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Strategic Management of

Information Systems in Healthcare

Gordon D. Brown, Tamara T. Stone, and Timothy B. Patrick



Editorial Board
Frederick J. Wenzel
University of St. Thomas
G. Ross Baker, Ph.D.
University of Toronto
Sharon B. Buchbinder, R.N., Ph.D.
Towson University
Caryl Carpenter, Ph.D.
Widener University
Leonard Friedman, Ph.D.
Oregon State University
William C. McCaughrin, Ph.D.
Trinity University
Thomas McIlwain, Ph.D.
Medical University of South Carolina
Janet E. Porter, Ph.D.
University of North Carolina at Chapel Hill
Lydia Reed
Louis Rubino, Ph.D., FACHE
California State UniversityNorthridge
Dennis G. Shea, Ph.D.
Pennsylvania State University
Dean G. Smith, Ph.D.
University of Michigan
Mary E. Stefl, Ph.D.
Trinity University
Linda E. Swayne, Ph.D.
University of North CarolinaCharlotte
Douglas S. Wakefield, Ph.D.
University of Iowa


Gordon D. Brown
Tamara T. Stone
Timothy B. Patrick

Health Administration Press, Chicago, IL

AUPHA Press, Washington, DC


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Library of Congress Cataloging-in-Publication Data

Strategic management of information systems in healthcare / Gordon D. Brown,
Tamara Stone, and Timothy Patrick, editors.
p. cm.
Includes bibliographical references and index.
ISBN 1-56793-242-8
1. Medical informatics. 2. Health services administration. I. Brown, G. D.
(Gordon D.), Ph.D. II. Stone, Tamara. III. Patrick, Timothy B.
R858.S773 2005
The paper used in this publication meets the minimum requirements of American National Standard for Information SciencesPermanence of Paper for Printed Library Materials, ANSI Z39.48-1984.
Acquisitions editor: Audrey Kaufman; Project manager: Melissa Rompesky; Cover designer: Trisha Lartz; Layout editor: Amanda Karvelaitis
Health Administration Press
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of the American College of
Healthcare Executives
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in Health Administration
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List of Figures and Tables xi

Preface xiii
Acknowledgments xvii
1 Introduction: The Role of Information Technology in
Transforming Health Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Gordon D. Brown, Ph.D.
PART I The Contribution of Information Technology to Organizational
Strategy: Integrating the Clinical and Business Functions
Introduction to Part I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
2 Information Strategy Related to Enterprise and Organizational
Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Tamara T. Stone and Gordon D. Brown
3 Organizational Accountability for Clinical Outcomes:
The Coming of the Corporation . . . . . . . . . . . . . . . . . . . . . . . . . .51
Gordon D. Brown and Suzanne A. Boren
4 Information Strategy Empowers Organizational Strategy . . . . . . . .79
Tamara T. Stone
5 Managing Data, Information, and Knowledge . . . . . . . . . . . . . . . .99
Timothy B. Patrick
PART II Information as Enterprise Strategy: The Strategic Use of
Information Resources
Introduction to Part II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119
6 Aligning Information Strategy and Business and Clinical Strategies:
Information as a Strategic Asset . . . . . . . . . . . . . . . . . . . . . . . . . .121
Kenneth D. Bopp and Gordon D. Brown


Contents in Brief

7 E-Health and Consumer Informatics . . . . . . . . . . . . . . . . . . . . . .149

George Demiris
8 Genomic Medicine: Informatics Implications and Opportunities . . .171
Mark A. Hoffman
PART III Information Strategy: Managing Information Resources
Introduction to Part III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .191
9 Investing in Information Technology . . . . . . . . . . . . . . . . . . . . . .195
Keith E. Boles and Michael J. Cook
10 Managing Information Technology Services . . . . . . . . . . . . . . . . .223
Anthony N. Duminski and Timothy B. Patrick
11 Information Security and Ethics . . . . . . . . . . . . . . . . . . . . . . . . . .237
Kenneth W. Lobenstein
PART IV Building a Healthcare Information Infrastructure
Introduction to Part IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .259
12 Conclusion: Managing Informatinon Technology in the Future . . .261
Gordon D. Brown and Jim Adams
Index 293
About the Editors 307
About the Contributors 309


List of Figures and Tables xi

Preface xiii
Acknowledgments xvii
1 Introduction: The Role of Information Technology in
Transforming Health Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Gordon D. Brown
Information as a Transforming Technology, 2; IT in Healthcare Organizations, 8; The Constraining Potential of IT, 17; Information Skills for Health
Systems Leaders, 19.

PART I The Contribution of Information Technology to Organizational

Strategy: Integrating the Clinical and Business Functions
Introduction to Part I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
2 Information Strategy Related to Enterprise and Organizational
Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Tamara T. Stone and Gordon D. Brown
The Strategy Network in Healthcare Organizations, 32; Information Strategy
Related to Enterprise and Organizational Strategies, 39; IT as a Social Good,

3 Organizational Accountability for Clinical Outcomes:

The Coming of the Corporation . . . . . . . . . . . . . . . . . . . . . . . . . .51
Gordon D. Brown and Suzanne A. Boren
Integration of Clinical Strategy with Business Strategy: The Coming of the
Corporation, 53; Information Strategy: Clinical Decision Support Systems,
62; Aligning Information Strategy with Clinical Strategy, 71.

4 Information Strategy Empowers Organizational Strategy . . . . . . . .79

Tamara T. Stone
Competitive Advantage in Healthcare Organizations, 80; The ResourceBased Enterprise, 83; Creating a Knowledge-Based Learning Organization,



Detailed Contents

86; Transforming Intangible Assets Through IT, 89; Commitment-Based

Management and the Human Capital of IT Workers, 93.

5 Managing Data, Information, and Knowledge . . . . . . . . . . . . . . . .99

Timothy B. Patrick
Data, Information, and Knowledge: A Philosophical View, 100; Controlled
Representations and Interoperability of Data, Information, and Knowledge,
101; Interoperability and Knowledge Management, 107; The Semantic Web,

PART II Information as Enterprise Strategy: The Strategic Use of

Information Resources
Introduction to Part II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119
6 Aligning Information Strategy and Business and Clinical Strategies:
Information as a Strategic Asset . . . . . . . . . . . . . . . . . . . . . . . . . .121
Kenneth D. Bopp and Gordon D. Brown
Value Migration in Healthcare, 122; Consumer Empowerment in Health
Services, 131; Strategic Leadership in Healthcare Organizations, 138; The
Coming Paradigm Shift in Integrated Health Delivery Systems, 143.

7 E-Health and Consumer Informatics . . . . . . . . . . . . . . . . . . . . . .149

George Demiris
Implications of IT for Empowering Individuals and Communities, 150;
Review of Patient-Centric Systems, 152; Challenges for e-Health Applications, 158; Success Factors for e-Health, 161; Considerations for the Future, 164.

8 Genomic Medicine: Informatics Implications and Opportunities . . .171

Mark A. Hoffman
Genomic Medicine, 172; Current State, 172; Emerging Trends, 181.

PART III Information Strategy: Managing Information Resources

Introduction to Part III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .191
9 Investing in Information Technology . . . . . . . . . . . . . . . . . . . . . .195
Keith E. Boles and Michael J. Cook
The Challenge of Delivering Value, 196; A Valuation Framework for IT,
200; Tools for Evaluating IT Investments, 207; Process for Evaluating IT
Investments, 211; Behavioral and Other Noneconomic Issues, 218.

10 Managing Information Technology Services . . . . . . . . . . . . . . . . .223

Anthony N. Duminski and Timothy B. Patrick

Detailed Contents

IT Governance and Leadership, 224; Strategic IT Planning, 226; Individual

Project Planning and Management, 228; IT Department Organization, 229.

11 Information Security and Ethics . . . . . . . . . . . . . . . . . . . . . . . . . .237

Kenneth W. Lobenstein
A Security Framework, 238; Aspects of a Basic Security Program, 242; A
Zone-Based Architecture, 252.

PART IV Building a Healthcare Information Infrastructure

Introduction to Part IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .259
12 Conclusion: Managing Information Technology in the Future . . .261
Gordon D. Brown and Jim Adams
The Seeds of Change: Transforming the U.S. Health System, 263; Development of an Integrated Information System, 274; Personal Health Record,
278; Clinical Information Networks, 282; Innovative Business Models, 283.

Index 293
About the Editors 307
About the Contributors 309



Figure 1.1

Hospital Functional Design

Figure 1.2

Skills Needed by Health Systems Leaders for IT Decisions

Figure 2.1

Strategic Integration of Healthcare Organizations

Figure 2.2

Maxims for Information Technology

Figure 3.1

Five Coordinating Mechanisms

Figure 3.2

Clinical Guideline for Diabetic Retinopathy Screening and


Figure 3.3

Clinical Pathway for Asthma Management Involving Patient

and Parents

Figure 3.4

Contemporary Integrated Health System

Table 5.1

Alternative Definitions of Knowledge Management Retrieved


Figure 5.1

Simple Web Document

Figure 5.2

Sample HTML Document

Figure 5.3

Sample XML Document

Figure 5.4

RDF Triple in XML

Figure 6.1

Sociocultural Network of Health Systems

Figure 6.2

Future Sociocultural Business Systems

Table 8.1

Web Sites Providing Genomic Information for Clinicians and


Table 9.1

Percentage of IT Projects Subjected to Formal Evaluation


Figure 9.1

Evaluation Framework for IT

Figure 9.2

Stakeholder Analysis Focus



L i s t o f F i g u re s a n d Ta b l e s

Figure 9.3

Stakeholder Matrix

Figure 9.4

Risk Adjustments to Discount Rate

Table 9.2

Example of EVA Sensitivity Analysis

Figure 10.1 Sample IT Vision Statement

Table 11.1

Development and Change-Control Security Issues

Table 11.2

Forms of Intellectual Property

Figure 11.1 Zone-Based Approach to System Protection

Figure 12.1 CHI Initiative Data and Information Standards
Figure 12.2 Healthcare Value Chain


his book explores how healthcare organizations can utilize advanced information technology (IT) to achieve high levels of operational performance and strengthen their market position. It considers health information systems from an organizational perspective, integrating the science
of IT, medicine, and nursing practice within the context of complex adaptive
systems. The book provides a conceptual framework for considering how IT
can be used to fundamentally transform clinical work processes and integrate
the clinical and business functions to achieve a coherent organizational strategy. The framework draws on a body of organizational and systems theory and
incorporates evidence from information and clinical sciences. The book takes
an application approach, drawing on current operational and policy issues and
supported with a rapidly growing body of evidence on how IT can be used to
transform health systems function and improve clinical and business performance.
Because of its grounding in theory and research evidence, the book is
well designed for use in graduate courses in health management, medical informatics, medicine, and nursing and other health professions. Practicing
health professionals can use the book effectively as well, either as a general
reference or by focusing on the conceptual and applied material as a framework for problem solving and strategy development. Starting with Chapter
2, each chapter features a case study drawing on actual situations to introduce
and apply the concepts. Readers are encouraged to return to the case for additional insight as they read through the chapter. These chapters also include
a problem solving scenario that draws on the case and applies and integrates
material from the chapter.
The book is divided into four parts. Part I focuses on both business
and clinical strategies and then considers them as an integrated organizational
strategy. These chapters describe the structure of IT and how information
can be used to structure and manage the clinical and business functions. This
discussion includes how these functions can and must be integrated to
achieve high levels of performance. The book focuses initially on clinical and
business operations because the transformation must start with a redefinition
of the traditional role of organizations in managing clinical processes and


Pre f a c e

being accountable for clinical outcomes. Information technology can enable

this shift, but there is no evidence to suggest that IT alone will produce it.
Part II focuses on information strategy related to enterprise strategy,
or how an organization uses information to position itself in a competitive
market and respond to environmental change. The issues examined include
the use of information as a strategic asset, and a number of applications are
discussed. Specific strategies are selected and discussed in some detail, including knowledge management as an organizational strategy, consumer informatics, the role of e-health and web-based technologies, and the impact of
genomic medicine on health behaviors and services delivery.
Part III focuses on managing information resources. The editors feel
it necessary to provide a detailed discussion of IT from the perspectives of
operations management in Part I and strategic management in Part II before
addressing the specifics of managing information resources. The earlier chapters provide the essential context for considering the investment in and management of information resources. This section includes chapters on the effective management of information resources, investing in IT, IT structure
and staffing, and information security and ethics.
Part IV provides a broader context for thinking about how IT might
affect the health system in the future. It is policy oriented and includes a
comparative analysis drawing on how information has been applied in other
service industries and health systems in other countries. It considers how IT
in health might spawn fundamentally new ways of thinking about the industry. Discussions include increasing entrepreneurial behavior in start-up companies and considering health information from a global perspective. Included in the discussion is an assessment of current U.S. policy initiatives to
develop a national health information infrastructure.
Information is recognized as an important technology and one of the
latest technologies to be brought to the health system. This recognition has
given rise to many clinical and business applications and is reported in the literature. Information, however, is more than just the latest technology to affect the health system. It is one of the few resources that increase in volume
and value as it is used. Its value is in its use, as with any resource, but by its
use adds resource. Consequently, traditional models to explain the economics and strategy of investing in a technology do not fit information technology. This book explores IT within a new paradigm applied to health organizations and systems.
The application of information technology has been considered historically in health institutions primarily from a technical perspective. The
technology has been applied to existing decisions, work processes, and system structures. The complexities of clinical and business processes have
posed major technical challenges that have taken time to resolve. Part of the
challenge has also been the difficulty of changing clinical processes because

Pre f a c e

of the conflict with traditional professional roles. The technical focus of early
applications has included primarily information technologists and nursing
and medical professionals.
This book builds on the foundation work in medical informatics to explore how IT can be used to transform work processes and systems. The science and the complexity of the task are expanded to include how information
can be used to facilitate change in complex systems and individual behaviors.
Information enables organizations to restructure their work processes and
systems. It also enables them to develop new strategic initiatives, some of
which are based on information as an enterprise strategy. Such profound
change draws on the fields of medicine and nursing, informatics, systems theory, organizational psychology, organizational strategy and structure, economics and finance, law, and ethics. These are the disciplines from which this
book draws to understand the potential of this new technology.



he editors gratefully thank our many academic and practicing colleagues

for their insights and contributions to our understanding of the application of IT in healthcare organizations. Many of them provided feedback and made useful suggestions on this manuscript. We also acknowledge
and express our sincere thanks to Christopher R. Brink, Lillian C. Folk, Candace Garb, Linda Huether, Annamarie Mantese, and David Moxley for their
considerable assistance in manuscript organization and preparation. Their
contributions greatly improved the quality of the book.
This work was supported in part by the National Library of Medicine
Biomedical and Health Informatics Research Training grant 2-T15-LM0708911 and the Center for Health Care Quality, School of Medicine, University of



Gordon D. Brown

Key Terms
Chapter Outline

Information as a Transforming Technology

IT in Healthcare Organizations
The Constraining Potential of IT
Information Skills for Health Systems Leaders

Learning Objectives
1. Understand the role of IT as it affects work process design and organizational strategy.
2. Understand the issues facing healthcare organizations regarding the application and use of IT.
3. Apply knowledge about IT to make informed operational and strategic
decisions in healthcare organizations.
4. Synthesize how the clinical and business functions in healthcare organizations are structured and how IT can facilitate effective business and
clinical decision making.
5. Evaluate the potential and limitations of IT in a functioning healthcare

Clinical process
value chain
and databases

Chapter Overview
The application of advanced information technology (IT) to improve health
system performance has probably generated more hope than any development
in the health system. Yet, somewhat perversely, IT has at the same time frequently failed to meet expectations. Those studying the problem define it in
different ways and propose varied solutions. Some chief information officers

St ra t e g i c M a n a g e m e n t o f I n f o r m a t i o n Sy s t e m s i n H e a l t h c a re

(CIOs) view it as a financial problem caused by underinvestment in IT by

healthcare organizations. Others feel that it is a vendor problem, in that software vendors cannot deliver on their promises. Vendors claim that applying information systems (IS) to the health field is difficult because of the exceedingly
complex nature of health services delivery. Chief financial officers say the return on investment is far below expectations at any level of investment. Chief
executive officers (CEOs) observe that complexity and cost increase exponentially as the application progresses and that no end is in sight. They wish the
problem would go away, but it wont. Doctors, nurses, and other health professionals range from enthusiastic to indifferent to hostile when considering
the application of IT to their work.
Which view of the IT world is correct? The fact that the problem
touches almost everyone in the organization and is viewed so differently suggests that it is systemic in nature. The argument that applications in health systems are more difficult because health services and health systems are so complex is probably true. The complexity of the system could explain the pace of
development, but not the failure to apply and widely use systems that have
been tested and proven. This suggests that the issue is not primarily in the new
technology or how it is being implemented in healthcare organizations. These
may be problems, but the issue is much more complex. It suggests a failure to
understand or accept changes in business and clinical processes that are enabled by IT. Information is an enabling technology. Its design and application
in organizations must be consistent with the design of the work processes it is
intended to facilitate. Lacking that, the technology will fail regardless of the
level of investment, vendor, system capacity, computing speed, or size and
qualifications of the IT staff.
The application of IT has demonstrated major positive outcomes in
other industries (Andersen and Segars 2001; Chen and Zhu 2004; Oliner and
Sichel 2000). Some encouraging achievements in the performance of healthcare organizations have been credited to IT. The critical factor is the consistency between how IT is designed and managed and the design of the work
processes it supports.

Information as a Transforming Technology

In his classic work The Third Wave, Toffler (1980) observes that only three
fundamental changes have taken place in society in the history of humankind:
the agricultural revolution, the industrial revolution, and the information and
technology revolution. These profound social changes redefine the nature of
civilization, including where and how we live and work, family structure, how
we value education and health, and even the validity of well-established scientific theories. He concludes that existing organizations, systems, and theories

I n t ro d u c t i o n : T h e Ro l e o f I n f o r m a t i o n Te c h n o l o g y i n Tra n s f o r m i n g H e a l t h Sy s t e m s

are based on the assumptions of the industrial revolutionthe second wave

and thus may be irrelevant in an information and technology society. He observes that although we are in the information and technology age, we still typically function with the mind-set of the industrial revolution. Current and
future organizations and systems, he proposes, need to be built on assumptions
of the technology and information age. The problem is that we do not have
good models for doing this. We know only that our current models do not
work very well.
Financial and other sectors of society provide emerging examples of
how the new age might be structured and function. The structures that have
emerged are innovative but can be understood only within the context of the
process by which they were derived. The process that led to the development
of VISA as an organizational model is a good example. Early concepts of plastic charge cards were as extensions of existing banking institutions and
processes. Individual banks envisioned incorporating new optical scanning
and computer technology to develop charge cards as an alternative to writing
checks. They were considered to constitute a limited market appealing to a
certain clientele. Charge cards were designed to be unique to each bank and
used as a means of differentiating them in the market. The application of
charge cards was imposed over a traditional banking structure that never envisioned the transforming potential of the information age. The hospital in
Case 1.1 defined the problem as needing to automate an aspect of the billing
system but installed software that was based on the assumption of a redesigned process of managing the revenue cycle.
Where the established banking industry saw the charge card as an alternative to writing checks, some saw it as the basis for electronic banking and
others as a basis for a totally integrated financing system. In order for the new
technology to work, the industry had to develop fundamentally new processes
and structures. Change theory describes this phenomenon as double-loop
learning. New structures do not evolve from structures of the past but rather
are innovative, based on new sets of assumptions. Banks could not differentiate themselves through their individualized charge cards and so would have to
cooperate to develop an electronic system they could use collaboratively. VISA
did not evolve from any previous structure or logic of the financial community
but instead used its understanding of the transforming power of IT to envision
a new order. The nature of organizational innovation and the demands it
places on leaders is described by VISAs founder, Dee Hock, as chaordic,
combining chaos with order (Hock 1999). He concludes that organizations
are built to bring order but must live and thrive in a world of chaos. If this is
so, we must build organizations to perform in that environment.
Observing progress made by the health field in transforming itself
might lead one to conclude that Tofflers view was more science fiction than
visionary. The health system, being primarily in the information business,

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CASE 1.1
Health Valley
Upgrades IT

Health Valley Hospital had operated on a financial system from a minor software
vendor for many years. The hospital reviewed the cost and made judgments about
the system, deciding that it was not keeping up with the needs of the organization.
Management felt it was time for a new patient and financial accounting system.
This action was taken to reduce costs and, more importantly, to improve the financial performance of the organization and increase its sophistication in financial
After a thorough process of determining and documenting requirements,
a multidisciplinary group of executives and managers evaluated all of the major
healthcare software vendor offerings. They selected a well-known full-suite product of patient and general accounting, accounts payable and receivables management, payroll, decision support, and electronic commerce. The application
suite was installed primarily by the staff of the hospital with support from the
The implementation of the system was a technical success, but the approach of the business leaders was to automate the current business processes
with the new system. They did not fully evaluate the new systems impact on operations. The electronic commerce capability had advanced edit and screening capability well beyond the capabilities of the prior system. This system checked the
components of a bill against the billing system entries, against the medical records
abstracting system, and finally against edits used by the Medicare intermediary
that adjudicated and paid Medicare claims. The older system only checked for data
integrity within the billing system and had no capability to replicate the editing
done by the intermediary.
The implementation had an immediate and significant impact. Claims that
used to go out the door to the insurers were now failing to pass the edit checks.
No process was in place to reconcile the issues between the billing and medical
records offices. The edits became more robust and caught claims at a more detailed level. Finally, claims that used to leave the organization and go to Medicare

might be expected to be a leading sector in the third-wave transformation.

On the other hand, being an information-dominated industry might make
the potential of change greater but the probability of change less. Evidence
supports the fact that information organizations are difficult to change in part
because the information infrastructure has been applied to existing processes
and structures (Keen 1994). Toffler (1980) speculates that higher education,
being in the information and technology business, controlled by professionals, lacking strong competition, and steeped in tradition, would be slowest to
change. He predicts that some universities would rather die than change, and
so they will. This description might apply to healthcare organizations as well.

The Role of IT in Organizations

of existing

There are two basic approaches to the application of IT to healthcare organizations: to automate existing processes or to enable the transformation of
processes. Neither is right or wrong, but they are very different in approach

I n t ro d u c t i o n : T h e Ro l e o f I n f o r m a t i o n Te c h n o l o g y i n Tra n s f o r m i n g H e a l t h Sy s t e m s

after a significant time delay if they were returned because of edit failures were
being rejecting on site immediately.
The result of this process was a rapid growth in rejected claims, overwhelmed business office staff, and dramatically increased dollars in accounts receivable (AR). Prior to conversion to the new system, the days in AR averaged in
the mid-70s. This increased significantly as management tried to cope with the
problem, until days in AR reached more than 110.
The approach taken to deal with the problem was to use a multidisciplinary,
multilevel team assisted by outside consultants who reviewed and redesigned the
entire business work flow. The software vendor was also brought in to help coordinate the work flow changes with the capabilities of the software system. New roles
were created, new middle management was hired, and training in new processes
was implemented. The linkages among the business, medical records, and registration offices were dramatically strengthened with audits implemented to support
the evaluation of data quality. Additionally, a change management committee was
established to discuss, evaluate, and approve changes that needed to be made to
business processes as well as computing systems. Effectively, the new integrated
computer system forced the organization to behave more like an integrated system
itself and less like a collection of departments.
The end result of the new system implementation along with the new business process improvements is impressive. Days in AR have dropped dramatically
and now average in the mid-30s, close to best in class within the geographic region. The charges billed and dollars collected have improved dramatically. Days of
cash on hand have grown by 50 percent in less than two years. Finally, the organizations bottom-line profitability has improved.
Problem Solving 1.1 discusses the lessons to be learned from Health Valleys experience.
Lawrence Sharrott, CIO, AtlantiCare Health System,
and president, InfoShare, Inc., Atlantic City, NJ

and outcome. Automating processes replaces back-office operations with

computer applications such as payroll, billing, scheduling, and inventory control. These functions characterized early business applications of computers
in health and other organizations and resulted in increased processing speed
and greater efficiencies. They were characterized as data processing functions
and located in departments bearing this name. In hospitals, early information
activities were located in finance departments because financial data were
standardized, included repetitive processes, and were relatively easily automated. This was an ideal application of data processing technology. Later
business applications included patient scheduling and admitting. Applications in healthcare organizations on the clinical side of the enterprise lagged
and developed parallel to business applications. Early applications were typically by functional department, applied to internal departmental processes.
These included laboratories, pharmacy, and, later, radiology. All involved
highly standardized and repetitive processes, ideal for the application of IT.

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The application of IT overlaid how hospitals and clinics were structured and
Early applications in hospitals and clinics were designed to automate
existing internal processes. Organizational leaders were reluctant to invade
and alter the clinical decision process. In part this reluctance was because
most leaders had been trained in and were oriented only to the business function and it challenged hundreds of years of separation of the clinical function
from organizational interference. The availability of information to assess
clinical outcomes and improve clinical processes frequently exceeded the capacity or commitment of the organization to use it in such a manner. Hospitals and clinics maintained their existing hierarchical functions or invested in
clinical information systems seemingly under the assumption that new data
systems would change clinical work processes. This assumption has not
proven to be true.

of processes

Nearly absent from the application of IT in healthcare organizations is the

management of the clinical process from the perspective of the patient and
patient-centered care. The potential of advanced IT to enable the transformation of clinical processes across professionals, departments, organizations,
and systems is considerable but has generated little interest from organizations or health professionals.
This book focuses on the use of IT as an enabling technology for
transforming work processes. The application of IT in such transformations
has been well developed in some product and service industries. In these industries the application of advanced IT is viewed as an enabling technology
supporting innovative process redesign. Evidence shows that IT investment
by organizations has not been effective as a means of initiating or stimulating business process design (Broadbent, Weill, and St. Clair 1999; Collins
2001). Such investments have resulted in information capacity that does not
produce the anticipated outcomes or expected return on investment. Responsibility for the failure is frequently directed at the software, CIO, IT
staff, or underinvestment. The solution is frequently directed at one or more
of these problems, but evidence suggests that none of these factors constitute the real problem. More likely, the problem is that the enabling technology was purchased without sufficient understanding of or commitment to
work process redesign (see Problem Solving 1.1).

Work Process Redesign

The purchase of advanced IT without a commitment to work process redesign
can be a wasted investment by the institution. The total cost to the institution
might even be greater than the direct cost of the IT system itself. The application of IT to automate existing systems can act as a constraint to later attempts
at redesign (Keen 1994). The strategy of installing and institutionalizing new

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In Case 1.1 it was only through the installation of a new software system and implementation of new business process that outstanding results were achieved.
The lesson to be learned from this experience is how to use new technology to
transform business processes without being forced to do so by poor outcomes.
The improvements noted in Case 1.1 could not have been achieved by the implementation of new technology alone. As a matter of fact, the new system
highlighted and amplified the problems with the old processes.
Implementing new processes without a new software system could not have
produced the same results. Many of the processes now in place could not be
provided or supported with the older system.
The successful transformation of this complex business process involved frontline workers who understood the technical aspects and managers who understood how each work element contributed to an overall work process.

technology prior to process redesign can contribute to the failure of the redesign by further freezing current processes into place. Furthermore, change
that occurs later will be much more complex and costly. On the other hand,
acquiring IT as a means of producing the redesign is likely to fail.
Organizations committed to innovative work process redesign have
found the investment in IT essential (Caron, Jarvenpaa, and Stoddard 1994).
Those that have tried to pursue such a strategy without a strong IT infrastructure designed to support it have failed or had limited success. Information
technology has been found to be an essential enabling technology when
closely integrated with the redesign of the business or clinical functions. When
IT is incorporated as an enabling technology in process redesign, issues of acceptance and use are diminished. These institutions do not use IT development to overlay existing work processes but rather as the enabling technology
to fundamentally transform them. This is the strategy of Wal-Mart (Furey and
Diorio 1994), VISA (Hock 1999), and other companies using IT to support
a transformation of previous business processes.
Considerable evidence describes how IT can be used to enable the fundamental redesign of work processes that produce exceptional levels of industrial operating efficiency and strategic advantage. Scholars and executives, particularly those grounded in management IS, have established a rich literature
on innovative business process redesign as a means of achieving superior business performance. Process redesign is differentiated from process improvement, depicting fundamentally new ways of considering business functions.
Process redesign has also been referred to as process reengineering, requiring
vision and conceptual skills to develop innovative solutions for existing problems. True innovation requires the conceptual reorganization of problem situations (Shull, Delbecq, and Cummings 1970, 7194). This assumption underpins the work of Deming, Juran, and others in using process redesign and
process improvement as a means of reaching Six Sigma levels of quality.1

Health Valley
Upgrades IT

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The application of scientific principles and technological advances to

fundamentally redesign business processes to achieve superior outcomes did
not really take hold in the United States until the 1980s, although the science has existed for much longer. This lag occurred for two reasons. First,
businesses enjoyed relative prosperity after World War II and did not perceive
the need to reform their business processes. Second, the principles of scientific management were not emphasized in corporate leadership or business
schools, which relied on tradition consisting of myths, hunches, gut feelings, intuition and knee-jerk reactions, instead of scientific evidence, to improve business processes (Spare 2000). Global competition changed the market and nature of the competition. Businesses using traditional management
approaches and theories found they could no longer compete.

IT in Healthcare Organizations
Evidence of how advanced IT can facilitate work process redesign is compelling. The level of evidence over time and across a large section of the service and product industries provides considerable support for application of
advanced IT to healthcare organizations. The evidence supporting the enabling power of IT to improve work processes raises questions of why such a
lag exists in the health industry. Are healthcare organizations more complex,
resource rich, or poorly managed, or are there other factors to consider?
Healthcare organizations present a particularly difficult challenge because of their traditional structure and assumptions about work processes, especially clinical work processes. Patients enter the hospital or clinic based on
a specific need, typically seeking treatment of some disease symptom. The patient encounters the system, receives a service, and exits the organization.
Health services are viewed by the institutions more as a commodity than as a
continuing commitment. Services are evaluated on the basis of the quality of
the given service and level of satisfaction reported by the patient. Patients, on
the other hand, increasingly view health services as a continuous process because of the increasing rate of chronic diseases and changing attitudes about
healthcare. Under these conditions, information on health status, disease history, treatment history, and health risks is shared among all health providers
and with the patient. Healthcare organizations are institution-centric, which
also characterizes their information systems. Physicians frequently become
focused on episodic illness, probably in part because the information systems
that support their decision making are designed in this manner.
Within hospitals and clinics exist an overall business function and a clinical function designed to support patient diagnosis and treatment. Hospitals,
clinics, and other health services delivery organizations traditionally have been
structured around a functional organizational model for providing services.

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The dominant business logic is based on the assumptions of economies of

scale of equipment and personnel. This is the logic for centralizing investments in functional departments. The actual clinical functions are carried out
by health professionals working across functional units based on the needs of
each patient during the episode of care. Physicians have been structurally separate from the organization and are highly autonomous in working with the
patient to determine service needs and the structure of the overall clinical
process. The hospital represents a single stage of production, and the clinical
function is structured around that stage of care. It is based on institutional
care, not the patient, as the unit of analysis. The clinical function from the
perspective of the patient is considered outside the purview of most healthcare organizations. Information technology has been developed within the
hospital around the clinical function, separate from the business function.
The traditional structures of the business and clinical functions have defined
the design of information systems to support them.

Transforming the Business Function

The business function in healthcare organizations has been focused on internal operations and operational efficiency. Business operations consisted of
relatively simple processes of scheduling, billing and collections, accounting,
budgeting, personnel, payroll, purchasing, inventory, and supply. Computer
applications in business processes first automated these back-office operations, which resulted in increased processing speed and greater efficiencies.
They were characterized as data processing functions and traditionally located in departments bearing that name.
Since the late 1940s, business operations have became increasingly
complex because of third-party reimbursement, legal issues, training requirements and certifying agencies, proliferating public regulations, and
services marketing. Information technology was managed from the finance
department because financial data were an ideal application for data processing. Financial reporting consisted of easily automated standardized measures
and repetitive processes. Financial management was also a dominant business function in healthcare organizations that required the integration of information from various business departments. Dwindling financial margins
for many healthcare organizations have exerted increased pressure to better
manage the business function. To date most efforts have been to manage existing internal business operations more efficiently rather than redesign the
business function. Particular attention is being paid to managing the revenue cycle and areas affecting profit-and-loss statements. On the cost side,
organizational leaders have sought greater efficiencies by consolidating or
outsourcing operations and initiating collaborative arrangements such as
group purchasing. Many applications that have demonstrated economies in
other industries, such as bar coding, have been slow to develop in healthcare



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organizations because vendors have not made this technology available to

health providers.
The business function has been structured around a functional design
that includes the business departments and nursing and clinical support services (see Figure 1.1). Early applications of IT in healthcare organizations to
nursing and clinical support departments were for business operations. The
application of IT overlaid how hospitals and clinics were structured and functioned.



Interest by healthcare executives in redesigning business processes with vendors and other collaborative organizations has lagged far behind other industries. The redesign of business processes broadens the perspective of internal
business operations and places them within the context of strategic partnerships for managing the business function. Process redesign in health institutions will be dependent on advanced IT as it has been in other industries. Like
other industries, however, IT will not initiate process redesign.
Burns (2002) and colleagues have provided a useful conceptualization
and discussion of supply-chain management in the health field. Burns describes
classifications of institutions participating in the healthcare supply chain, or
value chain, including payers, fiscal intermediaries, providers, purchasers, and

Board of trustees
Medical staff

Joint conference committee




hospital services

clinical services



Food services

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producers (Burns 2002, 2326). From analysis of the various interrelationships among organizations along the value chain, Burns (2002) concludes:
What is lacking, however, is coordinated effort among these parties, widespread strategic alliance formation, knowledge sharing, inter-firm trust, and
compelling value chains oriented to delivering the greatest customer value at
lowest total cost. Indeed some industry executives boldly state that the word
partner does not really exist.

Various models have demonstrated considerable economies, such as

partnership models for group purchasing (Richardson 1989). Collaborations
with suppliers to develop bar coding and inventory management systems
show considerable promise. There is little doubt that there are considerable
savings yet to be realized. Many of these applications will take a form similar
to those in other industries. These applications have been well described and
their savings well documented (Byrd and Davidson 2003; Chapman, Gupta,
and Mango 1998). Health executives need to draw on what has been learned
in these industries to redesign and better manage the business process.
It is difficult to measure the degree of interest in and commitment to
business process redesign in the health field, but organizational leaders have
tended to spend more time focused on internal operations and managing the
revenue cycle than on business process redesign. This is understandable given
the relative ease of passing on costs to consumers, but a revenue strategy likely
will not be adequate in the future. Providers will no doubt have to deal more
aggressively with costs, and pressures will increase to develop innovative solutions to business process redesign. Encouragingly, attention has recently been
given to supply-chain and other aspects of business process redesign in healthcare organizations (Burns 2002, 41924).

Transforming the Clinical Function

Healthcare organizations need to increase focus on clinical process improvement and how IS supporting health professionals, organizations, and systems must change. The clinical function makes up the core technology of
healthcare organizations; structuring and managing the clinical process has
the greatest potential to improve clinical quality, patient satisfaction, and efficiency. Greater accountability for health outcomes by healthcare organizations has increased the need to structure and manage the clinical process.
Managing the clinical function will become much more complex in the future as chronic care increases, patient expectations change, and genomic information is incorporated into clinical decision making.
The traditional perspective of IT applied to the clinical function has been
institution-centric. The clinical function is viewed by hospitals, clinics, and
other institutions as medical consultations or procedures, nursing services,



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and clinical support services related to a given clinical encounter. Clinical

support services include pharmacy, laboratory, diagnostic radiology, medical
records, and services of other health professionals. A clinical encounter is
typically disease oriented and the basis for a patient seeking services from an
individual or institution-based health professional. The clinical encounter
consists of diagnostic and treatment processes related to an episode of care,
usually provided within a given unit of a health facility.

The pattern of automating the clinical function was departmental or functional and based on decisions made by department directors. Departments
such as pathology saw early applications of electronic IS because they dealt
with standardized measures and repetitive processes perfect for IT. Applications were oriented primarily to support internal work processes. Other departments developing early IS included pharmacy, radiology, and nursing. Automating various clinical functions was straightforward and widely pursued,
albeit at different rates within a given institution and built on different data
platforms. The pattern of automating existing processes defined by functional
departments continues to be followed by hospitals and clinics, producing improved efficiency and accuracy. Many departments used the application of IT
to evaluate and improve existing processes. Although the reporting of results
from these developments was characterized as process redesign, it might be
better characterized as improving existing processes. More accurately, the reporting of results was oriented to improve work processes, or microprocesses,
within functional departments.


As IT became more broadly applied to manage clinical processes, a logical

next step was to integrate clinical information across departments to provide
information to support decision making at any point in the clinical process.
Although logical, this step was exceedingly complex for two reasons. First,
hospitals and health institutions are structured around functional departments, not clinical processes, depending primarily on individual health professionals to integrate the clinical process. There was a need to structure information to support processes that lacked integration. Managers were
caught in the fallacy that information could restructure processes. Second,
existing databases and IS did not provide a consistent vocabulary, nor were
they built on a common information architecture that permitted integrating
clinical information. IS vendors and executives understood that they were
building IS that would technically not support the integration of clinical information, but the established structure and control systems of health institutions dictated this phase of development. Thus, information was gathered
from clinical departments by developing interfaced systems to provide integrated, timely, and accurate information. The integration of the various systems with disparate purposes, vocabularies, and data standards has made this
step exceedingly complex and costly.

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Hospital and clinical executives, along with IS vendors, concluded

that the development of an electronic medical record (EMR) might be the
solution to the complex problem of integrating clinical databases. This concept was advanced in the 1960s by Larry Weed (1968, 1970) as an effective
clinical support technology. The EMR was intended to provide a common
data set and a repository for clinical information accessible to all health
providers. This strategy was sound and probably essential but also compounded the problem because the development of an EMR invites the interconnection of all clinical support areas at once, coding historical data and
installing the system while continuing to maintain a paper-based system to
support current operations. Installation is typically built on unrealistic time
frames for bringing applications online. A common problem is trying to do
too much at once. The EMR serves as the basis for further developments of
electronic systems such as computerized physician order entry systems.
These system applications have considerable potential for providing decision
support tools for physicians, nurses, and all other health professionals.
Many hospitals have made progress in recognizing the potential of applying integrated clinical information to improve medical and nursing decisions and clinical processes. The potential for improvement was identified by
the Institute of Medicines (IOM) studies on patient safety and process improvement, which note that most medical errors are due to a process breakdown, not to individual worker errors (Kohn, Corrigan, and Donaldson
2000; IOM 2001). The availability of clinical information across the treatment process and clinical history on which to select evidence-based solutions
is essential for clinical process improvement. To be effective, however, organization executives must lead clinical process improvement within their institutions. Installing integrated IS alone will not improve clinical processes.
Current information strategy is essential for integrating and improving clinical processes within healthcare organizations. Organizational leaders must
also maintain a future focus and consider today the design of IS that will support future applications. Healthcare organizations are spending much time
improving existing clinical processes and developing IS to provide technical
solutions. What will be the clinical processes of the future? The IOM view of
medical errors and clinical quality goes beyond the quality of a clinical encounter to recognize the entire clinical process and errors caused by undertreatment, overtreatment, and inappropriate treatment. The clinical function
from the perspective of the patient includes services of all institutions and
professionals, inside and outside the health system that are or could be effectively involved in the treatment of a given condition or related set of conditions. The patient view of the clinical process has not been given much consideration by healthcare organizations, which have instead focused on specific
clinical encounters. In the future healthcare organizations will likely adopt a
more patient-oriented perspective as the result of the increase in complex




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chronic diseases and the changing attitudes of consumers. Patient-centered

care is a concept heralded by healthcare organizations but frequently viewed
within the context of services provided at a given point in the care process.
Real patient-centered care views the overall treatment process, as patients
view their care.

The clinical function in the health system has consisted historically of individual clinicians functioning independently. Since the 1970s physicians have
joined corporations, such as medical groups, and developed closer links with
hospitals through more highly structured medical staffs and collaborations
such as physician-hospital organizations. These corporate designs enable
physicians to negotiate insurance contracts, manage the revenue cycle, and increase operational efficiency, but they have not redesigned the clinical process.
These structures primarily serve the business function. Physicians have retained a high degree of individual autonomy over the clinical function in organizations, even those owned by physicians. Few organizational models have
invaded the clinical process per se. Many of the managed care models did so
in a crude manner, such as by applying rules for preadmission authorization,
but were opposed by clinicians and patients and ultimately discredited. The
appropriateness of organizational involvement in clinical process redesign is
still the subject of debate and not universally accepted. Certainly, few healthcare organizations have strongly committed to clinical process redesign as an
organizational goal. Health leaders are ambivalent in general, doubting that
process redesign is an appropriate role for organizations. Others see the potential and are carefully initiating change from within. The difficulties leaders
face include external forces such as reimbursement, governmental regulations,
state practice acts, and accrediting agencies that create obstacles and disincentives to change. It is clearly not a problem of information or even of the organization, but rather of the health system. The challenge is in changing the
The lack of clear commitment to clinical process redesign inherently
limits the utility of investment in IT to support the process. Information
technology has consistently been found to be an enabling technology for
process redesign, but it will not produce process redesign. Investment in IT
without the capacity to redesign clinical processes will be a limited investment. There will be an overinvestment in IT that provides technical capacity
beyond that needed to manage traditional clinical processes. One resolution
is to accept established processes and reduce the investment in IT. This solution would bring business operations into balance by reducing the overinvestment in underutilized information capacity. This would solve the investment problem but suboptimize health system performance. Leading
organizations will pursue real innovation by fundamentally redesigning the
clinical process. Information thus changes from an overhead cost of operations to a strategic asset for the organization. Evidence suggests that such

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strategy can produce exceptional levels of quality, satisfaction, and efficiency

(Erstad 2003). The degree to which demonstrations of exceptional performance by healthcare organizations will lead others to follow is unclear. There
are strong arguments that market forces in the health system have not stimulated the level of competition required to force less efficient and effective
health institutions to compete in order to survive (Porter and Teisberg
2004). Others argue that public and not-for-profit healthcare organizations
will respond to competitive forces to produce increased value to individuals
and communities. While this may be a compelling goal, little evidence shows
that it generates sufficient incentive to produce internal reform.
Organizations initiating clinical process redesign might find that their clinical IS, designed around existing clinical processes, do not have the flexibility
or capacity to support integrated clinical decision making processes. The field
of medical informatics has enabled application of computer technology to existing medical and nursing practices and organizational structures. Medical
informatics has been designed largely from the perspective of health professionals, particularly physicians, and how IT can be used to assist clinical decisions made within existing decision structures (Friedman et al. 2004, 170).
In this regard clinical IS are fundamentally designed to improve existing
transactions instead of transforming them. They have demonstrated effectiveness in changing behaviors of individual health professionals, but not in
redesigning clinical processes.
Pluses and minuses are inherent in the current status of clinical IT systems. Medical informatics has facilitated the diffusion of computer technology within health professions by focusing on supporting existing processes.
Automating these processes has limited the potential of the technology but
facilitated its acceptance. The disadvantage is that the information architecture being developed to enable clinical process redesign might not be capable of supporting it. Additional investment will have to be made to accomplish this, revealing that much of the current investment has been wasted.
Organizational leaders high expectations that the current investment would
support or even produce clinical process change will not be met. Many CEOs
have lacked sufficient understanding of IT to lead its application in process
improvement. Many CIOs have viewed IT as technology applied to existing
processes. Neither perspective is informed, resulting in a considerable waste
of resources and time, increasing the frustration of all involved. The expectations of executives and the promises of vendors that IT will initiate the transformation of business and clinical processes are clearly unrealistic.

Integrating the Clinical and Business Functions

Information technology has developed within healthcare organizations along
parallel paths. There exists both a business and a clinical logic in the architecture, which serves as the underlying basis for developing IS. Their evolution



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has resulted in a lack of coherence, common language, and architecture. The

assumptions organizations make about process improvement for business and
clinical functions are fundamentally different. Business IS view patients as
number of visits, supplies consumed, professional services utilized, costs of
procedures, and billing codes. Clinical IS are based on health conditions,
medical diagnosis, results from diagnostic tests, and treatment regimens. The
fundamental logic is inconsistent and contradictory between the decision
needs and information structures of different business and clinical users. The
incoherence within the information strategy of healthcare organizations is difficult to overcome through interface systems. Chief information officers spend
time and resources integrating information designed primarily to meet the
needs of the disparate decision units. The focus of IT staff tends to be on the
technical aspects of integrating IS instead of on restructuring processes.
The organizational commitment to clinical process redesign will
change the nature of the organization in many ways. The clinical process will
become more closely integrated operationally and strategically with the business function. Managers and clinicians will have real-time information on clinical quality and patient satisfaction, guidelines to provide evidence-based clinical solutions, and cost and revenue implications of decisions. Business
performance will be linked to clinical performance as a means of developing
strategy and achieving both clinical quality and operational efficiency. Increasing pressures on healthcare organizations will require that they manage the
business and clinical processes to achieve improved clinical outcomes with
much greater efficiency. The integration of these functions within the organization will require new skills in the leadership team and new management
structures. Included in this redesign will be integrated IS that interrelate clinical and business performance of the organization and factors that affect performance.
The alignment of the business and clinical functions will also result from
major new clinical technologies such as the human genome project. The integration of genomic information with disease databases and effective clinical decision support systems will lead the health industry into third-wave technology
and structure. Current clinical practice in hospitals and clinics and its relationship to computer technology is somewhat like flying a small airplane. The computer is an important aid and will reduce the risk of errors, but it is not essential to takeoff and landing. In the genomic era, heath organizations will be in
interplanetary flight, requiring computers to talk to computers. Humans will
still be essential, but they will be supported by advanced IS. This will require
new ways of thinking about work process and information support.
The transformation of the clinical functions will call for the fundamental redesign of business and clinical processes enabled by advanced IT. Simply
investing in IT to achieve this redesign and integration will not achieve it and
may not support it. High-performance organizations that pursue an innovative strategy will find that the logic of this architecture is different from that

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currently being installed. For organizations that do not pursue clinical and
business process redesign, it will not make much difference what information
architecture they choose.

The Constraining Potential of IT

Increasing Resistance to Change
The cost of installing advanced IS applied to old business and clinical
processes or structural assumptions might be greater than simply the loss of
investment. Healthcare organizations have been designed historically
around independent functional structures, as depicted in Figure 1.1. Early
IT applications to clinical support areas were on a functional or departmental basis such as laboratory, nursing, pharmacy, and radiology. Each function
had its own information system with its own purpose, logic, architecture,
and data structure. The next generation of IT linked these disparate systems
into common data architectures, databases, and integrated processes. This
phase of development is typically built around the EMR and clinical support
systems that draw on the clinical support departments. Developing an integrated system to support clinical services has proven to be a complex task
because the purpose or use of data underpins the logic of the architecture.
Changing the logic of the system into one that serves each functional area
and the overall organizational purpose is difficult.
Although clinical IT systems are becoming integrated, they are designed to
integrate processes that are functional in nature, consisting of lateral data
models with interface structures. As discussed earlier, investment in IT systems will not stimulate clinical process redesign. Such investments will likely
further inhibit such change, as they tend to further institutionalize or freeze
existing processes into place. Organizations that have made large IT investments might have more difficulty undertaking process redesign because they
will have to redesign both the clinical process and the data system to support
it. This makes the process of change more difficult, as existing processes are
more rigidly structured and there is a reluctance or inability to abandon the
large investment in IT to start again. Instead of the CIO being a change advocate, he she will tend to resist change.

Clinical IT

A parallel IT development is occurring on the business side of the organization by automating existing purchasing, materials management, engineering,
and other functions. There is greater probability of success undertaking business process redesign because it occurs on the business side of the enterprise
and is under the control of management. The lagging development in this
area is difficult to explain but probably results from a number of factors.
First, healthcare organizations have not been forced to undertake business

Business IT



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process redesign because of the ability to solve financial problems by securing

more favorable reimbursement rates. Second, the structure of the health industry as small, independent units has been a constraint on the power they
bring to the table in restructuring the business value chain with suppliers
(Davis 1991). Large integrated health systems have been more aggressive in
business process redesign. Third, health managers in small institutions might
lack the skills to lead an effective strategy to redesign business processes. Their
training is more oriented to the administration of internal operations than to
transform operations.
Evidence shows that business process redesign is progressing at a faster
rate than clinical process redesign. This is understandable given the skepticism
as to whether clinical process redesign is a legitimate area of responsibility of
the organization and the fact that changing it will involve enlisting highly independent professionals in the process. This will require a new leadership
structure, with clinical leaders who understand the complex nature of organizational change and are committed to it. Managers might logically decide that
they will focus on the business process and avoid clinical process redesign or
delay it until business process design has been further developed. This strategy will inherently lead organizations into the same suboptimizing trap
through investment in redesigning business processes and an information architecture that will then have to be unfrozen and redesigned to integrate with
subsequent clinical process redesign. These will ultimately become integrated
processes within the organization and cannot be considered independently in
the short term.

Enlightened Organizational Change

The nature of change needed in healthcare organizations and the health system is easily described but very difficult to achieve. Toffler (1980) captures
the essence in The Third Wave: in the technology and information age all assumptions about existing processes, structures, and even theories are no
longer valid. Leaders must envision a totally new order based on the power of
IT and the assumptions this technology makes on the existing order. It will
not be possible to incrementally derive this new order on a function-by-function or project-by-project basis; it will have to be envisioned by top leadership
and instilled throughout all facets of the organization. The design of fundamentally new processes and systems to support them will be carried out by
transformational leaders.


The concept of transformational leadership is now popular in training programs but is at best difficult to apply and generally misunderstood. It is a powerful concept, which assumes both vision and skills to implement solutions.
Transformational leadership must start from the top and enlist others throughout the organization. It is difficult to envision a transformational leader as a department director functioning within a structured and controlled environment.

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Leadership training at the departmental level cannot be understood within the

context of existing processes and systems without producing considerable
frustration and ultimately failure.
The process of envisioning a new future should not be considered a
fanciful diversion or intellectual exercise. The visioning function enables leaders to fix clearly for the organization how it can position itself to achieve exceptional levels of performance in clinical quality, patient satisfaction, and efficiency. In doing so, there must be sufficient commitment throughout the
organization to the mission and a willingness to give up traditional beliefs and
ways of doing things. The vision must enlist transformational leaders from
throughout the organization to put in place new processes and structures for
achieving the ideal. Information technology must be designed to enable this
change and will in large part be the basis for the design. Leaders, however,
must avoid the trap of thinking that the investment in IT will produce the
change; it will not.
The design of the information architecture will be based on lateral
clinical processes and data models, interconnected systems, knowledge-based
systems, and integrated communications (Broadbent, Weill, and St. Clair
1999). The change process will have to be carefully planned and implemented to be successful, requiring considerable time, dedication, and resources. One strategy might be to implement process redesign in one clinical
area and then extend the model and lessons learned to other clinical areas.
Such a phased strategy, while incremental, allows adequate IT support for the
process, early successes on which to build, pride on the part of those implementing systems, and institutional learning.
To achieve this outcome several pieces of the organization must be aligned.
First, the governing board must fully understand and be firmly committed to
supporting and investing in the transformation. The board will have to assume risks and transformation in its own right (Pointer and Orlikoff 1999).
The leadership team will likely need technical expertise in clinical medicine,
IT, financial management, and human resources management. All members
of the team will have a good understanding of organizational strategy and
change, IS, and clinical performance. The CIO must be able to both envision
the future and lead the development of process redesign and structural
change. The return on investment in IT will be measured by the value of the
clinical outcomes and patient satisfaction, not merely by efficiencies resulting
from automating back-office functions.

Information Skills for Health Systems Leaders

The skills necessary to participate in IT decisions include a basic understanding of IT and capacity, organizational structure and function, clinical outcomes



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measurement, quality assessment, organizational leadership, and change. Figure 1.2 provides a brief description of specific technical skills important to leading change in healthcare organizations. The integration of the four technologies shown in the figure provides the potential for generating real value.
Without an appreciation of basic technical aspects of IT, executives cannot envision what is possible. Without organizational skills, the technology
cannot be applied.
In addition to general skills identified in Figure 1.2, a need exists for involvement of individuals with a mastery of specialty skills including informatics, medicine, nursing, finance, human resources, and management. These
skills will not be contained within a single person, but rather will come from a
team of organizational leaders. Each member of the top executive team will
bring his or her own technical expertise but must also bring a basic knowledge
of IT and its use in transforming organizations. The CIO is in a key position
to lead this transformation. The CIOs organizational and management skills
might be as important as any technical skills in this case.
In addition to specific and shared technical skills, the top executive team
must have accomplished leadership skills (see Figure 1.2). They must be able
to transcend their own professional and technical areas to understand the complexities of the organization and communicate effectively using expert interpersonal skills. Their work will be characterized by vision, developing conceptual models, spanning boundaries, communicating, negotiating,
compromising, and risk taking (Kanter 1989). Individuals selected for top executive positions should, first and foremost, demonstrate a high level of organizational skills. High levels of technical informatics skills are not enough and,
if combined with the desire to control and exert power, will be destructive.

This chapter explores the role of IT in transforming work processes in health
organizations. Historically, IT has been oriented more toward automating traditional business and clinical processes than transforming them. These applications view IT primarily as a technical activity, and the staffing of IT departments has reflected this orientation. Although complex in itself, applications to
automate traditional business and clinical processes are relatively simple compared to transforming these processes.
Increasingly, advanced IT systems have focused on integration within
clinical functions, within business functions, and between business and clinical functions. Integration of disparate IT systems has been difficult to achieve
because of issues of database vocabularies and standards and that existing information systems have been customized to specific uses. While these technical problems have been addressed and are being resolved, organization are

I n t ro d u c t i o n : T h e Ro l e o f I n f o r m a t i o n Te c h n o l o g y i n Tra n s f o r m i n g H e a l t h Sy s t e m s

vocabularies and
lexical technology
Databases and
Clinical decision
support systems
systems and


Medicine and

Work process

Clinical outcomes

structure and

Clinical process

Risk and

Role of the

and interpersonal
vision and
conceptual skills
Risk taking

Complex adaptive

E-health and

finding that the integration of processes requires profound organizational

change, including structures, processes, behaviors, and, to some degree, culture. These changes are transformational in nature because they do not evolve
from old processes but require new conceptual models of organization and
work processes.
The transformation of clinical and business processes will require the
application of advanced IT, although IT alone will not produce it. Change in
the operations and strategies of organizations using advanced IT will require
a leadership team with a common basic set of skills and appreciation of organization design and change, IT clinical processes and outcomes, and leadership, as well as advanced skills in these areas by members of the top leadership team. If health systems apply the lessons learned in other service
organizations, their potential reward will be achieving exceptional levels of
clinical quality and business efficiency. The remaining chapters in this book
explore in more detail the complexity and rewards of this undertaking.

Questions for Discussion

1. Give examples of how IT has affected business operations in industries
such as banking and finance, transportation, and mass communication.
2. Why have healthcare organizations lagged behind other industries in
the application of advanced IT to transform work processes?
3. Discuss the relationship between investment in IT and the use of this
technology to transform business and clinical processes.


Skills Needed
by Health
Leaders for IT


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4. Differentiate between process improvement and process redesign, and

give examples of each using both business and clinical applications.
5. Apply the value chain concept to both the business and clinical functions of hospitals and integrated health systems.
6. Discuss the relationships among the EMR, clinical decision support systems, and clinical process redesign.
7. Why would the board of directors of an integrated health system become
involved in the acquisition of an EMR and its decision support capability?

1. Six Sigma quality is a data-driven approach to the analysis of the level of
quality achieved in manufacturing or service process. It is a statistical
representation of defects per volume of activities performed. Six Sigma
level of performance would be achieved if 3.4 defects occurred per million activities completed.

Andersen, T. J., and A. H. Segars. 2001. The Impact of IT on Decision Structure
and Firm Performance: Evidence from the Textile and Apparel Industry.
Information & Management 39 (2): 85100.
Broadbent, M., P. Weill, and D. St. Clair. 1999. The Implications of Information
Technology Infrastructure for Business Process Redesign. MIS Quarterly
23 (2): 15982.
Burns, L. R. 2002. The Health Care Value Chain. San Francisco: Jossey-Bass.
Byrd, T. A., and N. W. Davidson. 2003. Examining Possible Antecedents of IT
Impact on the Supply Chain and its Effect on Firm Performance. Information & Management 41 (2): 24355.
Caron, J. R., S. L. Jarvenpaa, and D. Stoddard. 1994. Business Reengineering at
CIGNA Corporation, Experiences and Lessons from the First Five Years.
MIS Quarterly 18 (3): 23350.
Chapman, T. L., A. Gupta, and P. D. Mango. 1998. Group Purchasing Is Not a
Panacea for U.S. Hospitals. McKinsey Quarterly (1): 16065.
Chen, Y., and J. Zhu. 2004. Measuring Information Technologys Indirect Impact
on Firm Performance. Information Technology and Management 5 (1/2):
Collins, J. C. 2001. Good to Great: Why Some Companies Make the Leapand Others Dont. New York: HarperBusiness.
Davis, C. 1991. Partnering in the 1990s. Hospital Material Management Quarterly 12 (4): 813.

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Erstad, T. L. 2003. Analyzing Computer Based Patient Records: A Review of Literature. Journal of Healthcare Information Management 17 (4): 5157.
Friedman, C. P., R. B. Altman, I. S. Kohane, K. A. McCormick, P. L. Miller, J. G.
Ozbolt, E. H. Shortliffe, G. D. Stormo, M. C. Szczepaniak, D. Tuck, and J.
Williamson. 2004. Training the Next Generation of Informaticians: The
Impact of BISTI and BioinformaticsA Report from the American College of Medical Informatics. Journal of the American Medical Informatics
Association 11 (3): 16772.
Furey, T. R., and S. G. Diorio. 1994. Making Reengineering Strategic. Planning
Review 2 (4): 613.
Hock, D. 1999. The Birth of the Chaordic Age. San Francisco: Berrett-Koehler.
Institute of Medicine (IOM). 2001. Crossing the Quality Chasm: A New System for the
21st Century. Washington, DC: National Academies Press.
Kanter, R. M. 1989. The New Managerial Work. Harvard Business Review 67
(6): 8592.
Keen, P. G. 1994. Every Managers Guide to Information Technology, 2nd ed.
Boston: Harvard Business School Press.
Kohn, L. T., J. M. Corrigan, and M. S. Donaldson, eds. 2000. To Err Is Human:
Building a Safer Health System. Washington, DC: National Academies Press.
Oliner, S. D., and D. E. Sichel. 2000. The Resurgence of Growth in the Late
1990s: Is Information Technology the Story? Journal of Economic Perspectives 14 (4): 323.
Pointer, D. D., and J. E. Orlikoff. 1999. Transforming Governance. In Board
Work: Governing Health Care Organizations, 23954. San Francisco: JosseyBass.
Porter, M. E., and O. Teisberg. 2004. Redefining Competition in Health Care.
Harvard Business Review 82 (6): 6579.
Richardson, J. C. 1989. Group Purchasing. Hospital Material Management
Quarterly 10 (4): 5156.
Shull, F. A., A. L. Delbecq, and L. L. Cummings. 1970. Organizational Decision
Making. New York: McGraw-Hill.
Spare, N. C. 2000. The Four Pillars of Wisdom: A System for 21st Century Management. Zumikon, Switzerland: The Swiss Deming Institute.
Toffler, A. 1980. The Third Wave. New York: Morrow.
Weed, L. L. 1968. Medical Records that Guide and Teach. The New England
Journal of Medicine 278 (11): 593600.
. 1970. Technology Is a Link, Not a Barrier, for Doctor and Patient. Modern Hospital 114 (2): 8083.

Further Reading
Christensen C. M., R. Bohmer, and J. Kenagy. 2000. Will Disruptive Innovations
Cure Health Care? Harvard Business Review 78 (5): 10217.



St ra t e g i c M a n a g e m e n t o f I n f o r m a t i o n Sy s t e m s i n H e a l t h c a re

Goldsmith, J. 2004. Digital Medicine. Chicago: Health Administration Press.

Montgomery Research, Inc. Health Care Technology: Innovating Clinical Care
Through Technology, Vol. 1. [Online information; retrieved 2004.]
Orilikowski, W. J., and S. R. Barley. 2001. Technology and Institutions: What
Can Research on Information Technology and Research on Organizations
Learn from Each Other? MIS Quarterly 25 (2) 14665.
Walton, M. 1986. The Deming Management Method. New York: Dood, Mead and
Walton, M. 1990. The Deming Management at Work. New York: G.P. Putmans



Enterprise strategy

Clinical strategy

Business strategy

Organizational strategy

Information strategy


art I focuses on organization strategy, which is defined as the internal structure and function of an organization. It deals with how an
organization selects and designs work processes to achieve its goals.
Internal operations of an organization provide the focus for Part I. These
chapters will address the ways healthcare organizations can apply information technology (IT) to achieve high levels of performance. Such performance requires the integration of business and clinical work processes, while
advanced IT enables system integration. Integration has proven to be difficult for two reasons:
1. The challenge of fundamentally redesigning clinical and business work
2. The technical complexity of achieving interoperability of information
systems (IS)
Chapter 2 provides a conceptualization of healthcare organizations,
describing the relationships among organizational strategy, enterprise strategy, and information strategy.
Enterprise strategy focuses on how organizations position themselves in
the market and adapt to external environmental changes.
Organizational strategy includes how organizations are structured and
function to carry out enterprise strategy.
Information strategy consists of how IT contributes to both organizational and enterprise strategies.
In high-performance organizations these three strategies are closely
aligned. Information strategy is considered as both a means of transforming
the organization internally and a means of positioning it externally to achieve
exceptional levels of performance. Part I examines the considerable potential
of advanced IT as a means of transforming healthcare organizations to
achieve exceptional levels of performance.
Organizational strategy in healthcare organizations consists of both
clinical and business functions. The clinical function makes up the technical
core of healthcare organizations and theoretically is their reason for being, at


T h e C o n t r i b u t i o n o f I n f o r m a t i o n Te c h n o l o g y t o O rg a n i z a t i o n a l St ra t e g y

least in not-for-profit and public healthcare organizations. Historically, the

nursing and medical functions have been structured around a professional
logic based on decisions of individual clinicians supported by their individual
knowledge base. The organization provided resources to support this dominant function but did little to structure it or systematically inform it. The
major operational focus of healthcare organizations was on business processes
including finance; human resources; materials management; facility design,
construction, and maintenance; and legal and governance processes. These
areas reflect the traditional competencies of health managers. Early applications of IT in healthcare organizations focused on these business functions.
Chapter 3 focuses on the shifting clinical strategies of organizations. It
examines how IT enables doctors and nurses to apply the latest evidence on
clinical decisions as the basis for altering decision behaviors. Decision behaviors that may be changed include
individual clinical decisions within existing clinical processes and
the redesign of the clinical process itself.
The application of informatics to the clinical function has increased
corporate responsibility for clinical outcomes and for the design of clinical
processes. Increased corporate responsibility for clinical outcomes has resulted in changing roles for health professionals in organizations and in their
clinical and business functions. This chapter presents
a conceptual basis for how corporate responsibility for clinical outcomes
will affect the design of the organization;
numerous applications of the effect of changing clinical decision behaviors and clinical processes on healthcare organizations; and
growing evidence to support superior clinical outcomes achieved from
clinical process redesign using advanced IT.
Superior outcomes are achieved through the confluence of information, clinical, and organizational functions.
Chapter 4 focuses on the changing business strategy by examining
how business processes are structured, coordinated, and controlled within an
organization. Specifically, this discussion is predicated on evidence that the
following two significant stimuli are changing business strategies:
1. IT has a direct effect on the design and performance of the business
function, enabling higher levels of performance.
2. Changes in clinical strategies are altering business strategies.
Case 1.1, on Health Valley Hospital, is an example of how IT enables
healthcare organizations to redesign processes and increase performance. In
the case of Healthy Valley, not only was the speed of the automated billing
process increased but also the process was redefined. This redefinition went

I n t ro d u c t i o n t o Pa r t 1

so far as to include coding as an internal function of the organization. Based

on the increase in performance enabled by IT in other industries, the potential for the successful application of supply-chain management and other
technologies in the health system is considerable.
Business strategy is also affected by changes in clinical strategy. Operational decisions require greater integration of IS and decision support. Information systems are changing from sources of data and information to
knowledge structures used in operational and strategic decision making.
Chapter 4 also examines the concept of the knowledge worker insofar as it
applies to clinical and support staff in healthcare organizations.
Chapter 5 focuses on the interoperability of IS as the basis for supporting the redesign of how clinical and business processes are structured,
coordinated, and controlled within an organization. It provides a technical
examination of the assumptions and requirements for integrating data within
the clinical function and between the clinical and business functions, such as
how data are converted into information and knowledge for clinical and
managerial decisions. The chapter includes examination of the following
issues of data representation and interoperability and the importance of
controlled terminology and ontology;
the Internet as an important vehicle for the exchange of data, information, and knowledge both within and between healthcare organizations
and their customers; and
interoperability and sharing of knowledge as requiring attention to the
behaviors of persons and interactions among individuals and groups in
the organization.
Knowledge management is an effort to capture, store, and transfer information embedded in processes and services within the organization. It
draws on both explicit and implicit knowledge to add value to operations and
strategy. Part I concludes with a consideration of the technical and social requirements for effective knowledge management.



