Medical Administrators &

The Faculty of Public Health

University of NSW

21 February 2008

John Menadue AO

Another Design Problem in Health –

No-one Runs Hospitals

Four years ago when I said ‘No-one runs hospitals – governance is fundamentally flawed’ some suggested I was being unnecessarily provocative. ‘Surely, it couldn’t be that bad’.

Yet evidence in support of my proposition continues to mount with malfunction in many hospitals.

Australia’s public hospitals spend over $25 b pa or 30%of our total recurrent health expenditure. Private hospitals that spend about $7 b pa have similar problems, although I suspect that the religious orders do better as professional hospitals managers!

But before I focus on this major governance issue in hospitals, it is necessary to put the issue in context.

Health ministers across Australia must be among the most frustrated people in the country. They keep pouring money into health to address the ‘hot button’ issues that are often run to extract more money. But the crises keep bubbling up week after week despite more dollars.

A major problem we face which not one health minister has yet acknowledged is that we can’t have all that we want in health. Until we effectively and fairly manage the demand, no solution is possible. Band aids keep failing. Resources are limited. We have to ration or determine our priorities otherwise the powerful will continue to skew public resources in their favour, eg more money for waiting lists, whilst the needy in areas such as indigenous and mental health are relegated to the end of the queue. When some hospitals try to prioritise their workload, their political masters tell them not to, for fear of a front-page story.

Our present allocation of health resources is haphazard, secretive, costly and unjust. The hard issues about priorities are dodged. The hard questions are never really posed, and the health debate continues to be largely a private conversation between the minister, privileged doctors and special interests. The public is excluded.

I have spoken before about the major design problems in health. See CPD.org.au, then go to Health, and then to ‘The reform agenda, Victorian Health Care Association, 13/11/07’. I identified major design problems which cost Australia $10 b to $15 b pa. These design problems include a 19th Century workforce structure which is riven with demarcations and restrictive work practices; quality and safety issues in our hospitals; our preoccupation with a sickness model of care rather than a health model; our focus on acute care in hospitals at the expense of primary care in the community; the fragmentation of services both within and between Commonwealth and State jurisdictions, and the growing erosion of our universal Medicare system through government subsidised support of private health insurance ($6 b pa), which is taking us a down a two-tier health system.

There are particular design problems in our hospitals, although I will be speaking largely about the 750 public hospitals in Australia. My proposition is that no-one really runs these public hospitals in the sense that we understand how a normal organization should function. There is a major disconnect between corporate governance and clinical governance. They very largely operate in parallel or at best clinical issues and risks are not given the same or more attention than corporate or financial risks. Reviews by such people as Fred Nile do not even get close to this core issues.

Doctors admit, treat and discharge patients. They largely see their roles as professionally autonomous. Their clinical decisions drive both hospital inputs and outputs. Doctors both manage the clinical demand and supply the clinical services. Senior executives are ‘responsible’ for staffing and budgets, but don’t make the clinical decisions that affect outcomes and costs. They do not involve themselves, quite properly, in clinical decisions. There are of course exceptions to this, but they are at the margins and even where they exist in some hospitals, it is usually only in part of the hospital and often reliant on a few champions. The result often is that hospital budgets blow out and senior executives get the blame when clinicians are really making the decisions that determine expenditures and health outcomes. There is administrative confusion. Nurses hold the system together but don’t have authority.

Hospital boards are often political decorations or amalgams of interest groups. Most do not seriously concern themselves with clinical outcomes and particularly with quality and safety. Ministers and CEOs of health departments often compound the governance confusion by trying to micro-manage in response to media pressures. They mainly succeed in confusing their organizations even further, making senior executives gun-shy in making decisions, and frustrating clinicians. The governance confusion is also worsened by the work pressures of unplanned admissions pouring in through emergency departments. (This is caused by a major problem in another part of the ‘system’ – the collapse of general practice at night, weekends, in outer suburban and rural areas.)

The situation is not all that much different in private hospitals. Peter Smedley, the former CEO of the Mayne Group of hospitals, thought that he and his colleagues could run the Mayne hospitals in the same way that they ran other organizations. They set about reducing costs. Doctors responded by sending their patients to other hospitals. Smedley lost his job in quick time.

Hospitals in Australia have a life of their own with no clear lines of responsibility and accountability. They are large cottage industries. Only the good sense of people within hospitals prevents even more confusion. Governance is fundamentally flawed between corporate and clinical governance.

Managers traditionally attempt to control and lead their hospitals (or other organizations) through hierarchical systems. The top level gives the orders and by and large, the rest of the organization follows. But this type of command and control hierarchical system is ill equipped to deal with the key roles of clinicians dealing with very complex cases and employing highly technical skills. Clinicians rely on networks and not hierarchies to do their work.

