Hospital Organisational Structures and Royal Adelaide Hospital

Brendon John Kearney, Chief Executive Officer, Royal Adelaide Hospital/Director, Institute of Medical and Veterinary Science

This address was delivered at the fourteenth Foundation Day Ceremony held at Royal Adelaide Hospital on 22 July, 1992.

It is generally recognised that large hospitals are complex organisations.  It is also true that hospitals as organisations, have many similarities to other organisations.  In many ways, the development of the hospital organisation has foreshadowed the changes that are occurring generally in public and private institutions today.

At the beginning of this century major changes occurred in organisations.  These changes distinguished management from ownership and established management as work and task in its own right.  This first happened with the Siemens’ organisation in Germany and followed in the United States of America, Europe and internationally.

Organisations took a further leap forward in structure with the development of the modern corporation which began with the changes at Dupont approximately twenty five years ago.  These changes introduced the command and control organisation which we know today with its emphasis on decentralisation, central service staffs, personal management, budget and control systems and the important distinction between policy and operations.

Peter F Drucker predicts that the large business twenty years hence will have fewer than half the levels of management of its counterpart today and no more than a third of the managers that it currently has.  It will bear little resemblance to the typical organisational structure as embodied in a manufacturing company of twenty years ago of which General Motors is an example.  Instead, he believes that organisations will be knowledge based, composed largely of specialists who direct and discipline their own performance through organised feedback from colleagues, customers and headquarters.

He likens the future information based organisation to that of a symphony orchestra where the chief executive officer, the conductor, and many musicians can play together because they all have the same score.  The score tells the flautist and the timpanist what and when to play and the conductor what to expect from each player.  He therefore concludes that information based organisations require clear, simple, common objectives that translate into particular actions.  Because the players are in an information based organisation of specialists, they cannot be told how to do their work.

Information based organisations also require everyone to take information responsibility.  This implies a responsibility of all persons in an organisation to identify who depends on what information he or she produces and he or she in turn, depend on.  This aspect of personal information responsibility is one still largely neglected in organisations and, indeed, is a radical break with the way even computer businesses still run today.  Drucker sees the challenges of the information based organisation in the following four areas

  • developing rewards, recognition and career opportunities for specialists
  • creating unified vision in an organisation of specialists
  • devising the management structure for an organisation of task forces
  • ensuring the supply and preparation and testing of top management people.

Redesign of hospital organisation and patient care management is now an international past time growing at a feverish pace.  Radical changes have occurred in some hospitals, particularly the United States, where there is a virtual elimination of middle management as we currently know it and a requirement for all professional and specialist staff to engage in administration and management as part of their normal duties.

The object is to remove barriers between employees and senior executives who act as coaches to assist these clusters of self governing groups to function.  For the most part, these changes in large hospitals have concentrated on the concept of resource management or clinician management.  These two terms are not quite interchangeable but have similar objectives.

Resource management seeks to stimulate, encourage and develop a hospital management process involving doctors, nurses and other clinical and managerial staff in strategic and operational decision making, ensuring that such a process is underpinned by a patient based information system which is timely, accessible and credible to all participants.

The Royal Adelaide Hospital is a large general adult teaching hospital complex.  For 150 years, it has been traditionally organised in the way teaching hospitals have been throughout the western world.  However, over the past four years it has been particularly hard pressed for funds and its organisational structure has been found wanting in attempting to meet challenges, albeit sometimes difficult challenges, to maintain patient care services and throughput.  However, there was a general consensus within the hospital that the structure is too centralised, resource inefficient, slow in decision making and unable to change as the need required.

As a result, the management of the hospital, as part of a general re-evaluation, instituted an organisational review.  In doing so, papers were obtained from several hospitals within Australia, America and England where the concepts of organisational change associated with the introduction of resource management had occurred.

In particular, the hospital reviewed carefully the experience of the Johns Hopkins Hospital which introduced the concept of decentralised management in 1973.  Their review paper which was produced for the centenary of the Johns Hopkins Hospital suggested that the decentralised model of management over an eighteen-year period had been extremely successful and had been one of the principal factors that had placed the Johns Hopkins Hospital in a leading position with respect to its immediate competitors and in comparison with any major teaching hospital organisation internationally.

