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Abstract

Objective: To study how hospitals and their diagnosis and treatmentsupplies relate to each other, analyzing if they have market relations orbehave as networks of organizations. Furthermore, the study tries toset the consequences of such relation in terms of access to knowledge,learning and innovation. Methods: A multiple case study performedat four top large private hospitals in São Paulo (Brazil), involving theiroutsourced laboratory, imaging and hemotherapy services. Individualinterviews were conducted with managers and owners of bothorganizations (hospitals and vendors) using semi-structured questionsto ascertain selected independent and dependent variables. The analysisused pattern-matching techniques. Results: The study demonstratedthey behave as networks. There are standard and complex interactions,with mutual exchange of knowledge and learning. There is strategic andoperational collaboration to find solutions, generating new products andservices and implementing new technologies. The relationships are longstandingand actions are interdependent. It is not a typical client-supplierinteraction neither a characteristic expression of hierarchy. Conclusion:the present paper can provide useful information to prepare a quantitativeresearch tool; based on this information, it is possible to estimate theadequate size of a representative sample.
einstein. 2007; 5(1):10-15
10 Veloso GG, Malik AM
ABSTRACT
Objective: To study how hospitals and their diagnosis and treatment
supplies relate to each other, analyzing if they have market relations or
behave as networks of organizations. Furthermore, the study tries to
set the consequences of such relation in terms of access to knowledge,
learning and innovation. Methods: A multiple case study performed
at four top large private hospitals in São Paulo (Brazil), involving their
outsourced laboratory, imaging and hemotherapy services. Individual
interviews were conducted with managers and owners of both
organizations (hospitals and vendors) using semi-structured questions
to ascertain selected independent and dependent variables. The analysis
used pattern-matching techniques. Results: The study demonstrated
they behave as networks. There are standard and complex interactions,
with mutual exchange of knowledge and learning. There is strategic and
operational collaboration to find solutions, generating new products and
services and implementing new technologies. The relationships are long-
standing and actions are interdependent. It is not a typical client-supplier
interaction neither a characteristic expression of hierarchy. Conclusion:
the present paper can provide useful information to prepare a quantitative
research tool; based on this information, it is possible to estimate the
adequate size of a representative sample.
Keywords: Outsourced services; Telecommunication network;
Hospitals; Diagnostic services
RESUMO
Objetivo: Estudar como se dão as relações entre hospitais e empresas
de apoio diagnóstico e terapêutico, averiguando se são relações de
mercado ou se apresentam comportamento de redes. Além disso,
busca-se definir as conseqüências do tipo de relação para o acesso
a conhecimento, aprendizado e inovação. Métodos: Realizou-se
estudo de casos múltiplos em quatro hospitais privados de grande
porte, considerados “de excelência”, no município de São Paulo, em
seus serviços de diagnóstico por imagem, laboratórios de análises
clínicas e bancos de sangue. Procedeu-se a entrevistas para obter a
percepção de executivos e proprietários das organizações (hospitais e
empresas prestadoras de serviços) quanto às variáveis do modelo da
Teoria das Redes. A análise utilizou a técnica de adequação ao padrão.
Modern hospitals are networks of organizations
Hospitais modernos são redes de empresas em colaboração
Germany Gonçalves Veloso1, Ana Maria Malik2
Study carried out at Fundação Getúlio Vargas – FGV, São Paulo (SP), Brazil.
1 Master’s degree in Business Administration, Fundação Getúlio Vargas – FGV, São Paulo (SP), Brazil.
2 PhD. Faculdade de Medicina da Universidade de São Paulo – USP, São Paulo (SP), Brazil.
Corresponding author: Germany Gonçalves Veloso – Rua Maria Figueiredo, 249 – ap. 64 – Paraíso – CEP 04002-001 – São Paulo (SP), Brasil – Tel.: 11 3262-4991 – e-mail: germanyveloso@hotmail.com
Received on Oct 12, 2006 – Accepted on Nov 30, 2006
Resultados: O estudo demonstrou que as organizações apresentam
características de redes. Existem interações padronizadas e complexas,
com troca de conhecimento e aprendizado mútuo. Há evidências de
que ocorre colaboração, operacional e estratégica, para geração de
soluções, criação de novos produtos ou serviços e para implementação
de novas tecnologias. As relações têm longa duração e as ações são
interdependentes. Não são uma típica interação cliente–fornecedor de
mercado, tampouco representam uma expressão típica da hierarquia.
