Healthcare Institutions

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Healthcare institutions are often overlooked in discussions of healthcare policy, biomedical ethics, and the allocation of resources. Institutions, however, are major players within the ethical and policy arena of healthcare and should be considered when one examines the forces at work in any specific issue in healthcare.

A healthcare institution usually has been thought of as a hospital, a nursing home, a rehabilitation facility, or another such single-site entity. Such an institution consists of the human beings who work in many different capacities within it, the leaders who direct and manage it, and its governing body—usually a board of directors or board of trustees that is responsible for hiring (and firing) the chief executive officer (CEO) or president of the institution and for setting policy and direction in partnership with the employed leaders. Many institutions now, however, are much larger than a single facility. For example, there are integrated hospital healthcare networks that include everything from physician group practices to long-term-care facilities. There are also networks that provide a single level of care, such as nursing home chains and hospital chains. As the competitive environment of healthcare continues to drive efforts to reduce costs and capture market share, institutions made up of multiple components will become increasingly more common. Nonetheless, whether institutions are single units or made up of multiple units, they have important characteristics in common that must be considered.

Institutional Missions

One of the most important functions of leadership and governance in an institution is to establish and articulate that institution's mission. This is usually written in a mission statement. An academic health center may have a mission that includes research, education, and patient care as equally strong components. A community hospital may point to excellent patient care and improvement of community health as its mission. A for-profit hospital or hospital chain may articulate excellent patient care and optimal return to shareholders as its mission. As one can imagine, this latter bipartite mission can lead to troubling conflicts of interest, which have been examined by ethicists in some detail (Gray).

The mission of an institution may also be articulated in the framework of its membership in a larger institution such as a church or religious network. Thus, some Catholic hospitals provide care to a large number of American patients (who are not necessarily Catholic), and their mission specifically derives from values espoused by the Catholic Church. Similarly, many other hospitals have emerged from religious systems because of the latter's commitment to helping the vulnerable and caring for the sick and suffering. Institutional missions may sometimes conflict with bedside ethical decisions, such as the decision to forgo life-sustaining therapy or to have an elective abortion. In these settings it is important for patients and providers alike to be clear about the underlying moral environment of the institution and the degree to which it may or may not be flexible on certain issues. Patients who feel strongly that they do not want care with those articulated standards should then have access to other institutions. Besides the question of abortion, the issue of forgoing life-sustaining treatment has been one of the most prominent in this kind of conflict. For example, the member of the patient's family who makes a decision about discontinuing nutrition and hydration in a comatose or unresponsive patient with far advanced dementing illness may find that the institution housing that patient does not allow nutrition and hydration to be withdrawn. If the underlying reason is fear of malpractice or liability concerns, it is sometimes possible for the institution to figure out a way to work together with and respect the wishes of the patient and family. If, however, the underlying reason is a moral or religious belief consistent with the underlying values of the governance of this institution, then it is less likely that a compromise can occur (Miles, Sinder, and Siegler).

Value Systems

To generalize about these many and varied institutions—both secular and religious, for-profit and not-for-profit—is not a simple matter, but it is useful to explore certain issues relating to the value systems that undergird their several missions and roles in society. Many of the older institutions were launched on the bedrock principle of simply caring for the sick and suffering, and many in the public still, quite unrealistically, think of all healthcare institutions in this way. Because the United States as a nation has not yet realized the right of equal access to healthcare for all its citizens and embraced the concept of healthcare as a social good, there is no consistent underlying covenant between the society and these institutions. A social covenant would lead to some kind of centralized planning for healthcare needs, and institutional missions would flow from this. Instead, the United States relies on marketplace values combined with a variable and often unreliable "safety net" of public institutions. It has proven to be very difficult for any of these institutions to live up to their traditional charitable-based institutional values and at the same time survive the economic and social realities of U.S. culture. The one shared ethical principle that all would espouse is the commitment to competence and excellence, values that have permeated Western medicine through its physicians since the time of the Greek physician Hippocrates (c. 460–c. 377 b.c.e.). This principle is not purely altruistic, however, because a minimum of quality is required for accreditation, and because evidence of excellent quality gives some institutions a market edge in attracting paying patients.

