7 Problem Solving and Decision Making in Health Organizati.docx

7 Problem Solving and Decision Making in
Health Organizations
Learning Objectives
After reading this chapter, you should be able to:
• Identify and develop strategies to overcome problem-solving
barriers.
• Apply creative problem-solving techniques to problems facing
managers in health organizations.
• Articulate steps in the analytical problem-solving model.
• Develop engagement strategies for collaboration with
physicians.
• Distinguish between rational and reality-based decision-
making models.
• Apply strategies for improving the decision-making process in
health care organizations.
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Back to Basics:
Patient Safety Begins With Clean Hands
A member of the Maryville Community
Hospital board of directors circulated
a newspaper article at a monthly board
meeting referencing studies showing that
hospital workers failed to wash or sani-
tize their hands up to 70% of the time
they treated patients (Hartocollis, 2013).
He was horrified to think this might be
the case at Maryville; he just assumed
that in a hospital, everyone would follow
this basic hygiene practice.
The chief of the medical staff expres-
sed her concern about increasing out-
breaks in hospitals throughout the nation
of methicillin-resistant Staphylococcus
aureus (MRSA), a bacterial infection
highly resistant to many antibiotics,
and specifically about the potential for a
MRSA outbreak at Maryville. The chief financial officer (CFO)
informed the board that, in addi-
tion to patient safety considerations, there were new financial

penalties when Medicare patients
developed preventable infections. The director of nursing noted
that Maryville policies and proce-
dures required all staff members, physicians, and volunteers to
apply hand sanitizer from dispens-
ers installed throughout the hospital (including wall dispensers
outside each patient room) before
entering and after leaving a patient’s room or to wash their
hands within 10 seconds of entering
and again before leaving a patient’s room. Some nursing unit
supervisors regularly wrote up staff
members who failed to comply with the policies, but others did
not. The director of volunteers stated
that visitors had complained to volunteers about nurses and
physicians who failed to sanitize or
wash their hands.
The board resolved to make hand sanitation a top priority at
Maryville. They directed the CEO to
study the situation and report back to them as soon as possible
with a plan for ensuring that 99%
of Maryville staff members, physicians, and volunteers follow
the procedures.
Critical Thinking and Discussion Questions
1. Who should be involved in resolving this problem and why?
2. What are some of the possible causes for noncompliance?
3. What information is needed to determine the factors involved
in the noncompliance?
4. Is this an individual behavior problem or an operational
process problem?
Wavebreakmedia Ltd/Thinkstock
Health care workers should wash their hands before
and after treating patients—but not all do.

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Section 7.2Problem Solving
7.1 Introduction to Problem Solving
and Decision Making
This chapter delves into the process of solving problems and
making decisions in health
organizations. After an examination of problem-solving
barriers, examples of creative
problem-solving approaches and a discussion of problem-
solving models provide a frame-
work for health-care professionals to successfully resolve
different types of problems they
are likely to encounter in the workplace. A general discussion
of decision models, decision
support tools, and the decision-making process precedes a more
industry-specific discus-
sion of decision making in health organizations.
7.2 Problem Solving
Administrative work is, to a great extent, solving problems. The
ability to resolve prob-
lems swiftly and effectively while still maintaining positive
relationships is essential to
success as a manager and leader. Managers in health
organizations face many differ-
ent types of problems related to patient care, community
expectations, financial viabil-
ity, employee relations, and regulatory compliance. Many of

these problems are wicked
problems: Complex, ambiguous, and difficult to analyze
accurately, and the stakeholders
involved hold differing but strong and highly emotion-based
opinions on both the nature
of the problem and how to solve it. Furthermore, these types of
health-care organizational
problems can rarely be solved by one individual or by groups
representing one discipline
(Buchbinder, 2009).
Problem-Solving Barriers
Health organization managers face a number of constraints on
their ability to solve prob-
lems. Among the most commonly cited are the volume and
variety of problems, the differ-
ing perspectives of stakeholders, the interdependency of
organizational work units, and the
diffusion of decision-making power (Whetten & Cameron, 2011;
Buchbinder & Shanks,
2012). Health care organizations are also under increasing
pressure to increase productiv-
ity, with fewer people doing more work.
Conceptual Blocks
Resulting primarily from the thinking processes that people use
when faced with prob-
lems to solve, conceptual blocks are mental obstacles that make
it difficult to define
problems clearly and develop a wide range of alternative
solutions. They are largely
unconscious, are developed from experience processing similar
types of information to
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filter out irrelevant data, and prevent
the problem solver from recognizing
and registering some types of infor-
mation (Whetten & Cameron, 2011).
In health care organizations a strong
record of compliance with accredita-
tion or licensing requirements may
produce an attitude of complacency,
which inhibits innovative thinking
and creative problem solving.
Insularity
According to a study that examined
board compositions at 660 of the
largest U.S. corporations (Murphy &
Chasan, 2013), involvement in other
companies’ governance offers execu-
tives valuable experience that enhances performance at their
own employing organiza-
tions. While it is common practice for active or retired CEOs to
serve on outside corporate
boards, few other current or former C-level executives hold
board seats; for example, in
the companies studied, just 6% of all directors were active or
retired CFOs. Yet companies
whose CFOs served on other firms’ boards showed greater
shareholder returns than com-
panies whose CFOs did not hold outside board positions.
Outside directorships provide
the CFOs with exposure to other firms’ financial practices and
the opportunity to learn

new financial management techniques. The CFOs serving on
outside boards broadened
their perspectives on financial management and felt they
became more confident and
effective when working with their own boards. Insularity often
results in complacency.
Exposure to other organizational and industry problems and
problem-solving practices
offers opportunities for health-care professionals to enhance
their problem-solving skills.
Complexity
Many problems derive from the discrepancy between what
people observe and what they
believe they should see or the way things should be. The
traditional managerial approach
when confronted with such a situation is to identify the cause of
the discrepancy and
set about fixing it. However, different organizational
stakeholders may have a different
perspective of the problem—if they even perceive a problem—
and quite different points
of view on other issues of more concern. Thus, health
organization managers need to rec-
ognize that there will be multiple interpretations of events that
occur resulting from the
various ways that others might perceive them. They also need to
be prepared to deal with
surprises and respond flexibly to unanticipated events. Effective
managers use whatever
resources and tools are available to achieve the goals of the
organization, celebrating small
wins and learning from small failures (Weick, 1984; McDaniel
& Jordan, 2009).
Learning From Small Failures

Sentinel events are major mistakes in health organizations that,
when discovered, are
likely to trigger formal investigations and result in large-scale
corrective-action initiatives—
Comstock Images/Stockbyte/Thinkstock
Managers in health organizations face many obsta-
cles to solving problems.
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especially those that result in regulatory sanctions and garner
media attention. Few health
organizations seek to systematically track, analyze, and learn
from small mistakes in busi-
ness or care-delivery processes. Yet these small failures are
“early warning signs which, if
detected and addressed, may be the key to avoiding
consequential failures in the future”
(Edmondson, 2004, p. ii3).
To illustrate the benefits of organizational learning from small
failures, a large multispe-
cialty medical group experienced an error rate of 10% to 15%
reading mammograms, a
figure that was considered normal given some of the inherent
difficulties in reading mam-
mograms accurately. A new director of radiology considered
this error rate unacceptably
high. Challenging the organization’s complacency, he undertook
a detailed analysis of

