608175-PDF-ENGHR004.pdf

9 - 6 0 8 - 1 7 5 J U N E 1 7 , 2 0 0 8

________________________________________________________________________________________________________________ Professors Michael E. Porter and Robert S. Huckman and Jeremy L. Friese (MBA 2008) prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2008 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

M I C H A E L E . P O R T E R

R O B E R T S . H U C K M A N

J E R E M Y L . F R I E S E

Brigham and Women’s Hospital: Shapiro Cardiovascular Center

In November 2007, Dr. Gary Gottlieb, president of Brigham and Women’s Hospital (BWH), could watch the steady progress of the new Carl J. and Ruth Shapiro Cardiovascular Center building each day as he arrived at work. BWH cardiovascular leaders had talked about creating a free-standing, integrated cardiovascular center as far back as 1984, and this vision was finally becoming a reality as the July 2008 opening of the center drew closer. The hospital’s Cardiovascular Council, created to plan the new Center, was clear in its conviction that co-locating BWH’s cardiology, cardiac surgery, vascular surgery, and cardiovascular radiology practices in a dedicated facility would result in better patient care and more efficient utilization of staff and facilities. The new Shapiro Center had generated strong interest in Boston’s highly competitive hospital community and among academic medical centers nationally.

Nevertheless, the goal of integrated cardiovascular care at BWH remained a work in process. The Center would create new relationships among BWH’s departments and divisions and affect the work of physicians and nurses. How the delivery of patient care would actually change, and the implications for physicians and for the rest of the hospital, were being actively debated and certain to evolve.

Brigham and Women’s Hospital Brigham & Women’s Hospital (BWH) was established in 1980 through the combination of three

specialty hospitals in the Longwood Medical Area of Boston, Massachusetts: Robert Breck Brigham, a hospital founded to serve patients with arthritis and other debilitating joint diseases, Boston Hospital for Women, a women’s and newborns’ hospital, and Peter Bent Brigham, which was founded to serve sick persons in indigent circumstances. The merger reflected intense competition from a large cross- town rival, Massachusetts General Hospital, and declining reimbursement from private and governmental payers. Over time, an intricate network of hallways and tunnels was built to connect two of the three hospitals, and a new Tower Building was constructed in 1980 to serve as the hub for medical and surgical inpatient care. While each hospital initially retained most of its operational autonomy, BWH had evolved over time into a unified financial entity with a single management structure.

This document is authorized for use only in ANGELA MONTGOMERY's Organizational Structure, Dynamics and Culture-CMHA HR004-1-1 at ${institution} from Aug 2017 to Oct 2018.

608-175 Brigham and Women’s Hospital: Shapiro Cardiovascular Center

2

With 747 beds, BWH was among the nation’s elite hospitals, earning the number ten position in the 2007 rankings by US News and World Report. BWH offered clinical services ranging from primary care to virtually all medical and surgical sub-specialties with the exception of pediatric medicine. While BWH had a broad range of service offerings, revenues were concentrated in five designated centers of excellence: cancer, cardiovascular disease, neurosciences, orthopedics and arthritis, and women’s health. These five centers, which accounted for approximately 80% of BWH revenues, were a key focus of marketing efforts and were supported in the capital allocation process. Unlike other leading hospitals, such as Massachusetts General Hospital and Johns Hopkins, BWH had a limited endowment and relied on debt for most of its financing. (See Exhibit 1 for financial statements.)

BWH was a teaching hospital of Harvard Medical School (HMS) together with Massachusetts General Hospital (MGH), Beth Israel Deaconess Medical Center, Children’s Hospital of Boston, Dana- Farber Cancer Institute, and several other local hospitals. Through its affiliation with HMS, BWH played an active role in educating medical students and physicians-in-training (i.e., residents and fellows). BWH’s physician training programs were widely regarded as among the nation’s finest. As in many academic medical centers, most BWH physicians participated in scientific research as well as patient care. BWH’s research budget consisted of over $400 million, and the hospital was one of the leading recipients of government funding from the National Institutes of Health. BWH research had resulted in breakthroughs in patient care including the first human organ transplant (1954) and proof that cholesterol-lowering drugs lowered the risk for recurrent heart attack and death (1996).

