Want to keep learning?

This content is taken from the The University of Warwick & Monash University's online course, Leadership for Healthcare Improvement and Innovation. Join the course to learn more.

Managing professionals: the case of Burton Municipal Hospital

Here we will explore the issue of how management occurs in professional contexts such as hospitals and the challenges this poses to implementing change in policies and practice. You are asked to read through the case study (below) and reflect on the questions posed. Please note that this case is entirely fictional and dates back to the 1990s. For this reason, some of the financial management practices noted in the case no longer apply to the current US health system. However, we feel that this case remains useful for highlighting the underlying tensions that exist between managers and professionals in the running of hospitals, even today.


“I knew the hospital either made money or lost it based on its professional services. And I knew that you came in contact with the whole hospital through those services; so I said that’s what I want to run. I also knew that professional services was filled with the biggest prima donnas on the staff – radiologists, bio-chemists, cardiologists – each more difficult than the others and that my predecessor, at age 28, had developed a bleeding ulcer and left.” Chuck Graham, Assistant Administrator, Burton Municipal Hospital (BMH)

So thought Chuck Graham when he accepted responsibility for professional services at Burton Municipal Hospital (BMH) in New Jersey. The past few months had given him a much better insight into just how difficult it was to manage those ‘prima donnas’, and now he had to decide whether or not, how and how tightly to put the lid on this business of sending tests to outside laboratories.

The organisational context

The Burton Municipal Hospital was a complex of five buildings located in one of the poorest areas of New Jersey. Nearly all of the BMH’s patients arrived via the hospital’s emergency room and most of the remainder came through its ambulatory care unit. The Burton police department brought BMH most of the hospital cases it picked up, and other hospitals sent their indigent, uninsured patients that they were ‘too full’ to accommodate.

Throughout its history, BMH had been a teaching hospital and was currently affiliated with NJ University’s medical school. The hospital was staffed entirely by residents and interns who worked under a salaried senior medical staff that provided both teaching and supervision. No physicians in private practices had staff privileges. All the senior medical staff committed only 25-50% of their time to the hospital. They were paid an ‘administrative’ salary by the city, which was all that third party reimburses would pay for and which was only a fraction of what the doctor could earn in private practice or from a full-time job at a private hospital. Most of the physicians augmented their BMH salaries with teaching stipends from the university, salaries received as principal investigators on research grants, jobs managing outside laboratories, and other means. In addition, a special physicians’ billing corporation culled the hospital’s records to identify patients with third-party reimbursement resources, such as commercial medical insurance, that could be billed for the doctors’ services.

The breakdown of billing for inpatient care was Medicare, 20%; Blue Cross, 3%; Medicaid, 40%; commercial insurance, 5%; and ‘self-pay’, 35%. In practice, the hospital sent all its patients a bill, but did not expect to recover from any of the self-payers. The current city share of hospital expenses was about $10 million. At one time, the hospital’s capacity had been about 750 beds. The staff numbered about 2,000, of whom approximately 150 were interns, residents or senior medical staff and the remainder were nurses, technicians, clerical help, maintenance people, messengers, orderlies and so forth.

The medical staff was organised into two major departments – medicine (which included paediatrics, cardiology, gastrointestinal, haematology, pulmonary and other internal medicine sub-services) and surgery (which included obstetrics/gynaecology). There was also an outpatient department. The hospital’s administrative staff reported to an associate director and three assistant directors – one for medicine, one for surgery and one for professional services. The assistant director for professional services had administrative responsibility for the laboratories and other diagnostic services, such as medical records, admitting, social services, messenger, pharmacy and transportation. Both the associate director and the head of the two medical departments reported to the hospital director.

Chuck Graham

In the spring of 1995, the old director of BMH retired and was replaced by Donna Breen. The two were a study in contrasts. Whereas her predecessor had been described as a wily and cautious civil servant who had managed, nevertheless, to alienate city hall, Breen was young, active and had excellent relations with the city manager and his staff. She had just completed three years as Delaware’s assistant commissioner for social services. Breen was without experience in medicine or the health system, but believed firmly that a hospital could be managed well by people who were good managers, but who were not necessarily doctors. She also believed in change and innovation. Good ideas should be tried and mistakes tolerated.

In 1995 Breen appointed Chuck Graham to the assistant director post for professional services manager post for professional services. Like Breen, Graham had no medical background, but had spent the previous five years in various middle management positions within BMH.

Graham’s main responsibility was for the five large decentralised clinical laboratories and several small research labs that performed one or two tests of clinical importance to the hospital. The five were haematology, biochemistry, bacteriology, pathology and the blood bank. They employed about 200 people. A physician had medical responsibility for each of the labs and, as administrator, Graham would more or less” as he put it, be in charge of personnel and budget.

“If a lab wanted to buy a new piece of equipment I’d have to sign off on it. On the other hand, if I wanted a lab to do a particular test, the doctor could say “No I won’t do it” or he could say “I’ll do it, but it will cost you two technicians and $100,000 in equipment”. In other words, the doctors controlled what went on in the labs.”

Since the lab chiefs were only there part-time, the day-to-day operations were run by chief technicians who ordered supplies, signed documents, scheduled work and trained other technicians. Bringing outside work into the labs (except under a contract to which the city was party) was against the law. While the labs chief had the final say on hiring technicians, Graham theoretically could fire anyone, including the lab chief himself. In practice, this was difficult, because replacing a lab chief for $15,000 to $20,000 meant finding someone in the area who had enough other activities to manage his BMH salary, but who still had enough time left to work one-quarter for the hospital.