longitudinal data to discern patterns of missed tumor diagnoses
and determine the error
rates for individual radiologists. He fired several physicians
with disproportionately high
error rates and reassigned several others who were not reading
enough films and thus not
accumulating enough data for their performance to be assessed.
By this deliberate effort
to learn from its mistakes, the medical group significantly
reduced its error rate for mam-
mogram readings (Moss, 2002; Edmonson, 2004).
Creativity and Innovation
The ability to solve problems creatively is a valued skill for
managers in health organi-
zations: “Creative problem-solving ability often separates
career successes from career
failures, heroes from goats, and achievers from derailed
executives. It can also produce a dra-
matic effect on organizational effectiveness” (Whetten &
Cameron, 2011, p. 174). To become
a more creative problem solver involves developing multiple
approaches to creativity.
Innovation and Flexibility
When addressing a new problem, the normal tendency is to draw
on precedent and
experience to define and make sense of the situation. However,
familiar ways of viewing
and interpreting things can be inad-
equate for new and tough challenges.
Leclerc and Moldoveanu (2013) pro-
pose an approach using flexons, or
problem-solving languages. Flexons

originated from research on metal
alloys that returned to their original
shape after being bent or dented.
Adapting this idea to business prob-
lems, flexons facilitate the adapta-
tion of lessons learned from diverse
experts. Applying multiple flexons
to the same problem generates richer
insights and more innovative solu-
tions for individuals, groups, and
organizations attempting to solve
very difficult problems.
Jamtoons/iStock/Getty Images
There are many different methods and activities
involved in problem solving.
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Two flexons are particularly relevant for health organizations.
The networks flexon is
similar to social network analysis, a technique used by
sociologists to map relationships
between individuals and groups in order to identify patterns of
communication and the
most influential individuals. The networks flexon could be a
useful technique in several
types of health organizations because physician opinion leaders
influence so many orga-
nizational decisions, such as which drugs to prescribe or which
medical devices to use. To

identify the most influential physicians and reveal the
relationships among them:
• A pharmaceutical or medical device manufacturer could create
a network map of
physicians who have coauthored articles in medical journals.
• A health plan could create a map of physicians in contracted
medical networks
that includes the hospitals where they had staff privileges and
committee
appointments, as well as any medical school appointments.
• A hospital could analyze the admitting patterns of medical
staff specialists with
the highest contributions to the hospital profit margin. It could
then identify the
primary care physicians who refer patients to them to develop a
referring physi-
cian marketing plan that would bolster referrals to these
specialists and increase
admissions of better paying patients to the hospital.
Delineating relationships among individuals and entities makes
it possible to target clus-
ters of physicians who share the same ideas as coauthors or who
share different organiza-
tional affiliations in community and educational institutions.
The evolutionary flexon involves the use of optimization
algorithms to quickly filter out
suboptimal solutions in situations where businesses have a large
number of variables to
consider and limited resources to calculate the effects of
changing them. Use of the evolu-
tionary flexon would help health organizations that were

considering introducing a new
product or service that has many choices to make about its
features and modes of delivery.
Developing a series of small-scale pilot projects to test and
learn from patient and stake-
holder reactions allows the organization to refine and improve
the product or service and
the delivery process in a cost-effective manner.
Web Field Trip: Tonic Health: A Stimulus for
Patient Engagement
Tonic Health (https://www.tonicforhealth.com) offers a number
of health applications that
allow patients to communicate with their health care providers
about their health and health
care experiences through their computers, tablets, or
smartphones—or provide this information
on an electronic device supplied by the provider. Take a tour of
the website, watch the video,
download and test the free demo app, then answer the following
questions.
1. What problem does Tonic Health address?
2. How serious a problem is it?
3. What is the impact of incomplete or inaccurate patient data?
4. How would you decide whether or not to purchase a Tonic
Health solution for your
organization? Describe your decision-making process.
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https://www.tonicforhealth.com

Incremental Creativity
While most people think of creativity as generating entirely new
ideas based on imagina-
tion, there are several other ways to achieve it. Improving a
product or service or a busi-
ness function through incremental improvements on existing
ideas is less dramatic than
inventing something entirely new, but it is essential to
organizational success. Applying
organizational theorist Karl Weick’s (1984) small wins strategy,
these modest improve-
ments generate both momentum toward and confidence about
achieving a larger desired
goal. Kotter (1995) considers creating short-term wins as one of
the essential steps in his
organizational change model; recommending that aspiring
change agents develop strate-
gies to achieve small but visible performance improvements,
while also recognizing and
rewarding the employees responsible for achieving them.
Examples of this type of creativity in health care organizations
include:
• Urgent care centers that allow people who need or want
medical treatment right
away for a condition that is not so serious that they need to go
to a hospital emer-
gency room. Originally disparaged as “doc-in-the-box”
practices, today they are
operated by hospitals and medical groups as a cost-effective
alternative to crowded
and expensive hospital emergency rooms.

• Hospitalists are physicians who oversee the care of patients
while they are hospi-
talized. Usually internal medicine or other primary care
physicians, they coordi-
nate with both the patient’s primary care physician and the
different specialists
who provide consultation or treatment, as well as with the
nursing team, to ensure
a smooth admission and discharge process and monitor follow-
up care.
Theory in Action: Brilliant Health Ideas
Each year, Entrepreneur magazine publishes a list of 100
Brilliant Companies—10 businesses
in 10 categories—that turn bright ideas into business solutions.
Health was one of the 2012
categories in which many companies developed technology-
fueled innovations. Topping the
list was Tonic Health, a software company that devised a fun
way for patients to provide their
medical histories for an electronic medical record. Patients can
complete the history using a
computer, tablet, or smartphone—and are more likely to fully
answer the questions than when
using paper and pencil.
Other brilliant health companies and their products are listed in
Table 7.1 (Wang, 2012). These
companies and their products exemplify the principle of
disruptive innovation, a theory
developed by Harvard Business School professor Clayton
Christensen and applied to health care
with Harvard colleagues in the schools of medicine and
government. Disruptive innovation is a
term to describe how industries are transformed by companies

that provide products and services
that are dramatically more accessible, convenient, and
affordable for customers. In the health
care sector disruptive innovation primarily involves (a)
transferring skills from highly trained,
expensive clinicians to more affordable providers, including
technology-based care; and (b) site
shifts from hospitals to outpatient, home, and virtual settings
(Townsend, 2013). The products and
services listed in Table 7.1 are just a few examples of disruptive
health care innovations.
(continued)
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Theory in Action: Brilliant Health Ideas (continued)
Table 7.1: Entrepreneur magazine’s 2012 innovative health care
business solutions awards
Company Name Website Product/service
description
Ringadoc http://www.ringadoc.com Telecommunications soft-
ware that connects patients
to their physicians 24 hours
a day, 7 days a week; auto-
mates after-hours answering
service yet allows call triag-
ing and personal response.

Foodzy https://foodzy.com Gamification for healthy
eating. The app and website
let users keep track of eating
habits to reach a goal weight.
Lark Technologies http://www.lark.com Makers of a silent “un-
alarm”
clock, sold in Apple Stores,
that uses a sleep sensor
to monitor, analyze, and
improve sleep habits.
Sickweather http://www.sickweather
.com
Sifts through status updates
on social media and posts
illness trends to a map. Users
can add symptoms to the
site or search in their area for
illnesses, down to the street
level.
6dot Innovations http://www.6dot.com Portable device that
makes
embossed Braille adhesive
labels to help the blind bet-
ter maneuver in their own
environments.
GTX Corp http://www.gtxcorp.com Shoe with a miniature GPS
tracking device embedded
in the heel for wandering
Alzheimer’s patients.
(continued)

fra81455_07_c07_181-210.indd 188 4/23/14 9:21 AM
http://www.ringadoc.com
https://foodzy.com
http://www.lark.com
http://www.sickweather.com
http://www.sickweather.com
http://www.6dot.com
http://www.gtxcorp.com
Section 7.3Problem-Solving Models
Company Name Website Product/service
description
CareZone https://carezone.com Subscription service that
provides caregivers with a
secure online area to orga-
nize information such as
medical files and emergency
contact information. A
profile for each patient can
be created and shared with
relevant contacts.
Mobi http://www.mobilegs.com Mobilegs, ergonomic
crutches designed for com-
fort, greater stability and a
reduced risk of secondary
injuries.
WhichDoc http://www.crunchbase
.com/company/whichdoc

