of need, financial support for a new building, and enhanced public credibility. Six of the cooperative ventures intended to improve the ability of the AHC to attract patients, faculty and residents, or both. The motivations for these projects lay primarily in promoting institutional selfimprovement. An actual improvement in competitive position was achieved at only one AHC, which ended up acquiring a large health maintenance organization (HMO) and several community hospitals. For five of the community-oriented institutions, the cooperative venture was undertaken for self-preservation. All were threatened with closure, which was forestalled by cooperative ventures with AHCs. Two of these five sites achieved their goals of greatly improved institutional viability. The other three did not improve their viability; rather, their chances of survival were diminished. The two hospitals that succeeded in their institutional goals received considerable political and financial support from their respective states. Both had medical staffs that were committed to the cooperative venture, willingly underwent the faculty appointment process, and accepted the possibility of academic oversight of their practices. Both were located in areas in which patient demand was high, particularly for their services. Both had management and trustees dedicated to preserving the institutions as vital community resources. Perhaps most important to their success, both had AHC partners that were motivated to cooperate primarily by state political forces. Of the three institutions that failed to achieve the goals of their
186 HEALTH AFF AIRS | Su mmer 1992
Analysis Of Cooperative Relationships The ability of the grantees to pursue their chosen goals successfully and achieve fundamental changes was affected by the type of cooperative relationship that evolved between the partners. We found that a true cooperative relationship was extremely difficult to maintain when the changes were significant for the participating institutions. The relationships tended to evolve in one of two ways. In sites that successfully pursued significant changes, one participant would often assume or try to assume unilateral control, abandoning the original cooperative intent of the agreement. In contrast, where the balance of power was maintained, aspirations of fundamental changes were often sacrificed, and the focus of the cooperative relationship was redirected onto areas that were nonvital or nonthreatening to any of the participants. We found that all sites fell into one of three possible models of cooperative behavior during the life of the grant program: consortia, in
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cooperative ventures, one has been merged into an AHC; the other two continue to exist independently but may not survive long without major state or private outside intervention. Community goals. In our studies of cooperative effort, only two projects successfully achieved lasting community goals: preserving community access to needed services or making the delivery system more responsive to community needs. In both, the state intervened politically and financially to shore up a needed community hospital resource. However, most of the other projects failed in their attempts to establish greater community responsiveness in their AHC ventures. The two most serious failures represented institutions dedicated to important and underserved community needs, and failures for them threatened organizational viability. Both sites lacked major political or financial backing. One site sought to make the delivery system more responsive to community needs. This was a consortium that tried to improve the quality and availability of services in community hospitals as well as physicians’ practices, for both primary care (such as mammography screening practices) and more tertiary services (trauma and neonatal transfer protocols). Advances toward achieving those goals were made, although not all were of lasting significance. The involved AHC also developed a plan for increasing its residents’ exposure to communitybased care, but this plan was never implemented. As with other sites, recruiting qualified faculty and residents into primary care-oriented programs was a major problem, as was resistance from the established medical school faculty.
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which three or more independent hospitals operated under a voluntary agreement to cooperate in areas of mutual benefit; affiliations, which were contractually based agreements among two or more financially independent and autonomous hospitals; and mergers of two or more hospitals, in which one of the original participants assumed governance responsibilities and often some of the financial responsibilities of the other participant(s). Cooperation and the ability to effect change. The structure of the cooperative agreement affected the ability to bring about fundamental change. Mergers offered the greatest potential for such change. However, in a merger, the cooperative element is usurped by unilateral managerial control, thus circumventing one of the main goals of The Commonwealth Fund. In contrast, in a consortium, the cooperative nature of the partnership is maintained, but the chances of achieving any significant changes are slim. Of the three models, the affiliation model best fit the program goals of The Commonwealth Fund. Unfortunately, affiliation was the hardest model to achieve successfully; more sites began the grant period by attempting affiliation than any other model, and fewer sites ended the study period with an affiliation. The consortium model. Three projects provided an opportunity to evaluate the consortium model. Two of these began and ended as consortia; a third site, which initially proposed a merger, finally settled on a consortium-type agreement among its hospital members. The accomplishments of these consortia did not even approach their aspirations, which included consolidations and the development of a regionalized system of patient care and medical education. Their primary accomplishments were in nonvital areas: improved communication among member hospitals; the development of shared protocols on patient transfers; upgrading accreditation status of small subspecialty residency programs; establishing continuing medical education programs; planning for upgrading the physical surroundings of the hospitals’ neighborhoods; and a real estate purchasing program. We concluded that the consortia maintained a balance of power among participants but did not achieve fundamental change. In addition, participants’ motivations were generally short-term or nonvital, and no participant was willing to give up autonomy to the consortium, particularly the right to withdraw if it did not like the consortium’s suggestions. While consortium leaders appeared open to solving problems, the problems they chose did not seriously threaten the viability of any participant. Because participants’ strengths were relatively balanced, the strong did not build up the weak in any important way. Finally, attitudes toward cooperation improved only marginally among physi-