Conclusão: O presente trabalho pode gerar informações úteis para a
confecção de um instrumento de pesquisa quantitativo e, a partir das
informações contidas neste trabalho, pode-se também agora estimar
um tamanho adequado para uma amostra representativa.
Descritores: Serviços terceirizados; Rede de telecomunicações;
Hospitais; Serviços de diagnóstico
INTRODUCTION
According to Powell et al.(1), companies in several sectors
are carrying out almost all production process steps using
some type of external cooperation.
Several Brazilian(2-3) and foreign(4-6) authors have shown
the dissemination of outsourcing practices in hospitals.
In the Southeastern region of Brazil, it already surpasses
support and general services and comprises areas such as
professional and technical health services(2). This trend
can also be seen in USA; there, compared to other sectors,
healthcare area presents a high rate of outsourcing(5).
In regards to outsourcing of diagnostic and therapeutic
support services (DTSS) of hospitals in Brazil, it was
verified that in the Southeastern region of Brazil, 39% of
hemotherapy, 63% of laboratory, 38% of radiology, 61.4%
of computerized tomography (CT) and 70.2% of magnetic
resonance imaging (MRI) services were outsourced(2).
On the other hand, Jarillo(7) stated that one way to
efficiently compete is creating strategic networks, that
is, long-term volunteer arrangements among distinct
ORIGINAL ARTICLE
einstein. 2007; 5(1):10-15
11Modern hospitals are networks of organizations
but related organizations, which aim at profit and enable
these organizations to gain or maintain competitive
advantages in regards to competitors, by optimizing the
operational costs and minimizing coordination costs.
According to Powell et al.(1), when the knowledge
base of an industry is complex, and expanding, and,
furthermore, the sources of expertise are dispersed, the
loci of innovation will be found in learning networks, and
not in individual companies. When there is a regime of
fast technological development, scientific findings are so
broadly distributed that no single company has all the
internal qualification needed to be successful(1).
Perspective of network of organizations
Based on the literature, we can say that Coase(8), in his
article “The Nature of the Firm”, ruptured the idea that a
company is like a “black box”. The key insight presented
by Coase is that companies and markets are alternative
ways to organize transactions(9).
Williamson(10-11) resumed Coase’s work, including theory
of organizations, history of business and legal aspects.
The author concluded that in order to organize recurring
transactions, which involve uncertainty or high specificity,
hierarchy has priority over the market. The reasons for this
option would be related to limited rationality of the agents
and the need to deal with the trend towards opportunism.
Despite the advances on the concepts, this perspective
sees the company separated from the market, and, in a
broader sense, from the social context itself(9). In many
cases, however, the company boundaries become fluid
and new kinds of collaboration appear, different from the
market and from hierarchy. Some researchers responded
to these changes proposing a market-hierarchy continuum,
presenting intermediate hybrid arrangements(9).
Powell(9) was one of the pioneers in discussing hybrid
models, but understood them as inexact, static, limited,
and do not help to explain several feasible ways of
cooperation. The idea of transactions taking place in a
continuum is very mechanical and fails to capture the
complexity involved in exchanges.
Other authors stated that the markets can not be
isolated from the social structure and emphasize that
economic activities are immersed in social relation
structures, even questioning if the division between
market and hierarchy is useful in certain situations(12).
Others showed the existence of a combination of several
exchange forms, which originate mixed arrangements:
dominance and hierarchy elements in contracts,
introduction of market processes into companies, such as
transfer pricing, compensations based on performance;
much of the behavior observed in the companies does
not seem related to vertical integration logics(9).
The new way to describe and analyze organizations
proposed by theorists of networks of organizations
emphasizes, therefore, that some exchanges depend
more on cooperation, relationship, mutual interest and
reputation. Chart 1 summarizes the main differences
between market, companies and networks, according
to Powell(9).