In 2007, BWH had more than 12,000 employees, including 2,800 nurses, and 1,797 researchers. BWH employed 1,604 attending physicians and 1,012 residents and fellows in training. Geographically, BWH’s campus was tightly constrained, surrounded by local neighborhoods, other hospitals, and medical research facilities. In the past, BWH leaders had signed a pact with the city agreeing not to encroach on the surrounding residential community whose residents were concerned about traffic and loss of housing.

In response to growing pressure from third party payers, BWH had merged with MGH in 1994 to create the Partners HealthCare System. To facilitate physician buy-in to the merger, each institution was kept intact. Clinical and financial integration had proceeded slowly, although some administrative structures had been centralized including information systems, human resources, and finance. In 2007, both hospitals offered nearly identical clinical services, and the physician organizations at the two hospitals remained completely autonomous. Some progress had been made in integrating the electronic medical record systems of the two hospitals, so that physicians could view test results and clinical notes from outpatient visits across institutions, and they shared a set of quality and benchmarking programs. However, physician interaction across hospitals was limited.

In cancer care, BWH had a long relationship with the Dana-Farber Cancer Institute. Dana-Farber was a national leader in comprehensive outpatient cancer care for children and adults. In 1996, BWH and Dana-Farber agreed that they would remain separate corporate entities, but would work together and provide coordinated cancer care by creating the Dana-Farber/Brigham and Women’s Cancer Center. All medical oncology outpatient care took place at Dana-Farber facilities, located less than a block away from BWH. A bridge linked the two facilities. Outpatient surgical oncology was provided within the surgery clinics at the BWH. Outpatient radiation oncology took place in the basement of the Tower building. Some inpatient care was provided at the BWH on a dedicated floor of BWH’s Tower building that was renovated for inpatient cancer care in 1997 and licensed by Dana-Farber, while the majority of inpatient cancer care was provided on various other floors of the inpatient Tower in beds licensed by BWH. The Cancer Center offered multi-disciplinary care by specialist physicians from both organizations. Medical oncologists were employed by Dana-Farber, but also

This document is authorized for use only in ANGELA MONTGOMERY's Organizational Structure, Dynamics and Culture-CMHA HR004-1-1 at ${institution} from Aug 2017 to Oct 2018.

Brigham and Women’s Hospital: Shapiro Cardiovascular Center 608-175

3

were members of the BWH Department of Medicine, while surgical oncologists were members of the BWH Department of Surgery.

As the Partners system evolved, BWH focused its network development activities on the southern and western regions of the Boston metropolitan area. BWH offered outpatient services at several locations in the Boston area. BWH owned two community health centers, which cared for the general health needs of the local community. Two BWH cardiologists offered general cardiology services at these sites. BWH operated a large ambulatory care center in Brookline, less than five miles away from the BWH campus. The center was staffed by primary care and specialist physicians, including cardiologists, all of whom were BWH employees. A new ambulatory center was being constructed in Foxborough, MA (about 30 miles from BWH) in conjunction with MGH and would offer primary and some specialty care, including cardiology services. Satellite locations had local site managers who had reporting relationships to BWH senior management. Each of the clinical departments at the sites reported up through their department chairs. All BWH sites and practices utilized the BWH electronic medical record.

In 1998, BWH merged with Faulkner Hospital, a community hospital located three miles away in Boston. Complex patients presenting at Faulkner were cared for on the main BWH campus, while some less-acute services from BWH were relocated to Faulkner. This included several specialties, among them cardiology, cancer, mental health, and gynecology. Faulkner also became the main center for ambulatory orthopedic surgery.

