Conflict Resolution at General Hospital

General Hospital was founded in 1968 as a nonprofit community hospital in the Northeast. In 1981, the facility was expanded from 175 beds to 275 beds, and the emergency room was upgraded. Also, General Hospital signed an agreement with a nearby medical center to provide patient services that it wasn't able to provide itself. During the 1980s, approximately 90 percent of General Hospital's beds were occupied. However, a few years ago, the nearby medical center underwent renovations and obtained state-of-the-art equipment. As a result, General Hospital's patient occupancy rate had dropped to 65 percent recently. It had to eliminate services in areas in which it couldn't compete. General Hospital also experienced a 35 percent increase in Medicare and Medicaid patients during this time. These government health insurance plans generate significantly less revenue than many private health insurance plans.

General Hospital's CEO Mike Hammer realized that his hospital was in a nosedive and that a long-term, high-speed fix was in order. Without it, the hospital would soon begin to face survivability issues and possibly lose its accreditation. An experienced health-care executive, Hammer knew that he had to cut costs and increase revenues so that promising current services could be expanded and new services added in areas in which General Hospital could successfully compete against the medical center. Hammer felt that under his leadership the current management team could get the job done with one exception: cost control. In Mike Hammer's experience, physicians were a major factor in the inability of hospitals to regulate costs. He believed that physicians in the main didn't understand, nor were they interested in, the role of costs in determining the viability of hospitals. He felt that this lack of concern stemmed from the physicians' strong allegiance to their profession as opposed to the hospitals in which they had patient privileges. In the past, Hammer had tried two approaches to controlling physician-driven costs, each of which had failed. Early in his tenure as General Hospital's CEO, he had tried to convince Director of Medicine Dr. Mark Williams to get the staff physicians to become cost sensitive in their decision making. Even when Hammer spotted a wasteful practice, physicians defended their actions as "the practice of good medicine." He rarely won any of these battles. Also, in 1993, he hired a consultant who studied the situation and recommended a formal comprehensive cost containment program. However, the hospital's board of trustees failed to support the program because the director of medicine vehemently opposed it. Even private meetings with Dr. Williams could not get him to change his mind or even to use the proposed program as a focus for constructive change. Dr. Williams felt that Hammer was asking for a cultural change that was impossible. Forcing them to adhere to the plan would make it significantly more difficult to attract and keep talented physicians. Therefore the plan was not implemented. The failure to achieve comprehensive cost control led Hammer to believe that physician-controlled costs had to be addressed on a step-by-step basis, one physician at a time. He theorized that, once a series of cost containment steps had been taken and reductions accrued, the culture would begin to change and more ambitious attempts at cost control would stand a better chance of success. Hammer had just hired a new hospital administrator, Marge Harding, who was effectively the hospital's chief operating officer (COO). He thought that perhaps the time had arrived to test his theory and see if cost control could begin to become a reality.

The Meeting

Hammer met with Harding and suggested a course of action:

Hammer: As I mentioned last week, we have to get aggressive in the cost area. Here's what I want you to do. Select something that the physicians are doing that can be done at less cost and implement the change. And remember, as COO you have the unilateral authority to place contracts and fire employees who are in an at-will employment status. In fact, don't tell me what you're doing. That will allow us more time and help us play good cop-bad cop with the doctors.

Harding: I'll get right on it. I'm sure that I can get some good results

Hammer: Good, Marge! That's all I have for now.

Harding was delighted that Hammer had given her a costreduction assignment. In her 10 years in the health-care field, she had seen many financial abuses but until now never had the authority to do anything about them. She judged that her registered nurse experience, a 3-year stint as assistant hospital administrator at another hospital, her baccalaureate degree in finance, and her master's degree in health-care administration would serve her well in a cost-cutting role. Also, her dad and one of her brothers were physicians, so she wasn't awed by medical doctors. In fact, she rather enjoyed challenging them, as she considered many of them to be one dimensional. She felt that physicians knew the scientific elements of medicine well, but lacked the sensitivity, knowledge, and skill needed to deliver patient care in a cost-effective manner. Harding also knew that health-care reform was a hot item and that if she could improve the cost of operating General Hospital significantly, she would have a good chance of getting a CEO position, perhaps within the next 5 years, before she reached 40.