Chart 1. Comparing economic organization forms
Characteristics Forms
Market Hierarchy Network
Normative base Contract – Employment Complementary
Ownership right relation forces
Communication media Prices Routines Relationship
Method to solve conflicts Courts Supervision Rules of
reciprocity-
reputation
Flexibility level High Low Medium
Commitment Low Medium to high Medium to high
between the parties
Environment Precision / Formal/ Open/
suspicion bureaucratic mutual benefits
Choice of players Independent Dependence Interdependence
Mixed forms Repeated Informal
transactions organization
Contracts as Transfer pricing Multiple partners
hierarchical documents Business units Formal rules
Source: Powell WW(9).
Looking at organizations, it is possible to observe that
their essence, internally seen, is cooperation. Without
it, there would be no organization. Actually, in activities
in which people do not need to cooperate, there are no
organizations. When the objective requires coordinated
efforts by many people, probably supported by investment
of capital, the organizations are present. While
cooperation seems to be the essence of relationships
within organizations, competition seems to be the essence
of inter-organizational relations, in the dominant point
of view(7). However, this frontier between cooperation
and competition does not necessarily have to coincide
with the company legal boundaries. It is possible to have
cooperation among companies and competition inside
them. Actually, we are talking about two dimensions that
cross each other(7).
Another way to consider learning in collaboration
among companies is when learning is perceived as
connected to the conditions in which the process
occurs. Learning is created in a context of community.
A formal organization, with its bureaucratic rigidity, is a
poor vehicle for learning. Sources of innovation are not
exclusively inside the companies. On the contrary, they
are usually found in the interstice among companies,
universities, laboratories, suppliers and clients(1).
einstein. 2007; 5(1):10-15
12 Veloso GG, Malik AM
OBJECTIVE
This study aims to address how hospitals and different
DTSS companies relate to each other, analyzing if
they have market relations or behave as networks
of organizations. Furthermore, it tries to define the
consequences of such relationship in terms of access to
knowledge, learning and innovation.
METHODS
The study explores variables linked to outsourcing at
hospitals and searches for associations existing among
variables selected in the literature (independent variables)
and inter-organizational structures adopted in the DTSS
of private hospitals (dependent variables). The Theory
of Networks was used as a theoretical reference.
The investigation was conducted in an intentional
sample of four private hospitals (two profit and two non-
profit organizations) that are considered of excellence,
in the city of São Paulo. The DTSS were selected to
be analyzed because they have recently gone through
outsourcing, have remarkable technology and employ
intellectual capital. Within the DTSS, we chose services
with higher volume of procedures: clinical analysis
laboratory, imaging and hemotherapy services. Each of
theses services was studied at the four hospitals, totaling
twelve services.
Data collection aimed at objective data and perception
of executives and owners of organizations (hospitals and
companies) about independent and dependent variables
of the Theory of Networks. The referential concepts were
operationalized as described in chart 2. The data collection
techniques were: (1) semi-structured interviews based on
the theoretical referential variables; (2) analysis of reports
and contracts and (3) direct observation.
Nineteen interviews were conducted, totaling 9 hours
and 36 minutes of interviews recorded, lasting, in average,
32 minutes each. The recordings were transcribed before
the analysis. Whenever possible, we tried to interview
Chart 2. Operationalization of variables used in the study
Teorethical constructs Study variables
Uncertainty Variability of processes and results
Uncertainty
Importance of relation Number of other clients of the company
Percentage of company revenue
Percentage of hospital revenue
Technological evolution Technological evolution of products and processes
Demand for speed Demand for speed
Contract detailing Specification of products and services
Amounts and terms
Evaluation indicators and penalties
Incentives Participation in results
Communication Frequency of contacts
Informality
Conflict resolution Conflict resolution
Frequency of relations Frequency of contact of employees of different
organizations
Frequency of contact with the board
Flow of information Information exchange among employees
Information exchange with the board
Participation in strategic meetings
Term of contracts Term of contract
Control Personnel management
Hiring forms
Chart 3. Empirical observations of the Theory of Networks variables in laboratories at the hospitals studied
Variable Hospital A Hospital B Hospital C Hospital D
Uncertainty Medium Medium Medium Medium
Importance of relation Single client of Strategic client of Single client of Laboratory has other clients
the company the company. in hospital group the company and outpatient care
Technological evolution High High High High
Contract detailing Recent contract Old contract Old contract Details on terms
Pro-forma Few details Few details
Participation in results Yes No No Not disclosed
Communication Informal Informal Routine Routine
Conflict resolution Through administration Through administration Through administration Through administration
Frequency of relation and Horizontally high Horizontally high Horizontally high Horizontally high
flow of information Participation in strategic meetings
Term of contract 12 years 28 years 8 years 3 years
owners or directors of the organizations (ten were owners
and the others were directors or managers) and long-term
employees of the companies (twelve had been working
for the organizations for over five years), based on the
presumption that they would be more knowledgeable in
regards to the organization.