Tamara T. Stone and Gordon D. Brown

Key Terms
Chapter Outline


1. The Strategy Network in Healthcare Organizations

2. Information Strategy Related to Enterprise and Organizational
3. IT as a Social Good


Learning Objectives
1. Be able to conceptualize enterprise, organizational, and information
strategies and discuss how they are interrelated.
2. Explain how enterprise strategy guides both organizational and information strategy.
3. Understand the systems-based approach to strategy development.
4. Formulate an information strategy for an organization as a means of implementing organizational and enterprise strategies.
5. Examine the discrete roles of IS, IT, and IM in information strategy.
6. Be able to discriminate between the value of IT to a given healthcare
organization and society in general.

Chapter Overview
This chapter describes the pressing need for strategic alignment in healthcare organizations to enhance the delivery of care and ensure long-term
competitive viability. Through the Strategic Integration of Healthcare Organizations framework, the reader is introduced to the guiding role of strategy in healthcare organizations and the need for organizational and information strategies to consistently align with systemwide enterprise strategy

systems (IS)
technology (IT)
chain of
Dual structure



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CASE 2.1
New IS at
Medical Center

The publicized benefits of computerized medical records have captured the attention of many healthcare organizations. With expectations that new IT could make
physician documentation and patient information maintenance easier, CedarsSinai Medical Center in Los Angeles felt that it was ready to implement a new computerized physician order entry system (Chin 2003). Managers devoted three
years to developing and implementing Patient Care Expert, an information system
designed to assist with patient registrations, billing procedures, and electronic
physician orders. Management felt that it was what the organization needed to
help it meet national objectives to reduce medical errors, improve quality of care,
and join the ranks of other organizations moving toward paperless practices.
Despite eliciting input from approximately 40 physicians during the design
process, implementation was received with an immediate, overwhelmingly negative response. Hundreds of physicians came forward, expressing rejection and disappointment that they had not been included in all phases of the integration plan,
from strategy creation through system design and implementation. Physician dissatisfaction over lack of input, as well as a number of system shortcomings identified after its implementation, forced the medical center to discontinue use of the
new system.
Physicians claimed that the new system did not mesh with their daily workflow and was extremely time consuming, sometimes adding two to three hours to
each day for manipulating a laborious sequence of screens to enter patient information. Furthermore, after this amount of time was spent entering the orders,
many were being lost in the system. These shortcomings resulted in a costly, unintended negative consequence for the center.
Problem Solving 2.1 discusses the lessons to be learned from the CedarsSinai experience.
Source: Adapted from Chin, T. 2003. Doctors Pulling Plug on Paperless System. American Medical News, February 17.

(see Figure 2.1). Case 2.1 illustrates the consequences of failure of sufficient
alignment in these matters. Highlighted throughout the chapter is the integral role of information technology. Because healthcare organizations rely
heavily on IT to perform daily operations, the quality of information strategy can significantly affect overall organizational performance. The discrete
roles of information systems (IS), information technology (IT), and information management (IM) are described in the context of setting a comprehensive information strategy.

The Strategy Network in Healthcare Organizations

Healthcare organizations are highly motivated to evaluate processes and procedures to deliver high-quality care and develop capabilities that lead to competitive innovations and promote the organizations long-term viability. There is a
need, however, for organizational efforts to move beyond individual, smallscale assessments and interventions to systemwide initiatives that enhance the

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Enterprise strategy

Clinical strategy

Business strategy

Organizational strategy

Information strategy

organizational environment and collectively make up the corporate culture.

Organizations can realize greater systemwide success than that produced by
segmented interventions when all levels of the organization engage in simultaneous assessment and process modification in a unified effort to improve delivery and quality of care. The fundamental enabler of such change will ultimately be information and knowledge provided by IS. This chapter presents a
framework that describes the effect of information technology and information strategy on healthcare organizations. This framework is called the Strategic Integration of Healthcare Organizations because it relates the organizationwide enterprise strategy with the clinical and business strategies and
information strategy (see Figure 2.1).
Effective organizations create an enterprise strategy that guides organizational and information strategies. Enterprise strategy identifies specific
objectives for the organization to achieve. To be effective, the organizational
and information strategy components must align with the enterprise strategy.
Organizational strategy consists of how the organization is structured and
how work processes are designed (Pearlson and Saunders 2001). Healthcare
organizational strategy includes two distinct components: clinical strategy
and business operations strategy. Healthcare organizations develop a principal enterprise strategy that generates action and process change in clinical
strategies (e.g., whether to initiate a womens health center), business strategies (e.g., personnel training procedures, billing procedures), and information strategies (e.g., procedures for technology design, integration, support). Effective enterprises maintain balance among these strategies and
create organizational and information strategies that reflect and support the
objectives and goals outlined in the enterprise strategy.
Each strategy is interrelated. Thus, any change in one strategy must
result in subsequent supportive changes in the other two. Modifications
made to information strategy and technology must support enterprise and


Integration of


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organizational strategies to maintain overall cohesiveness and collectivity of

objectives. Information strategy in isolation is not strategy, but rather just
technology. To be effective, it must be defined by enterprise and organizational strategy and fully incorporated into the process of strategic change.
Information strategy will not be effective if imposed top-down or in isolation.
Changes in enterprise strategy carry consequences, and failing to address this concept of strategy interrelationship will likely result in unintended
negative consequences. For example, an organization may adopt an enterprise
strategy objective to improve the coordination of services by providing clinicians with immediate access to pertinent patient information through implementation of an electronic medical record (EMR) system. If organizational
strategy does not align with the changes in enterprise and information strategy by enlisting clinicians in the process and providing them with proper
training, the result can lead to physician dissatisfaction. This can in turn have
a negative impact on providers interactions with patients and ultimately affect patient satisfaction, continuity of care, health outcomes, and overall quality of care. This example in Problem Solving 2.1 illustrates the importance of
aligning each component of the Strategic Integration of Healthcare Organizations with enterprise objectives and to make supportive modifications
where needed.
New IS at
Medical Center

The lesson to be learned from this case is that thorough analysis and detailed
processes that incorporate all levels and departments in the organization are
needed prior to and during each phase of an IS integration plan. Although a number of physicians representing a wide range of clinical specialties were involved in
the design and selection of Patient Care Expert, acceptance by other physicians
could not be anticipated. This is true of staff of organizations in general but even
more true of highly professionalized staff who bring a much more independent
perspective to the organization.
Two perspectives are represented in this case. First, IS are a technology
that enables work processes to be improved, and this requires change. Changing
work processes is difficult in any organization, particularly in highly professionalized areas such as health.
Second, not only are physicians the most professionalized group within the
organization but also their time is the most valuable to them and to the institution.
There must be assurance that the new IS is designed to support the clinical function by actually improving efficiency and quality. Information systems cannot be
designed only around a technical information architecture logic; it must also be
designed around a clinical logic. Is the issue one of just change (i.e., going from an
old process to a new one), or does the information architecture impede the efficient and effective work process? The issue of customization must also be considered. Does IT take the approach of one size fits all, or are the applications customized to physicians based on their individual preferences? Information sytems
can be standardized without having exactly the same formats.

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Enterprise Strategy in Healthcare Organizations

Enterprise strategy identifies the specific intermediate and long-term goals
and objectives of the organization. It is a detailed, well-defined plan for action, created by an organizations board of directors and selected individuals
in management, that describes distinct goals and outcomes that need to be
achieved for the organization to remain competitive and maintain long-term
viability in the industry (Pearlson and Saunders 2001). Enterprise strategy is
developed in light of an organizations mission and vision, and it guides the
actions and function of the organizational and information strategy components. It is the means by which an organization can leverage its presence in
the industry through the creation of goals that will allow it to exceed consumer demands and expectations or regain a strong market presence following organizational stress from external market pressures or internal crises.
Organizational leadership must adopt a systems-based approach in evaluation
and goal setting for healthcare organizations to develop enterprise objectives
aimed to increase capabilities and gain industry recognition (Mechanic
2002). This approach requires comprehensive knowledge of the organizations range of functioning, including activities that occur within specialized
departments, as well as how the enterprise functions within the healthcare
market. Leaders use a systems-based approach to develop integrated management strategies that are consistent with functions occurring at each organizational level.
The systems-based approach to enterprise strategy requires healthcare
leaders to consider the healthcare market as a whole. Identifying services that
are missing in a particular market can provide a pivotal opportunity to improve organizational competitiveness. Information can itself become an effective enterprise strategy by making services more available, better coordinated,
or higher quality. Effective enterprise strategy can (1) identify appropriate collaborations to conserve resources and capabilities; (2) support the development and implementation of technological advances for daily operations; (3)
help executives understand organizational resources; and (4) guide organizational strategy to enhance strengths and overcome weaknesses. A systematic
approach to enterprise strategy will provide healthcare executives with the
knowledge necessary to direct resources to high-priority health services and
incorporate securities into the organizational strategy to prevent or minimize
financial, societal, ethical, and regulatory risk. Effective healthcare leaders are
aware of changes occurring in their organizations environment and ensure
that the enterprise strategy is flexible and adaptive to the changes. The ultimate goal is to develop an enterprise strategy that supports the organizations
unique characteristics, strengths, and weaknesses, including all potential partners, supply-chain needs, and customers (U.S. National Institute of Standards
and Technology 2004).




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Healthcare organizations have always had as their dominant enterprise strategy a strong clinical orientation. Hospitals were primarily not-for-profit or
public, and the clinical function was their reason for being. Clinical services
were added if a public need was perceived. Hospitals had a strong business
function, but one subordinate to the clinical function. The business function was designed to support the clinical function by providing the greatest
range of services and the best equipment and staff possible. On the margin
almost any new clinical service, piece of equipment, staff, or IT added value,
and cost-based reimbursement provided the source of funds to support it.
Hospitals became growth oriented and the dominant institution in the
health system. Much public policy since the latter half of the twentieth century has been oriented to reducing the duplication of clinical services and
increasing operational efficiencies. Operational efficiencies have been fostered primarily through externally initiated financial incentives or regulatory
mandates. Public policy has approached improving clinical efficiencies primarily through financial incentives or regulating the business function, not
by managing the clinical function per se. While the clinical function has
been the dominant enterprise strategy of health organizations, the structure
and management of the clinical process (i.e. the clinical strategy) has remained primarily outside the operational responsiblity of the organization
itself (i.e. the organizational strategy).

Organizational Strategy in Healthcare

Enterprise strategy provides the foundation for organizational strategy. Organizational strategy includes the basic structure, processes, resource requirements, and procedure development that must be implemented for the
enterprise goals and objectives to be realized (Pearlson and Saunders 2001).
It includes detailed plans for action created by an organizations clinical and
business function managers. These plans describe specific processes and practices that must be implemented for the overall enterprise strategy to be
achieved. Organizational strategy defines the basic professional, clinical, and
business frontline practices that affect clinical quality and consumers impressions of and satisfaction with service delivery. Such a strategy is also designed
to ensure that all clinical and business departments are interrelated through
a common emphasis on delivering customer-centered care and services. In
short, organizational strategy describes the way departments must work together to improve care quality, efficiency, and effectiveness.


The business component of the organizational strategy encompasses all administrative, human resources, and support functions, including customer
service, billing and insurance claim processing, and marketing functions.
How a healthcare organization structures its basic functions will either support or impede enterprise strategy. For example, if a healthcare organizations

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patient billing procedures are inefficient and prone to errors, the result may
be patient dissatisfaction and possibly a discontinuation of care. These outcomes can be detrimental to the enterprise strategy that aims to increase the
organizations competitive edge and patient satisfaction. The poor billing
function, of course, can also weaken the financial position of the organization. When a healthcare organization creates enterprise strategy and implements a supporting information strategy, its organizational strategy must
align to create overall operations that are seamless and effective.
The dominant functions in hospital operations are the business and
support functions. Early organizational strategy applications focused on
repetitive processes such as payroll and billing. The management of the revenue cycle became and remains an important business focus of healthcare organizations and was supported by automated systems designed specifically
for that purpose. Financing became the most highly developed business
function because of the ever-increasing pressure on the organization to provide sufficient financial resources to support the clinical function. Services
were financed through cost-based reimbursement, allowing a flow of revenue to support the almost insatiable demand for services. The structure and
culture of hospitals and hospital systems reflect the strong financial orientation within the business function.
Hospitals are structured and function around a business logic similar to other
organizations in society. What differentiates them is how the enterprise strategy has been carried out through organizational strategy. The hospital is
characterized by a dual structure: one element for the clinical function, and
one for the business and support functions. The clinical function has been
structured to provide maximum autonomy for clinical decision making with
minimum corporate influence. This is a typical structure for highly professionalized organizations (Mintzberg 1979).
The clinical component of organizational strategy encompasses all aspects of patient care and has traditionally not been formally structured in
hospitals and integrated health systems. The clinical strategy has thus remained outside the influence of the organizational strategy. Structuring and
managing the clinical function have been considered outside the domain of
responsibility of the corporation. Hospitals developed strong functional
structures characterized by nearly autonomous medical staffs reporting to
the board of trustees through a weakly structured joint conference committee. Within the medical staff, physicians were given near autonomy in decision making (e.g., within the limits of the admitting privileges granted by the
board). The primary concern of the board was the qualifications of the individual physician. Qualifications were assessed based on education and certification by the profession. The organization was careful not to impose rules
or policies that interfered with clinical decision making. The structure and

differences in


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culture of healthcare organizations still reflect the separation of the clinical

function from the organizational strategy.


The maintenance of professional autonomy in organizations has been dramatically played out in numerous ways, including legal decisions and the design of corporations themselves. Although varying from state to state, legal
decisions over the years have upheld the doctrine prohibiting the corporate
practice of medicine, that is, doctors delivering clinical services as members
of corporations, including medical groups. The threat of the corporate practice of medicine has been a basic organizing principle for healthcare organizations.
The dominant business structure has resulted from the highly professional nature of healthcare organizations and fidelity to the independence of
professional practice. The clinical function has not been formally structured
within healthcare organizations, resulting in the need for considerable communication and coordination among all health professionals to support patient care. This lack of structure and hands-off approach within the clinical
process has probably contributed to clinical errors and high stress in the work
environment. Organizations viewed clinical strategy as consisting of clinical
support functions, including various business functions such as scheduling
and admitting, as well as clinical services such as laboratory, pharmacy, radiology, and therapy. These clinical support services were structured based on
a functional design. The enterprise strategy of the organization was frequently driven by clinical need or interest, not by the crucible of the market
or financial viability.

importance of

Organizational strategy in healthcare today must include both clinical strategy and business strategy, and these strategies must be closely integrated. The
clinical and business components cannot function independently, as their
processes must support each other. For example, the quality of employee
training and the nature of the environment in which employees work can
greatly affect how clinical care is administered. These components must engage in cross-functional interaction and networking to meet the enterprisewide goals and objectives. These components also determine how work
processes and procedures must be arranged, coordinated, and evaluated for
the organization to achieve the objectives identified in the enterprise strategy.
For a healthcare organization to develop a meaningful organizational strategy the clinical and business strategy components that can affect the enterprise strategy must be aligned. This alignment can only be achieved when
each of the following is systematically identified: (1) structure supporting
communication and workflow; (2) work environment supporting workers
who bring to the job appropriate personal qualities, knowledge, experience,
and skill levels; and (3) business processes and the accompanying systems of

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accountability. Finally, there must be an understanding of the organizations

culture including the perception of unity and capacity and openness to
change, growth, and development (Pearlson and Saunders 2001).

Information Strategy Related to Enterprise and

Organizational Strategies
A healthcare organizations information strategy must complement both the
enterprise strategy and organizational strategy. Information strategy technology can enable organizations to achieve enterprisewide goals and objectives
(Pearlson and Saunders 2001). Healthcare organizations, like many businesses, rely heavily on IT to perform daily operations. From scheduling patient appointments to conducting and reporting diagnostic testing, IT systems play a crucial role in making these services function smoothly and
effectively. In this way the quality of information strategy can either positively
or negatively affect a healthcare organizations quality of service and care.
A model presented by Earl (1989) suggests that an organizations
strategy consists of three interrelated components: IS, IT, and IM. Information strategy focuses on how information can be used to support and achieve
enterprisewide goals and objectives and how each of the three components
contributes to this effort. Information strategy defines what specific tasks IS
and IT need to perform and how the applications should be managed. The
IS component within information strategy refers to the entire information
structure inclusive of all technology, personnel, and management structures.
It includes, for example, the personnel, processes, and objects used to record
and store patient demographic information as well as the architecture and infrastructure that enable office assistants to record patient information that is
in turn used by clinical staff to assist in the delivery of care. Information technology refers to the hardware and software used to perform specific functions
and related vendor policies and technical standards. For example, it is the
technology a physician may use to access a patients EMR. Information management refers to the structure of communication and interaction between
and among IT specialists and users, and it includes procedures that allow IT
utilization to be convenient and organized. For example, IM specialists
would be responsible for creating a troubleshooting chain of command,
which would assist employees with IT questions via a contact help desk for
initial problem resolution and refer them to the appropriate personnel for assistance. Without all components of information strategy in place, IT utilization can become chaotic and jeopardize the organizations attempt to achieve
the overall goals.
As healthcare organizations begin to adopt a comprehensive information strategy aligned with enterprise and organizational strategy, successful



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models for development and implementation will be identified. Unfortunately, since the late 1980s many healthcare organizations have faced costly
consequences from pursuing a narrowly defined IT strategy without consideration of all organizational components. The technological imperative
mind-setpursuing technology for the sake of technology without aligning
with the organizational and enterprise strategieshas resulted in the implementation of technology without consideration of the need to change the
clinical or business process and the need for integrated support and change
in all organizational components (Ash, Berg, and Coiera 2003; Blum 2003).
Information strategy should be created after enterprise analysis determines where IS can support or enhance current clinical, business, and support practices or where IT advancements may be needed. Information strategy should be designed and structured to address a healthcare organizations
immediate needs as well as its long-term vision. Effective information strategies are initiated by leadership, who present an ultimate goal to be achieved.
Through collaborative discussion among enterprise, organizational, and information leaders, feasible options can be identified. Feasibility is determined
by identifying the factors that will be essential for success and whether each
organizational component can follow through on its role in the process. This
integrated approach to implementing objectives and processes is only successful after a thorough bottom-up evaluation of the organizations current
practices (Latham 1998). Clinical, business, and information staff can assess
the quality of procedures and activities occurring in daily operations, and this
information is brought before the chief information officer (CIO), as a member of the top management team, for thorough consideration before a proposed enterprise strategy is accepted or rejected.
Enterprise and organizational strategies guide IS development, followed by IT, which must then identify the organizations specific hardware
and software needs to achieve the principal goals and objectives. Information
strategy should consider current trends and the future direction of IT innovations and possibilities to identify potential risks or shortcomings that may
result from a proposed strategy (Latham 1998). A healthcare organizations
information strategy will define how communication and interaction will
occur for goals and objectives to be accomplished. It will assign responsibilities to IS, IT, and IM participants and inform enterprise employees of this
structure and how its use can maintain order and convenience in organizational processes.

Information Strategy and the Health Enterprise Function

A healthcare organizations information strategy should complement its enterprise and organizational strategies and support its current priorities. It should
also include upgrades and innovations that allow the organization to remain
competitive in the healthcare industry. However, information strategies must

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not be implemented simply because advances have been made in technology.

Information strategies should be calculated objectives that are supportive of
the organizations capabilities and vision (Latham 1998). The most essential
characteristic of effective strategy formulation is the interrelated existence of
enterprise strategy, organizational strategy, and information strategy. All components of the Strategic Integration of Healthcare Organizations must remain
aligned. Failure to maintain this alignment will result in lost productivity and
quality, which will continue until appropriate balancing actions are taken.
Such setbacks can be detrimental to an organizations long-term viability.

Supporting the Health Enterprise Function Using Information

Healthcare organizations are continuously faced with challenges caused by
fluctuations in the market and changes in political, financial, economic, and
social environments around and within the organization. To endure these
challenges the information strategy must incorporate details of the organizations ability to function in a long-term capacity. Information strategy must
include plans for troubleshooting, problem solving, and adapting to environmental changes. The plans must include a thorough investigation of outcomes and consequences that can result from implementing a proposed strategy and provide flexibility to address unforeseen circumstances. If these
long-term preventive steps are not incorporated into the information strategy, organizational leaders can find themselves constantly addressing shortterm consequences, which can lead to defensive management practices that
limit the vision of the organization.
An information strategy pursued in isolation of enterprise strategy will
result in the development of a sophisticated IT system overlying a dysfunctional health system. One example of an enterprise strategy objective for a
healthcare organization would be to make clinical quality its core competency and competitive advantage. To carry out this objective would necessitate an information strategy that requires physicians to use evidence-based information or provide patients with educational opportunities and programs
on disease management to promote patient empowerment. The clinical strategy would require structuring and managing clinical processes, and the information strategy would be the development and acceptance of clinical decision support systems. All aspects of the organization must be aligned. If the
information strategy becomes focused on IT, the organization will experience overinvestment, employee frustration, board exasperation, and chief executive officer and CIO turnover.
Information strategy must be created with specific, detailed actions,
policies, guidelines, processes, and procedures that must be implemented to
achieve these desired results, as illustrated by the following example. A healthcare organization may develop an enterprise strategy that aims to achieve



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superior quality of clinical services by developing disease management programs. This broad goal can be achieved by breaking it down into specific procedures, policy changes, and program developments that must occur in the
organizational and information strategy components. Strategists may first
choose one disease area on which to focus, for example, asthma. Information
strategists may then provide a description and information on associated costs
of a web-based program that asthma patients can use to access accurate educational information on asthma, a web-based message board for posting
questions and receiving feedback from other asthma patients, and an online
group discussion for patients to share concerns, experiences, and solutions on
how to cope with their asthma. Finally, clinicians and office staff may create
specific procedures for how to provide asthma patients with information
about the web-based opportunities and track patient utilization of office visits to determine any reduction in operational costs. While policies and procedures are the responsiblity of each organizational component, they must
complement each other. In this example the creation of procedures to track
patient office visits may require the assistance of information specialists to
modify a current system or create a new one to make tracking convenient. In
this way component strategy responsibilities and objectives may overlap.
Recent enterprise strategy in healthcare organizations seems frequently
to focus on IS and IT capabilities as if the technology were a strategy in itself.
Although IT has become a priority on enterprise strategy agendas, in itself it
cannot be considered a strategy. Any new software program that is developed
and implemented must align and be fully integrated with enterprise objectives
and be user friendly for organizational employees. A web-based program that
links patient EMRs to diagnostic and laboratory test results should be implemented only if this aligns with current enterprise and organizational strategies, which may have already established objectives relating to patient privacy
issues or physician satisfaction. While IT itself is not a strategy, the information that can be elicited, disseminated, and managed through technology can
become an integral strategic asset. Organizational knowledge made available
between and among departments and health professionals can be a valuable
resource used to create nationally recognized best practices and specialization
that foster an organizations competitive edge (Davenport and Glaser 2002).

The Future of IT in Enterprise Strategy

Evidence that clinical quality and efficiency can be increased through changing clinical strategy creates opportunity for healthcare organizations to integrate clinical and business strategies. The technology to transform clinical
strategy exists, and increased demands from consumers, government, and payers for health services will create increased pressure to change. The assumption of corporate responsibility for clinical outcomes as an enterprise strategy
raises inherent implications and challenges for organizational and information

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strategy. A clinical outcomes enterprise strategy cannot be considered without

a thorough understanding of its implications for the organization. However,
healthcare organizations will increasingly assume corporate accountability
for clinical outcomes both within the organization and in communities;
advanced IT provides considerable potential for enterprise strategy; and
IT has generated a value migration in health systems from institutionbased to knowledge-based clinical services.

Organizational Operations and Information Strategy

Just as enterprise strategy must be developed to address long-term goals and
objectives, organizational strategy must be developed to identify business and
clinical processes that need to be implemented to support such change. Information technology can provide many opportunities for supporting these
changes in business and clinical processes.
Information strategy developed as an important function within healthcare
organizations in the 1990s as a result of the rapid advancement in computer
technology and the Internet. The strategic approach was to develop and implement IT to overlay an organizational structure and strategy that were designed for a different era with a different set of assumptions. The application
of IT in healthcare organizations was understandably focused initially on the
business function. Later application to the clinical function made patient information available from medical records to assist clinical decision making.
The application of IT in healthcare organizations followed the development of the organizations themselves. Early applications were to support
business strategy, particularly in claims processing, billing and collections, and
payroll. Early IS were designed around the business function, and the IT office was typically under the chief financial officer. The IT systems that were
developed or purchased had a logic, architecture, and vocabulary based on
these functions. IS were frequently designed around specific operations
within the finance function, such as billing, rather than managing the revenue
cycle. As IT became more broadly applied to integrated business processes,
the IT systems had to be adapted. Most efforts at integrating systems were
projects to write interface programs to link one database and function to another. IT staff did not appreciate the fact that the logic and language supporting the various functions were not compatible. Healthcare organizations were
left with IS that were linked but not integrated. There has been insufficient
recognition that functional integration is not the same as system linkage.


The same evolution occurred to support the clinical function. There was a
significant lag in development of clinical IS because of the increased complexity of the task and the tradition and culture of the health professions to resist

The field of


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standardized information architecture. The application of information to

clinical processes was developed by the emerging profession of medical or
clinical informatics, which linked computer and clinical experts to design
ways of automating to support current decision processes. Medical informatics also contributed to the rapid development of medical imaging. These applications contributed to breakthroughs in building standard vocabularies
and integrated databases as well as considerable research on areas such as
human-computer interface. These applications were, however, oriented primarily to individual health professionals and existing decision processes.
These processes supported and became embedded in the existing culture of
healthcare organizations by automating existing decision processes. Much of
the research and application of clinical informatics retains this traditional


The application of computer technology to clinical decision making gave rise

to the concept of medical IS that utilized electronic data with real-time responses for patient data within one or more general medical centers (Collen
1995, 82). This technology supported clinical decision making but did not
change the structure of how clinical decisions are made. Information strategy has thus been superimposed over an existing organizational structure. Its
real power, however, lies in changing structure and in fact becoming the system structure. Information strategy thus changes from being a clinical or
business support function to becoming a driver for enterprise strategy, creating value chains with patients, other providers, insurers, and suppliers. Information strategy thus becomes the structure for managing the industry exosystem (Iansiti and Levien 2004).
Applications within healthcare organizations were built around the
structure and logic of existing services within a hospital or clinic. Clinical support systems in hospitals were initially department based, usually starting with
clinical laboratories and including radiology, pharmacy, nursing, and so on.
Later hospital-based systems connected the departments, but departmental
IS had their own logic and architecture, and creating a high degree of interoperability was difficult. As these hospital systems evolved into integrated systems, their architecture was distinctly hospital based. A similar evolution characterized IT systems in ambulatory clinics and medical groups. As IS started
to integrate hospital and ambulatory services, and later business functions,
the task was made more difficult because each was based on a different logic
and architecture. Even commercial systems that were extended to provide an
integrated information network were found to work well in the applications
for which they were designed and less well in other environments. These systems reflected the logic, architecture, and uniqueness of the system for which
they were built. The failure was that both purchasers of IT and vendors focused on the past, not the future, to design IS applications. They focused on

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existing processes to anticipate how IT would change both the clinical and
business strategies. Information technology was designed primarily to solve
yesterdays problems.
Changes in enterprise or organizational strategy can therefore have a direct
effect on a healthcare organizations information strategy. For example, consider the concern that originates in the organizational strategy component regarding patients extreme dissatisfaction with delays associated with the transfer of laboratory and diagnostic results to their medical charts. Consideration
of this concern might prompt the creation of an enterprise objective to improve communication between and among departments and prompt the creation of an information strategy to link laboratory systems to EMR systems.
Only through such interrelationships can a healthcare organization effectively
function. A change in one component must result in subsequent changes in
the other two.
All changes in information strategy processes and procedures carry
consequences. Unintended negative consequences are almost certain to result
if the effects that such changes have on other components of a healthcare organization are not evaluated. Thorough analysis requires input from representatives of all organizational components. For example, plans created to upgrade a patient information database without input from the IT and IS
specialists regarding costs could result in project termination because of insufficient funds to support the purchase of software licenses, staff training,
and other required items. This illustrates the importance for all components
to become actively involved in strategy development.

The Future of IT in Organizational Strategy

Restructuring the clinical strategy raises opportunities and risks that must be
carefully addressed. It would be a mistake to assume that clinical services are
simply a commodity and that clinical strategy becomes merely a business
strategy. Healthcare organizations are very specialized organizations that
must be structured and managed with fidelity to the patients and health professionals engaged in services delivery. Healthcare organizations must protect
the sacred trust, not destroy it. The clinical strategy of organizations will
change and be guided by theories and technologies of dynamic systems, organizations, strategy, work processes, and change as well as IT. Organizational leaders have to understand systems if they are going to change them.
Two great information challenges face the health system: first, to envision
what the future might be, and second, to change what exists. The latter challenge might be the more difficult one. Change will require new technology
and entirely new ways of thinking about organizational structures and business strategies. The enabling technology will be primarily IT. It is particularly
important to note that

Effects of



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the design of IS is driven by the business, clinical, and enterprise strategies of organizations;
investment and management of information assets should be based on
information strategy, not IT; and
healthcare organizations will assume responsibility for the clinical strategy and will restructure and manage the clinical process to achieve the
enterprise strategy of clinical quality and operational efficiency.

IT as a Social Good
The importance of IT health systems is increasing at a rapid pace. New technology allows healthcare organizations to make great strides in the delivery
and quality of care. IT examples include computerized medical records, inhome telemedicine care, the National Library of Medicine MEDLINE database, web-based programs educating patients and promoting disease management, and so forth. Clinical IT refers not only to large systems for recording
and accessing patient data but also to new tools such as wireless handheld devices, speech recognition systems, home monitoring devices, and other
equipment that improves care delivery (Crane and Raymond 2003, 62). Clinical technology today serves several functions, including the following (Crane
and Raymond 2003):

Assisting physicians with patient orders

Recording and managing laboratory and diagnostic testing
Prescribing and administering medications
Handling referrals
Providing physicians and patients with access to accurate health information to assist with clinical decision-making processes
Providing an organized location for administrative data and physician
notes and other documentation
Facilitating communication among healthcare personnel
Many benefits are realized from this technology, including increased
patient satisfaction and empowerment, more convenient and timely access to
patient and evidence-based information for clinicians, decreased costs through
reducing office visits and unnecessary testing, and increased physician satisfaction. Beyond benefits that accrue to individual patients, health professionals,
or organizations, health IT has value as a social good.
IT provides healthcare organizations, clinicians, and patients with
many beneficial networking possibilities. It creates opportunities for linking
patients and providers with current, accurate medical information that is essential for effective decision making and treatment (i.e., through web-based
data warehouses or national organization web sites such as the Agency for

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Health organizations will increasingly assume corporate accountability for

clinical outcomes both within the organization and in communities.
Advanced information technology provides considerable potential for
enterprise strategy.
Information technology has generated a value migration in health systems
from institutional-based to knowledge-based clinical services.
Health organizations will assume responsibility for the clinical strategy and will
restructure and manage the clinical process to achieve the enterprise strategy
of clinical quality and operational efficiency.
The design of information systems is driven by the business, clinical, and enterprise strategies of organizations.
Investment and management of information assets should be based on
information strategy and not information technology.
The power of information technology to link consumers and providers into an
integrated information network requires clear national goals and strategy.

Healthcare Research and Quality or National Institutes of Health to access

clinical practice guidelines). Information technology creates a forum for clinical research knowledge to be disseminated to and implemented by those
who can best use it. It also links patients with other patients to promote disease management, effective coping, and empowerment. Through telemedicine, IT gives patients access to care they may not otherwise be able to receive. Information technology also links providers with other providers and
clinical experts to strategize about care delivery and exchange knowledge.
Furthermore, IT links healthcare organizations to nationally recognized entities that can offer financial as well as technical support to the organizations
daily functions.
These opportunities create the possibility for healthcare organizations
to exist within an integrated information network. This network can provide
needed support to organizations in meeting national objectives to improve
healthcare and reduce medical errors. Only through national goals and strategy can this integrated network grow and become more efficient and effective.
As the benefits of information exchange become more apparent, increased national efforts will be made to encourage unity, collaboration, and networking
in the utilization of clinical information. However, full realization of the
power of IT to link consumers and providers into an integrated information
network requires clear national goals and strategy.
The potential impact of IT on the delivery of healthcare is obvious.
Regardless of whether the organization is a small, rural healthcare provider
or a large, federal agency, the principles of systems-based strategic thinking
must always be applied when considering new technologies. Figure 2.2 summarizes several key maxims for IT that have been presented throughout the

Maxims for



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chapter. As healthcare leaders begin to set system-based information strategy

in their organizations, these maxims serve as reminders of how the use of IT
can transform from the current state of healthcare delivery.

Healthcare organizations can achieve sustained competitive advantages by utilizing enterprise, organizational, and information strategies that stress their capabilities and satisfy unmet needs within the industry. Capabilities can be developed and nurtured when those fulfilling enterprise, business, clinical, IT,
IS, and IM functions within organizations are networked and encouraged to
engage in continuous learning and knowledge sharing. Because organization
functions are interrelated, new enterprise, organization, or information strategies that require changes to be made in any individual functions processes also
require appropriate corresponding adjustments to be made in the others.
Maintaining the balance of this interrelationship is essential for providing optimal quality healthcare and services. As new ways of delivering, managing,
and improving care continue to evolve, they will only contribute to the systemwide value of organizations and the social good if they consistently align
with and support the missions and values of each organizations strategic components and functions.

Questions for Discussion

1. What is the fundamental role of enterprise strategy?
2. What are some potential consequences of pursuing either organizational
or information strategy in isolation from enterprise strategy?
3. Why is it important for all components of the Strategic Integration of
Healthcare Organizations model to be interrelated?
4. What are the consequences of failing to fully integrate enterprise, organizational, and information strategies?
5. Why is it so important for business and clinical strategies to be fully integrated in organizational strategy?
6. Why must information strategy complement the enterprise and organizational strategies?
7. What are the specific roles of IS, IT, and IM in information strategy?
8. What are the potential consequences if the healthcare industry continues
to pursue a narrowly defined IT strategy?
9. What are some potential unintended consequences of changing information strategy without consideration of organizational and enterprise

I n f o r m a t i o n St ra t e g y Re l a t e d t o E n t e r p r i s e a n d O rg a n i z a t i o n a l St ra t e g i e s

Ash, J. S., M. Berg, and M. Coiera. 2003. Some Unintended Consequences of Information Technology in Health Care: The Nature of Patient Care Information SystemRelated Errors. Journal of the American Medical Informatics
Association 11 (2): 10412.
Blum, E. 2003. Paperless Medical Record Not All Its Cracked up to Be. [Online
article; retrieved 8/19/04.] American Medical News, February 17. www
Chin, T. 2003. Doctors Pull Plug on Paperless System. [Online article; retrieved
7/30/04.] American Medical News, February 17.
Collen, M. F. 1995. A History of Medical Informatics in the United States: 1950 to
1990. Bethesda, MD: American Medical Informatics Association.
Crane, R. M., and B. Raymond. 2003. Fulfilling the Potential of Clinical Information Systems. [Online article; retrieved 7/30/04.] The Permanente Journal 7 (1).
Davenport, T. H., and J. Glaser. 2002. Just-in-Time Delivery Comes to Knowledge Management. Harvard Business Review 80 (7): 10711.
Earl, M. J. 1989. Management Strategies for Information Technology. New York:
Iansiti, M., and R. Levien. 2004. Strategy as Ecology. Harvard Business Review
83 (3): 6878.
Latham, A. 1998. Strategic Information Systems Planning: A Necessary Evil for
Schools? Journal of Applied Management Studies 7 (2): 26774.
Mechanic, D. 2002. Improving the Quality of Health Care in the United States of
America: The Need for a Multi-Level Approach. Journal of Health Services
& Research Policy 7 (Suppl. 1): S35S39.
Mintzberg, H. 1979. The Structuring of Organizations. Englewood Cliffs, NJ:
Pearlson, K. E., and C. S. Saunders. 2001. Managing and Using Information Systems: A Strategic Approach. New York: John Wiley & Sons.
U.S. National Institute of Standards and Technology. 2004. Baldrige National
Quality Program. Health Care Criteria for Performance Excellence. [Online information; retrieved 7/15/04.]

Further Reading
Kangas, K. 2003. Business Strategies for Information Technology Management. Hershey, PA: IRM Press.



Gordon D. Brown and Suzanne A. Boren

Key Terms
Chapter Outline


1. Integration of Clinical Strategy with Business Strategy: The Coming of

the Corporation
2. Information Strategy: Clinical Decision Support Systems
3. Aligning Information Strategy with Clinical Strategy

Work process
Clinical process

Learning Objectives
1. Understand why healthcare organizations have become increasingly accountable for clinical outcomes.
2. Understand how accountability for clinical outcomes changes responsibility for clinical processes in healthcare organizations.
3. Analyze the assumptions clinical decision support systems make about
clinical decision making.
4. Redesign the structure of clinical processes consistent with the assumptions of clinical guidelines and pathways.
5. Formulate how healthcare organizations can apply clinical decision support systems and retain fidelity to the role of health professions in society.
6. Create a strategy for the application and use of clinical decision support
7. Compare alternative approaches to bringing about change in clinical
processes using advanced IT.

Six Sigma

Chapter Overview
This chapter explores changes in clinical strategy in healthcare organizations
resulting from increased organizational accountability for clinical outcomes


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and financial pressure for greater efficiency. Financial pressure for greater efficiency extends beyond operational efficiency to strategic positioning of organizations with regard to the market for clinical services and demand for
clinical and service quality. Accountability for clinical outcomes links business
and clinical strategies of healthcare organizations (see Chapter 2) and defines
information strategy. The ability of healthcare organizations to transform
themselves to become high-performance, accountable delivery systems depends on their investment in and application of advanced information technology (IT). Such an investment, however, will not in itself ensure this transformation.
Organizational accountability for clinical outcomes creates an inherent
accountability for clinical processes. Organizational leaders will draw on the
science of process-outcome relationships to provide evidence-based solutions
for achieving superior outcomes through process improvement. Organizational accountability for clinical outcomes and processes will change the relationship between health professionals and organizations. Figure 2.1 (see
Chapter 2) indicates the relationship between business and clinical strategy
and how they will both affect information strategy. Without change to the essential elements of organizational design and behavior, the investment in IT
will have limited effect.
Information technology can be considered an essential enabling factor
for organizational transformation but in itself will not produce the transformation. The investment in IT alone will have a limited effect on organizational strategy or outcomes and therefore limited return on investment. Managers must avoid the trap of thinking that major investments in IT will enable
them to achieve high levels of performance. An effective information strategy
should be considered necessary but not sufficient to achieve high levels of
clinical and business performance.
The empowerment of organizations through effective information
strategy has been demonstrated by industries such as banking and airlines.
These industries have had to change how work is structured and coordinated,
how jobs are defined, and how workers are evaluated and rewarded. This chapter explores changes in organizational design that will enable IT to be effectively deployed and how information strategy can become aligned with the
transformation of clinical strategies. The implications of information strategy
in healthcare organizations are explored as they affect existing assumptions
about tasks, work processes, and the role of health professionals. Case 3.1 illustrates these issues at a micro level with regard to chronic disease.
The chapter concludes by exploring how new clinical strategies will
change the internal design of healthcare organizations, affect business strategies, create new interorganizational linkages, and transform the role of organizations within the health system. New structures will take the form of
networks of structured information exchange, not hierarchical command
and control systems. Information strategy linked to new business and clini-

Organizational Accountability for Clinical Outcomes: The Coming of the Corporation

cal strategies will transform organizational and interorganizational design.

Information strategy will also be driven by changing relationships between
organizations and consumers, making it much more consumer-centric than
institution-centric (Brown, Bopp, and Boren 2006). The empowering nature of consumer information is reflected in the range of e-health applications. The effective application of IT in health systems depends on a mastery
of the dynamic relationship between business and clinical strategies and their
relationship to enterprise strategy.

Integration of Clinical Strategy with Business Strategy:

The Coming of the Corporation
Corporate Accountability for Clinical Outcomes
Paul Starrs (1982) seminal work The Social Transformation of American
Medicine concludes by recognizing the importance of the coming of the corporation in the U.S. health system. He chronicles the increased importance
of the corporation in healthcare delivery based on observations in the following five areas:
1. change in ownership from not-for-profit and government to for-profit;
2. horizontal integration of freestanding institutions and the rise of multiinstitutions;
3. diversification and corporate restructuring with subsidiaries functioning
in different healthcare markets;
4. vertical integration linking various stages and levels of care; and
5. increasing concentration of ownership and control of health services in
regional markets.
Based on his observations, Starr (1982) concludes that health corporations will be larger, more integrated, more diversified, and more competitive in the market. He makes a strong case for the increased importance of
corporations in the U.S. health system.
The decades since Starrs work have witnessed another, more profound
change in the role of corporations in the delivery of medical care. Healthcare
organizations are increasingly held directly accountable for clinical outcomes
and processes as well as business performance. Healthcare organizations have
historically been held accountable for clinical quality by input and process
measures such as the selection and retention of qualified professional staff and
providing them a supportive work environment. Organizational indicators of
quality included the training, certification, and continuing education of health
professionals. Public accountability for clinical outcomes in healthcare organizations has been through voluntary external review by professional agencies
such as the Joint Commission on Accreditation of Healthcare Organizations
(Epstein 1996).



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CASE 3.1
Chronic Care Is
a Continuous
Clinical Process

Dr. Johnson cares for many patients with diabetes in a thriving community-based
internal medicine practice. Today hes seeing Mary Parker, a 50-year-old patient diagnosed with type 2 diabetes two years ago. Dr. Johnson has a good rapport with
Ms. Parker and has been her primary care provider for the past three years. She is
always interested in new developments in diabetes care and has done some reading about diabetes on the Internet but, as she says, struggles to find the right information. Because of Ms. Parkers busy scheduleshe works full time and has
two children in high school and an elderly mother who needs additional assistanceshe never followed through with Dr. Johnsons recommendation to attend
ten hours of education with a certified diabetes educator.
Despite her lack of formal diabetes education, Ms. Parker understands the
importance of self-management. She checks her blood glucose level several times
each day and keeps a diary of her dietary intake and activity level. Ms. Parker has
brought to her visit the handwritten notes of her daily blood glucose measurements and diary for the past six months. Dr. Johnson reviews the numbers; some
are normal, but many are high. He asks his nurse to make a photocopy of the blood
glucose measurements and diary for the chart. Dr. Johnson knows from his notes
in the chart that Ms. Parker has been having her hemoglobin A1c (HbA1c) measured
quarterly, but the last measurement in the chart is from nine months ago. Ms.
Parker confirms that she did have blood drawn for the HbA1c test three and six
months ago. Dr. Johnson checks the electronic lab results reported on the computer and finds the HbA1c results from six months ago; the value from three
months ago is missing. All of the available readings for the past year are greater
than 8.0. Dr. Johnson sorts through his old handwritten notes on the criteria for referring patients with diabetes to a specialist and recognizes that it may be time to
refer Ms. Parker to an endocrinologist for additional professional input.
Dr. Johnson continues the visit by confirming that a dilated pupil retinal examination and a lipid profile have been measured in the past year but tells Ms.
Parker to go ahead and schedule those tests again in the next three months. Next,
Dr. Johnson examines Ms. Parkers feet and concludes the visit by mentioning that
her blood pressure is normal and there is no protein in her urine today. Dr. Johnson

Direct accountability for clinical outcomes within healthcare organizations was primarily through health professionals themselves. Accountability by
professionals has been the traditional role of the professions in society (Freidson 1994). Highly institutionalized clinical services such as surgery are monitored and managed through reporting incidents such as nosocomial infections
and postsurgical wounds. In general, clinical outcomes were not measured or
monitored as part of the domain of organizational responsibility.
The shift of organizational accountability to clinical outcomes was stimulated by the managed care movement of the 1970s with capitation-based financing. Capitation-based financing allowed insurance companies and corporations paying insurance premiums to shift the focus from clinical services to
clinical outcomes. Clinical outcome measurement and reporting have been
developed by agencies such as the National Committee on Quality Assurance.

Organizational Accountability for Clinical Outcomes: The Coming of the Corporation

then writes on a piece of paper that Ms. Parker is to schedule an appointment with
Dr. Smith at the Diabetes Center in the next month and schedule a dilated pupil retinal examination with Dr. Wright in the next three months. Dr. Johnson asks his nurse
to copy and forward relevant clinical values from Ms. Parkers chart to Dr. Smith. Dr.
Johnson hopes that the information will arrive at the appointment.
Before Ms. Parker leaves she asks if it would be useful for Dr. Johnson to
receive the blood glucose and diary information in an electronic form. She says
she has read about new glucose monitors that have the ability to store blood glucose levels, which can then be downloaded into an office-based information system to assess the patients blood glucose over time. She has also read about
handheld diabetes diaries. Dr. Johnson confesses that while her suggestion is
great, he would have no way to incorporate this electronic information into his
paper charts.
Dr. Johnson sees four more patients with diabetes that same day. Unfortunately, most of them do not have the same high level of self-management skills as
Ms. Parker. Reviewing and remembering all of the important elements of quality
diabetes care is tedious and time consuming for both the patient and the physician. One of these patients was referred to an endocrinologist at a nearby academic health sciences center two weeks ago, and Dr. Johnson was pleased to receive a letter on the referral. It suggested providing individualized medical
nutrition therapy under the guidance of a registered dietician to assist in achieving treatment goals. The endocrinologist also recommended performing the HbA1c
test at least quarterly because the patient was not meeting glycemic goals. Dr.
Johnson noted that nutrition therapy was already being aggressively pursued and
felt that the referral did not really add much to the treatment plan.
Problem Solving 3.1 discusses an example of clinical process improvement
related to diabetes management.
Stephen A. Brietzke, M. D., associate clinical professor,
Cosmopolitan International Diabetes and Endocrinology Center,
University of MissouriColumbia

The federal government, through the Centers for Medicare & Medicaid Services (CMS), is the largest payer for health services and is starting to demand
improved clinical outcomes and experiment with incentive programs to reward high quality (U.S. CMS 2004). Increased organizational accountability
for clinical outcomes has caused healthcare organizations to examine more
closely the nature of clinical outcomes measurement, variation in clinical decision making, and clinical processes improvement. Clinical leaders in healthcare organizations must understand these principles to develop an effective
clinical strategy for the organization.

Drivers of Corporate Accountability for Clinical Performance

The increase in corporate accountability for clinical outcomes is the result
of a number of factors including increased concern for costs and quality by



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insurers and consumers and the evolution of clinical quality as a competitive

organizational strategy. Accountability by organizations will derive from increased regulation, financial incentives, competitive market forces, or a combination of all three. The movement is enabled by advances in both management systems and IT. Advances in evidence-based management technology
have been demonstrated in other industries, where high outcome levels have
been achieved through process improvement. This technology has been applied in product and other service industries to achieve Six Sigma levels of
quality but is only starting to be applied to health services. Six Sigma is a statistical representation of defects per volume of activities performed. Six Sigma
level performance is achieved when 3.4 or fewer defects occur per million activities completed. The second and more powerful technological development is the application of IT to health services. Information technology enables measuring and reporting outcomes, process-outcome relationships, and
managing complex clinical processes across health professionals, organizational units, organizations, and systems. Information technology provides
the means to examine clinical variation; it also enables clinical decision support to reduce such variation.

in clinical

Numerous studies have identified wide variation by geographic region in the

rate of utilization of health services for a given diagnosis (Chassin et al. 1986;
Wennberg and Helsohn 1973). The Dartmouth Atlas of Health Care (Center for the Evaluative Clinical Sciences 1999) also provides several examples
of the remarkable variation in how healthcare resources are used. Variation in
clinical utilization is expected given a number of factors related to severity
(e.g., age, occupation, health status, family makeup), but this does not explain variation in utilization by geographic location. Unexplained variation
raises doubts as to whether utilization can be explained by differences in the
level of severity of medical conditions.
Variation in medical decisions raises questions about the degree to
which they are supported by the best available scientific evidence. Is the best
scientific evidence effectively provided to health professionals at the point of
decision making, and do they use it? Do organizations have the capacity to
provide the latest clinical evidence to health professionals? Are organizations
held accountable to ensure that clinical decision making draws on the best
available evidence? Where unexplained variation occurs, is it identified and
analyzed, and is an appropriate response taken? These questions raise important policy issues for organizations regarding their responsibility for clinical
decision making. The primary issue is not one of technology, but rather of
the traditional structure and culture of healthcare organizations that make
them reluctant to interfere with the clinical function. Many healthcare organizations do not recognize or accept the need to assume responsibility for clinical strategy.

Organizational Accountability for Clinical Outcomes: The Coming of the Corporation


Variation in clinical services can also be explained by individual patient

preferences. Variation caused by patient choice could be justified by healthcare
organizations and professionals as patient-centered care. Such variation might
not be considered a problem, or at least not the organizations problem.
Third-party payers do not find this response satisfying and increasingly look to
outcome measures as the basis for making contract decisions (Leapfrog Group
2004). The challenge is how the clinical decision process can be structured in
a way that maintains fidelity to the patient narrative and responsiveness to patient preferences and physician judgments but is sufficiently rigorous to
achieve maximum quality and efficiency.
The Institute of Medicines (IOM 2001) analysis of medical errors and patient
safety has increased the focus on accountability of healthcare organizations for
clinical outcomes. Issues addressed in the IOM report include defining errors,
standardizing measures to allow comparisons among institutions, and determining causation. An estimated 44,000 to 98,000 deaths occur each year
from errors, a figure that has captured the attention of the public, payers, and
leaders in the health system. Standardization of outcome measures is a corporate mandate for becoming accountable for clinical outcomes. Corporate accountability challenges the assumption that individual judgments are an appropriate basis for ensuring quality outcomes. Health professionals working
together, or corporately, have developed guidelines and decision support systems to change clinical decision making and improve outcomes.
The IOM 2001 report on patient safety concludes that errors result not
from the failure of individual health professionals but primarily from a breakdown in the clinical process. Based on this conclusion IOM suggests that
healthcare organizations adopt process redesign techniques demonstrated in
other industries. Work by Deming and others supports the notion that the
standardization of outcomes linked to the standardization of processes is an
effective means for organizational learning about process improvement (Walton 1986, 1990). Only through studying and improving clinical processes can
exceptional levels of clinical quality be achieved (see Problem Solving 3.1).
IOM concludes that improving clinical processes requires the application of
decision support systems and standardized clinical processes. The standardization of clinical processes is inconsistent with how health professionals have
been trained and practice and with how healthcare organizations have been
structured and managed; this situation will have to change. The application of
new IT is inextricably linked to the change in structure of healthcare organizations and behavior of health professionals. Changing structures and behaviors will be more difficult than developing new IT.

Reduction of
medical errors
and improved
patient safety

The changing role of consumers in society and in the health system is a third
force changing accountability of healthcare organizations. The values and



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Chronic Care Is
a Continuous
Clinical Process

Mr. Phelps, the practice manager, has met from time to time with Dr. Johnson to exchange some ideas about the use of an electronic medical record (EMR) system in
the clinic with the function of creating disease registries and report cards.
For some time Dr. Johnson has been thinking about upgrading his paperbased chart system to an EMR. Following his discussion with Mr. Phelps, he concludes that an EMR would be very helpful in creating forms, which can document at
a glance when the patients last HbA1c, microalbumin, and lipid profiles were performed. He recalls seeing demonstrations of EMRs at a recent medical conference,
and it seemed attractive to be able to create registries and report cards specific to
common diseases such as diabetes. If he could create shortcuts for the documentation process, that would give him more time to review results with patients, answer questions, and provide feedback and education. The report cards could be effective both in informing patients about important aspects of their diabetes disease
status and improving his own performance in caring for such patients. Dr. Johnson
would be able to use the report cards as his own just in time reminder to order
recommended tests and examinations when needed. It would also be great if the
EMR system provided links to the latest clinical practice guidelines and recommendations.
The following factors should be considered when assessing a potential innovation like the EMR and its effect on, for example, diabetes management:
Structure of the clinical processes, taking into consideration the elements of
time, location, and people involved
Where handoffs take place and where errors will most likely occur
Types of clinical evidence available through clinical guidelines for diabetes
care, using such sources as the National Guideline Clearinghouse
Whether the patient is interfering with the treatment process for this complex
and chronic disease
Whether all parties involved in the patients care can agree on the best course
of treatment given the evidence available
How a treatment protocol can be coordinated across individuals, time, and

interests of those consuming health services are changing rapidly, enabled

primarily by access to disease and genomic databases and information on
clinical evidence and institution quality metrics. Change in decisions about
how services are accessed and consumed increases the potential of the market as a powerful force demanding that healthcare organizations achieve and
systematically report information on outcomes and clinical quality. Increased
public interest in and ability to access information on clinical outcomes and
quality provide a market mandate for healthcare organizations to report on
clinical quality.
Consumer empowerment will require healthcare organizations to be
accountable for clinical outcomes. Organizations will be held increasingly accountable for clinical outcomes and for providing customized care to meet
individual demands. The market for health services will be transformed by

Organizational Accountability for Clinical Outcomes: The Coming of the Corporation

new competitive forces demanding quality indicators. In addition, health

services will change from a commodity to health information access. Information services will be evaluated in terms of accessibility, integration, customization, and the knowledge embedded in them. Health information will
be used as embedded intelligence that enables consumers to increasingly assume the role of coproducer of health, not just as metrics on clinical quality
(Brown, Bopp, and Boren 2006; Normann 2001). Knowledge management
becomes a strategic asset or enterprise strategy of the organization in addition to an operational strategy.

Standardization of Clinical Outcomes and Processes

Clinical effectiveness can be measured using inputs, processes, or outputs as
metrics. Product and service industries outside the health system have focused on measures of outcomes and process-outcome relationships. A rich
evidence-based literature exists to support work process redesign as a means
of achieving high levels of performance (Harry and Schroeder 2000; Spare
2000). Quality became the focus after World War II in response to market
challenges from international firms applying these same principles to achieve
Six Sigma levels of quality. Focusing on outcomes and process-outcome relationships enabled industry to create innovative models for manufacturers to
develop inbound supply management techniques and for retailers and customers to develop outbound supply chains (Burns 2002). The result was the
creation of supply chains, quality standards, best practices in industry, and
new theories about the nature of work and how it is performed.
Service industries were slow to apply techniques for outcome measurement and process-outcome relationships developed in product-oriented
industries, but these techniques are now widely used in financial, airline, and
other service industries (Harry and Schroeder 2000). The health industry has
been resistant to change based on arguments that health conditions and the
outcome of health services are individualized and difficult to standardize and
measure. If clinical outcomes cannot be reliably measured, processes for
achieving them cannot be systematically structured. The mandate for clinical
process improvement drawing on available science assumes a degree of standardization of outcomes and processes (Spare 2000).
Scientists have studied work process improvement in industries by
breaking down work into the basic units of task, job, work process, and outcome. Performance improvement is based on the assumption that improved
coordination of tasks will improve outcomes. Figure 3.1 identifies a model
developed by Mintzberg (1979) to describe how standardization can improve work outcomes. Mintzberg concludes that the coordination of work
can be improved by standardizing inputs such as skills of workers or using
standard units of measure, standardized processes such as classical assembly
line activities, or outcomes such as standardized product models and their



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(b) Direct Supervision

(a) Mutual Adjustment





(c) Standardization

Source: Mintzberg, H. 1979. The Structuring of Organizations, 1st ed. Reprinted by permission of Pearson
Education, Inc. Upper Saddle River, NJ.

quality or performance parameters. Performance improvement through standardizing outcomes allows better quality measurement and comparison. Improved quality measurement and comparison allow for quality control and organizational learning about improving processes. By standardizing processes,
the relationship between process and outcome can be scientifically measured.
Knowing the relationship between process and outcome provides the basis for
improving processes based on evidence. This assumption underlies the work
of Deming and others on process improvement to achieve Six Sigma quality
(Walton 1986, 1990). Coordination of work can also be achieved by standardizing inputs. The standardization of inputs enables everyone involved in
the work process to understand the base of knowledge, skills, and responsibility of each health professional. This characteristic of work design is deeply
embedded in the structure of healthcare organizations and systems. It constitutes the DNA of healthcare organization design.

Organizational Accountability for Clinical Outcomes: The Coming of the Corporation

Mintzberg (1979) applies his model to a range of industries and concludes that the nature of work varies by industry; therefore, optimal structures
for carrying out work differ by industry. Highly professionalized industries traditionally have had difficulty standardizing outcomes and processes and tend
to standardize inputs (Mintzberg 1979, 34879). This has been characteristic
of the health industry, and one need only visit a hospital or clinic to readily
observe the phenomenon. The level of knowledge and competency of health
professionals is represented by academic degree, professional certification,
title, dress, and privileges. The standardization inherent in the training and licensing of health professionals serves as the basis for coordinating work
processes. Work processes consist of handoffs between specialized professionals, departments, and institutions. The qualifications and responsibilities of individuals can be easily identified by their professional positions. Competency
is ensured primarily by the profession itself based on licensure and certification. The structure of the work process in the health industry is based on
handoffs from professional to professional. The clinical process consists of
linking disparate jobs.
Sociologists and organizational theorists over the years have concluded
that outcomes and work processes of professional work cannot be standardized. This is an assumption on which healthcare organizations and systems
have historically been structured. If it is true, the full potential envisioned by
those wanting to reduce medical errors and variation can never be achieved.
The concepts of Six Sigma quality and autonomous professional decision making are incompatible. The great challenge to implementing process improvement strategies is to change the underlying assumptions on which healthcare
organizations are structured. A growing body of evidence refutes the assumptions long held about the work of professionals. An example of attempts to introduce standardization into medicine occurred as early as 1893 with the
French Bertillon classification system (Collen 1995, 105). In 1948 the World
Health Organization first published the system as the International Classification of Diseases. While this effort focused on a classification system used to code
and classify mortality data from death certificates, it developed a standard vocabulary and became the first major contribution of medical informatics to the
advancement of medical science and health services delivery. A new revolution
is currently underway to develop measures for classifying health outcomes to
provide the basis for measuring and comparing clinical quality (Epstein 1996).
If clinical outcomes can be measured, there will be incentive to provide a degree of standardization of clinical processes used as the basis for quality improvement. Growing evidence supports the claim that clinical processes can be
standardized as a basis for improving clinical outcomes (Berwick 1991). This
science is enabled by the field of health informatics through the development
of large databases and rapid computing speed necessary to study causal relationships in a range of diseases. Informatics provides the basis for bringing to



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practitioners clinical guidelines and protocols that provide evidence-based solutions to complex clinical problems.
Mapping the human genome will increase exponentially the amount
of information and level of evidence available to health professionals. The integration of the genomic information with disease databases used in clinical
decision support systems will be a core technology in health. There is clearly
much to be done technically in health informatics, bioinformatics, evidencebased medicine, and genomic medicine to bring to full measure the potential
of these merging sciences. At the same time, much existing technology and
knowledge are available but not being used by health professionals and organizations. The gap in using what we know is not one of technology but of
its application in complex healthcare organizations that were structured
under a different set of assumptions. The following section introduces some
of the issues needing attention in health systems.

Clinical Strategy and the Coming of the Corporation

Clinical decision support systems designed to change clinical decision making and processes must strike a delicate balance among the forces of individual choice, professional judgment, and organizational accountability. Merely
raising the question of balance acknowledges the subtle but significant shift
in the healthcare landscape. If healthcare organizations are accountable for
outcomes, they will inherently assume responsibility for clinical processes;
hundreds of years of tradition and beliefs about how clinical decision making
is carried out within corporations will need to change.
The challenge to healthcare organizations is to strike the appropriate
balance through leadership by health professionals. Change that maintains
traditional managerial structures based on hierarchical command and control
systems will not be effective. Professional corporations should not usurp professional judgment and control, but rather provide an environment in which
health professionals come together in teams to adopt their own evidencebased clinical solutions. Clinical decision support tools should provide alerts
and reminders to professionals and consumers as well as knowledge systems
based on the latest clinical evidence. Professionals in healthcare organizations
might develop clinical guidelines internally or import and adapt them. Embedding knowledge in information systems (IS) will transform the role of the
health professional and the structure of the clinical process.

Information Strategy: Clinical Decision Support Systems

Health informatics has the potential of bringing to the point of clinical decision making the relevant clinical history of patients, reminders, alerts, clinical guidelines, evidence-based solutions, clinical pathways, and best clinical

Organizational Accountability for Clinical Outcomes: The Coming of the Corporation

practices. Decision support can be divided into clinical guidelines and clinical pathways. Decision support can vary from compiling and reporting patient information to bringing various levels of evidence to support a diagnosis and course of treatment. Knowledge systems retrieve, process,
analyze, and report information gathered from clinical trials to bring the
best clinical evidence to the point of the clinical encounter. They might
also include clinical judgments that incorporate experience and values. The
ways in which clinical decision support systems are applied depend on the
clinical strategy of each organization. They might be optional for physicians, or their use might in fact constitute the clinical strategy.