188 HE ALTH AF FAIRS | Su mmer 1992
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cians, and the permanence of those improvements is questionable. The affiliation model. Four of the projects started out attempting an affiliation arrangement that would maintain a power balance and yet achieve fundamental change. At the time of our case studies, only one of those maintained an affiliation and actively pursued fundamental changes with its at times reluctant partner. A second site managed to develop a relatively balanced affiliation agreement after giving up on a merger attempt but has been unable to implement that agreement. Both of these affiliation sites experienced fundamental changes. In one, most of the change occurred at the community hospital that had been battling for survival for a decade. Its AHC partner did not undergo more than superficial change. In the other, the AHC partner did undergo major changes in the way it viewed itself and its affiliate partner. Major progress toward a cooperative venture was made despite significant obstacles in both institutions. Based on the experiences of these “successful” affiliations, we concluded that proactive state health departments and the state legislatures played a critical role in “balancing” the cooperative relationship. Long-term interests were at stake for all participants; both parties sacrificed autonomy for the sake of common goals, although greater sacrifices were made by the weaker community hospitals. The effectiveness of institutional leadership was uneven among the affiliation participants, and in both sites the stronger AHC built up the weaker community hospital. Finally, attitudes of the most powerful physician groups were in the process of adapting slowly to changes. The merger model. Three projects proposed mergers; only one of the original three carried through with those plans. However, three others that began as affiliations evolved toward more merger-like, unilateral governance mechanisms than originally proposed. In these cases, the affiliation model did not permit fundamental changes rapidly enough to suit the motivated institutions. Thus, two AHCs simply acquired their “partners,” while a third institution sought unilateral control over programs it had only recently been allowed to share with its partner. We found that in merger sites, motivations to merge for the weaker institution reflected concern for survival, while the stronger partners were motivated by expediency in at least three of the four sites. In three sites, autonomy was sacrificed only by the weaker participants to the AHC’s direct control. In terms of leadership, all merger sites had active, committed leaders working to achieve the mergers in ways that served common as well as institution-specific purposes. In addition, a merger almost by definition implies a strengthening of the weaker partner by the stronger one. However, lack of support for the mergers among physicians remained significant in three of the four sites.
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Lessons And Recommendations It became clear in this study (and others) that the environment was more supportive of academic health centers than expected and that AHCs, rather than being threatened, actually thrived during the 1980s. This fact had important implications for the overall progress and achievements of the grant program. We were able to draw the following conclusions from our case study research. (1) Institutions such as academic medical centers that are thriving by doing what they have always done (research, teaching, and tertiary care) have little or no incentive to change. The impact of the grant program was vitiated by the continued success of AHCs through the 1980s. Given the lack of any major threat to continued viability, AHCs could only be induced to cooperate with lesser institutions (and sometimes competitors) under strong pressure from governmental or political forces, or in a situation in which cooperation was in the best interest of the AHC as well. For example, in two cases, cooperative goals were achieved because of governmental intervention. In both cases, the state provided increased financial support for the cooperative projects while making the AHCs commit to their partner institutions as a condition for state permission to undertake major projects. Two similar projects failed as a result of lack of political and financial support. In contrast, one AHC linked with satellite community hospitals because such a move was in its interest and improved its competitive position in the community. This institution was in a market that differed from many other markets in that there was excess hospital capacity, and managed care programs had achieved a high level of market penetration.
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In some ways, mergers offered the greatest potential for fundamental change. The motivations of participants tended to be long term, since the change is irrevocable. At least one party had to sacrifice autonomy; that institution also had to directly address questions regarding the value of the merger at all levels of the organization. The concern with merger, particularly in terms of The Commonwealth Fund program goals, is that the cooperative element is clearly usurped by unilateral managerial control. Also, most of the adaptation takes place in the merged community-oriented institution, not the governing AHC. If one of the goals of fundamental change was to bring into AHCs a greater interest in working with community hospitals to address unmet community needs, then mergers may not be successful vehicles. The community-oriented missions of the merged institutions were usually not shared by the acquiring institution.
