Macroeconomics

In the early 2000s, Whole Foods Market Inc. switched to a medical care plan that had a high deductible, which meant that employees were responsible for the first $1,500 of care, whereas after that they received 80 percent coverage. The firm also put about $800 in an account for each employee to use for medical care. If they did not use this money, they could carry it over to the next year.

A. What do you expect happened to medical claim costs?

B. What do you believe happened to hospital admissions?

C. Demonstrate graphically the reasons for your answers in a and b.

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Collen VonLv2

9 Aug 2019

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St. Joseph Health Center in St. Charles, Missouri, is on a quest to improve quality. Although good quality is important in any organization, it is especially vital (and urgent) in a medical setting. St. Joseph is one of 20 hospitals in four states that are operated by SSM Health Care Corp., which is sponsored by the Franciscan Sisters of Mary. In any given year, SSM hospitals admit about 150,000 patients and treat more than 1 million people on an outpatient basis. And SSM was the first health-care organization to win the Malcolm Baldrige National Quality Award, which recognizes the outstanding quality performance of US businesses and nonprofits.

Managers at the 364-bed St. Joseph facility have pursued continual improvment for more than 15 years. Early on, Dr. Filippo Ferrigni, head of the intensive-care unit, found that staff members used slightly different methods for measuring the blood pressure of different patients. He quickly standardized measurements for blood pressure, temperature, and other vital signs. Later, he read research showing that high blood-sugar levels are linked to higher infections risks. Knowing that patients sometimes become infected while in the hospital, he suggested the goal of lowering the blood-sugar levels of intensive-care patients.

Because his colleagues were concerned about possible adverse reactions to such treatment, Dr. Ferrigni initially sought very radual improvements. The results were quite impressive: over-all mortality among intensive-care patients dropped by 40%. To make this new process work, the nurses had to check each patient's blood-sugar level 12 times per day instead of 4 times per day; however, the results convinced them that the extra effor and additional tests were worthwhile. Building on the intensive-care unit's success, hospital management then set a quality goal of lowering the blood-sugar levels of all patients - a decision that cut the facility's overall mortality rate by 28% within three years. Treating a serious infection can cost $35,000 per patient, so reducing incidences of infection not only saved patients' lives, it saved the hospital many thousands of dollars.

The 30/30 program, another of St. Joseph's quality-improvement initiatives, requires emerfency room staff to evaluate seriously ill patients within 30 seconds and complete the patient admission process for in-hospital treament in 30 minutes or less. When the 30/30 program began, the facility was chieving its emergency-room objectives only 65% of the time. After two years, it was meeting its objectives 94% of the time. Management had to hire more staff members to achieve this improvement, which raised the cost of providing emergency-room care by $200,000 annually. The higher cost was more than offset by increases in admissions as St. Joseph gained a higher share of the local market for emergency medical treatment.

Quality improvements have led to financial improvements for St. Joseph and its parent company, SSM. Although SSM had no profits in 1999, it was reporting a net profit of $17 million by 2002, the year it was honored with the Baldrige Award. Winning was wonderful, but as Bill Thompson, SSM's senior vice president for strategic planning, says, "It's not thw award, it's the process that shows how to improve quality." In the course of applying for the award and having its results reviewed by examiners, SSM's management refined the processes for analyzing patient-care operations, setting quality-improvement standards, and assessing performance from internal and external perspectives.

St. Joseph's executives, like the top managers of all SSM institutions, are responsible for fomulating the hospital's strategy for serving the community and making decisons about which medical specialties will be offered. As in other SSM hospitals, senior managers evaluate results in terms of the number of procedures completed, market share, patient and staff satisfaction, revenue, and other measures. Patients benefit, staff members benefit, and the community benefits from SSM's focus on performance: "If the activity's not getting the results we want, then we change the activity. It's the result that's improtant."

Questions
1. Would you recommend that St. Joseph's top managers put more emphasis on efficiency or on effectiveness? Explain.
2. How have St. joseph's quality-improvement initiatives affected capacity strategy and product strategy?
3. Do you think that St. Joseph's executives should use management by exception for controlling emergency-room activites? Explain.