Managing in a Complex World: Accounting and Governance Choices in Hospitals

Abstract The healthcare sector has experienced significant challenges stemming from market demands, competition, and regulation, which pressures hospitals to change their operations and decision-making. In contrast to mainstream business enterprises, decisions to change accounting systems or to improve hospital governance occur in a complex institutional environment with multiple stakeholders. The hospital setting thus provides both opportunities and challenges for researchers. This overview paper uses recent studies in the field to illustrate how hospital choices are driven by the institutional environment in which hospitals operate. Incorporating the richness of this institutional environment into research may help researchers to make better predictions about: 1) why certain accounting systems or types of governance models are implemented or maintained; and 2) why certain intended outcomes are not always realised. The paper also sets out a research agenda that further capitalises on the impact of multiple institutional stakeholders within hospital decision-making structures. This area of research is relevant to academics, policy-makers, and the healthcare profession at large. It can offer valuable insights on the types of governance structures and accounting systems that are likely to be more effective and can help shape healthcare policy.

[1]  Thomas L Powers,et al.  Improving Health Outcomes Through Patient Empowerment , 2004, Journal of hospital marketing & public relations.

[2]  Stacy L Baker,et al.  Managing complex systems: performance management in public health. , 2004, Journal of public health management and practice : JPHMP.

[3]  Sandy Q. Qu,et al.  Strategic Cost Management and Institutional Changes in Hospitals , 2011 .

[4]  Leslie Eldenburg,et al.  The Use of Information in Total Cost Management , 1994 .

[5]  J. Begun,et al.  Hospital service duplication: Evidence on the medical arms race , 2008, Health care management review.

[6]  Inger Johanne Pettersen,et al.  Implementing management accounting reforms in the public sector: the difficult journey from intentions to effects , 2001 .

[7]  J. Kralewski,et al.  Strategies employed by HMOs to achieve hospital discounts: A case study of seven HMOs , 1991, Health care management review.

[8]  L. White,et al.  Why Do CEOS Reciprocally Sit on Each Other's Boards? , 2000 .

[9]  N. Soderstrom.  Hospital behavior under Medicare incentives , 1993 .

[10]  A. Vleugels,et al.  From corporate governance to hospital governance. Authority, transparency and accountability of Belgian non-profit hospitals' board and management. , 2004, Health policy.

[11]  A. Lowe.  ACCOUNTING IN HEALTH CARE: SOME EVIDENCE ON THE IMPACT OF CASEMIX SYSTEMS☆☆☆ , 2000 .

[12]  Alan T. Sorensen.  Insurer-hospital bargaining: negotiated discounts in post-deregulation connecticut , 2003 .

[13]  W. Chua,et al.  Accounting and Control in Health Care: Behavioural, Organisational, Sociological and Critical Perspectives , 2006 .

[14]  M. Abernethy,et al.  The role of professional control in the management of complex organizations , 1995 .

[15]  Jeffrey Braithwaite,et al.  An empirically-based model for clinician-managers' behavioural routines. , 2004, Journal of health organization and management.

[16]  R. Feldman,et al.  Competition among physicians, revisited. , 1988, Journal of health politics, policy and law.

[17]  G Pink,et al.  Balancing incentives in the compensation contracts of nonprofit hospital CEOs. , 2001, Journal of health economics.

[18]  J. Tritter,et al.  The snakes and ladders of user involvement: Moving beyond Arnstein. , 2006, Health policy.

[19]  J. Alexander,et al.  Hospitals and Health: Psychosocial Aspects , 2001 .

[20]  Taru M Lehtonen.  DRG-based prospective pricing and case-mix accounting—Exploring the mechanisms of successful implementation , 2007 .

[21]  W. Chua,et al.  Worrying about Accounting in Health Care , 1994 .

[22]  D. North.  Institutions, Institutional Change and Economic Performance: Economic performance , 1990 .

[23]  Anne Wu,et al.  Behavioral changes following the collaborative development of an accounting information system , 2010 .

[24]  Kathryn J McDonagh,et al.  Hospital Governing Boards: A Study of Their Effectiveness in Relation to Organizational Performance , 2006, Journal of healthcare management / American College of Healthcare Executives.

[25]  John W. Meyer,et al.  Institutionalized Organizations: Formal Structure as Myth and Ceremony , 1977, American Journal of Sociology.