190 HEALTH AFFAIRS | Summer 1992
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In sum, if a major social mission, such as saving a hospital for an underserved area, is considered important, one cannot depend on another institution–-that is, a successful AHC-– to bear the brunt of the project or to bring about this socially desirable change on its own. To bring about such change, it will be necessary to exert political pressure and provide financial support for the institutions involved. (2) True cooperative agreements are successful in only a limited set of circumstances. One or more of the following conditions must exist: there must be a balance of power between the two participants; cooperation must be in the interest of both parties; there must be governmental intervention and financial support; or the goals must be small and nonvital. Ironically, in many cases where the balance of power was maintained, little or nothing of substance was achieved. A merger tended to be the most successful vehicle for achieving fundamental change but cannot be considered a true “cooperative” venture. The only two grantees to achieve fundamental change in a cooperative manner did so because of governmental pressure and financial support. In only one site did market forces shape the AHC’s self-interest toward cooperation with local community hospitals; in this case, the AHC was operating in a mature health care market in which competition was more price-sensitive than in most other markets. The following is a corollary to these findings. To enhance the power of the weaker party, control over how funds are spent should go to that institution. The value of outside funding of these projects had greater symbolic than economic significance. A grant from The Commonwealth Fund bestowed legitimacy upon the recipient management in the eyes of others, particularly other hospitals, physicians, and city and state government. If the grants had been awarded directly to the weaker parties, it might have enhanced their stature and relative power in the “cooperative” balance. In particular, greater stature may have been translated into greater political influence, which has been shown to be a critical ingredient to successful cooperative ventures of this nature. (3) Fundamental change probably takes ten to twenty years to achieve and thus may be too ambitious a goal for a typical five-year grant cycle. The Commonwealth grant program was much more ambitious than the types of projects commonly funded by foundations. Typically, foundations fund experimental pilot projects whose success or failure does not affect the future of the institution involved. In contrast, this program attempted to influence the basic missions, strategies, and internal organization of participating institutions and thus had the potential of affecting the viability and fu tu re of the institu tion. To eff ect su ch fundamental change, consensus and support is needed from a large number of powerful individuals in an AHC, including academic depart-
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ment chiefs, medical school and hospital management, and community physicians. In general, one can assume that this is a very lengthy and involved process, particularly when the need for change is more rhetorical than real. There is no question that the AHC leaders who undertook the funded projects supported them in full, invested enormous time and energy into seeing the projects through, and refused to admit defeat. However, some were defeated by the enormity of the task: changing institutions that were by and large incredibly successful. Powerful department chiefs who viewed changes as threatening were generally able to have their way. For many AHCs, a changing of the guard may be the only way fundamental changes will be accomplished. Fundamental change might be most constructively viewed as first requiring a change in societal values that then requires institutions to adapt to those changed values. If the goals of fundamental change truly included AHC responsiveness to community health needs and primary care training, then perhaps the dollars would be best spent facilitating societal shifts first, and then helping institutions adapt. Instruments of societal change might include the media, political entities (local as well as national), and educational programs. The health care system itself needs fundamental change; AHCs, as perhaps the most responsive players in the system, will pursue activities that bring the greatest rewards. (4) It is critical to predict with accuracy the changes in the environment that are crucial to the success of a program. For example, the role of price competition was widely misunderstood. While price-sensitive competition has been widely touted as a theoretical solution to our health system ills, there is very little evidence to suggest that it is a likely or even feasible solution in many if not most local health care markets. High managed care plan penetration and low hospital occupancy were essential ingredients to those few markets where price competition was feasible; yet three of the grants went to sites in states where managed care had yet, in 1990, to gain a strong foothold, and hospital occupancy remained among the highest in the nation. Project choices should be guided by a well-informed sense of where fundamental change is most likely to occur, given local environmental circumstances. Similarly, while much was written about the controversial mission and high cost of teaching hospitals, not enough was understood about the significant strengths of AHCs: their reputation and market appeal, their financial reserves, their capacity to exert political influence at all levels of government. The signs were there: the indirect graduate medical education allowance in DRGs was a sign of their political strength; high HMO demand for patient care contracts with teaching hospitals
192 HEALTH AFF AIRS | Su mmer 1992 suggested their market strength. A systematic gathering of all of the evidence could have helped The Commonwealth Fund see that AHCs’ response to cooperative, fundamental change is driven by what is valued in our society and cannot be undone by institutional leadership alone. AHCs are successful because they serve dominant societal interests. A probing analysis of those interests could have led to more successful targeting of interventions by this grant program. Funding for this research was provided by The Commonwealth Fund. Responsibility for the views expressed in this essay belongs solely to the authors. The research assistance of John Coughlan, Ruth Brown, Claude Sicotte, Keith Berger, and Diana Barrett is gratefully acknowledged. NOTES 1. The AHC grant sites included the following: Henry Ford Hospital, Detroit, Michigan–grant to develop a regional medical care system with community hospitals through development of a preferred provider network affiliation agreement; Mount Sinai Medical Center, New York City–grant to strengthen medical education and patient care affiliation with North General Hospital in Harlem; University of Medicine and Dentistry of New Jersey, Newark– grant to consolidate state university-owned hospital with United Hospitals Medical Center, an aging private inner-city hospital; Washington University Medical Center, St. Louis, Missouri–grant to consider consolidation of governance of three independent teaching hospitals and the medical school; Albany Medical Center, Albany, New York–grant to develop and implement a regional approach to patient care and graduate medical education with five community hospitals; Downstate Medical Center, Brooklyn, New York–grant to establish a governance structure with community hospitals that could implement a regional graduate medical education and patient care system in Brooklyn; Health Science Center of the University of Florida, Gainesville– grant to shift governance and management of the private University Hospital in Jacksonville to the University of Florida, thereby establishing University Hospital as a major teaching affiliate; Meharry Medical College and Vanderbilt University Medical Center. Nashville. Tennessee– grant to develop operational plans to share patient care and medical education responsibilities at Nashville General Hospital; and Health Science Center of the University of California, San Francisco–grant to plan partnership with Mt. Zion Hospital to consolidate medical education and patient care programs. 2. The attributes of fundamental change were defined early in the evaluation as the following: motivations were long term, and participants were bound together over the period of time necessary to achieve change; individual institutional autonomy was sacrificed for the common good; leaders became problem solvers rather than position takers; the strong partner built up weak partners; and changes in beliefs or attitudes occurred at all levels in the participating institutions so that the value and purpose of cooperative effort was increasingly accepted. 3. See, for instance, R.J. Blendon and J.N. Edwards, “Looking Back at Hospital Forecasts,” in System in Crisis: The Case for Health Care Reform, ed. R.J. Blendon and J.N. Edwards (New York: Faulkner and Gray, 1991); and N.M. Kane and J.K. Berger, “Teaching Hospital Strategy, Market Share, and Financial Performance: Exploration of Measures of Financial Performance” (Report to The Commonwealth Fund, March 1991).