This New York City start-up
digitizes word-of-mouth rec-
ommendations by tapping
users’ social networks for
doctor and dentist referrals.
Source: Wang, J. (2012, May 22). Tonic Health brings fun and
games to boring health forms. Retrieved June 24, 2012,
from Entrepreneur website:
http://www.entrepreneur.com/article/223613
Reflection Questions:
1. What type of health organization would each of these new
products or services affect?
2. Do any of these new companies represent a threat to existing
health care organizations?
Explain your answer.
3. How might health organizations partner with these new
companies to provide better
care to their patients? Give specific examples.
Theory in Action: Brilliant Health Ideas (continued)
Table 7.1: Entrepreneur magazine’s 2012 innovative health care
business solutions awards (continued)
7.3 Problem-Solving Models
Since so much of a manager’s job involves solving problems,
managers need to use a vari-
ety of problem-solving approaches to function effectively. At
the executive level, health
care organization leaders are faced with wicked problems that
often require considerable
time and resources to resolve; information may be ambiguous or

limited, and alternative
fra81455_07_c07_181-210.indd 189 4/23/14 9:21 AM
https://carezone.com
http://www.mobilegs.com
http://www.crunchbase.com/company/whichdoc
http://www.crunchbase.com/company/whichdoc
http://www.entrepreneur.com/article/223613
solutions are not readily apparent. At lower management levels,
the problems are relatively
straightforward, information is available or can be obtained (at
least with some effort and
internal resources), and there is a clear connection between the
means to solve the problem
and the reason to solve it. The major challenge for managers is
to solve problems quickly yet
rationally, so that solving one problem does not evolve into or
create another.
Analytical Problem Solving
When faced with a number of problems at once or with what
seems like a never-ending
series of problems, the natural tendency is to select the first
reasonable solution that comes
to mind, or the one that seems the easiest to implement. As
discussed in Chapter 1 (see
discussion of bounded rationality and satisficing), busy
managers and professionals have
limited time and resources to obtain and process information
and identify and objectively

evaluate alternative courses of action. Pressured by time and
with myriad problems to
solve, they look for a solution that will be satisfactory rather
than optimal—which, in most
cases, is good enough for the firm to operate efficiently and
achieve its objectives—a process
described by an early management scholar as muddling through
(Lindblom, 1959). In some
cases, however, problem-solving shortcuts have had a negative
effect on organizational suc-
cess and, in extreme cases, on organizational survival (Goll &
Rasheed, 1997).
The classic analytical problem-solving model, which forms the
foundation of the quality-
improvement process, has four distinct steps:
1. Define the problem. This step involves diagnosing a situation
to discover the
underlying causes as well as the symptoms of the problem.
Thus, it often requires
a wider search for information from data or human sources. It is
also important
to distinguish facts from opinion and focus on behavior rather
than perceptions
or interpretations. Another key element in this step is to
determine whose prob-
lem it is, how it affects other individual and groups, and
whether it violated a
standard or an expectation. If the latter, one must assess
whether the expectation
is reasonable and realistic.
2. Generate alternative solutions. This step requires waiting to
select a solution until
several are on the table, rather than agreeing to the first

acceptable suggestion. Bet-
ter ideas may be proposed as people spend more time thinking
about alternatives
and their longer range effects or as more people contribute their
ideas.
3. Evaluate alternatives. This step involves careful
consideration of the pros and
cons of all proposed alternatives. The objective is to find the
best alternative, not
the most expedient one. It is often helpful to establish a
standard and specify
criteria for the “best” outcome, including weighting the criteria
according to their
importance.
4. Implement and follow up on the solution. Whichever strategy
is selected will
generate some resistance, because it will involve a change to
resolve the problem.
For this reason it is advisable to develop an implementation
strategy for commu-
nicating the solution to those affected by it and planning with
those individuals
or organizational units on how to put it into effect. When
feasible, implementing
fra81455_07_c07_181-210.indd 190 4/23/14 9:21 AM
a solution incrementally and beginning with the easiest parts
defuses resistance
and creates support through the achievement of small successes

(Weick, 1984).
5. Obtain and evaluate feedback. Tracking and monitoring
implementation of
the strategy is important to document and celebrate progress as
well as to make
necessary modifications if problems arise. The feedback and
evaluation can result
in repeating the cycle.
Table 7.2 and Table 7.3 present a simple model for evaluating
proposed alternative solutions
to the problem presented by an organizational mandate to
increase the proportion of women
and minority managers. Each alternative is scored according to
agreed-upon attributes and
weighted according to importance. Multiplying the level
measure by the attribute weight
yields an attribute score for each item; the total score is the sum
of the attribute scores. In
the sample alternatives being evaluated, the organization is
considering: alternative 1, a
turnkey program from an external vendor that would cost
$65,000, take 2 months to imple-
ment, and consume an estimated 50 hours of human resources
staff time; and alternative 2,
having the human resources department develop a diversity
recruitment initiative, which
would involve no direct cost, take 6 to 12 months to develop
and implement, and consume
approximately 300 hours of human resources staff time.
Table 7.2: Model for evaluating alternative solutions:
Alternative 1
Attribute Level measures Attribute

weight
Level value Attribute
score
Direct cost >$150,000 = 0
$100,001–$150,000 = 25
$50,001–$100,000 = 50
$25,001–$50,000 = 75
<$25,000 = 100
.50 50 25
Time to
implement
>1 year = 0
6 months–1 year = 50
3–6 months = 75
<3 months = 100
.20 100 20
Estimated
staff time to
implement
>201 hours = 0

51–200 hours = 50
0–50 hours = 100
.20 100 20
Total score 1 (100%) 65
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Table 7.3: Model for evaluating alternative solutions:
Alternative 2
Attribute Level measures Attribute
weight
Level value Attribute
score
Direct cost >$150,000 = 0
$100,001–$150,000 = 25
$50,001–$100,000 = 50
$25,001–$50,000 = 75
<$25,000 = 100
.50 100 50
Time to

implement
>1 year = 0
6 months–1 year = 50
3–6 months = 75
<3 months = 100
.20 50 10
Estimated
staff time to
implement
>201 hours = 0
51–200 hours = 50
0–50 hours = 100
.20 0 0
Total score 1 (100%) 60
Comparison of the two alternatives using weighted attributes
yields a slightly higher
score for alternative 1. When faced with a selection decision in
which there are multiple
factors of varying degrees of importance to consider, this
approach can be useful. The
challenge is gaining agreement on the attributes and their
weights.
Breakthrough Thinking

Leading strategists at the McKinsey & Company management
consulting firm propose a
new approach for developing breakthrough ideas: Instead of
asking people to think out-
side the box, they advocate presenting people a new box and
asking them to think inside
it. The key to improving a product or service is often to make it
easier to obtain and use,
especially for people who are older; disabled or in poor health;
experiencing a physical or
mental illness or a high degree of stress; have limited resources,
literacy, or English profi-
ciency; or any combination of these conditions. One set of
questions particularly germane
to health organizations is designed to examine what makes a
product or service difficult
to use, with questions that focus on how to improve the
usability of a product and dis-
cover underserved market segments (Coyne, Clifford, & Dye,
2007). Applying these ques-
tions to the medical answering service industry, Ringadoc offers
an illustrative example of
thinking inside a new box, with answers in italics.
• What is the biggest hassle about using or buying our product
or service that people
unnecessarily tolerate without knowing it? Conventional “live”
physician answering
services are often expensive and staffed by incompetent
operators, yet patients dislike auto-
mated systems and express their dissatisfaction with them
through complaints to their
health plans and lower patient satisfaction ratings.
fra81455_07_c07_181-210.indd 192 4/23/14 9:21 AM