RESULTS
The presentation form chosen was one indicated by
Yin(13) for reports of multiple case studies. It consists
on crossed assessment of each aspect or variable in all
cases (charts 3-5). Chart 6 shows the adaptation of the
Theory of Networks to outsourced services at the studied
hospitals.
einstein. 2007; 5(1):10-15
13Modern hospitals are networks of organizations
Chart 4. Empirical observations of the Theory of Networks variables in imaging services at the hospitals studied
Variable Hospital A Hospital B Hospital C Hospital D
Uncertainty Medium/high Medium Medium Medium
Importance of relation 20% of the company revenue. Single client of the company Outsourced workers Company has its
Single supplier in the hospital group are autonomous own clinic
Technological evolution High High High High
Contract detailing It does not have. Completely verbal Not much detailed. Not much detailed Not much detailed
Very old
Participation in results Yes (50%) Not disclosed No No
Communication Informal Informal Routine Routine
Conflict resolution Through administration Through administration Through administration Through administration
Frequency of relation
and flow of information Horizontally high Horizontally high Horizontally high. Participation in Horizontally high
strategic meetings
Term of contract 12 years 28 years Several contracts: from years to months 15 years
DISCUSSION
Pattern-matching approach was used as specific analytical
strategy. For Yin(13), this is one of the most desirable
strategies to increase the internal validity of findings.
This logic compares an essentially empiric pattern with
another based on prediction. The study analysis concern
was with the overall pattern of results and with the level
in which the pattern was adjusted to those described.
For all interviewees uncertainty was considered avera-
ge. In all sectors, the demand for speed was considered
high, according to the respondents. The requirement for
intensive knowledge was considered true. It is a field in which
professionals have long-lasting education. Permanent training
Chart 5. Empirical observations of the Theory of Networks variables in blood bank/transfusion services at the hospitals studied
Variable Hospital A Hospital B Hospital C Hospital D
Uncertainty Medium Medium Medium Medium
Importance of relation Company has 12 clients. Company has 12 clients. Company has another Single client of the company
This ranks fourth in revenue This ranks third in revenue. hospital as client
Group has other supplier
Technological evolution High High High High
Contract detailing Not much detailed. Standardized Not much detailed Clauses on quality control Not much detailed
Participation in results No No No No
Communication Routine Routine Routine Routine
Conflict resolution Through administration Through administration Through administration Through administration
Frequency of relation and Horizontally high Little communication Horizontally high. Horizontally high
flow of information Participation in strategic meetings
Term of contract 15 years 10 years 3 years 15 years
Chart 6. Adjusting the Theory of Networks to outsourced services at the
studied hospitals
Characteristic Description Mechanism of
governance
Normative base Old contracts, with few details. Market/Network
Pro-forma contracts.
One service has no contract
Communication media Structured in routines, Hierarchy/Network
but requires frequent interactions
Frequency of interaction Horizontally high Hierarchy/Network
Conflict resolution Through administration Hierarchy/Network
Flexibility Contract/agreements between companies Market/Network
Commitment Sharing objectives Hierarchy/Network
Preference of players Interdependence Network
and updating are required, in addition to much effort to
follow up literature, even if only on the sub-specialty. Services
require capital investment – some, not even that –, but they
would not exist without qualified manpower.