Clinical Guidelines: Decision Making at the Point of the Clinical

Clinical decision making can be viewed from a micro perspective, at the
point of a given clinical encounter, or a macro perspective, the overall clinical process. The encounter can be equated to decisions made by an individual health professional and the clinical process to the perspective of decisions made by all professionals during an episode of patient illness. A clinical
encounter can be considered a clinical process if a patient has a single encounter with a health professional and after treatment regains health and
leaves the system. If the patient has a chronic condition, the process might
be continuous, involving many professionals, organizational units, organizations, and public sectors, as discussed in Case 3.1. Changing decisions for a
clinical encounter is inherently more simple than changing a clinical process
because the former can be done in a given time and place and for a given
health professional. If welfare becomes an organizational goal, all clinical
processes become continuous.
The clinical encounter is considered from the perspective of an individual
health professional interacting with a patient. Historically, decisions at the
point of the clinical encounter were carried out within the domain of the
health professional to preserve the doctor-patient or nurse-patient relationship. Organizations have been structured to avoid interfering with this
process and preserve the autonomy of the health professional and patient in
the decision-making process. Even nurses employed by hospitals are afforded a high degree of decision-making autonomy both individually and
Clinical decision making is not carried out entirely without influence
from external forces; for example, finance and regulations have increasingly
affected clinical decision making since the 1950s. The autonomy of clinical decision making was significantly altered in the 1920s with the initiation of private insurance that paid for hospital care. For example, private
insurance provided incentives to hospitalize patients. The benefit package

The clinical



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of insurance products thus influenced to a varying degree the clinical decision. Insurance reflects the business strategy of the organization starting to
influence, albeit indirectly, the clinical strategy. The term third party identified an important institutional influence on the patient-practitioner relationship; it did not have a positive connotation with physicians and was viewed
as interfering with clinical decision making.
Private insurance and later social and public insurance mechanisms
were designed around the existing structure of the health system and clinical
decision making. Insurance principles were based on fee-for-service, where
the patient has freedom of choice of physician, hospital, and services. While
clinical decision making was influenced by benefit packages and financial incentives, considerable decision-making autonomy continued to be afforded
to health professionals. Insurance payment for services did alter the clinical
decision behavior, but not the structure of the clinical decision-making
process. Cost-based reimbursement allowed for the maximum level of professional decision-making autonomy. External incentives and rules, however,
became part of the business strategy of healthcare organizations.
Capitation as an alternative to fee-for-service financing increased in
importance in the 1970s. The managed care movement was the initiative of
the industrial community, stimulated by the rapidly rising costs of healthcare
and the unexplained variation in service utilization. Insurance companies
took the initiative to create new financial incentives as well as externally imposed rules on clinical decision making as a means of decreasing the excessive
use of clinical services.

behavior at
the point of

Capitation financing imposed external rules to change clinical decision making. Early approaches to managed care were rudimentary in nature and did
not allow a great deal of individual flexibility. Rules-based decisions were
broadly applied and included preadmission authorization or preauthorized
procedures. Financial incentives included withholding a portion of the capitation fee to create an incentive pool, which would be shared with the physician if performance standards were met. These approaches were not popular
with health professionals or consumers, and managed care as a concept lost
considerable favor with these groups. Health professionals criticizing the
manner in which they delivered services to patients became self-destructive as
a clinical strategy. Capitation as a financing concept has the potential of aligning financial rewards with clinical outcomes if providers assume the risks and
reap the rewards. Instead, capitation became an insurance overlay on a health
system designed around a different set of assumptions and was not effective
or popular. Changing clinical decision-making processes by external controls
is unpopular with both health professionals and consumers.
Clinical researchers in the 1990s examined how clinical behavior could
be changed using clinical evidence but preserving the decision-making auton-

Organizational Accountability for Clinical Outcomes: The Coming of the Corporation


omy of individual physicians (Balas, Boren, and Griffing 1998). Clinical

guidelines (see Figure 3.2 for an example) have the potential of achieving improved evidence-based outcomes without externally imposed rules or financial
incentives. The use of clinical guidelines was greatly facilitated by the application of advanced IS providing electronic reminders and alerts at the point of
the clinical encounter. The development of a commercially affordable electronic medical record (EMR) provided the potential database needed to write
decision rules based on clinical evidence. Acceptance of clinical rules-based decisions was enhanced because they were written by health professionals based
on clinical evidence and could be adapted by individual medical and nursing
staffs. Increased external control over clinical decision making and the development of computer applications for clinical decision making led to increased
interest in the development of clinical guidelines as an effective means of
changing physician behavior (Leape 1990). Clinical guidelines embed knowledge on evidence-based clinical decisions in IS and bring it to the point of the
clinical encounter in a form desired by the individual health professional.
Guidelines have the potential of structuring the clinical strategy of organizations in a less invasive way but depend on health professionals to develop and
use them. Health professionals are thus faced with the challenge of leading the
development of clinical strategy within organizations. Such a strategy cannot
evolve from traditional designs and behaviors because it constitutes a paradigm shift. To get there will require transformational leadership (Pointer and
Sanchez 2000).
Clinical guidelines have an underlying logic that draws on two factors.
First, they are based on the best scientific evidence, a logic that is familiar to
and respected by health professionals. The education of physicians and nurses

Adults and adolescents with type 1 diabetes should have an initial dilated and
comprehensive eye examination by an ophthalmologist or optometrist within
three to five years after the onset of diabetes. (B)*
Patients with type 2 diabetes should have an initial dilated and comprehensive
eye examination by an ophthalmologist or optometrist shortly after the diagnosis of diabetes. (B)
Subsequent examinations for type 1 and type 2 diabetic patients should be repeated annually by an ophthalmologist or optometrist who is knowledgeable
and experienced in diagnosing the presence of diabetic retinopathy and is
aware of its management. Less frequent exams (every two to three years) may
be considered with the advice of an eye care professional in the setting of a
normal eye exam. Examinations will be required more frequently if retinopathy
is progressing. (B)
*B indicates that there is supportive evidence from well-conducted cohort studies and case-control studies.
Source: American Diabetes Association. 2004. Standards of Medical Care in Diabetes. Diabetes Care 28 (Suppl. 1):

Guideline for
Screening and


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is based on evidence derived using rigorous scientific methods. Scientific evidence is a compelling argument for clinical decision support systems. Second,
clinical guidelines are developed by professionals and adapted by colleagues
who practice together and have mutual respect. The scientific rigor supporting clinical guidelines and ownership by professionals create great potential for
implementation and institutionalization of these decision-making tools.
Changing behavior depends on an understanding of and respect for the logic
supporting the change. Decision rules externally or internally imposed and
lacking the support of scientific evidence are less likely to be accepted and
The acceptance and use of clinical guidelines reveals important insights
into clinical decision behaviors. The acceptance of clinical guidelines depends
on a number of factors such as the level of scientific support provided and
how they are presented to clinicians (Balas et al. 1998). Guidelines supported
by clinical trials have been found to be most effective in changing physician
behavior in that they represent the highest form of evidence (Balas et al.
1998). This suggests that the presentation of clinical trials should include the
level of evidence supporting the guidelines. Guidelines based on expert judgments have been found to be less acceptable than guidelines based on clinical trials. Considerable individual physician variation as to the level of evidence desired also exists. This places additional requirements on IS that
enable health professionals to access additional detail if desired. For example,
a medical resident might desire more detail than a seasoned board-certified
physician. Other factors affecting the acceptance and use of clinical guidelines
include their availability at the point of decision making (Balas et al. 2000).
Factors such as the length of time health professionals are willing to wait for
a computer response to a query before abandoning its use as a decision tool
become important research questions. Acceptable waiting times have been
found to be measured in terms of seconds.
Research has revealed that summary and retrospective reports on clinical performance are less effective in changing behavior even though they are
widely used in organizations (Balas et al. 1996). A range of topics on humancomputer interface and data presentation has produced rich areas for informatics research. Findings from this research inform design and operational
decisions for computer applications in clinical decision making. At a more
basic level organizational leaders must understand the assumptions inherent
in the use of clinical guidelines regarding the traditional role of health professionals in organizations.
The introduction of clinical guidelines in healthcare organizations
gives rise to questions of organizational policy and design. Will the use of
clinical guidelines be optional for health professionals? Will guidelines be imported from external sources or developed by each professional staff for their
own use? If external sources are used, which ones will be selected, and on

Organizational Accountability for Clinical Outcomes: The Coming of the Corporation

what basis? Does external derivation of guidelines affect acceptance and use?
Will health professionals be allowed freedom to consistently deviate from the
guidelines, or will colleagues enforce strict review and compliance? What is
the balance between having clinical guidelines accepted and used and the freedom to interpret the appropriateness of the guidelines? These important
process and behavioral questions need to be addressed by health professionals, organizational leaders, and health services researchers in the development
of clinical strategy in healthcare organizations.
Organizational issues raised by the application of clinical guidelines include those of measuring clinical outcomes, requiring the standardization of
vocabularies, and creating databases to serve multiple users and purposes. The
organizational logic for clinical decision making is requiring changes in the
structure of the clinical process and the IS that support it. Evidence indicates
that clinical decision support systems produce improved outcomes, but evidence alone will not bring about health systems change. Information strategy
must be aligned with the new organizational strategy, specifically a new clinical strategy. Clinical process redesign is new territory for managers because organizations have historically avoided dealing with the clinical function as an organizational strategy. Clinical guidelines and other clinical information
interventions assume the organization will take responsibility for clinical outcomes and strategy and will integrate clinical and business strategies. This is the
coming of the corporation in healthcare.

Clinical Pathways: Redesigning the Clinical Process

The concept of clinical decision making includes decisions at the point of the
clinical encounter and the sequence of decisions made within an episode of
care. The clinical process is considered to be the entire work process including diagnosis, treatment, referral, and follow-up care of a patient. While some
illnesses are characterized by a single encounter, increasingly care involves numerous health professionals, visits, and locations. This pattern reflects the
rapid increase in chronic diseases and increased interest in clinical outcomes
from a patient, not an institutional, perspective. For chronic illnesses the
episode of care is continuous. The clinical process covers the total number of
professionals, organizations, locations, and encounters involved in delivering
care (Charns 2000). When tasks and jobs become closely interrelated, as in
the treatment of an individual with a chronic disease, work must be carefully
coordinated across the work process. The Institute of Medicine (2001) identifies the breakdown of the clinical process across providers as a major cause
of medical errors, poor outcomes, and patient dissatisfaction.
The health system has historically managed work across the clinical
process through handoffs between health professionals. The process is loosely
structured by linking those professionals involved in the care of a given patient.
The patient or family is usually involved in the process, although sometimes

The clinical



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out of necessity, not by design. The clinical process has become more complex
because of the increased complexity and specialization of medical care and the
changing role of consumers. These factors, along with the rapidly increasing
numbers of chronic care patients within the system, are compounding the opportunity for errors.
The expansion of managed care in the 1970s introduced several new approaches to managing the clinical process. Early managed care plans required
that patients enter the health system through a gatekeeper, typically a primary
care physician. The logic was to discourage patients from entering the health
system through what were considered to be costly medical specialists. The
economies of this strategy have never been clearly documented, but these externally imposed rules did alter the clinical process. Other attempts to alter the
process include carve-out models in which specialized services such as mental
health were referred outside the health plan to specialty mental health services.
Patients could not access selected services, that is, would not be covered by the
plan, except through referral by physicians serving as gatekeepers for the plan.
Case management is another structure for managing the clinical process.
Case management coordinates services across a number of health professionals
by an individual or team of individuals. Case managers are usually nurses or social workers, depending on the nature of the case. This model typically has one
or two health professionals managing the case, consistent with the historical
structure of how clinical work in the health system is carried out. Work is coordinated in a case management model by a health professional with skills most
central to the case. The case manager controls the flow of the clinical process,
or the handoffs, from one professional to another. Case management does not
reengineer or standardize the clinical process, but rather assigns one individual
or team the task of coordinating the work process.

the clinical

One early attempt to standardize the clinical process was initiated in nursing
services (Zander 1992). It is instructive that a health professional, against all
conventional wisdom, decided it was possible to standardize processes for
nursing care in hospitals. Zanders early applications were for relatively simple
processes, within a single institutional setting, and for a single service. Surgery
was selected initially because processes were relatively well defined in terms of
technology, time, and territory. Standardizing the process meant that care
pathways were defined for a given diagnosis and applied to patients admitted
for that diagnosis. Care plans included preferred standard practices developed
from a population of patients and adapted to fit individual patients. Zander
and others accomplished what many said could not be done, that is, standardize a work process for highly professional staff.
The early work of Zander gave rise to the development of clinical pathways to a range of other clinical applications. Clinical pathways are an adaptation of the concept of critical pathways, analytical techniques that are wellestablished and broadly applied in product industries and increasingly in the

Organizational Accountability for Clinical Outcomes: The Coming of the Corporation

services sector. They have not been widely applied to healthcare organizations because of disagreements on standardizing clinical processes. The use
of the term critical creates certain sensitivities for health professionals, and
alternative phrases such as clinical pathways or integrated pathways have
been adopted. The term integrated pathways acknowledges that chronic
care frequently includes comorbidities that put patients on more than a single pathway (Hicks and Bopp 1996). Integrated pathways are defined as
clinical management tools that
organize, sequence, time, and coordinate the major interventions of
healthcare providers across the continuum of care for particular case
types or conditions and
bridge clinical specialties, functional departments, care settings, and organizational boundaries.
Clinical pathways can be developed by healthcare teams drawing on
the specialized skills of physicians, nurses, and other health professionals as
well as the involvement of the patient. They can standardize the process by
defining a medical condition and the type and sequence of services to be
provided, by whom, and when. They integrate information into a single
grid linking elements of the clinical process to organize, sequence, time, and
coordinate care. The standardized process serves as a basis for integrating
services and managing them over time, territory, and technology. Clinical
pathways are appropriately developed by teams of health professionals based
on the best clinical evidence. They do not reduce the importance of professionals in the caregiving process, but they do require that health professionals work in teams and assume a degree of standardization of the clinical
process. They are minimally invasive of the existing decision process but are
nevertheless invasive in that they reduce individual decision-making autonomy. Clinical pathways constitute a profound restructuring of the clinical
process and strategy in healthcare organizations.
Restructuring the clinical process necessarily involves the patient and
family. Clinical decision processes allow patient involvement and input and
can result in changing patient behaviors as well. Clinical pathways can cause
patients to assume greater responsibility for their health and for managing
their diseases. Figure 3.3 presents an example from a growing literature on
using information to change patient behavior; as in this asthma-related illustration, managing the clinical process can and should involve the patient and
potentially the family. Patient involvement in decision making facilitates true
patient-centered care. As patients become coproducers in the clinical process,
care must be integrated across the entire clinical process. Clinical pathways
are based on information structures, not functional structures, and allow the
patient and family to become participants in the process. IT allows the
process to overcome the increased complexity caused by adding participants



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Pathway for
Patient and

This randomized controlled trial involved 95 children (ages 6 through 16) with
asthma and their parents. Children and parents resided in Halifax County, Nova
Scotia, Canada.
Asthma education for children and their parents occurred during three months of
clinic visits and home visits. Topics covered included the mechanisms of asthma,
maintaining healthy behavior and environment, avoidance of asthma triggers, inhaler instruction and technique, functions and taking of medications, and managing an asthma attack.
Improved inhalation technique (94.7 percent vs. 55.6 percent, p = .0005)
Improved small airway function (pulmonary function data p = .001)
Improved asthma management, child took responsibility (72.1 percent vs. 33.1
percent, p = .006)
Decreased school absences (10.7 days vs. 16.0 days, p = .04)
Decreased pediatrician visits (26 visits vs. 66 visits, p = .017)
Decreased hospital days (3.67 days vs. 11.20 days, p = .02)
Source: Hughes, D. M., M. McLeod, B. Garner, and R. B. Goldbloom. 1991. Controlled Trial of a Home and
Ambulatory Program for Asthmatic Children. Pediatrics 87 (1): 5461.

and increasing the dimensions of time and territory. The clinical pathways can
be used to structure clinical processes within a facility and manage the process
beyond the facility. Clinical pathways are structured information and are easily
extended to other locations, organizations, and systems. They can be extended
to the patients home, school, or work environment. They would enable, for
example, managing childrens asthma in the school environment, where children spend a considerable percentage of their time. Clinical pathways are very
nimble structures that can be easily changed and adapted to changing environments.
Consideration of patients as coproducers of health is important when
addressing clinical process redesign. To overlook patient involvement maintains traditional roles of health professionals, resulting in improving clinical
processes that are themselves obsolete. The effective development and application of clinical pathways requires organizational leaders who understand clinical decision making, informatics, organizational structure, and behavioral
change. Clinical pathways provide a mechanism for organizations to improve
clinical processes as a means of achieving Six Sigma quality. They address the
challenge presented by IOM (2001) regarding the occurrence and potential
reduction of medical errors. Clinical pathways can also become an enterprise
strategy, giving organizations a competitive edge in the market for achieving
exceptional levels of quality and efficiency. Leadership for changing the clinical

Organizational Accountability for Clinical Outcomes: The Coming of the Corporation

strategy in organizations will come from physicians, nurses, other health professionals, and corporate executives and will take on hundreds of years of tradition and values surrounding clinical decision making. Restructuring the clinical process will require organizational restructuring and the development of
an information strategy to support it.

Aligning Information Strategy with Clinical Strategy

The potential contribution of advanced IT to facilitate improved clinical decision making and outcomes is well supported by the literature. The limited
acceptance and application of this technology to redesign clinical processes
underscores that it is an enabling technology but not transformative. Information strategy based on a technical rationale will have a limited effect. The
potential benefit of advanced IT investment will be realized only if it is
aligned to support clinical and business process redesign.

Political Issues in Changing Clinical Practice

The role of corporations in influencing clinical decisions and processes is a
subject that at one time could hardly be discussed openly in meetings and
today still evokes emotional debates, strong opposition, and occasional open
hostility. The relationship between the clinical and business strategies is at the
heart of how IT will be used in healthcare organizations. Health informatics
provides powerful tools to improve clinical decision making, but in doing so
challenges centuries of tradition on how the sacred trust between health professionals and patients will be protected. Can fidelity to this trust be protected within a corporate environment? How will corporate environments
need to change to protect this essential relationship? Successful implementation of this new science requires an understanding of principles of sociology,
psychology, and history embedded in the role of the health professions.
The role of the corporation related to clinical decision making has
changed over the years and has been characterized by a high degree of tension
between the organization and the autonomy of the health professions. The
maintenance of professional autonomy in organizations has been dramatically
played out in numerous ways including legal decisions and the design of corporations themselves. The threat of the corporate practice of medicine was a
basic organizing principle for healthcare organizations.
The political dimension of changing clinical decision-making processes
is deeply rooted in the role of the professions in society. It is doubtful that
corporations can ever achieve the level of dedication to patients, commitment
to excellence, work ethic, and continuous self-improvement that has been
achieved by the professions (Freidson 1994). If these qualities are destroyed
or damaged in the process, patients and society will sustain a loss beyond



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what can be recovered through the use of new process improvement strategies. This argument supports preserving the domain of health professionals
in clinical decision making. The challenge is to develop structures for doing
so within healthcare organizations. Organizational leaders must lead the
transformation of clinical strategy but maintain a balance of professional autonomy, using the best evidence-based solutions for clinical decisions and
processes; health professionals will have to change how the clinical process is
carried out within organizations without diminishing their role as professionals. Health professionals must learn to function within corporate settings and
abandon traditional beliefs based on individual professional autonomy. Educational programs preparing new health professionals must include important content in advanced IT, teamwork, evidence-based decision making,
and clinical process improvement. These competencies cannot be understood or applied outside corporate environments. Medical and nursing educational programs that do not acknowledge the reality of the changing
healthcare environment are preparing graduates for systems that will no
longer exist.

Structural Issues in Changing Clinical Processes

The clinical process consists generally of a complex work process that transcends professionals, divisions, departments, organizations, and systems. Hospitals have historically been structured using a functional design, and clinics
have been structured using a subordinated business function. Functional design supports the autonomy of the professional decision-making model. Patients have not found this model to be supportive as they encounter and move
through the system. They enter and pursue clinical care through a horizontal
process. Clinical processes are inherently horizontal in nature and cannot be
managed or improved within a dominant hierarchical functional structure.
Modern health corporations have modified their functional structures by
adopting a product or market structure, but they are still hierarchical in nature with a dominant business strategy.
The problem of managing an integrated clinical process is even greater
when care extends beyond the institutional boundaries. Chronic care cannot
be coordinated exclusively within the hospital because it inherently includes
professionals and organizations external to the hospital in addition to patient
involvement. Managers have traditionally recognized the need to integrate
clinical services as an argument to consolidate healthcare institutions providing care at different stages of production. Such structures are generally referred to as integrated delivery systems to reflect the intent to integrate clinical services. Integrated health systems provide a network of clinical services
within one organizational structure. Figure 3.4 depicts an integrated system
that includes clinics, rehabilitation facilities, skilled nursing facilities, intermediate care facilities, home health services, and mental health services (Hicks

Organizational Accountability for Clinical Outcomes: The Coming of the Corporation


and Bopp 1996). Managers envision care being coordinated within such a system because all units are contained within the same organizational structure
and report through the same management hierarchy to the board.
Most integrated heath systems retain a hierarchical structure, reflecting
a continuous dominance of the business strategy of the organization. Integrated delivery systems have been effective in gaining access to capital, expanding markets, and increasing operating efficiencies. Hierarchical structures
are familiar to managers because they do not alter traditional assumptions
about how healthcare organizations are structured and managed. The individual units are typically motivated to suboptimize their performance and thus
maintain a degree of independence and competitive goals. This occurs because they are regarded as separate business/clinical units that are evaluated
separately, rewarded for their own performance, and have independent strategies and, frequently, independent missions and cultures. They function just
the way they are structured, and that is the problem. Hospitals also continue
to hold their position as the center of the health system, their traditional role.
Integrated health systems have been less effective in providing restructuring
of the clinical process, although all of the units of production are under the
same governance structure. This is true because, while integrated systems
might have a stated goal to integrate clinical services, they have not developed
a true clinical strategy. The traditional strategy of autonomous clinical decision making is the same as it was for the stand-alone organizations.
The horizontal arrows in Figure 3.4 depict how clinical work is carried out within integrated health systems, requiring patients and health professionals to coordinate services across professionals and work units. Managing clinical processes within such a structure poses the same challenges as
among freestanding organizations. Integration of production units within a
given system may or may not facilitate the process of developing a strong
Health System


SNFskilled nursing facility

ICFintermediate care facility






Community-based services





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clinical strategy. Freestanding systems will carry out integration within the
market through loosely coupled structures, whereas formally integrated systems involve greater bureaucracy with its resultant delays, resistance to
change, suboptimization, and organizational politics. Neither has proven to
be a superior model because both lack the commitment or ability to develop
an effective clinical strategy.

Evidence supports the use of clinical guidelines and pathways as a means of
structuring and managing more effectively the clinical process. Broad application to healthcare organizations has not occurred because these processes are
inconsistent with how contemporary healthcare organizations are structured
and managed. The development of an information strategy within healthcare
organizations is based on the assumption of a new clinical strategy. However,
the organization has not taken on the development of a new strategy, and IS
have not been effective in initiating it. Decision support tools conflict with
how health professionals have been trained and are accustomed to practicing
in organizations. If the existing design of healthcare organizations and systems
were not in place, we would probably not design them the way they are. But
they are in place, and managers have not had the ability to change them.
Changing clinical strategy is the challenge to organizational leaders. How can
organizational leaders bring about this transformation and survive in the
process? The system needs skilled leaders who will look to the future and challenge traditional values and assumptions but honor and respect health professionals and their appropriate role in healthcare organizations. Organizational
leaders must go forward and transform the system. They cannot spend energy
and resources trying to preserve the past. The technology exists to redesign
clinical processes, organizations, and systems.

Questions for Discussion

1. Why and how have healthcare organizations become increasingly accountable for clinical outcomes?
2. If healthcare organizations are accountable for clinical outcomes, do
they inherently become responsible for clinical process design and clinical decision making?
3. Why has there been a lag in the application of process improvement
techniques to clinical processes?
4. Can healthcare organizations back clinical decision support systems with
fidelity to the decision-making autonomy of the health professions?

Organizational Accountability for Clinical Outcomes: The Coming of the Corporation

5. What are the difficulties and potential value of extending the International Classification of Diseases to include a classification of evidencebased treatment protocols?
6. What are the relative influences of science and health system culture and
tradition in developing a standard classification of treatment protocols?
7. If clinical guidelines are supported by evidence, why has their acceptance and use been slow in healthcare organizations?
8. Discuss how clinical pathways differ from clinical guidelines and why
the former are much more difficult to implement.
9. How do clinical pathways constitute a form of organizational structure,
and what are some of the qualities of such structures?

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Further Reading
Bauchner, H., and L. Simpson. 1998. Specific Issues Related to Developing, Disseminating, and Implementing Pediatric Practice Guidelines for Physicians,
Patients and Families and Other Stakeholders. Health Services Research 33
(4, Suppl. III): 116177.
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for Clinical Practice. Journal of Clinical Ethics 7 (3): 25156.
Solberg, L. I., T. E. Kottke, M. L. Brekke, C. A. Calomeni, S. A. Conn, and D. G.
Davidson. 1996. Using Continuous Quality Improvement to Increase Preventative Services in Clinical Practice: Going Beyond Guidelines. Preventive Medicine 25 (3): 25967.
Sonnad, S. S. 1998. Organizational Tactics for the Successful Assimilation of Medical Practice Guidelines. Health Care Management Review 23 (3): 3037.
Weinstein, M. E., B. McCormack, M. E. Brown, and D. S. Rosenthal. 1998.
Build Consensus and Develop Collaborative Practice Guidelines. Nursing
Management 29 (9): 4852.



Tamara T. Stone

Key Terms

Chapter Outline

Competitive Advantage in Healthcare Organizations

The Resource-Based Enterprise
Creating a Knowledge-Based Learning Organization
Transforming Intangible Assets Through IT
Commitment-Based Management and the Human Capital of IT

Learning Objectives
1. Examine how information strategy can be used in healthcare organizations to achieve competitive advantage.
2. Understand how effective IT management can be used to ensure
that organizational resources are deployed to meet enterprise objectives.
3. Apply the resource-based view of enterprise, and frame its influence
on how tangible, personnel, and intangible information resources are
used to achieve competitive advantage.
4. Demonstrate that organizational culture and human issues play a key
role in successful information strategies.
5. Recognize how synergy between information and organizational
strategy can be achieved through a customer-focused enterprise strategy.
6. Explain how tangible assets in healthcare organizations can be transformed into value-added intangible resources through IT.
7. Demonstrate why commitment-based management is crucial to the
development of human capital in IT knowledge workers.

Organizationand information
technology (IT)
based capabilities
Tangible resources
Human resources
Intellectual capital
Human capital
IT transformation:
IT transformation:
IT transformation:



T h e C o n t r i b u t i o n o f I n f o r m a t i o n Te c h n o l o g y t o O rg a n i z a t i o n a l St ra t e g y

Chapter Overview
This chapter uses the resource-based view of enterprise as a framework for understanding how information and organizational (business and clinical) resources can be transformed into unique capabilities, which in turn can be used
to achieve competitive advantage. Through this process the need to create
learning organizations in healthcare becomes apparent. The power of effective
information strategy to transform intangible resources into tangible assets, facilitate organizational learning, and create a customer-focused culture is discussed. The chapter concludes with a discussion of commitment-based management and articulates why this management approach is critical to successful
development of information technology (IT) human capital in healthcare organizations.

Competitive Advantage in Healthcare Organizations

The primary goal of enterprise strategy is to foster the development of an industry edge for an organization over its competition. As organizations execute
their business and clinical strategies, they attempt to approach this goal. As
presented in Chapter 2, the formulation of information strategy must be
guided by a systemwide enterprise strategy and aligned with organizational
strategy. Healthcare organizations must identify how organizational resources
can be transformed to achieve their strategic objectives. Information strategy
can be a critical resource in this process if it is effectively aligned with business
and clinical strategies to achieve competitive advantage. In other words, resources must be transformed into organizational capabilities, which in turn are
deployed for competitive advantage.

IT and Enterprise Strategy

The introduction of technology alone does not create competitive advantage
(Mata, Fuerst, and Barney 1995). Information technology can be a significant
source of competitive advantage in healthcare organizations when it is guided
by desired changes in enterprise strategy (Kathuria, Anandarajan, and Igbaria
1999). Effective information strategy requires cooperation throughout all
areas of the organization. Cooperation allows for interoperability of databases
and the systemwide use of information in decision making. In this way information strategy can transform business and clinical processes into strategiclevel functions that network operational entities and improve work outcomes.
The coordination and networking of business and clinical processes
through information strategy promotes efficient and effective resource utilization that can help enable a healthcare organization to compete in the
market (see Case 4.1). Information systems (IS) enable integration within

I n f o r m a t i o n St ra t e g y E m p owe r s O rg a n i z a t i o n a l St ra t e g y

and between business and clinical work processes; this promotes increased
operational efficiency and effectiveness and thus improves competitive advantage. To be effective, IS must be fully integrated with these processes, both
facilitating and transforming them.

The Importance of IT Management

While information strategy affects and involves virtually every unit within the
organization, it can be productive only through a well-designed and managed
IT function. Information technology management makes it possible for the
organization to invest in, install, and deploy information assets to sustain its
advantage (Bharadwaj 2000; Mata, Fuerst, and Barney 1995). Without appropriate IT management processes and procedures, the IT infrastructure
may not be used properly and utilization can become chaotic and frustrating
to users and consumers. Information technology managers must collaborate
with managers throughout the enterprise to determine how technology can
support individual and networked processes to promote quality and productivity (Mata, Fuerst, and Barney 1995). Information technology managers
must be fully involved in business and clinical functions to lead in the design
of systems that fully utilize this technology to transform, not simply automate, these processes. This does not understate the importance of the IT operational function to acquire and install the systems and to provide adequate
training, troubleshooting services, and privacy guidelines for users. Implementing IS without providing ongoing support and adjustment to information processes to meet user needs can lead to dissatisfaction and other costly
consequences, such as users bypassing the system.
Effective IT management can ensure that a healthcare organizations
resources are deployed to yield optimal business performance and patient care
outcomes and services. Increasingly, the ability of the organization to develop
knowledge workers who effectively use information embedded in processes
can determine the level at which the organization can compete with others in
the industry. Because the same information resources can yield different services or results, it is the capacity to develop the skills of knowledge workers, and
to some degree the culture of a knowledge organization, that affects performance and output (Penrose 1959). Therefore, IT management plays an important part in determining not only how IT and IT staff are utilized but also how
staff members from other areas of the organization are enlisted to determine
how technology can be deployed to improve their jobs and transform clinical
and business work processes.

Integration of HR and IT
To some degree the IT and human resources (HR) functions become integrated in a knowledge-based organization. Health systems are built heavily
around human interaction and judgments, and IS must be fully integrated in



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CASE 4.1
Integrating a
Clinical and

Deanna Doolittle heads the operations and special projects unit reporting to the
chief executive officer of a medium-sized academic medical group in central California. The organization consists of 59 specialty and primary care clinics, a threehospital system, and a medical group made up of 352 physicians representing all
major branches and specialties of medicine and medical research. Deanna has
been given the responsibility to develop an integrated practice performance reporting system that would allow practice managers and individual physicians
throughout the organization access to information on productivity, profit and loss,
clinical quality outcomes, and patient satisfaction in a persuasive and pervasive
format. Deannas project description developed as follows:
Create/adapt a highly utilized open information system for business intelligence, resulting in a holographic report incorporating all necessary practice
management parameters required to enable rapid and conclusive decision
making. Necessary system design includes open architecture capable of accepting data from proprietary and nonproprietary sources and agile enough to
promote rapid incorporation of additional data streams as dictated by changing financial, regulatory, and environmental pressures. System capabilities
must include data recombination and data-stream merge capabilities incorporating highly graphic user interfacing for the end user. Reports are initially to
consist of three data streams (revenue, service, and quality) in a drill-though
format incorporating tolerances.
Deanna has access to multiple discrete data sources including an expensive hospital-oriented electronic medical record (EMR) (35 percent implemented)
that provides near-real-time documentation, clinical decision support, and computerized physician order entry; well-established, visit-based admission, discharge, and transfer (ADT) system (updated every evening); home-grown patient

the HR function. The effects of IT on the HR function are only starting to

be recognized fully. The IT-HR relationship includes areas such as humancomputer interface, which is the traditional study of human-machine relationships, and knowledge management, in which not only data but knowledge are
stored, recalled, and used by a complex system that transcends individual
users. Recently, analysts have emphasized the acquisition of knowledge capital and capabilities for organizational learning as a means for establishing a
competitive advantage, in contrast to the traditional focus on efficient
processes marked by a quantifiable output. To capitalize on such a strategy,
healthcare organizations must select, train, and reward knowledge workers for
their effective use of IT to perform their jobs. Knowledge workers also must
be able to think beyond their individual jobs to recognize how their job contributes to the overall work process.
A healthcare organizations ability to utilize IT effectively allows it to
create inimitable enterprise assets and renowned services. As these unique
processes become engrained in an organizations functions, the organization
develops knowledge utilization processes that are causally ambiguous, socially

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safety reporting system (updated monthly); business analysis software package

(which interfaces only with the ADT system) operating on a weekly update cycle;
and weekly vendor flat files and spreadsheet reports regarding patient satisfaction. The visit-driven billing ADT system represents a serious interoperability challenge in that patients may have multiple visits over any given time frame and the
EMR treats each patient as a unique entity. Physician and employee satisfaction
data are collected by internal survey on an annual basis. Internal benchmarking
capability consists of trend reporting by 13-month average, previous month, previous quarter, and same time period for previous year. The organization subscribes to benchmarking resources from four national healthcare benchmarking
organizations that provide quarterly and annual rankings.
The hospital sites have limited wireless access, and the organization does
not support personal data assistant use as yet. Most exam rooms lack direct
computer access, and Internet access is locked out on 50 percent of staff computers for security reasons. Internal research indicates that physicians will only
utilize information provided in a highly graphic medical format and using medical
terminology. Practice managers prefer spreadsheets and financial terminology.
Ten percent of physicians within the organization could best be described as
technophobic. A vocal group of 12 physician programmers oversee the EMR implementation and develop practice-specific software applications. Like the
healthcare industry in general, Deannas organization has so far been unable to
demonstrate a direct positive relationship between clinical quality and financial
performance, although anecdotal evidence supports that relationship.
Problem Solving 4.1 explores these integration difficulties in further depth.
Patricia E. Alafaireet, manager of special projects, University
Physicians, University of Missouri Health Care, Columbia, MO.

complex, flexible, adaptive, and in many cases the organizations competitive

advantage (Mata, Fuerst, and Barney 1995). The specific technology utilized
by specialists in a high-performance clinic such as the Mayo Clinic may produce superior quality of care compared to other clinics lacking the Mayo
Clinics distinct combination of knowledge, information utilization processes,
and capability for continuous learning that is engrained in its clinical function
(Mayo Clinic 2004; Milner 2000). Emphasis on developing IT and HR capabilities is reflected in the resource-based view of organizations introduced in
the early 1980s and is still widely studied as a viable theory for understanding
a knowledge-based economy (Hitt et al. 1999).

The Resource-Based Enterprise

A resource-based enterprise relies on its unique resources, which are utilized
idiosyncratically or are different from those of other organizations and have
long-term applicability, to compete with others in its industry (Barney



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Integrating a
Clinical and

Deanna Doolittles mandate to develop an integrated practice performance reporting system represents a classic stage of evolution of the application of IT in an integrated health system. Seldom does one have the opportunity to start with a
clean slate to build an information system. In practice IS consist of remnants of existing systems, all installed at different times and designed for different purposes.
In addition, the business and clinical work processes they are now expected to
support were not envisioned when the old systems were designed.
In this case the CEO has demonstrated considerable vision for the future,
with a focus on outcome assessment, process improvement, and managing quality at the operating level of the organization. The organization is anticipating payfor-quality programs and identifying quality as an enterprise strategy. No one in
the organization anticipated these programs when the current information strategy was designed.
The information system in this case has been asked to support a new management concept, and a number of issues have surfaced.
There are issues with the database. The EMR is patient based and encountered its own problems with multiple patient records within the hospital. The
ADT system, on the other hand, is visit based; a single patient might have a
different visit number for each clinic utilized. Visit numbers are assigned sequentially based on arrival. The ADT system is structured on a business logic,
and the EMR is structured on a clinical logic.

1991; Bharadwaj 2000; Connor 1991; Mata, Fuerst, and Barney 1995;
Rumelt 1984; Schulze 1992; Wemerfelt 1984). Organizations with comparatively greater numbers of unique resources increase their opportunities to
be competitive. In healthcare an organizations resources include those that
are tangible (diagnostic equipment, surgical instruments, laboratory devices
for conducting analyses, financial capital, and information hardware and
software), intangible (national or international name recognition and perceived quality as reflected in patient satisfaction analyses), and personnel
based (healthcare specialist expertise, HR coordination, and elements of a
commitment-based culture) (Bharadwaj 2000; Grant 1991). In isolation
these resources are not sufficient to create competitive advantage in healthcare organizations. Rather, an organizations development of efficient and
effective capabilities and processes for acquiring, disseminating, and utilizing
each of these resources is essential for competing within the industry.
A key venue for healthcare organizations to achieve competitive advantage is the systematic use of information resources to promote organizational
learning. To engage in continuous organizational learning, administrative
functions must incorporate IT. Information systems promote enterprisewide
growth and development by creating processes that combine human knowledge with mechanisms to access knowledge and drive administrative and resource efforts toward organizational learning. Healthcare organizations may
identify and focus on a small number of knowledge specialties that afford

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Each information system is updated on a different basis, and using these data
to manage real-time practices and clinics results in reaching faulty conclusions.
End-user needs vary among professionals and between management and clinical users. Physicians in general want information in graphic medical format,
and managers want spreadsheets and financial terminology. They are looking
at the same picture but see different things.
There is always the issue of user acceptance; in this case 10 percent of the
physicians are reluctant users of IT if they are users at all. This will disappear
with time as younger health professionals enter practice.
Even with electronic medical IS, there is always the problem of duplicate
records. This might occur in the obstetrics department, for example, where a
newborn baby might have a record corresponding to the insured individual
(maybe the father), a record linked to the mother, a record under the name
Baby Smith, and a record under the full name of the baby.
Numerous other issues emerge from integrating clinical and business databases and IS in hospitals and clinics. As with all new IT developments, modifications must be made based on new demands and assumptions at the same time old
systems must be maintained and supported. These challenges require the highest
levels of collaboration among clinical, managerial, and informatics leaders. They
also require the full understanding and involvement of those who will make the
changes and make the systems work.

them recognition within the industry (Kangas 2003). The Mayo Clinic, for
instance, constantly reveals breakthroughs in care for patients with brain tumors and provides internationally renowned services for patients undergoing transplants (Mayo Clinic 2004). Investment in IT alone will not differentiate the organization either operationally or strategically. This
differentiation is achieved through the seamless transfer of research evidence
to practice. Aligning all processes to deliver patient-centered care and instituting effective information-based changes as new knowledge in each specialty area is acquired foster this seamless transfer. Problem Solving 4.1 explores some of the specific issues related to the application of IT in an
integrated health system.
In todays highly competitive healthcare industry, organizations
achieve greater distinction through their intangible assets of knowledge and
intellectual capital than through tangible assets of state-of-the-art equipment
and infrastructure (Roepke, Agarwal, and Ferratt 2000). Without knowledge and expertise, the capabilities of equipment and infrastructure cannot
be fully realized. However, attempts to develop and implement systems that
allow employees to share knowledge among the organizations clinical and
business functions often fall short of expectations (Pare 2002). Organizations often lack processes that allow them to disseminate and utilize their
current knowledge effectively or acquire and apply new knowledge to their
practices. In fact, a survey of 431 executives conducted by Ernst & Young



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showed that only 13 percent of participants felt that knowledge acquired in

one section of their enterprise was being transferred adequately to other sections in the same enterprise (Ruggles 1998). This finding reveals both how
organizational knowledge is being underutilized and a need for focused attention on knowledge management. Only when processes for acquiring, disseminating, and utilizing knowledge become engrained in daily functions and
culture can organizations realize the potential to develop competitive capabilities.

Creating a Knowledge-Based Learning Organization

As discussed above, processes to manage human knowledge and intellectual
capital must be established for an organization to realize its full capability. Organizational knowledge, or intellectual capital, is the collection of practical experience, ideas, observations, understanding and application of theoretical
concepts, and other information that each individual employed in an organization shares to promote growth and productivity within the organizations
systems. The acquired bits of information accumulated over time are used to
create enterprise strategy. This knowledge, however, is only useful to an organization when it is disseminated in a meaningful, timely, and easily accessible way to those who can effectively and appropriately apply it to organizational systems and strategies (Milner 2000). Information management (IM)
must be an organizations priority, whereby technology is designed and implemented to effectively store, manipulate, and manage information,
processes, and procedures for utilization by competent, experienced personnel. If knowledge management initiatives do not include explicit IM plans, organizational knowledge can be lost or become meaningless. Under such circumstances knowledge will not get to those who need it and will not be
incorporated into organizational system strategies or added to the intellectual
capital the organization uses to create its competitive edge.

Culture in the Learning Organization

In healthcare systems, the typical structure of which includes departments
that are internally focused, knowledge management processes must bridge
departments to be effective. In addition, knowledge management is essential
for capturing information across business and clinical functions as healthcare
organizations expand and become less centralized. When an organization becomes a learning organization, it has systems in place to continuously acquire
and distribute new knowledge that allows it to adapt effectively to change,
address internal and external chaos, and establish exceptional practices that
are noteworthy in the industry. Innovative ways for managing knowledge can
be created to improve organizational practices through information strategy.

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Information systems are the vehicles through which knowledge can be routinely disseminated and utilized, thus engraining learning processes in an organizations culture to sustain a competitive advantage.
Unfortunately, the fast-paced introduction of IT throughout the
healthcare system has led to less-than-optimal results. The presence of numerous technology system shortcomings and unintended negative outcomes reflects a lack of adequate attention to knowledge management structures that
would ensure adequate user input throughout all phases of the technology
design and implementation process as well as effective processes for troubleshooting and system adaptations. There are many reasons why web-based
and advanced technologies are not more successfully incorporated into
healthcare systems; however, the greatest obstacles appear to be shortcomings
in the healthcare culture and lack of attention to human issues (Lazarus
2001). An enterprisewide emphasis on knowledge management must be engrained in the organization for clinical and business personnel to acquire, disseminate, and utilize knowledge effectively with the support of IT. But if
technology implementation is to be successful, executives must first develop
a thorough understanding of organizational trust and communication concerns (Malato 2001).
With the success of technology implementation based on an organizations ability to engage in continuous learning and knowledge management,
it is important to consider practices that will engrain these in the organizational culture. As noted by KPMG (1998),
Moving to a culture that values and encourages innovation, openness, teamwork
and knowledge sharing requires leadership and, possibly, changes in relationships,
organisational structures and office environment. Management should consider
what they need to do to start and sustain this change and, in particular, on their
roles as examples to staff. Thorough and sustainable cultural change takes time,
but some useful initiatives can be taken quite quickly. For example, the creation
of a time and place where staff can meet to discuss their ideas and experiences,
that is clearly viewed by senior management as an investment rather than a cost,
can produce a tangible outcome and also have deeper symbolic effect.

For healthcare organizations to embody this type of commitmentbased culture, in which healthcare professionals are encouraged to share
knowledge and empowered to take initiative to engage in problem solving to
deliver patient-centered care, they will need to overcome their tendency toward a functional orientation. Such a level of organizational learning requires
a more cohesive structure and commitment-based culture that allow and encourage informational networking focused on a common goal. The ultimate
cultural unifier must be defined by the enterprise. Thus the customer, or more
precisely the patient, is the only reasonable source of unity for the disparate
healthcare entities.



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The Need for a Common Customer-Focused Commitment

As new organizational knowledge is acquired and transferred to employees
through IS, managers must ensure that processes within business and clinical
strategies maintain a common consumer-focused goal (Hatten and Rosenthal
2001). For example, a healthcare organization may implement a decision
support system designed to allow nursing assistants to ask a series of questions to determine which tests a patient is eligible to receive before meeting
with the physician. The system may support business strategy objectives to
reduce costs by decreasing the number of unnecessary tests patients receive
while simultaneously supporting clinical objectives like allowing physicians
more time to address direct delivery of care. Such systems can promote customer-focused care by allowing more time during the physician visit to be devoted to patient concerns or by reducing the patients overall time devoted
to seeking care. All of this can increase patient satisfaction and healthcare outcomes, which is of primary importance to healthcare providers.
The process of uniting business and clinical strategies to share the same
knowledge and meet a common goal should become an organizations foundation for strategy design and process change. This process creates a system
through which managers can create strategy and identify and address problems in the organization. Unfortunately, the business, clinical, information,
and enterprise systems in healthcare organizations often do not sufficiently integrate to address misalignments and engrain the same customer-centered
goal in each function and process. Healthcare organizations consist of various
health professions existing under the same roof but often functioning with a
high degree of autonomy, unaware of how one departments activity may affect activity in any other part of the organization. This functional autonomy
can prevent a healthcare organization from demonstrating itself to be a customer-centered entity in the industry.
Therefore, when applied to the organizations customer-centered functions, IT can empower healthcare professionals who work directly with patients and can facilitate teamwork throughout the organization (e.g., linking
a family practice department with the laboratory, with valuable information
such as provisions and eligible care options under various health insurance
plans). Using IT as a tool
facilitates breaking down boundaries within the organization and unifying independent departments into a networked system;
encourages development of a commitment-based culture that creates
proactive strategies and focuses on consumer needs;
fosters elimination of control structures and gives healthcare professionals needed information to apply to clinical situations and decision making and to provide customer-centered care; and
encourages employees to develop new information to contribute to the
knowledge base from which the entire enterprise learns.

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Through continuous learning and open communication, employees

become empowered to take on new responsibilities and apply knowledge
with confidence.

Transforming Intangible Assets Through IT

Building on the resource-based view of the healthcare enterprise, an organizations intangible and personnel assets are predominantly tacit resources.
These resources are the key drivers to achieving a customer-focused orientation that will allow healthcare organizations to realize sustained competitive
advantage. Yet, this competitive advantage can only be realized through capabilities that are integrated seamlessly to create value in the organization. Information resources, classified as tangible IT resources (e.g., physical infrastructure including hardware and software), human IT resources (e.g., IT
specialists who have the necessary technical and managerial skills), and intangible IT-enabled resources (e.g., customer focus, knowledge assets, synergy),
are a predominant mechanism for creating value in healthcare organizations
(Bharadwaj 2000).

Tangible IT-Enabled Resources

A healthcare organization will benefit greatly if its tangible resources are designed to make organizational knowledge easily accessible and shared among
the various business and clinical functions. Flexibility of the infrastructure to
adapt to changes in information need and knowledge growth will allow the
organization to perform more competitively within the industry. In addition,
the organization will benefit from having skilled IT specialists who possess
the technical skills and abilities to install and manage the tangible resources
as well as the leadership skills to
ensure that IT strategy aligns with business and clinical strategy;
design and implement infrastructure that allows organizations to challenge the organizations competitors; and
create an internal support structure that provides organized trouble
shooting and problem solving.
With these tangible and human IT resources in place the pressing
question for enterprise leaders and chief information officers alike is how to
transform IT and the supporting IM systems into high-value intangible organizational assets. Bharadwaj (2000) identifies three key organizational intangibles that can be enabled by effective information strategy: customer focus,
knowledge assets, and synergy.
Analysts recognize that organizations can benefit greatly from identifying
their customers needs, preferences, and desires and designing products and

customer focus


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services that reflect them (Bharadwaj 2000; Jaworski and Kohli 1993; Narver
and Slater 1990). Information technology can be used to facilitate effective
customer relationship management that involves such activities. Many organizations have designed and implemented IT systems that allow them to capture customer-focused information easily and efficiently. Through technology, organizations can rapidly track and predict their customers needs,
preferences, and desires and use this information to adjust their products and
services accordingly. Such information can be gathered, for example,
through the organizations web site, which may contain a section for consumer feedback or an online survey. Similarly, technology can be used to generate a mass mailing of surveys to current and potential customers to gather
customer profiles and interests. However, organizations will benefit most
from customer-focused information if their business and clinical functions are
networked so each component can determine how it must adjust to reflect
the changing needs, preferences, and desires of its customers. Conducting
the research without applying the information to an organizations products
and services represents a lost opportunity to increase customer satisfaction
and improve the organizations standing in the industry.


As mentioned earlier, an organizations knowledge and intellectual capital

play greater roles in securing competitive advantage than does the attainment
of physical assets and infrastructure. Information technology can be used to
promote effective and efficient knowledge management and continuous organizational learning, which enables employees to deliver care and services
that reflect the industrys highest standards and best practices. As an organizations knowledge workers acquire new information, IT can be the means
to transfer new knowledge into practice. It can create a network through
which employees across functions share information required to provide customer-oriented care and services.
Furthermore, IT can be designed and implemented to promote ongoing organizational learning by making the most current, pertinent information easily available. For example, healthcare organizations can give
health professionals ready access to the most current clinical practice guidelines by embedding them in IS accessible within clinical departments.
Healthcare organizations can also design web sites where healthcare professionals can post questions and engage in discussions to assist with clinical
problem solving and share knowledge that can be applied across disciplines.
Both of these examples allow users to engage in continuous learning and
promote the sharing of information to increase patient satisfaction and improve health outcomes.


Information technology can also be effective in promoting synergy among a

healthcare organizations business and clinical functions. As described in the

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previous two sections, a healthcare organizations functions aim to provide

customer-focused care and engage employees in continuous learning and
knowledge sharing. Both activities require organizational functions to share
resources and capabilities with one another. This synergy can provide the
flexibility needed to respond effectively to chaos and adapt to change. Information technology can be designed and implemented to link organizational
functions and create an information network so all functions can obtain the
resources and capabilities they need to provide effective and efficient service.
For example, a healthcare organization can design and implement technology to link clinical, billing, laboratory, and customer service departments in
an effort to create a seamlessly integrated experience for patients. Every organization will create its own synergistic links that are distinct from other organizations. As every organization has its own distinctive set of knowledge
workers with different skills, strengths, and weaknesses, each will create an
inimitable synergy that may include a combination of the capabilities that
serve as its competitive advantage.

Stages of Transformation Enabled Through Information Strategy

The transformation of IT tangible resources coupled with IM systems into
value-added intangible resources is a primary focus of information strategy.
Information strategy is no longer merely an issue of technological infrastructure; it has progressed from a technical function of designing and installing
equipment to a transformational resource, which now must align with all aspects of organizational strategy including enabling organizational change.
Full utilization of IT capabilities involves the design and implementation of
information strategies that reinforce enterprise objectives, improve operational efficiency, enhance intellectual capital and organizational learning, empower human capital, and promote a synergistic culture and organizational
environment. To achieve these goals, information strategy must align with
the organizations business and clinical functions through three stages of information transformation that promote process alignment and will ultimately
evolve into a unified, networked system.
In the initial transformational stageautomationindividual business and
clinical functions engage in basic IM practices. Information technology provides individual departments with the equipment needed to manage specific
resources. Designers place emphasis on finding ways to automate inefficient
management procedures to improve productivity and increase financial viability. For example, software can be installed to code all bills being submitted to insurance companies, checking them against admitting and discharge
diagnoses and treatment regimens to ensure that the diagnostic codes allow
appropriate reimbursement for services provided. Manual coding has been
shown to be slow and result in undercoding to avoid the risk of fraud. In this




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example technology is used to reduce errors, wasted time, and associated

costs, all of which increase productivity and organizational performance.


In the integration stage, IT is used to link individual functions and departments within the organization. The cross-functional integration must be supported by an enterprise strategy that promotes the use of technology to create efficiency and improve quality. As interdepartmental linkages occur,
value-added IT is revealed through ease of communication, coordination, and
transfer of knowledge. Integration-stage transformation can occur when IT is
designed and implemented to link an electronic patient laboratory test results
system to family practice department systems so that physicians can access patient test information easily and quickly during an office visit. Alternatively,
technology can be implemented to allow physicians to create electronic patient prescriptions that can be sent directly to the pharmacy. This basic process
can be used to promote patient compliance with treatment and eliminate extra
work created by lost prescriptions.


In the strategic stage all entities within the organization learn to expect and
rely on technology to facilitate multiple cross-functional links. The value of
IT links is fully realized, and business and clinical departments understand
the benefits of functioning as a network. The use of IT is engrained in the organizations culture and is the foundation for strategy aimed at increasing organizational capabilities and learning to sustain a competitive advantage. In
this stage the learning organization fully relies on technology to manage
knowledge in order to adapt to change and address pressures and threats. Information technology utilization
provides collaborative links with external and internal systems that can
assist in reducing pressures in overextended service areas or improve
processes that are slow to adapt or produce substandard functioning;
allows managers to improve management practices and clinical decision
gives leaders a more thorough understanding of the scope of problems
and helps identify the organizational components that contribute to
these problems; and
allows for knowledge acquired by others within the organization to be
more readily applied to learned principles, decision-making processes,
outcomes, and experiences.
Strategic-stage transformation can lead a healthcare organization to
implement a patient electronic medical record (EMR) system that is linked to
laboratories for retrieving test results, to the billing department for accessing
account balances from office visits or diagnostic testing, and to sources of evidence-based information and prescription information that can be accessed

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readily. Such a network would provide enterprise personnel with the information needed to address patient questions and concerns more easily and to
provide complete and accurate customer-centered care. Strategies that empower the organizations human capital investment, that is, its knowledge
workers, do so by creating knowledge systems or IS that allow worker knowledge to be easily applied to daily processes and practices. These knowledge
systems evolve HR functioning into the strategic stage, which is marked by
open communication across functions, teamwork, and other qualities characteristic of a commitment-based culture.

Commitment-Based Management and the Human Capital

of IT Workers
Adopting a commitment-based organizational culture is ideal for promoting
and capitalizing on the cross-functional communication and teamwork created when IT is used to transform organizational knowledge (Khatri et al.
2004). A commitment-based culture encourages employees to seek out new
knowledge and utilize acquired information with confidence and creativity.
This is in contrast to a control-based culture, which adheres to strict chains of
command and explicit lists of job-related responsibilities that can inhibit initiative and independent decision making. A commitment-based culture nurtures employees to develop a sense of personal responsibility and commitment
to the organizations mission and values, rather than assuming employees
need constant supervision and direction as is characteristic of a control-based
approach. A commitment-based approach supports employee autonomy and
shows trust in their skills and abilities. It promotes a strategic-stage level of
functioning by facilitating continuous learning through open communication
and knowledge sharing and by empowering employees to add to their responsibilities and show initiative in anticipating and responding to change. It encourages employees to be proactive in utilizing experience and knowledge to
provide services that best meet customer needs, preferences, and desires.

Linking Communication and Knowledge

When each component of a healthcare organization engages in commitmentbased practices, communication and knowledge become networked across and
among the various departments functioning within each component (enterprise, organizational, and information). This interrelationship requires each
component to develop strategy that supports the processes of the others.
Therefore, business and clinical functions contribute significantly to the success or failure of IT implementation through their effort to create practices
and processes that support IT growth, development, and strategy. For example, a healthcare organization that decides to implement a web-based program



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to continuously gather patient feedback will find success only if the business,
clinical, and enterprise functions that plan to utilize it develop and follow their
own specific guidelines and practices to support the strategic goal. They may
create processes that allow them to provide input on the programs development to meet their information needs and uses, identify specific staff who may
access and manipulate the data, create training opportunities for users to fully
understand and take advantage of the systems features, create specific procedures for troubleshooting problems that arise in software functioning, and address other such important issues. An IT strategy for a web-based initiative to
support a patient satisfaction program, for example, will not be successful unless patient satisfaction is a well-developed clinical and enterprise strategy.
With a highly developed IT component that engages in continuous
learning and the development of capabilities to organize and manage practices and processes, IT can also add to the development of the healthcare organizations knowledge workers carrying out business and clinical functions.
Implementation of IT systems develops the organizations human capital by
requiring staff from each component to develop new technical skills and frequently to redesign work processes and adjust their job responsibilities. A
second-order HR action might be to modify job descriptions and evaluation
and incentive programs. For example, a healthcare organization may acquire
a physician e-mail program that allows patients to send direct e-mail inquiries
to their physicians. Physicians may require training to be able to use this form
of communication, and clinical managers may be required to consider additional compensation to reflect the added effort, time, and responsibility
physicians have to invest to make adequate responses to these inquiries. Utilization of such a system may markedly improve patient satisfaction. In addition, as healthcare organizations increase their use of IT, administrators may
aim to recruit or hire new business and clinical staff with comparatively more
experience in the utilization of healthcare technology.

Increasing Competitive Advantage

As a healthcare organizations workers acquire additional skills and knowledge, the organization may have more opportunities for increasing its competitive advantage in the industry. A healthcare organization may develop a
specialized information system focused on capturing the most current, accurate information on organ transplants. The organization may currently employ only a small number of experts renowned for their knowledge and experience in organ transplantation who can benefit from utilizing this system.
The organization, however, may use this state-of-the-art technology as an inducement to recruit other expert clinical staff. The expanded staff could then
create a transplant department that makes the organization stand out in the
healthcare industry.
Increasingly, healthcare leaders are recognizing the pivotal role information strategy plays in enabling organizational strategy to achieve enterprisewide

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goals. As a result, the IT function in healthcare organizations must evolve to

meet new challenges by redefining IT-based capabilities and competencies
(Roepke, Agarwal, and Ferratt 2000). Mata, Fuerst, and Barney (1995)
argue that sustainable competitive advantage must focus less on IT and more
on information strategy to promote learning within an enterprises IT function and development of the organizations human capital. To operationalize information strategy, IT staff must collaborate with functional managers,
suppliers, and customers to understand and appreciate enterprise requirements, develop and coordinate IT initiatives, and scan the environment to
identify the organizations future IT needs. Information technology knowledge workers must be equipped with knowledge and skills to organize, support, and manage, as well as perform technical duties. In this way IT human
capital becomes a group of sophisticated knowledge workers who engage in
continuous learning and can develop strategies designed to organize and
manage interactions among other organizational functions effectively and efficiently. Learning organizations deploy IT-based resources to ensure that
continuous exchange and growth of knowledge occurs within all of their
components. By doing so, such an organization demonstrates itself to be a
consumer-focused entity and defines its competitive advantage in the field.

Resource-based enterprises compete within their industry by developing
unique, efficient, and effective capabilities and processes for acquiring, disseminating, and utilizing their resources. Healthcare organizations with effective information strategies will promote IT, IS, and IM processes that enhance
the development, use, and continual growth of their intangible resources.
These strategies and processes make healthcare organizations able to respond
efficiently and effectively to environmental needs, changes, and pressures.
Through IT resources, new knowledge can be continuously acquired and
shared among organization functions, allowing workers to show more initiative and expertise in anticipating and responding to change as well as meeting customer needs, preferences, and desires. This type of learning culture
supports workers and enhances their skills and abilities, which increase the organizations capabilities and competitiveness.

Questions for Discussion

1. What is competitive advantage? Is it always important to achieve a sustainable competitive advantage in the healthcare industry?
2. Why is IT management so important to ensuring that organizational
resources are deployed effectively? What role does IT management play



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in the deployment process? In what ways could IT management hinder

the deployment of organizational resources?
Why is the resource-based view of the enterprise so important in a
knowledge-based industry such as healthcare?
What is organizational knowledge or intellectual capital? Why do intangible assets such as organizational knowledge and intellectual capital appear to allow healthcare organizations to achieve a greater competitive
advantage than tangible assets?
How does culture play a role in allowing organizations to perform clinical and business processes effectively through the support of IT?
How can customer-focused commitment be defined in healthcare organizations? Why is it such a strong unifier in the healthcare industry?
How can IT be used to support customer-focused commitment?
What are the three stages of resource transformation that occur through
information strategy? Are all equally important? Is the strategic stage ultimately where all information strategy efforts should be focused? Why
or why not?
Why is commitment-based management so important for healthcare organizations to engage in continuous learning and the development of
capabilities to organize and manage IT business and clinical processes?
What skills must IT professionals possess to operationalize information
strategy and effectively facilitate interactions among knowledge workers
throughout all organizational functions?

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Knowing Corporation Seeks, Shares and Uses Knowledge for Strategic Advantage. New York: AMACOM.
Hitt, M. A., P. G. Clifford, R. D. Nixon, and K. P. Coyne. 1999. Dynamic Strategic
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of Patient Care: The Commitment-Based Approach. Presented at the Annual Academy of Management Conference, New Orleans, August, 611.
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Ruggles, R. 1998. The State of the Notion: Knowledge Management in Practice.
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Further Reading
Ackerman, M., V. Pipek, and V. Wulf. 2003. Sharing Expertise: Beyond Knowledge
Management, edited by M. Ackerman, V. Pipek, and V. Wulf. Cambridge, MA:
MIT Press.


Timothy B. Patrick

Key Terms
Chapter Outline


1. Data, Information, and Knowledge: A Philosophical View

2. Controlled Representations and Interoperability of Data, Information,
and Knowledge
3. Interoperability and Knowledge Management
4. The Semantic Web

Learning Objectives


1. Understand the concepts and relationships among data, information,

and knowledge.
2. Be able to demonstrate the importance of controlled terminology and
ontology in the management of data, information, and knowledge.
3. Be able to integrate the technical and social aspects of interoperability.
4. Understand the characteristics of knowledge as a basis for being able
to manage it.
5. Be able to assess the success factors of knowledge management projects.
6. Understand the importance of the semantic web for sharing data,
information, and knowledge.

Semantic web

Chapter Overview
This chapter broadly examines some fundamentals of the management of
data, information, and knowledge in healthcare systems, emphasizing their
interrelatedness. First, Case 5.1 demonstrates central themes of the chapter. Next, the relationships among data, information, and knowledge are


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considered from a philosophical point of view. The contribution of the management of data, information, and knowledge to the success of organizational strategy is then considered from a technical perspective. This section
stresses issues of representation and interoperability and focuses on the importance and use of controlled terminology and ontology. Social aspects of
interoperability are then considered and related to aspects of knowledge
management per se. The chapter closes with a brief account of the semantic
web. The role of the Internet as a vehicle for the exchange of data, information, and knowledge both within and between healthcare organizations and
their customers is expanding. The semantic web is a set of techniques and
standards intended to increase the capacity of the Internet as a vehicle for
data, information, and knowledge sharing.

Data, Information, and Knowledge: A Philosophical View

According to traditional accounts of knowledge, a person knows that something is the case if he or she believes that it is the case, he or she is epistemologically justified in holding that belief, and that belief is in fact true. According to traditional accounts of the relationship among data, information, and
knowledge, data are facts, information is data under an interpretation, and
knowledge is information incorporated into a broader context of belief.
Combining and extending these two accounts, (1) data are simple facts; (2)
information is an interpretation of data that relates or puts into some context
individual data; and (3) knowledge is information that is true or correct, incorporated into a system of belief, and believed with good reason.
Consider as an example the use by a physician of a relational database
containing patient information. A relational database consists of tables containing rows, which themselves contain individual fields of data. In this example the database would include a patient table, and each row of the patient
table would describe an individual patient. Individual fields in the patient
table might contain particular facts about the patient such as age, weight,
name, and diagnosis. The data are the values or facts in the individual fields.
The row relates the individual data as being about a particular patient and
thus constitutes information (see, e.g., Bellinger, Castro, and Mills 2004). Finally, the information about a patient represented by a row will constitute
knowledge if it is true, the physician believes it and incorporates it into a
larger system of belief, and the physician has good reason for believing it. For
example, the information that a patient has a particular disease or condition,
as represented by a row in the patient table, constitutes knowledge if that information is true and the physician drew it as a conclusion based on the best
practices of evidence-based medicine.

Managing Data, Information, and Knowledge


Controlled Representations and Interoperability of Data,

Information, and Knowledge
To contribute effectively to the success of organizational strategy, the management of data, information, and knowledge must prevent or overcome the
limitations of data, information, and knowledge silos. Put differently, a key
underlying theme in this chapter is the necessity for the interoperability of
data, information, and knowledge among systems, individuals, and groups
(see Case 5.1). One condition for interoperability is the use of data interchange or message standards, such as Health Level 7 (HL7) (Health Level
Seven, Inc. 2005) or SOAP (World Wide Web Consortium 2003) for exchanging data, information, and knowledge among information resources.
Another condition for interoperability, which we stress here, is the use of
controlled terminology- and ontology-based representations of data, information, and knowledge. Finally, another condition for interoperability, which
we also stress here, is proper management of the social or behavioral aspects
of the exchange and sharing of data, information, and knowledge in the organization. In this section we first consider interoperability from the perspective of controlled representations, focusing on controlled terminology and
ontology. The next section addresses knowledge management and some social aspects of interoperability.

As part of a hospital and clinic systems project to build a patient electronic medical record system, a core database group met weekly to discuss issues relating to
basic data elements and their display counterparts. In the course of one meeting,
during a discussion of what code sets would be used to record patient visits, one
member of the group, Mr. Johnson, urged that whatever decision was made on
that and related matters should be well documented. To emphasize the need for
such documentation, Mr. Johnson related a cautionary tale. Several years earlier,
Mr. Johnson said, in the course of preparing for a security audit, staff had discovered a series of medical record numbers that was not in use and whose purpose
was not documented so far as they could tell. Preparations for the audit required
that the series of medical record numbers be documented. After much consternation and digging through old files, staff were able to determine that those medical
record numbers were vestiges of a time when a mental health services unit, now
organizationally separate from the hospital and clinics, was part of the hospital.
The medical record numbers in that series were used at that time for patients of
the mental health unit. The point of the story, said Mr. Johnson, was that much
time and effort had been expended because some rather trivial documentation of
that series of medical record numbers did not exist. When Mr. Johnson had finished speaking, another member of the group, sounding exasperated, responded,
Well, all you had to do was ask me!
Problem Solving 5.1 details the issues surrounding interoperability of organizational knowledge.

CASE 5.1
Issues in


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Controlled Terminology and Ontology

Controlled terminology and ontology are but two of the various related terms
in common parlance; thesaurus, controlled vocabulary, structured vocabulary,
controlled terminology, taxonomy, classification system, indexing language,
subject indication language, namespace, and ontology are but a few. Each of
these terms refers to some kind of controlled language. Yet, there are indeed
different nuances of meaning among these terms and in some cases differences
among the kinds of representational schemes to which they refer. To simplify
matters, the terms controlled terminology and ontology will be used in this
chapter. This section describes basic features of each and discusses how they
are used to represent data, information, and knowledge.


Two examples of a controlled terminology are the International Classification of Diseases: 9th Revision, Clinical Modification (ICD-9-CM) (U.S. Centers for Medicare & Medicaid Services 2003) and Medical Subject Headings
(MeSH) (U.S. National Library of Medicine 2004a). ICD-9-CM is used for
the purpose of assigning controlled terms and codes to diagnoses and procedures associated with hospital utilization in the United States, whereas MeSH
is used to index the publications included in the National Library of Medicines MEDLINE/Pubmed system.
Basic features of a controlled terminology include
1. a thematically restricted set of terms that are multiword noun phrases
selected purposively from natural language;
2. a set of alphanumeric codes for the terms;
3. a set of semantic relationships defined on the set of terms; and
4. optionally, a set of entry terms.


Typically, a controlled terminology is focused on some more or less specific

subject domain or domain of practice. For example, a controlled terminology
might be focused on health services and contain terms that are noun phrases
referring to healthcare services, providers, or programs such as hospital,
outpatient clinic, support group, and so forth.


It is typical for terms to be associated with an alphanumeric code of some

sort, especially when the terms are to be used to represent or describe digital
information. For example, the term hospital from the health services terminology example above might be associated with the alphanumeric code


The semantic relationships (and in some cases definitions of the meanings of

terms) are sometimes referred to as syndetic structure. The semantic relationships may be hierarchical or nonhierarchical. Examples of a hierarchical relationship are broader than, is-a, or is a subtype of. An example of a

Managing Data, Information, and Knowledge


nonhierarchical relationship is is synonymous with. Consider the hypothetical example of a controlled terminology for health services. In such a terminology the term healthcare provider would stand in the relationship
broader than to the term physician, whereas the term physician would
be related by is-a to the term healthcare provider, and quite possibly the
term family practice physician would be related by is a subtype of to the
term physician. In addition, if the hypothetical controlled terminology includes non-English terms, it might contain the term mdecin (the French
word for physician), which would be synonymous with the term physician.
The entry terms are multiword terms that are not part of the controlled terminology proper (i.e., they are not used for representational purposes), but
rather are used to provide entry points to the terminology. For example, a
controlled terminology of diseases might include an entry term of sugar diabetes to support use of the terminology by laypersons. The term sugar diabetes would not be a term in the controlled terminology proper, but it
would provide an entry point to it. Users familiar only with the term sugar
diabetes could search, based on this term, to locate records actually encoded
with the related controlled terminology term diabetes mellitus.

Entry terms

With a working knowledge of controlled terminology in hand, one can now

profitably approach the concept of ontology, one current definition of which
is an explicit specification of a conceptualization (Gruber 1993). In the
strict sense of the term used here an ontology is a controlled terminology
with its syndetic structure expressed in formal logic (e.g., first-order predicate
calculus or some variant of it). An example of an ontology is the Systematized
Nomenclature of Medicine Clinical Terms (SNOMED CT) (College of
American Pathologists 2004). SNOMED CT is used for the purpose of assigning controlled terms and codes to clinical information such as that contained in the electronic medical record (EMR).
The added feature of formal, logic-based syndetic structure is a substantial advance over traditional controlled terminology, particularly with regard to
maintaining the consistency of the terminology. The use of formal, logic-based
syndetic structure allows for the automatic checking of consistency of term
definitions and term-term relationships. The possibility of automatic consistency checking may be unimportant for a very small controlled terminology,
but in a large terminology with thousands of terms it may be a necessity.