• For which current customers is our product least suited?
People with hearing or
speech problems who are unable to use computers or the
telephone.
• Which customers does the industry prefer not to serve and
why? Physicians serv-
ing ethnically diverse patients with limited English proficiency.
• Which customers could be major users if only we could
remove one specific bar-
rier we have never considered? Physicians with busy practices
seeking an affordable,
easy-to-use answering service with minimal switching costs.
Collaboration
Collaboration, or cooperation between agencies that are not
formally connected, is increas-
ingly important due to the complex interrelationships among
organizations serving a com-
munity. As the lines between individual and population-based
health blur, private and
public health care organizations rely on each other to develop
comprehensive solutions to
community problems and improve community health outcomes
(Novosel & Sorensen, 2010).
Community Stakeholder Engagement
Health care organizations are highly visible and valued
institutions and play an integral

role in the communities they serve. Many hospitals, for
example, are among the largest
employers in the cities where they are located. Most are not-for-
profit organizations with
an explicit community service mission, and the 2010 health
reform legislation requires
them to document their community benefit activities. However,
regardless of whether
their corporate status is for-profit or not-for-profit, health
organizations engage in a wide
variety of relationships with the external environment,
including charity care, community
educational and wellness programs, and political issue
advocacy.
Although health organizations have a long-standing tradition
and a strong record of
corporate social responsibility, the expectations of both citizens
and governments have
increased, as has their power to scrutinize and talk about what
the organization does. Since
the advent of social media and electronic communications,
patients and advocacy organi-
zations are able to observe or gain access to most business
activities and instantaneously
talk about them positively or negatively at almost no cost. For
this reason, health care
organizations must develop more effective ways to engage with
both individual and orga-
nizational stakeholders. Effective external engagement not only
helps build, strengthen,
and protect an organization’s reputation, but it can also enhance
efforts to attract new
customers, motivate employees, and gain allies in government
(Browne & Nuttall, 2013).

To effectively manage their relationships with external
stakeholders, health organizations
must consider and integrate external engagement into their top-
level strategies and their
routine business operations. Research with leaders of
organizations that excel in exter-
nal engagement and are highly regarded for their corporate
social responsibility revealed
four ways to incorporate external engagement into everyday
business decisions through-
out the organization (Browne & Nuttall, 2013):
fra81455_07_c07_181-210.indd 193 4/23/14 9:21 AM
1. Define the contribution of the organization to the community.
The Patient
Protection and Affordable Care Act of 2010 requires all
nonprofit hospitals to
periodically conduct a community health–needs assessment and
report and
quantify the value of what they have done to meet those needs.
This mandate for
nonprofit hospitals to justify their exemption from corporate
income and prop-
erty taxes is a public relations opportunity in disguise, because
it allows hospitals
to be explicit about how fulfilling their mission benefits their
communities.
2. Know your stakeholders. All businesses rigorously seek to
know their custom-
ers; health organizations need to devote equally intensive

efforts to knowing
their stakeholders, which include customers/patients and their
families and a
host of other groups and organizations. Effective external
engagement demands
a detailed knowledge of stakeholders’ preferences and
resources: What they
want, how and when they want to obtain or receive it, where
they are willing
to compromise if they cannot afford what they want, and what
resources and
influences they can draw on to get what they want. Unlike other
sectors where
economic resources are the key determinant of power and
influence, in health
organizations other types of power may be more important. For
example, dis-
ability advocacy organizations successfully lobbied for years to
exempt disabled
Medicaid beneficiaries from requirements for mandatory
enrollment in managed
care health plans.
3. Apply world-class management. External relationship
development and man-
agement skills are becoming a necessary skill for C-level
executives, and at every
level managers must consider the impact of their decisions on
stakeholders and
the implications of those impacts for the organization. Results
of external engage-
ment are hard to measure because the financial benefits of
engagement activities
are often indirect or oriented toward fulfilling long-term goals.
Sometimes the
closest proxy measure of the value external engagement adds is

stakeholder satis-
faction as measured by surveys, participation in activities,
increased expressions
of support or decreased complaints, scores on regulatory
surveys, and the like.
4. Engage thoroughly. Successful external engagement is
deliberate, thoughtful,
and proactive—not a reaction to a decrease in market share, a
drop in census,
publicity about an adverse event, or a negative regulatory
agency action. It takes
a long time to gain stakeholder trust, yet it can be lost in an
instant. It is also
important to make strategic alliances with stakeholders—or to
act alone when
the occasion warrants.
For example, in 1994 California became the first state to pass a
law mandating minimum
nurse-to-patient ratios for hospitals. The California Hospital
Association (the state chap-
ter of the American Hospital Association) vigorously opposed
the legislation because it
would substantially increase labor costs, and the association
delayed its implementation
until 2004. The Kaiser Permanente Hospital Foundation
weakened the industry trade
association’s position with its decision early in the legislative
debate to support the law,
implementing (and in some cases exceeding) the proposed
staffing ratios in its 19 hos-
pitals throughout the state (Nelson, 2008). For this decision,
Kaiser received severe criti-
cism from the state hospital association but greatly strengthened
its relationship with staff

nurses and the unions representing them. Recognizing that it
could not please everyone
in this situation, Kaiser chose to stand alone and support its
nurses and their union as
stakeholders essential to the successful functioning of its
hospitals and the Kaiser Perma-
nente health system. An important consideration was that Kaiser
Permanente health plan
members belong to private and public sector unions.
fra81455_07_c07_181-210.indd 194 4/23/14 9:21 AM
Collaboration With Physicians
Physicians are unique and critical stakeholders in the health
care system, yet it is often
difficult for health care administrators to fully engage them for
collaborative multidisci-
plinary problem-solving activities. One explanation for this
difficulty is that physicians
are trained to value and promote autonomy as practitioners;
only since the early 2000s has
their medical training required specific competencies for
working in teams (Dunnington
& Reed, 2003). Another contributing factor is the complex
structure for physician account-
ability and governance that has evolved in health organizations
to protect the sanctity of
the patient-physician relationship. As a result, physicians have
little training or opportu-
nities to gain experience in collaborative problem solving
(Spurlock, 2010).

Understanding physicians is key to involving them in
collaborative problem-solving
efforts. Physician resistance to collaborative efforts is often
based on the perception that
participation will increase their workload and reduce their
incomes by taking time away
from their practices. Having competent administrative team
members to whom physi-
cians can delegate tasks is essential to minimize demands on the
physicians’ time and
demonstrate that the organization values their time. Whenever
possible, the organization
should provide financial support to cover lost practice time
costs for team meetings and
work with physician peers to implement the project.
Identifying a physician champion for a particular problem-
solving project is essential
to successful physician collaboration—ideally one who
possesses most of the following
qualities:
• passionate about the project and a strong internal motivation
to promote it over
other competing projects;
• dissatisfied with the status quo, even if it is acceptable to
many;
• systematic rather than transactional view of the project;
• clinically respected by peers;
• pragmatic, with good judgment; and
• courageous and willing to stand up for and defend his or her
position (Spurlock,
2010).

