Group Health East (GHE) is a 100,000-member managed care organization (MCO) located in southern New England. GHE is a mixed-model MCO affiliated with two large multispecialty groups-Physicians Associates (PA) and Bayside Multispecialty Group (BMS)-in addition to 500 individual physicians in the community. PA provides in-house services in the north clinic;

BMS provides services in the south. GHE is affiliated with two major metropolitan hospitals in the Boston area. The CEO, Mr. Jones, is a 55-year-old hospital executive who crossed over into the managed care sector three years ago. GHE is going through a time of transition attributable to increased market competition, and it faces a number of important decisions that will affect its future. These decisions relate to organizational structure, staffing, incentives and performance appraisals, surveillance of adverse out- comes, strategic planning, and rate setting.

Each large GHE clinic maintains a functional organizational design with two main divisions-Support Services and Clinical Services and separate departments in each division based on specific functions, such as housekeeping in Support Services and medicine in Clinical Services.

An organization-wide medical staff as well as separate medical staff organizations, practices at each of the two clinics. Based on his experience in large academic medical centers in the acute care sector, and on the recommendation of the system's governing board, Mr. Jones is considering moving to a matrix model organizational design, with separate product lines that affiliate with, and draw services from, the functional departments (e.g., nursing).

Mr. Jones is wrestling with a number of critical and fundamental questions:

• What are the advantages and disadvantages of a matrix model for GHE in terms of direct and indirect costs as well as benefits, such as improved coordination?

• How many product lines should the organization identify?

• How should the organization determine which product lines ought to maintain separate identities as part of the matrix design?

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