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IJHCQA
23,8 Cooperation and competition:
balanced scorecard and hospital
privatization
730
Lars-Goran Aidemark
Vaxjo University, Vaxjo, Sweden
Received 17 January 2008
Revised 10 April 2008
Accepted 20 June 2008
Abstract
Purpose In 2000 the Skane Region (a public authority) and a private contractor made a five-year
agreement for the provision of both in-patient care and out-patient medical services to about 30,000
inhabitants in the south-east part of the region. The Skane Region is the main provider of health care to
about one million inhabitants in the south of Sweden and is responsible for all health care (private and
public), including ten hospitals. This paper seeks to answer the question of how the Skane Region can
control and cooperate with a private contractor, entering into competition with the public health care
providers in the region.
Design/methodology/approach This is a longitudinal study conducted between 2001-2006. It is
based on 28 taped interviews with employees responsible for the contracting process, participating
observations and comprehensive secondary material. The study presents experiences made by the
contractor and the public authority on how to work out and follow-up assignments within the health
care sector regarding patient interest, public interest and professional medical interest.
Findings Measurement within the frames of the balanced scorecard (BSC) made it possible to
control both volumes and health care quality delivered by the private competing contractor. The
political purchaser claims that the Skane Region has established a cost-effective and successful control
system based on trust and measurement.
Originality/value This paper reports on a control system, between public purchaser and a private
provider within health care, that focuses on and follow-up not only health care production but also
health care quality.
Keywords Balanced scorecard, Hospitals, Quality management, Competitive strategy, Sweden,
Health services
Paper type Research paper

Introduction
On the 1 November 2000 the local authority, the Skane Region, signed a five year
contract with a private entrepreneur for medical services for 30,000 inhabitants. The
private entrepreneur, Narsjukvarden Osterlen Ltd, is part of a producers cooperative
with more than 2,000 worker/owners. The Skane Region is the main provider of health
care in the south of Sweden and in the year 2000 was responsible for ten hospitals with
almost 24,000 employees and a joint turnover of 11 billion SEK. The purchaser, the
District Board for Ystad-Osterlen, elected by the Skane Region, had the responsibility
to contract and control the private provider. The agreement concerned the operation of
International Journal of Health Care the hospital in Simrishamn with approximately 45 beds, emergency room and
Quality Assurance out-patients. According to the agreement, the entrepreneur should provide an
Vol. 23 No. 8, 2010
pp. 730-748
q Emerald Group Publishing Limited
0952-6862
This paper was guest edited for IJHCQA by Mosad Zineldin, Professor in Strategic Relationship
DOI 10.1108/09526861011081868 Management, Linnaeus University, Sweden.
individual and health oriented local medical care which leads to secure and improved Cooperation and
health care for the inhabitants. The companys mission included close cooperation with competition
the municipal health and medical care organization as well as with other primary
municipal departments in the area.
The contract between a public and a private organization constitute an intermediate
or hybrid form between hierarchy and market. Williamson (1975) analysis the
problems, that causes the transformation from market to hierarchy. This theoretical 731
framework will be used here to describe and analyze the transformation to a hybrid
organizational form with market elements. The transformation may lead to an
information problem. Self-interest and the risk of opportunism may make this
information problem even more complicated. Further more, the transfer of a public
hospital into private ownership incorporates a risk that costs will increase for the
society. The district committee for medical care in Ystad-O sterlen carried through the
bidding procedures under competition. Further more, they presented the control
instrument that they wanted to use within the frame of the balanced scorecard. The
balanced scorecard (BSC) came to constitute both the basis for the payment system
that was introduced and the follow-up that the district committee regularly carried out.
However, the privatization will not be carried out in a traditional way. The contract
is not fixed in any detail. Instead, according to the terms of the contract both parties are
obliged to develop the terms of operations together and gradually based on
experiences. The privatization shall be devolved in cooperation. The question is
whether, and if so how, the purchaser succeeds in managing the information
asymmetry that the market solution may bring about. A further question is if the
privatization will lead to reduced health care costs for the Skane region.