The public institutions created by a county, city, or state for the purpose of delivering health services to a specific population have an unambiguous mission and foundational institutional ethic: to carry out the function for which they were created and for which they continue to receive operating funds from the public sector. The objective of these institutions is to provide care in an appropriate and highly competent fashion to the specified population, usually those who are poor and without access to other sources of care. Whereas, on paper, the goals and objectives of these institutions never change, the public's commitment wavers from year to year, with the obvious result that there is considerable variation in the level of financial support the public is willing to provide; serious underfunding for many public hospitals thus significantly compromises the quality of care in many places. So there remains the paradox, despite an unambiguously consistent mission statement: Compromised public commitment to provide services for the poor has translated to a serious loss of quality in some of these institutions. The profit motive seldom creates an untoward tension among workers at these institutions; the limits imposed by funding sources may, however, lead to the curtailing or closing of certain expensive services, perhaps to the detriment of the patients.

The private, not-for-profit institutions that were established for the purpose of serving the community may share a public-service vision with the public hospitals. Private, notfor-profit hospitals also, however, experience extreme pressures that run counter to their community-service mission. In the United States, since the early 1980s, these institutions have often thrived financially by maximizing income from insurance and philanthropy, both of which have supported the enormous growth of specialty medicine and heroic high-technology care. Governed by boards of directors made up of citizens of the community, these institutions can be expected to have an awareness of community needs. On the other hand, the charity care these hospitals may provide generally must be paid for in one of two ways: (1) by using available reserve funds, or (2) by shifting costs, overcharging those who can pay more, in order to make up for the losses in primary care, chronic care, and general care for the poor or uninsured.

The CEOs of the larger of these hospitals, especially those at the more prominent academic and tertiary-care institutions, are treated and paid as though they were corporate executives. This trend toward providing top-level management for these institutions came from the growing awareness beginning in the early 1970s that these institutions were administratively out of control or at the very least generally ill-prepared to fulfill their potential in a volatile marketplace. Few would argue that the majority of these institutions have become heavily bottom-line oriented. Balancing cross-subsidization among the various payers with issues of access for the poor is a fine art. Many of these hospitals, though losing money on every Medicaid and uninsured patient, manage to produce an overall surplus. They do this by increasing the volume of high-paying expensive procedures on insured patients. This goes far afield from a care mission of investing in prevention to foster healthier populations. Positive bottom lines are often then used to implement programs aimed at increasing "market share" for the hospital, rather than increasing services for the most needy.

Some not-for-profit institutions have extraordinarily idealistic community-service orientations, expressed through their written missions and goals. These orientations have sometimes become so consumed by the direction provided by bottom-line oriented, high-priced management teams that a variety of less-desirable and short-sighted practices have been implemented to produce a positive bottom line. These include the following:

  1. salary incentives to unit managers based primarily upon the financial performance of their cost centers;
  2. high-tech and manpower investment strategies determined primarily by their potential for high earnings;
  3. transfer policies that favor keeping patients whose care will add to the bottom line ("creamskimming");
  4. policies to reduce existing teaching programs because of uncompensated expenses and negative impacts upon marketing strategies designed to reach more desirable clienteles; and
  5. different patterns of care based on whether or not patients possess ample insurance coverage or other financial resources.

Whether or not one finds these practices appropriate or inappropriate, whether they are more or less typical of notfor-profit as compared with for-profit institutions, the main lesson from these examples is that the pressures and forces inherent in the competitive market-oriented environment that has become dominant since the early 1980s have served to overtake the charitable values and philosophies that were central to the creation of many of these institutions. There is a tendency for healthcare institutions to believe that they are involved in a competitive fight for survival, and they all, in various ways, try to combine that pressure as best they can with the imperative to serve the sick.

Even institutions sponsored by religious organizations charge paying patients more than cost in order to cover the costs of nonpaying patients. Financial stability is the key to survival and thus to carrying out an altruistic mission. It is therefore more realistic to stop envisioning Saint Francis of Assisi when thinking about not-for-profit hospitals and begin thinking instead of "Saint Robin of Hood," robbing the rich to care for the poor.

Most observers see this behavior less as human frailty than as a system failure, the result of an environment that is filled with perverse incentives. In their detailed analysis of the ethics of for-profit as compared to not-for-profit healthcare institutions published in 1986, Dan W. Brock and Allen Buchanan concluded that there are no rationally compelling grounds upon which to find ethical fault with the profit motive in healthcare under the ground rules by which U.S. society now operates. Improvements can come only when the ground rules and societal expectations are altered; it is not enough simply to hope that institutions will take the lead in changing their behavior, in the face of existing incentives to the contrary.


