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Restructuring academic departments of surgery at University Medical Centers
Restructuring Academic Departments of Surgery at University Medical Centers Stephan Ariyan, MD, MBA, New Haven, Connecticut
BACKGROUND: The present administrative and financial structures of clinical departments in most medical schools date back to the beginning of the 29th century when changes were brought about as a result of the Flexner report. Since that time, there have been significant changes in the health care industry that compel us to reevaluate our goals in order to meet the needs of the 21st century. METHODS: This paper proposes that we need to consider the administrative restructuring of our departments from the vertical hierarchical system to the horizontal matrix system in order to facilitate cost-effective use of our manpower as well as facilities. It also proposes a financial restructuring of the departments to cut the costs of billings and collections of the clinical practice, to develop a long-term program to raise departmental endowments, and to develop an effective incentive plan. RESULTS: A novel mechanism is proposed to provide “stock options” for the faculty. Such a system would reward academic and clinical productivity, retain productive faculty, and offer options for those who are not productive. CONCLUSIONS: ln order t0 flourish in the health care marketplace, academic programs must be willing to promote a change in the culture of the departments and adapt to a more business-oriented environment. Am J Sorg. 1997;173:351357. 0 1997 by Excerpta Medica, Inc.
“Medicine
is expensive to teach.” Abraham Flexner,
1910
I
f we are to meet the educational needs of our medical students and our residents, we must be able to afford to retain our brightest young people in academic centers. To do so we need significant academic and financial resources in our clinical departments that can only come from restructuring our present system. Since the major portion of the finances for the annual budget of a clinical department in most medical centers comes from medical practice From the Department of Surgery, Yale University School of Medicine, New Haven, Connecticut. This paper was awarded first place in the 1996 Plastic Surgery Educational Foundation Essay Scholarship Contest Award. Requests for reprints should be addressed to Stephan Ariyan, MD, 60 Temple Street, New Haven, Connecticut 06511. Manuscript submitted August 10, 1995 and accepted in revised form April 1, 1996.
0 1997 by Excerpta All rights reserved.
Medica,
Inc.
income generated by the clinical faculty, it is imperative that everyone work collectively to generate that income equitably.
TURN
OF THE
20th
CENTURY
At the turn of this century, medical school education in this country was in a shambles. Medical students were taught at most medical schools in this country by a group of entrepreneurial physicians who were led by economic motivations. There was a tremendous proliferation of these schools, some of which were actually private ventures by one or more physicians who charged tuition for their personal gain, had no laboratories for teaching the sciences, and graduated students as physicians within a year or two after only a high school education. It was in this climate that Abraham Flexner,’ a nonphysician educator funded by the Carnegie Foundation, evaluated each of the 155 medical schools in the United States and Canada, identifying the poor quality of the existing method of medical education. He proposed an experiment to limit the medical schools to those in universities, in order to promote a quality education founded on scientific methods and laboratory experience. He further proposed to eliminate the economic motivation by paying the faculty a full salary in order to take away the “distractions of a successful practice.” These changes led to a decrease in the number of medical schools and to the establishment of the academic full-time departments in many universities after his 1910 report. In his second report published in 1925, Flexner’ reported the outcome of this academic experiment. He noted that the cost of this enterprise was high, for the medical school budgets increased by 300% to 900% during these 15 years, at a time when the rate of inflation increased only by 175%. He further reported that most universities funded these increasing costs by raising endowments, and some of the successful medical schools were able to fund their entire annual budget from the interest generated from these endowments. However, there have been substantial changes over the intervening 85 years that compel us to reevaluate our goals to meet the needs of the 21st century. About 3 decades ago, the federal government perceived a shortage of physicians and financed an increase in the enrollment of students in medical schools as well as in the number of new medical schools in this country. This funding reached a peak in the mid 1970s but has been cut back drastically since the mid 1980s. Over the last decade, with increasing external regulatory forces, the overhead costs have increased, and the supportive staff in the departments have, of necessity, also increased. Since the full-time faculty have had the major responsibility for the education of the residents and the 0002-9610/97/$17.00 PII SOOO2-9610(96)00385-S
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students in most institutions, they have also had to shoulder the additional burden of the cost of this education. Often, there was little or no money provided from either the medical school or the hospital toward these educational costs. Meanwhile, with the income to each of the departments being accrued from the billings of the private patients cared for by the full-time faculty, the overhead costs for the professional offices have also increased. Compounding this situation is the fact that educational training grants from the federal government have essentially ceased, and grants for research in the medical sciences h,dve been decreasing drastically over the last 15 years. Many of the clinical departments in medical schools have now reached a financial crisis. The taxation of these clinical departments by the dean, for the medical school budget, has increased for the same reasons of increasing overhead costs. These changes in the financial responsibilities over the last several decades have challenged the usefulness in many medical schools of the present full-time financial structure as initially established following the Flexner report.
