Our nation is in the midst of a health care crisis that has been brewing for decades.

A defining feature of the crisis is the mounting cost of care. As compared to other developed nations, the U.S. spends roughly twice the average per capita share of GDP on health care — and yet the U.S. lags behind on measures of health care quality while access to care remains unaffordable for tens of millions of Americans. Americans experience this crisis acutely, and a recent poll shows that health care is set to be the most important issue in the upcoming 2020 presidential election.

Some scholars and commentators say that the problem stems from a business ethos that has pervaded medicine and disrupted the traditional physician-patient relationship. Contrary to this belief, a recent challenge faced by the health care system of our own university demonstrates that solutions to the health care crisis can come from embracing a growing area of business practice and ethics: stakeholder theory.

The UVA Medical Center’s Dilemma

The University of Virginia (UVA) Medical Center can take pride in the fact that its accomplishments frequently merit positive news coverage. In recognition of its high performance, UVA Medical Center ranks number one hospital in the state according to U.S. News & World Report’s 2019–20 Best Hospitals guide, and it has held that position for four consecutive years. Yet, last September, UVA Medical Center made headlines for an entirely different and regrettable reason. A study by Kaiser Health News, carried on the front page of The Washington Post, revealed that UVA Medical Center had the most restrictive financial assistance policy and the most aggressive collections practices of any hospital in Virginia. The effect of these practices had been devastating for many low-income patients, resulting in thousands of lawsuits against patients each year that even forced some families into bankruptcy.

The response from UVA Medical Center’s stakeholders was swift. UVA President Jim Ryan directed the head of the UVA Health System to change the billing and collections practices, launching an ongoing reform effort to identify new policies and procedures. More striking was the message from prominent UVA doctors published in an open letter expressing outrage at the practices they felt had caused them to violate their profession’s millennia-old oath to first do no harm. “We felt betrayed,” the doctors wrote, “and we had, by extension, betrayed those who had relied on us. We had harmed.”

Yet some doctors, including the head of the UVA Center for Health Policy, have recognized that medical practitioners have also contributed to the problem. They argue that in order to prevent harm to patients, doctors must think about the treatments that will be cost-effective as well as clinically effective.  According to a landmark 2010 study by the National Academy of Medicine, $210 billion is spent each year on unnecessary medical tests and treatments.

The Business Model vs. the Medical Model

When financial realities are ignored, the medical model can contribute to overtreatment as well as overly costly treatment from a patient perspective.1  When fiscal constraints are overemphasized and viewed through a short-term lens, the business model can contribute to a pursuit of quick profit over long-term patient outcomes and relationships. Unaddressed, these conflicts contribute to the dual problems of excessive patient debt and the aggressive efforts to collect on it that cause 530,000 families to turn to bankruptcy each year due to medical bills they cannot pay. Unpaid, this debt becomes the burden of hospitals; one survey of hospital executives reported that over one-third of hospitals carry over $10 million of bad debt from patients, and most of the executives expect to recover less than one-fifth of these amounts.

Essentially, these realities create a tension in which the “medical model” comes with incentives to overtreat, while the “business model” can encourage physicians to undertreat less profitable patients and conditions. Herein lies the difficulty of how many think about the interplay of medicine and business: Some see business as the enemy of medicine. A more careful look at health care, as shown in work by Darden thought leaders, shows how business and medicine are deeply entangled.2  The challenge lies in thinking more creatively and constructively — so caring about the finances does not get in the way of taking care of patients and serving the community.

Painting business and medicine as categorically at odds with one another only makes it more difficult to approach the problem.

A Stakeholder Approach to Health Care

Beyond noting that business and medicine are linked, there are other resources Darden is known for that help reframe this challenge: pursuing a mission while generating sustainable financial returns.  Stakeholder theory, first developed by Ed Freeman,3  notes that all organizations, including for-profit businesses, are not just about making money — they are about how people (i.e. stakeholders) come together to collaborate to make each other better off. Unlike traditional understandings of organizations that either focus just on the goodness of the mission or the importance of the measurable outcomes (usually money), stakeholder theory pushes us to think about both as vital.   