Faulkner offered a wide range of cardiology services including nuclear cardiology, cardiac rehabilitation, and general cardiology services. Attending physicians and physicians-in-training (i.e., residents) in some specialties, such as medicine and orthopedics, cared for patients at both hospitals. Physicians could access patients’ outpatient medical records, diagnostic test results, and radiology studies at either hospital through an integrated electronic medical record. The two hospitals used separate electronic medical record systems for inpatient care. Three Faulkner cardiologists were BWH employees, while the remainder was in private practice. BWH vascular surgeons also operated at Faulkner. No cardiac surgery or interventional cardiology services were offered at Faulkner, and patients needing these services were transferred to BWH. In 2007, BWH physicians performed over 5,100 surgeries at Faulkner Hospital—with ambulatory orthopedic surgery accounting for 65% of the total.

Finally, BWH had joint relationships with Milford Hospital (approximately 40 miles from BWH) to provide cancer care through the Dana-Farber/Brigham and Women’s Cancer Center, and with South Shore Hospital (approximately 15 miles from BWH) to provide a variety of specialty services including cancer care. While some physicians at the Milford and South Shore centers were BWH employees, most were in private practice and did not have admitting privileges at BWH.

Organizational Structure

The BWH organizational structure mirrored that of most academic medical centers in the U.S. Central administration consisted of physician and non-clinician personnel with responsibilities for strategy, mergers and acquisitions, budgeting, capital allocation, space allocation, information technology, marketing, and staffing and recruitment for non-physician staff. The hospital employed nurses, pharmacists, technicians and other professional and service staff.

Billing for all inpatient services and outpatient services performed in a hospital setting included two separate components: professional fees and technical fees. Professional fees were reimbursements to physicians for services rendered. Technical fees went to the hospital to cover facilities and non-physician services. Procedures and imaging services tended to be more highly

This document is authorized for use only in ANGELA MONTGOMERY's Organizational Structure, Dynamics and Culture-CMHA HR004-1-1 at ${institution} from Aug 2017 to Oct 2018.

608-175 Brigham and Women’s Hospital: Shapiro Cardiovascular Center

4

compensated than cognitive-based activities, such as outpatient consultations. At BWH, professional fees were billed and collected by the respective departments. For services performed in the BWH department of surgery and reimbursed by government payers (i.e., Medicare and Medicaid), payers were billed a single global fee covering both professional and technical services. The surgeon captured this entire fee and paid BWH a monthly fee for use of BWH facilities and ancillary staff. For government-reimbursed services performed in the BWH department of medicine, payers were billed separately for professional and technical fees.

In 2000, a single Brigham and Women’s Physician Organization (BWPO) was created—despite significant political obstacles—through the merger of longstanding specialty physician groups that had previously been autonomous non-profit organizations. BWPO was a subsidiary of BWH and reported to Gottlieb. All BWH attending physicians were employed by BWPO. While BWH formally contracted for physician services with BWPO, each department continued to maintain its own system for administration and billing. Departments were beginning to streamline and combine administrative services, but progress was slow.

Each physician belonged to a department such as medicine, surgery, or radiology (Exhibit 2 shows an abbreviated organizational chart). Most departments consisted of several divisions (e.g., cardiology was a division of medicine, while cardiac surgery and vascular surgery were divisions of surgery). Cardiology was further divided into several sections, either based on medical condition (e.g., heart failure) or treatment modality (e.g., interventional or electrophysiology). Each department functioned as a stand-alone economic entity and had significant autonomy with respect to issues such as patient care and physician compensation. Each department also oversaw academic activities including research, teaching, and academic promotions. All physicians held an academic appointment at Harvard Medical School. Academic promotions were based primarily on research productivity, though the Medical School had also made several attempts to reward achievements as clinicians and educators as important criteria promotion. Departmental leadership teams consisted of a physician chair and non-clinical administrators who managed operations, personnel, and finances for clinical, research, and educational activities.