PROBLEM
Gathering Data The dean has few sources for moneys for the budget of the medical school: (a) through the overhead costs from federal grants, (b) from tuition income, and (c) from taxation of the moneys generated by the clinical departments. As the federal funding for research grants has been decreasing,’ while the overhead costs of running the medical school have been increasing, the dean frequently compensates for the deficit by increasing the taxation of the clinically generated income of the various departments. In contrast to the medical school budgets of 1925 when the interest from endowments could cover the cost of the annual budget,’ the interest income from the endowments in 1993 accounted for a very small fraction of the annual budget of the tnedical schooL4 These costs have compounded the problems facing clinical departments, and will be the topic of discussion later in this paper. Organizational Culture The culture of the organization of the department of surgery is usually very conservative, with the management also directly from the top (Figure 1). All departmental policies are made by the department chairtnan and/or an executive committee (with the chairman’s approval), and all specialty (division) chiefs are responsible for the management and the administration of the activities of clinical practice, office space, and research activities within their division.
IDENTIFICATION
The structure of the organization in many medical schools is a traditional system. This system has a top-down decisionmaking process, from the dean down to the chairmen of the various departments (see Figure 1). For purposes of discussion, this paper will use the department of surgery as an example. Most of the discussions will be based on the needs of surgeons, whose practice is dependent on the use of the hospital. Conceptually, though, most of the discussion would still be applicable to many other clinical departments as well.
Action Planning This paper proposes that the dean and the hospital president have to evaluate the needs of the department of surgery for the future years, and that the institution as a whole needs to support the department of surgery to main-
DEAN
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tain national recognition, based on its research activities as well as its clinical expertise. The department needs to develop a role model for medical students who would seek to pursue careers in surgery or the surgical specialties. In order to achieve this, and in order to be able to afford this development in a more cost-effective manner, this paper proposes a restructuring of the department of surgery from its traditional hierarchical system to a matrix system (see Figure 2).
ADMINISTRATIVE RESTRUCTURING THE DEPARTMENT
OF
In this system, the chairman would take direct responsibility for his or her executive, administrative, operational, and financial responsibilities for the entire department. On the other hand, the chairman would identify three directors, each responsible individually to the chairman for the respective areas of research development, clinical development, and teaching within the department of surgery. The director for research would coordinate the activities of all surgical specialties within each of these arenas so that there would be very little duplication of effort and activities in the training of the students and the residents. With increasing pressure to become more clinically productive, it is becoming more and more difficult for clinicians to be able to donate enough time and effort for direct laboratory research. There are, however, a number of new individuals who have earned their PhDs and are seeking opportunities in basic or applied science research. These candidates would serve a vital role in the continued development of research activities in the clinical departments. The research laboratory facilities should be coordinated to allow for collaboration among investigators, sharing of limited equipment that would be purchased for such purposes, and contributing to the investment in hiring PhDs to serve as full-time coordinators of research in the laboratories. We can no longer afford the luxury of territorial possessions in research space; we need to collaborate with each other to utilize common research facilities and equipment to decrease our costs in space, equipment, maintenance, and personnel. The director for clinical activities would coordinate the use of the hospital facilities. In those institutions where there are full-time and community physicians sharing the same facilities, this director would develop a collaboration among all the surgeons to lead to a single surgical staff with equal access and responsibilities. The operating room (OR) scheduling should be under the jurisdiction of this individual in order to increase the OR utilization and improve the efficiency of its scheduling system. Since each hospital has a fixed number of operating rooms with a fixed number of operating time available, it is easy to see that we cannot increase the clinically generated income as effectively by the addition of more surgeons to the staff as we can by the more efficient utilization of the facilities by the present staff. Multidisciplinary programs should be encouraged to facilitate the care of disease processes such as cancer, cardiovascular, wound care, and reconstructive centers. Furthermore, outcome studies of utilization of the surgical ICU, lengths of hospital stay, and utilization cost studies would provide data of the performance of the clinicians in the department, and these data would place the department in THE
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an advantageous position for contracting with managed care organizations. The teaching activities of the department would then be focused under the direction of this third director, so that all students rotating through each of the subspecialties would be assigned supervision and be provided didactic teaching through a single office, thereby eliminating duplication of administrative efforts. This individual would also coordinate the teaching focus of the residents in the various specialties, to maximize the learning by the residents rotating through different services. Furthermore, the residents should be instructed through seminars on cost containment in the care of patients. Academic Development of Faculty The chairman would take direct responsibility for the career planning and development of the faculty. (There should be a joint evaluation of each of the faculty by the chairman and the respective specialty chief). Each faculty member would be assessed for his or her goals for the future. Individual faculty should identify whether or not they have a desire for academic development leading to positions of leadership either at that institution or to serve as a chief of a specialty at other universities. Other individuals may choose to expend their efforts in research careers, while still others may show an interest in developing as clinicians rather than in the research track. All junior faculty would be assigned mentors from the senior faculty to serve as role models and to advise these individuals on their development. Those among the young faculty who are identified as having potential for leadership positions should be trained with gradually increasing responsibilities within the department of surgery, as well as sponsorship to leadership training seminars and to management courses in business schools. Medical schools have not been training residents and faculty in organizational or management skills. The tragedy of this is now becoming evident by the struggle of many faculty to face the tasks of negotiating with managed care organizations. It should be the goal of the department of surgery to train these future leaders, who would serve in various specialities at academic centers throughout the United States, by enrolling some of them in selected courses on organization and management in the business school of the university. Finally, the more senior faculty should also be evaluated and developed. Those who are beyond the age to attain their anticipated goals of chairing departments at other institutions should be guided to develop more realistic aspirations. These faculty can still be revitalized and provided new roles as sponsors and mentors for the younger faculty. High performance standards need to be maintained to encourage the more mature faculty to continue to serve as solid citizens in the department of surgery. On the other hand, those individuals who do not feel that they want to participate in this restructuring should be guided and advised toward other roles. Financial Development The costs of this restructured department of surgery would be met by moneys generated from collections through the institution’s clinical practice organization (CPO), fundraising campaigns, and raising of significant endowments in the JOURNAL
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CAREER ASSESSMENT & DEVLOPEMENl
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-RET’REMENT Leaders have been promoted in the past mainly on their research and clinical talents rather than their managerial abilities. Manaoement
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department of surgery. We need to enlist the support of the dean and the university president to permit the department to commence these plans to raise endowments, in order to meet the financial commitments for research and development and still have sufficient funds to afford the financial commitments to the dean’s office. The department of surgery should establish an endowment advisory committee of prominent citizens who are grateful patients of the faculty, and who have expressed an interest in serving in this role. They may be corporate CEOs who have experience or local business leaders who have expressed an interest in raising funds for the department of surgery. This concept of an endowment fundraising committee will not yield financial resources immediately. This group would be presented with the lo-year plan of the department of surgery and the costs of this plan for their reAMERICAN
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‘deadwood’
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Maintain standards
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Goals Systems needs) .