The review describes the success and growth of the Johns Hopkins Hospital in an extremely competitive financial environment and how control of the use of resources has been able to be achieved whilst maintaining and enhancing the quality of care.

The Johns Hopkins Hospital created a number of functional units with a chief executive officer who was a clinician supported by a chief of service (business director) and a director of nursing.  The theory was that each of the functional units could buy any required service from central sources within the hospital or from another provider if the service or product was available at a lower price with equal quality.  In practice, certain services such as food could not be provided from outside the hospital.  These units had to operate within the general policies of the institution relating to the institutional goals, capital resources and, on occasion, personnel matters, price setting, etc.

The review convincingly showed that the creation of functional units led to a control in personnel, staffing, volume of usage of supplies, number of laboratory tests, X-rays ordered and length of stay etc in patient care.  In addition, the units were collectively able to challenge and influence the growth of central administrative functions by ensuring that these were pared down to absolute minimal central costs that functional units would be prepared to bear.

Financial and management accounting control information provided impressive evidence of functional unit performance.  However, the review was less ab le to quantify the quality of care, morale of staff, satisfaction and pride, and the ability to develop new programs and fund new technology.

In creating such an organisation, Johns Hopkins identified five key issues

  • the willingness of senior corporate staff to delegate significant decision making to functional units
  • acceptance of accountability and responsibility by functional units to the chief executive officer
  • acceptance and support from professional nursing staff for such an organisational model
  • development of effective management and financial information systems to support decentralised management
  • the need to develop excellent communications between central administration and decentralised functional units.

To overcome these issues required substantial work, as the direction of change cut across traditional norms and practices, not only in management but at most levels of professional activity.  Every group ‒ managers, doctors, nurses, accountants ‒ had reasons why such changes were not acceptable.  These included professional, teaching, administrative, research and general problems.  Nevertheless, the Hopkins’ experience is effective and compelling.  It depends on very strong central support to the functional unity, particularly at a financial and management level.  Its success is not only self evident in the implementation in various forms of the basic principles of the Johns Hopkins reorganisation, but throughout the western world, including Australian hospitals.

I would now like to spend the remaining time discussing the organisational changes that the Royal Adelaide Hospital has determined and hopes will enable it to survive for the next decade.

The Royal Adelaide Hospital is 153 years old and is one of Australia’s largest teaching hospital complexes.  It is an adult general teaching hospital which provides for most superspecialty services but does not provide obstetrics or paediatrics.

For some years, South Australia has had a performance measurement model which assesses cost per patient treated, based on a Diagnostic Related Groups (DRG) classification.  Ever since these comparisons were introduced, the Royal Adelaide Hospital has been consistently the most efficient hospital.

During 1989, the hospital, as was generally experienced in South Australia, sustained very substantial increases in demands for services associated with the switch of the population from private health insurance to Medicare.  During that period of increased demand, three ministers of health were appointed.  The first minister of health had reassured the Royal Adelaide and other hospitals that the increased activity could and would be funded towards the end of the financial year and that there should be no restrictions on services.  However, subsequent ministers had different views and, with little warning, in March, 1989, the Royal Adelaide Hospital was ordered to close approximately 100 beds overnight.  The rationale was that the hospital would then be able to balance its budget by reducing services, as by that time of the financial year, the government had decided that it could no longer fund the extra activity that was being experienced.  This move caused chaos within the hospital.  The medical staff were outraged.  The Nursing Federation threatened strike action if their staffing levels were not maintained and services staff also made it clear that industrial reaction would result if there were any reductions in staff.  This all occurred in a pre-election period and, of course, the doctors’ union was less popular with the government than some other unions.

The limitation of admissions to emergency only and the cessation of almost all elective work had a dramatic effect on all staff.  This event meant that health became a major issue at the State election and indeed, there was some restoration of funds to the hospital system before and after the election.  Despite this, the sudden effect of closures on staff morale meant that services within the hospital were not restored as quickly as one might have expected.  Indeed, there was friction between and amongst most groups within the hospital.