The role of governance is very important in the character of institutions. In many healthcare institutions, including those in the not-for-profit sector, the board of trustees may be made up largely of prominent businesspeople with a great deal of experience in running large and successful businesses, as well as otherwise wealthy and influential members of the local social circle who may themselves be important philanthropic supporters of the hospital and able to draw others into making major donations. Thus, it is often a minority of individuals on the board who have direct experience with healthcare, such as physicians or nurses, or whose major concerns are with education or research. Therefore it is not surprising that as healthcare has become a trillion-dollar business in the United States, even not-for-profit hospitals and health systems have looked at the bottom line as a marker of how well they are doing. Even though there are no shareholders to pay, an excess of revenue over expenses allows a nonprofit institution to initiate new programs and, in many cases, to salt away substantial reserves that both provide interest income and allow for a cushion in case of adversity.

Because so much money is involved and because of the business orientation of much of hospital governance, it is not surprising that the investments in new programs or the capital investments that are made when excess funds are available are not always, or even primarily, directed toward care of the poor and underserved but are often directed toward ensuring a continuing stream of revenue for the hospital. This usually means investing in additional high-technology medical care that will be marketed to insured patients. For this reason it is not hard to see why the Internal Revenue Service in recent years has begun to ask whether the not-for-profit hospital sector really ought to remain tax exempt. In order to maintain their tax exemption, these institutions must demonstrate that they are community-service organizations and that the educational research missions remain important to them, if not central.

Pressures for Change

In their comprehensive 1986 treatise, Brock and Buchanan made an important distinction between for-profit chains, generally owned by investors and listed on a stock exchange, and individual for-profit institutions, usually owned by an individual or small group of individuals (frequently physicians from the community). These organizational differences create different incentives and different institutional behavioral responses. In this entry it is the latter subset of for-profit institutions that are of interest, but this in no way ameliorates the validity of these conclusions. The thrust toward identifying healthcare as a commodity distributed according to business rules has, since the early 1980s, been the overwhelming ethical reality for private and not-forprofit private institutions. All of these factors have fueled the debate about the appropriateness of maintaining the tax-free status of not-for-profit hospitals (Gray). If the societal pendulum swings back toward the treatment of healthcare as a right, alterations in institutional behavior may occur that, nevertheless, need not drive the individual for-profit institution out of business.

It is probable that the implementation of national and regional policy decisions about healthcare (such as the trend toward capitation, community rating of insurance, universal access to care, and regional databases capable of rendering comparative institutional quality-of-care estimates) will have more to do with affecting the behavior of these independent institutions than anything else. The most far-reaching impact may result from the pressure on these institutions to join effective consortia or networks of healthcare providers; they may well need to become part of an organized delivery system in order to survive. Thus, by around the year 2005, the number of independent institutions may be severely reduced. Certainly, one already sees a trend in the direction of independents moving into organized systems, not only in the hospital industry but also in the traditionally "Mom and Pop" nursing home arena.

A wide variety of individually governed institutions play a wide variety of roles in the inchoate patchwork quilt of healthcare delivery in the United States. As the forces for systemic reform build, it seems clear that they will have a predominant influence on alterations in the behavior of these various entities. Until such changes occur, one can conclude that this independent sector will in general deliver the best healthcare it can under the vagaries of access, quality, and cost that are in general dictated by the perverse organizational and fiscal incentives created by U.S. society. As a result of a wise reform movement, one can hope for an improved, more equitable, and more uniform performance from this sector of the healthcare distribution system.

Future Trends

In an article in the December 5, 2001, New York Times, Milton Freudenheim reported that most of America's largest insurers of healthcare are moving toward insurance design that increases segmentation of the private insurance market, with the sickest having to bear more of the costs while the well will be able to get coverage more inexpensively. This gives further impetus to the movement of employers to defined contribution for health insurance and the growth of high-deductible plans, leaving workers to decide for themselves how much to add from their own sources to acquire coverage. While framed as "choice," this leads to higher costs for patients, especially for the chronically ill or genetically at risk.

All this leads Victor Fuchs (2002) to join others in predicting that there will be a reemergence of interest in social insurance and a national insurance program, essentially because of the inequity and unfairness of what the employment-based system will have become.

At this point, it is safe to assume that healthcare institutions in the United States are caught in a continuing confluence of marketplace forces churning against strong ethical and social currents. Until this ambiguous situation is resolved, it is hard to predict the future for these institutions, but it is clearly more and more difficult for institutions such as hospitals and healthcare systems to be moral leaders.

roger j. bulger

christine k. cassel (1995)

revised by authors

SEE ALSO: Healthcare Resources, Allocation Of; Healthcare Systems; Hospital, Modern History of the; Long-Term Care; Mergers and Acquisitions; Privacy in Healthcare


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Healthcare Institutions

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