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Aspirations
PROMOTE
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view and support. It will require time and effort to nurture this group and educate the individual committee members on the academic needs of the department. However, in time, the contacts that these business leaders have should lead to the succesful generation of endowment funds within a few years. We can no longer expect to look to the medical school for financial support for new program projects. Therefore, the goal of this committee would be to raise significant endowments so that the interest from the endowment would be able to fund new programs and research activities in perpetuity. These funds would also permit the department of surgery to begin new areas of development in the field of surgery, as well as to recruit the most prominent individuals to take leadership positions when vacancies arise in these new areas. APRIL
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We need to take steps to cut the overhead costs and provide incentives for the productivity of the faculty. In some way, we need to encourage and provide an incentive for each of the faculty to become clinically active in this arena. Quite often, once senior faculty have attained tenure, they may be reluctant to be as actively involved, and this may lead to a lesser contribution. This then becomes a significant burden to the economy of a clinical department, and is unacceptable in the present climate of health care management. Incentive Plan During the last decade there have been significant changes in payment programs for employees in major industries. Boyette and Corm’ discussed salary compensation with a number of options available to restructure the compensation system. They reported the pioneering work by Lincoln Electric, a medium-sized manufacturing company producing welding machines and motors located in Cleveland, Ohio. Here the employees were paid by individual productivity, or by performance as small groups, rather than by salaries. The productivity of Lincoln’s employees increased year after year, and has reached productivity as high as 250% of the industry average; and their costs continued to be below their competition. The American Productivity and Quality Center conducted a survey in 1987 of approximately 1,600 businesses covering the manufacturing and the service industries6 They showed that there are a growing number of corporations using incentive programs for compensation of the employees. These surveys have shown that companies are more likely to use lowered salary increases or complete elimination of routine increases in order to substitute interval lump sum merit increases. There is also the option of gain-sharing, in which profits of the corporation can be distributed in some fashion to the employees. For university surgeons, an incentive system is necessary for the full participation of each of the physicians, regardless of seniority. In the present health care environment, we cannot afford to provide annual salary increases across the board, as has been the practice in the past. Herein lies the opportunity for us to be creative and develop an incentive system that works for professionals in an academic system. For each faculty salary (and for each annual incremental increase in salary) the department has to pay an additional amount to the university for fringe benefits (now averaging about 28%). The fringe benefits paid to the university is high because it covers many hidden overhead costs that do not ever accrue to the benefit of the respective clinical fat, ulty. Salaries. For the purposes of illustrating the point, let us assume that a young faculty member is hired following completion of a residency in surgery, with a salary of $100,000. Looking at the traditional system of salary with annual 5% increases (as proposed by some institutions), the expected salaries and total accumulation can be calculated over a loyear period to reach $1.6 million; this would include fringe benefits calculated at 28%. This salary schedule can be modified by limiting the increase to 5% every other year to decrease the costs. While this may save the department THE
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some money, it decreases the compensation and consequently the incentives to the faculty. Bonuses. In order to encourage individuals tc>achieve certain academic goals, a percentage individual incentive bonus could be added for individual productivity in research, national society presentations, elections to ~~flice, or significant research grant awards. The shortcoming of such a system would be to encourage the faculty to spend more time generating clinical income than devoting themselves to academic development such as teaching and research. There are individuals who are more inclined and more successful at clinical practice, and they also need to be encouraged by some incentive system to become more active in academic development, for such accomplishments would bring further national recognition to the institution. In order to encourage this, an incentive is needed for individuals to achieve certain academic goals that are established collectively within the department. To discourage internal competition and to encourage group participation and development, each division (or group) could be given a second group incentive bonus (to be shared equally within the group) for goals achieved by the group. We can see that if someone is academically involved and also contributes to the clinically generated income of the group, that individual would be able to receive base pay, plus the individual incentive bonus, plus the group performance incentive bonus. Faculty Retention by Stock Options or Golden Handshake. In order to retain the best faculty, another incentive would be ‘istock options.” Since an academic center does not have any stocks to sell, an alternative would be for the department to save a portion of the practice income to purchase stocks in mutual funds, and dlstrihute units of shares to each of the participants as a third bonus Table I. Under such a stock option plan, these units w~~~ld then accumulate and become available to the faculty at predetermined increments, to cash in when they need it in the future, when they leave the institution, or when they retire. These stock units would be deferred