The Test List

During his early days on the job, Graham was plagued by his own ignorance of the labs and by a barrage of complaints from the doctors.

“The physicians: when they’re unhappy with the administration, think their best leverage is to complain. Donna (Breen) was moving strongly to shift the balance of who ran the hospital – from the physicians to the administration – and the physicians were fighting it…. What really was bothering them was Donna’s demands that they devote more time to clinical work and less to their research and teaching. She didn’t want to support those activities with public funds.”

One discovery Graham made was that no one in the hospital knew every test that was offered by the laboratories. His predecessor had tried to compile a list, but failed. Graham decided to try for himself and visited each lab chief:

“They all said, “all we’ve got it a partial list.” I said “may I see it?” and they said “sure, but it’s outdated.” I began to think that most of the lab chiefs didn’t want the administration to know what tests they could perform. It gave them more flexibility.”

After two months of trying, Graham had virtually nothing of any value from biochemistry, pathology, or haematology. Bacteriology and the blood bank on the other hand had provided him with lists that he thought were complete.

“What I did was design a form. Then I said “I want a complete form for every test you do. It’s getting close to budget time; and if you give me ten tests that is what I will base your budget on. If you do fifty more on the sly, you’ll have to find the funds on your own”. Suddenly I began to get a little cooperation, and the number of tests that everyone was doing began to go up.”

“I also began to call the chief lab technicians into my office and deal with them, because the physicians were only there part of the time.”

It took almost six months, but at the end of that time, Graham believed he had a collection of forms that represented quite accurately the tests currently being performed.

The Free T-4 Incident

As he was developing the list of tests and becoming more familiar with the laboratories, Graham learned that almost $150,000 in testing (10% of the total BMH lab budget) was being sent to labs outside the hospital. After securing a breakdown of these outside tests from the BMH accounting department, he noted that over $20,000 was being spent annually just to perform Free T-4 tests at Memorial Hospital, Dover, where the biochemistry lab was run by a doctor who had recently left BMH. He asked several doctors why this was being done:

“Their answer was something like, “well, young man, this is a superior methodology being used by a superior laboratory. We’ve done it that way for three or four years, and it’s really none of your business”.”

Rather than let the issue drop, Graham asked other doctors about the Free T-4 test. He discovered that there was a more advanced method of doing the test that could be set up in the BMH biochemistry lab for an initial cost of about $20,000.

“So, I went to my laboratory advisory committee (the group of doctors who advise me on the technical and medical aspects of the labs) and asked them if they thought it would be alright to switch to the new method. They said “No”. Then I went to biochemistry since Free T-4s are basically biochemistry tests – and asked if he’d be willing to do them in-house. I was told that it was none of my business, that I wasn’t a physician that Memorial’s method was much better, and that biochemistry reported to the department of medicine anyway.

“I didn’t buy it. I called an out-of-state friend who was a hospital administrator and talked to his clinical pathologist, and he convinced me that the new method was not only better, it was cheaper. He also said the Memorial Hospital method cost a lot less than they were charging us, which made me think our money was being used to support teaching and research over there.

“I went back to Biochemistry and said, “Will you do it?” But he wouldn’t. So I talked to haematology, and he said he would do it provided I gave him another $15,000-a-year technician.”

The Outside Testing Issue

In the midst of his efforts to resolve the Free T-4 issue and to compile a complete list of tests, Graham received a phone call from the city’s auditor. The auditor, too, was concerned about the amount of outside testing. What was even more disturbing to him was that many of the outside labs that BHM used were receiving more than $2,000 in business. The law required that dealings of this amount be covered by a contract and that these contracts be awarded on the basis of competitive bidding. None of BMH’s outside sources were under contract.

Graham discovered reasons why physicians sent tests to outside labs:

“Sometimes the senior staff just decided that it made sense to use tests that we couldn’t or hadn’t been performing. We also had some senior staff who ran laboratories outside BMH, and they might say to the house officers, “when you need an Australian Antigen, send it to my lab, because I know they do it the way I like it done”. They might even ask - as they made their rounds with the house staff - why Australian Antigen tests hadn’t been ordered for some patients and direct that they be ordered.

“A lot of other tests went out because the physicians thought our labs did poor work or because they’d had a fight with the lab chief. The head of haematology had chewed out a lot of interns and residents for criticising, so they tried to avoid his lab. Sometimes a fleeb (the person who draws the blood sample) would mix up specimens, so a physician would get wildly fluctuating results and conclude it was because the lab wasn’t testing properly. Some of the newer interns and residents just didn’t know what tests our labs could do.”

Graham also discussed with several house physicians and lab chiefs the issue of contracting for outside laboratory services. They were all adamantly opposed to the concept.

“City Hall had suggested that we give all the outside work to one laboratory, but there were some reasons why this didn’t make sense. If you go to the lowest bidder, you may get someone with poor quality control. Then once they’ve got your contract, they may begin to cut corners. We also were using some small speciality labs that were doing work for us almost as a favour, and the price at a big lab under contract would almost certainly be much more.

“I told this to the auditor, but he wouldn’t budge. He wanted everything over $2,000.00 under contract. He didn’t care about the difficulties, and he didn’t care if it cost more money. Those were my problems. He just wanted to satisfy the legal requirements for a contract.”

As Graham walked away, dismayed by these responses, he could not help wondering if there might be easier jobs to do than manage a hospital.

Share this article:

This article is from the free online course:

Leadership for Healthcare Improvement and Innovation

The University of Warwick