The online version of this article, along with updated information and services, is available at: http://content.healthaffairs.org/content/11/2/18 1.citation
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At the Intersection of Health, Health Care and Policy
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Health Affairs is published monthly by Project HOPE at 7500 Old Georgetown Road, Suite 600, Bethesda, MD 20814-6133. Copyright © by Project HOPE - The People-to-People Health Foundation. As provided by United States copyright law (Title 17, U.S. Code), no part of may be reproduced, displayed, or transmitted in any form or by any means, electronic or mechanical, including photocopying or by information storage or retrieval systems, without prior written permission from the Publisher. All rights reserved.
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GrantWatch
Tracking The Progress Of Academic Health Centers by Nancy Kane, Robert J. Blendon, and Susan Koch Madden The decade of the 1980s was marked by a resurgence of confidence in the value of marketplace competition. In the health care industry, many believed that certain health system goals such as efficiency, cost containment, and responsiveness to local health needs could be achieved more effectively through competition than through the government intervention and regulation that characterized the 1970s. However, academic health centers (AHCs) feared that price-sensitive competition, fostered by government, would drive patients and their associated revenues away from teaching hospitals and toward community hospitals. In the spring of 1984, into this. procompetitive atmosphere, The Commonwealth Fund introduced an ambitious grant program to “encourage fundamental change in the provision of clinical care, medical education, and biomedical research for the benefit of society through cooperation between academic-health centers and other medical institutions.” The emphasis on cooperation envisioned by the fund contrasted directly with the prevailing national policy and reflected concern about the continued health and success of academic health centers during a time of marketplace competition. By proposing that academic health centers cooperate with community hospitals, the fund offered a new strategy to help academic health centers preserve their viability and to align them more closely with the “public good.” Overview Of Grants Program Purpose of grants. Nine grants were awarded to institutions repre1 senting a wide range of situations and program objectives. Despite the diversity of grantees, all were required to develop a cooperative relationNancy Kane is assistant professor of management and Robert Blendon is chairman of the Department of Health Policy and Management, Harvard School of Public Health. Susan Koch Madden is a consultant with John Snow Inc. in Boston.
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I. ESSAY
182 HEALTH AFF AIRS | Su mmer 1992
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ship with two or more independently owned and managed medical institutions that would work together to achieve fundamental change. The goals of the cooperative ventures spanned three levels: programs, institutions, and communities. At the program level, medical education and patient care programs were funded if their purposes represented AHCs’ cooperative efforts to achieve socially desirable changes. For instance, in medical education, specialty residency programs were to be consolidated rather than increased; primary care programs were to be expanded and coordinated by tertiary care centers cooperating with community-based training sites. In patient care, regionalization, consolidation, and protocols for patient transfer and referral were among the objectives of cooperative efforts. Institutional goals were often quite disparate even among cooperative partners. Some AHCs entered into cooperative programs with community hospitals to obtain resources or political credibility from state or public agencies. Others aimed to enhance competitive position. Only one AHC entered into a cooperative relationship out of critical institutional necessity. However, many more community hospitals cooperated with AHCs because such cooperation was key to their survival. Community goals included improving the efficiency (through regionalization and consolidation) and effectiveness (through physician education, communication, and/ or protocol development) of the delivery system, or saving community-oriented institutions that provided opportunities or services to disadvantaged groups. Study methodology. Our evaluation of the grants program involved researching and writing case studies of each of the nine sites awarded funds, whether or not the projects were fully implemented. The case studies were carried out at least one year after the grant period had ended, usually three to five years after the grant period began. Thus we intended to capture the lasting effects of inter-institutional cooperation, after the final reports to The Commonwealth Fund had been written. For each site, we conducted ten to fifteen interviews with key actors in the cooperative effort: AHC presidents; hospital trustees and chief executive officers; academic chiefs; clinical chiefs; chiefs of staff in community hospitals; managers in the areas of planning, nursing, and finance; and project staff directly responsible for implementation of the grants. We also reviewed relevant documents such as feasibility studies, governance agreements, reports to The Commonwealth Fund, financial statements, residency accreditation reports, state planning documents, press releases and newspaper articles, and other similar materials that shed light on how the cooperative venture had progressed. We then wrote a case study of each site, following a standard outline addressing
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how well the cooperative effort had achieved stated program, institutional, and community goals, as well as the extent to which it involved 2 our five attributes of fundamental change. We sent completed case studies back to our primary site contact, usually the person responsible for implementation of the grant, and incorporated the comments we received into the final case study report to The Commonwealth Fund. An appendix to that report summarizes the case study findings. Conclusions. Only two or three of these projects were successful in forging true cooperation between partners and achieving fundamental change. The reasons for the failures were many, but two factors outweigh all others. First, the health care environment turned out not to be hostile to AHCs as had been predicted. By the end of the decade, resources gained by AHCs exceeded all expectations, while many community hospitals bore the brunt of changes in health care payment and 3 delivery systems and were struggling to survive. Strikingly, these gains for AHCs occurred without fundamental changes in missions or strategies. They were due in large part to unforeseen developments in the environment. Medicare payments to teaching hospitals were more generous than the diagnosis-related group (DRG) fixed price by billions of dollars. Managed care plans chose hospitals that enhanced enrollee market appeal; institutional and physician reputation, not price, drove the market, and reputation became strongly associated with major teaching hospitals in many communities. Technology pushed much of community hospitals’ inpatient business into outpatient and nonhospital sites. What remained inpatient became increasingly resourceintensive, requiring tertiary-level services, and therefore was more appropriately delivered in major teaching hospitals. The traditional missions of the AHCs were thus reinforced by their market and financial success. So, despite dire predictions, AHCs were incredibly successful throughout the 1980s, doing just what they had always done. Cooperation was not only unnecessary but in many cases represented a radical shift in a proven and successful strategy. The second factor affecting the program’s success was that cooperation was successful in only a few circumstances. A foundation grant that represented only a small portion of an institution’s budget could not overcome strong market forces or institutional self-interest to reshape a major health care institution. Cooperation occurred naturally only under specific market conditions–for example, when hospital occupancy levels were low or declining and managed care programs had a large market share, or when an institution’s survival was at stake. Otherwise, strong incentives– financial or political– were needed to “force” cooperation on what were otherwise competing and successful institutions.
