[SOLVED] Healthcare Case Study – Southeast Medical Center

Review the Southeast MedicalCenter case study found on page 92 of the course text.  Of therecommendations found on pages 100-101, select the three which you considerto be the highest priority/most important to the case.  Justify yourreasoning.  Support your opinion with a minimum of two outside scholarlyresources.  Write a three- to five-page paper (excluding title andreference pages) with your selected recommendations and justifications. Thepaper must be in APA format.

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Southeast Medical Center Case Study

Review the Southeast Medical Center case study found on page 92 of the coursetext. Of the recommendations found on pages 100-101, select the three whichyou consider to be the highest priority/most important to the case. Justifyyour reasoning. Support your opinion with a minimum of two outside scholarlyresources

In-Depth Case Study: SoutheastMedical Center

The following case study involvinga large organized delivery system exemplifies many of the issues describedearlier in this chapter.

History and Evolution

Southeast Medical Center (SMC; apseudonym) was established as a public hospital in the 1920s, just before theDepression. Located in the Southeast, a $1 million bond financed the 250-bedfacility. Major expansion projects in the 1950s increased the hospital’s sizeto 600 beds. Formal affiliation with the local university’s College ofMedicine residency program in the 1970s further expanded capacity. Thus, SMCbecame a public academic health center and subsequently assumed multiplemissions of patient care, teaching, and research. Capital improvementprograms were conducted during the 1970s, and in 1982, a massive renovationand construction project ($160 million) added 550 beds to the facility. Inthe 1980s, a 59-bed freestanding rehabilitation center was opened adjacent tothe hospital, and a physicians’ office building was constructed next to thehospital. Medical helicopters were also acquired in 1989, expanding SMC’strauma services. In addition to serving as a regional provider for trauma,SMC also furnishes burn, neonatal, and transplant care for the region.

Responsibility for governance ofSMC has shifted over the years. In the early years of operation, a hospitalboard ran SMC. In the 1940s, the city was given direct control over the hospital.In the 1980s, the state legislature created a public hospital authority (tobe appointed by the county commission) to govern the hospital. In the 1990s,the hospital’s board of trustees voted to turn operations of the hospitalover to a private, not-for-profit corporation (501c-3), the SMC Corporation.However, oversight for charity care remained with the county’s hospitalauthority. The SMC Corporation is directed by a 15-member board of directorsand essentially manages the organized delivery system through a leasearrangement with the county hospital authority.

Today, SMC is a private,not-for-profit academic health center that is accredited by JCAHO. It alsoserves as the primary teaching hospital for the local university.Approximately 1100 private and university-affiliated attending physicians andmore than 400 resident physicians in the university’s College of Medicineresidency program serve the community’s medical needs. SMC also serves as theclinical site for associate, baccalaureate, and graduate nursing programs forthe university and community colleges.

SMC serves as a regional andinternational referral service with more than 800 acute care beds. SMC hasestablished community centers in a variety of locations, which has createdincreased access. In addition to specialized medical services, SMC iscommitted to providing community resources for education, information, andprograms aimed at helping residents stay fit and healthy. Four out of tenpatients that passed through the SMC’s door came from outside the county.

SMC also operates an HMO healthplan for charity care patients. In 1991, the County Commission establishedthe SMC Health Plan to operate as a Medicaid HMO or insurance healthcare planfor the poor. The plan reimburses SMC on a case-by-case basis for medicalservices, but it also negotiates discounted rates and costs with thehospital. During the early 1990s SMC’s payment from the health plan droppedsubstantially. In 1996, the program was under a freeze by the state and couldnot enroll participants for more than a year.

Thus, SMC is not just thehospital—it is a comprehensive organized delivery system that also includesfacilities distinct from the hospital (i.e., SMC Health Plan). In addition,SMC ambulatory care centers are located throughout the county. SMC was theonly public hospital in a metropolitan area with a population of one millionor more that received no public subsidy. Most citizens believe that SMC wassubsidized by their taxes. In 1971, the County Commission agreed tosupplement hospital revenues with property taxes. In 1985, the countycommissioners passed a quarter-percent sales tax to fund indigent care. Thetax was repealed in 1987. In 1991, the county instituted a one-half percentsales tax to fund indigent care at all hospitals in the county, includingSMC.

In sum, while SMC receives nopublic subsidy, it does receive a portion of the half-cent sales tax whichdepends on the preferences of the county commissioners each year. Unlike adirect subsidy, no public money is ever guaranteed.

As an academic health center (AHC)SMC has multiple, conjoined missions of teaching, research, and patient care.While providing patient care for approximately 40% of the nation’s poor, AHCsare struggling to find a competitive position in today’s rapidly changinghealthcare environment. Until recently, they have enjoyed a privilegedposition atop the healthcare pyramid as a niche provider of tertiaryservices. With the growth of managed care and reductions in governmentfunding, the ability of AHCs to compete is being drastically undercut.