[26]  Dirk Sliwka.  Trust as a Signal of a Social Norm and the Hidden Costs of Incentive Schemes , 2006, SSRN Electronic Journal.

[27]  Gary D. Ferrier,et al.  The economic benefit of goal congruence and implications for management control systems , 2006 .

[28]  N. Hill,et al.  Adoption of costing systems in US hospitals: An event history analysis 1980–1990 , 2000 .

[29]  W. Simon.  BOARD COMPOSITION AND NONPROFIT CONDUCT : EVIDENCE FROM HOSPITALS , 2004 .

[30]  M. Abernethy.  PHYSICIANS AND RESOURCE MANAGEMENT: THE ROLE OF ACCOUNTING AND NON‐ACCOUNTING CONTROLS , 1996 .

[31]  F. Wittenbecher,et al.  DRG-based payment systems in low-and middle income countries : Implementation experiences and challenges , 2012 .

[32]  A. Leone,et al.  How do nonprofit hospitals manage earnings? , 2005, Journal of health economics.

[33]  E. Fama,et al.  Organizational Forms and Investment Decisions , 1985, A Theory of the Firm.

[34]  Martin Roland,et al.  Linking physicians' pay to the quality of care--a major experiment in the United kingdom. , 2004, The New England journal of medicine.

[35]  Filip Roodhooft,et al.  Drivers of cost system development in hospitals: results of a survey. , 2004, Health policy.

[36]  Wim Groot,et al.  Principal agent relationships and the efficiency of hospitals , 2009, The European Journal of Health Economics.

[37]  G. Young,et al.  Governing board structure, business strategy, and performance of acute care hospitals: a contingency perspective. , 1992, Health services research.

[38]  L. Helmchen,et al.  How sensitive is physician performance to alternative compensation schedules? Evidence from a large network of primary care clinics. , 2010, Health economics.

[39]  W. Scott,et al.  A Multidimensional Model of Organizational Legitimacy: Hospital Survival in Changing Institutional Environments , 1998 .

[40]  Simon Gervais,et al.  Work Ethic, Employment Contracts, and Firm Value , 2009 .

[41]  C. Chow.  Looking Back, Peeking Ahead , 2010 .

[42]  Lars-Goan Aidemark,et al.  The Meaning of Balanced Scorecards in the Health Care Organisation , 2001 .

[43]  Liisa Kurunmäki,et al.  A hybrid profession—the acquisition of management accounting expertise by medical professionals , 2004 .

[44]  Mina Pizzini.  The relation between cost-system design, managers' evaluations of the relevance and usefulness of cost data, and financial performance: an empirical study of US hospitals , 2006 .

[45]  Paul E. Fischer,et al.  Optimal Contracting With Endogenous Social Norms , 2007 .

[46]  H. Hansmann,et al.  The Role of Nonprofit Enterprise , 1980 .

[47]  B. Weisbrod,et al.  Managerial rewards and the behavior of for-profit, governmental, and nonprofit organizations: evidence from the hospital industry , 2003 .

[48]  E. Fama,et al.  Separation of Ownership and Control , 1983, The Journal of Law and Economics.

[49]  L. Eldenburg,et al.  The effects of changes in cost allocations on the assessment of cost containment regulation in hospitals , 2000 .

[50]  Anne M. Lillis,et al.  Organisational Design Choices in Response to Public Sector Reforms: A Case Study of Mandated Hospital Networks , 2011 .

[51]  James A. Brickley.  BOARD STRUCTURE AND EXECUTIVE COMPENSATION IN NONPROFIT ORGANIZATIONS : EVIDENCE FROM HOSPITALS , 2003 .

[52]  D. Larcker,et al.  Corporate Governance, Accounting Outcomes, and Organizational Performance , 2007 .

[53]  S. H. Hsu.  Cost Information and Pricing: Empirical Evidence*: Cost Information and Pricing: Empirical Evidence , 2011 .

[54]  Henry Mintzberg,et al.  Toward healthier hospitals. , 1997, Health care management review.

[55]  C. Oliver.  STRATEGIC RESPONSES TO INSTITUTIONAL PROCESSES , 1991 .

[56]  K. Raghunandan,et al.  The Composition of Nonprofit Audit Committees , 2006 .

[57]  Kip R. Krumwiede.  The Implementation Steps of Activity-Based Costing and the Impact of Contextual and Organizational Factors , 1998 .