The stakeholder approach to business management is designed to tackle challenges like this one by safeguarding the interconnected relationships between a business and those who have a stake in the organization. In the case of the UVA Medical Center, a state-owned nonprofit, these stakeholders include patients, physicians, nurses, the University community, state government, insurers and regulators.

A Different Kind of Currency

The stakeholder approach reframes the dilemma facing stakeholder businesses by rejecting the dichotomy between capitalism and altruism. Rather than seeing the state of health care in terms of providers’ self-interest for profit tempered only by the altruism of limited charity care, stakeholder theory introduces additional forms of currency that are essential to generating sustained business value and that are not zero sum. Crucial among these are trust and reciprocity.

Even an operationally excellent organization may suffer a trust deficit when it is not viewed as operating with goodwill, and the cost of mistrust in health care is significant. When patients do not trust their health care providers, they are less likely to:

  • Stay with their health care providers
  • Follow prescribed courses of treatment
  • Seek treatment altogether

Today, only one in three Americans trust the medical system a great deal or quite a lot — down from four in five Americans in the 1970s — yet great and sustainable organizations depend on having stakeholder support and their trust.

Trust: How to Build (or Repair) It

Stakeholder businesses build trust by finding ways to engage stakeholders, clarify their purpose (beyond just making money), define to whom they are accountable (not just shareholders) and clearly state how they are going to treat others to foster the kind of cooperation they need to generate and sustain value over time.4  UVA Health has demonstrated such stakeholder thinking in several aspects of its ongoing effort to reform billings and collection. Most notably, UVA Health has established a 16-person billing and collection practices advisory council that includes community leaders from social services, the faith community, schools and health care, along with UVA students and team members.

At some point every organization will make a mistake that can undermine trust. If an organization is committed to a mission and a set of values, then it is vital that it implements and lives by them — otherwise they come across as simple window dressing. This becomes particularly important when organizations violate those values and act in ways that key stakeholders see as wrong or deeply problematic. It is vital to develop a process to:

  • Address the underlying behavior
  • Engage with key stakeholders
  • Acknowledge any wrongdoing
  • Take steps to restore trust (e.g. by making clear how the concerning behavior won’t happen again)

Through such strategies and processes, the University can restore and strengthen the bonds of trust, respect and sense of fair play among UVA Medical Center’s stakeholders.

There are those who would like to blame business for the health care crisis and turn away from any ideas linked to business practice. That would be a mistake. One of the key sources of this health care crisis is a failure to connect the medical and the business models, and more specifically, to ask the hard questions raised by pursuing a noble mission and caring about fiscal scarcity. Medical and business ethics are both needed to address this crisis — and stakeholder thinking can provide a framework for not only navigating the present crisis, but also for thinking more deeply about how hospitals like UVA Medical Center can blend mission and resources in ways that build trust and collaboration among key stakeholders rather than destroy it.

Industry standards for billing and collections are scarce and vague, and the UVA Medical Center is not alone in this problem. What UVA decides to do in this instance will send a public message to the industry about what it considers to be best practices. More broadly, UVA has the opportunity to demonstrate how value-driven organizations make a reasonable return while fulfilling a social mission.

  • 1Andrew C. Wicks, “Albert Schweitzer or Ivan Boesky? Why We Should Reject the Dichotomy Between Medicine and Business,” Journal of Business Ethics 14, No. 5 (May 1995): 339.
  • 2See e.g., Andrew C. Wicks, “Albert Schweitzer or Ivan Boesky? Why We Should Reject the Dichotomy Between Medicine and Business,” Journal of Business Ethics 14, No. 5 (May 1995): 339; Andrew C. Wicks and Adrian A. C. Keevil, “When Worlds Collide: Medicine, Business, the Affordable Care Act and the Future of Health Care in the U.S.,” The Journal of Law Medicine & Ethics 42, No. 4 (December 2014): 420.
  • 3R. Edward Freeman, Strategic Management: A Stakeholder Approach (Cambridge University Press, 1984).
  • 4R. Edward Freeman et al., Stakeholder Theory: The State of the Art (Cambridge University Press, 2010).
Stakeholder Theory
A firm should create value for all stakeholders, not just shareholders. It's time for a new story of business.