Health Care Strategic Management

Health Care Strategic Management

  1. Why should program evaluation be used for public health and not-for-profit institutions in the development of adaptive strategies?
  2. Explain the strategic position and action evaluation (SPACE) matrix. How may adaptive strategic alternatives be developed using SPACE?

Professional Development:

Case Study #8: “Dr. Louis Mickael: The Physician as Strategic Manager”

Develop an environmental assessment and an internal capabilities analysis using decision support tools that have been introduced in this module (such as PLC analysis, BCG portfolio analysis, SPACE analysis and so on). Analyze alternative strategies to include pros and cons of each alternative, then conclude with a recommended strategy and brief implementation plan. Health Care Strategic Management


By the early 1980s, costs to provide these health care services reached epic proportions; and the financial ability of employers to cover these costs was being stretched to breaking point. In addition, new government health care regulations had been enacted that have had far-reaching effects on this US industry. The most dramatic change came with the inauguration of a prospective payment system. By 1984, reimbursement shifted to a prospective system under which health care providers were paid preset fees for services rendered to patients. The procedural terminology codes that were initiated at that time designated the maximum number of billed minutes allowable for the type of procedure (service) rendered for each diagnosis.


A diagnosis was identified by the International Classification of Diseases, Ninth Revision, Clinical Modification, otherwise known as ICD-9-CM. The two types of codes, procedural and diagnosis, had to logically correlate or reimbursement was rejected. Put simply, regardless of which third-party payor insured a patient for health care, the bill for an office visit was determined by the number of minutes that the regulation allowed for the visit. This was dictated by the diagnosis of the primary problem that brought the patient into the office and the justifiable procedures used to treat it. These cost-cutting measures initiated through the government-mandated prospective payment regulation added to physicians’ overhead costs because more paperwork was needed to submit claims and collect fees. In addition, the length of time increased between billing and actual reimbursement, causing cash flow problems for medical practices unable to make the procedural changes needed to adjust. This new system had the effect of reducing income for most physicians, because the fees set by the regulation were usually lower than those physicians had previously charged. Almost all other operating costs of office practice increased. These included utilities, maintenance, and insurance premiums for office liability coverage, workers’ compensation, and malpractice coverage (for which costs tripled in the late 1980s and early 1990s). This changed the method by which government insurance reimbursement was provided for health care disbursed to individuals covered under the Medicare and Medicaid programs. Private insurors quickly adopted the system, and health care as an industry moved into a more competitive mode of doing business. The industry profile differed markedly from that of only a decade earlier. Hospitals became complex blends of for-profit and not-for-profit divisions, joint ventures, and partnerships. In addition, health care provided by individual physician practitioners had undergone change. These professionals were forced to take a new look at just who their patients were and what was the most feasible, competitively justifiable, and ethical mode of providing and dispensing care to them. For the first time in his life, Dr. Mickael read about physicians who were bankrupt. In actuality, Dr. Charles, who shared office space with him, was having a financial struggle and was close to declaring bankruptcy. Health Care Strategic Management

The last patient had just left, and Dr. Lou Mickael (“Dr. Lou”) sat in his office thinking about the day’s events. He had been delayed getting into work because

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a patient telephoned him at home to talk about a problem with his son. When he arrived at the office and before there was time to see any of the patients waiting for him, the hospital called to tell him that an elderly patient, Mr. Spence, admitted through the emergency room last night had taken a turn for the worse. “My days in the office usually start with some sort of crisis,” he thought. “In addition to that, the national regulations for physician and hospital care reimbursement are forcing me to spend more and more time dealing with regulatory issues. The result of all this is that I’m not spending enough time with my patients. Although I could retire tomorrow and not have to worry financially, that’s not an alternative for me right now. Is it possible to change the way this practice is organized, or should I change the type of practice I’m in?” Health Care Strategic Management

Practice Background When Dr. Lou began medical practice the northeastern city’s population was approximately 130,000 people, most of whom were blue-collar workers with diverse ethnic backgrounds. By 1994, suburban development surrounded the city, more than doubling the population base. A large representation of service industries were added, along with an extensive number of upper and middle managers and administrators typically employed by such industries.


Dr. Lou kept the same office over the years. It was less than one-half mile from the main thoroughfare and located in a neighborhood of single-family dwellings. The building, constructed specifically for the purpose of providing space for physicians’ offices, was situated across the street from City General, the hospital where Dr. Lou continued to maintain staff privileges. Three physicians (including Dr. Lou) formed a corporation to purchase the building, and each doctor paid that corporation a monthly rental fee, which was based primarily on square footage occupied, with an adjustment for shared facilities such as a waiting room and rest rooms. Health Care Strategic Management

Office Layout

One of the physicians, Dr. Salis, was an orthopedic surgeon who occupied the entire top floor of the building. Dr. Lou and the other physician, Dr. Charles, were housed on the first floor. Total office space for each (a small reception area, two examining rooms, and private office) encompassed a 15′ × 75′ area (see Exhibit 8/1). The basement was reserved for storage and maintenance equipment. The reception area and each of the other rooms that made up the office space opened on to a hallway that Dr. Lou shared with Dr. Charles. The two physicians and their respective staff members had a good rapport; and because the reception desks opened across from each other, each staff was able to provide support for the other by answering the phone or giving general information to patients when the need arose Health Care Strategic Management

Also check: Structural and Strategic Family Therapy

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