From being a very efficient hospital, productivity dropped substantially.  The basis of this review was that there had been a breakdown in effectiveness of the traditional centralised systems.  The advent of professionalism and unionism in the hospital setting determining decisions often not on patient grounds was seen as a major problem.  An assessment was made of the organisational problems within the hospital.  In summary, they were that the hospital was too large; had poor communication systems across departments; its centralisation made decision making difficult and slow; managers did not feel that they had control over their departments, and roles and responsibilities conflicted between departments and divisions.  The major bed closures had created a lack of corporate culture commitment and ownership associated with loss of morale.  As a result of the closures, staff were unwilling to risk the challenge of change because of the lack of incentives.  The budget system was seen as untrustworthy.  Discussion at staff level indicated a need for the hospital to redefine its mission as an academic centre to heighten corporate culture and staff commitment; encourage more efficient utilisation of hospital resources; clarify roles, responsibilities and authorities of management and re-energise medical staff.

With further staff discussion, we then adopted a course of reviewing the structure of the clinical operating units.  This was a basic change at direct patient care level initiated by the board and senior management.  It was proposed and accepted that nursing, medical and allied health organisational matters; indirect patient care; support services; the management structure and governance of the hospital would follow upon the determination of the appropriate direct patient care organisational structure.

A debate than ensued concerning the organisational size of direct patient care units and it was agreed that direct patient care services should be of the size of 100 to 150 beds or their equivalent.  There were many reasons for this decision but they included consideration of the experience, nationally and internationally, and the ability to hold a budget, manage and produce effective change.

It was emphasised from the start that operating units were there to facilitate the day to day management of hospital operations and the hospital was not seeking to break down professional relationships or interfere with professional operating standards.

In looking at the groupings of services into operating units, the following factors were considered

  • clinical working relationships ‒ surgical versus medical
  • likeness of patient/staff resources requirements
  • patient activity
  • scheduling of patient admissions
  • geography
  • size large enough to offer flexibility to move staff around units.

This led to prolonged debate and discussion within the medical and other staff groups and between these two groups.  Eventually, a consensus was reached which created six clinical groupings.  These groupings involved crossing traditional medical and surgical divisional boundaries to created patient focussed services.  This was an interesting and unexpected outcome but both physician and surgeon groups felt that by combining their resources they could further the aims of their service and those of the hospital more than by staying within their current organisation.

Discussion by staff then concentrated on the management structure of the functional services and included consideration of four models

  • chief of unit
  • non medical manager unit
  • medical manager
  • nurse/chief operating officer

Initially, it was determined to support a variation of these options, that being a tripartite model with the clinical chief being the chief operating officer.

Following extensive debate involving all staff groups, management and the board, a different model was proposed and accepted.  This unit management structure was negotiated and agreed to by management with staff.  It is interesting to note that the first three functional units selected to be established recommended senior medical and nursing staff who would take on the roles of the principal doctor and nurse in these units and that the unit structure, as outlined, was particularly supported by that group.  In addition, these changes were negotiated by management with the relevant nursing and medical unions and agreement obtained.

It should be pointed out that the Administrative Officers Association remain unhappy with the proposals but the board and senior management as well as those to be involved in the pilot unit felt very strongly that the role of senior management staff was more at central level in financial and general health services management involving policy, strategy and support services.

There have been many significant problems to overcome in arriving at these conclusions on the distribution of clinical services, organisation and management structure of such units.  In particular, one of the keys was to negotiate with both staff and the Australian Nursing Federation for a combination of clinical and management roles at the assistant director of nursing level.  This has been a significant agreement which will allow the hospital to staff and support these functional services at a nursing level in an appropriate and flexible manner.

Clearly, part of this negotiation involved the joint approach to management between the doctor and the nurse.  This agreement also extended to define the role of central management in relationship to the functional units as well as the professional roles and responsibilities of the doctor and the nurse in the unit and the areas of supervision for which each would be responsible.

The role of the director of nursing and the medical director are to provide professional support, development of standards and operating policies.  However, where matters are principally those of direct unit day to day management then no member of central administration will have a right to interfere.

