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Curriculum Center Browse Bibliography Build EPacket Pricing Structure Distribution Process Management Control in Nonprofit Organizations
Priority Health System
Young, David W.
Functional Area(s):
   General Management
   Healthcare Management
Difficulty Level: Intermediate
Pages: 13
Teaching Note: Available. 
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First Page and the Assignment Questions:
We need to look at processes, outcomes, and costs. We’ve recently installed a case-based cost accounting system that will give us the information we need for the latter. Our next step is to work with both physicians and nurses—our clinical care teams, as we call them—to design clinical pathways that include both inpatient and outpatient activities. And, of course, knowledge of our costs is only a very minor first step; we also have to think about how we reduce them consistent with the demands being made on us by our capitated contracts, which now account for about 40 percent of our business.

Edwin James, M.D., CEO of Priority Health System (PHS), and his senior management team, were preparing to implement a clinical pathway for colon cancer. The pathway was to be a major step in PHS’s efforts to achieve clinical integration throughout its network. Dr. James continued:

What we want is a clinical pathway for colon cancer that covers the entire continuum of a patient’s care, from the initial indication of cancer to follow-up. Each delivery site needs access to the patient’s individual history, the drugs with which he or she has had difficulty, and the level of support received at home. We also need linkages to a network of community resources that include services like pain management, support groups, complementary therapies, spiritual support and a variety of other resources tailored to enhance the patient’s care and outcome. The whole system must appear to the patient to be seamless and coordinated. We’ve done a lot of design work over the past year or so, but we now need to take some steps to make it all work.


PHS was the result of a merger among HealthNet, Maryland General Hospital, and Good Samaritan Hospital. The goal of all three organizations was to develop an integrated delivery system that provided quality, coordinated services, at low cost. HealthNet was one of Maryland’s largest managed care organizations. Maryland General Hospital, or “The General,” as it frequently was called, was a 400-bed tertiary and quaternary care institution with major teaching and research activities in addition to patient care. Good Samaritan Hospital (“Sam”) was slightly smaller than The General, but with a similar focus and goals.

In the three years that had transpired since the merger, PHS had acquired or developed an affiliation with many physician group practices, several community hospitals, and a variety of related delivery entities, such as home care agencies, nursing homes, a rehabilitation center, mental health facilities, and hospice.The system had some 12,000 employees, over 50,000 annual inpatient admissions, and an operating budget of over $1 billion. The various organizational relationships are shown in Exhibit 1. . . .


  1. Dr. James says that PHS must be able to manage everything that pertains to a patient’s care. Is the oncology area a good place to start? Why or why not? If not, where should PHS start?
  2. Evaluate the oncology work to date. Do you think PHS is following the right approach? What changes would you make to oncology effort at this point? What would you do differently with the next area?
  3. Where are the tradeoffs between quality and cost most likely to be felt in the oncology change effort?
  4. How would you assess the probably success of the oncology effort?
  5. Where should Dr. James focus his efforts at this point—not for oncology, per se, but for PHS as an entity?