Once the champion is identified and joins the team, it is
incumbent on the project leader to
support the physician by nurturing his or her communication
skills and leadership abili-
ties and to recognize and respect his or her contributions.
Collaborative Problem-Solving Process
While the benefits of collaboration usually outweigh the
disadvantages, not all problems
can be solved by collaboration. An important initial step in a
proposed collaborative effort
is to assess the readiness of the organization, the collaboration
team, and its participants
by asking the following questions:
• Does the problem lend itself to a collaborative approach,
requiring input and com-
mitment from a diverse group of stakeholders?
• Are there clearly identifiable benefits of collaboration as a
means of resolving
this problem or completing this project? Will the collaborative
process serve as a
means for the collaborators to build or strengthen their working
relationships?
fra81455_07_c07_181-210.indd 195 4/23/14 9:21 AM
• Is everyone clear on the reasons for collaborating?
• Is there a strong, knowledgeable, and engaged team leader?
• Are the team members the right people, with sufficient
authority to make deci-

sions for their organizations or organizational units? It is
advisable to confirm
rather than assume that they do have this authority.
• Do the team members understand what collaboration means?
• Do all team members understand their roles and
responsibilities?
• How strongly are the team members and their organizations
committed to the
collaboration?
• Do the team members’ organizations value collaboration and
support the work
of the team?
• Are the participants willing and able to devote sufficient time
to the
collaboration?
• Do the team members have experience working together?
What have been the
results of prior collaborations?
• How will the results of the collaboration be measured?
• Is there a clear end point to the collaboration (Novosel &
Sorensen, 2010)?
If the readiness assessment indicates that a collaborative
approach to resolving a problem
is best and feasible, the next steps are to
1. recruit the right people; effective collaborations consist of
people who are com-
mitted to the collaboration, able to make decisions on behalf of
their organiza-

tions, able to devote sufficient time to the work of the
collaboration, and able to
resolve problems in a timely manner;
2. establish preliminary outcome objectives and identify major
activities;
3. convene the collaboration in an organized fashion, with an
agenda that includes
recommendations for its structure, goals, and activities;
4. identify and secure necessary resources for accomplishing the
collaborative
goals—the most important of these will usually be team
members’ staff time and
access to data;
5. establish ground rules and expectations for members such as
membership cri-
teria, participation obligations (e.g., designation of an alternate
representative
when a member cannot attend a meeting), the decision-making
process, commu-
nication protocols, and work to be completed between meetings;
6. maintain vitality by recruiting and involving new or
replacement members,
sharing and synthesizing information (such as best practices by
organizations
involved in similar collaborations), celebrating and sharing
news of successes,
and recognizing individual and organizational contributions;
and
7. obtain feedback and use it to improve the collaboration in
terms of both process

and outcomes (Novosel & Sorensen, 2010).
fra81455_07_c07_181-210.indd 196 4/23/14 9:21 AM
Section 7.4Decision Making
7.4 Decision Making
Health-care professionals go through much of their daily work
without making wicked
decisions, but as their level of responsibility increases, more of
their work involves mak-
ing difficult decisions rather than just completing tasks or
following a routine. Alemi and
Gustafson (2007) identify five components of a decision:
1. Multiple alternatives are available.
2. Each alternative leads to a series of consequences.
3. The decision maker is uncertain about what might happen.
4. The decision maker has different preferences about outcomes
associated with
various consequences.
5. A decision involves choosing among uncertain outcomes with
different values.
(p. 3)
It should also be noted that there may be more than one decision
maker, which is often
the case in large organizations where decisions are ostensibly
made by senior manage-
ment teams.
Decision Models

Organizational theorists have identified two primary types of
decision making, both of which
occur in health organizations: Willful choice and “garbage can”
models. These models are
based on fundamentally different assumptions about how people
behave in organizations.
Willful Choice
The willful choice, or rational, model assumes that people in
organizations make deci-
sions based on reason, in an intentional manner, through a
thoughtful and deliberate pro-
cess that results in an optimal decision. It involves six
sequential steps:
1. Identify the problem.
2. Collect data.
3. List all possible solutions.
4. Test possible solutions.
5. Select the best course of action.
6. Implement the solution based on the decision made. (Ledlow
& Coppola, 2014,
pp. 139–140)
fra81455_07_c07_181-210.indd 197 4/23/14 9:21 AM
Garbage Can
The garbage can, or reality-based, theory assumes that decisions
are made on a sloppy
and haphazard basis, similar to satisficing or “muddling

through” as discussed in the
“Analytical Problem Solving” section. It evolved from the
recognition that organizational
decision making is seldom as logical and orderly as the willful
choice model suggests.
In health care organizations participants in the decision-making
process often have con-
flicting views of the problem, possess limited time and
resources to collect data, and are
constrained considering all possible solutions by regulatory
compliance requirements. As
well, time and financial resource limits make it unreasonable to
test possible solutions.
The garbage can is a metaphor for
the way that many business decis-
ions are actually made. As depicted
in Figure 7.1, problems, solutions,
energy, and participants are dumped
into the can; when the can is full, a
decision is made. Problems, solutions,
and decision makers vary according
to the mix of recognized problems,
the choices available, the solutions
available for solving the problems,
and external influences on the deci-
sion makers. Problems are identified
and resolved based on shifting com-
binations of problems, solutions, and
decision makers. In this sense deci-
sion making appears random, arbi-
trary, political, or capricious instead
of rational. The garbage can theory
allows problems to be addressed and
choices to be made, but poorly under-

stood and addressed problems can drift into and out of the
garbage can process, depending
on the situation and factors (Cohen, March, & Olsen, 1972).
Decision Support Tools
A wide variety of tools and techniques for making and
analyzing business decisions are
available, ranging from simple to extremely complex. They are
most commonly used by
analysts rather than executives. In many health organizations
executives increasingly call
on analysts who are proficient in using highly sophisticated
quantitative methods for
decision support and use the analysts’ findings to make and
justify decisions. Wise lead-
ers appreciate the need for sophisticated analytical methods to
support difficult decision
processes, as well as the benefits of using them (Caldwell,
2006).
Figure 7.1: The garbage can decision process
The garbage can theory proposes that decisions result from
a random mix of people, problems, solutions, and choices.
Solution
s

Participants
Problems
Choice
Opportunities
The Decision
fra81455_07_c07_181-210.indd 198 4/23/14 9:21 AM
Six Sigma and Lean
Originally developed at Motorola in the 1980s to improve
product and service quality,
Six Sigma focuses on defects per million opportunities and aims
for a performance level
of 3.4/1,000,000—which equates to almost zero defects. Highly
data driven, Six Sigma
emphasizes defect prevention over detection through reducing
variation and waste. In
health and other service organizations, a defect is anything that

results in customer dissat-
isfaction. As with other analytical approaches, Six Sigma is
driven by measurement. The
primary metrics used by health organizations, individually or in
varying combinations,
are service level, service cost, customer satisfaction, and
clinical excellence. While these
metrics are extremely important and relevant in health
organizations, they are difficult to
apply (Bandyopadhyay & Coppens, 2005).
Health organizations are increasingly using Six Sigma in
combination with Lean
management, a complementary approach designed to identify
dysfunctional systems
and processes that inhibit clinician effectiveness, such as
onerous documentation require-
ments, and empower employees at all levels of the organization
to suggest ways to sim-
plify and synchronize processes and thus save time. Typically,
to undertake a Six Sigma
or Lean initiative, staff must undergo a comprehensive training
program by certified pro-
fessional Six Sigma/Lean trainers. To effectively implement
Lean and Six Sigma, health

organizations should invest in training managers not only in the
theory and techniques of
these approaches, but also in their practical approaches
(Caldwell, 2006).
Decision Trees
Decision trees provide a means to consider both value (often
expressed as cost) and uncer-
tainty by graphing the possible consequences of alternative
courses of action and their
estimated impact (Alemi & Gustafson, 2007). For example,
many hospitals are struggling
to close budget gaps, especially those that serve a high
proportion of Medicaid and unin-
sured patients. To remain fiscally viable they must increase
revenue, reduce spending,
or both. There are a number of alternative courses of action to
achieve either or both
objectives, as displayed in Figure 7.2. An unknown factor that
will influence the course of
action is the estimated impact of the Patient Protection and
Affordable Care Act of 2010,
now commonly called the ACA as noted in the diagram in
Figure 7.2. The Disproportion-
ate Share Hospital subsidies for hospitals serving a high

proportion of poor and unin-
sured patients will be gradually phased out beginning in 2014.
However, these hospitals
can anticipate substantial new revenues since many previously
uninsured low-income
patients will be eligible for subsidized health insurance
coverage through Medicaid eli-
gibility expansions and health benefit-exchange programs
authorized and funded by the
ACA. To complete this decision tree, the analyst would develop
probability and value
estimates of the alternatives under consideration and the impact
of the ACA.
fra81455_07_c07_181-210.indd 199 4/23/14 9:21 AM
Figure 7.2: Decision tree
A decision tree depicts alternative ways to reduce a budget
deficit.