Typically, controlled terminology and ontology are used to represent data

and information in one of two ways. First, the individual codes or terms may
be used de novo to express facts about some entity. For example, codes from
the controlled terminology ICD-9-CM may be used to express diagnostic
facts about a particular patient. Second, the codes or terms may be used to
construct surrogate representations of extant information. For example,

Representational uses of
and ontology


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terms from MeSH are used in the National Library of Medicine MEDLINE/Pubmed (U.S. National Library of Medicine 2004b) system to construct representations of the informational content of medical literature.
In general, knowledge representations are themselves based on firstorder predicate calculus or some variant of it. Typically, controlled terminology and ontology participate in the representation of knowledge by providing
at least part of the lexicon for statements in the logic. Use of such logic-based
knowledge representations can enable an organization to better leverage its
data and information toward organizational goals. For example, use of controlled terminology and ontology can support the construction of knowledge
bases for use in medical reasoning. Such a knowledge base might consist of
unambiguous conditional rules that form the basis for a clinical reminder or
alert system intended to improve care and support quality improvement. The
use of a standard logic such as predicate calculus to represent the logical structure of the rules ensures that inferences from the knowledge base are logically
The use of controlled terminology and ontology as predicates helps to
ensure that the meaning of the rules is unambiguous. For example, consider
this conditional rule: If a person is overweight, then he is at risk for heart
disease. In this rule, the logical operator is the ifthen conditional, and
two of the predicates are overweight and heart disease. The rule might
be expressed as, If a person has android obesity (disorder), then that person
is at risk for heart disease (disorder), where android obesity (disorder)
and heart disease (disorder) are terms from SNOMED CT. The meanings
of those terms are explicitly specified in SNOMED CT and, taken with the
explicit logical structure of the rule, render the meaning of the rule unambiguous.

Interoperability of Data, Information, and Knowledge

Broadly put, the interoperability problem may be summarized by the following (see Problem Solving 5.1):
1. different actors, whether systems, individuals, or groups, will collect
data, information, and knowledge according to their needs and will represent and store it according to their local preferences;
2. other things equal, the value of that data, information, and knowledge
will be increased to the extent that it is available to and usable by others;
3. no given system, individual, or group will be conversant with the local
representation and storage preferences of every other system, individual,
or group; thus
4. some means must be provided for translating or mapping among different locally preferred schemes for representing and storing data, information, and knowledge.

Managing Data, Information, and Knowledge

In this case important organizational knowledge regarding the purpose of a particular series of medical record numbers was not generally available. Persons who
did have that knowledge did not realize that it was not more generally understood
and available. The lack of explicit documentation of that knowledge was not trivial
in its effects, but rather could have direct bearing on the achievement of the organizational mission with regard to Health Insurance Portability and Accountability
Act (HIPAA) compliance.
Explicit documentation of data, information, and knowledge representation
standards is always critical.
Organizational knowledge that is explicitly represented may become implicit
over time and become less generally available throughout the organization.
The problem of the interoperability of data, information, and knowledge
throughout an organization is only partially a technical informatics problem. It
is also a problem of social relationships, attitudes, and communication among
persons in the organization.

The use of generally accepted and well-documented standard representational schemes by different actors may not be required to ensure interoperability. However, the use of such standard schemes may facilitate interoperability. Controlled terminology and ontology as standards for representing data,
information, and knowledge have long been recognized as important to this
end. For example, in 1963 the Group dEtude sur lInformation Scientifique,
Marseilles, proposed a system of scientific information sharing based on the
idea of an intermediate lexicon (Coates, Lloyd, and Simandl 1979). A group
of scientific study centers could share information (e.g., scientific reports) by
use of a standard switching language, or intermediate lexicon. Each study center would use a controlled terminology or ontology, chosen according to local
preference, to represent its information. The information contained in a given
document or report would be represented by terms in the controlled terminology or ontology. For example, if the document were about possible links
between obesity and heart disease and the representational language were
SNOMED CT, the terms used might be android obesity (disorder) and
heart disease (disorder).
Interoperability would be achieved by the use of an intermediate language standard that would relate terms from different local controlled terminologies that express the same concept.1 By means of such an intermediate
switching language, it would be possible for a given study center to use its
customary local terminology to search for and acquire information in the collection of another study center even though that information was represented
there by a different controlled terminology. The key to this scheme, aside
from the intermediate lexicon or switching language itself, is that each individual study center uses a controlled and well-documented terminology to
represent the information in its collection.


Issues in


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A contemporary example of this solution to the interoperability problem is the Unified Medical Language System Metathesaurus (U.S. National
Library of Medicine 2004c). The Metathesaurus is a large database that relates
terms from more than 100 controlled vocabularies, terminologies, indexing
languages, and coding systems, including the three examples (ICD-9-CM,
MeSH, and SNOMED CT) discussed earlier. Collectively, these are referred
to as source vocabularies in the Metathesaurus documentation. The Metathesaurus is organized by meaning; terms from different source vocabularies are
linked by metaconcepts. Two terms are assigned to the same metaconcept
when those terms express or are names for the same concept. Thus, the
Metathesaurus provides a means of translating the representation of data, information, and knowledge based on one source vocabulary to a representation
based on another source vocabulary. For example, the Metathesaurus assigns
both the SNOMED CT term heart disease (disorder) and the ICD-9-CM
term heart disease, unspecified to the metaconcept C0018799. Using these
term-metaconcept assignments we can translate the ICD-9-CM term heart
disease, unspecified to SNOMED CT as heart disease (disorder).
The Metathesaurus (or similar technology) allows the organization to
make better use of its data, information, and knowledge by applying existing
knowledge to new data and information and by applying new knowledge to
other entities existing data and information, regardless of the parochial representational schemes that may characterize those separate repositories. Consider the rule discussed aboveIf a person has android obesity (disorder),
then that person is at risk for heart disease (disorder)where android obesity (disorder) and heart disease (disorder) are terms from SNOMED CT.
The Metathesaurus can enable reuse of the knowledge represented by that
SNOMED-centric rule by making it possible to apply that rule to data repositories based on other controlled terminology systems.
For example, with the aid of the Metathesaurus we might reuse that
rule for a data repository based on ICD-9-CM. Such reuse would depend on
the term-metaconcept assignments provided by the Metathesaurus. The
Metathesaurus assigns the SNOMED term android obesity (disorder) to
the metaconcept C0342940 and the SNOMED term heart disease (disorder) to the metaconcept C0018799. The Metathesaurus also assigns the
ICD-9-CM term obesity, unspecified to the metaconcept C0028754 and
the term heart disease, unspecified to the metaconcept C0018799. The
metaconcept C0028754 stands in the relation broader than to the metaconcept C0342940. In effect, the ICD-9-CM term obesity, unspecified
has a meaning that is broader than the meaning of the SNOMED term android obesity (disorder). Armed with these term-metaconcept assignments
one can translate the original knowledge rule to a nearly equivalent rule that
is applicable to the ICD-9-CM data: If a person has obesity, unspecified,
then that person is at risk for heart disease, unspecified.

Managing Data, Information, and Knowledge

Interoperability and Knowledge Management

The use of controlled representations may facilitate the interoperability and
sharing of data, information, and knowledge in a healthcare organization. The
use of such controlled representations is not, however, the only condition that
must be satisfied to facilitate such interoperability and sharing. For example,
as suggested by Case 5.1, much of a healthcare organizations knowledge assets may be locked away in the heads of members of the organization and may
not be generally available to their coworkers. In Case 5.1 there was no explicit
organizational memory or generally available documentation of the import of
the mental health unit medical record numbers. According to one point of
view, often referred to as knowledge management, ensuring the interoperability and sharing of data, information, and knowledge in an organization requires attention to the behaviors of persons and interactions among individuals and groups in the organization. This section presents the basic concepts of
and alternative definitions for knowledge management. Characteristics of
knowledge that must be considered in any attempts to manage it are examined. Finally, the objectives and success factors of knowledge management
projects are examined.
No generally accepted definition of knowledge management as a discipline currently exists. For example, a search on for definition of
knowledge management retrieved 25 different definitions; a sampling is
shown in Table 5.1. While there is no universally accepted definition of knowledge management, one element is common to almost all definitions: each includes some reference to the distribution or sharing of information and
knowledge across the organization. Facilitating the interoperability or sharing
of knowledge is a central goal of knowledge management.
Knowledge may be explicit or implicit. McInerney (2002) states that
explicit knowledge is knowledge that has been explained, recorded, or documented; according to McInerney, implicit knowledge is unspoken and
hiddensubjective and personal. According to Blair (2002), implicit
knowledge is that which has not been expressed but is potentially expressible, or that which is not expressibleor only expressible by demonstration. Note that the latter definition is somewhat at odds with the initial definition of knowledge as information that is incorporated into a belief
Knowledge may reside in the individual or in the organization. In the
organization, It often becomes embedded not only in documents or repositories but also in organizational routines, processes, practices, and norms (Davenport and Prusak 1998, as quoted by McInerney 2002). Some kinds of implicit knowledge can be shared only by direct contact and communication
between the possessor and receiver of the knowledge. For this reason one definition of knowledge management that is particularly attractive is that offered



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Definitions of
Retrieved from

Typically, the systematic management and use of the knowledge in an organization; or, more abstrusely, the leveraging of collective wisdom to increase responsiveness and innovation. (Delphi Consulting Group;
The use of computer technology to organize, manage, and distribute electronically
all types of information, customized to meet the needs of a wide variety of users.
A term with many meanings. It includes deliberate efforts to maximize an organizations performance through creating, sharing and leveraging knowledge and experience from internal and external sources. (
The way a company stores, organizes and accesses internal and external information. Narrower terms are: organizational memory and knowledge transfer.
The process of capturing value, knowledge and understanding of corporate information, using IT systems, in order to maintain, re-use and re-deploy that knowledge.
(See also the Frequently Asked Questions page.) (
A system or framework for managing the organizational processes that create,
store and distribute knowledge, as defined by its collective data, information and
body of experience. (
Capturing, storing, transforming, and disseminating information within an organization, with the goal of promoting efficiency at the least and innovation and competitive advantage at the most. (
Knowledge management is a concept in which an enterprise gathers, organizes,
shares, and analyzes its knowledge in terms of resources, documents, and people
skills. Knowledge management involves data mining and some method of operation to push information to users. (

by McInerney (2002): Knowledge managementis an effort to increase useful knowledge within the organization. Ways to do this include encouraging
communication, offering opportunities to learn, and promoting the sharing of
appropriate knowledge artifacts.
Knowledge management initiatives may take many different forms. Examining 31 knowledge management projects and the factors contributing to
their success or failure, Davenport, De Long, and Beers (1998) identify four
broad types of objectives: (1) create knowledge repositories, (2) improve
knowledge access, (3) enhance knowledge environment, and (4) manage
knowledge as an asset.
Although many discussions of knowledge management focus principally on the technologies enabling the creation and sharing of knowledge artifacts, technology is in reality a relatively small part of the picture. Issues related to the organization as a whole, to the human actors involved in the

Managing Data, Information, and Knowledge

creation and use of knowledge within the organization, and to the

processes by which knowledge is created and shared (or not shared) contribute more to the overall success or failure of knowledge management
projects than do issues related to the technology of knowledge capture and
distribution. Of the eight specific factors that Davenport, De Long, and
Beers (1998) identify as common to the successful knowledge management
projects they studied, only twotechnical and organizational infrastructure and multiple channels for knowledge transferrelated in part to
the information technology (IT) used. Another success factorstandard,
flexible knowledge structurerelated directly to the use of controlled representations. According to Davenport, De Long, and Beers (1998), building a knowledge base requires the use of controlled categories and key
terms, and it is often useful to have a thesaurus to connect the searchers
terms with the categorizers terms (in other words, a controlled terminology with entry terms). The remaining success factors of knowledge management projects relate to the human, organizational, and economic environment within which the project was situatedthat is, they relate to the
social aspects of interoperability and sharing of data, information, and

The Semantic Web

The Internet, or more commonly the World Wide Web or web, is increasingly used by healthcare organizations to share and exchange data, information, and knowledge both internally and externally. Yet, the web as it is currently constituted has severe shortcomings with regard to its support for
such interoperability and sharing. These shortcomings are due in no small
part to limitations of the representational scheme on which the web is
basedhypertext markup language (HTML) (World Wide Web Consortium 2004a). The semantic web is intended to be an extension of the current web in which information is given well-defined meaning and so better [enable] computers and people to work in cooperation (Berners-Lee,
Hendler, and Lassila 2001). An important limitation of HTML for the representation of information is described in this section. This discussion is followed by a presentation of how extensible markup language (XML) (World
Wide Web Consortium 2004b), together with another semantic web standard, resource description framework (RDF) (World Wide Web Consortium
2004c), helps to overcome those limitations.


At the present time most information on the web is presented in the form
of documents based on some more or less sophisticated use of HTML. For



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Simple Web

example, the simple web document shown in Figure 5.1 is based on the
HTML shown in Figure 5.2. The sequences of characters beginning and
ending with angle brackets are called tags. The key point to note is that
these HTML tags do not indicate the meaning of the data they enclose or
to which they attach. Rather, these tags indicate to some degree how the
data values should be displayed. So, for example, the tag <p> indicates that
a paragraph break should be used in displaying the attached value John
Smith, and the tag <br> indicates that a line break should be used in displaying the attached value 123 Narrow Street. That the tags do not indicate the meaning of the data or the semantic structure of the document
means that an attempt to automatically extract data and information from
the document will be an inexact and difficult task. Although a human can
extract the information by reading the document, automatic extraction is
not possible because the meaning of the data is not unambiguously specified
by the language itself. Automatic extraction is desirable to enable sharing of
data, information, and knowledge among computer systems.
Sample HTML

<Title>Simple Web Document Example</Title>
<H1>Address List</H1>
<p>John Smith
<br>123 Narrow Street
<br>St. Louis, MO

Managing Data, Information, and Knowledge

<?xml version=1.0 standalone=no?>

<?xml-stylesheet href=address_list_style type= text/css?>
<!DOCTYPE Address_list SYSTEM Address_list.dtd>
<!End of Prolog >
<! Beginning of Body >
<Name>John Smith</Name>
<Street_address>123 Narrow Street</Street_address>
<City_state>St. Louis, MO</City_state>

XML addresses this limitation of HTML by using tags that do indicate

the meaning of the data and the semantic structure of the document. (The
matter of indicating how the data and information contained in the document
should be displayed is handled as a separate matter that is not important for the
discussion here.) A web document similar to the one shown in Figure 5.1
might be based on the XML representation shown in Figure 5.3. The tag
<Name>, rather than indicating how the attached value, John Smith, is to be
displayed, indicates a semantic property of the value, namely that John Smith
is a name. Similarly, the tag <Street_address> indicates that 123 Narrow
Street is a street address. Moreover, the document as a whole has a clearly defined structure: the data tagged by <Name> are a part of the data tagged by
<Address>, themselves a part of the data tagged by <Address_list>. The use of
such semantic tags and clearly defined structure may facilitate the automatic extraction, or parsing, of data and information from the document. As might be
suspected, the semantic tags can themselves come from a controlled terminology or ontology, typically called (in the XML world) a namespace (World Wide
Web Consortium 1999), thus allowing for improved opportunities for interoperability and sharing of data, information, and knowledge.

There are many semantic web tools in addition to XML that may be used to
support interoperability, many more than may be discussed here. One such
tool of particular importance, however, is the Resource Description Framework (RDF). This chapter concludes with a brief introduction to RDF.
Typically, users may think of data as facts about things and processes in
the world. But data themselves may be the subject of data. For example, researchers may collect facts about when the data were recorded, how they were
recorded, the intended use of the data, and so forth. Such data about data are


Sample XML


T h e C o n t r i b u t i o n o f I n f o r m a t i o n Te c h n o l o g y t o O r g a n i z a t i o n a l S t r a t e g y

often called metadata. More generally researchers might consider metadata to

encompass data about data, information, and knowledge as well as data about
the computer systems and tools containing and providing access to them.
Controlled metadata representations of such resources can enable interoperability and sharing of the resources.
RDF is a language for representing information about resources in the
World Wide Web (World Wide Web Consortium 2004c). RDF allows for the
expression of statements ascribing metadata to data, information, and knowledge resources. For example, RDF allows for metadata ascriptions to a web
page such as title, author, and modification date of [the] Web page (World
Wide Web Consortium 2004c).
RDF statements take the form of triples consisting of a subject, predicate, and object. For example, suppose that the University of Missouri owns
an EMR repository. This fact might be expressed in RDF as a triple in which
the subject refers to the EMR repository;
the predicate expresses the relation is owned by; and
the object refers to the University of Missouri.
Such RDF triples may be expressed in an XML document such as the
one shown in Figure 5.4. Such documents have a clear structure that can be
parsed. For example, the uniform resource locator (URL) refers to the subject
of the RDF statement, the EMR repository, as http://muhealth.missouri
.edu/repository.html. The predicate of the RDF statement, referring to the
relation is owned by, is the term owner taken from the XML namespace Finally, the URL refers to the object of
the RDF statement, the University of Missouri, as http://www.missouri
Continuing with the key underlying theme in this chapter (i.e., the interoperability of data, information, and knowledge), consider two RDF statements describing the controlled data representation schemes of two resources
the hypothetical University of Missouri EMR repository and MEDLINE
/Pubmed. These two statements might consist of the following triples:
1. subject: University of Missouri EMR repository
predicate: represents data and information with
object: ICD-9-CM
2. subject: MEDLINE
predicate: represents data and information with
object: MeSH
Given RDF statements to that effect, and given an intermediate lexicon or switching language of the sort discussed earlier in the chapter, there
is great potential for interoperability between those two resources. That interoperability could in turn serve some larger purpose in the hypothetical

Managing Data, Information, and Knowledge

<?xml version=1.0?>
<rdf:RDF xmlns:rdf=
<rdf:Description df:about=>
<mu:owner rdf:resource=>

healthcare organization, perhaps contributing to improved quality of care

through the practice of evidence-based medicine.

The technical details (such as those shown Figures 5.2 to 5.4) aside, a most
important point to keep in mindparticularly for the student of health administration, but also for the student of health informaticsis that the management of data, information, and knowledge is only valuable to the extent
that it contributes to the success of the information, organizational, and enterprise strategies of the organization. In particular, controlled terminology
and ontology, knowledge management, and the tools and resources of the
semantic web are truly useful only to the extent that they increase the value
of the organizations data, information, and knowledge to those ends.

Questions for Discussion

1. Describe the nature and complexity of the problem of developing a
common vocabulary for clinical symptoms and services. How does the
ICD-9-CM coding system contribute to disease classification?
2. Evidence-based medicine might be defined as the appropriate application of the best available evidence to determine diagnosis and treatment
for patients. In the spirit of evidence-based medicine, should the controlled terminology and ontology used in knowledge representation be
evidence based? What would that evidence be like?
3. Consider the kinds of enterprise, organizational, and information strategies described in Chapter 2. How could knowledge management contribute to the design or implementation of such strategies?
4. Data, information, and knowledge resources are sometimes characterized by describing their inputs and outputs. Pick one resource with
which you are familiar and describe its inputs and outputs. Try to write
RDF statements describing those inputs and outputs.

RDF Triple
in XML



T h e C o n t r i b u t i o n o f I n f o r m a t i o n Te c h n o l o g y t o O r g a n i z a t i o n a l S t r a t e g y

1. The point of view according to which the terms from different controlled terminologies are judged to express the same concept is an important consideration. For a helpful discussion of these matters see
Campbell et al. (1998).

Bellinger, G., D. Castro, and A. Mills. 2004. Data, Information, Knowledge, and
Wisdom. [Online article; retrieved 8/15/04.]
Berners-Lee, T., J. Hendler, and O. Lassila. 2001. The Semantic Web. [Online
article; retrieved 3/9/05.] Scientific American 284 (5).
Blair, D. C. 2002. Knowledge Management: Hype, Hope, or Help? Journal of
the American Society for Information Science and Technology 53 (12):
Campbell, K. E., D. E. Oliver, K. A. Spackman, and E. H. Shortliffe. 1998. Representing Thoughts, Words, and Things in the UMLS. Journal of the
American Medical Informatics Association 5 (5): 42131.
Coates, E., G. Lloyd, and D. Simandl. 1979. The BSO Manual: The Development,
Rationale and Use of the Broad System of Ordering. The Hague, The Netherlands: Federation Internationale de Documentation.
College of American Pathologists. 2004. SNOMED Clinical Terms. Northfield, IL:
SNOMED International.
Davenport, T. H., D. W. De Long, and M. C. Beers. 1998. Successful Knowledge
Management Projects. Sloan Management Review 39 (2): 4357.
Davenport, T. H., and L. Prusak. 1998. Working Knowledge: How Organizations
Manage What They Know. Boston: Harvard Business School Press.
Health Level Seven, Inc. 2005. Health Level Seven. [Online article; retrieved
Gruber, T. R. 1993. A Translation Approach to Portable Ontologies. Knowledge Acquisition 5 (2): 199220.
McInerney, C. 2002. Knowledge Management and the Dynamic Nature of
Knowledge. Journal of the American Society for Information Science and
Technology 53 (12): 100918.
U.S. Centers for Medicare & Medicaid Services. 2003. International Classification
of Diseases: 9th Revision. Baltimore: U.S. CMS.
U.S. National Library of Medicine. 2004a. Medical Subject Headings (MeSH).
Washington, DC: U.S. Government Printing Office.
. 2004b. MEDLINE/Pubmed. [Online information; retrieved 8/15/04.]

Managing Data, Information, and Knowledge

. 2004c. UMLS Metathesaurus. [Online information; retrieved 8/15/04.]
World Wide Web Consortium. 1999. Namespaces in XML. [Online information;
retrieved 8/15/04.]
. 2003. SOAP Version 1.2 Part 0: Primer. [Online article; retrieved
. 2004a. HyperText Markup Language (HTML) Home Page. [Online information; retrieved 8/15/04.]
. 2004b. Extensible Markup Language (XML) 1.0 (Third Edition). [Online information; retrieved 8/15/04.]
. 2004c. RDF Primer. [Online information; retrieved 8/15/04.]

Further Reading
Aitchison, J., A. Gilchrist, and D. Bawden. 2000. Thesaurus Construction and Use:
A Practical Manual. London: Aslib, IMI.
Alavi, M., and D. E. Leidner. 2001. Knowledge Management and Knowledge
Management Systems: Conceptual Foundations and Research Issues. MIS
Quarterly 25 (1): 10736.
Cimino, J. J. 1998. Desiderata for Controlled Medical Vocabularies in the
Twenty-first Century. Methods of Information in Medicine 37 (4/5):
Nardi, D., and R. J. Brachman. 2003. An Introduction to Description Logics. In
Description Logic Handbook, edited by F. Baader, D. Calvanese, D. McGuinness, D. Nardi, and P. Patel-Schneider, 140. Cambridge, UK: Cambridge
University Press.
U.S. National Library of Medicine. 2004. Unified Medical Language System.
[Online information; retrieved 8/15/04.]




Enterprise Strategy

Clinical Strategy

Business Strategy

Organizational Strategy

Information Strategy


art II focuses on the relationship between information strategy and

enterprise strategy. Enterprise strategy consists of how organizations
position themselves in the market through specific initiatives and programs by coordinating operational strengths and market opportunities. Information technology (IT) has proven to be a powerful asset in developing
effective enterprise strategy in other service organizations and is emerging as
an effective strategy in healthcare organizations.
Chapter 6 examines how enterprise strategy in healthcare organizations has changed from a primary focus on facilities and direct clinical services, with a strong historical focus on hospitals, to the emergence of information and knowledge as loci of value. The chapter explores the strategic
implications of
transforming health information into intellectual capital and its use as a
strategic asset;
the demand for health information by consumers and their changing
role in the care-seeking and caregiving process; and
the implications of a more consumer-centric health system on organizational structure and strategy.
The remaining chapters in Part II focus on specific strategic developments enabled by changing scientific, clinical, and information technologies.
The selection of these topics was based on their considerable potential for effecting health system transformation.
Chapter 7 develops the concept of e-health and explores its potential
as a strategic initiative. E-health identifies a broad range of telecommunication technologies that give individual patients and the public access to information about health and disease. Such access is changing both the structure
of health services delivery and individual heath behaviors. The implications
for healthcare organizations that the chapter explores include

rapidly growing number and applications of telecommunication technologies in health maintenance and health services delivery;
effect of telecommunication technologies on enhancing and supplementing communication between healthcare professionals and patients;


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implementation and evaluation of systems design to interact directly

with the consumer, with or without the involvement of healthcare
providers; and
special applications for rural health, home health, and community-based
Analysts recognize e-health as a transforming technology in the health
system. It empowers consumers and changes information systems (IS) from
institution- to consumer-centric systems. Such a shift will have consequences
for organizational and enterprise strategies.
Chapter 8 examines the implications of the human genome project on
healthcare organizations and individual consumers. The results of the project
represent a monumental breakthrough in science and medicine and have had
immediate and profound effects on the diagnosis and treatment of diseases
and on disease prevention and health promotion. This major scientific development will generate new business opportunities, change the ways healthcare
organizations access and use health information, and affect the search
processes and behaviors of individual citizens. The human genome project
will generate strategic opportunities and threats to healthcare organizations
as they factor clinical genomics into their strategic and operating decisions.
The chapter includes a general description of genomics and proteomics and the implications for clinical medicine. It explores the
personalization of medicine by using genomic information in the diagnosis and treatment of many chronic and costly diseases;
structure and source of genomic data and their implications for the design and implementation of healthcare IS;
issues of privacy in the storage, access, and use of genomic information;
complexity of incorporating genomic and disease databases as a source
of clinical decision support information;
opportunity to provide decision support capabilities that simplify the
process of managing genomic information for clinicians; and
implications for health providers of individual citizen access and use of
genomic information in disease prevention and selection and use of
health services.
Chapter 8 explores the applications of genomic medicine for organizational and enterprise strategy. Before genomic medicine, many organizations
considered the use of advanced IT to support clinical practice as positive but
optional. With genomic medicine such systems will be essential.


Kenneth D. Bopp and Gordon D. Brown

Key Terms
Chapter Outline

Value Migration in Health Systems

Consumer Empowerment in Health Services
Strategic Leadership in Healthcare Organizations
The Coming Paradigm Shift in Integrated Health Delivery Systems

Learning Objectives
1. Understand the historical evolution of healthcare under the traditional
industrial-age strategic management mind-sets and approaches.
2. Understand the dramatic shifts associated with emerging knowledge
economy and implication of these shifts for strategic management thinking and implementation.
3. Compare and contrast traditional twentieth-century strategic mind-sets
and approaches to emerging twenty-first-century knowledge-age strategic management mind-sets and approaches.
4. Assess how IT has been and can be used to fundamentally transform
healthcare organizations and systems.

Value migration
Cocreation of

Chapter Overview
Since the early 1980s, the economic landscape has been transitioning from an
industrial economy to a knowledge economy. The emerging knowledge economy has produced at least four major forces causing a shift in strategic management thinking and implementation.
1. Value migration from visible assetsfinancial and physical capitalto intangible knowledge resources (Stewart 2001). In the emerging knowledge


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economy, intangible intellectual capital is becoming the preeminent resource for improving performance and organizational fitness and resilience in a turbulent environment (Leibold, Probst, and Gibbert
2. Transformation of passive consumers (patients) to active cocreators of
their health experiences. This change in consumer behaviors is being
driven by shifting consumer values and enabling information technology
(IT) (Prahalad and Ramaswamy 2004).
3. Digital technology that has dematerialized information and enabled the
separation of the information aspects from the physical world. Once IT
infrastructures and information are digitized, the information no longer
requires a physical object to carry it. Traditional activity clusters can be
unbundled in terms of place (where they are performed), time (when
they are performed), actor (who performs them), and actor constellation (with whom they are performed) (Normann 2001).
4. Shift from traditional inflexible hierarchical structures to more unconstrained, fluid, networked organizational forms that can adapt to rapidly
changing environmental and market conditions (Leibold, Probst, and
Gibbert 2002).
These knowledge economy discontinuities develop because of the complex interplay of consumerism, disruptive technologies, and new enterprise
logics capable of reconfiguring the roles and relationships among economic
actors to create value in new forms across traditional geographic, industry, and
organizational boundaries. In this economic transition, conventional enterprise strategies cannot deal with the changing consumer demands, rate of
technology and product innovation, or dynamics of the business sociocultural
systems. Because of the shift to the knowledge economy, strategic management thinkers are questioning traditional industrial-age enterprise strategies
and searching for new approaches to make sense in the emerging knowledge
economy. These researchers suggest that new strategic management approaches are necessary to bridge the disruptions and discontinuities in the environment in the twenty-first century (Glouberman and Zimmerman 2002;
Leibold, Probst, and Gibbert 2002; Plsek 2000). They suggest that the industrial-age assumptions underlying traditional strategic management are inconsistent with the rapidly changing environment and argue that healthcare and
the systems within which it is delivered are best understood and managed as
complex adaptive systems (Glouberman and Zimmerman 2002).

Value Migration in Health Systems

One might conclude in observing the health field that the healthcare industry has followed the industrial-age scientific management approach and tools.

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Such systems maintain traditional views of how work is structured and coordinated within hierarchical organizations and systems. The health system,
being an information- and technology-intensive business, might be expected
to be a leading sector in developing approaches to complex adaptive systems.
Toffler (1980) appears to have been correct when he concluded that because
education, and possibly health, is in the information and technology business,
it is more entrenched and thus threatened by profound structural change.
The concept of systems thinking is useful in describing the evolution
of the strategy and structure of the health system as health and medical
knowledge expands and new technologies are introduced. By focusing on systems instead of structure per se, a better understanding of the evolution of
the healthcare system and what healthcare organizations might look like in
the knowledge age can be developed. The structure of healthcare organizations and systems of the future using this method is admittedly somewhat
speculative, but it is grounded in considerable knowledge of what IT can
bring to the health system. Most of the evolution can be described as one of
change based on a fundamental set of assumptions about the roles of health
professionals and healthcare organizations in delivering health services. These
assumptions constitute the underlying principles on which systems and organizations are based. What might structures look like under assumptions of the
information age?

The Hospital as the Center of the Universe

In the first half of the twentieth century the health system consisted of family
doctors serving as independent practitioners for small, dispersed hospitals. In
the second half of the century the structure of the health system was characterized by the dominance of hospital organizations and systems built on industrial-age strategies and management practices. The emergence of the hospital
as the institutional center of the health system was facilitated by the federal
Hill-Burton program, which was dedicated to building hospitals, including
those in rural areas, and gave rise to a proliferation of hospital capacity. Beginning in the 1960s hospitals became regionalized in the market, increasing in
size and specialization and gaining prominence as major medical centers. The
pattern of regional hospital development was market driven, determined by
the volume of patients needed to support the increasing cost of technology.
The rapid increase in medical technology produced major increases in cost, all
of which fueled the regionalization of hospitals. This was due in part to
economies of scale and in part to levels of utilization necessary to sustain a level
of technical quality.
The rapid increase in medical technology also changed the composition of the medical and nursing professions. Medical specialists grew in number and prominence, replacing family doctors as the dominant physician class.
The emerging modern health system is thus characterized by a dominant hospital enterprise and medical specialists who practice there. This relationship is



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Network of
Health Systems

Resource Node


Private third-party payers
Purchasing co-op

Specialist and
Hospital ON

Framework of
agreements and
on system

CommunityBased Services ON



Knowledge-Based ON





Chronic Care



Primary Care
Distributor ON
Primary care
physician hroups
Independent primary
care physicians
Department of
health clinic


ON = Operational node

identified as the hospital-specialist operating node in Figure 6.1. The primary

care, chronic care, and community-based services existed during the period of
the regionalization of hospitals but were not part of the integrated system and
were somewhat subordinated to the dominant hospital systems. Each of these
operating nodes became more important strategically to hospitals, and as they
did they became formally integrated within hospital systems. To enable patients to pay for the rapidly increasing cost of specialized hospital care, commercial insurance companies were established. Private health insurance grew
rapidly following World War II because industries wanted to increase income
to workers during a wage freeze imposed by the government. With the rapid
increase in technology and an infusion of money, medical care utilization and

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costs soared. The growth of commercial insurance established a pattern of

payment of healthcare costs by private industry. Healthcare became available
to those employed in large corporations that carried commercial insurance
The cost of medical care surpassed the ability of the uninsured or underinsured to afford treatment, giving rise to a rapid increase in public financing. Public financing expanded through state welfare programs (Medicaid)
for the poor and those with major chronic diseases. Elderly persons were provided insurance through a federal social insurance program (Medicare). Reimbursement by Medicare and Medicaid was on a cost basis, and the cost of
healthcare continued to soar. The health system was in equilibrium with
evolving high-technology services provided in regional hospital centers and
public and private insurance programs to pay for them. This arrangement afforded the health system a period of major growth, providing the latest technology to those who had the financial means of accessing it. Pressures to
change the system arose from the rapid increase in costs, borne now by the
federal and state governments as well as private industry. The system entered
a period of disequilibrium.
From the mid-1960s through the 1970s, the health system introduced
several changes to dampen the cost increase by controlling capital investment
(Comprehensive Planning Act) and the rate of services utilization by changing from cost-based reimbursement to reimbursement by case or diagnosis
(Tax Equity and Fiscal Responsibility Act). These programs had limited effect on cost containment. When the country moved to more conservative
leadership in the 1970s, direct governmental intervention gave way to market change, namely financing systems. Health maintenance organizations
(HMOs) expanded through federal subsidies to change the basis of reimbursement from services provided to prospective payments based on a predetermined fee per individual enrolled in a health plan (HMO Act of 1973).
Change in financing set in motion a profound strategic transformation
within the health system. To a large degree managed care firms became the
service integrators shown in Figure 6.1 and generated higher levels of institutional competition within communities and regions. Suddenly faced with a
great surplus of hospital beds and additional competition to fill them, hospitals increasingly adopted competitive strategies and started to pursue horizontal integration. Horizontal integration characterized the early evolution
of multicorporate systems as occupancy rates fell and hospitals responded by
merging, buying the competition, forming consortia, or closing. Interorganizational relationships were between hospitals. This was viewed at the time
as radical change because institutions gave up a degree of individual autonomy. Traditional assumptions about the structure of healthcare organizations
and the health system did not change, however, because integration was between like institutions. This restructuring was termed horizontal integration



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because it joined units that were at the same stage in the production process.
Hospitals were determined to maintain their dominant position through consolidation, increased efficiency, and intense effort to increase reimbursement.
Consolidation and hospital closings gave rise to increased competition
as hospitals gave attention to doctors, who ultimately controlled the hospitals
fate because they controlled admissions. The dependence on referring physicians was well understood, but its importance increased with the falling rate of
hospitalization. The emerging corporate relationships between doctors and
hospitals caused a reexamination of their historically independent roles, as discussed in Chapter 3. The combination of increased competition and the
prospective payment financing system gave rise to doctors developing their
own group practice organizations or in some other way linking with hospitals
through physician-hospital organizations (PHOs). Vertical integration of the
system initiated a new set of assumptions about corporate structuring and the
relationship between doctors and hospitals. New strategies and structures
were forming but within the same set of assumptions about the dominant position of hospitals and specialists, who made up most of the PHOs.

Health System Increases Its Primary Care Focus

Health Maintenance Organizations and prospective payment mechanisms introduced one fundamental change that caused the health system to make a
transformational change. HMO plans introduced the concept of the gatekeeper, whereby patients must enter the system through primary care physicians. This gatekeeper role created a strategic interdependence between hospital systems and primary care physicians and a sharing of power with the
primary care operating node (see Figure 6.1). Specialists were no longer the
dominant gatekeepers to hospitals because control was moved higher in the
stage of production to the primary care physicians. Hospitals and newly integrated systems moved rapidly to link with primary care doctors and frequently made questionable acquisitions. Integrated systems rapidly moved to
create, buy, merge, or partner with clinics. In this race to acquire upstream
control of patient supply, the prices of many clinics became greatly inflated
with overly optimistic assumptions about volume. Many systems were put in
great financial peril that proved fatal for some. Hospitals were required to
rapidly develop diversification strategies as they created new business lines in
new geographic settings, in widely dispersed areas, and with business partners
(physicians) who had not traditionally functioned within corporate systems.
The vertical integration of hospitals and physicians represents a profound restructuring of the health system but did not shift the locus of traditional power from hospitals and specialists to primary care professionals and
health prevention and promotion services. The primary care system was
viewed by hospital systems as a means of channeling patients into inpatient
settings and feeding the factory, as one institution put it. The decision

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rules and financial incentives (see Chapter 3) introduced by managed care insurance firms were resisted by hospitals, physicians, and patients because they
restricted freedom of choice and available benefits, which blunted the development of the hoped-for population-based care emphasizing prevention and
health promotion. The primary care operating node remained as a new structural form in the health system. In some ways new structures and relationships among health professionals and between health professionals and organizations were developed. The structure of these hospital- and specialistdominated systems continued to be based on traditional strategic and operational approaches.

Chronic Care Services Become Integrated

Advances in medical technology allowed the health system to treat acute conditions that were theretofore untreated or unknown. These life-extending advances and the large baby boomer population cohort produced a growing
aging population and an increased demand for chronic care. These environmental forces, coupled with managed care pressures on hospitals to discharge
patients earlier to alternative settings, prompted hospital-based integrated delivery systems to add new business units (assisted-living centers, nursing
homes, hospice centers, and home care) to their strategic portfolios. The next
phase of the strategic transformation ushered in the development of integrated delivery systems to include nonacute and community-based care as reflected in the chronic care operating node in Figure 6.1.
The acquisition of home health, hospice, nursing home, community
mental health, and assisted-living services by hospitals represents a further diversification strategy. These services represent downstream integration of
posthospital or alternative hospital care. The chronic care strategy is motivated by the desire to develop new business lines to replace stabilizing or declining acute inpatient markets, controlling both upstream and downstream
markets to support traditional inpatient services and provide better integration of services across the spectrum of care. These new business ventures resulted in hospital markets and core technologies different from traditional
acute inpatient services. This diversification strategy has raised questions
about whether hospital-dominated systems are effective in developing and
managing services across the continuum of care. It contradicts the business
strategy of developing the core competency of a firm and focusing the investment and creative energy on those services the corporation performs best.
The core competency strategy has been overridden by a strategy of comprehensive service lines and domination in the market. Although these systems
became known as integrated delivery systems, little integration of clinical
services occurred.
The organizational strategy pursued by integrated health systems has
been to structure services as product lines or business units functioning with



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a high degree of autonomy. These hierarchical product structures are familiar to managers and consistent with a business strategy to deliver new services in competitive and changing markets. Product structures are motivated
to maximize the performance of the product and therefore optimize the business performance of the system. This might be an effective business strategy,
but a structure designed to optimize the performance of individual business
units inherently conflicts with the goal of integrating clinical services across
business units. Product line structures within integrated delivery systems raise
many of the same limitations as hierarchical functional structures in traditional hospitals. They typically have their own manager and management
structure. Information strategies have focused on supporting this organizational strategy when the strategy might be flawed.
Information strategy thus frequently resulted in automating existing
organizational strategies instead of being the driver to change them. This has
been the limitation of many traditional information strategies. The above discussion points to the propensity of health management to apply complicated
(machine) strategic management thinking to complex, multifaceted chronic
illness issues that are heavily interconnected and require much more coordination and integration of services across organizations and professionals. The
CASE 6.1
Develops a

Riverside Community Hospital has served its community for 55 years and has
prided itself on being a full-service hospital serving all the people in its service
area. Over the past decade the hospitals leadership has seen a trend that more
and more of its patients illnesses (e.g., heart disease, cancer, stroke, chronic obstructive pulmonary diseases, injuries, diabetes mellitus) have lifestyle and social
antecedents (e.g., tobacco use, substance abuse, obesity, violence) requiring a
comprehensive approach to patient care beyond the traditional medical model.
The health of these patients is shaped by the individuals genetic profile, environmental and other risk exposure, socioeconomic status, education, and family and
community context. For chronic conditions these at-risk individuals and families
need a broad array of services that are coordinated and integrated to adequately
address the interacting social, environmental, and lifestyle as well as physiological forces that influence health.
The hospital has an abundance of primary and specialty physicians and
other healthcare professionals and acute, ambulatory, and long-term care services. These services address primarily biomedical needs and are not oriented to
patient lifestyle or psychosocial aspects of health and disease. The community has
a fragmented collection of specialized human service organizations and professionals funded and operating within the boundaries of their organizational mandates and functional specialties and thus lacking coordination and integration with
other related service entities.
In response to its mission to serve the needs of the community, Riverside
took a leadership role in the formation of a regional community health collaborative to link human service agencies into an integrated service network to better
meet the multidimensional health needs of patients and their families. The community health collaborative is composed of representatives of community-based

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management of childrens asthma, for example, will inherently require the involvement of schools, as they are where kids spend much of their time. The intervention will involve, for example, cleaning mold from school walls and getting children in primary grades off dirty rugs for naps. The Austin, Texas,
school systems $27 million appropriation in 2002 to clean mold from between walls in its schools has the potential of doing more to address the problem of childrens asthma than does the emergency room. The inclusion of the
community-based services operating node into the health system has extended
the traditional boundaries of healthcare organizations and the health system.

The Nonsystem of Community-Based Services

There is a growing recognition that health status is complex, shaped by many
different spheres of influence in the realms of the individual organism, the individuals physical and social context, and the modes of interaction between
the individual and his or her environmental context (Glouberman 2001).
Therefore, to be optimally effective, clinical strategy must be extended beyond the traditional biomedical approaches to include the lifestyle, environmental, and social antecedents associated with chronic illness and death (see
Case 6.1). As clinical strategy for chronic care becomes more dominated by
human service organizations that have agreed to participate in an interdisciplinary
provider network. The goals of the collaborative include (1) negotiating agreements that link providers in a network so that a broad range of human services are
available to meet patients and families needs; (2) involving network providers in
developing an integrated service delivery model (client intake, assessment, integrated care planning, referral, coordination, and tracking) that facilitates service
provider collaboration to help patients with their multifaceted health problems; (3)
facilitating multidisciplinary collaboration through resource interface management
and training to help specialists effectively function as members of an interdisciplinary team; and (4) developing management systems including information and
communication systems.
To date the collaborative has been successful in achieving the first three
goals and is implementing its model of collaboration to deliver coordinated interdisciplinary services to residents. Information sharing among the participating
human service organizations is vital to the success of the collaborative. The collaborative continues to rely primarily on paper-based systems, with individual client
files being maintained in many locations. Interagency communication is by phone
and e-mail, with some exchange of individual files done by courier. The program
manager at Riverside decided that the hospital had the greatest capability of developing an integrated information system that had the capacity to (1) identify patients and their conditions requiring interdisciplinary care; (2) exchange information that specialists need to coordinate and perform their service delivery
activities; and (3) monitor service quality and service delivery productivity and
costs and measure patient outcomes.
Problem Solving 6.1 discusses some of the issues surrounding collaborative systems in greater depth.



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biopsychosocial approaches, healthcare organizations will have to change

from the hierarchical organizations of the past to diverse networks of intraorganizational relationships (interdisciplinary teams inside the organizations), extraorganizational relationships (inside the organizations value system of direct suppliers, customers, feeder channels, and direct customers),
and interorganizational relationships (with all relevant stakeholders in its sociocultural business system) (Leibold, Probst, and Gibbert, 2002).
In the past clinical care in an acute inpatient setting appropriately was
based on the assumption of the dominance of medicine and nursing. Managing health services across the continuum of care requires interdisciplinary
teams including physicians, nurses, social workers, nutritionists, physical therapists, occupational therapists, psychologists, pharmacists, and a range of
other specialists. The healthcare teams will not have a dominant profession,
but rather will function as a true interdisciplinary team with shared leadership.
This has not been characteristic of the structure of teams in an inpatient context.
Furthermore, the shift to managing the biopsychosocial aspects of
health maintenance and care will require the health system to develop a collaborative business and clinical strategy with a range of community and social institutions outside the health sector. The need to form collaborative
networks poses a new challenge for healthcare organizations because they
cannot incorporate them within the organizational strategy and design of
current self-contained integrated delivery systems. Integrated health systems
cannot acquire schools and social service agencies and incorporate them into
their organizational strategy. Managers and clinicians will be required to
manage services within structures that are not owned and using systems
other than traditional hierarchical management structures. The traditional
manager perspective that if it isnt owned it cant be managed is changing
to the management of service networks. New collaborative models that define goals and health outcomes and envision a new range of services are
needed. These systems will include professionals and institutions not traditionally found within integrated health system networks and not traditionally considered within the health system.
A business strategy that includes biopsychosocial services will have a
challenge to develop an effective operating strategy; managers will have to
think beyond the traditional boundaries of how work in organizations is
structured. Information strategy provides the potential for structuring and
managing work within collaborative sociocultural business systems. This is a
radical change in thinking about the provision of health services and health
services management. Information strategy has been directed at traditional
models of organizational strategy because IT managers were more oriented
to technology than to enterprise and organizational strategies. Managers increasingly understand the transforming potential of IT and are abandoning

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Advanced IT that can support the sharing of information among member agencies
of the collaborative involves a number of issues. Most agencies do not have electronic records or information dissemination beyond the Internet. Those agencies
that have electronic systems, frequently state or county human services agencies,
have designed them within their own functional structures. To a large degree the
issues faced by community collaborative organizations are similar to those found
historically within hospitals and healthcare organizationsfunctional silos and
the problems of interoperability of databases. The issues are complicated in this
case by the fact that no central administrative and governance structure exists.
Beyond the issues of interoperability of information systems are the traditional challenges of developing collaborative goals, individual agency roles, and
governance structure. To a large degree the operating structure of the collaborative can be built around its information structure, which includes
data standards to ensure interoperability;
information on agency qualifications and capability embedded within the
treatment protocols matched with agency capacity; and
outcomes measured against standardized benchmarks.
Think about the structure of collaborative networks with regard to the commitment of each member to its specialty area, ease of adding or reorienting services, and capacity to provide integrated community-based services. Each of the
participating agencies has a statement about integration and community- or patient-oriented care but can address only a few facets of this complex challenge.
They attempt to integrate within the context of the services a given organization or
agency provides. It is essential that a true client- or patient-oriented system views
care from the perspective of the client or patient. An information-based collaborative or organizations can bring the level of integration needed without bringing all
of the agencies within a single hierarchical structure. Each agency can focus on its
priority and what it does best. How many other services within large complex integrated delivery systems might also be better managed through such a structure?

traditional organizational strategies. The integration and management of

health services within collaborative arrangements will be through information structures (see Problem Solving 6.1). Traditional thinking about the
subordinate role of information in carrying out organizational strategy will
have to be replaced by viewing information as a transforming strategy.

Consumer Empowerment in Health Services

Todays healthcare consumers are increasingly becoming active participants
in their healthcare. The changing demands of healthcare consumers have a
great deal to do with the aging baby boomer population, which has a strong
desire to be in control and insists on a very high degree of information and
participation in decision making. This consumerism movement in healthcare


Develops a


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is nowhere as apparent as in the rapid growth of health sites on the Internet

and the volume of health information available to inform health consumers.
Consumers enabled by the Internet are proactively seeking information
about diseases and treatments and clinical outcomes of doctors, hospitals,
and clinics; they are following the latest clinical drug trials and experimental
procedures as well as sharing their personal experiences with other consumers. In addition, they are following the innovations in pharmaceuticals,
biotechnology, nutrition, cosmetics, prevention, and lifestyle changes that
promise improvements in the quality of life and are transforming their concepts of health and how to stay healthy.
Traditional healthcare strategic thinking started with the premise that
healthcare organizations and professionals create value (information and
services) and patients are receivers and users of these healthcare products.
However, informed healthcare consumers increasingly want control of their
lifestyles, behaviors, and decisions affecting their bodies and are actively determining the health information and healthcare value bundle appropriate for
them. Often, their search for health promotion and disease prevention and
management packages extends beyond traditional healthcare industry
boundaries. Such consumerist attitudes and behaviors and the availability of
information are empowering consumers (patients) to partner in shaping their
health path and experience.
The emerging change in consumer values is characterized by their involvement in and responsibly for gathering information about their condition
and decisions about the nature and implications of treatment processes. They
increasingly demand not just being informed but direct involvement in clinical decisions made on their behalf. This health-creating space not only shifts
the focus from the provider to the consumer but it also centers on the customers personalized cocreation of health experience (Prahalad and Ramaswamy 2004). In this strategic mind-set, value lies in the cocreation of the
health experience of a specific consumer, at a specific point in time, in a specific location, in the context of a specific event (Prahalad and Ramaswamy
2004). Value does not stem merely from health information, provider-patient
encounters, diagnostic tests or images, procedures, and prescriptions, nor
from the IT network that supports the system. This premise suggests that
healthcare organizations and professionals must shift their attention to the
quality of patients total cocreation experiences, not just the quality of
provider-centric outputs (e.g., visits to the doctors office or clinic, hospital or
nursing home stays, diagnostic or therapeutic procedures, health communications). Furthermore, it requires healthcare organizations and professionals to
view patients as coproducers of health to understand the consumers healthcreating system and refocus their offerings from traditional outputs (health information, provider-patient encounters, diagnostic tests or images, procedures, prescriptions) to inputs used by customers in their health-creating

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systems (Normann 2001). The quality of cocreation experiences will depend

on an infrastructure that has the capacity to create a variety of interaction experiences between the organization and diverse customers. To enable a diversity of cocreation experiences, healthcare organizations must build a collaborative sociocultural business network with other organizations that allows
individuals and their families to personalize and cocreate their health.
The previous sections discussed the horizontal and vertical organizational structures based on traditional mechanistic strategic management
thinking. They portrayed evolving healthcare organizations as hierarchical
provider-centric chains of value-adding activities and relationships with patients. In the emerging knowledge age the healthcare organizations role is
shifting from a value-providing entity, just fitting reactively into the healthcare industrys value-chain configurations, to a collaborating entity in the
coshaping of customer value propositions and (re)configurations of value
networks to cocreate customer (patient) experiences. For example, a child
with neurodevelopmental disabilities and his or her family often suffer from
intertwined economic, social, educational, and behavioral health problems as
well as physical health problems. In traditional uncoordinated human services systems such a family has to navigate a maze of fragmented human services organizations. The burden of coordination and integration of service
plans and accessing services in provider-centric space is on the family. The
(re)configuration of value networks to cocreate customer experiences shifts
the burden back to the networks of organizations to collaborate with one another and the family to cocreate and deliver a coordinated bundle of physical
and mental health, social, and educational services. In this context the healthcare networks latent processes are influenced by and activated on the request
of empowered patients and human resources personnel inside and outside the
organization. This changes fundamentally the strategic management perspective to multidimensional network structures such as the diverse networks of
intraorganizational, extraorganizational, and interorganizational relationships
mentioned above (Leibold, Probst, and Gibbert 2002).

Knowledge-Based Operating Node

In the emerging environment, where healthcare strategy is influenced by the
actions of consumers (patients) as well as diverse organizations that coshape
the patients health experience, knowledge and the capability to create and
utilize such knowledge are the most important sources of the organizations
and networks existence and resilience (Davenport and Probst 2002; Davenport and Prusak 1998; Drucker 1993; Nonaka 1991; Stewart 1997; Teece
2002). Consumerism requires healthcare organizations and professionals to
understand the consumers health-creating system and refocus their offerings
from outputs (e.g., health information, provider-patient encounters, diagnostic tests or images, procedures, prescriptions) to inputs used by customers in



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their health-creating systems (Normann 2001). In this reframing, the healthcreating space not only shifts from the provider to the consumer but it also
centers on the customers personalized cocreation of health experience (Prahalad and Ramaswamy 2004). Harnessing the competencies of the consumer
involves more than just setting up a dialog. Health managers and clinicians
also have to realize that the customer is no longer merely interested in receiving health information or services. The information or service is increasingly
becoming an artifact around which customers have a value-creating experience (Prahalad and Ramaswamy 2004).
Organizations, including healthcare organizations, are using tools like
customer knowledge management, communities of practice, network incubators, organizational knowledge audits, as well as the socialization-externalization-combination-internalization (SECI) model to promote interorganizational knowledge sharing, creation, and transformation. Organizations that
want to improve their performance in providing personalized cocreation of
health experience will focus on three sorts of knowledge: (1) knowledge
about patients and/or populations that allows clinicians and healthcare organizations to understand the patients and/or populations health-creating
system and needs; (2) knowledge for patients and/or populations that informs clinicians and the healthcare organizations of the information needs
patients have in their interactions with healthcare providers; and (3) knowledge from patients and/or populations that allows melding of patients
knowledge of their lifestyles, behaviors, body functioning experiences, and
health-creating support system with provider knowledge and technology to
provide more robust healthcare solutions (Nonaka and Takeuchi 2004).
Like the World Bank, organizations may create communities of practice to informally link people across traditional boundaries by sharing expertise, interest, and mutual enterprise passions either in face-to-face meetings or
virtually via the World Wide Web. Other mechanisms that organizations like
Ford and Honda have used to promote knowledge creation and deployment
are network incubators and SECI models. A network incubator is a mechanism to foster partnerships and facilitate the flow of knowledge and talent
and the joint development of innovative products. SECI creates knowledge
within an organization or interorganizational network through the interactions between explicit and tacit knowledge.

Personalization of Healthcare Services

Moreover, customers are not prepared to accept experiences designed by organizations. Increasingly, they want to shape those experiences themselves,
both individually and with experts or other consumers. Therefore, it is important to distinguish personalization from customization. Customization assumes the provider organization will design a product to suit the customers

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Personalization requires the ability to manage health services across organizations and systems as well as across communities of consumers that are
part of the patients health-creating system. A single institution or professional
as the unit of analysis does not provide sufficient structure to manage cases
across professionals, institutions, systems, and consumer communities. The
backbone of the structure will be an integrated information platform that allows for accessing information, multiparty dialog and sharing of information
among and between the network of providers and communities of consumers,
coordinating work, and embedding knowledge in health experience products
provided to patients. These information and knowledge systems include but
extend beyond the current clinical decision support systems within hospitals
and clinics. Successful strategic management in the emerging healthcare environment is critically dependent on managing knowledge effectively across an
organizations sociocultural business system, which includes consumers. Figure 6.1 identifies the knowledge-based operating node representing the movement into an information- and knowledge-based health system.

Collaboration Within the Sociocultural Network

Information provides the medium through which an organization relates to its
environment, including its sociocultural business network, but knowledge will
determine how individuals within the sociocultural network will react to external changes and influence and coshape the environment. Information and
knowledge and the mechanisms for delivering them form and stabilize the organization and the sociocultural structures as well as the underlying competitive and collaborative advantage of the network. The value-added information
and knowledge are derived in part from the structure of the integrated information networks themselves and how they access data from common databases, access information for all users, and customize information and ease of
use for each user. These activities will be carried out initially by existing organizations and will no doubt give rise to new organizational forms.
Strategically, information systems (IS) must provide the information
and knowledge to make sense of a constantly changing environment, reinvent
customer value propositions, and reconfigure business value networks and
business models to sustain organizational and sociocultural resilience. Knowledge-based health systems also should focus on health outcomes, clinical and
business processes, process-outcome relationships, and process improvement.
The organizations knowledge stock to successfully compete and collaborate
in a knowledge-based economy is derived through interentity learning that
takes place through the following knowledge management processes: the
SECI model of knowledge creation (Nonaka and Takeuchi 2004) and deployment (communicating, transferring, disseminating, sharing); and transformation (compiling, formalizing, standardizing, explicating) (Asoh, Belardo, and
Neilson 2002).



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Informed Decision Making

Another value-added contribution of information-based health systems is the
level of knowledge embedded within IS to facilitate informed decision making. Historically, new clinical technology that became accepted by the medical
specialties took years to come into common practice (Balas and Boren 2000).
The means of diffusing this information were continuing education seminars,
journals, national meetings, pharmaceutical representatives, and so forth.
Through integrated IS, information can be brought to the point of clinical decision making for all physicians in the network instantaneously. These knowledge-based IS have the ability to bring the best scientific information to clinical and business decision making and represent the application of third-wave
technology to the health system (Toffler 1980). Knowledge-based systems are
consistent with the culture and values of health professionals. Value has thus
migrated from bricks and mortarmachines and bureaucraciesto knowledge-based decision making.
High levels of quality and performance will be achieved by acquiring
an increased understanding of outcome-process relationships drawing on the
best scientific evidence. Available IT far surpasses its effective application to
support high-performance clinical work units. It is not IT that is lacking per
se, but rather the failure to use information as a basis for restructuring work
processes and organizations themselves. The failure of healthcare organizations to sufficiently invest in IT (see Chapter 9) is outweighed by the failure
to effectively use the current investment. Where investments have been
made, they have not proven to be sufficient to bring about change. For this
reason investment in, for example, electronic medical records or personal digital assistants, has raised questions about return on investment.

Transformed Structures
Information technology coupled with growing consumerism can be expected to further affect the historical primacy of location and geographic determinism in health and healthcare because cyberspace is not geographically
located or clearly demarcated with borders. The ability of digital technology
to break the link between the information or knowledge and the physical
world is an important tool in transforming the very structures and processes
by which health is cocreated. Traditionally, healthcare offerings (outputs
provider-patient encounters, diagnostic tests or images, procedures, prescriptions) have primarily consisted of frozen information or knowledge
packaged in activities and processes whose delivery has been physically constrained by time (when things can be done), place (where things can be
done), actor (who can do what), and constellation (with whom it can be
done) (Normann 2001). Healthcare organizations must now shift from designing products as frozen knowledge to cocreating personalized experiences through sequences of being, unbundling information or knowledge
liquefying (digitizing)and rebundling it based on the patients changing

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health experience needs and the provider networks changing capabilities

(Normann 2001). In this process the IT infrastructure provides a platform
on which value cocreation can take place in the consumers time-space-experience network. Therefore, a key challenge for healthcare organizations
and networks will be to design structural and IT capabilities to support the
reconfiguration of a whole process of value creation so that the process,
rather than the physical product, is optimized in terms of relevant actors,
asset availability, and asset costs. Normann (2001) suggests that these reconfiguration challenges may include
The movement of place of the assembly of knowledge and service from
some factory (e.g., clinic, hospital, nursing home) to another, more
consumer-centric place
The movement of the time of value creation (with reference to the time
of purchase) from past or present to the future
A shift from the healthcare professional(s) as the dominant value creator
to the consumer cocreating value with professionals
The customer, in partnership with the professionals, designing the
value-creating constellation consisting of professionals, family, friends,
and other community assets
The question is not who will invest in the IT, but rather who will
change the structure of work processes and organizations to support them.
Issues include how work and organizations will be structured (hierarchical vs.
networks), how outcomes will be evaluated (institutional or professional vs.
population or patient), how services will be reimbursed, and what types of
knowledge and skills will be required for consumers and health professionals
to work in such environments.
The restructuring of healthcare business and clinical mind-sets and
work processes will not be an easy problem to solve. However, the failure is
not that the problem has not been solved, but rather that it has not yet been
identified as the problem. Healthcare business and clinical leaders implicitly
view complex health and healthcare system problems from a traditional perspective and continue to employ solutions that are wedded to complicated
(mechanistic) thinking and analytical approaches amenable to focusing on
the systems parts. Current leaders are still investing in IT to solve problems
defined using obsolete industrial-age assumptions. Health leaders need to
shift paradigms and apply complex adaptive systems thinking to complex
health and healthcare system problems. They need a holistic system perspective that recognizes that these systems are not simply complicated, as in having a lot of parts, but that the factors influencing health and the parts of the
healthcare system interact and relationships change in the face of changing
circumstances. Thus, the nature of the interactions often cannot be deduced
from the characteristics of the individual elements in isolation; the parts can
only be understood in the context of the larger whole.



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Strategic Leadership in Healthcare Organizations

As described above, the U.S. healthcare system has become increasingly complex since the 1960s and has undergone constant economic and structural
change. In applying industrial-age mechanical (reductionist) thinking,
healthcare leaders have implicitly defined complex problems as complicated
and hence employed solutions that are wedded to rational strategic management approaches. These complicated repairs have not worked and resulted in
unhappy clinicians and patients as well as the continued upward spiraling of
costs. It is becoming increasingly clear that healthcare and the systems within
which it is delivered are best understood as complex adaptive systems (Begun
1994; McDaniel 1997; Priesmeyer and Sharp 1995). The assumptions underlying rational strategic management approaches are inconsistent with
complex adaptive health systems. Hence, strategies based on traditional
strategic management approaches can have significant unintended consequences when applied to complex adaptive systems such as healthcare.
The science of complex adaptive systems brings the following premises
of strategic management thinking:
Self-organization: all things tend to self-organize into systems naturally
through the implementation of self-organizing principles. Self-organization behavior triggers transformation (Plsek 2000).
Dynamic interactions: collections of individual agents who have the
freedom to act in ways that are not always predictable and whose actions are interconnected such that one action changes the context of the
other agents (Plsek 2000).
Unpredictability and nonlinear, natural consequences: because the systems elements are adaptive, relationships are nonlinear, and the behavior is creative and emergent, the only way to know what a complex
adaptive system will do is to observe it. This behavior that occurs spontaneously and unexpectedly follows a different set of rules or patterns
(Leibold, Probst, and Gibbert 2002).
Systemic change is a continuous, relentless process: complex adaptive
systems move forward through constant tension and balance. Coevolution results from interdependent webs or networks experiencing continuous waves of changescomplex systems constantly coalesce, decay,
change, and grow (Leibold, Probst, and Gibbert 2002; Plsek 2000).
Influencing and coshaping of the sociocultural business system is
achieved by managing initial conditions and underlying forces (attractors and coherence mechanisms) that organize and guide the system: attractors such as values and vision create constraints on the activities of
the entities nested in the system. As behavior patterns can emerge without being intended, that is, in a chaotic way, influence of attractors (or

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coherence mechanisms) through self-organization can be orderly even

without central control (Plsek 2000). Strategic management now includes the manipulation of these concurrent and paradoxical elements
to create and sustain a healthy, evolving ecosystem.
Cultural values are the basis for establishing relevant boundaries: sociocultural business systems are the result of interventions by individuals
and groups, and cultural norms determine the limits on these interventions (Leibold, Probst, and Gibbert 2002).