184 HEALTH AFFAIRS | Summer 1992 Findings And Analysis
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Programmatic goals. Seven of the nine grantees focused their efforts on medical education. Three of these sought to make incremental improvements in shared residency programs– consolidating specialty training at one site, or expanding primary residency programs into community hospitals. The other four had more ambitious goals: saving an independent residency program through closer affiliation with an academic health center, or combining two independent residency programs into one. Somewhat surprisingly, only one of the three sites proposing incremental changes made notable progress toward achieving its goals. Meanwhile, all four of the more ambitious sites underwent major efforts to save or integrate programs. Despite the greater efforts, only two of the four succeeded even partially; in the other two sites, the weak independent programs lost their accreditation, which adversely affected the institution’s ability to remain viable and independent. In the patient care area, one set of grantees tried to improve the volume, cost, and quality of patient care by reducing competition. These AHCs sought cooperative ventures with lower-cost community hospitals in the hope that they could make up in tertiary referral volume what they had to give away in more price-sensitive primary and secondary care. Two of these tried to set up a controlled referral pattern using a “tertiary hub” concept, in which the AHC negotiated for and accepted tertiary referrals from the community’s secondary and primary care providers and returned those patients to the community providers when tertiary treatment was complete. Two others attempted cooperative relationships that would enable the AHC and its community hospital partners to divide up subspecialty “centers of excellence” among themselves. A goal of a second set of grantees was to upgrade the community hospital to a higher teaching status through stronger affiliations with AHCs. Three commnunity-oriented hospitals with independent or fragmented residency programs and financially marginal patient mixes sought to upgrade themselves into major tertiary teaching affiliates to compete more successfully for patients and physicians. Ironically, these patient care goals were achieved only when “cooperative” relationships evolved into unilaterally controlled mergers, or when strong political intervention existed on behalf of the community hospital. The major factor hampering success was that competition for patients was driven primarily by quality and reputation, rather than by price. This often placed community hospitals at a disadvantage in relation to AHCs and undermined one of the motivating factors for coop-
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eration by AHCs. Price-sensitive competition existed only in certain local markets where there was excess hospital capacity and a high degree of market penetration by managed care programs. Institutional goals. For some of the Commnonwealth projects, the cooperative venture was perceived as central to institutional survival, and the impetus for cooperation came from within the institution. For others, the cooperative venture was not vital to the participant’s selfinterest; motivation to participate came from external pressures. Between these two extremes were the institutions that entered into cooperative ventures with self-improvement rather than self-preservation in mind. Three AHCs fell into the category of participating in the cooperative venture in response to external demands. Two of these were subject to strong state political pressures, which threatened to hold up the AHCs’ access to projects they wished to undertake. A third AHC was pressured by diffuse political and community pressures to share its patients with another residency program to maintain the viability of an institution serving disadvantaged populations. All three of those institutions succeeded in achieving their goals: certificates of need, financial support for a new building, and enhanced public credibility. Six of the cooperative ventures intended to improve the ability of the AHC to attract patients, faculty and residents, or both. The motivations for these projects lay primarily in promoting institutional selfimprovement. An actual improvement in competitive position was achieved at only one AHC, which ended up acquiring a large health maintenance organization (HMO) and several community hospitals. For five of the community-oriented institutions, the cooperative venture was undertaken for self-preservation. All were threatened with closure, which was forestalled by cooperative ventures with AHCs. Two of these five sites achieved their goals of greatly improved institutional viability. The other three did not improve their viability; rather, their chances of survival were diminished. The two hospitals that succeeded in their institutional goals received considerable political and financial support from their respective states. Both had medical staffs that were committed to the cooperative venture, willingly underwent the faculty appointment process, and accepted the possibility of academic oversight of their practices. Both were located in areas in which patient demand was high, particularly for their services. Both had management and trustees dedicated to preserving the institutions as vital community resources. Perhaps most important to their success, both had AHC partners that were motivated to cooperate primarily by state political forces. Of the three institutions that failed to achieve the goals of their
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Analysis Of Cooperative Relationships The ability of the grantees to pursue their chosen goals successfully and achieve fundamental changes was affected by the type of cooperative relationship that evolved between the partners. We found that a true cooperative relationship was extremely difficult to maintain when the changes were significant for the participating institutions. The relationships tended to evolve in one of two ways. In sites that successfully pursued significant changes, one participant would often assume or try to assume unilateral control, abandoning the original cooperative intent of the agreement. In contrast, where the balance of power was maintained, aspirations of fundamental changes were often sacrificed, and the focus of the cooperative relationship was redirected onto areas that were nonvital or nonthreatening to any of the participants. We found that all sites fell into one of three possible models of cooperative behavior during the life of the grant program: consortia, in