Making Better Decisions
Many discussions of organizational decision making incorrectly
imply that only senior-level
executives make decisions or that their decisions are the only
ones that matter. Decision-
making effectiveness is a critical success factor for health
professionals at every organiza-
tional level; even apparently low-level decisions by individual
professionals and first-line
supervisors are important in knowledge-based organizations.
Two critical success factors
for effective decision making are improving the decision-
making process and assessing
decision results.
Improving the Decision-Making Process
Business decisions are frequently flawed. When 2,207
executives were asked to evaluate
decisions in their organizations, 60% reported that bad
decisions were about as frequent
as good ones (Heath & Heath, 2013). Researchers Dan Lovallo,
a professor of manage-
ment at the University of Sydney, and Olivier Sibony, a director
at McKinsey & Company

Add New
Service
Raise
Prices
Increase
Revenue
YesNo
YesNoYesNo
Cut
Spending
Reduce
Budget
Deficit
Across the
Board
YesNo

Eliminate
Units
Outsource
Targeted
fra81455_07_c07_181-210.indd 200 4/23/14 9:21 AM
management consultancy, analyzed both the process and the
outcomes of more than 1,000
business decisions over a 5-year period. The outcomes were
relatively straightforward,
as measured by revenues, profits, and market share. The
decision process analysis was
more qualitative, exploring whether the team explicitly
acknowledged what was uncer-
tain about the decision and if the decision team participants
included those whose views
differed from or contradicted senior executives’ perspectives.

Lovallo and Sibony (2013) found that process was 6 times more
important than analysis
in producing decisions that increased revenues, profits, and
market share. And while a
good process often led to better analysis, the reverse did not
occur: Without a good deci-
sion process, superb analysis did not receive a fair hearing. To
make better decisions,
they recommend four ways to improve the decision-making
process, summarized in the
acronym WRAP:
1. Widen the options. Research shows that when leaders
considered at least two
alternatives, the results were 6 times as likely to be better than
when they consid-
ered only one option, and better yet when they considered
multiple alternatives
simultaneously. Lovallo and Sibony recommend asking each
member of a deci-
sion team to present their second-best choice as well as their
first preference.
2. Reality-test assumptions by looking at companies in similar

situations. Health
organizations often do this by examining the best practices of
peer organizations.
3. Attain some distance, such as by considering the effects of
the proposed decision
in 10 minutes, 10 months, and 10 years.
4. Prepare to be wrong. Lovallo and Sibony recommend
scheduling a spe-
cific time to evaluate the decision against the anticipated results
(as cited in
Knowledge,Wharton, 2013).
Case Study: Bright Valley Health Center Thrift Store
Bright Valley Health Center (BVHC) is a community health
center serving low-income Medicaid
and uninsured patients in a large metropolitan area that needs
additional funds to fulfill its mission,
since many uninsured patients pay no or very nominal fees. One
of the board members, and the
clinic’s major private contributor, proposed that BVHC operate
a thrift store and offered to donate
up to $75,000 to pay the first year’s rent and purchase necessary

equipment. He also offered to ask
some of his family members and business associates to support
the venture financially.
A task force composed of three board members and three BVHC
executives (the CEO, CFO,
and development director) was appointed to consider this
proposal. At its first meeting, the
task force identified the following pros and cons and developed
a list of key questions to be
determined about the proposed new venture.
Pros
• If profitable, a thrift store would produce earned income to
support organization’s
charity mission.
• A thrift store would provide employment for community
residents in an area with high
unemployment.
(continued)
fra81455_07_c07_181-210.indd 201 4/23/14 9:21 AM

(continued)
• Operating a thrift store would support fund development by
1. demonstrating business initiative, which would help broaden
the business and
private sector contributor base; and
2. providing matching funds from earned income required for
some government and
foundation grants.
• A thrift store, as a local business, would increase the clinic’s
visibility in the community.
Cons
• Operating a thrift store could lead to a loss of strategic focus
for BVHC as a community
health center.

1. It is not a core clinic business function.
2. It would require a heavy staff time commitment or hiring new
staff.
• As a new business venture, a thrift store would require
substantial resources that could
place BVHC at financial risk.
• A new thrift store would face strong competition from
established stores such as
Goodwill and local pawn shops.
1. Who will financially support start-up and ongoing operating
cost?
2. Who will manage ongoing operations of the thrift store?
3. What is the basic business model?
a. acquisition options—fresh start-up or buy an existing thrift
store?
b. supply of products and demand for products
c. operating and staffing model
d. high-level revenue and expense estimates
4. What are the legal and corporate structure considerations for

a community health cen-
ter to operate a thrift store business?
5. Should Bright Valley proceed with thrift store planning and
implementation?
Resolution
The BVHC task force was excited about the prospects for
generating ongoing earned income
through a business that, like the clinic, would benefit the
community. At the same time, they were
concerned about the financial risk and staff time commitment
and about alienating the board
member who was the organization’s major private donor by not
accepting his generous offer. The
task force decided to engage a respected business-development
consultant to conduct a feasibility
study, at a cost of $15,000. The consultant had previously
worked with BVHC for strategic planning
and had extensive experience with other community health
centers assessing and implementing a
variety of business-development initiatives. The initiative
would proceed in two phases.
PHASE 1—EXPLORE VALUE AND RISK

Step 1—Marketing and business model assessment
1. Meet with CEO and other designated staff to determine thrift
store issues and
background.
2. Research thrift store industry and promising practices.
3. Interview five to six external key thrift store informants.
4. Meet with funding sponsor(s) to assess opinions of
acceptable geographic locations for
store, value of store, estimated range of financial support
available, potential operating
and legal relationship to BVHC and synergism with its mission,
and to determine if
acquisition of an existing thrift store is an option with
sponsor(s). If so, visit site(s) for sale.
(continued)
fra81455_07_c07_181-210.indd 202 4/23/14 9:21 AM

(continued)
5. Conduct high-level assessment of regulatory and legal
requirements impacting BVHC.
6. Develop basic business and financial model (financials based
on comparative budgets
and high-level cost estimates).
7. Prepare business case PowerPoint: Outline key findings and
value and risk
propositions; identify next steps and decisions to be made.
Step 2—”Go/No Go” check in meetings
1. Conduct three meetings: CEO and BVHC designated staff—
potential thrift store
sponsors—board and/or committee-level decision makers.
2. At each meeting: Review business case; analysis, determine
barriers or opportunities,
determine responsibility of the parties, value and risk
propositions to BVHC and

sponsors(s).
3. Make a “go” or ““no go” decision.
a. Go: Develop full business plan.
b. No go: Stop planning effort.
PHASE 2—DEVELOP DETAILED BUSINESS PLAN (COST:
$25,000)
1. Research and select site location for store.
2. Detail business plan model; for example, competitive
analysis, leases, licenses, type of
inventory and inventory acquisition, accounting/bookkeeping,
point-of-sale systems,
marketing, business structure (nonprofit, LLC, etc.), legal
relationship to BVHC, and
review of federal laws regarding used goods sales.
3. Prepare a 3- to 5-year pro forma.
4. Develop detailed implementation plan for start-up.
5. Prepare content points for attorney to develop memorandum
of understanding
between BVHC and subsidiary thrift store business unit.