The Change

That night in the solitude of her condo while listening to a CD, Marge reviewed in her mind the orientation tour that she had gone through two weeks earlier at General Hospital. As she identified candidates for cost cutting, she listed the pros and cons of each. Next, she telephoned her friend, Joel Cohen, a 4.0 GPA MBA graduate of a prestigious business school. She got him to help her identify more clearly some cost-cutting alternatives, to formulate additional advantages and disadvantages, and to finalize her first choice: to computerize the interpretation of EKG readings. All EKG readings at General Hospital were interpreted by Dr. James Boyer, an attending cardiologist. Dr. Boyer had been approved by both the board of trustees and the hospital medical staff to interpret EKGs. Furthermore, he was held in high esteem by his colleagues for accurate and timely reports. He had hardly ever missed a day of work in 15 years and had always arranged for a suitable replacement when he went on vacation. Dr. Boyer was particularly valuable at dovetailing his services with the many other hospital activities involved in elective admissions. Marge Harding knew that computerized EKG interpretations were the norm today. Furthermore, she determined that replacing Dr. Boyer with a computerized EKG interpretation service would save General Hospital at least $100,000 per year for the next three years and provide nearly instantaneous results. She signed a one-year contract on behalf of General Hospital with Health Diagnostics. The equipment was installed and the hospital's EKG technicians were trained. Finally, the computerized EKG interpretation system was put online and Harding issued two directives, one to the EKG department to use the system and another to her assistant, John Will. She was taking a week's vacation and was instructing Will to provide liaison between the contractor and the hospital and to introduce the system and its benefits to the medical and nursing staffs. Finally, just prior to catching a plane to her vacation paradise, Harding sent a letter to Dr. Boyer notifying him that his services were no longer needed and that he was involuntarily separated from General Hospital unless he successfully competed for a vacant position within the next 30 days.  Jersey. It was presented to and accepted by the referred Society for Case Research. All rights reserved to the authors. Copyright © 1994. It was edited for Organizational Behavior, 13th edition, and used with permission.

Early Problems

During the first week of computerized operations, many EKG problems emerged. Some EKG interpretations came back on time, others were a few hours late, and still others never arrived at General Hospital. At times, reports were returned inadvertently with a different patient's EKG analyses on them. Such mix-ups resulted in misfiling and at times confused physicians and even caused a few misdiagnoses. At other times, the patients were actually at other hospitals! The overwhelming problem was incorrect EKG interpretations in 25 percent of the reports. The physicians were furious. They did not recognize the physicians who had certified the EKG reports. "What happened to Dr. Boyer?" became an echo. When they discovered that Dr. Boyer had been fired, they vehemently complained to Dr. Williams. Dr. Boyer's colleagues felt strongly that, because Dr. Boyer was part of the medical staff, a review of his termination was in order. Dr. Williams worried about the potential for legal liabilities resulting from inaccurate readings, as well as EKG reports signed by physicians not certified by General Hospital's certification committee. The nursing director, Nancy Ames, was unaware of the extent of the change and the ensuing problems. The overall result was that the hospital's operation was quickly becoming seriously jeopardized. John Will was powerless to discontinue the computerized EKG service because he had no legitimate authority to do so.

The Following Monday

At 10:00 a.m. the following Monday, the medical staff convened to discuss the problem. Dr. Williams strongly urged Harding to come to the meeting, but she didn't attend. Instead she sent John Will with a message: "General Hospital needs to stay abreast of ongoing technological developments in science and medicine, especially when costs are reduced. The computerized EKG system stays." This incensed the medical staff. Dr. Williams sent Will back to Harding with a rebuttal message: "Either speak to us today and resolve this problem, or we will admit all new patients to other hospitals." Dr. Williams was totally frustrated. He had brought the matter up with Mike Hammer that morning but felt that he had been brushed off. Hammer said that he was very busy and that, hopefully, the problem would get resolved by those directly involved.

Questions

1. What conflict management styles are evidenced in this case?

2. How would you characterize Hammer's leadership style?

3. What type of change approach was used by Hammer? Was it successful?