BWH physicians were considered national leaders in their fields with many holding leadership positions in their respective medical societies. According to Dr. Peter Libby, division chief of cardiovascular medicine, academic physicians were motivated by a combination of pride, concern for reputation, and desire for autonomy. While a management hierarchy was in place, change was more a matter of persuasion than exercising formal authority.

Each department and division had a unique culture. The department of medicine and the division of cardiovascular medicine were known for their emphasis on research and education. Most cardiologists spent only a small percentage of their time on clinical activities, and concentrated on research, education, and administration. BWH’s department of medicine accounted for more than half of BWH’s federally-funded National Institutes of Health (NIH) research dollars, and the division of cardiovascular medicine was a strong contributor. The divisions of cardiac surgery and vascular surgery were also active in research, but a greater proportion of their activity was dedicated to clinical care.

Each department and division had its own compensation structure. The department of medicine collected a portion of clinical revenues from each division to support the department’s infrastructure. The department of medicine negotiated with each division’s leaders to determine the appropriate percentage. Some divisions in medicine were not financially self-sustaining and were subsidized by collections from other divisions. For example, approximately one quarter of BWH cardiologists, primarily those involved in imaging or interventions, generated the majority of the division’s clinical revenues. In terms of salary, the cardiology division paid physicians a salary irrespective of clinical

This document is authorized for use only in ANGELA MONTGOMERY's Organizational Structure, Dynamics and Culture-CMHA HR004-1-1 at ${institution} from Aug 2017 to Oct 2018.

Brigham and Women’s Hospital: Shapiro Cardiovascular Center 608-175

5

output. Salaries were competitive based on the market rate of each sub-specialty and the division’s overall financial status.

The divisions of cardiac surgery and vascular surgery compensated physicians on a fee-for-service basis. Each surgeon’s compensation was equal to his or her collected revenues minus predetermined overhead expenses for the use of office space and personnel. Radiologists were paid a base salary with yearly bonuses based on pooled department revenues.

Partners’ outpatient electronic medical record (EMR) linked all primary care physicians—and most specialists—throughout the BWH network. The EMR included all outpatient physician notes and some, though not all, inpatient notes. All inpatient and outpatient laboratory data and test results could be accessed through this system. Physician orders were entered via a separate system, which could also be used to retrieve laboratory and test results. A third Internet-enabled system allowed radiology images and reports to be viewed by any BWH physician or nurse. All of these systems could be accessed by physicians once inside the BWH firewall.

Cardiovascular Care Cardiovascular disease included abnormalities of the heart, its blood vessels, and peripheral blood

vessels (arteries and veins). (See Appendix for a glossary of terms.) In 2007, the American Heart Association estimated that cardiovascular disease cost Americans over $280 billion in direct costs for a total of $430 billion including lost productivity. Heart diseases accounted for approximately 64% of the total.1 Common heart diseases included high blood pressure, heart failure, coronary artery disease, and cardiac rhythm problems. Electrophysiology was a growing cardiology subspecialty that dealt with abnormal rhythms, such as atrial fibrillation. Improved care for heart attacks had led to higher survival rates, which increased the subsequent incidence of heart failure and rhythm problems.

Primary care physicians (PCPs), cardiologists, interventional cardiologists, cardiac surgeons, vascular surgeons, diagnostic radiologists, and interventional radiologists all participated in the care of cardiovascular patients (see Exhibit 3 for description of cardiovascular disease and specialization).

Primary care physicians (PCPs) participated in the diagnosis and care of cardiovascular patients but referred most cases beyond easily controlled hypertension to specialists. PCPs would often resume care for patients once a specialist had provided a diagnosis and defined a care plan. If issues arose, the PCP would then refer the patient back to the specialist.

