Hospital Management Decision-Making

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This case study analyzes managerial decisions made by the nonprofit organization Interwest Healthcare related to inadequate recordkeeping and incomplete or inaccurate data entry. The chief financial officer, Vijay Singh, convinced the chief executive officer, Cynthia Manzoni, which the errors in recordkeeping made by the staff of the organization’s 10 hospitals—specifically, errors in the data entry of information relating to patient admittance, treatment, and discharge—could affect the long-term financial stability of the organization. The hospital will make important decisions based on the faulty information and the government will determine grant money by using audits of the data. It is noteworthy that Singh reports directly to Manzoni, as do the hospital administrators who supervise the hospital staff. Manzoni orchestrated a retreat during which the key players discussed changes that would need to be made in order to correct the issues. Though discussions were heated, Manzoni thought the administration committed to improving the process. Six months later, the CFO alleges there has been no such improvement.

There are several potential sources of the problem, and an analysis of the sources would enable the organization to adequately determine effective and efficient solutions. First, in misunderstandings between personnel, there is often information asymmetry. It could very well be the case that all of the possible consequences of the problem haven’t been satisfactorily communicated to the different players. Do the employees clearly understand the effects of deficient recordkeeping? Has there been a discussion about losing government grants as a result of the errors or gaps in data? If there is not a clear understanding among the staff of the probable consequences of the faulty information, this can easily be remedied with a discussion about probable financial effects to the organization as a whole.

Imperfect information sharing can also relate to information that needs to go up the pipeline to management from the employees. In this situation, there might be an information gap related to the data entry process, itself, that hasn’t been addressed. For example, it’s possible that there is a glitch in the software that needs to be addressed. If the staff enters the information properly but the software subsequently loses the information, then focusing on behavioral modification of the staff is a pointless and wasteful exercise. If the software is difficult to navigate but additional training will speed up the process, then requiring or incentivizing additional training might solve the problem. During the initial analysis of these issues, sunk costs—including the capital cost of the software—should not be a factor. Pragmatically speaking, sunk costs usually do figure into analyses by businesses, but if the software is the problem, the organization can factor in the economic benefits of transitioning to a more efficient system over time.

If the problem isn’t one of information sharing, it’s possible that the negative consequences haven’t been properly tied to the performance of the employees in question. Creating incentives or disincentives specific to the tasks at hand and the personnel that enter the data might alleviate the issues. While this sounds simple, even proponents of a straight economic analysis in management would have to concede that it is difficult to implement when taking human nature into consideration.

Additionally, the current organizational structure could lead to a disconnect between the goals and focus of the CFO and the goals and focus of the administration and staff of the individual hospitals (Lazear, 2000, pp. F613-F614). There are several different possible solutions to this issue.

Finally—and possibly related to the former source—there seems to be inadequate follow-through. If the CEO has truly bought into the CFO’s argument that there is a real and serious problem, then she has either failed to communicate her support or her implementation is inadequate. Because the administrators report directly to her and not to the CFO, if there is no change in organizational structure, she must find a way to hold the administrators and staff accountable for the changes she demands.

In order to properly determine what steps the organization should take to remedy the problem, a determination of the source(s) of the problem is required. Interviewing the key players—including Singh, Manzoni, administrators, and staff members—might lead to a speedy determination of the issue at hand.

It’s possible that interviews of the key players will indicate the type of data that should be analyzed. If certain players are unconvinced the issue is a real threat to the financial health of the organization, data should be obtained from Singh that shows potential lost revenue and likely consequences.

Comparing data between hospitals, staff members, and shifts to drill down to problems in the process, itself, could be helpful. For example, is data missed most often at expected times, such as during peak hours or during graveyard shifts?

An obvious explanation for the problem might be that assessments of hospital administration and staff might be based more on consumer satisfaction than on financial considerations. Often, patients are happier if their processing times are shorter. Thus, there might be an incentive for a staff member to keep the patient moving quickly—even at the expense of data accuracy. When there is an evaluation of a staff member, if it is based primarily on patient satisfaction, then there may be a disincentive to engage in activities that will prolong the patient experience if it will increase the likelihood of dissatisfaction and complaint. A logical, risk-averse employee would rely on the fact that patient satisfaction is considered during evaluations and think it in their best interest to keep patients happy at the expense of accurate recordkeeping.

If there seem to be inadequate incentives or consequences tied to careful and complete data entry, then consideration should be given to the effect certain incentives might have on the employees. For example, proponents of the economic analysis school of thought in management might recommend that employee contracts be tied directly to data entry metrics (Lazear, 1998, p. 214). One should remember, however, that data entry is only one part of the job function of the hospital staff members. Because there are so many different job functions and requirements, careful consideration should be given to whether or not adding contract specifics related to data entry will provide the incentives needed to get the best possible performance out of employees (Lazear & Oyer, 2009, p. 5; Holmstrom & Milgrom, 1994, p. 973). Patient satisfaction is related to the reputation of the hospital, which is directly related to the success of the hospital. Economically incentivizing complete data entry might lead to staff taking much longer with patients, thus undermining patient satisfaction and the reputation of the hospital. Tying data entry to salary might undermine employee morale and lead to employees taking less pride in their work. In fact, some experts say any or all of these outcomes might occur if contracts are tied too closely to specific quantitative economic outcomes (Lagace, 2003, April 14, p. 1).

Using data entry metrics as one aspect of a subjective performance evaluation might be a more effective method of ensuring employee compliance (Prendergast, 1999, p. 9; Lazear & Oyer, 2009, p. 6). If this method is implemented, communicating the change in expectations ahead of time and then following through during evaluations could be an effective implementation method.

In short, for this type of situation, it would be important to remember human nature when deciding upon ways to influence outcomes. Otherwise, an organization might end up with unintended consequences: as the best employees might leave for other organizations.


Holmstrom, B. & Milgrom, P. (1994). The firm as an incentive system. The American Economic Review, 84(4): 972-980.

Lagace, M. (2003). Pay for play doesn’t always pay off. Working Knowledge: The Thinking that Leads. Harvard Business School, 1. Retrieved from

Lazear, E. (1998). Personnel economics: Past lessons and future directions. Journal of Labor Economics, 17(2): 199-236.

Lazear, E. (2000). The future of personnel economics. The Economic Journal, 110(467): F611-F639.

Lazear, E. & Oyer, P. (2009). Personnel economics. Princeton University Press: Handbook of Organizational Economics.

Prendergast, C. (1999). The provision of incentives in firms. Retrieved from