The Sociocultural Business System

The complex adaptive system strategic management approach does not view
an organization as a member of a single industry, but rather as a part of a sociocultural business system that crosses a variety of industries and is open to
multidimensional knowledge impacts and influences. From this perspective
the boundaries of organizations are regarded as permeable and shaped by
many actors in the sociocultural business community. The strategy focus of
an individual organization is to coshape and coperform with other players in
the business community and to build co-opted capabilities (including with
customers) in the sociocultural business system, often around new customer
value propositions. In the context of the sociocultural network, players work
collaboratively and competitively to support the development of new products, satisfy different customer needs, and reconfigure the roles and relationships among this constellation of actors to mobilize the creation of value in
new forms and by new players. A central strategic challenge for organizational leaders in a complex adaptive system will be to design ambidextrous organizations that simultaneously function in a collaborative and competitive
mode. Multiple structures and dichotomous strategies will be essential for
these organizations. Some traditional parts of a business have to be managed
by mechanistic approaches of efficiency, whereas other entrepreneurial, flexible parts have to be nurtured with a complex adaptive approach to foster innovation (Leibold, Probst, and Gibbert 2002).
The healthcare organization of tomorrow is not likely to look like any
of the traditional healthcare organizational models; rather, it will be more like
some of the novel hybrid designs now being pioneered in other industries.
Some healthcare organizations have started to unbundle their integrated corporate structures, but none have unbundled the processes that span a disaggregated nodal structured enterprise. ViaHealth, Inc., the not-for-profit corporation that owns Rochester General Hospital and the Rochester Heart
Institute, has negotiated an agreement for the Cleveland Clinic to become the
heart care provider for the institute and the hospital (Mexger 2003). Other
healthcare organizations are pursuing similar intelligence inside strategies in
other chronic disease areas. This may be a first step in interorganizational collaboration, but it is a very small step on the road to the level of collaboration



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of sociocultural business systems. Most healthcare organizations cling to a

managerial preference for controlling their activities tightly even if they now
contract for, rather than directly own, those activities. But by tightly managing the work of specialists, such organizations limit the value that innovative
thinking might yield. Managing their processes more loosely in the context of
a sociocultural business system, healthcare organizations can achieve the full
value of specialization for themselves and other entities, including customers
in the sociocultural network. In other industries leading-edge organizations
are swapping their tightly coupled processes for loosely coupled ones, making
themselves not only more flexible but also more profitable.
Success in loosely coupled sociocultural business systems is achieved
through collaboration. Successful organizations in sociocultural networks,
unlike organizations that primarily focus on internal capabilities, pursue
strategies that not only aggressively further their own interests but also promote their networks overall health. These leading organizations, which Iansiti and Levien (2004) call keystone organizations, provide enabling services,
guidance, and coherence mechanisms to the network as well as organizational
context that facilitates the coshaping of business models and network configurations for renewal and collaborative success. Keystone organizations, as illustrated in Figure 6.2, play a critical role in business ecosystems by providing vision, values, and basic rules that provide coherence for network players.
This figure delineates the sectors that most affect health conditions and
health and other services to improve the health condition. These nodes represent the range of economic, social, cultural, and behavioral conditions that
are known to determine the levels of health and well-being of individuals in
a population. The health system has a limited, albeit an important, impact on
the health of the population in a community. Health organizations in the future will have the task of collaborating with other human and social service
agencies to improve human health and the human condition. Maybe health
organizations and professionals can play a lead role in integrating these services, but more likely they will play a lead role when the individual case calls
for medical care and a collaborative role when conditions call for other social
and human services. This is the concept of keystone organizations.
Keystone organizations improve the overall health of their ecosystems
by providing a platform, an asset in the form of services, tools, and technologies that offers solutions to others in the network. Keystones share throughout
the ecosystem much of the value they have created, and this is critical to network members continued participation and the keystones success. They can
also enhance ecosystem robustness by consistently incorporating technological
innovations and providing a reliable point of reference (managing meaning)
that helps participants respond to new and uncertain conditions of the evolution of a self-organizing system. Another contribution keystones can make is to
increase ecosystem productivity by simplifying the task of connecting network

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Resource Node

Managed care
Medicare and Medicaid
Other insurance
Categorical funded
Medical ON
Hospital and specialists
Primary care
Rehab institution,
nursing home, home
health and hospice
Public Health ON

Behavioral Health ON
Substance treatment
Mental health

Support ON
Respite services
Outreach services
(home visitation)
Peer counseling and
crisis intervention
Recreation and


Organization Node

Promotion and
Health inequalities

Shared Vision & Values

tools, technologies
Manage Meaning
Education ON
Education and
literacy services
Parent education and
Nutrition information
Life management
Income Security ON
skills and training
Job readiness counseling
Job training

ON = Operational node

participants to one another or by making the creation of new products by third

parties more efficient. Finally, keystones facilitate the sociocultural networks
knowledge management processes and the creation and deployment of knowledge to fuel the networks process and product innovation.
The task of strategic management in the emerging knowledge age is not
to foresee the future or implement organizationwide change programs; rather,
it is to establish and modify the direction and boundaries within which effective self-organized solutions can evolve. Nonlinear sociocultural systems react
to direction in ways that are difficult to predict and control. However, managers can guide the evolution of a self-organizing enterprise more effectively if
they gain more knowledge of the dynamics of the organizations sociocultural


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business system. Anderson (1999) proposes that managers can influence

self-organization by environmental selection, defining performance, managing meaning, choosing people, reconfiguring the network, developing indirect selection systems, and energizing the system. By using these levers,
managers provide influence and governance to the sociocultural systems

Strategic Management of Knowledge Resources

These hybrids require complex coordination promoted by advanced IT and
organizational cultures that foster cooperation. But structure is only one element of organizational design. Wide-scale collaboration will be an imperative
for twenty-first century-health and human service organizations and professionals. Leaders must move from a preoccupation with internal governance
and examine new governance processes. As collaboration moves forward,
leaders will be consumed with issues of contracting, ownership of intellectual
property, risks versus rewards, the role of the sociocultural network (nodal organization), and, even more fundamentally, how value is created and shared
among the members of the network in an equitable and appropriate manner.
It is also critical for managers to recognize that information infrastructure,
with all of its social and technical dimensions, is central to the new forms of
collaboration. The ability to elicit tacit knowledge, and to collaborate across
cultures and distances and multiple agendas, requires a technical infrastructure that can seamlessly handle structured and unstructured information,
text, images, audio, video, and all sensory data.
In the knowledge economy, successful strategic management is critically dependent on managing knowledge effectively. Knowledge emanating
from individual professionals and consumers, and organizational and communal knowledge within the sociocultural business system, is continuously
converted through the interactions among individuals in the business network into new knowledge through an SECI process (Nonaka and Takeuchi
2004). The business networks stock of knowledge and the deployment of
this knowledge becomes an important strategic asset in creating innovative
processes and products. Consequently, creativity and deployment are now
recognized as among the most important sources of innovation and new
customer value propositions. Information and knowledge and the IT infrastructure for delivering them do not just provide the basis for continuous innovation and adaptation to cocreate personalized customer (patient) health
experiences but also facilitate the formation and stabilization of the interorganizational connections within the sociocultural business system and underlie competitive and collaborative advantage. Furthermore, knowledge
creation and utilization are essential to the networks ability to dynamically
reinvent business models as circumstances change in the global environments external sociocultural business system. Knowledge managements

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role in this larger environmental context is to develop knowledge that allows

managers and clinicians to better sense new customer value propositions,
technology breakthroughs, reconfigurations of networks and business infrastructures, and economic or profitability opportunities that have relevance to
the future performance of the sociocultural network (Leibold, Probst, and
Gibbert 2002).

The Coming Paradigm Shift in Integrated Health

Delivery Systems
Figure 6.1 demonstrates the value migration from the hospital and specialist
node to the primary care node, to the sociobehavioral services node, and to
the community-based services node. These are profound transformations of
the system because they require involving new institutions, new professionals,
and a multiinstitutional perspective. The transformation becomes more revolutionary when consumerism is added to the picture, with a health-creating
space not only shifting from the provider to the consumer but also centering
on the consumers personalized cocreation of health experience. The shift to
a knowledge- or network-based system requires a fundamental transformation
of organizations, financing systems, regulations, health professions training,
accreditation, and values to align with the technology and information revolution. The transformation will require a change in the business and clinical
leadership mind-set from traditional strategic thinking to complex adaptive
systems thinking. Leaders also will have to master very different managerial

Essential Leadership Characteristics

Leibold, Probst, and Gibbert, (2002) suggest that four major leadership
characteristics are required for resilient sociocultural business systems. First,
leaders of sociocultural business systems must be able to bring into focus the
shared vision of the network and its constituent organizations. To establish
and sustain identity of the network and its organizations, leaders must nurture shared vision, culture and beliefs (values), mutual understanding (shared
meaning), and member alignment in coevolving the network. Second, leaders orchestrate an influence on the network environment that is at different
times destabilizing, energizing, and guiding business systems stability. That
is, leadership must promote and support innovation sometimes by intentionally upsetting the status quo, escalating some changes while dampening others, and seeking states of equilibrium. Third, leaders must be adept at configuring and cultivating business networks and models in ways that promote
self-organizing, interorganizational learning and cocreation of knowledge,
and coshaping of business models, processes, and collaborative relationships.



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Fourth, leaders must be skilled in managing paradoxes and building network

resilience. Complex adaptive systems move forward through constant tensions between the need for order and the imperative to change. Managing
paradoxesstability and instability, simplicity and complexity, predictability
and unpredictability, and effectiveness and innovationis healthy in complex
adaptive systems; in traditional management thinking, paradoxes are to be
avoided. Managing paradoxes and building network resilience calls for new
organizational approaches that provide the network the capacity for continuous reconstruction or reinvent business models and strategies as circumstances change.

Environmental Analysis
Organizational leaders need to step back from the day-to-day activities of
their institutions and markets to focus on trends occurring in the broader
health system and society. The external environment needs to be considered
from two perspectives. First, strategy should be examined using existing assumptions about providers and consumers based on current patterns of behavior. This is the traditional approach. Such an analysis would include the
current status of the environment and market as well as its projected status at
some future date. Such an analysis would include demographic conditions,
existing technology, current and potential competitors, and current utilization patterns of hospitals and clinics. This provides a single-loop analysis of
current and future conditions on which to base strategic assumptions.
Environmental analysis also needs to be carried out based on new assumptions about the environment in which the organization functions, including what services are valued in the market. It is difficult to predict the future based on new assumptions because one cannot use historical data as the
basis for visioning the future. Trend lines will not take us to this future. However, because it has occurred in the past, there is a high probability that fundamental change will occur in the future, necessitating new assumptions
about the system. We are also experiencing an environment changing at an
increasing rate. Although we are not able to use past changes to predict the
future, we know that there will be change and it will occur in some logical
but unknown way. This type of change is considered double-loop learning,
where fundamental assumptions on which all existing markets and strategies
are based are no longer assumed valid.

The Future
The transformation to a knowledge-based system will require visionary leadership to provide innovative solutions. Leaders will have to master the art of
managing profound change in systems that are historically very change resistant. Many of todays leaders have the skills to lead but lack the vision required
for transformative change.

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Migrating to knowledge-based systems will require radical transformation of
system and organizational structures. For example, the underlying assumption
for paying physicians for services has been based on a physician encounter. The
debate on value-added contribution, for example, under resource-based relative value scale, is on changing the basis for reimbursement for services based
on the resources related to a given procedure measured by a Clinical Procedure Terminology code. The intent is to raise the reimbursement for cognitive
services such as office visits relative to procedural services such as a surgical intervention. This is a complex and worthy debate. The focus of the debate,
however, is on the added value of a given clinical procedure carried out by an
individual physician. In a knowledge-based system it is the knowledge that the
physician embeds in the system that has value. An endocrinologist in a major
medical center might manage a population of patients using evidence-based
decisions. The services might be provided by a range of individuals, including
the patient, family, local nurse practitioner, local family physician, or optometrist. The center might achieve a level of care where 98 percent of the
panel of patients receive annual eye examinations, foot examinations, and other
maintenance services. The endocrinologist might not encounter the patient directly. Such practice has been illegal historically because physicians get paid
only when they are in the presence of the patient. Similarly, universities define
the amount and value of instruction based on the number of hours students
spend sitting in a university classroom. These value-added measures are obsolete and must be fundamentally rethought to enable a paradigm shift to occur.

Questions for Discussion

1. This chapter highlights major forces causing strategic management
thinking and practice. Are these forces really new, why did they arise,
and why at this particular point in history?
2. What forces shaped the concept of health and the evolution of the U.S.
healthcare system over the course of the second half of the twentieth
century? What potential forces may shape our concept of health and the
U.S. healthcare system in the first half of the twenty-first century?
3. Some prominent authors, such as Michael Porter, contend that traditional strategic management approaches are adequate for any environment. Other recognized experts in strategic management, such as Henry
Mintzberg, argue that healthcare and the systems within which it is delivered are best understood as complex adaptive systems, which should
guide strategic management approaches. Review the various viewpoints in
this debate and make your own conclusions.



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4. Boundaries are a major tenet in the paradigm shifts from the industrialage model to the ecology or sociocultural business model. What are the
boundary issues in healthcare in the United States? What challenges do
these boundaries pose for the ecology or sociocultural business model?
5. Most examples of networking and virtual forms of organizing come
from IT businesses. What factors are causing healthcare organizations to
cling to traditional industrial-age organizational structures rather than
shift to more loosely coupled, network, and virtual forms of organizing?
6. Knowledge management and intellectual capital management have received much attention in the past few years. Discuss the relationship between knowledge management and intellectual capital management in
traditional healthcare organizations and sociocultural networks.
7. Have you been or are you a part of a community of practice? If so,
describe this community and your role in it. If you are not a part of
one, explain why and how you would join a particular community of
8. What are the paradoxes or tensions in todays healthcare environment?
How should health managers and clinicians cope with these challenges
of paradox in the rapidly changing healthcare environment?

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Drucker, P. 1993. Post-Capitalist Society. London: Butterworth-Heinemann.
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George Demiris

Key Terms
Chapter Outline




Implications of IT for Empowering Individuals and Communities

Review of Patient-Centric Systems
Challenges for e-Health Applications
Success Factors for e-Health
Considerations for the Future

Learning Objectives

Tele home care

1. Understand the concepts of e-health and consumer informatics.

2. Apply knowledge of e-health to formulate an institutional strategy.
3. Be able to assess the implications of shifting from institution- to patientcentric systems and how IT can enhance patient empowerment.
4. Apply e-health concepts to redesign the healthcare delivery process and
assess the challenges that healthcare enterprises will face in this new era.
5. Be able to assess the challenges associated with the design and implementation of e-health applications.

Chapter Overview
This chapter introduces concepts of e-health and consumer informatics and
demonstrates how information technology (IT) can enhance the care delivery
process and enable a shift from institution-centric systems to patient-centric
ones. Case 7.1 illustrates some of the issues involved in the decision to adopt
e-health technology. The use of such advanced technologies can enable patients
to be active participants in the decision-making process. However, several issues, such as cost, privacy, access to care, acceptance, and usability, need to be
addressed to ensure a proper and effective integration of such systems into the
healthcare field. The introduction of e-health applications will affect both the
process and outcomes of health services. This chapter provides an in-depth


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CASE 7.1
Green Valley
Home Care

Green Valley Home Care is a for-profit home care agency affiliated with the Green
Valley Hospital, a private 60-bed hospital. The agency is considering the option of
purchasing portable monitoring devices such as spirometers, blood pressure cuffs,
digital weight scales, and videophones and integrating them into the care plans of
their patients suffering from chronic diseases. The home care agency director anticipates that this infrastructure can enhance the quality of delivered services and
could reduce costs, especially in cases where nurses interact with patients over the
videophone instead of traveling to their residence. The equipment can operate over
regular phone lines, which almost all of the agencys clients do have in their homes.
The home care director anticipates that frequent patient monitoring enabled by the
technology can reduce travel costs and time for the agency but also reduce rehospitalization rates for patients by allowing early detection of symptoms and signs.
The affiliated hospital administrators need more information before they
approve of such a tele home care intervention and would like to see benefits other
than controlling hospitalizations and emergent care use. They are concerned with
the initial investment cost to purchase and maintain the technology as well as train
the personnel in its use.
The administrators have held informal meetings with healthcare providers
and realized that reactions are mixed. Some providers are excited about the opportunity to monitor their patients more effectively, whereas others have concerns
about the usability of the equipment. Two physicians are opposed to the idea of allowing patients to access their own medical records via the web and are not convinced of the patient empowerment features of tele home care.
Problem Solving 7.1 discusses the organizational considerations surrounding implementation of such a tele home care system.

analysis of current and future trends in e-health and the technical, policy, and
ethical challenges that lie ahead.

Implications of IT for Empowering Individuals and

The concept of e-health is defined as the use of advanced telecommunications
such as the Internet, portable and other sophisticated devices, advanced networks, and new design approaches aiming to support healthcare delivery and
education. Thus, e-health refers to a fundamental redesign of healthcare
processes based on the use and integration of electronic communication at all
levels (see Problem Solving 7.1). It aims to lead to patient empowerment,
which describes the transition from a passive role wherein the patient is the recipient of care services to an active role wherein the patient is informed, has
choices, and is involved in the decision-making process. Patient empowerment,
a concept that has emerged in the healthcare literature in the late 1990s, is
based on the principle that patients are entitled to access health information

e-Health and Consumer Informatics

The reactions to the tele home care proposal in Green Valley Home Care are indicative of the diverse views and attitudes of healthcare providers and administrators
toward telemedicine applications.
Virtual visits can provide a cost-effective alternative to traditional home
care. Cost savings from the use of tele home care systems can be realized if several
of the following outcomes can be demonstrated: (1) reduction of unnecessary visits
to the emergency room; (2) prevention of repeat hospitalizations or overall decrease of rehospitalization rates; (3) reduction of unnecessary or unscheduled visits to the physicians office; (4) early detection and intervention; and (5) patient education that leads to improvement of lifestyle choices and medication compliance.
It is important to emphasize that one needs to take into account the viewpoint for the cost-benefit analysis, namely which group the benefits apply to. In
this case the home care agency is linked to the hospital; thus, hospital administrators may perceive the advantage of repeat hospitalization reduction as less relevant. It becomes clear that the measurement of potential cost savings associated
with a telemedicine application depends on the interest group (e.g., patient,
health maintenance organization, provider, society). It is a general assumption, for
example, that telemedicine decreases the opportunity costs for patients in seeking care (by reducing, e.g., travel expenses). On the other hand, cost savings that
might be accomplished by unit price decreases may be offset by an increase in volume. That is, increasing access to health services could lead to increased demand.
Healthcare providers had some concerns about the web feature that would
allow patients to access their medical records. Such concerns refer to patients
lack of medical expertise, which could lead to confusion or misinterpretation of
findings and notes. The argument for such a web feature would be that, in addition
to accessing their medical records, patients would have increased access to medical information, be involved in the monitoring process, and receive an infrastructure that facilitates frequent communication with their healthcare providers.
If the home care agency director wants to gain institutional support, she
will have to demonstrate that the application will be of benefit to the institution
and increase the quality of care without placing additional training burden or time
constraints on medical staff. Furthermore, she will have to demonstrate evidence
of the effectiveness of this intervention in other similar clinical settings.

and determine their own care choices. Feste and Anderson (1995) argue that
the empowerment model introduces self-awareness, personal responsibility,
informed choices and quality of life. Empowerment can be perceived as an
enabling process through which individuals or groups take control of their
lives and managing their disease.
E-health bridges the clinical and nonclinical sectors and includes tools
oriented to both individual and population health. It encompasses different
applications and concepts such as telemedicine applications that aim to bridge
geographic distance using video and audio devices, web sites, online services
for patient support groups, medical advice and diagnosis, consumer information services, and portable monitoring tools that transmit physiological data
to a central server.


Green Valley
Home Care


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E-health delivers healthcare information, diagnosis, treatment, and care

in a nonlinear manner where traditional hierarchies are obsolete and patients
enter the system at an infinite number of points, choosing their own terms of
usage frequency and pattern. Health lawyers are challenged to determine
whether they are dealing with the sale of a product or the supply of a service
[and] whether to apply strict products liability or professional negligence
(Terry 2000).
Advances in telecommunication technologies have introduced new
ways to enhance and supplement communication between healthcare professionals and patients. The implication is a shift of focus for informatics researchers and system designers who had primarily focused on designing IT applications that addressed the needs of healthcare providers and institutions
only. As a result, the data models included episodic patient encounters as one
group of healthcare-related transactions, but they did not aim to revolve
around the life course of the individual patient or ensure continuity of care.
New technologies and advancements in informatics research call for the development of informatics tools that will support patients as active consumers in
the healthcare delivery system. In other words, we are experiencing a shift
from institution- to patient-centric information systems (IS).
Consumer health informatics is the area of health informatics that focuses on the implementation and evaluation of systems design to interact directly with the consumer, with or without the involvement of healthcare
providers. Such systems can include community informatics resources available
to the general public (e.g., community online networks, support groups, general healthrelated web portals) and clinical resources for specific populations.
As Eysenbach (2000) argues, consumer informatics is concerned with
the analysis and modeling of consumer preferences and information needs, design of applications that support consumers in obtaining high-quality information, and development of a methodology that will allow for the integration of
consumer needs in clinical information management systems. Furthermore,
consumer informatics studies ways to increase the effectiveness of health information and studies the effect of informatics tools on public health. Consumer
informatics has emerged from and is focusing on the shift from traditional institution- to patient-centric IS.

Review of Patient-Centric Systems

Home-Based e-Health Applications
Numerous patient-centric applications have been designed for home care patients. Home health care is a rapidly growing component of the health system in the United States. It refers to healthcare and social services provided
to individuals, their family members, and caregivers in their home or other

e-Health and Consumer Informatics


home-like settings. These short- or long-term services include nursing, rehabilitation, social work, and home health assistance. More than 20,000
providers deliver home care services to approximately eight million individuals diagnosed with acute illness, long-term health conditions, permanent disability, or terminal illness (National Association for Home Care 2000). Annual expenditures for home health care were estimated to be $41.3 billion in
2001 (National Association for Home Care 2000).
Home health care has to face a variety of factors, such as increased life
expectancy, population growth, and funding limitations, that could threaten
its viability. All these factors constitute a set of new, challenging realities that
will lead to changes in the definition and focus of home care in the twentyfirst century. People 65 and older are projected to represent 20 percent of
the population in 2030 (U.S. Department of Commerce, Economics and
Statistics Administration 1994). Social Security and Medicare programs
could experience financial difficulties in the near future, as the ratio of workers paying taxes to retirees drawing benefits has long been decreasing. The
number of workers paying into Social Security per beneficiary is expected to
decrease to 2.1 by 2020 (U.S. Social Security Administration 2000).
Telemedicine, or e-health in general, is viewed as a method of healthcare delivery that could address issues of cost as well as problematic access to home
care for underserved patients in both rural and urban areas. The use of technology has the potential to decrease travel time and costs for nurses and increase the number of patients that a home health care nurse visits in a given
day. Telemedicine in home care, also known as tele home care, uses telecommunication and videoconferencing technologies to enable a healthcare
provider at the clinical site to communicate with patients at their homes.
Such an interaction is called a virtual visit. In this context the term actual
visit is used to describe the traditional visit of the healthcare provider to the
patients home (with a face-to-face interaction).
With the development of portable monitoring devices and the diffusion of the Internet, the number of tele home care applications started to increase in the 1990s. Different studies evaluated applications that utilized
telemedicine technologies for home care patients. Sparks et al. (1993) investigated the use of transtelephonic exercise monitoring as an alternative for
cardiac rehabilitation patients unable to return to a hospital-based program.
The study was conducted as a randomized controlled trial and indicated that
this kind of monitoring is an effective supplement to hospital-based monitoring. Turnin et al. (1995) developed and evaluated a telemedicine system for
self-monitoring and dietetic education of diabetic patients; the system had a
positive effect on patients dietetic knowledge and some clinical outcomes
(total cholesterol, LDL cholesterol). Also, Wu et al. (1995) evaluated the
clinical usefulness of transtelephonic arrhythmia monitoring, which they



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found to be more effective than ambulatory electrocardiography for the detection of arrhythmias. A randomized controlled trial by Friedman et al.
(1996) demonstrated a positive effect of automated telephone patient monitoring and counseling on patient adherence to antihypertensive medications
and blood pressure control. Mehra et al. (2000) studied the efficacy of electronic home monitoring in chronic heart failure and identified the need to
further investigate this approach. Johnston et al. (2000) evaluated the use
and costs of remote video technology in the home care setting and determined that this approach achieves cost savings and improved access to home
care support while producing no differences in clinical outcomes when compared to traditional home care.


Currently, there are numerous commercially available portable monitoring devices such as pulse oximeters, blood pressure monitors, spirometers, weight
scales, and glucose monitors. These devices are tested for accuracy and approved by the Food and Drug Administration (FDA) before they become
available on the market. In some cases data are stored in the device and retrieved at a later time or displayed on a monitor at completion of the test session. Devices that allow the automatic transmission of data over regular phone
lines, or in accordance with the systems transmission architecture, are preferred over devices for which the patient has to read the results and announce
them to a nurse during a virtual visit. The latter can impose a burden on elderly or visually impaired patients and affect test accuracy.


Technological advancements allow for low-cost videoconferencing solutions.

Videoconferencing at patients homes without the cost of upgrading the existing infrastructure has been enabled by the International Telecommunication UnionTelecommunication Sector standard H.324 for multimedia conferencing on plain, old telephone service. Videophones can be installed in the
patients home and operated over the existing phone lines. Training required
for patients is in many cases minimal, as videophones operate like common
phones with the addition of a screen. Some of these devices can also be connected with the TV set or other monitor to use a larger display. As telecommunication technologies advance, advanced networks expand and the level of
achievable audio and video quality of videoconferencing sessions increases.


Another emerging area of e-health technologies covers the use of sensors,

which can be physical, chemical, or biological. They all produce a signal in
response to an event. A physical sensor measures physical parameters such as
temperature or pressure, whereas a biological or chemical sensor involves a
receptor (e.g., enzyme, antibody) that binds with an analyte (i.e., a target
molecule). The signal produced by the sensor is transferred to a circuit and
becomes digitized. The resulting digital data can be stored or displayed. The

e-Health and Consumer Informatics


concept of wearable sensors is based on the incorporation of sensors into

watches, items of clothing, and eyeglasses. Thus, one could argue that wearable sensors can function as noninvasive in vitro diagnostic tools, as they are
capable of analyzing, among other parameters, human sweat, tears, stress,
strain, and pH increases.
One example of wearable sensors is the so-called intelligent knee sleeve
that monitors knee strain or injury (University of Wollongong 2001). Originally designed for football players, this device is strapped to the knees, and its
sleeve provides feedback to users by emitting an audio tone. It can be a useful application for home care patients with mobility impairments or during
the rehabilitation phase. Another wearable sensor is a test device for cystic fibrosis (Lynch, Diamond, and Leader 2000). A small portable detector in the
form of a wristwatch provides test results in minutes rather than the 24 hours
typical for a laboratory test. The wrist device uses an electric field to push pilocarpine nitrate into the skin, thereby dilating the pores. Sweat is then absorbed and stored in a duct in the device. The sample is analyzed by a sensor, and the levels of sodium, chloride, and potassium ions are recorded
(Lynch, Diamond, and Leader 2000). Other devices in the form of wristwatches include glucose meters that measure glucose in the interstitial fluid
as a low electric current pulls glucose through the skin (Tamada et al. 1999)
and blood oxygen monitors (Wahr and Tremper 1995).
As technological innovations continue to arise, the possibilities for sensor utilization in home care become endless. Recently, the Smart Shirt was introduced; it incorporates technology into the design of clothing to monitor
the wearers heart rate, electrocardiogram measurements, respiration, temperature, and vital functions, alerting the wearer or physician if a problem occurs
(Georgia Institute of Technology 2000). The Smart Shirt can also be used to
monitor the vital signs of military personnel, chronically ill patients, firefighters, and frail elderly persons living alone. The Smart Shirt project was initially
funded by the U.S. Navy in October 1996; the Georgia Tech Research Corporation licensed the technology in 2000 to a private company to manufacture and market the product (Georgia Institute of Technology 2000).
In addition to smart clothing, a current trend in home monitoring is the design and implementation of smart homes. A smart home is a residency setting
equipped with a set of advanced electronics and automated devices specifically
designed for care delivery, remote monitoring, early detection of problems or
emergency cases, and maximization of patient safety. A smart home is usually
linked to a local intelligence unit responsible for sensor data analysis and the
detection of critical situations; it is also connected to a remote control center.
Smart home features include a wide range of devices. Elger and Furugren
(1998) emphasized the use of motion-sensing devices for automatic lighting
control, motorized locks, door and window openers, and mobilized blinds

Smart homes


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and curtains. In addition, smoke and gas detectors and temperature-control

devices can also be utilized. Such an infrastructure aims to address the prevalence of neurological and cognitive disorders in elderly persons and enhance
their ability to function independently within their residences. The Swedish
Handicap Institute operates a demonstration apartment as part of the socalled SmartBo project (Elger and Furugren 1998). This project focuses on
solutions for visually, hearing-, and mobility-impaired residents or residents
with cognitive disabilities. SmartBo is based on the integration of visual and
tactile signaling devices, a text-enlargement program, a speech synthesizer,
and a Braille display for visually impaired residents within the home. Another
smart home project is PROSAFE, which utilizes a set of infrared motion sensors connected to either a wireless or wired network to support automatic
recognition of resident activity and possible falls, aiming to accommodate patients with Alzheimers disease (Chan et al. 1999a, 1999b). Finally, the Aware
Home Research Initiative is an interdisciplinary research initiative at Georgia
Tech addressing the fundamental technical, design, and social challenges associated with smart home technologies that aim to enhance the quality of life of
senior citizens and help them maintain independence (Kidd et al. 1999).

Disease e-Management
The concept of disease management refers to a set of coordinated healthcare interventions and communications for populations with conditions in
which patient self-care efforts are significant (Disease Management Association of America 2002). These interventions aim to enhance the care plan
and provider-patient relationship while emphasizing prevention of deterioration and complications using evidence-based practice guidelines. Further
goals include the improvement of outcomes, decrease of costs, patient education, and monitoring.
The concept of disease e-management is defined by the utilization of
IT such as the Internet to allow patients suffering from chronic conditions to
stay at home and be involved in the care delivery process. Such technologies
can link home care with hospital and ambulatory care and facilitate information exchange and communication among patients, family members, and care
providers. Patient education is an essential component of disease management and can be supported by the transmission of tailored health information or automated reminders to patients or their caregivers. The integration
of commercially available household items such as TV sets, mobile phones,
videophones, medication-dispensing machines, and handheld computers introduces new communication modes and patient-empowering tools.
The Internet has been used as a platform for several disease management applications and in different clinical areas (Demiris 2004). Disease management for asthma patients, for example, has the potential of early detection
and timely intervention, as demonstrated by the home asthma telemonitoring

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system (Finkelstein, OConnor, and Friedmann 2001), which assists patients

in the daily routine of asthma care with personalized interventions and alerts
healthcare providers in cases that require immediate attention. Diabetes is also
a clinical area in which web-based disease management could enhance care delivery because of the diseases requirement for long-term prevention and intervention approaches. The Center for Health Services Research, Henry Ford
Health System in Detroit, Michigan, developed the web-based Diabetes Care
Management Support System (Baker et al. 2001). The system was evaluated
within a nonrandomized longitudinal study, and findings suggest that webbased systems integrating clinical practice guidelines, patient registries, and
performance feedback have the potential to improve the rate of routine testing among patients with diabetes. A distributed computer-based system for
the management of insulin-dependent diabetes was developed and evaluated
within the Telematic Management of Insulin-Dependent Diabetes Mellitus
project funded by the European Union. The objective was to utilize Internet
technology and monitoring devices to support the normal activities of physicians and diabetic patients by providing a set of automated services enabling
data collection, transmission, analysis, and decision support (Riva, Bellazzi,
and Stefanelli 1997).
Disease e-management applications can be also developed for posttransplant care. Regular spirometry monitoring of lung transplant recipients,
for example, is essential to early detection of acute infection and rejection of
the allograft. A web-based telemonitoring system providing direct transmission of home spirometry to the hospital demonstrated that home monitoring
of pulmonary function in lung transplant recipients via the Internet is feasible
and accurate (Morlion et al. 2002). Another application utilizing low-cost,
commercially available monitoring devices and the Internet was developed
within the TeleHomeCare Project at the University of Minnesota; the application aimed to enable patients diagnosed with congestive heart failure or
chronic obstructive pulmonary disease, or who required wound care, to interact from their homes with healthcare providers at the agency. Personalized
web pages allowed patients to interact with their providers and fill out daily
questionnaires including information about vital signs (e.g., weight, blood
pressure, temperature), symptoms, and overall well-being and nutrition. Alerts
were triggered and providers notified when a patients entry required immediate medical attention based on predefined personalized rules (Demiris,
Speedie, and Finkelstein 2001).

Peer-to-Peer Applications
The widespread diffusion of the Internet has enabled the creation of electronic
peer-to-peer communities, namely structures that allow people with common
interests, clinical conditions, or healthcare needs to gather virtually to ask questions, provide support, and exchange experiences. Such applications enable



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both synchronous and asynchronous communication and can serve as social

support interventions. In July 2004 Yahoo!Groups ( listed
67,450 electronic support groups in the health and wellness section. Researchers recently compiled and evaluated the evidence on the effects on health
and social outcomes of computer-based peer-to-peer communities and electronic self-support groups used by people to discuss health-related issues remotely (Eysenbach et al. 2004). The study concluded that no robust evidence
exists, as of yet, of consumer-led peer-to-peer communities, partly because
most of the effectiveness of these communities has been evaluated only in conjunction with more complex interventions or involvement with health professionals. However, given the great number of unmoderated web-based peer-topeer groups, further research is needed to assess when and how electronic
support groups can be effective.

Challenges for e-Health Applications

Factors critical for the success and diffusion of e-health applications include
privacy and confidentiality, reimbursement, and accessibility.

Privacy and Confidentiality

The healthcare sector is facing many challenges in regard to the privacy and
confidentiality of individual health information in the information age. Information privacy is patients right to control the use and dissemination of information that relates to them. Confidentiality is a tool for protecting patient
privacy (see Chapter 11). In 1998 the Notice of the Proposed Rule from the
U.S. Department of Health and Human Services concerning Security and
Electronic Signature Standards was introduced (U.S. Department of Health
and Human Services 1999) as part of the Health Insurance Portability and
Accountability Act passed in 1996. This Proposed Rule became U.S. law in
2000 and proposes standards for the security of individual health information
and electronic signature use for healthcare providers, systems, and agencies.
These standards refer to the security of all electronic health information and
have a great impact on the design and operation of e-health applications.
Recent events that have attracted media attention include (1) the case
of the pharmaceutical company that violated its own privacy policy by inadvertently publicizing the e-mail addresses of more than 600 patients who
took an antidepressant drug (U.S. Federal Trade Commission [FTC] 2002)
and (2) the case of a healthcare organization that mistakenly revealed confidential medical information in hundreds of e-mail messages to individuals for
whom they were not intended (Rodsjo 2001). The publicity surrounding
such incidents creates confusion and can lead to patient mistrust of electronic

e-Health and Consumer Informatics

When discussing privacy, issues related to the video or audio recording

and maintenance of tapes, storage and transmission of still images, and other
patient record data have to be examined, and efforts have to be undertaken
to address them to the fullest extent possible. The transmission of information over communication avenues such as phone lines, satellite, or other
channels is associated with concerns of possible privacy violations. An additional concern in some cases is the presence of technical staff assisting with
the transmission procedure at the clinical site (or even at both ends), which
could be perceived as a loss of privacy by patients. Patients often are unfamiliar with the technical infrastructure and operation of the equipment, which
can lead to misperceptions of the possibilities of privacy violation during a
videoconferencing session.
For disease management applications that are web-based, ownership of
and access to the data have to be addressed. In many web-based applications
in home care, patients record monitoring data and transmit them daily to a
web server owned and maintained by a private third party that allows
providers to log in and access their patients data. This type of application
calls for discussion and definition of the issue of data ownership and patients
access rights to parts or all of their records. The implications are not only possible threats to data privacy but also extend to ethical debates about the restructuring of the care delivery process and introduction of new key players
(see also Chapter 11).

More than 35 states have enacted legislation that enables healthcare providers
to be reimbursed for specific types of e-health or telemedicine consultations
billed to the state Medicaid program. Many insurance providers reimburse for
specific types of telemedicine services. The federal governments Medicare
program is also reimbursing healthcare providers for some services on a
demonstration basis. Healthcare providers can in many instances use their patient visit charts to indicate to certain service providers or reimbursement companies (e.g., Kaiser Permanente, BlueCross) that the patient visit took place via
a telecommunication network. For home-based applications such as tele home
care, the issue of reimbursement becomes more challenging. The Health Care
Financing Administration has initially denied Medicare reimbursement of tele
home care, emphasizing that it has not been proven to be cost effective. There
is some evidence demonstrating the cost effectiveness of traditional disease
management. For example, a retrospective analysis of 7,000 patients found a
$50 per member, per month savings in diabetes treatment costs over 12
months and an 18 percent decrease of admissions (Rubin, Dietrich, and Hawk
1998). However, there is little evidence as of yet of the cost effectiveness or
even possible long-term cost reduction through utilization of the Internet or
other advanced telecommunications in disease management and home care.



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The Balanced Budget Act (BBA) of 1997 has allowed for telemedicine
reimbursement in specific cases, especially for rural locations that the BBA
has defined as healthcare professional shortage areas. In these cases reimbursement is provided for Medicare patients staying at home and receiving
healthcare services via telemedicine. In 2000 a new means of paying for
home care, the so-called prospective payment system, went into effect. This
system apportions payment per episode of care (using 60-day periods) instead of payment for each visit, allowing for home care agencies to integrate
virtual visits within the care plan as they see fit.
Cost analysis and cost effectiveness studies will contribute to discussions about possible reimbursement issues of web-based monitoring services
and the question of which party will bear the costs of implementing and
maintaining such a web-based system.
Many argue that one of the reasons the issue of reimbursement of ehealth services has not received great attentionand that not much progress
has been made in that directionis the lack of a federal e-health authority.
Since the early 1990s, state and federal health agencies have focused on increasing the number of high-quality online health resources. Several institutions and agencies of the U.S. Department of Health and Human Services
have been sponsoring e-health-related initiatives. While there is no official
federal e-health coordinating agency or e-health federal committee, the two
major federal agencies with regulatory authority over e-health matters are the
FTC and FDA.

A large portion of patients requiring home care services or disease management interventions are elderly who in some cases have functional limitations
caused by aging or the diseases with which they are diagnosed. A functional
limitation describes a reduced sensory, cognitive or motor capability associated with human aging, temporary injury, or permanent disability that prevents a person from communicating, working, playing or simply functioning
in an environment where other people in the population can function
(Telecommunications Industry Association 1996). While many argue that
the Internet and advanced telecommunication technologies have the potential to empower patients and even revolutionize the process of healthcare delivery, members of the fastest growing segment of the U.S. population (i.e.,
people over the age of 50 years) are at a disadvantage because software and
hardware designers often fail to consider them as a potential user group. Usability and accessibility issues are important quality criteria for web-based interventions, but they are frequently ignored by designers and evaluators
(Bellazzi et al. 2001). The design of usable web-based IS becomes a challenge when they target users inexperienced with the technology and who
have possible functional limitations. Therefore, systems targeting home care

e-Health and Consumer Informatics

patients should have reached a high level of functional accessibility (Demiris,

Finkelstein, and Speedie 2001) and undergone rigorous usability tests. Several
design considerations, such as choice of fonts and visual displays, can be taken
into account when developing systems for elderly persons or other populations with functional limitations (Demiris, Finkelstein, and Speedie 2001).

Sucess Factors for e-Health

Factors determining the success and sustainability of e-health applications include outcomes, processes, access, cost, patient and family member acceptance, and provider acceptance.

Obviously, the measured outcomes of e-health applications should be at least
the same as those of traditional care, or the applications should have a greater
positive impact on patients health, if we are to adopt these applications and
make them part of standard care. The impact of e-health on clinical outcomes
has been investigated to some extent, but a need exists for large randomized
clinical trials that would clearly demonstrate such an impact. Johnston et al.
(2000), for example, studied tele home cares effect on medication compliance and ability for self-care in a quasiexperimental study with a control group
(receiving traditional care) and an intervention group (receiving in addition
access to a remote video system); they found tele home care to be no different from traditional care. Jerant, Azari, and Nesbitt (2001) conducted a oneyear randomized trial to assess the effectiveness of tele home care delivered via
a two-way videoconferencing device with an integrated electronic stethoscope
and found that this technology could reduce hospital readmissions and emergency visits for congestive heart failure patients.
The premise of most e-health applications that utilize telemedicine is
that this technology can enable more intensive and frequent physiological
monitoring, which can lead to early detection and intervention. In addition,
telemedicine can be used as a tool to monitor medication compliance and promote patient education. As mentioned earlier, the time has come to move
from small-scale feasibility studies to large clinical trials to test this hypothesis.

One may argue that video-mediated or web-based communication alters the
relationship between healthcare providers and patients and decreases quality
of care because of the lack of personal contact. Face-to-face interactions are
considered more spontaneous, and free-flowing than videoconference interactions (OConaill 1997). Therefore, it might be expected that the range
of issues addressed during a virtual visit, and the communication between the



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participants in general, differs from that in an actual visit. One could also
argue that the use of telemedicine technology might intimidate patients and
result in their limited participation during the visit. The lack of patient participation is potentially significant because patients tend to value the opportunity to express their concerns, questions, and opinions when seeking care
(Ende et al. 1989; Street 1992). Furthermore, patient participation in medical care often contributes to improved postconsultation outcomes such as
greater satisfaction with care (Lerman et al. 1990), greater adherence to
treatment recommendations (Rost, Carter, and Inui 1989), a stronger sense
of control (Street and Voigt 1997), and overall more successful disease management (Kaplan, Greenfield, and Ware 1989).
In addition, addressing technical issues, such as focusing the camera or
adjusting the audio, constitutes an additional theme of communication that
does not take place in an actual visit and therefore could dominate the virtual
visit. Thus, the study of a care delivery process that utilizes telemedicine becomes of great importance.
One study reviewed 122 virtual visits and performed a content analysis to determine themes of interaction (Demiris, Speedie, and Finkelstein
2001). Time was apportioned among the following categories of communication: assessing the patients clinical status, promoting compliance, addressing psychosocial issues, general informal talk, education, administrative issues, technical issues, assessing patient satisfaction, and ensuring accessibility.
While some activities clearly cannot be conducted during a virtual visit, those
findings indicated that home-based e-health has the potential to enrich the
care process. Further studies and direct comparisons between actual and virtual visits will provide a clear insight into the process of a virtual visit.
Whether e-health enhances or inhibits patients communication of their discomfort, symptoms, and emotional state, and accordingly whether it encourages or inhibits the doctors communication of instructions or expressions of
empathy, has yet to be determined (Bashshur 1995).

Healthcare institutions and patient advocate groups need to determine
whether a wide implementation of e-health services would indeed increase access to care for underserved patients in rural and urban areas. Whether these
services provide the means for more frequent monitoring of patients or could
be used as a cost-saving method that deprives them of actual visits or consultations also needs to be assessed. Specifically, such an effort should aim to investigate how e-health addresses decreased utilization of services, particularly
at the entry to care, and the associated structural, financial, or personal barriers. When discussing access barriers in relation to Internet and other
telecommunication technologies, the digital divide comes to mind. This term
refers to the gap in computer and Internet access between population groups

e-Health and Consumer Informatics

segmented by income, age, educational level, or other parameters. In 2000,

for example, households with annual incomes of $75,000 or higher were
more than six times as likely to have Internet access as families with incomes
less than $15,000. Several efforts have been made to address this divide, focusing primarily on providing access to computers, the Internet, and training. While lower socioeconomic groups are increasingly gaining Internet access, the digital divide will likely persist as new technologies become available.
For example, as sophisticated multimedia services become an integral part of
Internet-based applications, broadband access may become as important for
accessing healthcare sites as narrowband access is today for obtaining webbased health information. In that case the digital divide can exist between
two groups that both have computer hardware and Internet access simply because of different access protocols. Furthermore, access to infrastructure is
only one dimension of the digital divide; health literacy and appropriate web
content are additional key components.

A comprehensive evaluation of e-health applications must include a cost
analysis, namely a comparison of specified sets of inputs and outputs with
those of traditional healthcare. Inputs involve the level of medical expertise,
facilities, technology, service personnel, and client characteristics. The focus
is on assessing the effects of known quantities of healthcare (e.g., episodes of
care, hospital stays). Cost savings from the use of home-based e-health systems can be realized if the following outcomes can be demonstrated:

reduction of unnecessary visits to the emergency room;

reduction of unnecessary or unscheduled visits to the physicians office;
early detection and intervention;
patient education that leads to improvement of lifestyle choices and
medication compliance; and
prevention of repeat hospitalizations or overall decrease of rehospitalization rates.
Many argue that the number of face-to-face consultations could in
some cases be reduced by substituting virtual visits or web-based consultations
that will reduce travel time and associated costs. Using portable devices and
telecommunication technologies, vital signs data can be collected and interpreted several times during a day rather than only at scheduled weekly visits.
This allows for early detection and intervention in cases where signs of deterioration or problems could have been missed or identified at a later point.

Patient and Family Member Acceptance

One of the unique aspects of e-health is the fact that the required technology
is installed and used in the patients home and operated by patients or their



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surrogates. The success of this form of healthcare delivery requires that patients accept its use. The way in which patients understand the concept of ehealth will influence its level of acceptability and consequently its rate of diffusion. Patient and family member acceptance of and satisfaction with an
e-health system becomes essential, considering possible functional limitations
and inexperience with the technology.
Few instruments measuring patients perception of or satisfaction with
e-health applications have been tested for reliability and validity. One such instrument is the University of Minnesotas Telemedicine Perception Questionnaire (Demiris, Speedie, and Finkelstein 2000), developed to assess patients perceptions of the advantages and disadvantages of tele home care.
This instrument was tested extensively and found to show a high level of internal consistency and very high test-retest reliability. The instrument covers
domains such as perceived effect on quality of and access to healthcare, time
and money (including time saving for the patient and nurse and reduction of
costs for the patient and healthcare agencies), factors related to the conduct
of a virtual visit (including ease of equipment use, equal acceptability of virtual and actual visits, protection of privacy and confidentiality, lack of physical contact, reduced sense of intimacy, and patient ability to explain medical
problems in a virtual visit), and general impression of the concept of tele
home care and its role in the future (Demiris, Speedie, and Finkelstein 2000).

Provider Acceptance
The success of e-health applications that involve healthcare providers depends
only on patient acceptance but also on that of the care providers themselves.
Many e-health applications alter provider practice patterns and have an impact on their workflow. Providers who will be conducting videoconferencing
sessions or utilizing the web have to accept this mode of care delivery and be
comfortable using the required equipment and interacting with their patients
via alternative modes of communication. As is the case with all technological
innovations, organizational commitment is essential to optimum system utilization. This can be a challenge, as many complex institution-centric systems
do not currently support the infrastructure or endorse a strategic agenda for
e-health applications. Adoption of e-health in this case implies a redefinition
of the institution and its services.

Considerations for the Future

E-health technology has the potential to increase access to healthcare information and services, empower patients, and bridge geographic distances.
Many argue that the use of IT and e-health innovations in general will also
allow many countries to advance in healthcare delivery, avoiding mistakes of

e-Health and Consumer Informatics

industrialized countries in implementing technology in healthcare and redesigning their healthcare systems. This could be achieved by avoiding the development of high-cost institution-centric systems. In industrialized countries
such as the United States, e-health could address some of the current systemic
challenges. The U.S. Centers for Medicare & Medicaid Services (2004) estimate that total spending for healthcare in the United States will rise to $2.1
trillion by 2007, almost 17 percent of the gross domestic product. As the
healthcare sector aims to curtail expenditures, an emphasis is being placed on
outpatient services; as a result and given the increase of life expectancy and the
aging population, the number of patients being cared for at home is increasing. As home health care services become more costly, and given the current
home health provider shortage, e-health technology has the potential to provide a cost-effective alternative.
Modern telecommunications and networking technologies are considered to have the potential for contributing to the ability of patients to actively understand, participate in and influence their health status (Bruegel
1998). Patients are viewed as consumers of healthcare who can participate in
their own care through prevention and treatment. As a result of the advances
of medical technology and the increase in the aging population, more emphasis is being placed on utilizing telemedicine for chronic diseases and elderly persons. The success of e-health in this area will be determined by the
extent to which it is integrated into the process of care delivery, meets the
needs of users, and is accepted by them.
While the number of e-health applications keeps growing, we are still
lacking specific guidelines for their development and evaluation. Such
guidelines would refer not only to technical aspects that will ensure the security and protection of hardware and software but also to clinical and other
selection criteria that will ensure the appropriateness of the application for
a specific population. The American Telemedicine Association (2002) has
produced a set of clinical guidelines for the development and deployment of
tele home care applications. These guidelines refer to patient, provider, and
technology criteria. Patient criteria involve a set of recommendations such
as the need for informed written consent from patients, selection of patients
able to handle the equipment, and training. Health provider criteria refer to
the need for plans of action, training issues, and after-hours support. Technology criteria refer to the operation and maintenance of equipment, establishment of clear procedures and safety codes, and protection of patient privacy and record security.
This initiative by the American Telemedicine Association points out
an important factor to take into consideration when aiming to implement a
tele home care application: the need to determine the appropriateness of the
innovation. Several patient factors, such as stability of disease processes,
level of functional limitations, home infrastructure, and mental state, must



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be considered when determining if use of technology is ethical and appropriate for a particular patient.

Numerous powerful technologies and trends are clearly emerging in the
healthcare field. Their convergence can revolutionize the healthcare field and
shift the paradigm from institution- to patient- or consumer-centric systems.
Wireless systems, biosensors that monitor a persons health status on an ongoing basis, interactive tailored multimedia systems, and smart clothes and residences are introducing a new reality in healthcare, one that seemed remote
and almost impossible few years ago. The readiness of researchers, healthcare
organizations, and policymakers to properly adopt these technologiesand
our capacity to evaluate and make informed decisions about their appropriate
usewill be challenged. Policy, ethical, and legal issues associated with ehealth will have to be addressed. Consumer informatics can provide appropriate tools for the design and evaluation of effective e-health applications.

Questions for Discussion

1. To ensure continuity of care and comprehensive disease management,
an infrastructure needs to be in place that will allow several entities and
professionals (e.g., hospitals, home care agencies, social workers, rehabilitation centers, family members, designated caregivers) to interact and
exchange information. Such a data flow assumes that different patient
record systems can talk to each other. What are the challenges in achieving continuity of care for patients with chronic conditions, and how can
technology address some of those?
2. What are the characteristics of consumer health informatics? Give examples of types of consumer informatics applications.
3. Discuss how the digital divide can affect the diffusion of e-health, and
identify the social and ethical issues associated with this concept.
4. Discuss cultural barriers to the shift from institution- to patient-centric
5. What are the types of potential benefits of e-health technology applications in management of chronic diseases?
6. How would the development of a patient-centric information system affect institution-based IS, organizational structure, and organizational
7. How will the development of e-health applications change the role of
health professionals and the patient-provider relationship?

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Mark A. Hoffman

Key Terms
Chapter Outline


1. Genomic Medicine
2. Current State
3. Emerging Trends


Learning Objectives


1. Understand the current state of genetic information in clinical practice.

2. Describe the complexity of using bioinformatics platforms designed for
research for use in clinical diagnoses.
3. Explain why there have been few new diagnostic tests or other health
benefits of the human genome project to patients.
4. Recognize clinical decision support opportunities related to genomics.
5. Understand the current state of standardization related to clinical genomics and emerging solutions to this problem.
6. Describe the systems approach to genomic medicine with EMR systems
that seamlessly integrate genetic and clinical information.


Chapter Overview
This chapter represents the current state of the use of genomic (or genetic)
information in the practice of medicine. While the primary focus of the chapter is the application of genomic information to the delivery of patient care,
a brief discussion of the use of genomic information for biotechnology research is also provided.
Case 8.1 demonstrates the chapters central themes. A discussion of
the promise of genomic information follows to reveal the potential for the
development of improved diagnostic and therapeutic options. The presentation of background information on genetics, informatics, and the genome


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project is then used to describe the current state of the art of genetic medicine. A discussion of the importance of standardization in systems for genetic
and clinical information follows the introductory material. Next, a description of emerging trends, including pharmacogenomics and direct-to-consumer genetic testing, illustrates opportunities related to genomic medicine.
The chapter concludes with a discussion of various information technology
(IT) projects that will enhance the ability of the care provider to better utilize genomic information in the delivery of healthcare.

Genomic Medicine
We are entering a transformational period in the practice of medicine. Recent
advances in biomedical science combined with hard-earned understanding of
human genetics have created the foundation on which clinicians and researchers hope to create a new approach to medical practice. Much of this
hope is based on the results of the human genome project. The expectation
is that the results of this major advance will create the foundation for improved healthcare through

more sophisticated diagnostic tests;

new classes of therapeutic agents;
new approaches to managing clinical conditions; and
improved ability to prevent adverse reactions.

Together these advances will create the basis for genomic medicine, in
which many clinical decisions are made using a high degree of precision to
match an individual patient to the most optimal plan of care (see Case 8.1).
Clearly, these advances have many implications for the information systems
(IS) utilized in the delivery of patient care (see Problem Solving 8.1). This
chapter introduces genomic medicine in its current state. Several IT projects
and resources that are indicators of the path between the current and anticipated future state will be discussed.

Current State
The current state of the art is most accurately described as genetic medicine,
in which clinical decisions are made based on information about a single
gene. As this section demonstrates, genetic medicine is a fairly mature discipline. In contrast, genomics is a systems approach to the complex interplay
among the full set of genes found in an organism, in this case a human being.
The potential of the genomic approach is not yet widely practiced but is an
area of major research investment.

Genomic Medicine: Informatics Implications and Opportunities

Jean, an eight-year-old girl, was playing at the home of a friend when she fell,
struck her head, and suffered serious injuries. She was raced to the hospital,
where she required emergency surgery. Her parents could not be reached, but the
mother of Jeans friend provided the emergency department with Jeans name and
home address, which allowed them to associate the child with her parents in the
system. Interacting with the healthcare information system of the hospital, the surgeon entered an order for the protocol she was planning to use to treat Jean.
Among the details included in the protocol was the use of halothane, a type of
anesthesia. While Jean had never been the subject of genetic testing, her father
had a genetic test performed that found a mutation in the ryanodine receptor
(RYR1) gene. When persons with this mutation are exposed to halothane, they can
experience malignant hyperthermia, an often fatal reaction in which the core body
temperature can reach 106F. The hospital information system used the demographic person-person relationship between the father and his daughter and embedded pharmacogenomics decision support capabilities to infer that Jean is at 50
percent risk of also possessing this rare mutation. The system provided an interactive alert to the surgeon, who was unaware of this genetic association. She responded to the alert by activating an alternative surgical plan that did not include
the use of halothane. A potentially catastrophic clinical event had been averted.
Problem Solving 8.1 explores the implications of this type of genomic medicine for health IS.

Genetic medicine is currently demonstrated in three areas: clinical genetics, molecular pathology, and the molecular detection and classification of
infectious diseases. Before citing examples from these areas, it will be useful
to provide some general introductory information.

Overview of Genetics
All genetic conditions have as their basis a change in a molecule called deoxyribonucleic acid (DNA). In humans and all other higher organisms DNA
is packed into cellular structures called chromosomes. Normally, a human inherits 23 unique chromosomes from each parent for a total of 46 chromosomes. The full complement of DNA included in these chromosomes is a
genome. The information stored in the DNA molecule is referred to as a
genotype; an observable state influenced by a genotype is called a phenotype.
For example, sickle-cell anemia is a phenotype caused by a change in the
genotype of the hemoglobin gene.
DNA is a long, threadlike molecule made of four types of building
blocks (nucleotides) represented by the letters A, C, G, and T. The precise
sequence of these letters in DNA, for example, ATGCTATTAGGC, provides
the instructions that determine how another category of biological moleculesproteinsare assembled. Proteins perform the majority of the activities in the body including generating energy, providing structural support,
and protecting the body from pathogens.

CASE 8.1
A Family



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A Family

Jeans case illustrates the promise of genomic medicine to improve the quality of
healthcare. Genomic medicine is a new biological science that has major implications for clinical decision making. It will also cause a major increase in the demands on health IS. In the example described in Case 8.1, the use of pharmacogenomics decision support helped a surgeon avert clinical disaster.
Matching an individual patient to the most optimal plan of care requires the
capability to selectively filter and process large amounts of information for
clinically relevant associations.
Genomic medicine further illustrates the need for interoperability of data, information, and knowledge throughout a healthcare organization.
Achieving the interoperability of genomic and clinical information will be a
transforming force in healthcare.

Variations from the normal sequence of a gene (generally the instructions for a single protein) can often have severe physiological consequences.
For example, a change in a single nucleotide in a gene called CFTR can lead
to cystic fibrosis. When a change in DNA causes a functional change in the
protein encoded by the gene, it is called a mutation. Other DNA changes causing functionally neutral variations are called polymorphisms. Polymorphisms
are important clinically because many commonly tested characteristics, including blood type, are based on functionally neutral variations. Polymorphisms are
an important subject to consider, but a discussion of mutations will occupy the
earlier portion of the chapter. Macro-level variations in chromosomal structure
can lead to the exchange of entire regions of chromosomes or even the complete duplication (or deletion) of a chromosome. For example, Down syndrome is associated with a duplication of chromosome 21. Accurately and rapidly detecting these genetic variations is the basis for most of the diagnostic
capabilities currently utilized to deliver genetic medicine.


Many diseases are hereditary. Well-known examples include cystic fibrosis,

Huntingtons disease, sickle cell anemia, and Tay-Sachs disease. Furthermore,
susceptibility to some chronic diseases, including diabetes and hypertension, is
also influenced by complex interactions between genetic and environmental
factors. Clinical genetics involves integrating knowledge of a patients family
history with diagnostic testing that allows the clinical geneticist or genetic
counselor to make an informed diagnosis and then make recommendations for
a patient.
The catalog of diagnostic tests available for use in the clinical genetics
work flow is rapidly growing. While some serological and biochemical tests
continue to be used to support the diagnosis of genetic conditions, most currently performed tests fall into one of two categories: molecular diagnostics or
cytogenetics. The boundary between these two fields (or methodologies) is
rapidly fading, as molecular techniques are increasingly utilized in cytogenetics.

Genomic Medicine: Informatics Implications and Opportunities

Molecular diagnostics is the collective term for methods that provide

very precise findings about DNA. For example, a method called the polymerase chain reaction (PCR) can provide results that confirm whether a patient has a disease-causing mutation in a gene. This technique has reduced
the cost of genetic testing and is one of the key driving forces behind the increased availability of many new genetic tests. Some laboratories have begun
to perform diagnostic DNA sequencing in which the entire DNA sequence
of a gene (or more often, only the clinically significant region of a gene) is
determined. Although more expensive and labor intensive than PCR, DNA
sequencing yields more precise results (as discussed below).
Cytogenetics involves making a diagnosis based on chromosome-level
observations; for example, the diagnosis of Turner syndrome is based on the
presence of only a single X chromosome (and the absence of a Y chromosome). Cytogenetics increasingly involves the use of molecular techniques.
One increasingly utilized method, fluorescent in situ hybridization (FISH),
applies segments of DNA labeled with a colored dye to determine whether
unusual chromosomal rearrangements or deletions have occurred. Sophisticated image-analysis applications are now a mainstay of the clinical cytogenetics laboratory. These applications introduce significant data management
issues, as a high-quality FISH image can require multiple megabytes of storage capacity. The seamless integration of cytogenetic images into the electronic medical record (EMR) is currently under development and will offer
a useful resource.
The key difference between molecular pathology and clinical genetics is that
molecular pathology is based on detecting and classifying DNA changes that
have occurred after birth (somatic mutations), whereas clinical genetics is primarily concerned with hereditary or congenital conditions. Most somatic
mutations are benign, but some can result in uncontrolled cell growth leading to cancer. In molecular pathology many of the methods discussed above
are applied to the detection or classification of malignancies. For example,
most patients with chronic myelogenous leukemia have a detectable chromosomal rearrangement between the 9th and 22nd chromosomes. By detecting
this rearrangement, the clinician is able to make a definitive diagnosis.
Some analyses relate to both clinical genetics and molecular pathology.
For example, susceptibility to breast cancer is influenced by mutations in two
genes: BRCA1 and BRCA2. Risks of developing other malignant conditions,
including some forms of colorectal cancer, are also mediated by genes. Evaluating and communicating patient risk, rather than an actual diagnosis, is
clearly a challenging task for the clinician. Significantly, these risk-conferring
traits also have significant implications for family members. Designing and
implementing a clinical genetics system that appropriately manages the privacy and security of these results with potentially life-altering consequences is
a major factor in building a system to support genomic medicine.




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Interestingly, the majority of molecular diagnostic tests (in terms of volume)

currently performed are for the detection or classification of infectious
agents. The precision and sensitivity of molecular diagnostic techniques have
significantly changed the practice of microbiology and virology. Based on this
authors discussions with molecular diagnostics labs around the country, the
highest volume molecular diagnostic test performed is for the detection of
the sexually transmitted diseases chlamydia and gonorrhea. Detection of tuberculosis previously required six weeks of culturing, but a preliminary detection of this pathogen can now be made in hours using PCR. Many viruses,
including hepatitis C and HIV, are now the target of viral genotyping tests
that allow the clinician to make informed therapeutic decisions.

Informatics Approaches
The current state of the art in IS utilized by the cytogenetics or molecular diagnostics laboratory indicates some of the informatics challenges ahead.
There are many bioinformatics platforms designed for the research setting,
leading to a common misperception that these research applications can be
easily extended into the clinical diagnostics laboratory. Some of the differentiating information requirements for the clinical genetics laboratory include
the ability to document and respond to clinician orders for genetic tests;
the ability to capture discrete results;
the ability to generate reports that comply with regulatory guidelines
including the Health Insurance Portability and Accountability Act
(HIPAA), Clinical Laboratory Improvement Amendments, 21 Code of
Federal Regulations part 11 (electronic signatures), and other requirements of self-governing organizations such as the College of American
support for systemwide compliance with HIPAA; and
the ability to integrate with applications capable of generating appropriate billing documents.
This authors discussion with multiple molecular diagnostics laboratories indicates three common approaches to these requirements:
1. The use of a niche application for documenting genetics observations or laboratory work flow: Generally designed for the smallest of laboratories,
these applications are often low cost and were built with limited or no
ability to integrate into a larger clinical system. Importantly, many such
systems were built using architectural components that were not designed to be fully compliant with HIPAA. For example, HIPAA requires
that transactions be logged in order to trace user inquiries against specific
elements of the database; many systems fail to comply with this requirement.

Genomic Medicine: Informatics Implications and Opportunities

2. Custom implementation of an off-the-shelf database application: Many

laboratories have engaged consultants to design customized systems.
These implementations often share the HIPAA concerns cited above
and frequently are inadequately supported. As customized development
projects, they are typically not designed to be easily extended.
3. The use of commercial anatomic pathology systems: These systems were designed to support the textual reporting of pathology information and are
generally able to integrate with other clinical IS capabilities, whether
through architectural integration or Health Level Seven (HL7) messaging (see Chapter 5). These systems lack the ability to manage the discrete
results generated by the molecular lab and are not designed to accommodate the unique work flow of the genetics laboratory.
There are commercial opportunities to be found in addressing the limitations of the approaches described above. For example, Cerner Corp. has
released a laboratory solution (Cerner Millennium PathNet Helix, www designed specifically for the work flow and results management
needs of the molecular diagnostics laboratory. This solution will combine the
discrete results and textual reporting capabilities needed in the molecular diagnostics laboratory with work flow capabilities designed specifically for such
Several informatics challenges are related to the wider adoption of molecular diagnostic technologies. One is the accurate presentation of the precision of various methods. Variations of PCR are the most widely utilized
methods for generating molecular diagnostic results. A typical PCR test is designed to ask the question, Is this specific mutation present or absent? Information generated by this method should be presented in this context because the patient could have a rare or as-yet-undiscovered mutation other
than the mutation(s) being tested for. These potentially clinically significant
findings would not be detected by PCR-based screening, but they would be
identified by a well-designed DNA sequencing test. Accurately and consistently specifying the method used to generate a result is thus an important
capability for the molecular diagnostics lab.
Using IS to support the protection and privacy of highly sensitive genomic findings is another informatics opportunity and challenge. The opportunity is provided by the unique capability of healthcare IS to log transactions
and manage access to information. The challenge is implementing appropriate policies that ensure that the appropriate care providers have access to necessary results while personnel without the need to know are restricted from
accessing sensitive information.
The current state of the art in the utilization of genetic technology for
patient care is already more advanced than many would acknowledge. The application of genetic information, whether specific to the patient or a pathogen



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affecting the patient, is increasingly utilized to improve the delivery of patient

care. A 2002 report by Burrill & Company projects that by 2010, molecular
diagnostic testing will represent 10 percent of the overall volume in the clinical laboratory, compared to approximately 3 percent in 2002.

The Genome
During the late 1990s and the beginning of the twenty-first century an international consortium of public organizations, including the U.S. National Institutes of Health and the Burroughs Welcome Foundation of the United Kingdom, raced against a private company, Celera, to determine the full DNA
sequence of the human genome. These projects applied the latest in robotics,
computing, and biology to accomplish this aggressive goal in 2001, with the
coordinated publication of the findings generated by these two groups (International Human Genome Sequencing Consortium 2001; Venter et al. 2001).
These efforts yielded the DNA sequence of each of the 28,000 to 32,000
human genes (the precise number is still a hotly debated topic), providing a
wealth of information for researchers and technology companies to utilize in
seeking to better understand human biology. Of equal importance to the solution of the genome sequence was the development of the first databases describing human variability at a population level (Sherry et al. 2001). These efforts identified the positions in genes at which variations are most likely to
occur, allowing researchers to focus their efforts more precisely.
The determination of the complete DNA sequence of the human
genome in 2001 was widely expected to usher in a new era in healthcare.
Promises of new medications, new diagnostic tests, personalized medicine,
and gene therapy generated significant public enthusiasm, yet with the exception of a few new diagnostic tests, most patients have seen very few tangible
benefits of the human genome project. There are multiple reasons for this
transitional phase, including the following:
The development cycle for new drugs averages 7 to 11 years.
Gene therapy has had a very limited set of successes and some major recent failures. Establishing a long-term viable ethics framework for testing
gene therapies will also be a long-term effort.
Single-gene disorders were already fairly well understood before the
completion of the genome sequence; deciphering the genetic influences
involved in complex disorders such as diabetes will be a lengthy undertaking.
Training clinicians to utilize existing genetic knowledge, much less how to
adopt the rapidly growing body of new knowledge, has proven difficult.
The solution of the genome sequence is important to drug development
for a number of reasons. First, the improved understanding of fundamental
human biology will allow researchers to better understand the mechanisms of

Genomic Medicine: Informatics Implications and Opportunities


drug action and make improvements to existing classes of drugs. Second,

using genome-based screening technologies, biotechnology companies can
identify new gene targets for therapeutic agents. Third, using the knowledge
of human variation, specific mutations associated with clinical conditions can
be identified more rapidly and thus become the focus of targeted research.
These benefits of the genome project are expected to lead to medications that
should reach wide availability by 2016.
In addition to the hope of new medications, there was also the widespread
expectation that the human genome project would lead to rapid progress in
human gene therapy, that is, the replacement of a mutated gene with the normal copy. Early advances, including the dramatic treatment of a girl with severe combined immunodeficiency disease in 1990 (Blaese et al. 1995), led to
early optimism that many genetic diseases, as well as many forms of cancer,
could be treated by gene therapy. However, the death of a young man in
1999 during a gene therapy trial, together with other setbacks, has dampened
the overall enthusiasm about gene therapy.