Cardiologists were physicians trained in internal medicine who obtained additional training to diagnose and treat virtually all cardiovascular diseases. They cared for patients in both hospital and outpatient clinic settings. Approximately 2% of U.S. cardiologists worked at an academic medical center, 64% worked in private practice, and the balance worked at government centers or various other types of group practices.2 Cardiologists maintained continuity of care for most of their patients through routine outpatient appointments. Diagnoses combined clinical acumen and sophisticated diagnostic tests, such as nuclear imaging—a way to evaluate heart activity using radiotracers injected into the vein. Some cardiologists interpreted imaging studies of the heart and blood vessels. Most treatment by cardiologists involved pharmaceuticals.

Interventional cardiologists were specialized cardiologists who performed minimally-invasive procedures using imaging equipment to diagnose and treat cardiovascular disease. Angiography (i.e., x-ray of blood vessels after the injection of contrast dye directly into the vessel), angioplasty (i.e., balloon dilatation of vessels) and the insertion of metal stents were techniques used by interventional

This document is authorized for use only in ANGELA MONTGOMERY's Organizational Structure, Dynamics and Culture-CMHA HR004-1-1 at ${institution} from Aug 2017 to Oct 2018.

608-175 Brigham and Women’s Hospital: Shapiro Cardiovascular Center

6

cardiologists in the heart and extremities. The impact of rapidly improving imaging technologies such as CT angiography on the volume of diagnostic angiograms was uncertain. Conventional wisdom suggested the need for angiograms would decline.

Electrophysiologists were sub-specialized cardiologists who diagnosed and treated abnormal heart rhythms (i.e., arrhythmias) caused by electrical problems of the heart. They performed a variety of minimally-invasive procedures including pacemaker placement and ablation of abnormal heart tissue.

Cardiac surgeons were surgeons who specialized in the heart, heart valves, and heart vessels. They used traditional and minimally-invasive surgery to treat disease. Coronary artery bypass graft (CABG) and heart valve replacements were the two most common surgeries they performed. Vascular surgeons performed surgery on all blood vessels except heart vessels. Bypass surgeries and carotid endarterectomies (i.e., surgery to clear blockages in carotid artery in the neck) were their two most common surgeries. They also used angioplasty and metal stents to open narrowed arteries of the extremities and performed minimally-invasive procedures to repair enlarged arteries (aneurysms) by placing grafts within the artery. Improvements in angioplasty and stent technology had led to a slight decline in cardiac bypass graft surgeries.

In radiology, diagnostic radiologists were involved in the diagnosis of cardiovascular disease using advanced imaging techniques such as ultrasound, computed tomography (CT), magnetic resonance imaging (MRI), and nuclear imaging. Some radiologists specialized only in cardiovascular imaging, while others interpreted imaging studies of various body systems. Imaging the heart required specialized techniques and technologies to correct for heart motion.

Interventional radiologists were radiologists sub-specialized in minimally-invasive procedures using imaging equipment to diagnose and treat a wide range of diseases, including diseases of the peripheral vessels, liver, and kidneys. They did not care for patients with coronary artery disease or heart problems. They used angioplasty and metal stents to open narrowed arteries and veins and performed minimally-invasive procedures to repair enlarged arteries (aneurysms) by placing grafts from within the artery.

Other specialists involved in cardiovascular care included anesthesiologists, who provided sedation or anesthesia during surgical and minimally-invasive procedures, and pathologists, who evaluated heart and vessel specimens.

The 1980s marked the beginning of a significant evolution of cardiovascular care. The proliferation of pharmaceutical treatment options made it difficult for surgeons to oversee the totality of their patients’ care, as had been common practice. Instead, surgeons began to rely on cardiologists to manage the medical issues while they focused on surgical intervention. This symbiotic relationship created a natural union between the two specialties.