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cooperative ventures, one has been merged into an AHC; the other two continue to exist independently but may not survive long without major state or private outside intervention. Community goals. In our studies of cooperative effort, only two projects successfully achieved lasting community goals: preserving community access to needed services or making the delivery system more responsive to community needs. In both, the state intervened politically and financially to shore up a needed community hospital resource. However, most of the other projects failed in their attempts to establish greater community responsiveness in their AHC ventures. The two most serious failures represented institutions dedicated to important and underserved community needs, and failures for them threatened organizational viability. Both sites lacked major political or financial backing. One site sought to make the delivery system more responsive to community needs. This was a consortium that tried to improve the quality and availability of services in community hospitals as well as physicians’ practices, for both primary care (such as mammography screening practices) and more tertiary services (trauma and neonatal transfer protocols). Advances toward achieving those goals were made, although not all were of lasting significance. The involved AHC also developed a plan for increasing its residents’ exposure to communitybased care, but this plan was never implemented. As with other sites, recruiting qualified faculty and residents into primary care-oriented programs was a major problem, as was resistance from the established medical school faculty.
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which three or more independent hospitals operated under a voluntary agreement to cooperate in areas of mutual benefit; affiliations, which were contractually based agreements among two or more financially independent and autonomous hospitals; and mergers of two or more hospitals, in which one of the original participants assumed governance responsibilities and often some of the financial responsibilities of the other participant(s). Cooperation and the ability to effect change. The structure of the cooperative agreement affected the ability to bring about fundamental change. Mergers offered the greatest potential for such change. However, in a merger, the cooperative element is usurped by unilateral managerial control, thus circumventing one of the main goals of The Commonwealth Fund. In contrast, in a consortium, the cooperative nature of the partnership is maintained, but the chances of achieving any significant changes are slim. Of the three models, the affiliation model best fit the program goals of The Commonwealth Fund. Unfortunately, affiliation was the hardest model to achieve successfully; more sites began the grant period by attempting affiliation than any other model, and fewer sites ended the study period with an affiliation. The consortium model. Three projects provided an opportunity to evaluate the consortium model. Two of these began and ended as consortia; a third site, which initially proposed a merger, finally settled on a consortium-type agreement among its hospital members. The accomplishments of these consortia did not even approach their aspirations, which included consolidations and the development of a regionalized system of patient care and medical education. Their primary accomplishments were in nonvital areas: improved communication among member hospitals; the development of shared protocols on patient transfers; upgrading accreditation status of small subspecialty residency programs; establishing continuing medical education programs; planning for upgrading the physical surroundings of the hospitals’ neighborhoods; and a real estate purchasing program. We concluded that the consortia maintained a balance of power among participants but did not achieve fundamental change. In addition, participants’ motivations were generally short-term or nonvital, and no participant was willing to give up autonomy to the consortium, particularly the right to withdraw if it did not like the consortium’s suggestions. While consortium leaders appeared open to solving problems, the problems they chose did not seriously threaten the viability of any participant. Because participants’ strengths were relatively balanced, the strong did not build up the weak in any important way. Finally, attitudes toward cooperation improved only marginally among physi-
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cians, and the permanence of those improvements is questionable. The affiliation model. Four of the projects started out attempting an affiliation arrangement that would maintain a power balance and yet achieve fundamental change. At the time of our case studies, only one of those maintained an affiliation and actively pursued fundamental changes with its at times reluctant partner. A second site managed to develop a relatively balanced affiliation agreement after giving up on a merger attempt but has been unable to implement that agreement. Both of these affiliation sites experienced fundamental changes. In one, most of the change occurred at the community hospital that had been battling for survival for a decade. Its AHC partner did not undergo more than superficial change. In the other, the AHC partner did undergo major changes in the way it viewed itself and its affiliate partner. Major progress toward a cooperative venture was made despite significant obstacles in both institutions. Based on the experiences of these “successful” affiliations, we concluded that proactive state health departments and the state legislatures played a critical role in “balancing” the cooperative relationship. Long-term interests were at stake for all participants; both parties sacrificed autonomy for the sake of common goals, although greater sacrifices were made by the weaker community hospitals. The effectiveness of institutional leadership was uneven among the affiliation participants, and in both sites the stronger AHC built up the weaker community hospital. Finally, attitudes of the most powerful physician groups were in the process of adapting slowly to changes. The merger model. Three projects proposed mergers; only one of the original three carried through with those plans. However, three others that began as affiliations evolved toward more merger-like, unilateral governance mechanisms than originally proposed. In these cases, the affiliation model did not permit fundamental changes rapidly enough to suit the motivated institutions. Thus, two AHCs simply acquired their “partners,” while a third institution sought unilateral control over programs it had only recently been allowed to share with its partner. We found that in merger sites, motivations to merge for the weaker institution reflected concern for survival, while the stronger partners were motivated by expediency in at least three of the four sites. In three sites, autonomy was sacrificed only by the weaker participants to the AHC’s direct control. In terms of leadership, all merger sites had active, committed leaders working to achieve the mergers in ways that served common as well as institution-specific purposes. In addition, a merger almost by definition implies a strengthening of the weaker partner by the stronger one. However, lack of support for the mergers among physicians remained significant in three of the four sites.