Human gene

The transition from a deep understanding of single-gene disorders to a systems

approach to understanding complex conditions has benefited from one technology in particular: microarray analysis. A microarray is typically a glass slide
with hundreds or thousands of spots, each including a different DNA probe.
Most microarray tests are performed to measure levels of gene expression with
the goal of determining which genes are either over- or underexpressed in various malignancies or diseases. Promising work with this technology has
demonstrated that gene expression patterns can be used to predict the outcome for otherwise similar breast cancer cases (Sorlie et al. 2001; vant Veer et
al. 2002). This technology has also been applied to forms of leukemia and
other malignancies. Armed with these new prognostic tools, the clinician will
eventually be able to use these results as one factor in determining whether to
choose a mild treatment or a highly aggressive (but risky) one.
The eventual need to incorporate microarray results into clinical IS is a
daunting prospect, as each assay can yield thousands of data points. The volume of data, combined with the currently high level of variability between individual assays, will require progress in data normalization and compression,
both areas of active research in the bioinformatics community. Operational decisions regarding the retention of every data point or only those of known significance will need to be made, again raising questions about whether to sacrifice findings that can be reinterpreted in the future. An appealing middle
ground would be to use genomewide expression scans to identify those genes
for which up- or down-regulation is diagnostically significant and then use
those genesa more manageable subset of the genomeas the basis for diagnostic testing.



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The genomic approach to medicine will clearly alter diagnostic practices and provide many opportunities to improve patient care. The detection
of a single mutation for a patient does not create a genomic record (it does
create a genetic record, as it is based on a single gene). The systems approach
to genomic medicine will require EMR systems capable of seamlessly integrating genetic and clinical information and accurately representing the complex relationships between these sources of information.

As discussed in Chapter 5, standardizing clinical information provides a number of benefits. The use of controlled vocabularies such as the Systematized
Nomenclature of Medicine Clinical Terms (College of American Pathologists
2004) and Logical Observation Identifier Names and Codes (The Regenstrief
Institute 2004) enables organizations to exchange clinical orders, results, and
other information through HL7 or other messaging systems. However, these
vocabularies lack sufficient concepts to describe the detailed findings of the
molecular diagnostics or cytogenetics laboratory. Bioinformatics resources, including those provided by the National Center for Biotechnology Information (NCBI), were developed to meet the needs of researchers (Maglott et al.
2000; Pruitt and Maglott 2001; Sherry et al. 2001) and are generally not appropriate for the clinical setting because they were not developed with the
quality control processes required to support clinical practice.
One resource being developed to address the gap between the clinical
vocabularies and bioinformatics resources is the Clinical Bioinformatics Ontology (CBO) (Hoffman, Arnoldi, and Chuang 2005). CBO is a curated resource that structures observations generated by current clinical practice in a
semantic network. This structure allows the association of complex reference
data; for example, CBO maintains information providing the chromosomal
band(s) in which a gene is located, the intron or exon in which a mutation is
found, or the mode of inheritance for a given gene. The CBO information is
structured in formats that are machine readable, including comma space
value and rich data format. These formats allow developers of clinical IS to
integrate this genomic reference information into their applications and support the exchange of clinically significant results using a standardized format,
allowing for the accomplishment of multiple clinical and research goals including the following:
Facilitating the communication of clinical orders and results between organizations: For example, standardization will enable reference laboratories to better send results to the clinicians who ordered tests. Multiinstitutional integrated delivery networks such as Kaiser-Permanente and
Tenet Health Care will also benefit from the standardization of genomic
results among facilities.

Genomic Medicine: Informatics Implications and Opportunities

Enabling the design and delivery of prepackaged clinical decision support

rules: The use of standards reduces the need to perform customization
during a clinical system implementation.
Optimizing the data for inclusion in a data warehouse or research repository: Standardizing results at the point of capture reduces the need to
perform data mapping in the data warehouse organization.

Emerging Trends
So far, this discussion has focused primarily on the ability of genomic medicine to support advanced diagnostic practices and the development of new
therapies. Of equal or greater significance are emerging trends that will alter
physician behavior and decisions based on these diagnostic findings. Increased patient access to genetic tests is also an emerging trend of significant
importance to the designer of healthcare systems.

People vary widely in their response to medications. Most respond within a
statistical norm and benefit from a medication as expected. Some, however,
require either a higher or lower dose than the general population before they
can benefit from a medication. A few individuals suffer severe or even fatal adverse drug reactions that are based on genetic variations in genes involved in
drug metabolism. The analysis and application of emerging knowledge about
these genetic influences on drug metabolism is called pharmacogenomics
(Evans and Relling 1999). For example, 7 percent of the population lacks
both copies of a gene, CYP2D6, involved in metabolizing codeine and many
other commonly prescribed medications. These individuals fail to benefit from
treatment with codeine. One in 300 persons has a variation in the TPMT
gene, which is involved in the response to mercaptopurine, a chemotherapeutic agent. These people can have potentially fatal reactions to mercaptopurine.
Researchers at St. Jude Hospital in Memphis, Tennessee, developed a genetic
test that identifies persons with mutations in the TPMT gene (Krynetski et al.
1995). When the mutation is detected, physicians at St. Jude can adjust the
dosage of mercaptopurine to avoid the risk of an adverse reaction.
Not all pharmacogenomics applications are based on hereditary variations. Recent studies have demonstrated how pharmacogenomics can be applied with very exciting results to the management of small-cell lung cancer.
By determining whether somatic mutations are present in the EGFR gene, clinicians can predict whether a patient will respond to the drug gefitinib (Paez
et al. 2004). Significantly, the 10 percent of patients with these mutations had
a 100 percent response rate to the medication. Thus, screening for these



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EGFR mutations can be an important predictor of whether this costly medication is likely to be successful.
Testing bacterial pathogens for susceptibility to antibiotics has long
been a common laboratory practice and is considered among the first steps
toward personalized medicine (Fierz 2004). Now, through the application of
DNA sequencing technology, molecular diagnostics laboratories are able to
determine the sequence of HIV genes to predict whether a given patient harbors a strain of the virus that will be resistant to one or more of the antiretroviral medications in their combination therapy regimen. HIV genotype analysis is currently the most widely adopted pharmacogenetic test. Kits approved
by the Food and Drug Administration are offered by Bayer and Celera Diagnostics. The benefits that precision prescribing practices can have for AIDS
patients have been demonstrated by a number of studies, including one that
showed an improved survival rate (Weinstein et al. 2001) and another that
demonstrated an increase in quality-adjusted life years (Saag 2001) when
therapy decisions are guided by genotype information.

Direct-to-Consumer Genetic Testing

An emerging trend that will serve as a catalyst for physician information about
pharmacogenomics is direct-to-consumer testing. Initially offered as direct access to paternity testing, a number of companies now offer genetic tests for
drug-metabolizing genes directly to the consumer (Zitner 2002). A few weeks
after sending in a cheek swab and consent form (and payment of approximately $300 per gene tested), the consumer receives a report providing his or
her genotype and a list of medications that may be affected by the results.
Consumers are instructed to take this information to a physician and consult
with him or her about the results. (Note, however, that most general practitioners have not been trained in the use of this type of information.)
One information resource that provides well-curated information
about drug-gene interactions is PharmGKB. Developed by a consortium led
by Stanford University (Hewett et al. 2002; Klein and Altman 2004), this organizations web site offers a rich collection of information describing polymorphisms known to affect drug metabolism. The methods used to generate
these findings are clearly indicated, allowing the informed user to determine
how much weight to attach to a given finding. PharmGKB assumes that the
user has a certain level of knowledge about genomics and the methods available to generate genomic findings. Also, the general trend of PharmGKB is to
support the requirements of the drug-development community rather than
the delivery of patient care.
Another solution to the challenge of providing clear information
about drug-gene interactions is the extension of existing drug databases, such
as Multum, that already provide physicians with reference information describing drug-drug, drug-allergy, and drug-food interactions. The Multum

Genomic Medicine: Informatics Implications and Opportunities

content is already tightly integrated with computerized physician order entry

(CPOE) applications; adding drug-gene interactions to this information is a
natural extension and will provide the physician with a readily available resource. The opportunity to integrate pharmacogenomic information directly
with medication-ordering capabilities would have clear advantages over other
approaches. This approach removes the burden of remembering to determine whether there is a likely drug-gene interaction, a requirement of web
sitebased resources.

Clinician Information
One of the most difficult issues involved in the translation of knowledge generated in the research setting into active clinical practice is educating the clinician in the conceptual basis of genomic medicine. Several studies, including the Biomedical Information Science and Technology Initiative, have
proposed high-level curriculum suggestions that would support interdisciplinary training (Friedman et al. 2004). The rapid pace of change in genomic
information is such that the specifics of genomic training will quickly become
out of date; thus, the focus should be on learning how to approach genomic
The increasing availability of useful online resources provides options
for the clinician. The PharmGKB project described earlier is an example, although it assumes a certain level of knowledge and emphasizes the needs of
the pharmacogenomics researcher. Another valuable online resource, designed for the clinician, is the GeneTests directory, managed by the University of Washington in Seattle (Pagon et al. 2002). This web site provides a
valuable source of information for the clinician who has determined which
disease or condition he or she suspects and wants to learn more about the
condition and identify sites where testing is performed. Another useful web
site for both clinicians and patients is the Genetics Home Reference, managed by the National Library of Medicine (Mitchell, Fun, and McCray
2004). This project aims to deliver information using accessible terminology
and concepts, while also providing links to the more technical information
likely to be of interest to the advanced clinician. The Online Mendelian Inheritance in Man (OMIM) web site provided by NCBI offers very detailed
descriptions of hereditary and malignant conditions (Hamosh et al. 2002);
however, the OMIM content makes assumptions about the training of the
user and has a number of errors and inconsistencies. Table 8.1 contains access information for the web sites just discussed.
A clear limitation of using web sitebased information to inform the
clinician is that clinicians are required to anticipate the need for such knowledge. When a genetic finding has not been widely communicated to the
practicing clinical community, physicians are unlikely to recognize the need
to query any of the resources cited above. Because physicians are increasingly



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Web Sites
for Clinicians
and Patients

Clinical Bioinformatics Ontology (CBO)
Genetics Home Reference
National Center for Biotechnology Information (NCBI)
Online Mendelian Inheritance in Man (OMIM)

using CPOE, structured clinical documentation, and other healthcare IT solutions to execute the administrative and clinical transactions involved in their
daily activities, embedding genomic information in these systems is a logical
means to deliver up-to-date genomic information. Embedding genomic information in the context of a healthcare IT system offers the following advantages:
Opportunity to reduce variance among users: All users will be working in a
system in which the same decision support capabilities are implemented.
Updates are transparent to the user: Other than the need for a small
group of internal reviewers who determine which decision support capabilities to adopt locally, the wider group of users does not need to be
continuously trained about new findings. Some specific decision support
capabilities may require brief training.
Ability to combine active and passive content: Active content is delivered
in the form of on-screen alerts that require the user to respond to continue with his or her actions. Active content is appropriate for providing
medication alerts related to drug-gene interactions. Passive content is
encyclopedic in nature; it is easily accessible to users but requires them
to deliberately seek information.
Ability to reanalyze historical results: By capturing all genetic test findings in an EMR, whether or not their clinical significance is understood
at the time of capture, it becomes possible to reexamine previous results
against newly generated knowledge and take action based on newly
identified associations.
The ability to generate and manage clinical pedigrees online: Unlike
stand-alone applications that generate clinical pedigrees, the integration

Genomic Medicine: Informatics Implications and Opportunities

of family medical information in clinical IS creates the opportunity to

infer results and estimate risks among patients. The risk that such associations could result in unintended disclosure of potentially upsetting results (e.g., that indicate paternity other than that currently believed to
be true by the patient) must be mitigated.
The combination of publicly accessible information resources available
through the internet and genomic information embedded in clinical IS will
offer clinicians new tools for integrating the advances of genomic medicine
into their practices.

The era of genomic medicine will clearly transform healthcare. Already genetic testing and analysis is a significant part of clinical genetics, molecular
pathology, and the management of infectious disease. Integrating clinical,
family history, and genetic information in a common repository can offer
many benefits both as a research tool (McMahon et al. 1998) and in the delivery of patient care. The advent of pharmacogenomics-based clinical decision making and advanced diagnostic technologies such as DNA microarrays
will contribute to the deepening utilization of genomic information in the
delivery of patient care.
In terms of healthcare informatics this transformation has major implications for the design and implementation requirements of healthcare IS.
Among these requirements are
support for the expanding volume of the molecular diagnostics laboratory, including its unique work flow;
clear representation of the precision and accuracy of the methods used
to determine molecular diagnostic results;
standardization of genomic information to facilitate messaging systems
utilized between affiliated providers;
protection of patient privacy and the security of EMRs; and
useful and clear tools to help clinicians interpret and apply genomic
These requirements can be satisfied by well-designed clinical IS offering significant opportunities, including the following:
streamline and optimize work flow within the molecular diagnostics laboratory;
provide decision support capabilities that simplify the process of managing genomic information for the clinician;



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support the personalization of medicine by hastening the adoption of

pharmacogenomics technologies; and
leverage the familial nature of genomic findings (e.g., as illustrated in
Case 8.1).
The recognition of these opportunities will require close collaboration
among healthcare providers, developers of healthcare IS, and academic researchers working in medical informatics and genomics. A blend of embedded
technology and user-friendly information provided through web sites will support the more rapid adoption of the many capabilities of genomic medicine.

Questions for Discussion

1. What are three of the key barriers to the use of genetic information for
the delivery of personalized medicine?
2. Given enough genetic information, a precise identification of a person
can be made. How can data warehouses integrating clinical and genomic
information be used to accomplish meaningful research while protecting
patient privacy?
3. When clinically untrained patients are able to order genetic tests directly,
how can their right to informed consent be protected?
4. Describe some of the potential approaches to standardizing clinical genomic information. What are the benefits of standardizing these results?
5. What are some of the means by which clinicians can use IS to manage
and respond to advances in genomic medicine?

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Aug. 11, A1.



Enterprise strategy

Clinical strategy

Business strategy

Organizational strategy

Information strategy


art III focuses on the management of information resources by healthcare organizations. Information technology (IT) is considered from
the perspective of its contribution and value to the overall organizational and enterprise strategies. It is viewed as a transforming technology
rather than a data processing support function. This perspective envisions the
role of the chief information officer (CIO) as that of an enterprise leader in
articulating the strategic implications of IT. The IT function is also considered in relationship to the human resources function as healthcare organizations develop into knowledge-based systems. As the organization assumes
greater responsibility for clinical outcomes, a consideration of access to and
use of information goes beyond issues of security and policy and becomes an
organizational, ethical basis that defines how care is provided and people are
treated. All aspects of IT change when it starts to be viewed as a powerful resource for transforming processes, not just for automating them.
Chapter 9 explores ways IT brings value to healthcare organizations
and how the valuation of IT depends on how it is viewed within the organization. The realization of the value of IT depends on its relationship to and
effective integration with organizational and enterprise strategies. The focus
of the chapter is on how value is assessed and realized. This chapter includes
discussions on
determining IT valuation based on assumptions about the role of IT in
the organization;
how to make sound IT investment decisions and deliver superior business value to support the health services organization;
the assumptions of planned change implicit in most investments in information resources that must be managed if anticipated return is to be
achieved; and
the social value of IT and the sources of investment funds.
Investment decisions in IT are important because they require considerable financial resources; the value potential depends on how effectively they
are applied and used. The success of IT investment depends not on the IT
function but on how well the IT function is integrated with and leads change
in the organization.



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Chapter 10 continues the discussion of IT management, focusing

specifically on the IT department, CIO, and interrelationship between IT
and other functional areas of management. The IT function is considered as
a productive component of the overall organization, and its structure and
management are considered from this perspective. The chapter includes
analyses of

the technical and organizational leadership role of the CIO;

core competencies and career development of the CIO;
the governance role in developing a coherent information strategy;
strategic planning for IT investment;
project planning for IT implementation; and
defining and serving IT customers.

No single structure for the IT function is clearly superior, but there is

growing evidence on the relationship between the structure and performance
of a given system based on how IT is defined within the organization. Designing an effective information strategy is thus dependent on a good understanding of and effective participation in the development of organizational
and enterprise strategy by IT leadership.
Chapter 11 presents a broad framework for considering information security. Security is viewed from three perspectives: a moral or ethical premise,
business logic, and as a legal mandate. The chapter is built on the thesis that
an ethical premise is the basis for considering access and use of information.
The ethical premise provides the foundation for the way an organization views
its responsibilities to its patients, staff, and community. The ethical premise elevates the discussion of security beyond compliance with laws and policies to
consider it as a moral obligation to those served by the organization.
Confidentiality, integrity, and availability are addressed as comprising
the basic elements of a security program. The chapter develops a conceptual
framework for the design of a security system and provides details on operational considerations. Discussion includes
development of an integrated framework for assessing the adequacy and
appropriateness of security plans within healthcare organizations;
concepts of physical security, logical security, and managerial security;
delineation of responsibility for the development and management of an
effective information security system; and
consideration of a zone-based architecture as a model for developing information-based security zones determined by information sensitivity
and the degree of protection required.
Information security is considered as a total organizational responsibility, not the activity of IT or the compliance office. Best business practices have
traditionally been grounded in this perspective, and electronic information

Introduction to Part III

systems do not change this individual and organizational obligation. The

problem of security becomes more complex because access to information is
increased. The problems associated with information security change, but the
responsibility does not.




Keith E. Boles and Michael J. Cook

Key Terms
Chapter Outline



The Challenge of Delivering Value

A Valuation Framework for IT
Tools for Evaluating IT Investments
Process for Evaluating IT Investments
Behavioral and Other Noneconomic Issues

Return on

Learning Objectives

Business case

1. Understand the challenges of delivering IT value to healthcare organizations.

2. Be able to design a general framework for delivering strategic IT value.
3. Understand the tools available to evaluate IT alternatives.
4. Know how to apply the analytical tools in a systematic evaluation
5. Be able to integrate behavioral and political aspects of IT investments
with economic implications.

value added

Chapter Overview
The application of information technology (IT) in healthcare organizations
supports the organizational and enterprise strategies and is as varied as these
strategies themselves. Information technologys value to the organization depends on how effectively it is managed and integrated with these strategies.
This chapter considers how to make sound IT investment decisions and deliver superior business value to support the health services organization,
healthcare system, and health of the population. Information technology in
this context is a change enabler, serving as a transformational tool to deliver
strategic value at a number of levels both within and beyond the organizationto the patient, providers, and other stakeholders. Consequently, IT is
very expensive, complex, and difficult to evaluate. In this context IT requires


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a better framework and tools to manage and deliver value effectively. Information technology is only one component, albeit an extremely important
one, of an organizations portfolio of assets. The present discussion of the
value of IT takes place within this context.

The Challenge of Delivering Value

A major issue involved with investments in IT is the extent to which they add
value to the organization. The changing role and concept of IT has resulted
in a conundrum. There is clear recognition that IT, in its role as a transformational agent, has the potential to greatly enhance the value of the organization. On the other hand, these benefits have either not been forthcoming
or have not been recognized.
Given the highly fragmented nature of the healthcare system, the need
to provide for greater integration, reduce costs, improve quality, and increase
access has been recognized. These tasks are made even more difficult by the
local nature of health services delivery. There are limits as to how far people
are willing to travel to receive healthcare services, and networks of physicians
and hospitals need to be compact enough to handle this situation. This results in geographic constraints on the ability of a network to become integrated. Investment in IT is seen as one component of the solution to these
issues. It is considered to be the glue that can begin the process of providing
for a more integrated, knowledge-driven healthcare system.
Part of the difficulty in realizing the value of IT is its changing role.
While IT had been a labor substitute in which value was easily identified and
realized, it has taken on a more complex strategic role. This advanced changeenabler role offers great promise for business valueit allows organizations to
redesign complex business processes, facilitates major business innovations,
and transforms how businesses are run. But with larger, more complex IT investments, IT also offers greater risks of failure, as business value depends on
the difficult restructuring of key business and clinical processes, and governance processes may not be informed and involved sufficiently in ensuring
that these investments are well managed. Part of the complexity of managed
IT investments is the difficulty of developing good measures of return on investment (ROI). Some high-profile exemplars of this new IT change-enabler
role are enterprise resource planning, customer relationship management solutions, and computerized physician order entry (CPOE).
The result of the difficulty of realizing the potential ROI, and thus
the true value associated with IT investments to an organization, is disillusionment with the future. A survey of chief information officers (CIOs)
found that nearly one-third of responding CIOs report a major delay or
failure of an IT-related business initiative in the past 18 months, and nearly

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60% of surveyed organizations postponed or rejected plans for an IT initiative during that time (Adams 2004). Moreover, When the IT plans failed
or fell short, it was rarely caused by technical failures or poor performance
by vendors or consultants. Instead, the most prevalent reasons for disappointing results stemmed from inadequate high-level planning and execution of business strategies behind IT initiatives (Adams 2004, 32). This indicates that the problems of value realization are not directly related to the
technology per se, but rather to the openness and ability of the people involved to be change agents themselves.

How Does IT Add Value?

The following discussion deals with the concept of IT, that is, how it is envisioned relative to its role in the organization or even beyond. This internal-external distinction has major implications for how IT is evaluated and
valued. There are different categories of IT investments, and these categories determine the ease of evaluating the investment decision and the extent to which the investment should be considered from an operational, tactical, or strategic standpoint. Progression through these perspectives
becomes increasingly complex, expensive, and difficult to evaluate.
The first category of IT investment is strictly operational; it is a technological replacement for manual processes, either business or clinically related.
There are benefits associated with the automation of these processes, primarily in cost reduction through improved efficiency, but also in terms of improved accuracy. These are fairly simple to evaluate using traditional financial management evaluation tools.


The second category, tactical, expands the business and clinical processes
to include decision support. The value of IT in this instance is broad. Its
expanding use in decision support creates an added value that healthcare
providers may not have recognized previously. For example, a basic CPOE
system is strictly a replacement for manual systems of writing, placing, and
recording orders and results, limiting its value to eliminating transcription
errors, eliminating handwriting legibility issues, and improving efficiency
in record keeping. The true value of CPOE occurs when it is used in decision support through the provision of information on drug interactions,
duplicated orders, and patient-unique characteristics (e.g., allergies). Decision support systems enhance efficiency, reduce medical errors, improve
quality of health services, and should reduce liability. This category of IT
investment often requires a change in thinking and in the way of doing
things. Thus, it is more difficult to implement, has a greater failure rate,
provides important evaluation difficulties, and its benefits are more difficult to realize.



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The third category, strategic, is the broadest conceptual view of IT, and it encompasses the enterprise, organizational, and information strategies (see Figure 2.1 in Chapter 2). Here, IT is considered to be an integral component of
a product line. Information technology considerations are involved in the
strategic plan, tactical development, product development, quality considerations, and other key components associated with the organization. It is a necessary component for the efficient and effective operation of the firm. Indeed,
IT becomes a product line in and of itself. This means that IT investments are
to be evaluated in the same fashion, and with the same requirements, as other
product lines.
The strategic aspect is a concept not often associated with the IT function. This concept requires the examination of IT from a different dimension
than the traditional operational point of view. Within the strategic function,
IT has a role in the formation of the organization, how it develops, with
whom it has relationships, how it delivers health services, and the extent to
which it is a leader or follower, agent for change, innovator, or organization
that lets others take the initial risk.
Information technology as an enterprise strategy has the greatest potential for failure for a variety of reasons. The obvious ones are that it is expensive, is complex, and requires a completely different way of thinking on the
part of all users. No matter how wonderful the technology or how capable the
system of providing for process improvement, if the individuals involved in
working with the system are not willing to change, do not embrace the future,
or are not open to the possibilities presented by the new technologyor more
accurately, the information and knowledge base created by the technology
the implementation is doomed to failure. Most often, the failure will be placed
on the CIO and the technology rather than on the organization. Evaluation
in this context is extremely important but also very difficult to accomplish.

IT Adds Value Beyond the Organization

A fourth category that must be considered is the social or societal effect of IT
investments. This IT function is the broadest of all. As progression through
the first three categories of IT occurs, the implications and value created keep
expanding. The first category, replacement of business and clinical processes,
creates value primarily for the organization. The second category, enhanced
decision support functions, provides value to the organization but also provides value beyond the organization through improved physician performance
and improved technical and service quality provided to the patient. These benefits extend beyond the organization but accrue primarily to individuals. Information technology also has broader implications for the health system as a
whole and for society. A classic example is the electronic medical record
(EMR) (see Case 9.1 and Problem Solving 9.1). It is expensive, it has no common definition, and, most important, the benefits to the organization are

I n ve s t i n g i n I n f o r m a t i o n Te c h n o l o g y

The Health Center (HC) had been using paper medical records since its opening.
HC had grown over the years and as of 1997 consisted of the main hospital and five
outpatient clinics placed strategically around the community. With the paper medical records, most patients usually had multiple records located in various sites.
They generally had both an inpatient record and one or more outpatient records.
Thus, when an individual was hospitalized or referred to a specialist in another
clinic, it was often difficult for the physician to have all relevant information available in one location. The need for a more centralized location for patient information became apparent.
HC had a long-standing relationship with a specific vendor; therefore, when
the medical staff and administration began clamoring for a sophisticated electronic clinical information system, they naturally looked to this vendor to meet
their needs. The vendors response was a proposal to provide, incrementally, a set
of 30 to 40 modules that would provide HC with the capabilities to meet its clinical information needs for the foreseeable future. Expectations were that this modular system would take five to seven years to implement completely.
HC accepted the proposal and negotiated a contract with the vendor to
begin implementing the project. The first step undertaken was to integrate each of
the clinical modules with the already existing IDX business modules and modify
existing processes to be consistent with the new clinical modules.
As the first modules began to be implemented, the CIO recognized a need to
determine how the new systems would fit with the currently existing systems and
with any additional systems that might be needed over the next few years. This
analysis would permit the organization and IT department to plan for the future of
the clinical information system, its linkages to the existing business system, and its
integration into a decision support system to improve the quality of health services
delivered. The vendor was asked to assist in the development of this plan.
Then, business managers and the public recognized the technological uncertainties of the year 2000, which delayed the implementation of modules. Financial difficulties experienced by HC also took their toll. However, new administration
provided additional support for the project, and by 2004, three of the modules had
been implemented.
As the CIO started discussing the plan for the IT department, the CEO decided that perhaps a plan to explore the fit of the developing IT systems to the rest
of the organization was needed. Such a plan could provide guidance for the CIO
and other business unit leaders, recognizing the fit between the activities of IT and
the rest of the organization.
Problem Solving 9.1 provides a discussion of the lessons to be learned from
HCs experience.
* This case is based on a real event, but the institution is fictitious.

much smaller than the benefits to individuals in general, while all of the costs
(at least at present) must be borne by the organization. From the standpoint
of the healthcare system, benefits may outweigh costs. From the standpoint of
the organization, however, benefits may be much lower than costs. In this case
an obvious underinvestment will be taking place.

CASE 9.1



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In this case the plans of Health Center and its vendor were not consistent or realistic. The complete installation of the modules remains unfinished at the end of
the initial six-year period. One lesson to be learned from this experience is that
vendors and clients must develop realistic plans that include organizational strategic decision making, not just IT departmental strategic decisions.
This case provides a number of topics that must be considered as issues
that may have resulted in better outcomes with a shorter time horizon.
Is convenience and familiarity with a past vendor sufficient justification for not
performing a broad examination of other providers?
Were a sufficient number and variety of stakeholders involved in the decisionmaking process?
A strategic plan for the IT department is not sufficient to capture the complexity and organizational interrelationships involved in decision support systems.

There is a variety of categories of IT investment, each more complex

and difficult to evaluate than the last. Therefore, tools and frameworks are
needed to help deliver the value.

A Valuation Framework for IT

This section provides a framework for evaluating IT. While the need for a valuation framework may appear obvious, relatively few IT projects are subjected
to any form of evaluation process, as demonstrated by the data in Table 9.1.
Four very important concepts must be dealt with in this evaluation process;
each proposes different ways of looking at the investment or project and different mechanisms through which the IT investment adds value to the organization.

Elements of the Evaluation Process

First, IT investments must be considered in terms of their contribution to and
fit with the portfolio of assets of the organization. The projects cannot be
considered in isolation, but rather in terms of the interdependencies and mutual interactions with other projects, products, and systems. The second concept is a systematic approach toward the evaluation process that forces consideration of a variety of dimensions. Most project evaluations are incomplete
in that some dimension of the effect of investment is ignored. The large number of stakeholders involved or affected by an IT investment decision in
healthcare makes it difficult to identify the ramifications for each. However,
any healthcare organization ignores any of the stakeholders at its own risk, increasing the likelihood of failure.
The third concept to be considered in evaluating an IT investment is
ROI. This use of the term is generic and not associated with a mathematical

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% of IT Projects

% of Responses

Not Used












formula. Return on investment is what the organization expects to gain as a result of the investment: what forms it will take, who it will involve, the best way
for the organization to realize the benefits, the total costs of ownership, who
needs to be involved in the decision process, and myriad other considerations.
The fourth consideration has to do with governance issues. No matter how
good the technology, planning, analysis, or project appears on paper, it will be
doomed to failure if appropriate systems are not in place to support it. These
systems must include the people who will be most involved with its use and
most affected by its existence. A lack of personnel support can sink any project.
The progression of IT from operational tool to key component of an
organizations transformational strategy leads to the conclusion that administrators and executives must create a framework for the investment so that evaluators might accurately assess IT investment. This framework should be designed to force the broadest possible view of IT investments and enable
evaluators to think beyond the application of traditional financial analysis tools.
The framework suggested here provides a comprehensive approach to
the evaluation of IT, premised on the belief that previous evaluations of IT
have been limited and incomplete and fail to recognize the true value-enhancing capabilities of IT investment. This model provides a framework
under which evaluation of the investment decision can be performed and by
which organizational assumptions can be tested.
This framework can be visualized as a cube. While additional dimensions may exist, the cube emphasizes that evaluation is multidimensional. In
addition, evaluations have tended to be focused narrowly on a particular project without consideration of its ramifications for all other projects and the interrelationships that exist within and among projects. The effects of IT investment projects often extend beyond the organizations walls, especially in
healthcare, where patients, physicians, competitors, potential partners, and
even the population at large can be affected.
Figure 9.1 demonstrates the three dimensions of the cube: stakeholders, functionality, and project-specific characteristics. Each of these dimensions is defined very broadly. This cubic representation is designed to provide


Percentage of
IT Projects
Subjected to

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for IT




Project-specific characteristics

a systematic approach to the consideration of investment in IT in order to

prompt graphic consideration of aspects that may not normally be included.

There are a variety of stakeholders, participants, or potential partnerssome
with a vested interest in IT systems, others not even recognizing the effects
of potential projects for them. Stakeholders are both internal and external to
organizations. Stakeholders in healthcare organizations are somewhat unique
compared with other industries, as physicians, patients, payers, and government regulators may be more affected by individual organizations IT investment decisions than similar stakeholders in other industries. These stakeholders can take different rolesas users, partners, coproducers, reactors, and
consumers. These myriad possible roles result in a complex evaluation process
and multiple interrelated goals and objectives. A major difficulty in considering the implications for stakeholders is ensuring that the goals and objectives
are aligned to the greatest extent possible.
The stakeholders are made up of the units within the organization
(chief financial officer [CFO], chief executive officer [CEO], CIO, business
functions, clinical functions); providers (hospitals, physicians, managed care
organizations); patients, consumers, or clients; payers; employers; regulatory
agencies; competitors; vendors; potential partners; governments; and the
general population. These stakeholders have different objectives and expectations from IT investments. In addition, the extent to which each stakeholder
realizes the benefits will be dependent, at least partially, on the activities of
that stakeholder. The existence of stakeholders at different levels and the fact
that healthcare is often considered to be a public good result in a variety of
different potential levels of analyses.
Figure 9.2 indicates three different levels of analysis. Most IT investment decisions are made at the organizational level (organization-centric);

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Public/social good


Patient centered



however, these decisions often have implications beyond the organization in

terms of both potential benefits and costs.
Obviously, not all stakeholders are created equal. Indeed, the specific
roles of the various groups of stakeholders are central to both the decision
process and funding decision. Even within the organization not all stakeholders are equal, as demonstrated by the different roles of the CIO and CEO.
In addition, different weights are placed on the importance of input from the
business and clinical functions within the organization. These different
weights help to explain the decision-making processes of organizations. Only
when appropriate weighting is provided will an appropriate level of investment and the desired results be achieved.
Evaluation of IT investment will vary dramatically according to assumptions about stakeholders included in the analysis. Because most IT investments are made at the organizational level, this is the level at which the
majority of evaluations will take place. At this level funding is considered
strictly an internal budgeting issue. Only the organizational benefits and
costs are relevant to the investment decision.
As other stakeholder values are recognized, the focus of the evaluation
becomes broader, extending beyond the borders of the organization. While
the organization is still responsible for making the investment decision, other
stakeholders recognize the extent to which their own value is enhanced by
the organizations decision. In this case entities external to the organization
have an incentive to encourage the organization to make the investment. The
question becomes one of how organizations can provide this incentive.

Business and Clinical Systems Functionality

The second dimension of the IT evaluation framework deals with business
and clinical systems. This dimension often starts with recognition of a problem or issue in need of a solution. Occasionally it arises from a regulatory


Analysis Focus


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agency mandating implementation or adaptation of a particular innovation.

Sometimes it arises from the availability of a new innovation.
This dimension helps to define the function of IT within the organization but is also highly dependent on that definition. Forcing the issue of functionality is an important step in the evaluation process because it requires
adopters to consider what they expect the IT system to accomplish. Thus, the
functionality dimension is purposely designed to start with a narrow definition and move to a broader one. Care must be taken when defining functionality, as this step may place limits on consideration of IT contributions to the
organization and health services delivery. Ultimately, the potential contributions of an IT investment should be considered as broadly as possible. The dimensions of functionality might be considered as a checklist for defining the
total potential effects and utility of an IT investment. This checklists importance lies in the fact that requests for IT investment do not come with such
broad or comprehensive views. The dimensions of functionality are not meant
to be all inclusive, but they should demonstrate the breadth of functions performed by IT and the potential effects of a given IT investment.
The element of functionality is associated with business and clinical
processes. In the case of CPOE, manual processes are automated, thus improving efficiency and reducing transcription and legibility errors. The benefits are
often relatively narrowly defined and easily identified. Decision support functions can be added to the automation of business and clinical functions. Computerized physician order entry includes links to pharmacy and medical
records; these links provide reminders and error checking apropos of patient
allergies, drug interactions, and duplicate orders.
A further expansion beyond decision support includes strategic considerations and the results of the IT investment as it provides benefits at the
strategic level. These benefits may relate to product design, marketing, competitive advantage, and other product and consumer issues. This third category
is the broadest level of consideration and causes the most difficulty for evaluation because of its lack of specificity, its complexity, and the increased risks to
the organization. Once strategic considerations affect the investment, the benefitsand perhaps some costsextend beyond the organizations boundaries.
Both decision support systems and strategic issues will often have an effect on
patients, providers, and others not directly affiliated with the organization.

Project-Specific Characteristics
This dimension of IT decision evaluation attempts to ensure that no aspect
of value is ignored in a project. It includes the benefits, costs, risks, sensitivity to assumptions, value mapping, interdependencies, and every other aspect
of the particular project appropriate for inclusion in the evaluation. The articulation of potential benefits associated with IT investment must precede
measurement. Many benefits will be difficult to identify and measure, but this
difficulty should not be used as justification to simplify the process. Ease of

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measurability does not justify using a benefit as the basis for measurement. Indeed, the issue of definition of benefits should play a larger role in the evaluation process. However, it is not the traditional approach toward identification
of benefits that is important; rather, the recognition that the users of the information will determine the benefits of IT investment is the important point to
keep in mind. It is up to the creativity and acceptance of users and potential
users to determine the true value of the contribution of IT to the organization.
Costs are often assumed to be the most easily identifiable and quantifiable attributes. The important issue here involves the production function, which
ensures that efficiency is maximized. Of course, there are initial investment
costs, and these are not inconsequential, but it is the ongoing costs and associated benefits that will determine the extent to which a project is acceptable.
To the extent that CIOs are held accountable for the costs of IT investments
they often become focused on a particular project, rather than looking beyond the project to the business and strategic implications. Business and clinical leaders, especially physicians, often reinforce this focus.
While costs are often the easiest aspect of IT investment to identify and
measure, the same cannot be said of risks. The risks are what make IT investments difficult. The risk involved in accurately identifying and then realizing
benefits cannot be overstated. Sophisticated mathematical analysis can provide precise numbers for the ROI associated with an investment in IT. However, the realization of the benefits is more a function of individual acceptance
and willingness to change than a direct consequence of the hardware and software design providing the hard numbers.

Costs and

Risks and the estimation of their impact need to be incorporated into all IT
investment decisions. From the standpoint of risk it is obvious that not all
projects are equal. Business and clinical functionalities have relatively low risk,
as they are performing old functions with new technology. Errors may arise
because of inappropriate application of historical processes, but the risks are
generally manageable and predictable. On the other hand, decision support
and strategic investments result in a completely different form and set of risks.
These risks include lack of consistency and direction in a changing environment.
Traditional riskscost overruns, timetable lapses, inability to deliver
on promises, and so oncannot be ignored. These risks, however, are not the
ones that result in investment failure. Failures are the result of


lack of accountability;
inability to identify and plan for how an investment fits with organizational strategy and other investment projects; and
lack of follow-through, monitoring, and willingness to make changes on
a continuing basis.



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Risk is an inherent part of life and business, and any investment will
have some associated risks, so this does not mean that all risks should be
avoided. The traditional financial concept of the risk-reward trade-off is relevant here: if the potential rewards are large enough, the risk is worth taking. Again, this approach requires recognition of IT investments as strategic
assets rather than narrowly focused projects, with input from units beyond
those under the CIOs purview.


Sensitivity analysis may appropriately be called a tool of analysis. Changing

one of the assumptions while leaving the rest unchanged performs sensitivity analysis. This permits decision makers to determine how sensitive ROI,
economic value added (EVA), and payback are to an error in the forecast of
one of the variables. However, the importance of sensitivity must be recognized as a parallel consideration in order to make explicit the consideration
of the assumptions being made for any investment. How sensitive is the evaluation to one or more of the assumptions, to the fit of the project within the
portfolio of projects, or to an error in the estimation of interdependency?
This is an integral part of the conceptual model and will be addressed more
completely in the next section.

Value mapping

The value mapping component ensures that a broad-brush view is taken to

recognize that value is created beyond the narrow confines of the specific
project. This is another approach toward examining the operational, tactical,
and strategic implications of any project and toward realizing that all aspects
must be identified. A portion of this value map is recognition that any IT investment is part of a portfolio. A portfolio is defined as a structured grouping of investment programs selected by management to achieve defined
business results, while meeting clear risk/reward standards (Thorpe 2003,
43). Use of the portfolio concept has implications for the above categories
of benefits, costs, risks, and sensitivity analysis. Portfolios are not static; they
change just as any component of the organization changes. Thus, while a
CPOE system may be implemented prior to a hospital installing a positionemission tomography (PET) scanner, the CPOE system must have sufficient
flexibility to incorporate subsequent technology investments. In this case the
value of the CPOE system as well as the PET scanner is enhanced by the existence of both.


The last specific project characteristic mentioned is interdependencies between and among projects. Any IT investment must be considered as part of
a portfolioof projects, assets, products, or investments. This view of the individual investment recognizes that most projects have interdependencies or
other relationships with other projects or organizations. These interdependencies, or portfolio impacts, must be considered explicitly when considering

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investment in IT. A strict financial management view of portfolio theory requires consideration of the covariability of projects: they may move in the
same direction at the same time, a move in one may force a move in another,
or they may move in different directions in recognizable patterns. These and
other interdependencies are important when considering projects and can be
used to improve the forecasts associated with any one project.
While this framework may not include all aspects of IT investment in
healthcare, it is designed to make evaluators think with more breadth than
would the traditional financial evaluation approach. Strategic advantages of
IT investment in healthcare extend beyond the boundaries of the organization, and the majority of investments cannot be evaluated as stand-alone
projects because of program and project interdependencies.

Tools for Evaluating IT Investments

A wide variety of tools for evaluation of capital budgeting projects are discussed in the financial management literature. These tools provide a systematic way to compare alternative investment opportunities and articulate
quantifiable, measurable value. There are two mantras associated with the
capital budgeting process: (1) If you dont measure it, you dont manage
it and (2) If you cant measure it, you cant reward it; if you dont reward
it, you wont improve it. It is a tenet of good business practice that all longterm investment projects should be evaluated in such a way as to provide
meaningful guidance and input into the decision process.
However, the application of these tools to healthcare IT investments
provides a particular challenge because of many of the issues discussed previously, including the following:
the strategic application of many healthcare-related IT investments;
the effect of the investment on the total portfolio of projects in place
and being implemented;
extensive uncertainty associated with value realization;
the dynamics of the healthcare industry making it difficult to forecast
implications accurately for reimbursement; and
the extent to which the human element is involved in determining the
results of IT investment.
Frequently, CFOs start the evaluation process by selecting an evaluation tool. This might be an evaluation tool to assess all investments; the risk
of this approach is that the evaluation tool might make erroneous assumptions about the project. The investment process should start with a careful
analysis of assumptions. Only then may an executive select a tool or tools appropriate to the analysis.



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Tools can provide a more systematic approach to evaluating IT investments but might not make the outcome of the analysis any easier to sell. Executives view the expenditure as an investment with a clear financial return
within a reasonable period. Schmitt and Wofford (2002, 53) observe that,
Executives are loath to commit millions of dollars to a project unless they can
be assured of positive cash flows within a reasonable period of time. Unfortunately, demonstrating this return can be challenging because many of the
[EMRs] benefits are either non-financial or inherently difficult to quantify.
The tools suggested here are best represented as an inverted pyramid,
where the top level is the broad economic concept of benefit-cost analysis.
Any decision has economic consequences, and the application of benefit-cost
analysis is always appropriate whether the analysis is performed explicitly or
implicitly. For projects as large as most IT investments the explicit application
of a benefit-cost analysis is appropriate. At the specific application level are
three methodologies, each providing a different form of decision-making information: ROI, which measures a rate of return; EVA, which measures a
dollar value; and payback period, which measures a time period. Taken individually, none of these tools provide a complete picture of the financial implications of an IT investment. Taken together, however, they provide a great
deal of information to inform decision making, especially when combined
with risk and sensitivity analyses.

Business Case Analysis

The generic tool for evaluating any investment involves the economic concept
of business case analysis, or benefit-cost analysis. This approach is sometimes
referred to as business case development, but business case analysis is more descriptive of what really happens. Factors to consider span the range from economic to strategic. Input for identification of benefits and costs associated
with any particular investment comes from all units of the organization that
will be affected by the investment. When considering which units to include,
it is better to err on the side of including too many rather than risk missing a
unit that is significantly affected by the investment but oblivious to that fact.
Benefit-cost analysis is an extremely valuable tool for the evaluation of
IT investments. Both benefits and costs can be considered to take two forms:
those that can be quantified and those that cannot. The benefit-cost approach
is designed to permit the explicit consideration of those factors that are difficult to quantify when considering both benefits and costs associated with investment in IT. Explicit consideration of the unquantifiable benefits and costs
associated with IT is required for rational decision making. An example of an
unquantifiable benefit would be an enhanced reputation because of patients
or potential clients recognition that the organization is leading the industry.
Another example would be the sense of pride physicians who are associated
with an electronically sophisticated hospital might feel. While it is difficult to

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place a dollar value on the intangibles, this does not mean that they can or
should be ignored. Intangibles are extremely important to the decision, and
their consideration must be made explicit.
Business case analysis requires input from all parts of the organization
that will be affected. Consideration from this standpoint requires that individuals in addition to the CIO provide information regarding the potential effect
of a particular project. This is an important step in the process, as it requires
explicit consideration of the potential for IT to behave as a transformational
agent. Care must be taken to ensure that all potential stakeholders are considered in the listing of benefits and costs and that all potential uses of the information and processes are considered. The purpose of the analysis is to provide
a heuristic for making explicit as many of the assumptions as possible.
Tangible benefits and costs are the elements typically included as inputs into the mathematical tools. However, almost 70 percent of CIOs estimate that intangible benefits are equal to or greater than tangible benefits
(Pisello 2003). The reason is that value is created by the information and
what is done with it, not by the technology. Indeed, the information creates
knowledge, which is even more difficult to identify and quantify. But knowledge is the foundation of the value creation on which IT investment is based.

The first application of benefit-cost analysis is referred to as ROI. This term
has been used in two different contexts in the IT literature. First, it has been
used as a catch-all term to include all generic forms of return on an investment. Thus, it often includes most of the traditional forms of evaluationinternal rate of return, net present value (NPV), benefit-cost ratio, EVA, value
at risk, and payback period. In this context ROI is an imprecise phrase without a specific definition. In the financial management literature and in this
chapter, however, ROI is a particular tool associated with the application of
benefit-cost analysis to IT investment.
Return on investment is calculated by dividing net benefits (benefits
minus costs) by net investment. It provides an interest rate, or rate of return,
that can then be compared with some benchmark or desired level. Decision
makers will then deem the project acceptable or not according to the ROI
relative to the benchmark. These benchmarks are most often internally generated and are equal to the cost of capital, risk-adjusted cost of capital, or
some other benchmark established by the organization.
The assumption is that investment in IT with a desired level of ROI
will provide value to the organization. A study of more than 10,000 public
companies found only limited correlation between investment in IT and financial performance (Pisello 2003). The conclusion was that financial performance is more closely related to how the investments are managed than
to the amount invested. This lends credence to the importance of evaluation



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that crosses the boundaries of the organization, of the recognition of the

change-enabling potential of IT investments, and of business units in the
CIOs knowledge base as well as clinical and strategic applications.
The very use of the term ROI belies a precision that does not exist,
especially in reference to IT, and even more so when applied to healthcare.
The term ROI is used very loosely when applied to IT projects. When used
by financial managers and applied to capital budgeting projects, the term is
much more precise. Return on investment is easily presented as a percentage
and easily compared to interest rates to be earned on other investment opportunities (cost of capital). In the context of IT investment and consistent
with the model presented above, ROI can be expressed in two forms: as an
interest rate and as a subjective evaluation. In some cases a rate of return may
not be determinable because it may not be possible to quantify a sufficient
portion of the benefits to make the number meaningful. This particular case
is referred to as the concept of cost effectiveness; at least some of the costs
can always be determined.
Most organizations would love to make an investment having a return of 50 percent or more. This is not an uncommon hurdle rate for IT investments given the uncertainty associated with benefits realization. Several
additional issues must be considered, however. First, the dollar values are
forecasts. The future is impossible to forecast, so the accuracy of these numbers should be questioned. The cost figures are easier to forecast because
they involve a much shorter time horizon and are based on more accurate
estimates. A majority of IT investments do not deliver the promised ROI,
nor do CFOs, CEOs, and CIOs place much trust in ROI numbers. For these
reasons it is important to make appropriate and realistic assumptions about
the validity of forecasts and the anticipated impacts of any investment. It is
also appropriate to seriously question rates of return that appear to be accurate because they result from a numerical calculation or formula. Such a rate
might be a precise estimate of a very imprecise value and thus limit the examination of reality essential in such an investment.

Economic value added is an indicator to measure value derived from operations or a particular investment project. Theoretically, EVA is the dollar
amount by which the value of an organization will increase (or decrease if it
is negative) if the investment is made. This amount would normally accrue
to stockholders in an investor-owned organization or enhance the value of
the organization in the case of both investor-owned and tax-exempt organizations.
The numerator of the ROI formula (net benefits) presented above
has been variously defined as NPV or EVA. This number expresses how the
value of the organization is changed by the investment. The theory behind

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this concept has to do with valuation as presented in any financial management text. It takes into consideration the required rate of return of all sources
of capital and the fact that cash flows received at different points in time have
different values. This is the premise of the U.S. stock markets and stock valuations and the premise for determining the value of any organization involved in merger or acquisition activities. While the authors have used NPV
and EVA to mean the same thing in this chapter, they are not precisely identical; an explanation of the differences is beyond the scope of this chapter.
While the concept of EVA is fairly straightforward and the result is easily understood, its application to IT is fraught with difficulties. This is because of the fluid nature of many IT investments and the speed with which
the technology is changing. In addition, all IT projects have a life cycle, as do
products and strategies. The point at which the IT investment falls into the
life cycle of interdependent projects will help to determine the life cycle of
the IT project. Life cycle analysis is an important part of the assessment of
EVA. The EVA technique involves consideration of the timing of cash flows.
However, given the rate of change in technology, rate of obsolescence of IT
projects, and risks associated with IT investments, the time horizon most
often used is extremely short. Therefore, discounting techniques may not be
used, and only one years worth of cash flows is sometimes used in these formulas.
Value realization may also be elusive because much of the impact of IT
investments is new, having never been experienced. For instance, the EMR
cannot be precisely defined in terms of what it looks like and what its effects
will be. It has never been experienced, so it is difficult to identify a complete
list of potential benefits. To the extent that IT investments are envisioned as
key components of an organization there will likely be unintended consequences. This provides both a risk and an opportunity for all potential users.

Payback Period
The payback period is how long it takes for the original investment to be returned. Econmic value added may be acceptable and ROI may be above the
required level because of discounted cash-flow techniques when large cash
flows are expected to be received in the distant future. A payback period allows an organization to make an explicit decision that the risk associated with
waiting for the future is too great. Thus, a payback criterion can override the
other two criteria.
Each of these tools provides information that is alone insufficient to
make a valid decision. However, combined, and using consistent assumptions
and forecasting inputs, these tools will provide a picture that has a better
chance of leading to an appropriate decision than any one tool taken individually. Now, the question is how to apply these tools to increase the chances
of making an appropriate decision.



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Process for Evaluating IT Investments

The process of evaluating IT investment projects should take place on several
different planes and incorporate several different levels of analysis, with passage of each one necessary to determine acceptability. The Gartner Group
(Thorpe 2003) refers to the five pillars of benefits realization: strategic alignment, business process impact, architecture, direct payback, and risk. These
different dimensions for evaluation are important to make sure that all aspects
are included.
Strategic alignment means that the project must be consistent with the
mission, vision, goals, and objectives of the organization and consistent
with other projects.
Business process impact deals more with the operations and the extent
to which the business aspects are affected and considered in the evaluation.
Architecture is important because the technology must be able to communicate with other projects. For example, to provide for decision support a CPOE system must interface with a drug database, a radiology
database, and an EMR.
Direct payback is addressed in the capital budgeting process described
Risk assessment must be included at all steps and in all pillars.
Healthcare is complex, fragmented, turbulent, and unpredictable, with
change occurring on a continuous and rapid basis. The industry is characterized by interrelationships between and among organizations. It is not surprising, then, that risk should and must be considered at every stage of the evaluation process. While no attempt will be made here to list hypothetical risks,
every item that must be considered in the evaluation of IT investment projects has an associated risk; these risks must be enumerated and considered by
project planners and decision makers.
The primary function served by the evaluation framework is to develop
a systematic approach to evaluation. The cube shown in Figure 9.1 contains
a variety of cells, each defined by the intersection of the three dimensions.
Evaluation can take place in any one of these cells, a combination of the cells,
or all of the cells. When considering the value of an IT investment, it will be
extremely important to be explicit about the focus of the evaluation, specific
stakeholders to be considered, and limits to be placed on the scope of potential benefits.
The five pillars of benefits realization provide additional guidance for
the process of evaluation. The next step in evaluating an investment proposal
deals primarily with the direct payback pillar. Direct payback is commonly referred to as capital budgeting. It is capital in that the investment is expected to

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have implications for the revenues and costs of the organization for a period
greater than a year. This investment needs to be budgeted because it is expensive and resources are limited. Given the complexity, dollar figures involved,
and time factor (which is generally relatively long), a systematic approach toward evaluating alternative investment projects is a worthwhile endeavor. It
must be remembered that IT investments must compete with other potential
investment projects for a limited amount of resources.
The generic steps involved in the IT investment process are as follows:

Listing of alternative investment projects

Identification of benefits and costs
Evaluation of benefits and costs
Decision as to which investments to make
Reevaluation of the decisions made in step 4

Listing of Alternative Investment Projects

This list includes all projects, not just IT, as IT investment is in competition
with other projects for scarce investment dollars. This is why the capital
budgeting process is so important, requiring IT investments to be considered
as a key component of the business. This view of IT is consistent with the
portfolio view presented in the previous section, in which IT investments
must be considered in conjunction with other business unit projects or investment decisions. This way of looking at investment decisions for IT is
somewhat unique. One survey of 67 CIOs found that 64 percent of the
CIOs [we] talked to said that once IT budgets are set, at the beginning of
the year, they dont have to be defended (Davis, Rath, and Scanlon 2004,
60). On the other hand, many CIOs feel they have less voice in decisions on
IT spending. The number of CIOs reporting to CFOs doubled in 2003
a trend likely to continue as companies seek ways to get greater value from
IT investments. Many CIOs support this shift because they believe that business units ought to be involved (Davis, Rath, and Scanlon 2004, 62). This
means that within the IT department specific projects do not necessarily go
through the same rigorous evaluation process as non-IT investment projects
with similar dollar amounts, time frames, and risks.
It is important to recognize that potential projects can be suggested at
any and all levels of the organization. Business function projects should be encouraged as well as clinical function projects and tactical-level projects. While
the objectives of CIOs, CFOs, and CEOs may not always align perfectly, they
are all still relevant to the growth and dynamics of the organization. Some IT
investments will replace legacy systems with newer technologies. Other projects will assist in developing new product lines, providing for strategic and
competitive advantage, and providing improved efficiency and effectiveness in
the delivery of health services.



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The portfolio considerations of all projects require that all areas of an

organization and all stakeholders be involved in the generation of proposals
for consideration. At the time of submission all potential synergies should be
identified along with any identifiable interdependencies. These will become
very important in the next step of the process.
Finally, it is important that no specific time frame be associated with
project development and submission. Creative ideas can arise anytime. New
opportunities do not wait for the beginning of the next fiscal year to present
There are a variety of categories of projects to be considered, not all
of which will be on an equal basis. For instance, some projects are simply replacement of obsolete equipment with newer technologies. These are fairly
easy to evaluate in terms of benefits and costs unless they utilize a sufficiently
different technology such that capabilities change. New product development, on the other hand, is much more difficult to evaluate because of a lack
of history and uncertainties about the future. Other projects may be mandated by regulatory agencies; there may be some debate as to the extent to
which these projects should be evaluated, as there may be little or no option
available to the organization. Other possible categories for investment proposals can be found in financial management textbooks.

Identification of Benefits and Costs

Information technology investments are most often made at the organizational level. At this level the majority of the cost is borne by the individual organization. For example, assume the organization is a group-model managed
care organization designed to serve multiple functions spanning and linking
both financial and clinical activities. In this case a wide variety of benefits to be
captured are internal to the organization. Thinking about the IT investment
as one part of a portfolio of investments leads to a broader approach toward
identifying actual and potential benefits (and costs). In a portfolio context the
thought process is broadened to include a variety of individuals from a variety
of business units and to force explicit consideration of the interactions among
the projects. This is especially important in healthcare, where the benefits and
costs extend to individuals and organizations well beyond the confines of the
organization, including physicians, payers, employers, managed care companies, and insurance companies. These relationships form an information enterprise or business ecosystem (see Chapter 6).
In addition, parties external to the organization (e.g., patients, thirdparty payers, regulators, government agencies) will realize benefits. However,
the majority, if not all, of the cost will be borne by the organization. To the
extent that benefits external to the organization exist, creativity may result in
changed policies and development of other funding arrangements. The matrix shown in Figure 9.3 would be filled out as the first step in this process.

I n ve s t i n g i n I n f o r m a t i o n Te c h n o l o g y

Business Clinical

Information Enterprise
(or business ecosystem)

Patient Public

Tangible Benefits
One time
Intangible Benefits
One time
Tangible Costs
One time
Intangible Costs
One time

The tangible benefits are those most easily identified and measured.
They may be in the form of increased revenues through improved coding and
fewer lost charges; expanded product line and increased market share; cost
reduction through more efficient enrollee identification and processing; cost
reduction through improved efficiency, fewer medical errors, and less rework;
and numerous other examples. These benefits might be one-time bubbles, as
in the case of improved collection period; continuing, as in the case of increased market share and improved coding; or periodic, as in the case of annual screening processes or fund drives involving patient records on chips or
bracelets. These benefits should be listed according to who is going to realize them. It is important to recognize explicitly the locus of the benefits in
order to improve the likelihood that the majority of benefits are being captured. In addition, the matrix shown in Figure 9.3 will help to identify where
accountability for benefits realization should lie.
The intangible benefits are much more difficult to identify. Examples
are an enhanced reputation resulting from recognition as one of the top 100
information facilities in the United States or as a center of excellence because
of integrated patient health records and process improvements associated
with a particular disease or diagnosis. Pisello (2003) provides the following
list of potential intangible benefits:
Brand advantage
Strategic advantage




I n f o r m a t i o n St ra t e g y : M a n a g i n g I n f o r m a t i o n Re s o u rc e s

Competitive advantage
Intellectual capital
Organizational advantage
Risk avoidance

Tangible costs are often the most easily identifiable, at least in the initial phase, because they include information provided by the vendors in many
cases. This category includes software, hardware, facility modifications, training, and any other associated costs. Capital costs are generally one time or periodic, whereas operating expenses are continuing.
Intangible costs are more difficult to identify and may often be unanticipated. These costs may take such forms as staff resistance to change, lack of
acceptance, and loss of reputation as a result of start-up problems. While the
benefits associated with a CPOE system are in the area of improved legibility,
physicians complain that CPOE systems often increase the amount of time they
must spend placing orders, making them reluctant to use these new systems.
This step is discussed in the more generic discussion of benefit-cost
analysis presented above. It is probably the most difficult and yet most important step in the evaluation process.

Evaluation of Benefits and Costs

The third step, evaluation of the benefits and costs developed in step 2, incorporates the application of the finance tools discussed above: benefit-cost analysis, ROI, EVA, and payback. While discounted cash-flow techniques are appropriately applied where benefits and costs are anticipated to be absorbed for
a period of more than one year, most IT investments in healthcare have used
time horizons of no more than three years. Over this short period discounted
cash-flow techniques are not as important. However, interest rates are used as
hurdle rates in both ROI and EVA techniques. Therefore, it is important to
consider the impact of risk on this required rate of return. Discount rates
should always be adjusted (increased) for risk. The risk adjustment may be as
simple as an example explicated by Pisello (2003) and provided in Figure 9.4,
or it may be made more sophisticated by the application of the capital asset
pricing model through estimation of a beta coefficient.
to Discount

Sample Risk Adjustments to the Discount Rate

(added to the cost of capital)
No Risk


Low Risk


Medium Risk


High Risk

30% or higher

I n ve s t i n g i n I n f o r m a t i o n Te c h n o l o g y

Cost of Capital (risk adjusted)





$ (20,921.32)
$ 35,526.07
$ 86,841.88

$ 11,140.73
$ 56,375.65
$ 96,763.98

$ (56,691.90)
$ (11,133.25)
$ 28,830.48
$ 63,886.39
$ 94,637.18
$ 121,611.56

$ (31,526.41)
$ 3,856.54
$ 34,359.09
$ 60,654.39
$ 83,322.75

Annual realized benefits = $ 100,000.00

Initial investment = $400,000.00

As mentioned, included in this step are the ROI, EVA, and payback
metrics. Return on investment provides a rate of return expressed in the form
of an interest rate. As such it is easily understood. The primary disadvantage
of ROI is that it does not take into consideration the scale of the project. For
example, one project may have a high ROI but be the result of a relatively
small investment: a 50 percent ROI on a $100,000 investment will provide
only $150,000 in benefits, whereas a 10 percent ROI on a $1,000,000 investment will provide $1,100,000 in benefits.
Economic value added is an important adjunct to ROI because it provides a dollar value indicating the extent to which the value of the organization is enhanced by the project. This value, to the extent it is realized, is an
absolute dollar figure and shows how much the value of the firm would theoretically increase in the stock market.
Payback is significant, as it indicates how long it takes the project to
pay for itself. This is important because some organizations may have a short
time horizon regardless of the ROI or EVA values. Payback is most frequently used for infrastructure projects and often requires a one-year payback
period. Other techniques are not used because revenues are difficult to associate with infrastructure projects.
Sensitivity analysis should be applied as one mechanism to account for
risk. There is so much uncertainty associated with IT investmentand so
many organizations have had bad experiences with IT investments, especially
realizing ROI or anticipated benefitsthat this step should not be left out.
An example of sensitivity analysis is provided in Table 9.2, where the cost of
capital and anticipated life of the project are allowed to vary. The sample figures in the table are designed strictly to indicate the informational value of
performing a sensitivity analysis. In this example the project should not be
undertaken if there is a high probability that the expected life of the project
will be less than six or seven years.


Example of
EVA Sensitivity


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Decision as to Which Investments to Make

This step in the process is extremely important, as most organizations do not
have sufficient resources to invest in all potentially valuable projects. Scarcity
of resources is the norm, and the more difficult the project is to evaluate, the
more likely it is to be passed over for projects that can be more easily evaluated. Likewise, the varying levels of risk associated with different investment
alternatives can easily result in IT investments being passed over. While earlier
sections have addressed risk, the need to assess risk carefully and systematically
when considering an IT investment cannot be overstated.

Reevaluation of Decisions
Continuous monitoring and reevaluation of all previous investment decisions
is also an extremely important step. Once the investment has been made, it is
imperative that the results of the investment be tracked: Do results meet expectations? What outcomes have been improved? Are there unanticipated consequences (both good and bad)? This step can be used to improve forecasting
associated with future IT investments, modify current or past investments, and
make a decision to discontinue implementation or make additional expenditures to ameliorate an incorrect past decision. While reevaluation is an important step, it is often overlooked: Many CIOs reported that their companies
undertook no auditing or follow-up to determine whether IT projects failed
or succeeded (Davis, Rath, and Scanlon 2004, 59). This is a fatal error in IT
investment and an indication of bad IT management.

Behavioral and Other Noneconomic Issues

Benefits realization continues to be a major problem with IT investments.
This chapter deals primarily with the development of tools and techniques
designed to improve the decision-making process for investment in IT projects for healthcare. Regardless of the sophistication of the tools and their application, however, there are still major problems associated with IT investments. The majority of CIOs, CFOs, and CEOs are willing to go on record
as stating that the benefits anticipated from IT projects are most often overestimated, costs are underestimated, and implementation (if successful at all)
takes much longer than anticipated. The reasons for many of these difficulties are only now being recognized and explored. Following is just a partial
listing of the governance changes required for successful implementation of
IT projects, especially considering their potential role as change enablers:
ROI measurement system
Change management skills

I n ve s t i n g i n I n f o r m a t i o n Te c h n o l o g y

Project management skills

Postimplementation benefits review
Greater ongoing role for business executives
The first major category of changes needs to take place within the governance structures of healthcare entities. Such changes must support a vision
of IT as a change-enabling strategic resource to deliver the expected ROI.
Within the governance function the practices discussed in the following paragraphs are important.
Stakeholders must hold a single executive sponsoring a set of projects
(IT and business) accountable for delivering the promised ROI. For this to be
effective the sponsor must be senior enough to have the authority to remove
barriers and hold staff accountable for results. Expecting ROI to be delivered
without accountability is unrealistic.
The ROI measurement system needs three components to be effective: (1) ROI outcomes that are specific, measurable, and quantifiable (this
also applies to economic and strategic value); (2) a baseline measurement for
the ROI outcome targets prior to starting the projects; and (3) a process to
measure and collect the ROI outcomes. The measuring, tracking, and reporting should be ongoing to ensure the value continues to be delivered. Accountability without measuring systems is not possible.
To facilitate the delivery and acceptance of complex business process
changes requires a change in the management skill set. Resistance to change
is common, and because change-enabler IT investments are dependent on restructured business processes for ROI, proactive management of change is
important. Superior change management skills to engage staff in understanding, incorporating, and accepting business changes are needed for success.
Managing the integration and delivery of multiple complex projects requires strong project management skills. The skills, processes, and tools
needed for complex change-enabler investments are greater than those needed
for stand-alone IT projects. Adding these advanced project management skills
is necessary to manage the successful delivery of ROI.
Developing a formalized process to ensure promised value is delivered
throughout the life of IT investments requires postimplementation benefits
review. In a recent McKinsey survey more than 65 percent of companies investigated had no process to audit the ongoing performance of their IT investments (Davis, Rath, and Scanlon 2004, 63). The result is a lack of information for consideration of the future of the project. Projects that do not deliver
the anticipated benefit should be considered as candidates for reduction or
elimination. On the other hand, projects may provide additional unanticipated
benefits that may lead to more investment in the same or similar projects.
In general, the role of top executives in IT investment strategies is too
limited. Besides adversely affecting the business value of IT investments, this



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lack of involvement also affects the executives willingness to accept ongoing

accountability for value delivery. They must have a clear understanding of IT
costs and potential benefits. These business executives, including the CIO,
need to communicate in common business terminology. They must all be
proactive in helping to set the IT investment agenda. In addition, most projects will need at least one champion, if not more, to shepherd it, make sure
it stays on track, and help others to accept it. A greater ongoing role for business executives is needed.
Both the CIO and other business leaders must recognize that the CIO
is an important contributor to the enterprise and organizational strategies
and must have advanced management knowledge. All members of the executive team must be willing to contribute ideas about how technology can
help the organization be more competitive, improve business and clinical
processes, and enhance efficiency and effectiveness. Efficiency and effectiveness, however, are not created equal. The IT department must be functioning efficiently and the lower level systems (business and clinical processes)
must be operating efficiently before the CIO and others take on the more
complex strategic issues.
The discussion above of behavioral items is not complete; their importance, however, cannot be overstated. Without the support of the business
units and executive leadership, any IT investment is doomed to failure regardless of the sophistication and precision of the calculations.

