Preface

I have taught a course on the US healthcare system for a long time to an MBA audience at 3 different institutions: the Universities of Chicago, Arizona, and Pennsylvania. The MBAs are a demanding set of students—not necessarily interested in academic theory or research, but very much interested in how the system actually works and, more importantly, where the growth and investment opportunities lie. This is not really the academician’s strength; we are not trained to focus on these issues in our research. By contrast, the MBA students frequently have industry experience and often know more about certain topics than we professors do. This makes for a very uncomfortable “information asymmetry” in class.

I had a tough choice to make when I started teaching at Chicago: either continue with a strictly academic focus as I taught the introductory course, or learn how the system operates, master it at least as well as my MBA students, and then try to teach it in an entertaining manner. The task was made even more complex by the continual changes in the healthcare industry, which meant you had to continually update your presentation. MBAs frown upon any professor whose slides and statistics are “out of date.” This meant continual learning about issues that we academics studying healthcare management often avoid:

• Business models

• Revenue models

• Growth models

• Capital acquisition

• Market shares

• Service line management

• Coding and reimbursement

• Contracts and contracting

• Profit margins and expense management

• Scale and scope economies

• Outsourcing

My perusal of the current introductory texts on the US healthcare system confirms that our field often ignores these topics. That is why I no longer use them. I used to be partial to the volume edited by Stephen Williams and Paul Torrens (an old friend), but it too avoided these topics.

I choose to confront these and other topics here in this book. My research on integrated delivery networks and quality of care has long convinced me that “process” is more important than “structure” and, thus, that an analysis of how the business of healthcare works is more important, interesting, and valuable to students than statistics on the number of professionals, organizations, and beneficiaries. To put this into practice, I focus on how the different players in the healthcare industry interact with one another, contract with one another, and collaborate and conflict with one another. That is why the title of this healthcare book contains the term ecosystem (ie, the series of interactions among organisms that all inhabit the same community). I have endeavored to apply this process approach elsewhere to the study of how innovation works in the healthcare industry through a comparative analysis of the business and revenue models of pharmaceutical, biotechnology, medical device, and information technology companies.¹ This volume is meant as a compendium to that volume.

How did I arrive at this approach? In 1976, while I was a doctoral student in sociology at the University of Chicago, my father advised me to study healthcare. When I asked him why, he said, “People are not taking good care of themselves.” Given the epidemic of chronic illness that we see today (much of it self-inflicted wounds), he was way ahead of his time. Thankfully, I listened to him (at least this once) and applied my interest in sociology and organization theory to healthcare.

Chicago was a great place to study healthcare, given that it hosted the first graduate program in health administration, founded in 1937 in the Graduate School of Business (GSB), as well as a dedicated research center, the Center for Health Administration Studies (CHAS). GSB was also directly linked by a corridor to the Sociology Department in the Social Sciences Building, which made it easy to traverse the 2 departments. I literally followed in the footsteps of many famous scholars coming out of Chicago who likely did the same thing: Richard Scott, Eliot Freidson, Steve Shortell, Duncan Neuhauser, William Richardson, Doug Conrad, Chuck Phelps, Jeff Goldsmith, Charles Bosk, Wolf Heydebrand, Montague Brown, and Andy Abbott. I traversed that corridor many times and enrolled in several MBA healthcare and management classes taught at GSB while I completed my doctoral work. I also took advantage of the close ties between Sociology and the National Opinion Research Center (NORC, also on campus), where I took many courses on survey design and analysis.

I wrote my dissertation on the role of networks in the diffusion of new forms of hospital organization, partly under the mentorship of James Coleman, who had studied the diffusion of tetracycline among physicians in Indianapolis, and Edward Laumann, who studied social networks in healthcare and other sectors. The dissertation marked my first foray into the business of healthcare management. To conduct the research, I obtained the support of the American Hospital Association (conveniently located in downtown Chicago) and received access to their annual survey data going back to 1955. To support the research, I received a doctoral dissertation grant from Joanne Levy at the Wharton School and its Department of Health Care Management, where I now teach. Odin Anderson at CHAS then wrote a cover letter to hospital CEOs around the country asking them to participate in a survey I had developed; because they all knew and respected Odin, I was able to get a 90% response rate. This was “beginners’ luck”; I have come close to this response rate only one time since in 35+ years of survey research.