[58]  J. Robinson,et al.  Organizational economics and health care markets. , 2001, Health services research.

[59]  H. Wong,et al.  Hospital-insurer bargaining: an empirical investigation of appendectomy pricing. , 1997, Journal of health economics.

[60]  Nico Dewaelheyns,et al.  Do Non-Profit Nursing Homes Separate Governance Roles? The Impact of Size and Ownership Characteristics , 2008, Health policy.

[61]  D. Naranjo-Gil,et al.  How CEOs use management information systems for strategy implementation in hospitals. , 2007, Health policy.

[62]  Mark W. Dirsmith,et al.  Changes in the institutional environment and the institutions of governance: extending the contributions of transaction cost economics within the management control literature , 2003 .

[63]  Do physicians care about patient choice? , 2008, Social science & medicine.

[64]  Rafik I. Beekun,et al.  Board Characteristics, Managerial Controls and Corporate Strategy: A Study of U.S. Hospitals , 1998 .

[65]  Cameron Lawrence,et al.  Institutions and Organizations (2nd ed.) , 2003 .

[66]  Ranjani Krishnan,et al.  Management Accounting and Control in Health Care: An Economics Perspective , 2006 .

[67]  B. Weiner,et al.  The Adoption of the Corporate Governance Model by Nonprofit Organizations , 1998 .

[68]  B. Golden,et al.  When will boards influence strategy? Inclination × power = strategic change , 2001 .

[69]  Sanjay Kallapur,et al.  Changes in hospital service mix and cost allocations in response to changes in Medicare reimbursement schemes , 1997 .

[70]  D. Nadler,et al.  Building better boards. , 2004, Harvard business review.

[71]  A. Ryan.  Effects of the Premier Hospital Quality Incentive Demonstration on Medicare patient mortality and cost. , 2009, Health services research.

[72]  A. Shleifer,et al.  A Survey of Corporate Governance , 1996 .

[73]  G. Young,et al.  Boards of Directors and the Adoption of a CEO Performance Evaluation Process: Agency — and Institutional — Theory Perspectives , 2000 .

[74]  Benjamin E. Hermalin,et al.  Governance, performance objectives and organizational form: Evidence from hospitals , 2004 .

[75]  John Roberts,et al.  Accounting and control: a case study of resistance to accounting change , 1993 .

[76]  Richard A. Lambert,et al.  The prospective payment system, hospital efficiency, and compensation contracts for senior-level hospital administrators , 1995 .

[77]  Irvine Lapsley,et al.  The diffusion of management accounting innovations in the public sector: a research agenda , 2004 .

[78]  Frank G. H. Hartmann,et al.  Management accounting systems, top management team heterogeneity and strategic change , 2007 .

[79]  Physicians, patients, and administrators: a realignment of relationships. , 1988 .

[80]  L. Prybil.  Nursing involvement in hospital governance. , 2007, Journal of nursing care quality.

[81]  T Menke.  Impacts of PPS on Medicare Part B expenditures and utilization for hospital episodes of care. , 1990, Inquiry : a journal of medical care organization, provision and financing.

[82]  L. Eldenburg,et al.  Earnings Management Using Real Activities: Evidence from Nonprofit Hospitals , 2011 .

[83]  S. H. Hsu.  Cost Information and Pricing: Empirical Evidence , 2004 .

[84]  J. Alexander,et al.  Hospital board effectiveness: relationships between governing board composition and hospital financial viability. , 1993, Health services research.

[85]  C. Molinari,et al.  The Effects of CEO–Board Relations on Hospital Performance , 1997, Health care management review.

[86]  Ranjani Krishnan.  The Effect of Changes in Regulation and Competition on Firms' Demand for Accounting Information , 2005 .

[87]  G. Melnick,et al.  The effects of hospital competition and the Medicare PPS program on hospital cost behavior in California. , 1988, Journal of health economics.

[88]  W. Powell,et al.  The iron cage revisited institutional isomorphism and collective rationality in organizational fields , 1983 .

[89]  James D. Westphal,et al.  Customization or Conformity? An Institutional and Network Perspective on the Content and Consequences of TQM Adoption , 1997 .

[90]  Sten Jönsson.  Institutions and Organizations , 1997 .

[91]  T. V. D. van der Grinten,et al.  The integration of medical specialists in hospitals. Dutch hospitals and medical specialists on the road to joint regulation. , 2005, Health policy.