This chapter provides the opportunity for IT investments to be considered as
an integral part of any organizationas a required component, part and parcel of the strategic plan. Decision makers, when considering IT investments,
must remember the overused phrase thinking outside the box. Traditional
methods of valuation and evaluation do not fit the role of IT in the modern
health services system. This chapter provides not only a different way of thinking about IT investment but also different mechanisms for its evaluation.

Questions for Discussion

1. What are the primary concepts to consider when evaluating IT projects
related to the healthcare industry?
2. Describe the steps you would use when evaluating an IT investment.
3. Why is it so difficult to evaluate investment in IT for healthcare?
4. How should intangible benefits and costs be included in IT investment

I n ve s t i n g i n I n f o r m a t i o n Te c h n o l o g y

5. Why is the role of evaluation so important to the decision-making

6. Explain how IT investments add value to the organization.
7. How might IT investment in healthcare be considered a public good?

Adams, J. 2004. Questions of Leadership. Modern Healthcare May 34 (21):
Davis, K. B, A. S. Rath, and B. L. Scanlon. 2004. How IT Spending Is Changing.
The McKinsey Quarterly, 2004 Special Edition: What Global Executives Think,
Pisello, T. 2003. IT Value Chain ManagementMaximizing the ROI from IT Investments. [Online article; retrieved 7/28/04.]
Schmitt, K. F., and D. A. Wofford. 2002. Financial Analysis Projects Clear Returns
from Electronic Medical Records. Healthcare Financial Management 56
(1): 5257.
Thorpe, J. 2003. The Information Paradox: Realizing the Business Benefits of Information Technology. New York: McGraw-Hill.

Further Reading
Baldwin, G. CIO Secrets to Calculating Return on Investment. Health Data Management [Online article; retrieved 9/7/04.]
Christenson, C. 2003. The Innovators Dilemma. New York: HarperBusiness.
Litwin, B. 2004. ROI from IT: Enhancing the ROI from IT. Healthcare Informatics Online. [Online article; retrieved 9/7/04.]
Murphy, T. 2002. Achieving Business Value from Technology: A Practical Guide for
Todays Executive. New York: John Wiley & Sons.
Sullivan, A. C. 2002. Connected EMRs Yield Measurable ROI. Healthcare Informatics Online. [Online article; retrieved 9/7/04.]



Anthony N. Duminski and Timothy B. Patrick

Chapter Outline

IT Governance and Leadership

Strategic IT Planning
Individual Project Planning and Management
IT Department Organization

Key Terms
technology (IT)
and leadership
officer (CIO)
IT strategic

Learning Objectives
1. Understand IT management from both a strategic and day-to-day point
of view.
2. Understand the importance and fundamentals of project management.
3. Understand the concepts of an IT customer and IT response to customers.

Chapter Overview
Within a major U.S. healthcare organization, information technology (IT)
management activities include strategic and tactical efforts. These efforts are
conducted within the firms IT governance framework. A key point to keep
in mind, as discussed in Chapter 3, is that IT can be considered an essential
enabling factor for organizational transformation but in itself will not produce transformation. Information technology management, whether at the
strategic or tactical level, is not merely a matter of management of the technical details of IT infrastructure and applications. In fact, successful IT management requires management of the IT function as a productive component
of the overall organization. In addition, the reporting relationship of the top
IT officer in the organization plays a significant role in facilitating realization
of business benefits by the organization.

IT project
IT life cycle
IT department
officer (CTO),
chief medical
IT customer



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CASE 10.1
A Finger in
Every Pie

The IT infrastructure and organization at a large Midwestern academic health sciences center was undergoing significant change. A multiyear implementation of an
enterprisewide electronic medical record (EMR) system was in progress. A key
challenge faced by the IT leadership was the management of systemwide adherence to software and hardware equipment standards. Effective ongoing management of department-specific IT personnel, not heretofore under the direct control
of the enterprise IT management, was therefore required. Because well-trained IT
staff were in short supply as well as expensive, enterprise IT management struck a
deal with individual departments across the organization. Enterprise IT management would provide, to each department who requested one, a user-support employee well trained and certified in the IT applications proposed for adoption
across the enterprise. Enterprise IT management would split the cost of the employee with the department, paying 25 percent of the salary while providing training and support for the employee from the enterprise IT organization.
Problem Solving 10.1 highlights a few of the factors to be considered in organizational strategy to manage IT staff distribution.

This chapter presents aspects of IT management from both strategic

and tactical points of view. Case 10.1 demonstrates central themes of the
chapter. We next discuss the role of IT governance and leadership spanning
from the role of the board of directors to that of departmental leadership.
Next are aspects of strategic planning, emphasizing the relationship of IT
planning to enterprise strategy. The following section discusses individual
project planning, and the chapter closes with a discussion of the organization
of the IT department itself.

IT Governance and Leadership

The Role of the CIO
Many U.S. healthcare organizations employ a chief information officer
(CIO) who is nominally responsible for the IT capability of the firm. Yet, in
reality IT governance and leadership responsibilities also span the board of
directors, executive management, and senior operational management level
positions. Nevertheless, the CIO is generally held accountable for the overall
success or failure of the IT activities within the organization. Thus, the CIO
must orchestrate the IT activities across all levels of the organization by
building and maintaining an IT department capable of supporting the vision
and strategic plan of the healthcare organization.
The CIO must be viewed as an executive knowledgeable in the provision of healthcare services and in contemporary IT systems. He or she must
establish a consensus among the other healthcare executives regarding the direction for progress in using IT capabilities in the organization. The reporting
level of the CIO is a major factor in being able to achieve this responsibility.

M a n a g i n g I n f o r m a t i o n Te c h n o l o g y S e r v i c e s

The CIO who is not viewed as a fellow executive is likely doomed to quick
In addition to the CIOs responsibility in furthering a shared IT vision
and IT strategic plan, the organization must have a clear-cut ability to plan
and execute IT projects, provide daily operational functions, and work
smoothly with the other components of the healthcare organization. These
activities are largely influenced by IT leadership practices, IT business
processes, and IT personnel selection and development. The CIOs relationship with key suppliers will also have a notable effect on the IT departments
To be successful the CIO must be able to work just as effectively at the
board level as at the executive and senior management levels. These characteristics are typical of those required for other successful senior executives.

The Role of the Board of Directors

The healthcare center board of directors is called on to review and approve
annual budgets and major capital expenditures. Usually, the annual IT capital and operating budgets are considered within the framework of the firms
annual capital and operating budgets. In addition, significant new IT project
expenditures are presented to the board for approval. The implementation
and usage periods for projects usually span several years. When reviewing
proposed IT projects, the board commonly considers five-year cost of ownership and benefit projections. Included in the boards decision-making
process should be an understanding of the project as planned, including the
costs, expected business and clinical benefits, degree of risk, and fit into the
overall healthcare organizations strategic position and direction. Logically,
the annual financial requirements of all board-approved projects should be
contained within the institutions current and future annual operating and
capital budgets. Achieving this incorporation is often difficult because of variability in the firms performance over multiyear periods and a possibly changing financial environment within which the healthcare organization operates.
Some large healthcare organizations have established an IT committee
at the board of directors level to work closely with the CIO and other executive management. This is of particular value during board review of IT projects and can also be very useful in the organizations IT strategic planning efforts. Board IT committee members may be able to provide strategic insights
that might not otherwise be available. However, the risk of excessive involvement in the IT managerial level functions of the firm by board IT committee
members does exist.

The Role of Executive Management

The executive management of the healthcare organization must be involved
in the IT management process at both the strategic and tactical levels. One of



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the principal roles of executive management is to provide leadership and commitment in the formulation of the multiyear IT strategic plan that informs and
is informed by the healthcare organizations overall long-range strategic plan.
A key point to keep in mind is that an IT strategic plan makes most sense
within the context of the overall long-range strategic plan. Failure of the leadership to provide a strategic plan for the enterprise as a whole or to consider
IT plans in the context of such a plan may have equally deleterious effects on
the success of IT for the organization. For example, the lack of a formal longrange institutional strategic plan may make formulation of an IT strategic plan
problematic, resulting in plans that are based solely on considerations of business as usual. On the other hand, even if a broader enterprise strategic plan
exists, failure to consider IT in the context of it may result in failure to incorporate changes made possible by IT in the healthcare organizations strategic
direction. Similarly, major planned organizational changes, such as mergers or
acquisitions, may not be anticipated in IT strategic plans, forcing IT management to address them ultimately on an ad hoc or tactical basis.

The Role of Departmental Management

The healthcare organizations departmental managers are often focused on
improving the existing processes of their respective organizational components. These goals may be expressed as reducing accounts receivable days outstanding; improving the patient scheduling process for better utilization of
key resources; reducing the inpatient stay and costs for high-volume procedures; reducing the effort expended on preparing, recording, moving, coordinating, filing, and retrieving information on paper; and other similar departmental objectives. Individually, departmental management does not typically
focus on the benefits that IT systems can bring to the healthcare organization
at large or society in general. Organizational IT standards, if they exist, are
usually adhered to, but creation of institution- or societywide practices is often
of little or no concern to departmental management (see Problem Solving
10.1). Thus, one of the CIOs major challenges is to bring a broader focus to
the firms IT efforts, transcending, but not alienating, departmental management. A major ongoing challenge in this regard is to balance short-term departmental foci within a broader, longer-term enterprise focus.

Strategic IT Planning
Planning Period
Generally, the IT strategic plan is crafted for a minimum three-year period.
Often, the planning period chosen is five years, with individual implementation projects within the plan usually of a one- to two-year duration. Thus, a
five-year plan must include implementation projects starting in years four and

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The development of and adherence to organizational or system standards is a

challenge to organizations transitioning from distributed systems to one with a
high degree of interoperability across professionals and departments. Some of the
issues that merit consideration are as follows:
The development of IT standards within an organization might be considered a
transitional process needing some consolidation of staff to effect change in the
institution. Information technology has historically been considered by individuals and departments as being in their purview.
One of the implications of consolidating the staff is that the IT department may
appear to be overstaffed and therefore vulnerable to cuts during tight budget
times. A distributed staff might have a better chance of being supported.
It is important to determine if the consolidated IT staff would be more successful in achieving better management of systemwide adherence to software and
hardware equipment standards than a distributed staff.

five that may continue to be underway in years six and seven. Typically, the
plans are updated on a two-year cycle; hence, implementation projects starting in years three through five are reconsidered at least once from a strategic
planning perspective. Obviously, the longer the planning time horizon, the
greater the inaccuracies can be in the later years. Updating a five-year plan at
least every two years helps to bring greater accuracy to those projects in the
later years of the original plan.

Scope of the Plan

An IT strategic plan should assess the strengths and weaknesses of the current IT situation in the firm, usually at both the executive and departmental
management levels. In some cases large-scale survey techniques are used to
provide input from those directly using the systems. Obviously, this approach
tends to focus on business as usual. However, an IT strategic plan should also
reassess the opportunities for healthcare service improvement that may be afforded by new technologies and vendor application offerings. New IT capabilities may enable an organizational redesign. To this end major organizational changes and their related IT requirements need to be considered by
executive level management. In short, one of the challenges in IT strategic
planning is balancing efforts between short-term business as usual and
longer-term opportunities. The IT plan should include a financial plan for
both IT operations and IT capital requirements. It should be realized that
the financial plan is likely to be more exact in the aggregate than for any specific project in the plan.

IT Vision
Key to the creation of an IT strategic plan is the development or updating
of an IT vision, which should extend across the entire organization and be


A Finger in
Every Pie


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Sample IT

Community Hospital IT Vision

Community Hospital is focused on creating and maintaining a contemporary IT capability. This capability will be consistent with those found in other similar healthcare providers. Community Hospital will strive to maintain a reliable and available
information system to support the needs of all who work and practice at Community Hospital. Modern IT equipment, data networks, and application software will
be deployed and adequately supported. Moreover, Community Hospital will only
utilize proven IT systems that have demonstrated their effectiveness in other similar healthcare centers. IT risk of failure is to be minimized. Deployed IT systems
will be in full compliance with all applicable regulatory requirements. Only systems
that can demonstrate an attractive ROI at the planning stage will be deployed. Investment in IT systems will be balanced against other capital requirements at Community Hospital.

consistent with the firms strategic direction. This vision should establish
broadly stated goals for the use of IT within the firm. Figure 10.1 depicts a
sample IT vision statement.
The IT vision should be crafted with the involvement of both executive
and operational management. Often, there are executive and operational management committees that can serve to formulate or approve the IT vision.
Many healthcare organizations have also established an IT steering committee, typically consisting of members from the senior operational management
ranks. Additionally, IT steering committees often have members from the key
physician organizations, either community based, hospital based, or both. The
IT steering committee or a subcommittee thereof can serve as the staff to develop the IT vision. There may also be an IT executive management committee composed primarily of executive leadership to review and approve the IT
vision that has been developed. Alternately, the review and approval role can
be performed by the general executive management committee of the healthcare organization. The involvement of a healthcare IT strategy consultant may
be helpful to facilitate the IT visioning process. The experience and independent viewpoint of an outside consultant can facilitate the development of consensus among the participants and help in the art of creating an IT vision that
balances both scope and specificity. Once crafted, the IT vision statement can
serve as the cornerstone for creating or updating the IT strategic plan.

Individual Project Planning and Management

Contained within an IT strategic plan are individual projects. These projects
can be planned using a life cycle approach. For example, projects could be
considered to pass through four stages: concept, selection, implementation,
and project review.

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The initial focus of the project is defined in the conceptual stage. This
definition includes the scope, business purpose, possible IT creation technologies, or alternative sources for the projects components. The emphasis
is on determining the feasibility and benefits for a project and whether to
proceed to the efforts of the next stage.
The second stage, selection, develops sources and timelines, quantifies
expected benefits, and outlines staffing, technology, and financial requirements for the project. The conclusion of this stage could either be a determination to terminate the effort or a decision to enter into the third stage,
During the implementation stage a detailed implementation plan is
created and executed, the components for the project obtained or developed,
and the initial benefits hopefully realized. During the implementation stage
it is customary to use a detailed project plan based on the Critical Path
Method and Program Evaluation Review Technique project planning and
management methodologies (Frame 2003), two of the project management
models that have influenced the creation of Microsoft Project and many
other modern, commercially available computerized planning tools. Healthcare applications licensed by software vendors are often accompanied by a
typical computerized project plan, which is refined to fit the specific needs of
the clients implementation of the application. Some institutions use computerized planning tools in conjunction with best practices templates. These
templates are commercially available not only for the implementation of new
projects but also for other life cycle stages. As a firm builds experience in
using computerized project planning templates, it can customize these best
practices templates to fit its institutional needs.
Following the implementation stage the project enters the review
stage. This stage focuses on whether all expected benefits are being realized
and what corrective action should ensue if they are not. For example, during
this stage additional training might occur, and other project implementation
problems would be identified and corrected. During review, the fit, risk, and
cost expectations are contrasted to actual outcomes. This review stage should
recur at least annually, with later years used to identify when a replacement
project should be initiated.

IT Department Organization
The IT department is often divided into two major functional areas: operations management and applications management. Information technology
operations management typically includes all personnel for the daily operation
of the centralized computers, data network, desktop computers, institutional
IT help desk services, IT security, and IT technology services. Information



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technology applications management includes all major IT applications development, implementation, and maintenance staff. There may also be IT staff
devoted to financial administration, budgeting, human resources, and other
support functions.

IT Operations Management
Information technology operations management includes planning and management of centralized computers (e.g., mainframes, servers), distributed
computers (e.g., desktop computers), and the data networking equipment to
interconnect them. Key aspects of these activities are system availability and
capacity planning, reliable oversight, and control of operations. The operations management organization may be headed by a chief technology officer
(CTO). In addition to daily operational responsibilities, the CTO and his or
her organization may set IT standards for the entire healthcare organization.


One of the daily application and infrastructure support functions is the provision of support services to help IT customers using the various application
systems. This support activity is generally provided through an IT help desk,
which provides detailed frontline interaction with the IT customers. The help
desk is usually a component of the IT operations organization. The IT help
desk staff is called on to address a diverse range of questions and problems.
Support services can range from problem resolution to routine matters such
as password resets. In some cases the user problem is as simple as needing a
reminder on how to use a certain feature of the application software. At other
times problems result in the need to fix a bug in the application software or
supporting infrastructure. Usually, help desk personnel are supported by
databases of frequently asked questions, third-party infrastructure knowledge
bases, and call logging and resolution management software applications.
Application software problems can be categorized as either bug fixes or
feature enhancements. Bug fixes in turn are usually triaged into urgency categories. Some demand immediate attention and rapid resolution, but most are
less urgent.
Problems that cannot be handled by the help desk personnel are referred to the appropriate staff member in the IT department. In addition to
problem resolution, the help desk may generate requests for application system changes; these can range from changing the layout of a data entry or display screen to requests for additional features. Handling these application system change requests is often a challenge for IT management and includes
tracking requests, aggregating them into logical groupings for resolution, providing feedback to the requestor regarding resolution status, and balancing
application changes with new application planning and replacement activities.
For many IT customers the help desk personnel present the daily
image of the IT department and its capabilities. Information technolgoy

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management must focus careful attention on the operation of this function

and note any new trends in help desk call patterns or service satisfaction.
Similarly, IT management must pay careful attention to network monitoring
problem reports. Network monitoring is usually performed by a separate organizational component within the operations staff. The network operations
staff uses specialized software and equipment, located in a secured network
control room, to monitor usage of the data network. The network operations staff must coordinate its activity with the help desk, centralized computer operations management, IT security, desktop computer support staff,
and other data network staff. Each of these areas is usually a separate component of the operations staff.


Another component of the operations staff is the technology support staff,

which may have responsibility for capacity planning, database management,
performance measurement, and technology updating. Capacity planning is
driven by growth in data and transaction volume for existing application systems, capacity needed for new systems, and major building expansion or remodeling programs. Associated with capacity planning is the function of IT
performance measurement. The goal is to provide a quantitative measure for
capacity utilization and make optimal use of the existing computing facility.
Operating system and related environmental software changes in large, complex IT systems can have significant impacts on user satisfaction because of
changes in apparent system response time and availability. Interestingly, consistency of adequate system responsiveness to end users can be just as significant as absolute responsiveness.
The desktop computer support staff has responsibility for the acquisition, deployment, repair, and replacement of desktop computers used in the
healthcare organization. These devices and activities can comprise a significant
component of the organizations IT budget. Desktop computers have enabled
the creation of application software that executes in part on centralized server
computers and in part on the desktop computer. Application software that executes on the desktop computer is known as client software; these distributed
application software systems are known as client-server applications. Other
software tools, such as word processing or spreadsheet applications, may reside entirely in the desktop computer; these tools are often referred to as general purpose office productivity applications. Keeping the desktop software
environment updated, equipment and data secured, and access appropriately
controlled are significant operational management challenges.
Connecting the desktop computers to the remotely located server computers and other centralized computers is a data network that may include
both wired and wireless links. Associated with the wired links are various network-based devices such as routers or switches, usually located in secured



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wiring closets or other secured locations throughout the institution. Deployment and maintenance of wiring cables and equipment are the responsibility
of the data networking staff. Often, installation of cable in the physical plant
is outsourced to a wiring contractor. Relocation of departments within existing facilities can place unexpected demand on the network and desktop staff
needed to relocate any associated equipment, install additional cables, or relocate cable outlets. Maintaining records of desktop equipment location and associated wiring infrastructure is an ongoing challenge.


U.S. healthcare organizations have many applications that still run on mainframe computers. These computers may be executing legacy applications or
providing computational power as shared servers. In either event a central
computer operations staff is needed to manage the operation of this equipment. The operations staff may be located in the computer room or an associated computer room control center. Centralized computers are located in
secured, environmentally controlled, fire-protected facilities with reliable
sources of electrical power. The centralized computers usually monitor their
own performance and may automatically generate warnings about possible
problem areas. These warnings can be automatically communicated to the
service department of the equipment manufacturer, or they may require response from the operations staff. Likewise, environmental and power management sensors may generate warning alerts for the operations staff. Fire
warning indicators are often tied directly to the local fire department and
local fire-extinguishing systems and alarms. Facility intrusion detectors and
monitoring cameras are often tied to the healthcare organizations security
System availability must be provided within a security structure that
provides reasonable protection against unauthorized or malicious access. As
most institutional systems are interconnected via a data network, provision of
network monitoring and control capability is significant. Protection of data
through backup procedures is essential, as is the ability to provide IT capability during institutional or community disasters. Disaster recovery may be
supported by off-site recovery centers. Less significant disasters, such as
power outages, can be self-supported, for example, through the use of uninterruptible power systems and motor generators. It is essential to test the security, auditability, and recovery capabilities periodically. Discovering unexpected problems or weaknesses during these tests is not uncommon.
Associated with many computer applications is the production and distribution of reports. These reports may be actually printed and distributed to
the user departments or distributed electronically. Printed media are managed by a media control activity within operations management. The creation
of routine backup media and storing them securely are often the responsibility of centralized computer operations management.

M a n a g i n g I n f o r m a t i o n Te c h n o l o g y S e r v i c e s

Each of the functional areas discussed in this section may be staffed as a team
within the IT operations management organization. Smaller healthcare organizations may not have sufficient staff to cover each of these functional
areas and may need to outsource some of them. Even large IT departments
may have periodic independent review of certain areas such as security, technology support, and disaster recovery.
Healthcare providers with multiple large hospitals and a centralized
executive organization have additional IT organizational complexity. In some
instances this is addressed by establishing institutionwide standards and providing operational IT departments at each healthcare provider site or regional
cluster. In other instances much of the IT department is centralized, with
only a small distributed component.

IT Applications Management
Information technology applications management includes managing implementation of new applications, ongoing support for legacy (existent) applications, and their minor and major enhancements. It is not uncommon for
legacy applications to consume the majority of a healthcare centers IT applications organizational effort. Thus, implementation of new applications
can stress application staffing levels and their legacy application support
functions. Significant new application projects often necessitate additional
staffing, usually through temporary project personnel. These temporary staff
members can be obtained from vendors, consulting firms, contract labor organizations, or short-term hiring.
The IT application staff is often organized by functional area. Thus,
one group may focus on accounting and administrative systems while another
may focus on patient care and diagnostic systems. Within the latter group,
some personnel may be managed by the IT department; others, say, for a
clinical laboratory system, may report to the management of the clinical lab
Each application group or subgroup is expected to work closely with
the leadership of the customers their systems serve. In some cases this interaction occurs with healthcare organization leadership, but in other areas,
such as patient care systems, this interaction must include both hospital- and
community-based physicians. One of the key new project activities in many
U.S. healthcare organizations is the selection and implementation of computerized physician order entry systems. The challenge is not only to bring application functionality of sufficient value for community physicians to want to
use the system but also to provide an effective management interaction with
these diverse physicians. As IT plays an ever greater role in the clinical
processes, it is not uncommon to find nurses, pharmacists, and physicians in
the IT staff. Many advanced healthcare organizations have added the position
of chief medical information officer.




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Healthcare Organization Staff Interactions

In addition to interacting with line management within a healthcare organization, the IT department must also work closely with other department
management staff. This includes the internal audit department to ensure
adequate IT system controls are in place and IT audits performed. Information technology staff must also work with the Health Insurance Portability and Accountability Act compliance leadership who may be organized
within a project management office structure. Information technology
leadership must also work with the healthcare organizations legal services
staff and any outside legal counsel or consultants to develop reasonable
written agreements with IT product and service vendors. The development
of comprehensive IT contracts for major projects is probably best addressed
by attorneys who specialize in computer law practices.

Staff-Model and Line-Integrated IT Applications

The organizational structure of the IT resources within the firm can play a
significant role in the adoption of IT systems into its business processes. In
one common organizational design the entire IT staff is structured with a
central management focus. As we have discussed, this group may have IT
operations and IT applications as its two major components. In another organizational structure the IT applications staff does not report to the centralized IT management leader but is instead a component of the healthcare organizations line management. Obviously, this facilitates the
implementation of new applications within line management and holds that
group accountable for implementation success. This comes at the expense
of complicating the interaction with the infrastructure and support components of the IT department. This line integration of the IT applications staff
also necessitates that senior line management has the skills to manage IT
personnel effectively.

IT Customers
A key concept in many current IT departments is that they exist to provide
services to IT customers. Professional behavior in meeting the IT customer
needs is stressed by IT management. The IT department is depicted as an
internal vendor providing services to other components of the organization. In some organizations the IT function is entirely outsourced to an external vendor. Today, for most healthcare organizations the initial creation
of IT application software is outsourced to application package software
vendors. Often, these standardized products provide a suite of related software. Thus, a healthcare organization may acquire departmental application
products to meet the needs of ancillary services, clinical care, or administrative departments. Other vendor-provided standard applications, such as a

M a n a g i n g I n f o r m a t i o n Te c h n o l o g y S e r v i c e s

hospital information system, span all of the functional areas of a healthcare

organization. One of the challenges is to select various application package
products that can meet the needs of the IT customers and be effectively tied
together across the institution to form a logically cohesive system.

While IT is an essential factor that enables and facilitates organizational
transformation, it is not itself enough to cause such changes. To serve its
function as facilitator, IT must be managed as a productive and fully integrated component of a healthcare organization. The full realization of the
transformational benefits IT can afford healthcare organizations requires
effective governance and leadership at the highest levels of the organization. Effective leadership is predicated on a broad vision grounded in specific details and plans. Only such management can offer the operations and
applications divisions of IT departments the focus and the freedom they require to advocate and to facilitate the transformations of which they are capable.

Questions for Discussion

1. Was the tactic described in Case 10.1 successful in achieving better
management of systemwide adherence to software and hardware
equipment standards? Why or why not?
2. Who is responsible for IT management? How can that responsibility
be defined?
3. Of what value is an IT vision? Could or should the statement of an
IT vision in Figure 10.1 serve as the cornerstone for creating or updating an IT strategic plan? Why or why not?
4. Who is responsible for IT strategic planning?
5. What should be the relationship between the IT strategic plan and
the enterprise strategic plan?
6. Who is responsible for IT project planning?
7. Who is responsible for IT project success?
8. What are the two major components of an IT organizational structure?
9. Should the IT applications organization report to the CIO or to line
management executives?
10. What is an IT customer? What are the benefits and detriments of
this concept?



I n f o r m a t i o n St ra t e g y : M a n a g i n g I n f o r m a t i o n Re s o u rc e s

Frame, J. D. 2003. The New Project Management: Tools for an Age of Rapid
Change, Complexity, and Other Business Realities. San Francisco, CA: JosseyBass.

Further Reading
IT Strategy
Carr, N. G. 2003. IT Doesnt Matter. Harvard Business Review 81 (5): 4149.
Feld, C. S., D. B. Stoddard, J. W. Ross, P. Weil, and T. H. Davenport. 2004.
Making IT Matter. Harvard Business Online. Product 5895. [Online information retrieved 3/9/05.] http://harvardbusinessonline.hbsp.harvard

IT Planning and Execution

Reimus, B. 1997. The Information Technology System that Couldnt Deliver.
Harvard Business Review 75 (3): 2224.

Project Management
Project Management Institute. 2004. A Guide to the Project Management Body of
Knowledge, 3rd ed. (PMBOK Guide). Newtown Square, PA: Project Management Institute.
Meredith, J. R., and S. J. Mantel, Jr. 2003. Project Management: A Managerial Approach, 5th ed. New York: John Wiley & Sons.
Stover, T. 2003. Microsoft Office Project 2003 Inside Out. Redmond, WA: Microsoft

IT Department and Systems Management

Schiesser, R. 2002. IT Systems Management. Upper Saddle River, NJ: Prentice-Hall.


Kenneth W. Lobenstein

Key Terms
Chapter Outline


1. A Security Framework
2. Aspects of a Basic Security Program
3. A Zone-Based Architecture


Learning Objectives
1. Understand the various topics and their historical context with regard
to information security and ethics.
2. Be able to develop an integrated framework for designing an information and security program in a healthcare organization.
3. Be able to assess the adequacy and appropriateness of proposed security
plans within organizations.
4. Understand the organizational responsibility for the development and
management of an effective information security system.
5. Be able to develop a structure for managing information security and
ethics within a healthcare organization.

Chapter Overview
This chapter first presents a framework that healthcare administrators may
use to guide their consideration of the adequacy and appropriateness of proposed security plans within their organizations. This framework focuses on
three fundamental motivations for attention to security matters in a healthcare organization: ethics, business imperatives, and legalities. The ethical
motivation underscores all other considerations. Case 11.1 presents a brief
scenario to illustrate common information security problems within a healthcare framework. A discussion of basic aspects of a security program with emphases on physical, logical, and managerial security follows. Consideration of
an exemplary system protection architecturezone-based architecture


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CASE 11.1
Unsecured Files

The cardiology department of a university-affiliated hospital unilaterally purchased a document management system from a vendor to provide a common
repository for all residents pre- and postoperative notes. The department chair
uses the system to allow him to more easily evaluate the residents work. The vendor assured him the system is Health Insurance Portability and Accountability Act
(HIPAA) compliant.
The document management system has been installed on a computer at
the desk of the department secretary. As a matter of convenience, and because
there is no room at the desk for a second computer, the secretary also uses that
same computer as the primary workstation for administrative tasks. In addition,
the computer is connected to the hospitals network and functions as a web server
so that the chair can connect through the Internet while traveling in case he needs
files the secretary has created. This arrangement seems to work very well, as the
chair has remote access to the entire hard drive through a simple but unsecured
web connection.
Sometime after the new document management system was installed, the
chair had a conversation with the chief information officer (CIO) of the hospital. The
chair extolled the virtues of the new system and urged the CIO to consider adopting the system for other departments. The CIO was surprised and somewhat concerned to hear about the unilateral actions taken by the cardiology department. In
particular, the CIO was concerned about potential liability regarding HIPAA and
asked the cardiology chair whether the system was HIPAA compliant. Without hesitation, the chair replied that there was no need for concern because the vendor had
assured him that the new system was in fact fully HIPAA compliant.
Problem Solving 11.1 explores how such issues with information security
can arise.

concludes the chapter. A zone-based architecture is based on the assignment

of data and resources to security zones depending on the level of protection
they require and provides the security necessary to meet professional ethical

A Security Framework
Information security has become a hot topic in healthcare, spurred by a few
highly reported compromises of medical information and the security rules issued pursuant to the Health Insurance Portability and Accountability Act
(HIPAA) of 1996. The former might be viewed as ministering to self-interest,
the latter as unnecessary red tape. Both could in fact be leveraged in support
of an ethical obligation the healthcare industry long has had on paper but too
rarely put into practice.
This section presents a consideration of a broad security framework
that healthcare executives may use as they consider the adequacy and appropriateness of security plans proposed within their organizations. This broad

Information Security and Ethics

framework consists of three basic types of motivations or rationales for keeping patient information secure. The first is a long-standing ethical motivation,
notably represented by the ancient oath of Hippocrates. The second motivation concerns business imperativesthe need to maintain a practice patient
base as well as adherence to professional standards of conduct. The third motivation concerns legal bases for keeping patient information secure.

Whatever, in connection with my professional practice or not in connection
with it, I see or hear, in the life of men, which ought not to be spoken of
abroad, I will not divulge, as reckoning that all such should be kept secret
(Adams 2000).

This simple yet powerful statement from the oath of Hippocrates

makes it clear that protecting patient information from inappropriate disclosure has been an obligation of the healthcare professions far longer than computers have been in existence. From this self-imposed sense of obligation to
protect patient information, the notion of the trusted physician developed
into a culture of trust and confidentiality that has over time brought patients
to believe they could confide anything to their physicians and other clinicians
without concern about that information entering public discourse. Common
law recognized this long tradition by making the notion of physician-patient
relationships a special category of material in the context of legal proceedings, preventing the physician from disclosing that which the patient had
The ethical foundation set forth by Hippocrates evolved into statutory
recognition of the right of the patient to have medical information held private. When this concept is treated below in its statutory context, it will be important to recall this ethical foundation that precedes the legal basis by a few
thousand years because it is incumbent on all healthcare professionalsclinicians and managers aliketo abide by the medical ethic articulated in professional codes like the oath of Hippocrates. While doing so might appear to run
counter to assumptions about good business practice, in the end adhering to
such a medical ethic is fundamental to good business practice in a healthcare

Business Imperatives
In the computer age, ceteris paribus, healthcare organizations that manage
their information systems (IS) to ensure the technical equivalent of the
nondisclosure of privileged information might expect to keep their patients,
whereas those that fail to secure their IS might expect to see their patients expressing concern or worse. Minor variations in security practices may not be
obvious to patients, but to the extent that significant variations in security



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practices develop, administrators and practitioners alike should expect their

patients to become aware of the source of inappropriate disclosures and vote
with their feet and medical records. In addition, the professions of which
healthcare employees are members apply their own professional standards and
codes of ethics to the ways in which they carry out their responsibilities. As
administrators make important decisions about information security that are
administrative and business decisions rather than technology decisions, these
professional standards should be applied as well.1

Statute, Regulation, and Policy


As noted above, the physician-patient privilege has been recognized in legal

settings for many centuries, evolving from an ethical imperative to a legal bar
to disclosure without the consent of the patient. The privilege is defined as a
rule of evidence that prevents a doctor from testifying about comments a patient makes to the doctor while seeking medical advice. The rule is intended
to allow people to be frank and open with their doctors (
2004). Note the operative word is prevents rather than permits or makes
discretionary. It is not the doctors choice whether to divulge; it is the patients privilege to keep medical information private. This concept is codified
in state law in the form of exceptions to the general rule of compulsory testimony.2


The HIPAA Privacy Rule (U.S. Department of Health and Human Services
2003) mandates that all patient data held by a healthcare system, insurer, or
clearinghouse are subject to privacy considerations (see Case 11.1 and Problem Solving 11.1). These covered entities must have in place a notice of privacy practices and issue it to all patients; restrict access to patient data to the
minimum necessary for treatment, payment, or operations; keep records of
access to patient data; and provide to patients reports concerning access on
request by the patient. The Minimum Necessary Rubric is most significant to
the present discussion.
The HIPAA Security Rule (U.S. Department of Health and Human
Services 2003) requires that any data subject to the Privacy Rule that are held,
processed, or transmitted in electronic form must be managed to ensure the
availability, integrity, and confidentiality of those data. Confidentiality is defined as the property that data or information is not made available or disclosed to unauthorized persons or processes.3 The physical, logical, and
managerial controls healthcare organizations put in place must offer reasonable assurance that this property is maintained.
Some healthcare organizations adopt a view that consent allows unfettered disclosure within the institution, citing the Treatment, Payment, and
Operations Rubric of the HIPAA Privacy Rule. Such a view certainly makes
systems and hospital administration easier. But healthcare organizations must
consider whether this view is consistent with the Minimum Necessary Rubric

Information Security and Ethics

In this case the cardiology department had unilaterally purchased a document

management system from a vendor and installed it at the desk of the departmental secretary. The case illustrates issues with information security that may arise
from lack of knowledge, lack of care, or the tendency in many organizations to
place business convenience ahead of availability, integrity, and confidentiality concerns.


Unsecured Files

While exceptions do occur, always be concerned about whether system selection by a clinical department will have included steps that address security issues, including availability and integrity issues.
What may initially appear to be innocuous data sets (e.g., the learning reports
of each resident) will often include information protected under the Privacy
and Security Rules issued pursuant to HIPAA.
Reliance on vendors for HIPAA risk assessment and management is highly
questionable. At least some level of due diligence by the customer is required.

of the same document and, more fundamentally, how such a loose interpretation squares with the historical ethical premise of medicine and the privilege accorded to patients in recognition of that ethical premise.
In the context of current systems security, these systems ought not to
be managed in ways that permit disclosure in the routine course of conducting business information that clinicians could not be compelled to divulge in
a court of law. While there are operational necessities (e.g., billing, morbidity
and mortality reviews, scheduling, and other functions) that require sharing
some information about a patients medical care with employees or agents
who are not directly involved in providing care for the patient, modern IS take
this characteristic of healthcare into consideration in the design of security
processes and controls. As those systems are designed and implemented, however, healthcare executives, clinical practitioners, and technologists should
think about the answers to need-to-know questions in the context of medical
ethics and the privileges and legal structures that flow from them because
good business practice makes it incumbent on all healthcare professionals to
abide by a medical ethic.
It is interesting to compare the European and U.S. approaches to data privacy
and security afforded to individually identifiable data. A U.S. consumer of
services must be aware of a plethora of laws and regulations concerning privacy and accuracy of personal information in each of the many industries or
market sectors in which those data may appear.4 Thus, a U.S. consumer who
is seen at a U.S. emergency room, pays the bill via an Internet payment portal using a credit card, and has the balance associated with that payment reported by the credit card company to a credit bureau would have to examine
three different pieces of federal legislation, look at all the regulations issued
pursuant to all three, and deal with three different federal offices to protect his
or her privacy and interests in those data.



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The European Protection Data Directive (European Parliament and

Council of the European Union 1995) addresses all such interests in a single piece of legislation. The directive also establishes a unified office within
the E.U. bureaucracy to manage the processes related to the directive. In addition to the consolidation of statutory and regulatory authority, there exists
a significant difference in ethic between the E.U. and U.S. models. In the
U.S. models the holders and users of personal data have relatively free rein
in their use of the data so long as they show reasonable efforts to protect the
privacy of the subject and ensure the security of the data. In the E.U. directive, however, use of these data by anyone other than the subject is restricted
to explicitly enumerated conditions (European Parliament and Council of
the European Union 1995, Article 7).5 The directive sets very explicit rights
of access to the data by the subject (European Parliament and Council of the
European Union 1995, Article 12) and permits the subject to object to use
of his or her data (European Parliament and Council of the European Union
1995, Article 14).
The European ethic places the subject of the data in a much stronger
position relative to the holders and users of the data than does the U.S. ethic.
In the latter the subject must first learn that a breach of some sort has occurred, then seek an accounting of use, then pursue administrative and civil
penalties against a perceived abuse. This variation in ethic suggests a fundamentally different view as to ownership of the privacy rights appurtenant to
the data and consistency with the historical and codified notions of patient
privilege. The European ethic recognizes the consumers right to direct, influence, and control use of his or her personal data. The U.S. ethic compromises that right by subjecting it to both an industry or sector approach and
by making use permissible unless proven contrary to the law.

Aspects of a Basic Security Program

Confidentiality, integrity, and availability are the first elements to address
when discussing the various aspects of a basic security program. A consideration of three important security layersphysical, logical, and managerial
follows. Physical security concerns the security of the premises and computer
systems in which protected health information is stored. Logical security involves characteristics installed within or around those IS. Finally, managerial
security is the set of properties and characteristics employed in the operation
and administration of those systems and their security control protocols.

Confidentiality, Integrity, and Availability

Information security is not the same thing as confidentiality. Information security must address three separate but related issues: availability of systems,

Information Security and Ethics

integrity of those systems, and confidentiality of certain data stored in or

processed by those systems. All three legs of the stool must be in place and
of equal length or the stool will wobble or fall.
Among other things, availability addresses whether the computer does
anything when a user switches it on, whether the programs launch when a
user clicks an icon, and whether the system knows what program to launch
when a user selects a file to view. Any discussion of availability, however,
should be predicated on concern with and understanding of uptime. To accurately measure uptime, though, administrators must take a systems view,
not component views, of uptime. Having a network that is up 99 percent of
the time is of no value if the computer will not boot on any day but Saturday, the server where data are stored works only on alternate Wednesdays between 9:00 and 10:00 p.m., or network remapping has made components
unable to find one another.
Users also must understand the service life of the various components
within the system and have maintenance and upgrade paths identified and
funded to ensure systems remain reliable. Failure to update in a timely fashion has resulted on many occasions in the loss of large quantities of data because existing systems are so old at the time of replacement that no effective
method for conversion of data exists. A 5.25-inch floppy drive and even a single-density 3.5-inch disk drive are now practically impossible to find. If a
users only data repository is on such obsolete media, it may never be read
again. Other examples of now obsolete technology include laser-disk readers,
Beta videocassettes, and eight-track tape players.
Integrity addresses whether the system, even when up, is providing accurate, complete, and useful information. Two questions relevant to integrity
should be asked: Are users backing up data and programs regularly? and Have
administrators tested their ability to restore from backups promptly and without loss of data? Healthcare organizations ought to have integrity checks built
into their systems at various points. For example, database systems should use
techniques of two-stage commits to ensure that the data sent have been written to the database before a transaction is considered complete. For truly critical systems, healthcare managers might also want to invest in digital signature technologies to ensure that data received by systems are in fact the data
sent by users and that the identity of the sender has been verified. When executives or other administrators run a backup or restore from backup, they
should compare results to ensure that data match user expectations.

Physical Security
The area of physical security pertains to who goes where within a facility. It
focuses on the space that personnel, equipment, records, and customers occupy. Physical control can range from armed guards at the doors and DNA
testing for passage through those doors to wide-open access for anyone at



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any time. Many factors affect how much physical control different facilities
apply, including cost, mission, ownership, and clientele. It is instructive to examine this issue in two contexts: access to and within the buildings themselves and access to computers housed within those buildings.

Building and
area access

The safety of patients, their families, and the staff of healthcare organizations
is paramount, and the tremendous investments of healthcare organizations in
medical equipment, computers, and medical records are at risk if these organizations have ineffective access controls. This area of concern should result in
an audit of those areas where confidential information is stored or may be accessed electronically to determine how well access is managed. Key questions
addressed by the audit for each physical area of concern include the following:
Who can gain access to the specific area of concern?
Who has obtained access to the specific area of concern?
What might they have seen when they arrived in the specific area of


Physical access considerations should apply not only to confidential information but also to the ability to reach computers, printers, network switches,
and other equipment as well as to the ways they are protected against theft
and vandalism. In the case of physical access to computer equipment, there
are equivalents to each of the key audit questions noted above.
Who can gain access to a specific device?
Who has obtained access to a specific device?
What might they have stolen or vandalized?

Logical Security
Logical security addresses many elements of concern that we tend to think of
as information technology (IT) issues. Logical security is a very broad and
seemingly ambiguous grouping of security concerns. The common thread
among them, however, is the focus on managing the processes by which individual computer users, system administrators, and program routines on
other systems gain access to data and resources. Key questions for logical security are,
Who can gain access to a particular computer system?
Who has obtained access to a particular computer system?
What information might they have seen when they were using it?


Everything done with computers involves the use of software (i.e., programs). Key logical security concerns regarding software are how well the

Information Security and Ethics


software is managed, which version of the software is on a given computer,

and which data can be accessed from that computer using that version of the
Inevitably, computer systems will require changes. These may be small patches
to repair so-called bugs, complete replacement of software, or a whole new
computer. As these changes take place, some important issues should be addressed both from a systems administration view and a security perspective.
These issues are summarized in Table 11.1.

and change

This section examines what data healthcare entities are protecting. In its simplest form a data security program has the following four objectives:


1. protect the intellectual property of the organization;

2. ensure the confidentiality of data that have business value or that must
be protected for ethical or legal reasons;
3. manage the risk of theft, misuse, or loss of data; and
4. evaluate the criticality of systems based on their data content.
While very little about an organization falls neatly into only one of
these categories, it is helpful to examine each of these objectives in turn. Note,
however, that threats and protection strategies are not unique to any category.
Intellectual property is an explicit area of law that can encompass four discrete
and very different legal ownership concepts: trade secrets, trademarks,
patents, and copyrights. Practically everyone has seen a document with the
word copyright or the famous on it. Most persons have heard of patents,
although few understand what a patent really is or why it is important. The
trademark and its companion service marks are ubiquitous and apparent,

Tasks to Be Done



Document software versions, patch levels, etc.

Ensures the recognition of

unauthorized changes


Include specific security

issues and implementation

Necessary to understand
effect on existing systems

Change Control

Conduct and document test

processes and outcomes

Ensures testing steps are

taken and results are known

Vendor Involvement

Specific statements of work

and oversight

Ensures change-control
processes are followed

Malicious Software

Document existing and

proposed systems

Provides baseline essential

for identifying malicious
programs and files


TABLE 11.1
and ChangeControl
Security Issues


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TABLE 11.2
Forms of


Source of


State law

Protection only as long as in- May apply to protocols,

formation is in fact kept secret research findings, etc.,
that either are not ready
(e.g., Coca-Cola formula)
for final presentation or
are not well protected
by patent or copyright


Federal and
state law

A healthcare organizaProtects a logo, slogan, or

other pictures and words that tions graphic logo or
symbolize a particular product slogan
or service (e.g., the Nike
swoosh, Pepsis for those
who think young slogan)


Federal law

Protects a scientific discovery

and limits others ability to
make use of the discovery
(e.g., a coating for cookware
that does not allow food to
stick to the surface; Teflon is
the trademark for this
patented substance)

Many medical discoveries have been patented,

ranging from early antibiotics to advanced
methods for creating
prosthetic devices


treaty and
federal law

Protects the expression 0f an

idea but not the idea itself

This textbook, but not

the idea of a textbook
on medical informatics

Area Covered


but the real meaning of this symbol is often misunderstood. There is no

telling how many have consciously dealt with a trade secretonce told one,
it cant be talked about anymore! Table 11.2 summarizes forms of intellectual
property. Although crucial, the need for security in this area is almost always
overlooked in healthcare security programs.
Security is relevant to intellectual property because the intellectual
property of any organization represents a sizeable investment that should be
protected. No or poor security makes all that property low-hanging fruit for
would-be pirates of research findings, management materials, slide presentations, textbooks, films, and other data and materials. Security is necessary to
ensure that other healthcare entities are not able to obtain free copies of such
of data

Much of the content in human resources systems and virtually all of the information in clinical and billing systems is categorized as confidential data.6
HIPAA, state and federal labor laws, contracts, and other considerations will
also create the need to treat certain data as private or confidential.

Information Security and Ethics


Data ownership is a significant issue for confidentiality. The owners of

the business processes that drive the need for the data and the systems in
which they are processed and stored must be involved in setting confidentiality parameters. Identifying the owners and getting them to take responsibility for confidentiality parameters are at times difficult, if not impossible, tasks.
Security staff must avoid the temptation to forge ahead without the data
owners for at least two reasons: (1) doing so places them in a bright and at
times painful spotlight and (2) a decision made by security staff alone is often
either too permissive or too restrictive because the knowledge base on which
the decision has been made is incomplete.
Having data owners involved in decisions about availability and integrity is a good idea as well, but it is less crucial. Industry benchmarks can
measure success in these areas if the business owners choose not to participate.
Breaches from outside an organization are a concern, but most breaches at
the data level are caused by internal security lapses. These may be the result
of specific malicious activity by disgruntled employees or careless actions of
employees who disregard good computing habits or ignore security policies
and procedures. A common form of the latter type of lapse is taping an ID
and password to ones monitor, thus allowing anyone who can reach the
monitor to use that persons account to view data or perform other functions.
Learning that the data have been stolen is very difficult to do unless detailed and specific security procedures and practices are in place. Few organizations, for example, monitor the transfer of data files outside the organization over the network. Remarkably, almost no organizations have an effective
way of knowing when a file is copied to a removable storage medium such as
DVD or CD-ROM, yet few organizations limit installation of these removable
media drives and many more still do not control file transfer capability either
internally or across the Internet.
Misuse may result from unauthorized access but far more often will result from an authorized user who has gone beyond assigned roles to gain access to data he or she has no need to know, share the data with others who do
not and should not have access, or transfer the data to an unprotected setting
such as a home computer. Misuse generally will not adversely affect continued
legitimate access to and use of the data, but it may embarrass healthcare organizations or compromise their compliance programs.
Loss of data is in most respects worse than both theft and misuse. If
data are lost, the organization may be unable to conduct its business until the
data are recovered, restored, or recreated.

Risk of theft,
misuse, or loss

It may be helpful, depending on the size of the organization and the complexity of its IS profiles, to codify security levels and assign each computing
resource to a level to determine the protections appropriate for that resource.



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There are many different schemes for security level designation. Organizations building such a program from scratch may want to start with a very
straightforward and relatively simple example, such as the one in place for the
National Institutes of Health (U.S. Department of Health and Human Services 2002). National Institute of Health looks first at the sensitivity of a system and its data, assigning systems to one of four levelslow, moderate, and
high sensitivity, and national securitybased on the data content of the system.
National Institute of Health also classifies the criticality of systems to
measure the effect on the organization if a system becomes unavailable or unreliable. A system that has low criticality can be down without significant impact on the organization. A zip code lookup system is a very useful tool, but
inability to find the zip code for a given address in order to put it on a bill
will not threaten the life or health of patients. A moderately critical system is
important, but its operation is not imperative. A system placed in the high
level, however, is essential to operations. The loss of heart-monitoring systems in a cardiology ward would cripple the unit.
Beyond operational concerns, the time dimension must be considered
when assessing criticality. For example, loss of a payroll system for a day at the
beginning of a pay period may be of very low criticality, but a two-hour loss
of that system as payroll checks are being processed would be highly disruptive. Likewise, the context in which the system becomes unavailable can also
be a factor in setting the criticality level. Loss of emergency department users
access to the lab results system, even for a few minutes, can be life threatening, whereas loss of such access in the office of the administrator of the internal medicine department for an entire weekend may not be critical at all.
Sensitivity and criticality assessment may not result in identical or even
consistent assignments for a given system. Employee performance data, for
example, are very sensitive, but in most organizations such data are critical
only once a year. Conversely, drug interaction data may not be the least bit
sensitive, but a system that makes these data available at the point of care may
be among the most critical in the organization.


As indicated above, a common thread in logical security is a focus on managing the processes by which individual computer users, system administrators,
and program routines on other systems gain access to data and resources. It is
important, for example, to determine which users or other systems should
have access to which resources. Systems must be included in the consideration
of access privileges. For example, a scheduling system may need to access a
clinical system to share information about new arrivals, or the billing system
may need to obtain information about diagnoses.
Once all considerations of access privileges have been settled, an organization is ready to set up a method for verifying the identity of users or

Information Security and Ethics


systems that try to reach data and resources. The process of verifying identity is authentication. Authorization, on the other hand, is the comparison of
verified identity information with lists of users or systems that are allowed to
reach a given computing resource. When the access being sought matches
those lists, a system will authorize the access.

Managerial Security
Managerial security addresses the many so-called soft areas of management,
controls relating to how people use IS, and how administrators manage that
The tendency in most organizations is to assume that this area of responsibility, like the logical security areas discussed above, is the province of the IS
office and security officer. Such a view inevitably will get the enterprise into
one or more sticky situations, if not in worse predicaments. The issues in this
section are not about technology at all, but rather are about how healthcare
organizations prepare their workforce for the use of technology and supervise that use in a business context.


A treatment of user authentication and authorization appears above in the

discussion of security zones. A critical element of authorization is determining which users should get access to which software programs and to which
screens and data within those programs. Building the access rights lists is
highly problematic because of high variability in task assignment and user
categorization. Access rights rarely link directly to job title or level.
Even if access rights are assigned accurately at a systems inception,
keeping those access rights current as assignments change requires a functional rather than an organizational view of roles. Few enterprises have developed strategies for making this shift. Fiscal and personnel systems tend to
force adherence to the organizational allocation of resources, whether to a
chart of accounts or a supervisory hierarchy, rather than a duties-oriented allocation.
Technical staff almost never know enough about job functions to
make authorization decisions, and business operations staff rarely see this as
their responsibility. The function must be performed jointly by both groups.

User access

Background checks and disciplinary sanction processes overlap with security

planning and administration. The first may yield information about prior behavior that would suggest caution be taken in permitting computer systems
access after employment begins. The second requires security staff and personnel leadership to coordinate security policies, ensure that staff members
understand their obligations, and establish and enforce sanctions required by
the security rules where appropriate.



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Training and

As with infection control, patient safety, medication error management, and

many other issues within the healthcare organization, failure to ensure adequate initial and refresher training is the most frequent cause of compromise.
In a perfect world no member of the workforce would receive an ID or password for any system until completion of detailed training both on the use of
those systems and on his or her individual and collective roles in ensuring the
security of those systems and the data they store and process. Most security
incidents are in some way traceable to failure to adequately train systems users
and administrators.


Effective incident response is complex and necessarily involves multiple

tasks, often carried out in parallel and usually in a very brief time period. The
complexity of the tasks associated mitigates against a full treatment here; this
section therefore represents only a broad outline of the steps healthcare entities might take in response to an incident. The first two steps are incident
identification and classification. Depending on the nature of the incident,
the response may also involve crisis management. Once an incident has been
identified, the next important aspect of response is being able to classify the
incident: is it a denial-of-service attack, virus running rampant, hostile
takeover of a server, or some other violation of the system?
Incident response represents another area where business operations
and IT administrators must work together. As soon as an incident is suspected, an incident response team should be mobilized. This team will include technical staff from several different disciplines, including security,
networking, and server and workstation support. Their collective view of the
incident is often essential to gaining a clear understanding of the nature of
the incident and the appropriate response to it. In very large organizations
the incident response team may be a dedicated group of staff, generally
within the information security office. The response team must, however,
also include key managers from the various business operations groups to
ensure the extent of the incident is understood and the sequence of restoring affected systems matches business imperatives.
Finally, organizations should strive to build and maintain an isolation
chamber for use by the incident response team. This too should be an area
of cooperation for IT and business operations professionals. Such a resource
can allow the security staff to simulate an attack that is expected based on
known vulnerabilities in the larger technology world. They can begin testing
responses and cleanup strategies even before an incident occurs. This can pay
significant dividends in both stopping an intrusion from becoming an incident and minimizing the downtime and staff resources associated with halting and cleaning up behind an actual incident.


Technology auditing generally is one of the weaker managerial practice areas

in healthcare. Technology auditing requires a very different perspective and

Information Security and Ethics


skill set than is present in most financially trained audit staffs. Finding adequate and properly trained staff to conduct a security audit is often a challenge.
Such audits too often simply compare security policy with the results
obtained from asking users and systems administrators whether they comply
with those policies. Assuming the tools are in place to carry out the security
administration functions, and in particular the tools needed for effective incident management and response, the security audit should be based on actual
data taken from the organizations systems. Interviews to augment data with
practical observations and clarifications are important, but they should not be
the primary source of audit data.
Information security is a mature discipline in many industries, such as banking and defense, but not in healthcare. Concepts and approaches are still
being defined in many organizations, with the added complication of provisions of the rule insisting that physical security is part of the responsibility of
the healthcare security official named under HIPAA. Even where information security is robust and well established, the connection between it and
physical security remains elusive, and career paths that include both are
poorly defined. Healthcare must quickly address both of these issues in setting appropriate emphasis on the full scope of the Security Rule.
In addition to this scope issue, organizational placement of the security function is often problematic. The title seems to make relatively little difference; an information security officer can be every bit as effective as a chief
security officer. There has been some inclination to merge security and privacy functions, but this creates less synergy than some initially had thought.
The privacy function is centered on which information is subject to privacy
protection and how disclosures should be managed, whereas the security
function is concerned with how to protect a wide range of technical resources.
Placement of the security function within the IT organization often
leads to an inherent conflict of interest, with the IT mission focusing on dayto-day operational priorities and the security office trying to shift the focus to
larger and longer-term architectural and policy issues. Moving the security
function to the chief executive officer or chief operating officer may elevate
attention, but it will also separate the mission from the technical resources
fundamental to designing, implementing, and maintaining the technical architectures that are imperative to the security function. Enterprise leadership
will need to weigh these considerations very carefully in deciding how to
charter and where to place the security function and evaluate the efficacy of
those choices as the security program develops.

Structure and

Contingency planning is simultaneously simple and complicated. It is simple

in that the need for and process of ensuring the objective should be obvious:
what if it does not work? People intuitively develop contingency plans for cars



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that do not start, jeans that do not fit, and phone calls to friends or colleagues
whose lines are busy. Healthcare executives should have such plans for hospital and clinic IS.
Contingency planning is complex in that achieving the objective of
having an effective plan involves ensuring that every aspect of normal business operations has been reviewed to guarantee the existence of an alternative method of accomplishing imperative operations and specific plans for recovering from a major loss of capability in relatively short order.
In an oversimplified model of contingency planning a manager can
think in terms of a finite list of key steps. In reality this list is highly interrelated, and each item on it has multiple linkages external to the list. The most
overlooked step generally is routine and persistent testing of the plan.

A Zone-Based Architecture
Security Zones
Zone-based architecture is based on the level of protection the data in the system must have. Data that can be and routinely are released to the public require relatively little protection other than to ensure back-up against loss. Data
that would be released for certain personal information or business strategies
(e.g., home phone numbers or marketing plans) are placed in a so-called business core. Data that have intellectual property value or are protected by contract terms (e.g., with a research grant) are placed in the intermediate core so
managers can control more carefully which users and processes may access it.
Systems holding confidential data (e.g., patient information) are in a fourth
region or zone called the hardened core. As users move from public to hardened cores, managers place increased restrictions on which network connections may reach those destinations and which users may access those systems.
Figure 11.1 represents a zone-based architecture.
Managers may allow Internet connections into their networks, but
they should do so by creating a separate region, called the DMZ, where specialized servers are placed to control external connections. Only public data
would be stored on these servers; software programs and access rights tables
would regulate controlled access to systems in the nonpublic cores.
Data in the business core can be copied to the public region once
redaction has been done; from there it may be released across the Internet,
but the business core itself is not directly available over the Internet. In addition, access by support staff to the hardened and intermediate cores for
maintenance of those systems may need to pass through a dedicated support
team access server to control who can connect to those systems directly
rather than through an application with all of its security features.

Information Security and Ethics

External Internet
Border firewall











Some organizations store or process information belonging to other

organizations. The hosting organizations own users may need to be blocked
from seeing these data, so that region sits behind a separate firewall that controls access to resources in this region. In highly complex environments it
may be helpful to logically locate printers and workstations in specific security zones to manage access by these devices to sensitive information and to
audit release or viewing of this information through those devices.

A zone-based architecture would be ideal for a healthcare organization covered under the provisions of HIPAA. Such an architecture provides the flexibility necessary to execute business imperatives efficiently while simultaneously
ensuring compliance with HIPAAs Minimum Necessary Rubric for access to
patient data. By adhering to such a rubric, healthcare entities demonstrate a
commitment to both good business practice and the medical ethic that underscores such practice.

1. See, for example, the following web sites:


Approach to


I n f o r m a t i o n St ra t e g y : M a n a g i n g I n f o r m a t i o n Re s o u rc e s
2. See, for example, Missouri Revised Statutes, 491.060 (5). The American
Medical Association has attempted to cast the matter in more practical
terms (see the first paragraph of
=policyfiles/HnE/E-5.01.HTM&). For some legal exceptions, such as
sexually transmitted diseases or abuse, see the second paragraph of /pf_new/pf_online?f_n=browse&doc=
policyfiles/HnE/E-4.07.HTM&nxt _pol=policyfiles/HnE
3. Code of Federal Regulations 165.304.
4. The Fair Credit Reporting Act governs the rights to privacy and accuracy of personal credit information. The Graham-Leach-Bliley Act governs privacy and accuracy of personal data related to electronic payments
via the Internet with credit cards. HIPAA governs privacy and accuracy
of personal data related to medical care and health insurance.
5. Articles 10 and 11 draw a distinction as to use based on whether the information was collected directly from the subject.
6. These two categories are not mutually exclusive. Intellectual property
may be private and confidential (indeed, all of our trade secrets must be
in order to be protected), and some of our private and confidential data
may be protected as intellectual property (e.g., research data).

Questions for Discussion

1. Compare and contrast health information security and ethics with that in
industries such as finance and transportation.
2. Suggest a review process that ensures business and security issues are
both considered in a systems design or purchase decision making.
3. How can business process owners be motivated to accept their responsibilities of data ownership in the sensitivity and criticality review process?
4. How would you as a healthcare executive resolve a situation in which a
department chair says a system is critical to saving patients and the security
officer says the system violates multiple tenets of security management?
5. Is a healthcare executive concerned exclusively with external security
threats, or do real threats exist inside an organization? Demonstrate by a

Information Security and Ethics

discussion of these points an understanding of how the two may relate

to each other.

Adams, F. 2000. Translation of Hippocrates Oath. [Online information; retrieved 8/20/04.]
European Parliament and Council of the European Union. 1995. Directive
95/46/EC of the European Parliament and of the Council of 24 October
1995 on the Protection of Individuals with Regard to the Processing of Personal Data and on the Free Movement of Such Data. [Online information;
retrieved 8/20/04.]
guichett. 2004. The Legal Dictionary. [Online information; retrieved 8/20/04.]
. 2002. NIH Security Level Designations. [Online information; retrieved
. 2003. Standards for Privacy of Individually Identifiable Health Information. [Online information; retrieved 8/20/04.]

Further Reading
Carnegie Mellon Software Engineering Institute. 2004. CERT Coordination Center. [Online information; retrieved 8/20/2004.]
U.S. National Institute of Standards and Technology. 2004. Computer Security Resource Center. [Online information; retrieved 8/20/2004.] http://csrc.nist







art IV explores broad social policy on the design of and investment in

a national health information infrastructure in the United States. It
examines the implications of investments in and development of
health information systems by individual organizations that employ competitive strategies. Such a policy is then contrasted with the level of investment
and nature of design if health information is viewed as a social good and financed using public resources. Health information is considered from the
perspectives of the individual, institution, health sector, and society in general. The investment needed to develop the system that provides the best
long-term strategy is considered, and sources of investment are explored. The
implications of a market-driven strategy versus a public-good strategy are
considered from the perspective of small and rural healthcare organizations.
The implications of developing an integrated health information system are
also considered against the reality of a decentralized and often fragmented
system for financing and health services delivery.
Chapter 12 provides a policy view of health information design and investment. The development of the information infrastructure in other service
industries presents an alternative vision for the health sector. A cross-national
comparison provides a fruitful basis for learning about health systems adapting this new technology and the implications for different types of systems.
Consideration of information infrastructures in other countries serves as a
foundation for envisioning what a future health information infrastructure in
the United States might look like. This chapter presents
how other industries have incorporated information technology (IT) into
their organizational and enterprise strategies and contrasts it with the
evolution of this technology in the U.S. health system;
a comparative view assessing the status of health IT development in
other countries;
a basis for discussing health information for individuals and providers as a
global network; and
the potential for the spawning of new information-based industries that
are niche based and entrepreneurial in nature.


B u i l d i n g a H e a l t h c a re I n f o r m a t i o n I n f ra s t r u c t u re

The power of IT to transform organizations goes beyond local or regional markets and includes national and global markets and policies. This
potential is inherent in IT and its power to overcome space and time and to
integrate systems.


Gordon D. Brown and Jim Adams

Key Terms
Chapter Outline




The Seeds of Change: Transforming the U.S. Health System

Development of an Integrated Information System
Personal Health Record
Clinical Information Networks
Innovative Business Models

Learning Objectives
1. Identify factors that will stimulate or impede the application of IT in
healthcare organizations.
2. Understand the type and nature of new business and clinical strategies
in the health system.
3. Explain the importance of standardizing vocabularies and databases as
policy issues for the development of health system infrastructure.
4. Become familiar with how various countries have developed national patient health records and health data networks.

Leapfrog Group
(CHI) Initiative

Chapter Overview
The U.S. health system is on the verge of profound change as health professionals work to redesign business and clinical processes and healthcare organizations develop innovative business and clinical strategies. The need for
change is being fueled by consumer and payer demands and an increased
sense among health professionals that something needs to be done. The technical capacity exists to develop innovative solutions in large part because of
the availability of advanced information technology (IT) and knowledge in


B u i l d i n g a H e a l t h c a re I n f o r m a t i o n I n f ra s t r u c t u re

CASE 12.1
Jane Keuhnes

Jane Keuhne arose at 5:00 a.m. in Los Angeles to make an early departure after a
business trip. She appreciated the hotel having booked her into her favorite room
overlooking the ocean. She flipped on her video phone and made a quick call to
her family to reassure her son that she would be there for his sixth-grade basketball game that evening. From her phone she confirmed that her flight would be on
time and the weather conditions in flight and on arrival. It was going to be a beautiful day. On the limosine ride to the airport Jane checked the closing markets in
Tokyo, London, and Hong Kong and, after consulting her broker, adjusted her portfolios buy/sell ceilings/floors for the day.
She arrived at Los Angeles International Airport, proceeded through security, and boarded the plane; her identity had been confirmed through a fingerprint
scan matching the name, address, and personal identifier number embedded in
her e-ticket to information in a national database. On deplaning in Philadelphia,
Janes main thought was being on time for her 2:00 p.m. doctors appointment. She
had returned early for the appointment, which she had scheduled four weeks earlier. She had seen the doctor six weeks ago for recurring pain and numbness in her
leg, which had not subsided. He had prescribed six physical therapy treatments,
which he had hoped would solve the problem.
She started her car and received a readout of tire pressure, battery power,
fuel injection efficiency, brake condition, and tire wear. Some unusual wear was
noted in the right front tire, and a diagnostic test indicated a slight alignment problem; a reminder was recorded to trigger an alert to check it at the next scheduled
maintenance. As Jane left the parking lot, the on-board navigation system scanned
the traffic flow and advised her of the best route to take and the time of arrival. An
alternate route would enable her to arrive in time to have lunch. She parked her
car and checked her phone for the address of the nearest specialty sandwich shop;
the phone gave her a routing map and voice prompts as she neared the address.

the form of evidence-based management solutions. There is persistent doubt

among analysts as to whether the level of dissatisfaction is sufficient to overcome existing centers of power and traditional ways of operating. The challenge is not whether there is enough science to support improvement but
rather whether there is sufficient will to change. Christensen, Bohmer, and
Kenagy (2000, 102) conclude that, Health care may be the most entrenched,
change-averse industry in the United States. The innovations that will eventually turn it around are ready, in some casesbut they cant find backers. The
effective application of IT in the health system will depend on whether the system is able to find backers for fundamental process redesign.
This chapter identifies factors that are likely to stimulate or impede
change in the health system and thus the effective application of IT. The implications of alternative information strategies are explored as they relate to
organizational strategy and whether the organization chooses to be a leading
or lagging firm. Case 12.1 illustrates the areas of opportunity for transformation of health systems by the thoughtful application of IT.