compensation, and each individual would be able to cash in only those stock units that have matured (one example could be 5 years from date of issuance). Individuals who choose to move to another institution would lose the last 5 years from this form of compensation because those bonus shares would not have matured. In the example illustrated in Table II, individuals with such a stock option incentive would forfeit $61,05 1 if they left at 5 years, or $98,323 if they left at 10 years. This would prompt individuals to carefully assess a proposed move to another institution, and ask themselves the yuestion “does thts tnove have academic ,md tinancial merit?” On the other hand, the department could waive this period of stock tnaturation as a mechanism for a “golden handshake” if it wished to dismiss an individual. Indeed, safeeguards must he instituted to provide due process for any individual considered to be nonproductive by that individual’s peers in the department, and the mechanism for these safeguards could he worked out. This restructured system would help recruit, compensate, and retain faculty while encouraging productivity both academically and clinically; and the cost to the department would be significantly less than the traditional system. The cost of the fringe henef;ts would only be assessed on the JOURNAL
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TABLE
I Growth
Year
Column A Academic Achievement Base Salary
1 2 3 4 5 6 7 8 9 10 Total
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $1,000,000
in Total
Based
on Academic
Column B Individual Bonus Lump Sum 5% Every Year $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $50000 A
$1,050,000 (A + B) Incomechange compared traditional:
Compensation
Achievement
Column C Bonus for Group Performance Overage = 5% Base (+5%/2 Yrs) $5,000 $5,000 $7,500 $7,500 $10,000 $10,000 $12,500 $12,500 $15,000 $15,000 $100,000
$10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $100,000 $1,250,000 (A+B+C+D)
$1,150,000 (A + B + C)
Column E Stock Option Cumulative Value (10% Base + 10% Yield/ Year)
Column F Total Value of Compensation
$10,000 $21,000 $33,100 $46,410 $61,051 $77,156 $94,872 $114,359 $135,795 $159,374 $159,374
$120,000 $121,000 $124,600 $125,810 $129,641 $131,105 $135,216 $136,987 $141,436 $143,579 $1,309,374 (A+B+C+D) plus 10%
($207,789)
($107,789)
$51,585
($7,789) $280,000 $1,530,000
($79,970)
department would be able to pay an additional $3.1 million to the faculty over those 10 years, while actually saving $4.8 million as compared with the costs under a traditional compensation system. (This represents an overall $7.9 million differential).
SUMMARY Medicine is expensive to teach. In order for the clinical departments to remain fiscally viable in the present climate of health care management, the medical schools and the
II Stock
Options
Academic Achievement Base Salary
Year 1 2 3 4 5 6 7 8 9 10
10%
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
THE
E
with
base pay and not on the entire compensation. Therefore, the department would save significant amounts of money from annual salaries and incentive pays because of their smaller costs of fringe benefits. Cost Savings. The total savings would be commensurate to the number of faculty in the department. In the hypothetical examples given in Table I, each faculty member would actually earn $5 1,585 more over 10 years, while the department in turn would actually still save $79,970 per faculty member. If such a department had 60 surgeons, the
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All Options
Column D Stock Option 10% of Base
FB Total Costs Savings compared with traditional:
TABLE
and
AMERICAN
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Departmental
Overages:
10% Increase in Value over Previous Year’s Stock
Stock
$10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $?0,000 $10,000 $10,000
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Departure Cumulative Value of Stock $10,000 $21,000 $33,100 $46,410 $61,051 $77,156 $94,872 $114,359 $135,795 $159,374 $159,374
$0 $1,000 $2,100 $3,310 $4,641 $6,105 $7,716 $9,487 $11,436 $13,579 Total
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$98,323 nonmatured by year10
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medical centers must consider the various options available to restructure the present system. This paper proposes an option to unify all the clinical practitioners into a single staff in order to decrease the overhead costs in supporting the educational programs and to increase collaboration among the faculty in order meet the needs of managed care contracts. In spite of the financial constraints, we can be productive within the limitations of the present research space and clinical facilities if we adopt some of the concepts that have been used in industry to downsize, and still become more efficient and productive. The restructuring of a clinical department, and the change in the culture of this group, would require continuing involvement and would most likely require 3 to 5 years to evolve. This proposal anticipates that each of the surgical specialties would be recognized for its excellence by virtue of its involvement in national society meetings and presentations during this time interval, leading to an enhancement of its stature in the institution, and in turn contributing to the luster of the parent institution.
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This paper further proposes the advantages accrued by restructuring the present compensation system to base salaries plus bonuses, and offers novel mechanisms to provide stock options. We need to get away from traditional concepts of organizational management and explore new and novel approaches in order to be prepared for the next century.
REFERENCES 1. Flexner A. Medical education in the United States and Canada. Carnegie Foundation, Bulletin No 4; 1910. 2. Flexner A. Medical Education: A Comparative Study. New York: MacMilllan; 1925. 3. Grants fur Science Education 1989-1990. Howard Hughes Medical Institute, Office of Grants and Special Programs. 4. Ariyan S. Preservmg academic excellence at the medical centers. Phst Reconstr Surg. 1992;90:918. 5. Boyett JH, Conn HP. Workplace 2000. The Rev&ion Shaming American Bwiness. New York: Penguin; 1992: 18-120. 6. American Productivity and Quality Center. People, Perfbrmance, and Pay: Major Findmgs. 1987:18.