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Lessons And Recommendations It became clear in this study (and others) that the environment was more supportive of academic health centers than expected and that AHCs, rather than being threatened, actually thrived during the 1980s. This fact had important implications for the overall progress and achievements of the grant program. We were able to draw the following conclusions from our case study research. (1) Institutions such as academic medical centers that are thriving by doing what they have always done (research, teaching, and tertiary care) have little or no incentive to change. The impact of the grant program was vitiated by the continued success of AHCs through the 1980s. Given the lack of any major threat to continued viability, AHCs could only be induced to cooperate with lesser institutions (and sometimes competitors) under strong pressure from governmental or political forces, or in a situation in which cooperation was in the best interest of the AHC as well. For example, in two cases, cooperative goals were achieved because of governmental intervention. In both cases, the state provided increased financial support for the cooperative projects while making the AHCs commit to their partner institutions as a condition for state permission to undertake major projects. Two similar projects failed as a result of lack of political and financial support. In contrast, one AHC linked with satellite community hospitals because such a move was in its interest and improved its competitive position in the community. This institution was in a market that differed from many other markets in that there was excess hospital capacity, and managed care programs had achieved a high level of market penetration.
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In some ways, mergers offered the greatest potential for fundamental change. The motivations of participants tended to be long term, since the change is irrevocable. At least one party had to sacrifice autonomy; that institution also had to directly address questions regarding the value of the merger at all levels of the organization. The concern with merger, particularly in terms of The Commonwealth Fund program goals, is that the cooperative element is clearly usurped by unilateral managerial control. Also, most of the adaptation takes place in the merged community-oriented institution, not the governing AHC. If one of the goals of fundamental change was to bring into AHCs a greater interest in working with community hospitals to address unmet community needs, then mergers may not be successful vehicles. The community-oriented missions of the merged institutions were usually not shared by the acquiring institution.
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In sum, if a major social mission, such as saving a hospital for an underserved area, is considered important, one cannot depend on another institution–-that is, a successful AHC-– to bear the brunt of the project or to bring about this socially desirable change on its own. To bring about such change, it will be necessary to exert political pressure and provide financial support for the institutions involved. (2) True cooperative agreements are successful in only a limited set of circumstances. One or more of the following conditions must exist: there must be a balance of power between the two participants; cooperation must be in the interest of both parties; there must be governmental intervention and financial support; or the goals must be small and nonvital. Ironically, in many cases where the balance of power was maintained, little or nothing of substance was achieved. A merger tended to be the most successful vehicle for achieving fundamental change but cannot be considered a true “cooperative” venture. The only two grantees to achieve fundamental change in a cooperative manner did so because of governmental pressure and financial support. In only one site did market forces shape the AHC’s self-interest toward cooperation with local community hospitals; in this case, the AHC was operating in a mature health care market in which competition was more price-sensitive than in most other markets. The following is a corollary to these findings. To enhance the power of the weaker party, control over how funds are spent should go to that institution. The value of outside funding of these projects had greater symbolic than economic significance. A grant from The Commonwealth Fund bestowed legitimacy upon the recipient management in the eyes of others, particularly other hospitals, physicians, and city and state government. If the grants had been awarded directly to the weaker parties, it might have enhanced their stature and relative power in the “cooperative” balance. In particular, greater stature may have been translated into greater political influence, which has been shown to be a critical ingredient to successful cooperative ventures of this nature. (3) Fundamental change probably takes ten to twenty years to achieve and thus may be too ambitious a goal for a typical five-year grant cycle. The Commonwealth grant program was much more ambitious than the types of projects commonly funded by foundations. Typically, foundations fund experimental pilot projects whose success or failure does not affect the future of the institution involved. In contrast, this program attempted to influence the basic missions, strategies, and internal organization of participating institutions and thus had the potential of affecting the viability and fu tu re of the institu tion. To eff ect su ch fundamental change, consensus and support is needed from a large number of powerful individuals in an AHC, including academic depart-