[92]  R. Mutter,et al.  The Effects of Hospital Competition on Inpatient Quality of Care , 2008, Inquiry : a journal of medical care organization, provision and financing.

[93]  K. Jacobs,et al.  Cost and performance information for doctors: an international comparison , 2004 .

[94]  George Foster,et al.  Measuring the success of activity-based cost management and its determinants , 1997 .

[95]  L. Delesie,et al.  Where is the pilot? The changing shapes of governance in the European hospital sector , 2007, The journal of the Royal Society for the Promotion of Health.

[96]  E B Keeler,et al.  The changing effects of competition on non-profit and for-profit hospital pricing behavior. , 1999, Journal of health economics.

[97]  Building Better Boards in the New Era of Accountability , 2005, Frontiers of health services management.

[98]  I. Fraser,et al.  Board Oversight of Quality: Any Differences in Process of Care and Mortality? , 2009, Journal of healthcare management / American College of Healthcare Executives.

[99]  G. Gowrisankaran,et al.  Estimating the quality of care in hospitals using instrumental variables. , 1999, Journal of health economics.

[100]  The Relation between Efficient Risk‐Sharing Arrangements and Firm Characteristics: Evidence from the Managed Care Industry , 2002 .

[101]  Henry Mintzberg,et al.  Managing the care of health and the cure of disease--Part I: Differentiation. , 2001, Health care management review.

[102]  James A. Brickley,et al.  Managerial Incentives in Nonprofit Organizations: Evidence from Hospitals* , 2002, The Journal of Law and Economics.

[103]  Kate Ho.  Insurer-Provider Networks in the Medical Care Market , 2005, The American economic review.

[104]  R. Hess.  Power in organizations. , 2003, Journal of nursing scholarship : an official publication of Sigma Theta Tau International Honor Society of Nursing.

[105]  M. Magnan,et al.  The adoption of deferred share unit plans for outside directors: economic and social determinants , 2012 .

[106]  J. Alexander,et al.  Does governance matter? Board configuration and performance in not-for-profit hospitals. , 2006, The Milbank quarterly.

[107]  A. Szczesny,et al.  Capped Hospital Budgets, Risk-Influencing Activities and Financial Consequences , 2006 .

[108]  Margaret A. Abernethy,et al.  A Field Study of Control System “Redesign”: The Impact of Institutional Processes on Strategic Choice* , 1996 .

[109]  Leslie G Eldenburg,et al.  Accounting System Management by Hospitals Operating in a Changing Regulatory Environment , 1996 .

[110]  P. Strach,et al.  An inquiry into good hospital governance: A New Zealand-Czech comparison , 2006, Health research policy and systems.

[111]  Emidia Vagnoni,et al.  Power, organization design and managerial behaviour , 2004 .

[112]  L. Eldenburg,et al.  Public versus private governance: a study of incentives and operational performance , 2003 .

[113]  D. North.  Institutions, institutional change and economic performance: Cambridge university press. , 1990 .

[114]  G. Wistow,et al.  Governance and public involvement in the British National Health Service: understanding difficulties and developments. , 2006, Social science & medicine.

[115]  Ranjani Krishnan,et al.  The Influence of Institutional Constraints on Outsourcing , 2010 .

[116]  V. Wu.  Managed care's price bargaining with hospitals. , 2009, Journal of health economics.

[117]  E. Fama,et al.  Agency Problems and Residual Claims , 1983 .

[118]  K. Sivaramakrishnan,et al.  Board Monitoring, Consulting, and Reward Structures , 2012 .

[119]  Jonathan R. Clark,et al.  The internal processes and behavioral dynamics of hospital boards: an exploration of differences between high- and low-performing hospitals. , 2009, Health care management review.

[120]  B. Weiner,et al.  Changes in the structure, composition, and activity of hospital governing boards, 1989-1997: evidence from two national surveys. , 2001, The Milbank quarterly.

[121]  J. Harris.  The Internal Organization of Hospitals: Some Economic Implications , 1977 .

[122]  B. Gray.  Why Nonprofits? Hospitals and the Future of American Health Care , 1992, Frontiers of health services management.

[123]  E. Cardinaels.  Governance in non-for-profit hospitals: effects of board members' remuneration and expertise on CEO compensation. , 2009, Health policy.