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BACKGROUND: The present administrative and financial structures of clinical departments in most medical schools date back to the beginning of the 29th century when changes were brought about as a result of the Flexner report. Since that time, there have been significant changes in the health care industry that compel us to reevaluate our goals in order to meet the needs of the 21st century. METHODS: This paper proposes that we need to consider the administrative restructuring of our departments from the vertical hierarchical system to the horizontal matrix system in order to facilitate cost-effective use of our manpower as well as facilities. It also proposes a financial restructuring of the departments to cut the costs of billings and collections of the clinical practice, to develop a long-term program to raise departmental endowments, and to develop an effective incentive plan. RESULTS: A novel mechanism is proposed to provide “stock options” for the faculty. Such a system would reward academic and clinical productivity, retain productive faculty, and offer options for those who are not productive. CONCLUSIONS: ln order t0 flourish in the health care marketplace, academic programs must be willing to promote a change in the culture of the departments and adapt to a more business-oriented environment. Am J Sorg. 1997;173:351357. 0 1997 by Excerpta Medica, Inc.
“Medicine
is expensive to teach.” Abraham Flexner,
1910
I
f we are to meet the educational needs of our medical students and our residents, we must be able to afford to retain our brightest young people in academic centers. To do so we need significant academic and financial resources in our clinical departments that can only come from restructuring our present system. Since the major portion of the finances for the annual budget of a clinical department in most medical centers comes from medical practice From the Department of Surgery, Yale University School of Medicine, New Haven, Connecticut. This paper was awarded first place in the 1996 Plastic Surgery Educational Foundation Essay Scholarship Contest Award. Requests for reprints should be addressed to Stephan Ariyan, MD, 60 Temple Street, New Haven, Connecticut 06511. Manuscript submitted August 10, 1995 and accepted in revised form April 1, 1996.
0 1997 by Excerpta All rights reserved.
Medica,
Inc.
income generated by the clinical faculty, it is imperative that everyone work collectively to generate that income equitably.
TURN
OF THE
20th
CENTURY
At the turn of this century, medical school education in this country was in a shambles. Medical students were taught at most medical schools in this country by a group of entrepreneurial physicians who were led by economic motivations. There was a tremendous proliferation of these schools, some of which were actually private ventures by one or more physicians who charged tuition for their personal gain, had no laboratories for teaching the sciences, and graduated students as physicians within a year or two after only a high school education. It was in this climate that Abraham Flexner,’ a nonphysician educator funded by the Carnegie Foundation, evaluated each of the 155 medical schools in the United States and Canada, identifying the poor quality of the existing method of medical education. He proposed an experiment to limit the medical schools to those in universities, in order to promote a quality education founded on scientific methods and laboratory experience. He further proposed to eliminate the economic motivation by paying the faculty a full salary in order to take away the “distractions of a successful practice.” These changes led to a decrease in the number of medical schools and to the establishment of the academic full-time departments in many universities after his 1910 report. In his second report published in 1925, Flexner’ reported the outcome of this academic experiment. He noted that the cost of this enterprise was high, for the medical school budgets increased by 300% to 900% during these 15 years, at a time when the rate of inflation increased only by 175%. He further reported that most universities funded these increasing costs by raising endowments, and some of the successful medical schools were able to fund their entire annual budget from the interest generated from these endowments. However, there have been substantial changes over the intervening 85 years that compel us to reevaluate our goals to meet the needs of the 21st century. About 3 decades ago, the federal government perceived a shortage of physicians and financed an increase in the enrollment of students in medical schools as well as in the number of new medical schools in this country. This funding reached a peak in the mid 1970s but has been cut back drastically since the mid 1980s. Over the last decade, with increasing external regulatory forces, the overhead costs have increased, and the supportive staff in the departments have, of necessity, also increased. Since the full-time faculty have had the major responsibility for the education of the residents and the 0002-9610/97/$17.00 PII SOOO2-9610(96)00385-S
351
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students in most institutions, they have also had to shoulder the additional burden of the cost of this education. Often, there was little or no money provided from either the medical school or the hospital toward these educational costs. Meanwhile, with the income to each of the departments being accrued from the billings of the private patients cared for by the full-time faculty, the overhead costs for the professional offices have also increased. Compounding this situation is the fact that educational training grants from the federal government have essentially ceased, and grants for research in the medical sciences h,dve been decreasing drastically over the last 15 years. Many of the clinical departments in medical schools have now reached a financial crisis. The taxation of these clinical departments by the dean, for the medical school budget, has increased for the same reasons of increasing overhead costs. These changes in the financial responsibilities over the last several decades have challenged the usefulness in many medical schools of the present full-time financial structure as initially established following the Flexner report.