1. Why hire a business-development consultant?
2. If you were the CEO/CFO/development director of BVHC,
what would be your initial
reaction to this proposal and why?
Evaluating Decision Results
Management guru Peter Drucker studied and wrote about
executive decision making
extensively throughout his long career. He broke down the
decision-making process into a
series of steps that emphasize the executives’ responsibility as
high-level decision makers
to consider fully the importance and implications of their
decisions. Drucker (2004) called
his last step systematic decision review and recommended
scheduling a time for such a
review when the decision is made.
Checking the results of a decision against its expectations
shows executives
what their strengths are, where they need to improve, and where
they lack

knowledge or information . . . [and] the areas in which they are
simply
incompetent. In these areas, smart executives don’t make
decisions or take
actions. They delegate. (Drucker, 2004, p. 61)
fra81455_07_c07_181-210.indd 203 4/23/14 9:21 AM
Section 7.5Decision Making in Health Organizations
Such a review has two principal benefits. First, it provides an
opportunity to correct a poor
decision before it does serious damage. Equally important is the
opportunity it offers for
individual development. Drucker (1966, 2004) also emphasized
the importance of taking
responsibility for decisions by clearly establishing an action
plan and accountability for
their implementation. In addition to setting an implementation
and completion deadline,
the responsible manager needs to know which people in the
organization will be affected
by the decision and who must be informed about it.

7.5 Decision Making in Health Organizations
Two related factors distinguish decision making in health
organizations from other types
of organizations: regulatory influence and ethical
considerations. Government regulation
is designed to prevent fraud and abuse, protect patients and
providers, promote access to
care, contain costs, and improve the quality of health care
services. Many of these regula-
tions have been adopted to protect patients based on ethical
concerns and concepts.
Regulatory Influence
The health care industry is highly regulated by myriad
governmental organizations,
each with different players, rules and procedures, and
jurisdiction over different types
of health organizations. In addition, health organizations
voluntarily seek accreditation
from independent, privately operated accrediting bodies such as
the Joint Commission
(formerly the Joint Commission on the Accreditation of Health
Organizations) and the

National Committee for Quality Assurance in order to
demonstrate that they provide
high-quality care and conform to professional standards. Many
go even further by pur-
suing highly competitive designations such as:
• American Nurses Credentialing Center’s magnet recognition
program that recog-
nizes health care organizations, primary magnet hospitals for
quality patient care,
nursing excellence and innovations in professional nursing
practice (American
Nurses Credentialing Center, 2014).
• Malcolm Baldrige National Quality Award, given by the
president of the United
States, recognizing health care organizations that have achieved
a near-benchmark
performance on criteria for leadership, strategy, customer
service, workforce effec-
tiveness, and operations (Baldrige Performance Excellence,
2013).
• The Centers for Medicare and Medicaid Services (CMS) Five-
Star Medicare rating

for Medicare Advantage managed care plans and Medicare Part
D prescription
drug plans (CMS, 2013).
• The annual list of Leapfrog Group Top Hospitals. In 2013, 90
of the 1,324 hospitals
that voluntarily participated in the Leapfrog hospital survey
made this list. They
also earned an A on Leapfrog’s Hospital Safety Score, graded
by expert analysis of
infections, injuries, and medical errors. The Leapfrog Group is
an employer coali-
tion dedicated to improving hospital transparency, quality, and
safety (Leapfrog
Group, 2013).
fra81455_07_c07_181-210.indd 204 4/23/14 9:21 AM
Fraud and Abuse
Government regulation of health care providers may be traced
back to the Civil War, when

the False Claims Act of 1863 established penalties for filing
fraudulent claims with the
federal government for health services rendered to military
combatants. Whistle-blower
amendments of 1986 allow individuals to file false claims
actions against fraudulent gov-
ernment contractor providers on behalf of the federal
government and receive a portion
(typically 15% to 25%) of recovered damages. The Operation
Restore Trust program,
begun in 1995, investigates fraud and also provides advisory
guidance to state and federal
agencies and provider organizations to prevent violations
(Buchbinder & Shanks, 2012).
In 2009 the CMS began to use private Recovery Audit
Contractors (RACs), organizations
that analyze Medicare and Medicaid claims data to discover
fraud. The RACs operate on
a contingency basis, so they are paid only if they are able to
provide information that leads
to recovery of an overpayment; if a provider successfully
appeals the RAC findings, the
RAC must return its fee (CMS, 2013).
Accreditation and Awards

While accreditation is ostensibly voluntary, for most health care
organizations it is impos-
sible to do business without it. Medicare, Medicaid, and nearly
all private insurers will not
pay for care in hospitals or nursing homes unless they are
accredited by the Joint Commis-
sion; most public and large employers and the new state and
federal health exchanges will
only contract with health plans accredited by the National
Committee for Quality Assur-
ance or URAC (formerly known as Utilization Review
Accreditation Commission). The
Centers for Medicare and Medicaid Services allows Five-Star
Medicare Advantage health
plans and prescription drug plans to recruit and enroll members
throughout the year, while
plans with lower ratings may only recruit and enroll new
members during the October
to December open enrollment period (CMS, 2013). While up to
three organizations in an
industry sector may receive the Baldrige award each year, only
11 health organizations have
earned the award since health was added as an industry sector in
2012 (Agency for Health-
care Research and Quality, 2013). Accreditation and exceptional

performance designations
carry tremendous financial consequences for health
organizations, both positive and nega-
tive. Exceptional high-quality performance ratings confer a
great competitive advantage.
However, the loss of accreditation is a huge threat to the
organization’s survival.
Compliance
Because of the high level of risk involved when a health
organization fails to meet regu-
latory requirements, most have adopted compliance programs
with a formal plan and a
designated compliance officer. An effective program can
minimize the company’s risk
exposure by providing employees guidelines for following the
applicable laws and regu-
lations and by providing the organization’s governing body and
leadership a systematic
way to ensure that the laws are being followed. However, how
to interpret and follow the
rules is not always clear-cut, and it requires careful
consideration at the operational level
in order to comply with the regulations in a satisfactory manner.

fra81455_07_c07_181-210.indd 205 4/23/14 9:21 AM
Case Study: To Report or Not to Report? That Is the Question
Andrew Signey recently became the Standards and Compliance
Director of a large state
psychiatric hospital. Soon after taking this position, he learned
that the licensing agency did not
appreciate his department’s efforts to scrupulously comply with
licensing agency regulations.
With over 600 severely mentally ill patients, there are frequent
incidents involv-
ing staff and patients. As a state licensed facility and as an
accredited Joint
Commission hospital, it is our duty to report incidents that may
be judged to
be out of the ordinary. However, what’s “out of the ordinary” in
a state mental
hospital is far different than what is unusual in a community
acute care facility.

It is not uncommon for patients to hit other patients or staff, or
to exhibit behav-
iors like swallowing screws, eye glass arms, plastic caps, and
the like. Staff try
to prevent, diminish, or stop these behaviors, but they will
always occur in
institutions serving extremely ill psychiatric patients.
The codes and regulations are not truly specific and leave
considerable room
for interpretation about what should be reported. There are
some obvious
ones . . . death, fires, and the like, but that’s about it in terms of
guidance.
When I arrived, the person responsible for incident reporting
was reporting
everything that could be considered an incident. The local
licensing body direc-
tor, while polite, let me know that we reported two and a half
times as many
incidents as our peer hospitals—over 500 incidents in the
previous 12 months.
Each reported incident needs to be investigated by the licensing
division. Our

effort to let our licensing partners know what was occurring in
the facility was a
bit extreme.
Then we faced the challenge of changing the way that staff
would evaluate
what to report and working with licensing to ensure that we
report the right
things rather than everything. If you under report and licensing
discovers an
incident that they believe should have been reported, you may
incur fines and
citations and put the hospital’s license at risk. You may not
have a compliance
problem if you over report, but you certainly don’t garner any
good will from
your licensing partners.
Resolution
The remedy was to work with the regulations that guide the
process. I created
a PowerPoint and convened the staff to discuss how we wanted
to change our
system. Staff was very concerned about what would happen if
we didn’t report

enough. We looked at the language carefully and spent several
hours discuss-
ing the various items and examples of incidents. We agreed that
we could
reduce the volume of reportable incidents to our licensing
partners.
We also recognized that we needed to redistribute the work so
that more staff
were informed about and could report incidents. We created a
daily meeting for
all staff involved in incident management to discuss every
incident that occurred
the previous day. This interdisciplinary body includes RNs,
social workers and
analysts who discuss the importance of each possibly reportable
incident. This
process improved staff communication and allows us to better
identify trends
that can lead to performance improvement projects. It also
ensures that the dif-
ferent disciplinary perspectives inform our decision to report.
(continued)

fra81455_07_c07_181-210.indd 206 4/23/14 9:21 AM
Ethical Considerations
In his description of the elements of decision making, Drucker
(1966) recognized that
nearly all decisions involve some sort of compromise, and he
devotes considerable atten-
tion to the importance of starting out with what is right in order
to make the right com-
promise. Starting out by looking for what is acceptable is the
wrong approach, because it
limits the search for an effective solution by focusing on what
course of action is likely to
cause the least resistance within the organization or with
stakeholders rather than what
is the right thing to do. “Executives are not paid for doing
things they like to do. They
are paid for getting the right things done—most of all in their
specific task, the making of
effective decisions” (Drucker, 1966, p. 158).