Methodology
In 2000 the right wing majority of the county assembly in the Skane Region signed
over the operations of one hospital in the region to a private company. This study of
the privatization was carried out during 2001-2006. The authors commenced by
reading the official reports and investigations produced by the Skane Region and by
interviewing several politicians. Throughout 2002 interviews took place with
administrators and health care directors responsible for the privatization of health
care together with the management of Narsjukvarden O sterlen Ltd, the private
contractor. During 2005 and 2006 18 recorded interviews with managers at the
Ystad-O sterlen Medical District were undertaken. This cohort of managers as
responsible to control and to cooperate with the private contractor, and also with
managers and members of the staff at the private company. In 2005 the authors
participated in an annual follow-up meeting between the parties where the private
contractor reported the developments during 2004 to the politicians. Furthermore, this
study is based on comprehensive secondary materials, such as investigations and
reports from the Skane Region, investigations undertaken by external auditors as
commissioned by the Skane Region and reports from Ystad-Osterlen Medical District
and Narsjukvarden Osterlen Ltd.

Theoretical frame of reference


Public health care in Sweden has deep historical roots. Since 1862, the county council has
held responsible for financing and organizing health care according to law. In Sweden
IJHCQA hospitals were a public concern, not because of, as Coase writes, the relatively greater
23,8 cost of using the price mechanism (Coase, 1937). The Swedish public healthcare system
was developed by politicians on political and ideological grounds and not on economic
rationalism. Furthermore, this privatization was carried through by the right wing
parties on grounds of ideology. In this study the basic concepts presented by Williamson
(1975) were utilized, however the analysis made by Williamson about the rationality for
732 different organizational forms will not be reported upon.
Williamson (1975) presents factors that there are grounds to observe in the analysis of
privatization within health care, even if the contract between a public and a private
organization constitute an intermediate or hybrid form between hierarchy and market
(Williamson, 1991). The conditions that, according to Williamson (1975), cause market
failure indicate the difficulties that a transformation from public to private health care
may meet. The transformation from hierarchy to market may lead to a difficult
information problem. The model underlines that self-interest and the risk of opportunism
will make this information problem even more complicated, as the sellers may have an
interest to withhold information from the buyers (Williamson, 1975). These risks are
particularly obvious when, as in this case, there are few competitors on the market. The
information problem has many causes. The knowledge about the future is incomplete.
The incapacity of men to deal with the complexity of our existence and the uncertainty
that market solutions will lead to promote this information problem. Opportunism,
self-interest seeking with guile, is another key factor for this information problem.
When a public hospital is transferred into private ownership gradually the new
owner will know much more about the health care activities, their pre-condition and
consequences, than the public purchaser and financier, who represents the citizens. A
privatization within the health care field may lead to information asymmetry
(Williamson, 1975). The privatization under study was enforced by right wing parties
by ideological reasons with a pronounced expectation to make health care more
effective and less resource consuming. However, under the heading atmosphere
Williamson (1975) emphasizes that the transformation from hierarchy to market may
include interaction effects such as attitudes can change when operations are
transferred from political to market control. A conclusion cannot be reached whether
people involved are neutral to transition from hierarchy to market (Williamson, 1975).
Based on this theoretical frame of reference the empirical experiences of the study
under the headings atmosphere, information problems and transaction costs will
be presented and in the following sections an analysis will be undertaken using the
same headings. The conclusion will focus on some inferences of a theoretical nature.