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ment chiefs, medical school and hospital management, and community physicians. In general, one can assume that this is a very lengthy and involved process, particularly when the need for change is more rhetorical than real. There is no question that the AHC leaders who undertook the funded projects supported them in full, invested enormous time and energy into seeing the projects through, and refused to admit defeat. However, some were defeated by the enormity of the task: changing institutions that were by and large incredibly successful. Powerful department chiefs who viewed changes as threatening were generally able to have their way. For many AHCs, a changing of the guard may be the only way fundamental changes will be accomplished. Fundamental change might be most constructively viewed as first requiring a change in societal values that then requires institutions to adapt to those changed values. If the goals of fundamental change truly included AHC responsiveness to community health needs and primary care training, then perhaps the dollars would be best spent facilitating societal shifts first, and then helping institutions adapt. Instruments of societal change might include the media, political entities (local as well as national), and educational programs. The health care system itself needs fundamental change; AHCs, as perhaps the most responsive players in the system, will pursue activities that bring the greatest rewards. (4) It is critical to predict with accuracy the changes in the environment that are crucial to the success of a program. For example, the role of price competition was widely misunderstood. While price-sensitive competition has been widely touted as a theoretical solution to our health system ills, there is very little evidence to suggest that it is a likely or even feasible solution in many if not most local health care markets. High managed care plan penetration and low hospital occupancy were essential ingredients to those few markets where price competition was feasible; yet three of the grants went to sites in states where managed care had yet, in 1990, to gain a strong foothold, and hospital occupancy remained among the highest in the nation. Project choices should be guided by a well-informed sense of where fundamental change is most likely to occur, given local environmental circumstances. Similarly, while much was written about the controversial mission and high cost of teaching hospitals, not enough was understood about the significant strengths of AHCs: their reputation and market appeal, their financial reserves, their capacity to exert political influence at all levels of government. The signs were there: the indirect graduate medical education allowance in DRGs was a sign of their political strength; high HMO demand for patient care contracts with teaching hospitals
192 HEALTH AFF AIRS | Su mmer 1992 suggested their market strength. A systematic gathering of all of the evidence could have helped The Commonwealth Fund see that AHCs’ response to cooperative, fundamental change is driven by what is valued in our society and cannot be undone by institutional leadership alone. AHCs are successful because they serve dominant societal interests. A probing analysis of those interests could have led to more successful targeting of interventions by this grant program. Funding for this research was provided by The Commonwealth Fund. Responsibility for the views expressed in this essay belongs solely to the authors. The research assistance of John Coughlan, Ruth Brown, Claude Sicotte, Keith Berger, and Diana Barrett is gratefully acknowledged. NOTES 1. The AHC grant sites included the following: Henry Ford Hospital, Detroit, Michigan–grant to develop a regional medical care system with community hospitals through development of a preferred provider network affiliation agreement; Mount Sinai Medical Center, New York City–grant to strengthen medical education and patient care affiliation with North General Hospital in Harlem; University of Medicine and Dentistry of New Jersey, Newark– grant to consolidate state university-owned hospital with United Hospitals Medical Center, an aging private inner-city hospital; Washington University Medical Center, St. Louis, Missouri–grant to consider consolidation of governance of three independent teaching hospitals and the medical school; Albany Medical Center, Albany, New York–grant to develop and implement a regional approach to patient care and graduate medical education with five community hospitals; Downstate Medical Center, Brooklyn, New York–grant to establish a governance structure with community hospitals that could implement a regional graduate medical education and patient care system in Brooklyn; Health Science Center of the University of Florida, Gainesville– grant to shift governance and management of the private University Hospital in Jacksonville to the University of Florida, thereby establishing University Hospital as a major teaching affiliate; Meharry Medical College and Vanderbilt University Medical Center. Nashville. Tennessee– grant to develop operational plans to share patient care and medical education responsibilities at Nashville General Hospital; and Health Science Center of the University of California, San Francisco–grant to plan partnership with Mt. Zion Hospital to consolidate medical education and patient care programs. 2. The attributes of fundamental change were defined early in the evaluation as the following: motivations were long term, and participants were bound together over the period of time necessary to achieve change; individual institutional autonomy was sacrificed for the common good; leaders became problem solvers rather than position takers; the strong partner built up weak partners; and changes in beliefs or attitudes occurred at all levels in the participating institutions so that the value and purpose of cooperative effort was increasingly accepted. 3. See, for instance, R.J. Blendon and J.N. Edwards, “Looking Back at Hospital Forecasts,” in System in Crisis: The Case for Health Care Reform, ed. R.J. Blendon and J.N. Edwards (New York: Faulkner and Gray, 1991); and N.M. Kane and J.K. Berger, “Teaching Hospital Strategy, Market Share, and Financial Performance: Exploration of Measures of Financial Performance” (Report to The Commonwealth Fund, March 1991).