PROBLEM
Gathering Data The dean has few sources for moneys for the budget of the medical school: (a) through the overhead costs from federal grants, (b) from tuition income, and (c) from taxation of the moneys generated by the clinical departments. As the federal funding for research grants has been decreasing,’ while the overhead costs of running the medical school have been increasing, the dean frequently compensates for the deficit by increasing the taxation of the clinically generated income of the various departments. In contrast to the medical school budgets of 1925 when the interest from endowments could cover the cost of the annual budget,’ the interest income from the endowments in 1993 accounted for a very small fraction of the annual budget of the tnedical schooL4 These costs have compounded the problems facing clinical departments, and will be the topic of discussion later in this paper. Organizational Culture The culture of the organization of the department of surgery is usually very conservative, with the management also directly from the top (Figure 1). All departmental policies are made by the department chairtnan and/or an executive committee (with the chairman’s approval), and all specialty (division) chiefs are responsible for the management and the administration of the activities of clinical practice, office space, and research activities within their division.
IDENTIFICATION
The structure of the organization in many medical schools is a traditional system. This system has a top-down decisionmaking process, from the dean down to the chairmen of the various departments (see Figure 1). For purposes of discussion, this paper will use the department of surgery as an example. Most of the discussions will be based on the needs of surgeons, whose practice is dependent on the use of the hospital. Conceptually, though, most of the discussion would still be applicable to many other clinical departments as well.
Action Planning This paper proposes that the dean and the hospital president have to evaluate the needs of the department of surgery for the future years, and that the institution as a whole needs to support the department of surgery to main-
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tain national recognition, based on its research activities as well as its clinical expertise. The department needs to develop a role model for medical students who would seek to pursue careers in surgery or the surgical specialties. In order to achieve this, and in order to be able to afford this development in a more cost-effective manner, this paper proposes a restructuring of the department of surgery from its traditional hierarchical system to a matrix system (see Figure 2).
ADMINISTRATIVE RESTRUCTURING THE DEPARTMENT
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In this system, the chairman would take direct responsibility for his or her executive, administrative, operational, and financial responsibilities for the entire department. On the other hand, the chairman would identify three directors, each responsible individually to the chairman for the respective areas of research development, clinical development, and teaching within the department of surgery. The director for research would coordinate the activities of all surgical specialties within each of these arenas so that there would be very little duplication of effort and activities in the training of the students and the residents. With increasing pressure to become more clinically productive, it is becoming more and more difficult for clinicians to be able to donate enough time and effort for direct laboratory research. There are, however, a number of new individuals who have earned their PhDs and are seeking opportunities in basic or applied science research. These candidates would serve a vital role in the continued development of research activities in the clinical departments. The research laboratory facilities should be coordinated to allow for collaboration among investigators, sharing of limited equipment that would be purchased for such purposes, and contributing to the investment in hiring PhDs to serve as full-time coordinators of research in the laboratories. We can no longer afford the luxury of territorial possessions in research space; we need to collaborate with each other to utilize common research facilities and equipment to decrease our costs in space, equipment, maintenance, and personnel. The director for clinical activities would coordinate the use of the hospital facilities. In those institutions where there are full-time and community physicians sharing the same facilities, this director would develop a collaboration among all the surgeons to lead to a single surgical staff with equal access and responsibilities. The operating room (OR) scheduling should be under the jurisdiction of this individual in order to increase the OR utilization and improve the efficiency of its scheduling system. Since each hospital has a fixed number of operating rooms with a fixed number of operating time available, it is easy to see that we cannot increase the clinically generated income as effectively by the addition of more surgeons to the staff as we can by the more efficient utilization of the facilities by the present staff. Multidisciplinary programs should be encouraged to facilitate the care of disease processes such as cancer, cardiovascular, wound care, and reconstructive centers. Furthermore, outcome studies of utilization of the surgical ICU, lengths of hospital stay, and utilization cost studies would provide data of the performance of the clinicians in the department, and these data would place the department in THE
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an advantageous position for contracting with managed care organizations. The teaching activities of the department would then be focused under the direction of this third director, so that all students rotating through each of the subspecialties would be assigned supervision and be provided didactic teaching through a single office, thereby eliminating duplication of administrative efforts. This individual would also coordinate the teaching focus of the residents in the various specialties, to maximize the learning by the residents rotating through different services. Furthermore, the residents should be instructed through seminars on cost containment in the care of patients. Academic Development of Faculty The chairman would take direct responsibility for the career planning and development of the faculty. (There should be a joint evaluation of each of the faculty by the chairman and the respective specialty chief). Each faculty member would be assessed for his or her goals for the future. Individual faculty should identify whether or not they have a desire for academic development leading to positions of leadership either at that institution or to serve as a chief of a specialty at other universities. Other individuals may choose to expend their efforts in research careers, while still others may show an interest in developing as clinicians rather than in the research track. All junior faculty would be assigned mentors from the senior faculty to serve as role models and to advise these individuals on their development. Those among the young faculty who are identified as having potential for leadership positions should be trained with gradually increasing responsibilities within the department of surgery, as well as sponsorship to leadership training seminars and to management courses in