In the services investigated, in general, the product
evolution cycles were defined as high evolution speed (2
or 3 years, according to some comments). The process
evolution cycles (medical procedures), as medium-high
speed (a little slower than that of products, as commented).
This technological assessment is considered comparable
to medium-high evolution speed industries.
It was stated that the conflicts were always solved
through the administration and through talks and, so
far, never by legal means. That is a characteristic of
the hierarchical governance mechanism. An evidence
of a typical market conflict solving would be reporting
the use of the legal system to solve any dispute, which
would certainly be an embarrassing statement. Another
evidence of conflict solving typical of networks would be
a normative sanction on behalf of other market players,
something that is possible but that was not found in this
study. The way of solving conflicts was thus assessed,
despite the doubts regarding the power of evidence
obtained in the interviews.
Contracts are the normative base of the relations, in
most cases. At Hospital A, where the relation between
hospital and laboratory has lasted 12 years, until recently,
einstein. 2007; 5(1):10-15
14 Veloso GG, Malik AM
there was no contract; in the imaging service, in place for
12 years, there is no contract. Contracts are typical in
market relations, but their detailing is more characteristic
of this type of governance. Most contracts analyzed were
old and without details, except for the most recent ones,
with the laboratory at hospital D and the hemotherapy
service at hospital C, which contain a few details on terms
of assessment criteria.
The degree of commitment can be infered by the level
of interest shared between both parties. The demand for
the hospital directly influences the results of companies,
which therefore are interested in increased number of
patients seen at the hospital. The hospital success in
several dimensions, such as treatment effectiveness and
image in the market, and it depends on and benefits
both parties. In two cases there is participation in results.
Network of organizations are characterized by medium
to high level of commitment between the parties.
When the question was about relationships, in
eight situations the respondents answered that it was
characterized by routine (one of the most typical features
of a hierarchy): hemotherapy and imaging services at
hospital D and the laboratories at hospitals C and D.
The frequency of interaction between the parts (both
lateral with physicians and employees, and vertical,
with the board, as well as participation in hospital
strategic meetings) was defined as intense, especially
horizontally. It was reported in almost all services
that communication is necessary for good outcome
of some patients, especially in the most severe cases.
There is a large number of “exceptions” in regards
to what are considered regular cases. Some cases are
unique in their characteristics and severity, requiring
non-routine techniques to reach a conclusion and
interaction between the hospital and the company teams
for exam indication and interpretation. Some require
combined follow-up for longer periods, as in the cases
that need hemotherapy procedures. Besides, hospital
physicians frequently consult service professionals
about indications and details of exams. There is also
lateral communication to solve administrative matters,
such as collection of accounts and invoicing. Some
respondents said that there are members from almost all
companies taking part at hospital technical committees,
management projects, and, in a few cases, in strategic
meetings (vertical communication).
Some services give support to hospital or even
participate with it in negotiations with payers. They
exchange knowledge in both technical and administrative
fields. In the technical field, there are symposia with
professionals from companies and hospitals, as well
as daily interaction that provide exchange of new
information on procedures and indications. Some
companies maintain an institutionalized interaction
channel, such as in one case in which a customer call service
(toll free) was set up for consultations with laboratory
specialized physicians. They also share knowledge and
learn together in the administrative field. Due to proximity,
hospitals and companies keep in touch with the philosophy
and administration routines of each other. Some examples
were given, such as when a hospital learns from the company
about ways of optimizing collection from the payers.
Interaction has also proven itself necessary when
launching new products. Not only did the companies
incorporate new technologies and presented them to
hospitals, but also hospitals frequently launched new
products, such as new types of surgery or new procedures,
and, in order to make them feasible, required the
company involvement to plan and implement them.
Sometimes, the initiative was taken by the company itself,
which encouraged the hospital. In these cases, there was
massive exchange of strategic information on the market
requirements and feasibility of the venture. One of the
most complex examples is the case of implementation
of new types of organ transplant, that needed extensive
support, during all phases (pre-, trans- and post-
operative) of the DTSS. In another hospital, there were
plans involving both parties to establish an umbilical cord
blood bank using stem cell freezing techniques.
