It would appear to make good sense to organize regionally, given the unique characteristics of the different regions that make up the [Penn State Geisinger] system. We understand that each region has developed its own set of relationships with providers in the community and that the regional leadership best understands the needs of its local population. However, several issues continue to challenge this thinking, especially in view of our merger. We need to evaluate our regional model in light of these issues to make sure that it best fits with our long term strategic goals. Above all, we must remain flexible to the ever changing market, and adaptive to the healthcare system’s dynamics.

Frank Trembulak, Executive Vice President and Chief Operating Officer of the The Penn State Geisinger Health System (PSGHS), was reflecting on the issues that the system’s leadership faced in designing a variety of organizational processes for the relatively new (formed in July 1997) integrated health services organization. One of PSGHS’s stated goals was to assume responsibility for arranging all aspects of health services for an enrolled population and to accept accountability and financial risk associated with the services provided. The newly merged system was organized by region (see Exhibit 1), and each region was responsible for its own profitability. This type of structure seemed to make sense given the differences among the regions and their markets. A senior manager commented:

Each region is quite different. One need only look at the extent of at-risk care in the South Central and . . .

Assignment

1. What does the responsibility center structure for PSGHS look like? Please be as specific as possible, addressing both regions and system-wide programs (e.g., Women’s Health and Pediatric Cardiology) and the relationship between them. Is this a good design? If not, how would you change it? Does the system’s measurement and motivation processes (especially the compensation system) fit with your responsibility center design? If not, how would you modify it?
2. For those support services that are administered centrally (e.g., facilities management, IT), should the accounting system be designed to give the above responsibility centers control over costs? If not, who should control these costs and how should they be accounted for? If so, how should the system be designed to accomplish the control objective? What is the impact of your design on total or aggregate system support costs?
3. Given your responsibility center design, where would you expect conflicts to take place (e.g. between regions, between regions and the corporate office), what will they be about, and what approaches should be used to manage them?
4. Outline the steps that should occur in formulating a budget for the Women’s Health Program. What kind of financial and programmatic information should be reported on a regular basis to physicians, other professionals involved in the care delivery process, the program’s managers, the regional managers, and senior management?
5. How should capital investment and programming decisions be made? What role should regions, programs and departments play in the capital investment decision-making process? What should be the threshold for senior management review? In addition to financial criteria, what other criteria should be considered? What role should the health plan play in these decisions?
6. What process should be followed to implement these changes?