business schools. Medical schools have not been training residents and faculty in organizational or management skills. The tragedy of this is now becoming evident by the struggle of many faculty to face the tasks of negotiating with managed care organizations. It should be the goal of the department of surgery to train these future leaders, who would serve in various specialities at academic centers throughout the United States, by enrolling some of them in selected courses on organization and management in the business school of the university. Finally, the more senior faculty should also be evaluated and developed. Those who are beyond the age to attain their anticipated goals of chairing departments at other institutions should be guided to develop more realistic aspirations. These faculty can still be revitalized and provided new roles as sponsors and mentors for the younger faculty. High performance standards need to be maintained to encourage the more mature faculty to continue to serve as solid citizens in the department of surgery. On the other hand, those individuals who do not feel that they want to participate in this restructuring should be guided and advised toward other roles. Financial Development The costs of this restructured department of surgery would be met by moneys generated from collections through the institution’s clinical practice organization (CPO), fundraising campaigns, and raising of significant endowments in the JOURNAL
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department of surgery. We need to enlist the support of the dean and the university president to permit the department to commence these plans to raise endowments, in order to meet the financial commitments for research and development and still have sufficient funds to afford the financial commitments to the dean’s office. The department of surgery should establish an endowment advisory committee of prominent citizens who are grateful patients of the faculty, and who have expressed an interest in serving in this role. They may be corporate CEOs who have experience or local business leaders who have expressed an interest in raising funds for the department of surgery. This concept of an endowment fundraising committee will not yield financial resources immediately. This group would be presented with the lo-year plan of the department of surgery and the costs of this plan for their reAMERICAN
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view and support. It will require time and effort to nurture this group and educate the individual committee members on the academic needs of the department. However, in time, the contacts that these business leaders have should lead to the succesful generation of endowment funds within a few years. We can no longer expect to look to the medical school for financial support for new program projects. Therefore, the goal of this committee would be to raise significant endowments so that the interest from the endowment would be able to fund new programs and research activities in perpetuity. These funds would also permit the department of surgery to begin new areas of development in the field of surgery, as well as to recruit the most prominent individuals to take leadership positions when vacancies arise in these new areas. APRIL
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We need to take steps to cut the overhead costs and provide incentives for the productivity of the faculty. In some way, we need to encourage and provide an incentive for each of the faculty to become clinically active in this arena. Quite often, once senior faculty have attained tenure, they may be reluctant to be as actively involved, and this may lead to a lesser contribution. This then becomes a significant burden to the economy of a clinical department, and is unacceptable in the present climate of health care management. Incentive Plan During the last decade there have been significant changes in payment programs for employees in major industries. Boyette and Corm’ discussed salary compensation with a number of options available to restructure the compensation system. They reported the pioneering work by Lincoln Electric, a medium-sized manufacturing company producing welding machines and motors located in Cleveland, Ohio. Here the employees were paid by individual productivity, or by performance as small groups, rather than by salaries. The productivity of Lincoln’s employees increased year after year, and has reached productivity as high as 250% of the industry average; and their costs continued to be below their competition. The American Productivity and Quality Center conducted a survey in 1987 of approximately 1,600 businesses covering the manufacturing and the service industries6 They showed that there are a growing number of corporations using incentive programs for compensation of the employees. These surveys have shown that companies are more likely to use lowered salary increases or complete elimination of routine increases in order to substitute interval lump sum merit increases. There is also the option of gain-sharing, in which profits of the corporation can be distributed in some fashion to the employees. For university surgeons, an incentive system is necessary for the full participation of each of the physicians, regardless of seniority. In the present health care environment, we cannot afford to provide annual salary increases across the board, as has been the practice in the past. Herein lies the opportunity for us to be creative and develop an incentive system that works for professionals in an academic system. For each faculty salary (and for each annual incremental increase in salary) the department has to pay an additional amount to the university for fringe benefits (now averaging about 28%). The fringe benefits paid to the university is high because it covers many hidden overhead costs that do not ever accrue to the benefit of the respective clinical fat, ulty. Salaries. For the purposes of illustrating the point, let us assume that a young faculty member is hired following completion of a residency in surgery, with a salary of $100,000. Looking at the traditional system of salary with annual 5% increases (as proposed by some institutions), the expected salaries and total accumulation can be calculated over a loyear period to reach $1.6 million; this would include fringe benefits calculated at 28%. This salary schedule can be modified by limiting the increase to 5% every other year to decrease the costs. While this may save the department THE