It is widely recognized thatmultiple missions of teaching, research, and patient care contribute to theproduction of costly clinical services that are inconsistent with the demandfor less expensive services in today’s healthcare environment. The majorityof the services that AHCs provide are now available elsewhere, such as localcommunity hospitals and specialty private medical practices. Furthermore, itis estimated that roughly 70% of their clinical services can be providedelsewhere at a lower cost. It is believed, for example, that AHCs areapproximately 30% more expensive, on a case-mix-adjusted basis, than theirnonteach-ing competitors.

As a result, AHCs are losingground to other hospitals and medical practices. They have become providersof a small number of expensive high-tech services involving unique andcomplex care. However, they continue to be the predominant providers of thenation’s charitable care. As an AHC, SMC reflects these trends. For example,SMC’s organ transplant center and burn unit are unique high-cost servicesthat account for fewer than 2% of the patients treated at SMC each year.

(Wolper pages 92-94)

Wolper, Lawrence F.. HEALTH CAREADMINISTRATION 5E VITALBOOKS, 5th Edition. Jones & Bartlett Publishers,


Managerial Implications andRecommendations

The jury is still out on thefuture of organized delivery systems. It is unclear whether the many problemsand issues identified here and elsewhere are due to a flawed strategy, flawedimplementation (leadership), or both. Clearly, multiprovider integration hasnot worked well either in American industry or in health care. The point isnot to lay blame when systems struggle or collapse. Rather, we need toidentify managerial processes or methods that will enhance the probabilitythat systems will survive and prosper. The overriding goal of systems shouldbe to provide maximum value to the healthcare customer.145

The fundamental question is, Whattypes of systems, networks, and alliances are best able to competeeffectively and deliver cost-effective care? At this time, however, there isno definitive answer to this question, because there is almost no evidenceassociating different types of organized arrangements with successfulperformance or failure.

The future of healthcare systemsis highly speculative, given the volatility of markets and future initiativesfor healthcare reform. As the governments role in health care expands, thesesystems become more vulnerable to shifts in government policy.

It seems likely that mostmultiprovider healthcare systems will emerge successfully from their “growingpains” and continue to solidify their position in the healthcare market aslong as they are virtually integrated rather than vertically integrated.

Health care will be purchasedprimarily on a local or regional basis. Quality and value will beincreasingly important to patients who once again have a choice of provider.Fewer resources will be available to deliver care, and the delivery of healthcare will continue to shift from acute care to ambulatory settings. Barrynoted the importance of a system CEO being a “change agent” in this futureenvironment:

Those who can understand andembrace change; those who can transform traditional but key values totomorrow’s environment; those who can educate their boards of trustees,medical communities, and the community at large; and those who can “rightsize” the production activities of their organizations, and provide both highquality and cost-effective services will be the winners of tomorrow.146


Healthcare executives inmultiprovider healthcare systems need to allow flexibility for memberinstitutions to respond to specific local markets while providing a clearlyarticulated and well understood vision for the system.

Each system should develop a detailedmission statement and set of behavioral norms (i.e., culture) shared by eachfacility within the system in order to enhance cohesiveness.

Each system should develop aformal strategic plan for the system with input and a high degree of interactionamong the corporate office and institutions in all geographic regions.

Each system should develop andimplement explicit measures for quality of care, patient satisfaction,efficiency, and community benefit, and then provide these data to purchasersand other key stakeholders.

Each system should develop andorganizational structure that is simple, lean, flat, responsive, customer-driven,risk-taking, and focused.

Governance at the corporate levelshould be strategic in nature, whereas governance at the institutional levelshould be operational in nature and focused on local community/region needsand concerns.

Systems should provide formal andinformal education for those responsible for governance at all levels in thesystem.

Systems should provide a cleardefinition of governance roles, responsibilities, and authority among thesystem and institutional boards of its component parts.

Systems should provide theleadership required for the individual units of a system to think in terms ofoverall system performance rather than just in terms of the particular unit’sperformance.

Only institutions that fit aparticular culture and strategy should be invited to join or remain a memberof the system.

Systems should align physicianincentives and achieve clinical integration.

Systems should develop informationsystems to support the integration of clinical and managerial information.

Systems should use their missionand values as a guide in making difficult trade-off decisions.

Systems should change their incentivestructures to reflect concern for performance of the system as a whole, notjust the individual components.

Systems should own fewer facilitiesand contract for most services so that they are virtually integrated ratherthat vertically integrated.

Systems should buy or contract forservices only if the additions will add value to the systems’ customers andare compatible with the existing mission, values, goals, and culture.

Systems should allow theindividual operating units within the system to have sufficient autonomy tobe responsive to the needs of their local customers.

Systems should focus on core competenciesrather than trying to be all things to all system components.

Systems should not allow successto breed complacency.  Each integrativestep must be evaluated for system wide effects.

Systems should focus on qualityrather than the size of the program or system being integrated.

Systems should focus on qualityrather than quantity of physician integration.

Systems should placehigh-performing executives in key positions to implement their integrationplan.

Systems should target selectedpatient populations and payers.

(Wolper 100-102)

Wolper, L.F. HealthcareAdminstration 5E Vitalbooks, 5th Edition. Jones & BartlettPublishers.

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