C o n c l u s i o n : M a n a g i n g I n f o r m a t i o n Te c h n o l o g y i n t h e Fu t u re

Jane arrived at her appointment at 1:45 p.m. and gave her address and insurance number to the receptionist. She paid in cash the $20 deductible required
by the insurance carrier and was informed that there would be a slight wait, as the
doctor had a difficult patient late that morning and was running behind. She took
a seat and thumbed through an issue of Field & Stream while waiting for her appointment; last months copy of Time magazine was being read by another patient.
At 2:35 p.m. Jane was called to the examination room and had her weight and
blood pressure taken and written in her chart. After a ten-minute wait, she met
with her doctor, who thumbed through her medical chart while talking to her to refresh his memory on her condition and course of treatment. He inquired about her
level of pain and whether it was constant or intermittent. He also observed that
her blood pressure was 160 over 80, higher than he recalled it being on previous
visits; he said they would keep an eye on it. Jane did not know what it had been
but did not think it had been high and inquired as to the meaning of a reading of
160 over 80.
Jane reported that the pain radiating down her leg continued, and her doctor indicated that it might be something more serious than a pulled muscle in her
back. He told her they would get her an appointment at the medical center nearby
as soon as possible to get a scan of her back. He would have the receptionist call
for the appointment. The doctor said he could give her some medication for the
pain and asked if she was allergic to any pain medications. She indicated that
codeine made her ill, and he prescribed an alternative medication. Jane left the
clinic into the bright sunlight of a Philadelphia afternoon.
Problem Solving 12.1 highlights the disparity between Janes experience of
IT in the healthcare system and in other aspects of her day.
* The names and events in this case are fictitious.

The Seeds of Change: Transforming the U.S. Health

Organizational change is based on different sets of assumptions about the nature of the organization in its environment. Van de Ven and Poole (1995)
have classified changes consisting of four types: life cycle, teleological, dialectical, and evolutionary. Each makes different assumptions about the nature
and pace of change that healthcare organizations might expect. The life cycle
and evolutionary models assume change will occur as the result of either
probabilistic or deterministic laws and maintain and incrementally adapt their
forms in a stable, predictable way (Van de Ven and Poole 1995, 416). Change
will no doubt occur within established work processes and organizational designs and should not be discounted. Teleological change assumes that the effects of change on a single organization will depend on the actions of its leaders through the development of mission and goals statements and their
positioning of the organization to meet these goals.



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Dialectical change produces innovation and the potential transformation of the entity. Specifically, it produces a second-order change that does
not follow the basic assumptions of the past. This model characterizes the nature of change in organizations as the fundamental transformation of business and work processes, including business and clinical strategies. Dialectical change is predicated on the assumption that forces exist sufficient to
create enough disequilibrium to cause organizations to invest the energy and
take the risks inherent in transformation. The forces causing disequilibrium
in the health field need to be analyzed to assess whether they are sufficiently
strong and sustained to produce change and the direction in which they will
push change.

Costs and Quality: The Lingering Nemeses

Industry as
an agent
of change

It is difficult to assess the role industry will take in transforming the healthcare field. One can cite that health benefits are currently the third most costly
factor input to industry and by far the most rapidly increasing, going from
$139 billion in 1986 to an estimated $389 billion in 2003 (Bleil, Kalamas,
and Mathoda 2004). This is certainly a growing concern, particularly as U.S.
industry engages in an increasingly competitive global market. The issue is
not that U.S. firms cannot be competitive in the market but rather that industry in no other country assumes the burden of high and rapidly increasing health costs as a cost of production. This phenomenon is an artifact of
the early postWorld War II era, when factor costs of health benefits were insignificant and the United States was the overwhelmingly dominant world
producer of goods and services. Neither is now true.
Commercial industry can take different approaches in dealing with the
health system. First, it can become more involved in pressuring and assisting
the health system to undertake reform. This has been the strategy used since
the 1970s, resulting in the managed care movement, which has had some success in controlling costs but has not produced the expected reforms. Second,
industry can address the seemingly uncontrollable high costs of healthcare by
shifting costs to consumers. This strategy will likely not occur by reducing
benefits but instead through defined contributions to health insurance plans
as opposed to defined benefits as has been the case historically. This strategy
has working in addressing similar problems with retirement benefits. Shifting
costs to consumers is more politically appealing because it allows the employee
more control and flexibility in investing in health insurance.


Industry can approach the issue of high cost of medical care by directly assisting health providers by giving technical management expertise and political power to force the redesign of care processes. It is instructive that industry was well represented on the Institute of Medicines (IOM) Committee on
Quality of Health Care and was instrumental in defining the problem and

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identifying solutions. The Leapfrog Group program has evolved through the
leadership of industry and developed measures of quality and introduced
quality improvement techniques (Leapfrog Group 2004). If industry chooses
this course, it will likely contribute to the dissonance necessary to effect fundamental redesign of health processes and organizations. It has the power
and expertise, and it might have the resolve.
Industry brings two assets: (1) an increasing concern for costs associated with health benefits and (2) the belief that the health sector can do
something to reduce these costs. Industry stakeholders feel their knowledge
of business process redesign and the application of advanced IT can be applied directly to the health system. The ease of accomplishing this is probably overestimated because industry experts do not recognize the inherent
complexity of the clinical process and of medical and nursing decisions. However, it is not only the expertise that industry brings that is important but also
the belief that clinical processes can be standardized and managed and the
recognition that healthcare executives are slow to lead the process of change.
This belief too could contribute to the creation of the needed dissonance
within the health system that would convince healthcare executives to lead
transformative change.
Much expertise on process redesign already exists within the health
system, but it has not been applied effectively because of the entrenched nature of processes within the system and the complex balance of power between organizations and practitioners, each representing a different approach to a solution. The commitment of the health professions to maintain
responsibility for the care process will tend to preserve existing practices and
structures. The challenge is for organizations to redesign clinical processes
without restricting or destroying the commitment of the professions to their
patients. Hospitals continue to consider IT as a means of developing outreach services to attract more patients and thus preserve the current enterprise and clinical strategies. External political forces constitute the potential
seeds of change.
The contribution that can be made by corporations outside the health
industry is the knowledge gained from years of development of quality improvement efforts. Another impact that leaders from corporate America will
bring is the knowledge and expectation that the health industry can and must
make significant improvements in quality. With the cost pressures on them,
industry will no longer tolerate the poor level of performance once accepted
from healthcare organizations. Industry stakeholders also understand that
the U.S. health system should focus on clinical and business process redesign,
not just on purchasing advanced information systems (IS). Industrial leaders
have learned that the acquisition and application of IT is not a strategy for alleviating cost pressures and will not in itself generate an effective strategy for
doing so.



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Shifting costs
to consumers

On the other hand, commercial industry is not in the business of producing

health services and might be reluctant to invest its own creative energy to address extraordinarily complex health system problems and politics. Instead of
stimulating the transformation of the health system, industry might try to
solve the health cost problem by shifting the costs to employees. This tactic
has been deployed over the past 20 years to resolve the high costs of retirement programs. Employers shifted costs to employees by moving to defined
contribution rather than defined benefit plans. There is evidence, specifically
the growing popularity of health savings accounts, that this tactic is being deployed within the health insurance industry today.
Corporate executives and boards will ask why they should continue to
struggle with changing the health system instead of concentrating on their
own core competencies. The initiatives of industry executives and business
coalitions over the past three decades of leading reform through managed
care have produced disillusionment among reformers and angered both
providers and consumers. Many corporations will conclude that they should
focus on their core competencies and shift the cost burden of healthcare to
their employees under the banner of increased consumer choice and control
over insurance benefits and health services menus. These arguments might
resonate well with employees given new consumer behaviors.
It is not likely that industry will take the lead in facilitating the transformation of the health system. It will be easier to manage the problem by
shifting it to employees through defined contributions to health plans. Beyond transferring costs to employees, increased incentives and capacity to
move labor-intensive operations to other countries will also exist. This will
foster continued political debate, but most recognize that we are in a global
economy and the factor inputs of labor will be purchased at the least cost if
they provide good service and enable an improved return on investment. Assumptions of a market economy do not include taking on the burden of social sector reform if it can be avoided. The movement of industry to sidestep
health system reform and to shift costs might have a greater political and economic effect on the health system than continuing to engage in the dialog of
health system change.

as payer
for health

The federal government has become the largest purchaser of health services
and will have an increasing role in how services are provided. Some services
are provided directly through federal health facilities such as the Veterans
Administration and the Uniform Services. Others put the federal government in the role of the payer such as through the Federal Employees Health
Benefits Program, which currently insures more than eight million federal
employees, and the Medicare and Medicaid programs for the elderly and
other categorical health groups administered by Centers for Medicare &
Medicaid Services. The high cost of health services per se will not affect the

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federal government as much as the aging of the population will. The total
dependent population in the United States compared to the wage-earning
population is increasing rapidly, and the federal and state governments have
the mandate to care for this population at some level. The health system has
contributed to the dependent population problem not because of inefficiencies but because of its successes; advances in acute care have contributed to
the growth of the aging population that now relies on the government for
provisionor financingof chronic care. This is a problem, however, that
the health system will be expected to solve. The aging of the population will
place even greater demands on the system and compound the cost burden.
The government is shifting costs to patients to some extent by changing
Medicare benefits and payments, but this will not reduce the pressure on the
system to look closely at costs and quality.
Concerns about quality and costs have received public attention continuously
since the 1960s, with solutions ranging from increasing investment (HillBurton Act, Regional Medical Programs),1 changing incentives through financing (case-based reimbursement, managed care), and increasing public
control (price controls, comprehensive health planning). Institute of Medicines Committee on Quality of Health Care has been successful in creating
dissonance among health policy leaders and the public by linking its broad
study on health outcomes to commonly understandable and alarming statistics on patient safety and medical errors (Kohn, Corrigan, and Donaldson
2000). The heading Errors in Health Care: A Leading Cause of Death and
Injury gives the study focus and makes an impact (Kohn, Corrigan, and
Donaldson 2000). Reporting that 44,000 to 98,000 deaths occur each year
in hospitals because of medical errors is easily understandable and frames the
question of why these deaths occur and whether anything can be done to
prevent them (IOM 2000). Subsequent debates by health professionals on
methodology, challenging whether the correct figure is closer to 44,000 or
to 98,000, have not changed the sense of the general public, industry, and
government that the number is too high and can be reduced significantly.
A second IOM report, Crossing the Quality Chasm, focuses for the first
time on the redesign of healthcare organizations, specifically the redesign of
care processes (IOM 2001, 11727). Process improvement includes using the
best evidence in clinical decision making and improving clinical processes
based on process-outcome relationships (IOM 2001, 14563). The reports
heading Applying Evidence to Health Care Delivery makes a strong statement for evidence-based medicine and the technology to delivery it; this technology is primarily advanced IS. The call for supporting medical decisions with
evidence is one that can be easily supported by health professionals. They are
trained to seek scientific evidence to support diagnoses and treatment decisions and should be predisposed to use clinical decision support systems that

Quality and cost

concerns and


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provide them this information at the point of clinical decision making. The call
for applying evidence to healthcare delivery will not be opposed by leaders of
the professions and will be a rallying point for all industry leaders. The test will
be whether there is enough concern and commitment to actually carry out
clinical process redesign. This will be done on an institution-by-institution,
service-by-service basis. If properly led, the opportunity exists to make significant steps in improving the design and management of clinical processes.
The Committee on Quality of Health Care concludes that the health
industry must undertake fundamental clinical process redesign to address the
problem of medical errors. The attention to IT as the transforming technology gives appropriate recognition to technologys pivotal role but places too
much faith in it as the agent of change. Information technology will not cause
the clinical process to be redesigned no matter how much is spent or what
system is installed; users will adapt the technology to fit their current
processes, not vice versa. It is true that IT can enable the clinical process to
be transformed. It is also true that considerable clinical process change can be
accomplished without heavy investment in sophisticated IT.
and the Pew

One of the main challenges to business and clinical process transformation is

aligning the payment, regulatory, licensing, accrediting, and training functions
to support it. This massive undertaking will provide one of the most daunting
challenges to process redesign. It is inconceivable that the clinical and business
processes will be redesigned if the health system and broader economic and
political systems maintain negative incentives. The reports of the Pew Health
Professions Commission in 1991, 1993, and 1995 documented that training
programs, accrediting agencies, and licensure boards are obstacles to preparing health professionals for the health systems of the future (Lamm 1995;
ONeil 1991, 1993). The 1995 report concluded that the health system has
to redesign work processes and change regulations for health professionals to
practice appropriately (Lamm 1995, ii). These reports, although narrower in
scope, reach conclusions consistent with the IOM reports. As ever, the key
component is the implementation of changes. The Pew reports assume that
health system change is teleological and that good evidence and logical arguments will cause it to change. The reports did not achieve the disruptive
change necessary to take on the difficult task of process redesign, probably because it is difficult to rally political and public forces around changing curricula and accreditation processes. The IOM reports that focus on 44,000 to
98,000 deaths per year in hospitals generate greater interest.

Payment linked
to quality

The federal government is taking the advice of the IOM committee by aligning payment policies with quality improvement. The Centers for Medicare &
Medicaid Services has initiated, on the recommendation of the Medicare Payment Advisory Commission (Medpac), payment of a financial differential for

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quality health services. Glen Hackbarth, the Medpac chair, concludes, Current payment systems in Medicare are at best neutral and at worst negative toward quality. All providers meeting basic requirements are paid the same regardless of the quality. It is time for Medicare to take the next step in quality
improvement and put financial incentives for quality directly into its payment
systems (Hackbarth 2004). Recognizing that all institutions might not be
equally capable of responding, Medpac also concludes that, Financial incentives for quality could encourage greater use of best practices by first identifying the best way to treat patients and then rewarding providers that follow the
guidelines (Hackbarth 2004). Incentive payment for quality is designed to
reward clinical outcomesthe ultimate indicators of quality. Medpac notes
that, By rewarding quality whether measured by guidelines or outcomes, the
program would send the strong message that it cares about the value of care
beneficiaries receive and encourages investment in quality (Hackbarth 2004).
Aligning payment for services based on their quality is a clear commitment to
clinical outcomes that, if successful, will bring organizations to carefully consider clinical process improvement.
There continue to be many disincentives to process improvement embedded in financial systems, regulations, and a broad range of individual incentives. These are systems and regulations that can be changed, but change
will not be easy. Changes will occur neither rapidly nor simultaneously; they
will be slow and incremental. The leadership must come from physicians and
nurses, healthcare executives, politicians, and consumers who can move beyond protecting the status quo and collaborate for change. The process must
be deliberate so that it does not force an oversimplification of the complex task
of structuring clinical processes and decisions. However, it is time for health
leaders to recognize that the quality of health services can be greatly improved
and costs reduced by applying well-established science for process redesign.
There is enough dissonance in the system to allow this improvement and new
reduction to happen. The challenge is finding the leaders to take on the difficulty and the risk of effecting change.

Consumerism in the health field is expected to have a major effect on transforming a health system enabled by advanced IT. Consumerism is a driving
force behind many of the developments in e-health. The personal computer
and the Internet did not initiate the change in values and behavior of consumers, but they played a major role in facilitating it. Increased involvement
of consumers in their health decisions will generate forces for change, including expanding access to and use of health information. The ease of use of
health information in other sectors will put pressure on the health system to
change. Industry demands for changes in health system performance are
based primarily on the demand for greater efficiency and increased quality.



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Consumers echo this interest but also demand greater access to health information that can help them to navigate the system to make informed choices.
Health providers must redefine health IS, from medical records as repositories of information for each provider to personal health records as navigational tools for consumers to access and use information across providers and
systems. Consumer demand for information will require new ways of thinking about health information and new information architecture.


Consumers of health services are demanding increased involvement in their

health decisions. This concept extends beyond increased consumer choices
of services to an involvement in defining and developing the service through
interactions with providers (Prahalad and Ramaswamy 2004). Interaction
between the consumer and provider of services will change the role from
consumer to coproducer of services. The shift in perspective will alter the degree of control health professionals have over defining health services, but
the issue is much greater than simply control. The effect of the shift in perspective will be on how services are defined and developed by the consumer.
Organizations will no longer define services by appointments, diagnoses, admissions, consultations, or billing codes but rather by outcomes; service integration across professions, organizations, and sectors; and customization
and individual choice. Health providers will not be able to respond to new
demands by merely offering more choices of services; they must develop opportunities for consumers to participate in defining the services themselves.
In the new marketplace healthcare organizations have to recognize
that dialog with customers is a two-way exchange between equals in which
the consumer frequently controls the flow (Brown, Bopp, and Boren 2006).
Health providers will realize that health services are to a large degree information services and that consumers have an increasing number of sources of
information and channels of communication. Healthcare organizations and
professionals will not only have to increase the number of sources and types
of information available but also be able to interpret and learn from customers so they can respond to customer concerns. With a two-way dialog
enabled by IT, providers will be motivated to change the way they define and
provide clinical and business services. When some healthcare organizations
respond to these changing consumer demands, competition might force others in the market to respond in order to stay in business. A caution is raised,
however, that changing behaviors through the forces of the market assumes
a degree of competitiveness that might not exist in the health system (Porter
and Teisberg 2004).
Consumers are increasingly forming consumer communities, providing greater public access to information on health and other services and user
input and feedback on services. These consumer communities, drawing on
the Internet, share information on the availability of and experiences with

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services. Pilot studies of extending consumer communities to form peer-topeer networks for exchanging more personalized information provide increasingly consumer-centric IS that are able to easily integrate information across
services through secure networks for exchanging personal health information
and automated brokering of requests for services and availability (Hales et al.
2003). Information technology does not create these consumer networks,
but it greatly facilitates them and in so doing creates more highly structured
networks for sharing and integrating information (Schopp et al. 2004). These
information networks are of value to healthcare organizations for identifying
services with high demand and to the consumer for importing information regarding the service. The concept of brokering requests for services places the
consumer in control of the specification of services and in a position to negotiate on price. Because these information services exist outside the domains of
provider organizations, they have the potential for creating sufficient dissonance for bringing about dialectical change in the health system.
Public and health professionals are aware of the rapid change occurring in the
banking, entertainment, travel, and business industries. These rapid changes
and the ease with which information can be accessed, stored, recalled, and
transmittedcreate an interesting contrast with the world of healthcare. Consumers and health professionals are increasingly expressing concern with this
gap, and this awareness will cause dissonance in the health system. When provided the opportunity, consumers demonstrate their desire and ability to access and understand health information, including complex genetic information. Access to and use of genetic information by individuals is available and
Most members of the consuming population have experienced the gap
between using IT in other sectors and within the health system (see Case
12.1). Healthcare executives should note that consumers are becoming sophisticated users of IT and that they like it. There is great probability that consumers will want similar availability and ease of use within the health sector.

IT Development
It is important to understand the development of IT that enables new applications to be technically and economically feasible that were not so a few years
ago. Some of the approaches tested in the pastfor example, handheld devices and wireless networksfailed because of limited capacity and bandwidth. As devices become more powerful and wireless networks have more capacity, clinicians should be able to have more information at the point of care
in addition to the ability to collect and capture (i.e., document) more information at the point of care. This should greatly increase the use of IT by clinicians. The beginning of the twenty-first century has seen the creation of significant new technology as well as the rapid development and improvement

derived from
other sectors


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Jane Keuhnes

Consumers such as Jane Keuhne enjoy and increasingly expect to have access to
information and to make decisions using electronic media in the hotel, airline,
automobile, restaurant, finance, and other service industries. One reason these
industries have been able to effectively use advanced IT to better serve their customers is that they

consist of a few very large companies;

are concentrated in large urban locations;
have large customer bases; and
have access to considerable financial resources.

Medical services are still fundamentally a cottage industry, with many small
and scattered clinics and health professionals. Clinics are located in dispersed geographic patterns, limiting the ability to concentrate resources. The nature of
health markets makes it difficult to respond to economic conditions necessary to
support the development of a national health information infrastructure. What
market and nonmarket strategies should be pursued to enable the level of investment and degree of standardization necessary to establish a national information
Jane seems to be quite satisfied with her physician and the services provided by the clinic. She does not object to the fact that she was able to travel
from coast to coast and across the city to arrive on time, only to discover that her
appointment is delayed. Jane is a well-educated, sophisticated, and ambitious

of existing technologies. These advances enable the expansion of existing

technological roles, make practical new uses for technology, suggest new services, and (hopefully) increase access to care. Two broad categories of technological advancement worth particular note are the improvements in familiar
workstation or personal computer hardware and in broadband and wireless
Increasing capabilities for existing technology include much faster
central processors, expanded memory, major increases in data storage and retrieval capacity, and similar improvements in core workstation hardware. Dramatic decreases in prices mean that computers offer far more affordability
than ever before, as well as the chance to further integrate IT into the healthcare setting. Decreases in the size of powerful hardware also increase the potential value and practicality of handheld and portable devices.
The vast, rapid deployment of cellular, satellite, and other wireless
technologies, as well as inexpensive wired broadband, has created critical infrastructure around the world. Perhaps more important, it has created a culture of acceptance of the integral role of personal technology among patients
and providers. It seems natural and has become socially normal to use a cell
phone, personal digital assistant (PDA), or wirelessly connected laptop in
most circumstances. Cheap, accessible broadband has made e-mail and web
users of every category of citizen, especially in the United States, Europe,

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professional who is driven by the notion that time is money. Yet, she waits patiently
for her personal appointment. Will patient expectations change as the result of the
conveniences and improved quality of services provided by other service industries?
The technology exists that would allow Janes physician to call up her medical record and see vital information like blood pressure recorded electronically
and presented over time and against baseline information linked to the latest evidence from clinical trials. Prescriptions for pain and other medications could be
tested against data in her medical record for allergies and against clinical trials on
other medications for incompatibility. Although her appointment was not specifically for high blood pressure, she might be provided her own monitor, with information sent to her medical record and monitored with periodic alerts to see if a
prescribed regimen of exercise and low-salt, low-fat diet might be sufficient to
manage this problem.
It is interesting that the low expectation Jane has for her healthcare
providers clinical and business information extends to her expectations of the
amenities supporting the clinic visit. She expects her hotel to know her preferences for a specific room, but she isfor nowcontent to read a magazine in
which she has little interest while waiting for a delayed appointment with her
physician. What might a clinic office look like in the future? How would a waiting
room and patient reception desk, for example, be redesigned for orientation to the

and Asia. Indeed, the healthcare provider who does not demonstrate comfort
in the use of the most ubiquitous information and communication devices
risks appearing out of touch or behind the times rather than simply cautious
or traditional. As mentioned above, the hard questions are being asked by patients as well as health professionals about the failure of healthcare organizations to deploy well-tested IT (see Problem Solving 12.1).
It is not surprising that the full exploitation of rapid technological advancements is hindered by familiar problems. A primary roadblock is the
continually slow process of creating, disseminating, and adopting standards.
Although key successes, such as Health Level Seven (HL7), lay the groundwork and provide hope for the future of interoperable systems, the industry
still wrestles with IS standardization in most areas. Similarly, new technologies, such as wireless communications, run head-on into old problems like
the data security regulations recently brought to the forefront by the Health
Insurance Portability and Accountability Act (HIPAA).

National Health Information Policy

The deliberate and rather slow process of governmental commitment to the
development of standards for the computer exchange of clinical information,
an electronic medical record (EMR), and access to uniform medical terms has
been the result of the difficulty of the task and the political sensitivity of health



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professionals, vendors, and healthcare organizations. The United States has

been slow to develop national health information policy in part because of the
complexity of the task and in part because of the tradition of private sector and
market development as a political value of health organizations. The nature of
the health industry has prevented development of such policy from occurring,
and the lack of a national health policy has contributed to a lack of direction
and pace (Goldsmith 2003). There is growing recognition of the need for a
coordinated vision and effort to move ahead with much of the agenda for
health information systems.
The pace of that development by the federal government is likely to
increase because of the sudden importance of bioterrorism and the need to
capture, integrate, and analyze clinical information across time and territory.
This need is meshed with that of developing a national and local response infrastructure to a bioterrorism attack in the United States. This alarm no
doubt accelerated governmental commitment to developing and implementing standards for an integrated national health information system. Public initiatives will foster change in developing a structured clinical architecture for
clinical databases and a national health record.

Development of an Integrated Information System

Consumer demand for accessible and integrated health information creates a
particular challenge to the health system. Information access based on consumers as the unit of analysis will require that information systems of disparate
providers be integrated and accessible. This interoperability will be difficult to
achieve given the structure of the health system. Health providers are primarily private, respond to market forces, and are large in number but small in
size. This structure limits the ability of the industry to develop IT for the common good without governmental incentives or regulations.
Public access to health information by consumers, including access to
their own health information, raises issues of interoperability of health IS of
doctors, hospitals, and health systems. Interoperability requires the development of common vocabularies and data and messaging standards that will not
develop through private competitive markets. Information systems vendors
do not consider standards to be in their best interests, will not invest in them,
and might resist them. They have built idiosyncrasy into their systems as a
competitive strategy to retain current users and lock out competitors.
Data standards and interoperability evolved in the private sector in industries such as banking and computer software, which are characterized by a
few large, dominant firms able to set de facto standards for the industry. Limited individual access to health information is frequently contrasted with the
ease of conducting banking transactions from anywhere in the world at any

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time. Two dominant banking systems developed the worlds banking transaction systems, and information technologies are based on the designs of these
two firms. These firms also have financial resources to develop the needed information capacity. The development of VISA by collaboration among banks
is analogous to the health system, but it involved comparatively few organizations and offered the potential of a significant increase in business for everyone. This is not characteristic of the health system. Likewise, defined data
standards and a rather limited range of transactions characterize the banking
system. The banking system is built on well-established standard measures,
currencies, and transactions. Compared to the health system the range of
transactions in banking is few and measures are well defined. Comparisons between these industries are useful in measuring the gap that exists with health
systems but provide limited insight as to how the gap can be closed.
Providers have undertaken some voluntary industry standardization,
such as HL7 and Systemized Nomenclature of Medicine (SNOMED). These
systems have gained widespread application and represent a significant investment by the industry. The ability of provider health institutions to demand
that vendor corporations develop vocabulary and data and messaging standards for their systems is limited because of the small size and large number
of providers. The federal government, through HIPAA, in addition to setting standards for privacy and confidentiality, standardized coding and transactions to be used in processing all medical claims, both public and private.
Although driven by reimbursement and auditing logic, this act reflects the
role of the government in setting standards for medical information transmitted electronically.

Public Sector Development of Health IT

Nationalized health systems have an easier task when designing and initiating
policies to standardize data and systems because of single ownership and their
ability to make a systemwide investment. The approach of the U.S. health
system will likely be through the federal government setting standards for the
industry. This will force vendors to ensure that their systems comply with the
standards. The government might follow a process similar to that taken with
the railroad industry. The railroad industry initially used different widths between rails as a means of controlling which companies could run trains on
which tracks. The government concluded such a strategy was not in the public interest and mandated that rails be the same width for all railroads, but it
did not dictate what the width should be. A similar strategy is emerging with
health IT.
The federal government initiated the Consolidated Health Informatics (CHI) initiative in 2003 to standardize the health IS being developed by
the Department of Health and Human Services, Veterans Administration,
and Department of Defense. The CHI initiative mandated that all federal



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health services implement data standards to achieve interoperability of clinical information; there was no mandate to develop new standards, but rather
to adopt existing and widely used standards such as HL7, Digital Imaging
and Communications in Medicine (DICOM), and SNOMED. Twenty existing standards have thus far been adopted by these agencies. Figure 12.1 represents a selection of these standards.

The National Health Information Infrastructure (NHII) program will require the industry to adopt standards for the computer exchange of clinical
CHI Initiative
Data and

Digital Imaging and Communications in Medicine (DICOM): messaging standards for medical images.
Institute of Electrical and Electronics Engineering (IEEE) 1073: standards
for medical device communication to enhance connectivity.
National Council of Prescription Drugs Programs (NCPDP): standards for
pharmacy transactions including sending prescription information from pharmacies to payers, prescription management service, and adverse drug reactions and utilization review.
Health Level 7 (HL7): vocabulary standards for demographic information, units
of measure, immunizations, and clinical encounters, and HL7s Clinical Document Architecture standard for text-based reports (five standards).
College of American Pathologists Systematized Nomenclature of Medicine
Clinical Terms (SNOMED-CT): for laboratory result contents, nonlaboratory interventions and procedures, anatomy, diagnoses and problems, and nursing.
The Department of Health and Human Services is making SNOMED-CT available for use in the United States at no charge to users (five standards).
Laboratory Logical Observation Identifier Name Codes (LOINC): to standardize the electronic exchange of laboratory test orders and drug-label section
headers (one standard).
Health Insurance Portability and Accountability Act (HIPAA): transactions
and code sets for electronic exchange of health-related information to perform
billing or administrative functions. These are the same standards now required
under HIPAA for health plans, healthcare clearinghouses, and those healthcare
providers that engage in certain electronic transactions (one standard).
A set of federal terminologies related to medications: including the Food and
Drug Administrations names and codes for ingredients, manufactured dosage
forms, drug products and medication packages, the National Library of Medicines RxNORM for describing clinical drugs, and the Veterans Administrations
National Drug File Reference Terminology (NDF-RT) for specific drug classifications (one standard).
Human Gene Nomenclature (HUGN): for exchanging information regarding
the role of genes in biomedical research in the federal health sector (one
Environmental Protection Agencys Substance Registry System: for nonmedicinal chemicals of importance to healthcare (one standard).

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information, an electronic health record, and access to uniform medical

terms for the industry. For providers to receive federal assistance to finance
new IT the technology will have to meet these standards. Although standards
are not yet fully established, they will look like the standards set for all federal agencies providing health services under the CHI initiative.
NHII seeks to provide leadership and incentives to the industry to foster a new level of health information infrastructure in the United States. Such
a system would provide
1. linkage between medical care and public health (e.g., for bioterrorism
2. that test results and x-rays always be available;
3. elimination of repeat studies;
4. that complete medical records always be available;
5. that decision support always be available, based on clinical evidence, and
provided in the form of guidelines;
6. quality and payment information derived from record of care, not separate reporting systems; and
7. consumer access to their own records.
The government has been careful to describe this effort as an initiative, not a program, stressing that it is a voluntary exercise and will not result
in a centralized database or increased government regulation. The approach
will not be to mandate and regulate the industry into compliance directly but
rather to structure the industry such that providers will have to comply in
order to participate effectively in the system. The ability to receive federal assistance and Medicare payments would be examples of the types of incentives
The NHII initiative is significant in that it is the first effort to identify the development and application of health IT as a national goal. The
exact expectations for achievement are not specified, and the guidelines are
intentionally vague. Given the social, economic, technical, and political
pressures for change in the health system, this initiative will no doubt be sustainable. It identifies health IT as the solution for transforming the health
system, improving health quality, preventing medical errors, reducing health
costs, improving administrative efficiency, and increasing access. It is doubtful that the initiative will in itself produce the anticipated change in most of
these areas of performance. Information technology itself has not demonstrated effectiveness in producing the types of profound change hoped for
in NHII. It does present a good opportunity for medical, nursing, management, and political leaders to develop innovative models of process redesign
and for payers to reward high levels of performance. The time is certainly
right for some true risk taking and innovation by healthcare organizations;
the challenge is leadership.



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Personal Health Record

The development of a health record at the state or national level is of increasing interest for citizens and the federal government. Citizens are interested
because they enjoy access to personal information nationally and internationally over secure networks in other sectors and will demand the same for
health. The government is interested in such a health record because of citizen demand, because of the potential to improve health quality and efficiency, and because it provides a health information network for national security. The technology to develop and implement a national patient health
record exists, and the issues are questions of financing, politics, and culture.
Part of the political debate is how to show that such a system is in the best
interests of individual organizations providing access to health information.
The issue in this debate is in part security and in part the attempt of organizations and practitioners to remain unique to differentiate themselves and retain their independence. There are good models developing that might inform some of the policy decisions as the United States proceeds toward its
goal of achieving such a record by 2014.

Health Reporting
One of the high-profile applications of IT is in health reporting, which consists of using IS to increase the availability of health information to providers
and policymakers. Access to information on health status by population category, health risk behaviors, health resource availability, costs and expenditures,
benefits, and utilization of health services can enable increased surveillance by
the Centers for Disease Control and Prevention (CDC), local and national
health policymakers, communities, researchers, and consumers. Health reporting has been the traditional approach of public health systems and the
World Health Organization. The application of IT to health reporting includes improving databases, the linking of databases, and the accessibility and
usability of information.
Many IT initiatives focus on health monitoring and reporting. This is
an important policy area for most European countries and a priority for development of the European Union. The German Health Reporting System is relatively new and typical of the development and integration of health reporting systems in Europe (Ziese 2001). The European Union has enumerated
the selection of health conditions to be monitored, standardization of measures across member states, development of a communitywide network for
sharing and transmitting health data, and development of tools for analysis
and reporting on health status and the determinants of the effects of health
policies on health status as pillars of its program (Stein 2001). The methodology for gathering much of this data will change from sampling to total population information. One of the advantages of this methodological change will

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be the ability to analyze and compare health status, services, and utilization
using small geographic areas such as county as the basis for reporting and analyzing.
Efforts to improve health reporting based on new applications of IT
consist of improved information gathering, analysis, and access. Sources of information include the reporting of selected conditions such as cancer and genetic disorders by hospitals and clinics. Historically, information was gathered
through chart reviews and paper reporting of incidences of disease. Computers enable information to be gathered from EMRs and submitted through encrypted Internet reporting. These new technologies will enable public health
systems and health policy analysts to have more rapid access to information of
higher quality and in a form to allow comparisons and other analyses.
In the United States health reporting functions are carried out through
the CDC, programs such as the Behavioral Health Risk Factor Surveillance
System, and the various disease registries. National and international concerns
regarding terrorism have generated interest in timely health monitoring and
reporting systems. Information technology can play a key role in upgrading
current clinical care and will enable increased linkages between patient health
records and public health monitoring and policymaking. For example, risk factor information could be gathered and used by physicians and nurses for disease prevention and treatment. Risk factor information could be compiled
from health records by the CDC as the means of monitoring health risk in the
population and the outcomes of selected health interventions. This might replace investment in increasingly sophisticated sampling techniques and phone
surveys to gather some information.
The area of health reporting recognizes a social strategy for health information that must be acknowledged by health institutions. The social benefit from IT might be considerable and could present entrepreneurial opportunities for healthcare organizations or be imposed as an unfunded mandate
on them. In either event organizational leaders must understand, monitor,
and manage the external environment to develop innovative solutions to
policy issues that best serve the individual patients in the health systems as
well as their communities.

Health Networks
Health networks are distinguished from health reporting in that they link
providers and patient health records into a national or international network
for accessing individual patient information. Policymakers at the NHII program envision the accomplishment of such a program by 2015. Health networks have been under development for a number of years in other countries, such as Denmark, Sweden, and Norway, and more recently in the
United Kingdom and Canada. Each of these systems has different origins
and histories, but they have the common theme of a national health record



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available to patients and providers over large geographic areas and across political boundaries.

Systems in

Over the past ten years Sweden has developed a secure national network connecting its public hospitals, primary care centers, all pharmacies, and a number
of private institutions. The system is built on a fiber-optic network separate
from the Internet. This enables a secure reliable exchange of confidential data
such as patient records that is not suitable for transfer over the Internet (Pedersen 2004).
The Norwegian Health Network evolved from five regional networks,
one in each of the regional health systems, and currently includes all five regional networks and a national connection. The regional networks connect all
general practitioners to one another and connect practitioners with hospitals.
Nearly all hospitals and general practitioners have EMRs as the basis for this
system. The health networks are connected to one another through a national
network. Health networks are also connected to social services at the local
level through the networks for local authorities (Pedersen 2004).
The Norwegian Health Network is designed around its national health
system and social care sector. This is also characteristic of the Swedish system.
The national health system provides a number of advantages in design and
implementation. First, there exists a consistent information infrastructure
within the health and social systems, wherein physicians and hospitals share
common business and clinical systems. Because they are all under the same
governance authority, implementation and acceptance of the information
support systems are no doubt easier to achieve.
The Danish system has a history and characteristics similar to Norways. It connects the existing secure networks of its 15 regional health networks, pharmacies, local authorities, private laboratories, and nearly 90 percent of its general practitioners. It similarly connects the majority of general
practitioners, pharmacies, laboratories, and all regional health authorities
(Pedersen 2004).
The power of the Scandinavian countries accomplishments in IT is reflected in the vision and relative ease of integrating systems within countries
and now into an international network. The similarity of the infrastructures
of the three countries provides a relatively easy technical solution to connecting the national systems into an integrated Nordic Health Care Data Network. In addition to the relative ease of the technical solution, the political
and cultural orientation makes the next step a logical and natural progression.
The three national networks were integrated in 2004, and a service portal will
make health information available to citizens and providers. The designers of
the Nordic system envision extending the system to other E.U. countries in
the near future as the foundation of the E.U. integrated health information
network (Pedersen 2004).

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The Nordic Health Care Data Network gives a glimpse of the future
for national and international linkage of patient health information and access by physicians and hospitals. International systems are built by linking national systems, which are themselves built by linking regional systems and
local networks. The networks can be used for medical consultation or patient
access to information at locations based on the convenience of patients, not
hospitals and clinics.
Other countries, namely the United Kingdom and Canada, are also developing national patient health record, with each approach reflecting the values,
traditions, and structure of the countrys health system. The National Health
Services (NHS) in the United Kingdom has commissioned the $5.4 billion
National Program for Information Technology. Although a major financial
and technological investment, the decision to develop and implement an integrated information network is a natural extension of the philosophy and
tradition of NHS. The core of the program is to develop the Integrated Care
Record Service, which will be used to create a basic national health record for
every patient in NHS. The national health record will enable appointments
to be booked instantly (e-booking), share prescriptions and lab results instantly, allow patients to know what is being shared with whom, and eventually include electronic prescribing and allow patients to access their own
records from home.
The United Kingdom has been divided into five geographically related
strategic health authorities that will be managed by local service providers
(LSPs) whose responsibilities include systems integration, program management, and supplier (vendor) management. The LSPs will ensure that existing
systems are compliant with national standards, facilitate data flow between
the local and national systems, deliver upgrades and new systems to the local
communities, and implement core local training for NHS staff. A regional
implementation director from the national program will be appointed and
provide oversight to the LSPs (HealthLink 2004).
The United States has started the process of developing a national patient health record much more slowly than other industrialized countries in
part because of the private, decentralized nature of the U.S. health system.
The U.S. approach will be to develop and adopt information standards, use
the health services provided or financed by the federal government to create
incentives to providers to use electronic health records and reporting systems,
and stimulate the development of new technology by current providers to
link existing services and establish best practices of information architecture,
reporting systems, and applications of decision support technology. This will
be a distinctly U.S. approach that can learn from what others are doing and
no doubt contribute to the base of clinical, informatics, and management sciences to support the development of integrated health networks on which

Systems in
other areas of
the world


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health and clinical practice information will move. These secure systems will
be accessible to patientsperhaps controlled by patientsand available to
providers involved in the caregiving process. If it becomes an overlay on the
existing system, it will not meet national goals of reducing costs and medical
errors. If it is used as a vehicle to transform processes and provide best clinical evidence, it can have a profound effect on increasing quality and managing healthcare costs.

Clinical Information Networks

The effect of advanced electronic IS can be measured in part through learning from other industries and envisioning how IT enables new business
strategies that demand new organizational structures.

New Markets and Traditional Business Models

One consumption good that is highly restricted in most industrialized countries is health services. Health services are restricted because they are provided
through governmental agencies in most countries, with a strong business orientation to control costs by developing queues for nonemergent health services and limiting the customer amenities associated with clinical care. While
other countries will equal or exceed the United States in applying advanced
IT, they will not increase amenities associated with health services. Public policy will continue to mandate that health services be provided on the basis of
clinical needsocially definedand not customer service. Information technology will, however, enable consumers participating withing public health
or social security health systems to access information about other services
and providers and potentially create new markets for more customer-oriented
health services. This will create expanded private markets for health services
that might increase the flow of patients to countries with strong private health
systems such as that of the United States.
A more likely market scenario might be for private health systems,
both investor owned and not-for-profit, to provide health services in international markets, accessing patients and families through web-based connections. Based on measurable quality outcomes, U.S. patients might even
be attracted to foreign-based health centers for selective health services because of lower cost and the allure of combining healthcare with other
amenities. The potential for lower cost is significant because of lower costs
of labor as well as other factor inputs such as pharmaceuticals. Low travel
costs will make services available, and monitoring and follow-up services can
be provided easily through the Internet. Local providers can become part of
the care delivery team through the Internet and provide services according
to the prescribed treatment protocols. Quality of services will be ensured

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through outcome indicators of clinical quality and the fact that health services will be provided by the best clinical centers in the world.

New Clinical Business Models

Beyond the potential new markets for traditional services exists considerable
potential for the application of knowledge developed in one center or location to be embedded in clinical decision support systems in other centers.
Clinical evidence developed in knowledge centers has social and market
value. Clinical guidelines and protocols will make up the knowledge systems
or clinical operating systems and be available as a social good accessible to all
health professionals and organizations. Proprietary knowledge systems that
include clinical knowledge, service knowledge, and brand image will find potential clinic partners. The long-standing assumption that all healthcare is
local is only partially true. Healthcare is in significant ways global and quickly
becoming more so. There is the potential for an increase in health services
provided by private corporations linked through global health networks. The
power of IT is that it can use large global provider networks to provide services tailored to individuals. Health services will thus become more global but
appear local.
Health provider corporations will become more focused on core competencies, doing things that they do best and that distinguish them in the
market from competitors and potential new entrants. Innovation, knowledge
generation, and superior clinical outcomes will demonstrate the corporations
clinical strategies. Organizations such as the National Jewish Hospital in
Denver, Mayo Clinic, Cleveland Clinic, and M. D. Anderson set the standard
for the services in which they specialize and have developed networks beyond
their original organizational and geographic boundaries. In the information
world these boundaries have virtually endless possibilities spatially. There exists considerable potential for extending the core competencies of health corporations into global markets (Prahalad and Hamel 1990).

Innovative Business Models

One of the qualities of an information-based business strategy is the speed at
which innovation occurs and the profound nature of the organizational and
systems change evoked. IT enables the development of truly innovative business models, with a design never before conceived because the technological
premise on which they are based did not previously exist. The transformation
of an industry, or elements of that industry, follows a life cycle pattern: (1)
automating existing work processes in-house; (2) outsourcing existing work
processes; (3) generating new health industries; and (4) developing business



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Automating Business Processes

Automating and outsourcing strategies are clearly evident in healthcare organizations in such functions as claims processing, billing, and managing
client services. Automation enables business processes to move offsite and,
once in digital format, move either next door or around the world with almost equal ease. The ability to overcome space constraints to access new labor
markets and create new business constellations enables organizations to be innovative in pursuing business and clinical strategies.
The health industry is increasingly outsourcing many services that support back-office operations. For example, managed care plans are starting to
outsource client and customer services, and many services are moving to corporations in other countries. In highly competitive and price-sensitive markets such strategies might be inevitable. They have the potential of reducing
labor costs in labor-intensive services and enabling the development of new
business strategies. Although these practices generate political debate about
job loss in the United States, labor economics suggests that such actions produce positive business effects as well. While in the short term some jobs in the
local labor market might be displaced, the long-term effect will be to create
jobs as well as to increase incomes and thus consumption by workers worldwide, creating new markets for consumption items. Local or regional health
industries cannot function in isolation from the larger social and economic
system, and transformations occurring in global markets will affect healthcare
organizations as well. Local and regional health markets must be considered
part of a larger ecosystem that is increasingly global in the IT age.

Outsourcing Business Processes

Outsourcing strategies produce new specialized businesses. Companies frequently discover that although the outsourced service was never envisioned to
extend beyond the service itself, the effect is a shift in the business ecosystem.
The specialized service generates networks and databases that themselves have
value in other markets. As such, new industries are frequently spawned as
byproducts that often generate more added value to the external firm than
does the outsourced service itself. Thus, a new cycle of change is initiated.
Information technology is the enabling factor for unleashing new industries and innovative approaches to managing business and clinical strategies. New specialized businesses in healthcare are emerging in areas that
provider organizations do not do well themselves, are complex in nature, and
involve significant cost factors, and that organizations do not do well themselves. For example, specialized businesses have developed for managing insurance claims and collections on behalf of provider organizations and insurance companies. The cost and complexity of processing multiple insurance
forms using a range of benefit schedules create a complex business process for
small and even large healthcare organizations. Processing insurance claims and

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Source: Burns (2002, 4).

collections is conservatively estimated to cost the U.S. health system $10 billion per year. One solution proposes to simplify this process is to develop a
single-payer insurance system. While a national health insurance system has
arguable merits in its own right, this presents a rather radical solution to simplify a business process. New firms are developing that supply solutions to
businesses that automate transactions between companies and allows them to
interact and transact electronically (BCE Emergis 2004). Such firms are
formed by developing networks of leading health insurers that outsource the
costly and complex area of claims processing. Although cost savings to
providers have not been systematically studied, claims of 60 percent savings
are reported.
Innovative business models such as claims processing will have broad
application across the healthcare value chain described by Burns (2002). It is
impossible to identify the range of business innovations IT will spawn across
the value chain shown in Figure 12.2. It is reasonable to predict that the possibilities for hospitals, medical groups, and other providers, as well as for all
parties connected to this value chain, are immense and will fundamentally
transform existing organizational strategies along the value chain.

The Rise of New Health Industries

As specialized firms grow in size and market they not only master a specialized
business function but also accumulate information and relationships that have
value in their own right. The value of information and networks will motivate
firms to generate second-order business innovation. Claims processing firms
might start in claims processing for a local health network, then expand the
market by adding other health networks; in the process they amass large databases on the performance and outcomes of many provider networks. This information has value and creates the opportunity to extend the business model,
serving as broker to health plans for selecting and directing services to preferred providers. Such organizations can overcome the restriction of limiting


Value Chain


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customers to services within a single provider network by linking provider

networks but still ensuring quality outcomes and efficient performance.
Similar business innovations are developing in other specialized health
industries following the same model, outsourcing business processes and
spawning related industries because of the value of information collected and
network relationships developed. An example of this innovation is the transformation of pharmaceutical firms from drug manufacturers with well-developed sales forces into information and knowledge systems providing physicians with PDAs and other information access to clinical evidence. Business
start-ups specializing in integrating drug information for health professionals have evolved into comprehensive drug databases and application interfaces (Medi-Span, Products 2004). These firms have further expanded into
clinical decision support systems providing clinical intelligence to health professionals. It is worth noting that one of the largest firms specializing in this
area is the Dutch firm WoltersKluwer, which is in the health information and
intelligence business and includes major brands such as Lippincott, Williams
& Wilkins; Ovid Technologies; Medi-Span; and other IT companies with
$3.5 billion in sales annually (WoltersKluwer Health 2004).
Specialization in the delivery of clinical services is giving rise to specialty
clinics and hospitals. Large integrated systems are not seeking to unbundle
services, but new start-up clinics specialize in areas of distinctive core competency and compete on quality, service, and price. As the specialty clinics grow
their businesses, they do not branch into new clinical areas but rather develop
short-stay specialty hospitals. These start-up clinics and hospitals have been
opposed by established institutions and most professional associations on the
basis that they accept only paying patients and put at greater jeopardy established community institutions. This is an appropriate issue to debate, but it
overlooks the important transformation occurring in health markets. It also
overlooks the evidence that such specialty clinics might create value by providing better outcomes, greater efficiency, and higher satisfaction than their unfocused general hospital competitors. This could also drive the need for innovation and new business models. This pattern of specialty or boutique
development is established in other industries and can become an important
player within an integrated system (Porter and Teisberg 2004, 73).
With breakthrough technologies such as the human genome project,
the number of possible innovative business strategies is extraordinary. Questions of who will perform the genetic tests and how genomic information will
be incorporated into the disease databases and used as clinical decision support
will be answered through new health industries. What role will providers play
in these rapidly developing processes? How genomic information will affect
the business and clinical strategies of health providers is just one of a range of
questions that the boards and executives of health provider organizations must
address. The potential for innovation along this business process is immense.

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Developing Health Business Ecosystems

Much of the business and clinical strategy of health provider organizations is
currently directed at migrating functions to external specialized organizations. External organizations gain power by generating their own strategies
that add value to provider organizations but cause further changes to the
health industry. Value initially was measured by the benefits accruing to the
organizational dyad, outsourcing firm, and contracting firm. As the contracting firm develops new service products and networks, the organizational
dyad becomes an interorganizational business network and the provider organization is drawn into a new set of organizational interdependencies.
As this process evolves, greater interdependencies serve to transform
organizations from managing their own business strategy to becoming involved in managing the entire business ecosystem. The dominant players in
the process will be those with the best business acumen and most entrepreneurial nature. Health providers might play this role, although the business
culture of most, particularly the not-for-profits or small firms, is not characterized by these business qualities. Large national or global private systems
might become dominant forces in the health industry. In fact, anyone in the
ecosystem who can leverage others might become a dominant force.
There are no clear models of health firms with the dominance in the
health system to manage the interdependencies that bring all firms in the
value chain into a single coordinated strategy. Models from industry include
Wal-Mart and Microsoft, whose own business strategies include managing
the business strategies of all firms in the value chain (Iansiti and Levien
2004). It is in the interest of the focal organization to monitor and manage
the health of all firms with which interdependency exists. Information technology is the enabling force, and the market, including consumer demands,
will be the driving force. The health system is in the early stages of a transformation that will affect every health professional and organization. The
question is not if the change will happen, but rather who will lead it.

This chapter gives a glimpse into the future potential of information as a transforming technology in the health system. It draws on other industries and the
ability of IT to enable the transformation of core production processes,
spawned new organizational configurations and industries. The degree to
which this transformation will occur in the health system is speculative, but it
is hard to imagine traditional values and ways of doing things not giving way
to the evidence-based solutions provided though management science.
The chapter describes developments in the application of advanced
information technology in other countries health systems. It would be



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shortsighted to overlook innovations taking place in the health information

infrastructures in many countries on the basis that they are nationalized systems or in some other way different from Americas system. It is surprising
that the United States. has waited until 2004 to announce its interest in developing an integrated health information infrastructure.
This chapter examines the nature of information as an organizational
asset. Unlike other assets of the corporation that diminish in quantity as they
are used, information increases in quantity as it is used and can generate considerable value. Value is generated as immediate knowledge about customers,
markets, and transactions to a global, diverse, and rapidly changing network
instead of through a traditional production and distribution process restricted by time and space. Information overcomes time and space, allowing
new markets, industries, and ecosystems to be quickly formed and changed.
Many healthcare executives respond that the new potential applications of information technology to transform business and clinical processes are exciting but that they are too consumed by current problems of managing the
revenue cycle, recruiting physicians, or increasing market share to consider
them. The assumption is that when these problems get solved, there will then
be time to think about future possibilities. Within these discussions, most
recognize that current approaches will not solve the problems. Solutions lie
in new models based on new assumptions.
The good news is that the science to support these models and guide
their development exists. What is needed is transformational leadership, a
considerable time investment by executives and a mastery of how to change
the existing order. The health system will get there but needs to pick up the
pace. Consumer demand for continuity of care, quality, access to health information, and health service choice are not new concepts to the health system. The levels of performance technically possible have increased dramatically because of advanced IT, and consumers know it. With consumer
knowledge come high consumer expectations. A well managed health system
will not be enough to satisfy these expectations. New systems based on new
assumptions and technologies are needed.

1. The Hill-Burton Act was passed in 1946 as P.L. 79-725, the Hospital
Survey and Construction Act. Originally designed to modernize hospitals, it later provided federal funds for capital investment to build hospitals. More than $4.6 billion has been invested through this program
since 1946. Its specific focus was on the construction of hospitals in underserved areas with a strong emphasis on rural communities. Access to
hospitals was equated with access to health services and directly related
to the ability of communities to recruit and retain physicians. To receive

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federal funds, hospitals must agree to provide free or reduced-charge

services to persons unable to pay. More information can be obtained
The Regional Medical Program was passed in 1965 as P.L. 89-239
with the purpose of making available the latest biomedical technology
broadly available to all regions, health professionals, and heath institutions. The program followed the seminal report, A National Program
to Conquer Health Disease, Cancer and Stroke, chaired by Dr. Michael
E. DeBakey. The program invested in cooperative arrangements between medical centers and community facilities to support continuing
education and cooperative arrangements for consultations, referrals, and
demonstrations of patient care. Some early use of electronic technology
to disseminate clinical information was carried out by the Missouri Regional Medical Program. More information can be obtained from http:

Questions for Discussion

1. What factors might stimulate or impede the development of IT in
healthcare organizations?
2. Who will provide the investment capital needed to develop and maintain a personal health record?
3. Will the heavily private and decentralized health system in the United
States facilitate or impede the development of a personal health record?
4. How will changes in the business strategies represented by outsourcing
and the rise of new health industries change the required competencies
and career options of healthcare executives?
5. What types of new health industries can you envision given the cost and
complexity of current business processes in hospitals and clinics, and will
they be in the investor-owned or not-for-profit sector?

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Access, 16263, 24849

clinical decision making, 5657
for clinical performance, 5559
consumerism and, 5759
direct, 54
drivers of, 5559
medical errors, 57
organizational, 5455
patient safety, 57
by professionals, 54
public, 53
Administration, 249
Alafaireet, Patricia E., 82, 83
Alphanumeric codes, 102
Alternative investment projects, 21314
American Telemedicine Association,
Anderson, P., 142
Anderson, R. M., 151
Applications management, 22930,
Architecture, 212
Asthma management, 70, 15657
AtlantiCare Health System, 4, 5
Attractor, 13839
Audit, 25051
Authentication, 24849
Authorization, 24849
business processes, 46, 284
clinical processes, 12
of existing processes, 46
IT stage, 9192
Aware Home Research Initiative, 156
Azari, R., 161
Balanced Budget Act (BBA) of 1997, 160
Barney, J.B., 95
Bayer, 182

BBA. See Balanced Budget Act of 1997

Beers, M.C., 108, 109
Behavioral Health Risk Factor Surveillance System, 279
evaluation of, 21617
identification of, 21416
intangible, 21516
realization, 218-20
tangible, 215
Benefit-cost analysis, 205, 2089, 21617
Bharadwaj, A.S., 89
Bioinformatics platforms, 176
Bioinformatics resources, 180
Biomedical Information Science and
Technology Initiative, 183
Biopsychosocial approaches, 130
Blair, D.C., 107
Blood oxygen monitors, 155
Board of directors, 225
Bohmer, R., 262
Brietzke, M.D., Stephen A., 54, 55
Building access, 244
Burns, L.R., 1011
Burrill & Company, 178
Burroughs Welcome Foundation of the
United Kingdom, 178
Business case analysis, 2089
Business imperatives, 23940
Business network, 142, 143, 144
Business operation strategy, 33
Business process
automation, 46, 284
clinical process alignment, 1517
cross-functional interaction, 38
data processing functions, 9
financial management, 9
financial orientation, 37
functional design, 10
integration, 2021




impact, 212
IT systems, 1718
operational decisions, 29
operational efficiency, 910
organizational strategy, 28, 3637
outsourcing, 28485
redesign, 1011, 14, 1517, 18
structure, 38
support structure, 3839
transformation, 911, 21
viewpoint, 16
workflow, 5
Business strategy
alignment of, 38
biospsychosocial services, 130
collaborative networks, 130
competitive advantage and, 80
customer-focused goal, 88
functionality of, 2034
integration of, 3839, 5362
IT support, 43
product structures, 128
Capacity planning, 231
Capital budget, 207, 21213
Capital costs, 216
Capitation, 54, 64
Care plans, 68
Care process redesign, 267
Carve-out model, 68
Case management model, 68
Case study
chronic care, 54, 55
clinical processes, 54, 55, 58
community health network, 128, 129,
e-health, 150, 151
EMR valuation, 199, 200
genomic medicine, 173, 174
IS integration, 32, 8285
IT application, 262, 263, 272
IT system upgrade, 4, 5, 2829
operational memory, 105
organizational memory issues, 101
security issues, 238, 241
staff distribution, 224, 227
CBO. See Clinical Bioinformatics Ontology
CDC. See Centers for Disease Control
and Prevention

Cedars-Sinai Medical Center, 32, 34

Celera, 178, 182
Centers for Disease Control and Prevention (CDC), 278, 279
Centers for Medicare & Medicaid Services
clinical outcome measurement, 55
program administration, 26667
quality improvement/payment link,
Cerner Corp., 177
Cerner Millennium PathNet Helix, 177
control, 245
management skill, 219
organizational, 1819
resistance to, 1718
strategy, 19
theory, 3
CHI. See Consolidated Health Information initiative
Chief information officer (CIO), 22425,
Chief technology officer (CTO), 23031
Christensen, C., 262
Chromosomes, 173, 174
Chronic care
case study, 54, 55
services, 12729
Chronic heart failure, 154
CIO. See Chief information officer
Claims processing, 28586
Cleveland Clinic, 139
Clinical Bioinformatics Ontology (CBO),
Clinical business model, 283
Clinical decision making
clinical guidelines, 6367
clinical process and, 25
corporations role, 71
external influences, 6364
genomic information integration, 16,
information strategy, 6271
internal guidelines, 62
prepackaged, 181
rules-based, 6566
structural differences, 3738
tools, 62
variation in, 5657


Clinical encounter, 12, 6364

Clinical genetics, 17475, 176
Clinical guidelines, 6367
Clinical information networks, 28283
Clinical Laboratory Improvement Amendments, 176
Clinical orders, 180
Clinical outcome
accountability for, 5254
corporate accountability for, 5355
enterprise strategy, 4243
measurement, 5455
reporting, 5455
standardization of, 5962
Clinical pathways, 6771
Clinical pedigrees, 18485
Clinical performance, 5559
Clinical practice, 7172
Clinical process
accountability for, 52
automation, 56, 12
business process alignment, 1517
case study, 54, 55, 58
complexity of, 68
cross-functional interaction, 38
explanation of, 6768
future focus, 13
improvement, 13, 57
informatics application, 28
institutional perspective, 1112
integration, 1213, 1517, 2021
IT systems, 17
management of, 36
medical informatics, 44
organizational commitment, 16
organizational strategy and, 2728, 37
patient perspective, 1314
redesign, 1415, 18
standardization of, 5962
structural issues, 36, 38, 6871, 7273
transformation, 6, 1115, 21
viewpoint, 16
Clinical strategy
alignment of, 38, 7174
changes in, 5153
for chronic care, 12930
collaborative networks, 130
competitive advantage and, 80
customer-focused goal, 88
enterprise strategy and, 33

influence on, 37
integration of, 3839, 5362
IT support, 4344
organizations view, 38
restructure of, 45
transformation of, 72
Clinical support services, 12, 38, 44
Clinical systems, 2034
Clinical work processes, 8, 9
Clinician information, 18385
CMS. See Centers for Medicare & Medicaid Services
Cocreation of health experience, 132,
133, 134, 143
Code of Federal Regulations, part 11, 176
Coevolution, 138
Coherence mechanism, 13839
Collaboration, 11
Collaborative networks, 130, 131
Collaborative systems, 128, 129, 131
College of American Pathologists, 176,
Commercial anatomic pathology system,
Commercial insurance, 124, 125
Commitment-based culture, 87
Commitment-based management, 9395
support structure, 38
and knowledge, 9394
Community health network, case study,
128, 129, 131
Community informatic resources, 152
Competitive advantage
increasing, 9495
information resources and, 8485
resource utilization and, 84
strategy alignment and, 80
Competitive strategies, 125
Complex adaptive systems, 13839, 144
Comprehensive Planning Act, 125
Computer access, 244
Computerized physician order entry
benefits, 204
genomic information, 183, 184
value of, 197
value mapping, 206
of data, 24647




definition of, 240

e-health challenges, 15859
security program and, 242
Consolidated Health Information (CHI)
initiative, 27576
behavior, 122
communities, 27071
empowerment, 13137
informatics, 152, 166
value change, 132
Consumerism, 5759, 26971
Contingency planning, 25152
Control-based culture, 93
Controlled terminology, 1024
Core competency strategy, 127
Corporate accountability, 5559
Corporate practice of medicine, 38
Corporate restructuring, 53
importance of, 53
ownership, 53
role of, 53
evaluation of, 21617
identification of, 21416
intangible, 216
tangible, 216
Cost-based reimbursement, 64
CPOE. See Computerized physician order
Credit cards, 3
Criticality assessment, 24748
Critical Path Method, 229
Cross-functional integration, 38, 92
Crossing the Quality Chasm, 267
CTO. See Chief technology officer
Cultural values, 139
Culture, 39
Customer relationship management, 90
Customers, 23435
Customization, 13435
Cystic fibrosis, test device, 155
Cytogenetics, 174, 175
Dartmouth Atlas of Health Care, 56
confidentiality, 24647
controlled terminology, 1024
definition of, 100

interchange, 101
interoperability of, 1046
loss, 247
misuse, 247
ontology, 103
ownership, 159, 247
privacy, 159
processing, 5, 9
security of, 245
standards, 27475
warehouse, 181
Database, 177
Davenport, T.H., 108, 109
DeBakey, Michael E., 289
De Long, D.W., 108, 109
Decision making, informed, 136
Decision support, 181, 185, 197
Deoxyribonucleic acid (DNA), 173, 175,
Department management, 226
Diabetes Care Management Support System, 157
Diabetes management, 54, 55, 58, 65
Dialectical change, 263
DICOM. See Digital Imaging and Communications in Medicine
Digital divide, 16263
Digital Imaging and Communications in
Medicine (DICOM), 276
Digital technology, 122, 136
Direct accountability, 54
Direct payback, 21213
Direct-to-consumer genetic testing,
Discount rate, 216
Disease management, 15657
Diversification, 53, 126
DNA. See Deoxyribonucleic acid
Double-loop learning, 3, 144
Drug development, 17879
Drug-gene interactions, 182
Dual structure, 37
Dynamic interactions, 138
Earl, M.J., 39
Economic value added (EVA), 206
explanation of, 21011
hurdle rates, 216
sensitivity analysis, 217
Economies of scale, 9


acceptance, 16364
access, 16263
accessibility issues, 16061
case study, 150, 151
challenges, 15861
confidentiality, 15859
cost, 163
definition of, 150
development guidelines, 165
disease management, 15657
future considerations, 16466
home-based applications, 15256
implications, 11920
outcomes, 161
patient empowerment, 15051
peer-to-peer applications, 15758
portable monitoring device, 154
privacy, 15859
processes, 16162
reimbursement issues, 15960
sensors, 15455
smart homes, 15556
success factors, 16164
telemedicine, 151, 15354
videoconferencing, 154
Electronic medical record (EMR), 58
cytogenetic image integration, 175
genomic medicine and, 180
strategy, 13
valuation case study, 199, 200
Elger, G., 155
Empowerment model, 15051
EMR. See Electronic medical record
Enabling technology, 2, 46
Enterprise strategy
alignment of, 38
business process outcomes, 37
changes in, 34, 45, 119
clinical orientation, 36
clinical outcomes as, 4243
definition of, 27
development of, 35
direction of, 38
explanation of, 33, 35
focus of, 42
goal of, 35, 80
information as, 35
information strategy and, 39, 41
IS development and, 40

IT and, 4243, 8081, 198

systems-based approach, 35
Entry terms, 103
Environmental analysis, 144
Environmental Protection Agency, Substance Registry System, 276
Ethics, 239
European Protection Data Directive, 242
European Union, 157
EVA. See Economic value added
Evolutionary model, 263
Executive management, 22526
Explicit knowledge, 107
Extensible markup language (XML),
Extraorganizational relationships, 130
Eysenbach, G., 152
FDA. See Food and Drug Administration
Federal Employees Health Benefits Program, 266
Fee-for-service reimbursement, 64
Feste, C., 151
Financial incentives, 64
Financial issues, 2
Financial management, 9
Financial sectors, 3
FISH. See Fluorescent in situ hybridization
Five pillars of benefits realization, 212
Fluorescent in situ hybridization (FISH),
Food and Drug Administration (FDA),
154, 182
French Bertillon classification system, 61
Friedman, R.H., 154
Fuerst, W.L., 95
Functional design, 72
Functional limitation, 16061
Functional organizational model, 89
Furugren, B., 155
Gartner Group, 212
Gatekeeper, 126
Gene Tests directory, 183
Gene therapy, 178, 179
clinical, 17475
infections disease, 176
molecular pathology, 175
overview, 17376




Genetics Home Reference, 183

Genome sequence, 17879
Genomic information, 16, 62
Genomic medicine
applications, 120
case study, 173, 174
clinician informat