In a fee for service environment, surgeons can go out and generate more revenue to support their research, and so cross-subsidizing another department would not be that big a problem. But in a capitated system, we’re working more and getting paid less, so we have to think about how we protect our revenue sources. We are not simply a department that is going to go out and do clinical work. We have a research mission and an educational mission.

Dr. Shawn Stevens, Clinical Leader of the Surgery Healthcare Service at the newly formed White Mountain Health Care (WMHC), continued:

As chair of surgery, I worry about both protecting my department’s revenue stream and, at the same time, maintaining the viability of the institution. That’s a complex issue because you have to balance teaching, research and clinical practice, but you have to have clinical productivity to support the teaching and research. For example, the Dean has put together something called FTARS [Faculty Teaching And Reward System] to provide departments with appropriate resources to do their teaching. After collecting data for a year, our analysis showed that surgery was being underpaid by about $900,000 a year, while another department was being overpaid by about $2 million. A few years ago, this wouldn’t have been a big deal but in this environment, we now need those funds. We can’t attract tertiary care providers to this place unless we can find innovative ways to support them. 

Dr. Stevens’ concerns were based, in large part, on WMHC’s first two years of operations. The integrated clinical enterprise had been financially sound in its first year, but had run into financial difficulties in its second year. Although Surgery had done well, it had not been spared the resulting budget cutting. WMHC’s financial difficulties, and the resulting actions to correct them, had led to a lot of stress within the organization and dissatisfaction among some of the surgeons. Now, in November, 2011, as WMHC entered its third year of existence, some of them felt that the commitments and assurances given by the administration at the time of the merger agreement had been abandoned, leading them to question whether they should remain a part of the enterprise. 

Assignment

1. Considering the strategic blueprint in Exhibit 1 and other information in the case, how would you characterize WMHC’s strategy? In particular, what are its unique features? Its strengths and weaknesses? 

2. How does the RFP work? Is it achieving the goals that were established for it at the time of the merger? What, if any, are its flaws? As WMHC moves towards further integration of the professional and institutional budgets, what should the heads of the HCSs worry about in terms of the RFP?

3. What types of responsibility centers are the HCSs, divisions, physicians? What type should they be? Are the performance spider and Dr. Stevens’ compensation criteria aligned? Do they fit with the strategic plan?

4.What impact will the decentralization of responsibility to the division heads have on the department of surgery? What should Dr. Stevens be concerned about as he moves toward decentralization within the department?

5. What is your assessment of the change process at WMHC? In particular, could the budget crisis have been avoided? If so, how?