During the same period, interventional radiologists and cardiologists began to pioneer minimally- invasive techniques (i.e., angiography and angioplasty) that could be used to treat the same diseases of the heart historically handled by cardiac surgeons and diseases of the peripheral vessels handled by vascular surgeons. Cardiologists then developed a new sub-specialty of interventional cardiology and began performing angioplasty of heart vessels themselves. As research proved the effectiveness of angioplasty—and because patients preferred the shorter hospital stays and recovery times relative to those for surgery—the volume of both cardiac and vascular surgeries declined. This prompted vascular surgeons to begin performing angioplasty in the late 1990s. Simultaneously, interventional cardiologists began expanding their treatment capabilities to include angioplasty of peripheral vessels.

This document is authorized for use only in ANGELA MONTGOMERY's Organizational Structure, Dynamics and Culture-CMHA HR004-1-1 at ${institution} from Aug 2017 to Oct 2018.

Brigham and Women’s Hospital: Shapiro Cardiovascular Center 608-175

7

In cardiovascular care, numerous studies had shown that increasing procedural volumes resulted in reduced complications and costs for cardiovascular patients. A landmark New York study, for example, showed that hospitals performing fewer than 600 annual heart angioplasties had significantly higher rates of procedure-related deaths.3 Other studies also revealed volume-related reductions in cost due to increased capacity utilization and decreased time per procedure.

Cardiovascular disease was typically a major source of revenue for medical centers, and BWH was no exception. However, changes in reimbursement and new technology had resulted in flat to slightly declining cardiovascular revenues. Recognizing that cardiovascular disease was its largest cost area, the Centers for Medicare and Medicaid Services (CMS) began decreasing reimbursements for cardiovascular care in the mid 2000s. Meanwhile, improved stent and pharmaceutical technology had decreased the need for both open surgeries and repeat angioplasties. However, the number of patients with heart failure or electrical problems was increasing, which compensated in part for the above declines.

Cardiovascular Services at BWH In 2007, BWH was considered a national leader in cardiovascular care, ranking third nationally in

the US News and World Report.4 With over 25,000 outpatient visits, BWH’s cardiovascular patient volume was among the largest in the nation (Exhibit 4 provides the volume of cardiovascular services at BWH from 2003 to 2006). Nearly 100 physicians cared for cardiovascular patients including 56 cardiologists, 11 interventional cardiologists, 10 cardiac surgeons, eight vascular surgeons, seven cardiovascular diagnostic radiologists, and seven interventional radiologists. Each physician’s clinical volume varied depending on his or her respective involvement in research, education, and administration. For example, in 2006, the number of outpatients seen per vascular surgeon at BWH ranged from 40 to 1,631.

Approximately 26% of new cardiology patients were referred by non-BWH physicians, 42% by BWH primary care physicians or other specialists, and 32% were self-referred. Most patients that saw a cardiac surgeon or vascular surgeon would have previously seen a BWH cardiologist, but this was not always the case. Some patients were referred to a particular physician, while others were referred to a division (e.g., cardiology) that selected a physician for the patient. Well-established physicians with strong reputations typically operated at capacity based on direct referrals, while junior physicians relied on referrals from their division.

Coordination of the initial physician consultation was handled differently by each specialty. Cardiologists relied on a central cardiology office to phone the patient or referring physician to have outside medical records faxed to the cardiology office. The central office would also coordinate preliminary tests prior to the visit. Records were not typically reviewed by the cardiologist until the patient visit. In cardiac surgery and vascular surgery, each surgeon had an administrative assistant who performed these tasks. Surgeons preferred this method to deal with the many referrals directly to their individual practices. Patients were referred to radiology for imaging of the heart or blood vessels by their primary care physicians, cardiovascular specialists, or other specialists.

Outpatient clinic offices for cardiology and cardiac surgery were co-located on the second floor of the Ambulatory Services Building (ASB), while those for vascular surgery were on the third floor (see Exhibits 5 and 6 for locations of cardiovascular services prior to the opening of the Shapiro Center). Outpatient offices for interventional radiology were in the basement of the Tower building. Private offices for cardiologists were divided among the Tower and Peter Bent Brigham A and B buildings, while those for cardiac and vascular surgeons were located in the Peter Bent …