Hospital-medical Staff Relations in the Face of Shifting Institutional Business Strategies: a Legal Analysis
| Publication year | 1991 |
I. Background
Recent changes in healthcare, particularly in the financial arena, have had a profound impact on hospitals. Empirical studies and innumerable anecdotal accounts lead commentators to conclude that the American hospital is a troubled institution.(fn1) Between 1980 and 1989, low profit margins and competition for patients, physicians, and managed care contracts largely contributed to the closure of 698 hospitals.(fn2)
Deciphering the reasons for the current status of the American hospital industry is a challenging task. Clearly, multiple factors have affected, and continue to affect, acute care institutions. Elements contributing to the downturn of hospitals include the following: rising labor costs; the shifting focus from medical treatment to ambulatory care; the uncontrolled diffusion of new, high cost technology; and changes in reimbursement policies by both government and the private sector.(fn3) Significant differences among hospitals by type and location further complicate the analysis of a hospital's economic position. These differences affect both the cause and the nature of the specific problems institutions face.
Their failure to serve a single constituency is an additional factor complicating the analysis of hospitals. Granted, a hospital's overriding mission is to provide patient care services. But, to successfully accomplish that goal and still remain fiscally viable, other parties must be considered. For example, hospitals compete for physician referrals. Thus, it is essential for institutions to attract and retain doctors on their staffs who will favorably impact the bottom line.(fn4) In addition, hospitals serve government regulators, third-party payors, managed care plans, investors, donors, unions, community organizations, and others.(fn5) The attempt to serve multiple constituencies has complicated hospital operations and has created uncertainty over what the primary objectives of an acute care facility should be.
As this environment within which hospitals function has changed, there also has been a related change in the manner in which acute care facilities are managed. The past twenty years have witnessed a growing professionalization of hospital management.(fn6) Today's hospital executives are students of modern management. As a result, external and internal hospital operations reflect a growing level of business sophistication. One author has convincingly argued, that, in spite of severe economic pressures, hospitals in the 1990s are far more efficient than they have been in the past.(fn7)
While hospitals have undergone their own changes, significant changes have also occurred in the organization of service delivery. Reorganization has resulted in the development of new and revised services, particularly in ambulatory and surgical care.(fn8) Few of the changes in hospital operations have been either original or successful. But compared to the past, we have witnessed a high level of creativity and innovation as administrators struggle to meet the demands of multiple constituencies.
Interestingly however, in spite of the changes in hospital operations, the basic structure of the American hospital has not changed. The so-called "three-legged stool" of hospital organization, namely, the administration, the board, and the medical staff, still provides the primary, if not the only, model that underlies the core structure of acute care facilities.(fn9) This structure, blessed by tradition and sanctioned by law, is rarely questioned. While the three-part structure may serve the interests of physicians, and to a some extent trustees, it is questionable whether, in the current economic climate, it always serves the best interests of the hospital corporation. From a management standpoint, the tripartite arrangement in practical terms means that administrators must always work through the medical staff and through the board to effectuate institutional changes.
Perhaps historically, the split among administration, board, and medical staff served to create a workable balance in which business issues could be separated from medical ones. However, in the current hospital milieu where facilities have become direct providers of service, it is more difficult to draw sharp lines between managerial and medical functions. As hospital management seeks to expand institutional health care roles and enter into new service areas, both individual physicians and the medical staff as a whole see their positions as being directly threatened.(fn10)
Despite their lack of control over society and governmental pressures, physicians have considerable power over hospitals by virtue of hospitals' dependence on them for economic survival.(fn11) Physicians have never seen hospitals as having control over their medical practices. Instead, they have viewed themselves as customers who are willing to take their business elsewhere if they aren't satisfied with conditions in a particular institution.(fn12) From a legal standpoint, common law, statutory law, and the Joint Commission on Accreditation of Health Organizations ("JCAHO") accreditation standards, buttress the medical staff as a self-governing entity, and give physicians collectively even more leverage against the hospital.(fn13)
Governing boards also have tended to side with physicians, viewing them as "surrogate customers" of the institution. Consequently, they are cautious in adopting policies that alienate medical staffs.(fn14) Generally, when hospital administrators and the medical staff disagree, the board tends to side with the latter group. Historically, hospital trustees have been relatively uninvolved in the details of either administration or medical affairs.(fn15) Thus, although there has been some shift in trustees' roles as the enterprises they oversee have become increasingly complex, it seems unlikely that greater involvement will move boards toward a closer allegiance with administrators. While skillful executives may be able to "manage" their boards, it would be rare for a hospital CEO to have the same influence over a hospital corporation as his counterpart in industry.
The optimal situation is one in which the hospital and its medical staff are able to work in sync by reaching a consensus about future directions. The pressures of the current environment make it difficult for hospital management and medical staff to develop an agenda that simulataneously promotes institutional interests and protects physician autonomy and medical staff status quo. All too often, it appears that management and medical staff are working at cross purposes, and may in fact be pursuing courses that conflict. The challenge faced by hospital managers is to make and implement sound business strategies within the constraints of the hospital's corporate structure. By and large, the key challenge of hospital administration is to work with the medical staff in a constructive manner and to pursue options that will insure institutional survival.
Hospitals have implemented a number of strategies to create unity with their medical staffs.(fn16) For example, some have attempted to facilitate better working relationships by expanding hospital boards to include more physician representatives. Similarly, many institutions have created positions for corporate medical directors to act as liaisons between management and doctors.(fn17) A more complex way of fostering unity is through the myriad of joint venture arrangements between hospitals and medical staffs which act to align the economic interests of the parties.(fn18) Still other institutions utilize hospital recruitment and staff development to attract and retain physicians who will benefit an institution financially.(fn19)
Beyond joint efforts with medical staffs, hospital managers are exploring arrangements that are mutually beneficial with one or more physician staff members. Hospitals commonly enter into exclusive contracts for certain core hospital services such as radiology or pathology, or for specialized surgical services that require considerable capital investment.(fn20) The exclusive contract is a way for a hospital to establish greater control over the service in question, to enhance efficiency and quality, and to restrict the provision of services to those physicians whose practices are cost effective.
Related to exclusive contracting, some hospitals simply decide to close membership in one or all departments.(fn21) Another practice, often divisive to medical staffs, that is motivated strongly by economics, involves appointment and reappointment processes that utilize economic efficiency measures. Finally, peer review programs which focus increasingly on practice efficiency measures can be a threat to physicians.(fn22)
Clearly, avenues followed by hospital management that threaten medical staffs' independence, even if they are economically compelling, are subjects of considerable controversy. Individual medical staffs and organized medicine traditionally have pursued various strategies geared toward optimizing the financial position of physicians and, more importantly, protecting autonomy.(fn23) Medical staffs threatened by aggressive hospital management...
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