Agreement throughout the hospital and with the unions was negotiated for the first service to be established on 1 November, 1991, the second on 1 December, 1991 and the third in January, 1992.  A review at six and twelve months will lead to an extension of this organisational structure throughout the hospital.  Many problems have been identified but most have been resolved in terms of decision making as to how those problems will be tackled.

Budgets have been developed for each of the functional services.  Business managers have been appointed.  Financial and general management information reporting systems have been developed.  Details of services that will be included in the operating units and those that will remain centralised as part of primary and secondary agencies are now under consideration.

Agreement on the new executive has been determined and the board and hospital committee structure has been reviewed along with a review of centralised middle management structures.  In particular, the effects of this change on teaching have been carefully considered as have the effects on the traditional powerful medical staff society within the hospital.  It is believed that a medical divisional structure will need to be maintained although its role and emphasis will alter substantially.  It will, in the future, meet less frequently and deal with professional and educational issues that are across functional services.  Substantial planning for the grouping of these clinical services into their own geographical areas has been organised and is in place.

Initially, it was negotiated with the health authority that a substantial proportion of savings arising out of the efficiency review and the reorganisation could accrue to the hospital.  This, indeed, was the impetus.  However, since that negotiation, the recession and the collapse of the Bank of South Australia have overtaken matters in South Australia and the funding cuts applied to the hospital have been nearly three times those that would have occurred otherwise.  This has placed a new constraint on the hospital but interestingly all involved in the functional services remain enthusiastic and agree that it is better to manage even in a recession in such an organisational structure than to remain centralised.

In association with the budget determinations, delegation of authorities, both staffing and financial, and the agreed duty statements, it is intended to have a service agreement between the hospital and each operating service.  Within that agreement, it will be expected that operating units will plan their services, conduct personnel functions, budget and finance operations, own their own beds and be responsible for admitting and discharge procedures and maintenance of professional standards within each unit.

It is intended that the medical officer from each operating unit will join the hospital executive to form the operations committee and that this committee will be responsible to the board of directors as a management committee, setting budgets, monitoring of financial performance of units and the hospital as well as policy and planning issues.  In addition, two assistant directors of nursing and the core executive will complete the operations committee.

The issue of primary and secondary agencies will be determined during the 1993/94 financial year.  This includes the role of accident and emergency, anaesthesia and intensive care, operating theatres, outpatients, radiology, nuclear medicine and support services such as cleaning, catering, porters and orderlies.  Some will remain centrally managed but wherever possible these services will be decentralised.  Where these support services remain centrally managed, arrangements for purchasing or budgeting will be determined as part of this next process.

Perhaps one of the most significant concerns that required considerable debate and discussion was the impact of these changes on nursing.  However, it is believed that the expected negative impact has been minimal.  Whilst the director of nursing for each functional service has significant increase in responsibility for both nursing services and a wider role in the management and provision of patient care services, there is a need to retain a strong central nursing bureaucracy responsible for selection and recruitment of senior nursing staff, maintenance of professional nurse standards, and management of central services such as accident and emergency, operating theatres and ambulatory care services.

Another issue for substantial discussion has been the impact on allied health.  Following discussions, it has been agreed to retain allied health services asdepartments and for them to report centrally.  Operating units will purchase allied health services form each relevant department.

One of the biggest concerns has been the provision of patient care and financial management information on an accurate and timely basis.  We have trialled this system and believe that adequate and effective systems have been made available.  However, there is a concern that the management of these functional services expects to be able to have information to a degree of accuracy unknown in most hospital organisations and some tolerance will be necessary.

Today, I am in a position to tell you what we have done so far.  I hope we have used the principle outlined by Peter Drucker, drawn on experience from other hospitals but, above all, have developed an organisational structure that is specific to the needs of the Royal Adelaide Hospital.  The impetus for this change has been one of survival following external problems but we remain confident that given the strong support from the board, management and staff for this change, that this change, by itself, is a good thing and given the problems facing the hospital is far better than the existing structure.  Because of the magnitude of such changes and the other issues confronting all hospitals throughout Australia, it is intended to implement these changes over a two to three year time frame.  However, we remain confident that an evaluation of these changes and the effects on the hospital will be positive.