When confronted with making decisions that could impact their
organizations and
employees, managers in health organizations often find that the
right thing to do is not
clear. The complex nature of health organizational relationships
with internal and external
stakeholder groups makes decision making complicated, too.
Decision makers must con-
sider not only the facts of a given situation, but also
organizational policies, professional
ethics, regulatory rules, accrediting agency criteria, legal
mandates, and litigation risks.
These factors further exacerbate the challenge for health
administrators to make decisions
that are both sound and ethical (Freshman, 2009).
Case Study: To Report or Not to Report? That Is the Question
(continued)
After defining our strategy, we invited the local state licensing
division to dis-
cuss it, and were surprised by their reticence. While they
indicated their sup-
port throughout the presentation, they could not verbalize it—

because they
could not put themselves in the position of telling us what to
report or not. But
the meeting made our new approach transparent, and reassured
us that the
licensing agency representatives understood and supported it.
While we have decreased our number of reported incidents by
over 75% in the
past twelve months, we have continued to report corrective
actions for deficient
practices discovered by licensing in their investigations. This
demonstrates that
reporting what is truly identified as important enables us to
focus on system
improvement. You also have time to improve your staff level of
knowledge
about incidents.
1. What is the key piece of information about the problem
described in this case study?
2. Why was it important, and how did Signey improve the
decision-making process about

reportable incidents?
Source: Personal communication, Andrew Signey, director of
Standards and Compliance, Norwalk State Hospital,
July 23, 2013.
fra81455_07_c07_181-210.indd 207 4/23/14 9:21 AM
Section 7.6Summary and Resources
7.6 Summary and Resources
Chapter Summary
Much of the work involved in managing health organizations
revolves around solv-
ing problems. These problems are many and varied. They
include but are not limited
to patient care and safety, community expectations, the
organization’s financial viability,
employee relations, regulatory compliance, and ethical
considerations.
Creative problem solving is a valuable and valued skill for

health leaders and managers,
but there are a number of organizational factors that limit them
in this regard, such as the
variety of problems and differing stakeholder perspectives on
what constitutes a problem
as well as what to do about it. There are also personal
constraints such as a mind-set that
limits one’s ability to clearly define the problem and develop a
broad range of potential
alternative solutions.
Both analytical and creative approaches to problem solving are
essential elements for suc-
cess in health care management, as is the ability to collaborate
with internal and external
stakeholders, both individuals and groups. Not all problems can
be solved collaboratively,
however.
Health organization managers employ various decision models
and tools in their work.
While the ideal decision-making process is proactive,
thoughtful, and rational, in reality
decisions are often made on the basis of expediency. Popular
tools derived or adapted from

other industries include Six Sigma and Lean approaches to
quality management, which
focus on preventing mistakes by reducing process variation and
eliminating redundancy and
waste. A growing number of hospitals are adopting and adapting
these quality-management
approaches to improve patient safety and improve clinical
performance measures.
Critical Thinking and Discussion Questions
1. What are the major problem-solving barriers that you have
observed in your
workplace or other organizational settings?
2. What types of problem-solving skills and approaches are
most likely to facilitate
the success of health administrators at various organizational
levels—top execu-
tive, division director, department head, unit manager, project
manager, and
analyst?
3. Compare and contrast the problem-solving skills and
approaches of the most

effective and the least effective managers you have known. To
what extent were
they competent creative managers? To what extent were they
analytical and sys-
tematic problem solvers?
4. Why is it important to consider several alternative means to
solve a problem?
5. How does one know whether a business-process problem
requires incremental
modifications or major changes?
6. Why is decision making in health organizations challenging?
Give an example to
support your argument.
fra81455_07_c07_181-210.indd 208 4/23/14 9:21 AM
Key Terms

conceptual blocks Mental barriers that
impede one’s ability to define problems
and consider a variety of alternative
solutions.
disruptive innovation (Christensen) A
dramatic change in an industry caused
by a new product or process that is radi-
cally different and better (cheaper, faster,
smaller, nimbler, or easier to use) than
what is currently offered or used.
evolutionary flexon The process of learn-
ing from experience, such as through
small-scale pilot projects, about customer
and stakeholder reactions to a product or
service.
Five-Star Medicare rating The rating
awarded to Medicare health and prescrip-
tion drug plans with the highest scores
for quality of care and patient satisfaction;
it allows them to recruit and enroll new
members throughout the year instead of
only during the Medicare annual autumn

open enrollment period.
flexons (Leclerc and Moldoveanu)
Problem-solving languages used to under-
stand human behavior and solve difficult
problems.
garbage can A reality-based decision-
making model that describes organiza-
tional decision making as a haphazard mix
of problems and solutions with a varying
mix of participants.
Joint Commission An independent non-
profit organization that sets standards and
conducts on-site surveys of hospitals and
other health organizations to assess their
compliance with the standards.
Lean management An approach to qual-
ity improvement that emphasizes simplify-
ing and synchronizing business processes
for greater efficiencies and reduced costs.
Leapfrog Group Top Hospitals An

annual list of hospitals with the highest
scores on measures of transparency, qual-
ity, efficiency, and patient safety by the
employer health coalition.
magnet hospital A designation given by
the American Nurses Credentialing Center
as a hospital that supports nursing excel-
lence and innovative professional nursing
practices.
Malcolm Baldrige National Quality
Award An award in recognition of per-
formance excellence conferred on no more
than three organizations in an industry
each year by the U.S. Department of
Commerce.
muddling through (Lindblom) A solution
that is not ideal but is good enough to get
the job done.
National Committee for Quality
Assurance An independent nonprofit
organization that sets standards and evalu-

ates health plans and other health organi-
zations for quality of care and service.
networks flexon A method of delineating
and analyzing relationships among indi-
viduals and entities.
Recovery Audit Contractors (RACs)
Private organizations that analyze Medicare
and Medicaid claims to discover fraud; they
receive a portion of the recovered overpay-
ments as their sole compensation.
Restore Trust A CMS program to investi-
gate fraud by federally contracted health
service providers in the Medicare and
Medicaid programs.
sentinel events Adverse clinical incidents
that must be reported to regulatory or
accrediting agencies.
fra81455_07_c07_181-210.indd 209 4/23/14 9:21 AM

Six Sigma A quality-management
approach focused on eliminating varia-
tion and waste in business operational
processes.
systematic decision review (Drucker)
Scheduled evaluation of the results of a
decision.
URAC An independent nonprofit organi-
zation that sets standards for and evaluates
health plans, medical groups, and hospi-
tals for adherence to utilization guidelines
and patient care–management standards.
wicked problems (Buchbinder) Problems
that are ambiguous, complex, and generate
high levels of emotion among those whom
they affect.
willful choice Rational decision-making
model that describes organizational deci-

sion making as thoughtful, deliberate, and
objective.
fra81455_07_c07_181-210.indd 210 4/23/14 9:21 AM

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