After completion of my dissertation, Ron Andersen at CHAS helped me to obtain a postdoctoral fellowship at GSB and CHAS. I now was situated full time in a business school. During that year, I worked with Odin Anderson, Ron Andersen, and LuAnn Aday on (1) a study of the comparative development of health maintenance organizations (HMOs) in Minneapolis and Chicago, and (2) the advent of hospital-sponsored primary care physician groups—again, a topic way ahead of its time. That year, Ron also suggested I develop a new course on the organization and management of the healthcare sector, focusing mainly on the providers, to be taught in the MBA program. I had zero experience teaching, but fortunately was paired with Paul Hirsch (an organizational sociologist at GSB, now at Kellogg) who taught me the ropes as we perfected that course over a 4-year run.

My business school exposure continued after my post-doc for an additional 2 years when Ron Andersen suggested I get an MBA in hospital administration (starting in the nighttime program downtown) to supplement my PhD in sociology. Ron believed (rightly, as it turned out) that one might do better research if one understood how the business worked. It was a great idea in some respects. I learned the business school disciplines of finance, accounting, operations research, and marketing (my minor), which I endeavored to utilize in my early research and have drawn on ever since in teaching my students. I also completed an internship at Hospital Corporation of America (HCA) in their Dallas-Fort Worth region and then a residency at Jackson Park Hospital on the South Side of Chicago. The 2 hospitals were “day and night”—for-profit versus nonprofit, suburban versus inner-city, etc. Given the debate taking place in the academic community on investor-owned hospitals, these experiences gave me valuable, on-the-ground insight into what was (and wasn’t) true. That was Ron’s intent.

The MBA program was also a horrible 2 years in some respects. Think of it: My faculty colleagues during the daytime were my MBA course instructors at night, and my MBA students during the daytime were my teammates in courses at night. Nobody was happy, especially my wife, who now saw me go back to school and need someone to support me.

When I finally finished, I tested the waters to see if I was employable in industry. I was offered a position at Evangelical Health Systems on the South Side of Chicago (now part of Advocate Health) but turned it down because the pay was even lower than in academia. Given my recent trajectory, I instead looked for a faculty position at a business school rather than a school of public health. I took my first faculty position in the College of Business and Public Administration (BPA) at the University of Arizona, where I spent 10 years. I was surrounded by colleagues who played a major role in my academic career, including Jon Christianson (who hired me and provided comments on all of my early papers), Doug Wholey (with whom I wrote 27 papers over the next 30 years), and Dean Ken Smith, who financially supported my first survey of physicians—a research endeavor I would continue for decades.

I ended up being dually appointed in Management and Policy and BPA’s new School of Public Administration and Policy (MAP and SPAP, for short—an endless source of faculty jokes and parallels to “fric and frac”). In MAP, I taught the core MBA and undergrad course on organization design and management. In SPAP, I taught many of the MBA/MPA courses on healthcare, including (1) Introduction to the Healthcare System, (2) Health Policy, and (3) Comparative Healthcare Management. For the third course, I teamed up with Darrell Thorpe, Chief Medical Officer (and later CEO) of Tucson Medical Center, the largest tertiary hospital in town. Darrell helped me to learn how to teach applied topics on managed care, managing physicians, and integrated delivery networks—topics his own hospital was going through in real time. Darrell and I published several papers together, a practice I continued here at Penn with the CEO of the University of Pennsylvania Health System, Ralph Muller.

In 1994, I moved to my current position in the Department of Health Care Management at the Wharton School, with a dual appointment in the Department of Management. As in Arizona, I taught the core MBA course on organization design for the Management Department (with some top-notch colleagues like Jitendra Singh, Marshall Meyer, Hans Pennings, and Mike Useem), as well as an elective on Strategic Implementation. For the Health Care Management Department, I taught a seminar on Integrated Delivery Networks and then the core, required MBA course on Introduction to the Healthcare System. I have taught that introductory course now at Wharton for over 2 decades in both the daytime program and the weekend MBA executive program.

This volume is intended to capture the insights and lessons from teaching the introductory course on the US healthcare industry. Hopefully, after teaching it for so long, I have been faithful to reproduce it for the reader in its complexity but also in an entertaining and comprehensible way.