The question is: In line with the implementation of the Affordable Care Act, how are the Contingency Theory and Resource Dependence Theory applicable to health care organizations? How can health care leaders apply strategic management to their organizations? Support your response with a minimum of two scholarly sources. Your initial post should be at least 300 words.
we specifically look at how the contingency theory described in Section 2.3 and the resource dependency theory described in Section 2.4 are applicable to the healthcare organizations; how health care leaders can apply strategic management to their organizations in response to the changes brought by the Affordable Care Act. Students are encouraged to share their own experience in healthcare with peers along with supporting materials from scholarly sources.
The healthcare environment has been increasingly complex, turbulent, and interrelated. Actual and potential opportunities and threats to a health organization’s existing market(s) must be identified and evaluated (Hitt, Ireland, & Hoskisson, 2013; Perrott, 2011). Today’s environment requires the healthcare leader to shape the organization as a dynamic organization that can rapidly initiate and implement strategic processes and respond quickly to strategic changes in the industry or to strategic processes of competitors in as short a period of time as possible (Perrott, 2011). Despite the fact that there is no a standardized strategic planning approach, Frates (2014) highlighted some common elements of strategic plans including a mission statement, a set of objectives, an action plan, a description of required resources, a monitoring mechanism, and an evaluation system.
Contingency Theory
Contingency theory posits that an organization’s structure depends on various aspects of its environment. These aspects, or contingencyvariables, include size, technology, geography, and degree of uncertainty (Diana & Olden, 2009). A closely related concept is the contingencyrelationship between strategy and structure, based on the idea that form follows function: Structure follows strategy. A significant change instrategy will therefore require a company to change its structure in order to successfully implement the strategy (Tompkins, 2005).
Organizations adapt to environmental changes such as the adoption of a new technology, a change in market dynamics, or new regulatorypolicies by altering their strategies. Structural changes therefore reflect changes in both the environment and organizational strategy.Managers must actively monitor the environment and be prepared to make changes in both strategy and structure. Mintzberg (1979a) arguedthat structure also influences strategy, especially in situations when the organization’s current form limits its ability to effect strategicchanges. Rumelt (1974) observed that organizations were often highly imitative of market leaders, so that often structure followed fashionmore than strategy, an idea that Mintzberg (1981) also echoed in his later writings.
Contingency theories of leadership evolved during the 1970s and 1980s as a means to understand what makes leadership effective in a groupor organization. Its focus is on the relationships between leaders’ attributes and behaviors in various situations or the environmental context(Seyranian, 2009). As environmental uncertainty increases, organizations employ strategies that may change their structural characteristics,such as the trend begun in the first decade of the 2000s for hospitals to employ physicians and health plans to purchase medical groups.Health organizations also cope with environmental uncertainty by strengthening their core technical functions and protecting their mainrevenue-generating processes. For example, the pharmaceutical industry was seriously threatened during the 2010 health reform debate bydemands for mandatory Medicare drug rebates similar to those imposed in Medicaid, as well as more liberal policies for reimporting drugsfrom other countries such as Canada. The drug manufacturing companies negotiated a deal for protection against such rebates andreimportation in exchange for an estimated $80 billion in reduced cost sharing for Medicare beneficiaries (“ObamaCare’s Secret History,”2012). This deal helped convert the ACA from a threat to a bonanza for the pharmaceutical industry: A 2013 analysis of the drug industryprojected that its market value will increase by one third in 2020 and that profits will increase by between $10 billion and $35 billion by 2023(Japsen, 2013).
Katz and Kahn (1966) emphasized that organizations, as open systems, must take in more resources from the environment than they emit tosurvive. Pfeffer and Salancik (1978) used the open systems model as the foundation for the theoretical framework they labeled the resource dependence theory. Like Katz and Kahn, they urged attention to the ecology of the organization; however, rather than stressing theorganization’s dependence on the environment, Pfeffer and Salancik explored how organizations respond to external constraints in ways thatenable them to adapt and survive. The key to organizational survival is the ability to acquire and maintain resources, which is made moredifficult as the organization becomes increasingly interdependent with the environment and the environment becomes more unstable. In alater work Pfeffer (1993) recommended that managers need to use power to achieve constructional goals in order to prevent its misuse bypeople less benignly motivated.
Since the publication of Pfeffer and Salancik’s seminal work, resource dependence theory has become one of the most influential concepts inorganization theory and strategic management to explain how organizations reduce environmental dependence and uncertainty (Hillman,Withers, & Collins, 2009). Resource dependence theory is highly applicable to hospitals and other health organizations that are stronglyinterdependent with an unstable environment. For example, many health plans participating in the new federal and state health insuranceexchanges established by the ACA are offering narrow provider networks in order to lower premium prices. The plans deliberately excludesome of the nation’s most prestigious hospitals and medical groups, especially those with academic affiliations, because they charge morethan other community providers. Excluded providers would potentially suffer significant revenue losses if patients newly insured through theexchanges were unable to seek care from them. Regulatory and elected officials in at least half a dozen states are pushing back against thehealth plans as exchange consumers complain that their new ACA insurance does not allow them to continue seeing their regular physiciansand receive treatment at their preferred hospitals, and excluded providers protest the threat to their livelihood. While in some areas theofficials and the plans have negotiated settlements, in others the fights have become bitterly political and generated lawsuits. The victors inthis struggle will be the organizations with the most political clout or the resources to mount a successful legal challenge (Hancock, 2013).
Stakeholder Demands
Organizational effectiveness in obtaining resources requires successful management of demands from its stakeholders or the interest groupson which the organization depends for its resources. The stakeholders competing for control of the organization’s resources also contributeto these resources and to the operation of the organization—as in the case of hospital medical staff physicians, who in most cases decide towhich hospital a patient will be admitted. Each stakeholder controls some resources and will seek to maintain control of them, as well as toleverage those resources to best serve its interests—as when hospital nurses insist on minimum nurse-to-patient staffing ratios or medicalresidents in teaching hospitals call for limits on the number of hours they work each week. Table 2.3 displays the major stakeholders of atypical hospital, the resources they control, and their principal concerns about the organization.
