Management Control Theory and Its Application to US Medical Practice: A Critical Review of Contemporary Literature and a Call for Research
Stewart, Louis J., Research in Healthcare Financial Management
This paper examines the management control practices and systems that are used by US physicians through a critical review of the existing literature. US physicians play a pivotal role in the national economy both as a service provider and economic agent (White 1999). Healthcare spending currently amounts to 13 percent of US GDP. Collectively, payments to medical practitioners amounted to more than 20 percent of total healthcare spending. More importantly, allopathic and osteopathic physicians, acting as their patients' agents, serve as the leaders of the service delivery team. By state law and tradition, their decisions determine the onset, type and extent of care that their patients receive. Physicians prescribe medication, order diagnostic tests, initiate hospital admissions, and make referrals to other providers for a host of other health care services. As a result, physician behavior has a profound impact on both the overall cost of care as well as the quality of care.
Historically, US physicians practiced medicine as sole practitioners or members of small partnerships. Consequently, there were only weak organizational influences on physicians' practice behavior. Philanthropic hospitals typically offered them free access to the technological infrastructure of modern medicine without imposing an employment relation or any other type of formal contract. Noncompetitive fee for service payments from private insurance companies and government agencies provided physicians with a comfortable income without oversight of insurers or regulators. As a result their behavior was constrained only by personal ethical standards, peer oversight, public sector regulation, and the fear of occasional litigation (Robinson 1999). However, dramatic changes in health care markets and clinical technology in the last ten years have motivated many US physicians to form and join larger organizations (Burns 1999). By 1994 the proportion of physicians in solo practice fell to less than 30 percent (Kletke et al. 1996). Not only are physicians increasingly joining and forming larger group practices but many medical practices are being integrated into larger organizations as well. As physician behavior becomes increasingly influenced by organizational factors, academic researchers who are well grounded in the organizational behavior literature and field research methodologies will find many significant research opportunities in this field of inquiry. Specifically, this paper describes several areas for future research that are not yet fully explored in the contemporary literature.
1. MANAGEMENT CONTROL AND CONTINGENCY THEORY BASED CONTROL RESEARCH: A THEORETICAL FRAMEWORK
Large complex organizations are a central feature of the contemporary US economic landscape. These organizations marshal considerable financial resources to harness modern technology and coordinate the activities of thousands of individuals to deliver goods and services to a global market place. An organization's leadership will use their management control activities and systems to influence other members of the organization to implement their strategies and attain its goals (Anthony & Govindarajan 1998). As such, the management control function provides the link between the organization's enduring goals and long-term strategies and its day-to-day activities. For this reason an organization's management control function must be designed to operate in a systematic fashion if operating activities are to be efficient, effective, and contribute to its enduring objectives (Anthony & Young 1999).
A corporate culture, an integrated system of general and formal controls, and a system of compensation and incentives are the three primary components of an organization's management control system. Goffee & Jones (1996) describe corporate culture as a sense of community within an organization based upon shared values and mutual obligations. This sense of community, mutual obligations, and shared values gives meaning to the activities of an organization's members and provides them with the rules of behavior within their organization. …