It was concluded that the services studied presented
all four characteristics needed for establishing a network
of organizations. However, the confirmation that the
network of organizations was created can only be made
through dependent variables, which are characteristic of
the governance mechanism. It is observed that in services
there are routine and standardized exchanges and other
more complex interactions, generating knowledge
exchange among the parties and enabling learning and
possibility of innovations. In general, the relations last
long and the actions are interdependent.
Therefore, it is observed that the variables present
characteristics that are intermediate between the
market, the hierarchy and the networks. Yet, according
to some authors, many of these characteristics are
not exclusive. For instance, networks can use legal
sanctions available in contracts and markets and
companies can use the normative sanctions by means
of relationships and social communication(14). Taking
these considerations into account, we concluded that
the model of organization network offers a structure
with descriptive power for the phenomena observed
in all services and in each one, at least partially. Many
exchanges do not depend on controls (hierarchy) or on
a competitive dynamics to ensure their effectiveness.
Part of effectiveness depends on a non-standardized
interaction between both sides.
einstein. 2007; 5(1):10-15
15Modern hospitals are networks of organizations
The study showed that the organizations present
network features. There are standardized and complex
interactions, including knowledge exchange and mutual
learning. There is evidence indicating operational and
strategic cooperation to generate solutions, create new
products or services and implement new technologies.
These configurations represent change compared to what
was observed in the beginning of 1990’s.
The findings of this study confirm some speculations in
the literature. Some authors have already stated that some
hospital products (diagnoses and treatments) are unique,
physicians depend on non-routine techniques to solve
special cases, and the resulting diagnoses and treatments
necessarily depend on intuition and experimentation. The
networks provide learning of new patient care routines and
practices, sharing of knowledge on health problems and
discussion on the complementarity of service provision. All
these changes represent organizational learning processes,
in which interaction between persons from different
organizations affects routines and practices that exist in
each one of them(14).
The relation between the organizations inside the
hospital proved to have complex aspects. It is neither a
typical client-supplier market interaction, nor a typical
expression of hierarchy. There are several combinations
of control and ownership among the different services
and diverse hospitals. Hybridism and social immersion
co-exist. The decision is not only to outsource or not,
because defining how the relation will be is an important
part of the solution.
Upon conclusion of this study, it is possible to point
out a few limitations. First, there were few interviews per
organization. Only two members of each hospital (one
from the clinical area and one from administration) and
one executive or owner of the company were interviewed,
in order to carry out a study with better external
validity, and limited resources. Furthermore, they were
considered key informants in their organizations, hence
capable of providing qualified information. Therefore,
the validity of the constructs involved in the research was
not considered affected.
CONCLUSION
A few lines of research can be derived from this study.
We highlight some possibilities, such as to conduct more
accurate studies to test the same hypotheses. In this case,
the present study can generate useful information to
prepare a quantitative research tool, such as a Likert scale
questionnaire. For this line of research a considerably
larger sample of hospitals will be required, but based on
information provided in this study, it is also possible to
estimate the appropriate size of a representative sample.
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Economic theory has suffered in the past from a failure to state clearly its assumptions. Economists in building up a theory have often omitted to examine the foundations on which it was erected. This examination is, however, essential not only to prevent the misunderstanding and needless controversy which arise from a lack of knowledge of the assumptions on which a theory is based, but also because of the extreme importance for economics of good judgment in choosing between rival sets of assumptions. For instance, it is suggested that the use of the word “firm” in economics may be different from the use of the term by the “plain man.” Since there is apparently a trend in economic theory towards starting analysis with the individual firm and not with the industry, it is all the more necessary not only that a clear definition of the word “firm” should be given but that its difference from a firm in the “real world,” if it exists, should be made clear. Mrs. Robinson has said that “the two questions to be asked of a set of assumptions in economics are: Are they tractable? and: Do they correspond with the real world?” Though, as Mrs. Robinson points out, “more often one set will be manageable and the other realistic,” yet there may well be branches of theory where assumptions may be both manageable and realistic.