Most hospital crisis stories can be attributed to frustrated clinicians. The solution is to recognise where power lies, with the clinical professionals, and co-opt them into management. They will need training and support.

Every organization has disconnects. There are time lags up and down the hierarchy; middle managers often build empires and of course the problem of disconnect in large organizations is greater because of the distance between the top and the bottom.

But the disconnect in hospitals is much more fundamental, principally because of the professional autonomy and clinical freedom which is highly prized by clinicians. In hospitals the skill and imagination is at the ‘bottom level’. Yet while clinicians have very considerable power in clinical matters, they have very little organisational power and are consequently very frustrated. They literally make life and death decisions, but often can’t sign a $50 petty cash voucher. Where clinicians have been given some management autonomy and generated efficiency and cost-savings, the savings have often been taken away in the next budgetary round. Clinicians then lose their motivation.

Attempts have been made to get around this disconnect by reinforcing the top/down hierarchical approach, eg.

These attempts to overcome the organisational disconnect through strengthening the top of the organization have been only partially successful and have often alienated even the best-intentioned clinicians.

Reform also needs to take a bottom-up approach.

Let me give two examples of this bottom-up approach. The first is clinical senates which have been established in many states. They make recommendations for clinical change which reflects general clinical concerns. The senates are using their networks to achieve organisational reform. The second is the Greater Metropolitan Task Force in Sydney that addresses major problems in clinical gaps, duplication and safety in Sydney hospitals. These are two examples of clinicians accepting their responsibility for reform that are integrated with organisational objectives, but these examples of clinical involvement are usually about networking between hospitals rather than within hospitals.

Hospitals might also look at large legal and accounting firms where the CEO and Senior Partner is usually a professional lawyer or accountant. They recognise that senior managers must have the confidence of the professionals. But hospitals are clearly more complex and technical than professional firms. The IT sector seems better at integrating technical and management skills.

This enhanced role for clinicians is essential despite the history of antagonism between managers and clinicians and past political opposition by some doctors to public health in any shape or form.

Reviews of hospitals spend a lot of time fruitlessly dealing with the symptoms rather than the system problem in hospitals – the disconnect between what managers expect can be done through hierarchy and the way clinicians use networks to get their tasks done. Managers are leaving in frustration. No wonder clinical staff are also leaving public hospitals. Their morale is seriously eroded. They are fed up, despite the attraction of academic work in large public hospitals, where cases are usually more complex and where there is an opportunity to work with a greater public purpose.

Not only are their clinical skills lost, but also public hospitals lose with them their organisational memory. That memory and loyalty cannot be built around visiting medical officers, as skilled as they are, but who do not have as their first loyalty a commitment to the institution. The balance between professional full-time staff and Visiting Medical Officers varies between hospitals and specialties. Some specialties are now overwhelmingly staffed by VMOs. The balance between full time salaried staff and VMOs is worsening as more and more quality staff leave public hospitals for highly remunerative jobs, about three times the salary, in the private sector, another sign of the developing two-tier system.

Could clinicians run hospitals? Some do and more could, with support and encouragement, if they were also confident that in a few years time they could return to clinical practice. Many would run a mile at the thought of management. Some would admit that they are not skilled managers. Because clinicians are not trained in management, the prophecy often comes true that doctors can’t manage.

The key to a successful management/clinician is really the motivation and the quality of the person.

A robust program of hospital avoidance through large-scale building of primary health care clinics for all but the most acute cases would also relieve some of the pressures brought about by the disconnect between corporate and clinical governance in hospitals.

In any event, a buy-in by clinicians in any health reform is critical, as the Rudd Government will find out. By clinical buy-in I am not meaning AMA buy-in.

This disconnect between corporate and clinical governance is not an easy issue to fix. But before we can find a solution, we need first to acknowledge the problem.

This is not a philosophical or even an ideological argument. We must confront the organisational and management problems in hospitals and stop sticking our heads in the sand. This issue must be addressed well ahead of the Rudd Government’s commitment to taking over responsibility for 750 public hospitals in Australia if the states continue to drag their feet.

Further, if the government wants to wind back inflation, it cannot ignore the major inefficiencies in health – the largest sector in our economy. Money is clearly not solving our health problems. The solution must be in demand management and in design reform. We have outlived the design life of our present health delivery system.

Design reform will be resisted by the powerful vested interests that plague the health system, and the AMA and the private health insurance funds in particular, who want more and more money to fund the status quo. Leadership is necessary to win the public debate for design change.

John Menadue

Chair, Centre for Policy Development

Formerly Chair of the NSW Health Council and the SA Generational Health Review