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some money, it decreases the compensation and consequently the incentives to the faculty. Bonuses. In order to encourage individuals tc>achieve certain academic goals, a percentage individual incentive bonus could be added for individual productivity in research, national society presentations, elections to ~~flice, or significant research grant awards. The shortcoming of such a system would be to encourage the faculty to spend more time generating clinical income than devoting themselves to academic development such as teaching and research. There are individuals who are more inclined and more successful at clinical practice, and they also need to be encouraged by some incentive system to become more active in academic development, for such accomplishments would bring further national recognition to the institution. In order to encourage this, an incentive is needed for individuals to achieve certain academic goals that are established collectively within the department. To discourage internal competition and to encourage group participation and development, each division (or group) could be given a second group incentive bonus (to be shared equally within the group) for goals achieved by the group. We can see that if someone is academically involved and also contributes to the clinically generated income of the group, that individual would be able to receive base pay, plus the individual incentive bonus, plus the group performance incentive bonus. Faculty Retention by Stock Options or Golden Handshake. In order to retain the best faculty, another incentive would be ‘istock options.” Since an academic center does not have any stocks to sell, an alternative would be for the department to save a portion of the practice income to purchase stocks in mutual funds, and dlstrihute units of shares to each of the participants as a third bonus Table I. Under such a stock option plan, these units w~~~ld then accumulate and become available to the faculty at predetermined increments, to cash in when they need it in the future, when they leave the institution, or when they retire. These stock units would be deferred compensation, and each individual would be able to cash in only those stock units that have matured (one example could be 5 years from date of issuance). Individuals who choose to move to another institution would lose the last 5 years from this form of compensation because those bonus shares would not have matured. In the example illustrated in Table II, individuals with such a stock option incentive would forfeit $61,05 1 if they left at 5 years, or $98,323 if they left at 10 years. This would prompt individuals to carefully assess a proposed move to another institution, and ask themselves the yuestion “does thts tnove have academic ,md tinancial merit?” On the other hand, the department could waive this period of stock tnaturation as a mechanism for a “golden handshake” if it wished to dismiss an individual. Indeed, safeeguards must he instituted to provide due process for any individual considered to be nonproductive by that individual’s peers in the department, and the mechanism for these safeguards could he worked out. This restructured system would help recruit, compensate, and retain faculty while encouraging productivity both academically and clinically; and the cost to the department would be significantly less than the traditional system. The cost of the fringe henef;ts would only be assessed on the JOURNAL
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TABLE
I Growth
Year
Column A Academic Achievement Base Salary
1 2 3 4 5 6 7 8 9 10 Total
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $1,000,000
in Total
Based
on Academic
Column B Individual Bonus Lump Sum 5% Every Year $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $50000 A
$1,050,000 (A + B) Incomechange compared traditional:
Compensation
Achievement
Column C Bonus for Group Performance Overage = 5% Base (+5%/2 Yrs) $5,000 $5,000 $7,500 $7,500 $10,000 $10,000 $12,500 $12,500 $15,000 $15,000 $100,000
$10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $100,000 $1,250,000 (A+B+C+D)
$1,150,000 (A + B + C)
Column E Stock Option Cumulative Value (10% Base + 10% Yield/ Year)
Column F Total Value of Compensation
$10,000 $21,000 $33,100 $46,410 $61,051 $77,156 $94,872 $114,359 $135,795 $159,374 $159,374
$120,000 $121,000 $124,600 $125,810 $129,641 $131,105 $135,216 $136,987 $141,436 $143,579 $1,309,374 (A+B+C+D) plus 10%
($207,789)
($107,789)
$51,585
($7,789) $280,000 $1,530,000
($79,970)
department would be able to pay an additional $3.1 million to the faculty over those 10 years, while actually saving $4.8 million as compared with the costs under a traditional compensation system. (This represents an overall $7.9 million differential).
SUMMARY Medicine is expensive to teach. In order for the clinical departments to remain fiscally viable in the present climate of health care management, the medical schools and the
II Stock
Options
Academic Achievement Base Salary
Year 1 2 3 4 5 6 7 8 9 10
10%
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
THE
E
with
base pay and not on the entire compensation. Therefore, the department would save significant amounts of money from annual salaries and incentive pays because of their smaller costs of fringe benefits. Cost Savings. The total savings would be commensurate to the number of faculty in the department. In the hypothetical examples given in Table I, each faculty member would actually earn $5 1,585 more over 10 years, while the department in turn would actually still save $79,970 per faculty member. If such a department had 60 surgeons, the
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Column D Stock Option 10% of Base
FB Total Costs Savings compared with traditional:
TABLE
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10% Increase in Value over Previous Year’s Stock
Stock
$10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $?0,000 $10,000 $10,000
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Departure Cumulative Value of Stock $10,000 $21,000 $33,100 $46,410 $61,051 $77,156 $94,872 $114,359 $135,795 $159,374 $159,374
$0 $1,000 $2,100 $3,310 $4,641 $6,105 $7,716 $9,487 $11,436 $13,579 Total
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medical centers must consider the various options available to restructure the present system. This paper proposes an option to unify all the clinical practitioners into a single staff in order to decrease the overhead costs in supporting the educational programs and to increase collaboration among the faculty in order meet the needs of managed care contracts. In spite of the financial constraints, we can be productive within the limitations of the present research space and clinical facilities if we adopt some of the concepts that have been used in industry to downsize, and still become more efficient and productive. The restructuring of a clinical department, and the change in the culture of this group, would require continuing involvement and would most likely require 3 to 5 years to evolve. This proposal anticipates that each of the surgical specialties would be recognized for its excellence by virtue of its involvement in national society meetings and presentations during this time interval, leading to an enhancement of its stature in the institution, and in turn contributing to the luster of the parent institution.
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This paper further proposes the advantages accrued by restructuring the present compensation system to base salaries plus bonuses, and offers novel mechanisms to provide stock options. We need to get away from traditional concepts of organizational management and explore new and novel approaches in order to be prepared for the next century.
REFERENCES 1. Flexner A. Medical education in the United States and Canada. Carnegie Foundation, Bulletin No 4; 1910. 2. Flexner A. Medical Education: A Comparative Study. New York: MacMilllan; 1925. 3. Grants fur Science Education 1989-1990. Howard Hughes Medical Institute, Office of Grants and Special Programs. 4. Ariyan S. Preservmg academic excellence at the medical centers. Phst Reconstr Surg. 1992;90:918. 5. Boyett JH, Conn HP. Workplace 2000. The Rev&ion Shaming American Bwiness. New York: Penguin; 1992: 18-120. 6. American Productivity and Quality Center. People, Perfbrmance, and Pay: Major Findmgs. 1987:18.
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