Atmosphere
In the local election in the autumn of 1998 the political majority shifted from a
left-of-center coalition to a conservative alliance. In the right-of-center majoritys policy
document for the mandate period 1999-2002 new ideas were formulated. The ambition
was to radically change the health and medical care of the region. A
purchaser-provider model was to be introduced. This meant that the politicians
would no longer directly control the hospitals:
The most important factor was perhaps that we have said that we want to change the role of
politicians to be citizen representative, not executives (Carl Sonesson, President of the
Regional Council).
Other principle ideas in the renewal were that the hospitals should be open to Cooperation and
competition and run in different forms, leading to a good financial position for the competition
Skane Region. The privatization of medical care in Simrishamn was a political project
in this spirit. It was driven by the rightist parties and articulated primarily by the
Conservative Party. The medical care policies of the rightist parties abandoned the
ongoing amalgamation of hospitals (hospital twinning) and carried out a privatization
for a number of reasons. The hospitals in Simrishamn and Ystad are only 22 miles 733
apart but belonged to different local authorities until the second half of the 1990s. It is
not likely that a single authority would have built two hospitals so close to each other.
In the meantime, increased choice for patients had changed the conditions for the
hospitals. In 1989, the Swedish Federation of County Councils recommended that
patients should be able to choose between medical centers and hospitals within the
region (Decision number 1989:41). County councils in southern Sweden also made an
agreement that citizens could have the possibility to seek care in other county council
areas. The close proximity of the hospitals in Simrishamn and Ystad meant that there
was a risk of a situation where each hospital had to be worried about the ability to
compete for patients. In 1996, the political control group for the Skane Region (this was
a temporary institution which oversaw the combination of the two previous county
councils into one) recommended an overall structure for medical care in Skane that
should reduce these risks. Five health care districts were organized based on the
principle of cooperating hospitals. Amongst other things, the intention was that the
hospitals in Simrishamn and Ystad should cooperate in the Ystad-O sterlen health care
district. It proved that this cooperation did not work in practice. In Simrishamn the
twinned hospital formula caused concern for the future of the hospital and strong local
turbulence:
It began in 1998. Simrishamn Hospital was threatened with closure; the twin hospital model
with Ystad Hospital did not work. In Simrishamn they used the slogan: Dont touch our
hospital. Over a number of Saturdays many people assembled in the town square to protest.
They had whistles horns and anything that would make a noise while politicians, hospital
staff and other actors in society took the stage (Ingvar Holm, Conservative politician in
Simrishamn website, 4 June 2002).
In Simrishamn various groups ran campaigns with the aim of severing the hospital
link with Ystad. One of these groups actively lobbied for the hospital to be run
privately. Before the election in 1998 the Conservative Party articulated the criticism
against the hospital twinning between Ystad and Simrishamn. The Conservatives
made it known that they wanted to let in private entrepreneurs in Simrishamn. The
rhetoric was along the lines of giving staff the possibility to develop ideas and realize
ambitions that could not be carried out in a public hospital. With hindsight we
interpret the actors driving this process actually had private management in itself as
an overarching ideological aim. There was, according to a centrally placed council
officer, no investigative document that discussed the eventual consequences of
alternative forms of management in the Skane Region. It was not accidental that
Simrishamn was privatized. A certain contribution was the turbulent situations that
had arisen with the formation of the twin hospitals. The hospital in Simrishamn was
seen as the little brother. There was deep concern that the future of the hospital was
threatened. This led to strong local support for radical reforms in Simrishamn
concerning how to run the hospitals. The local population and staff acted to try to save
IJHCQA the hospital. With this background, the political ambitions to introduce alternative
23,8 management forms in the hospital had good possibilities.

The information problem


Trying a new nexus of contracts
The task of preparing the conditions of tender for the negotiation of a contract in
734 Simrishamn, was carried out by a group of civil servants within the Skane Region. The
tender committee (TC) consisted of Jan Svanell project leader, Ulf Swanstein medical
expert, Kristian Silverberg chief purchaser, Birgitta Viklund, medical care director and
Ing-Britt Gustavsson project secretary. Simrishamn Hospital is small and was,
according to the TC, hardly a sought after object. The first stage in the purchasing
process was therefore to make the conditions of tender more attractive:
It quickly emerged that for anyone to want to submit a tender we had to make the proposition
interesting. We suggested that the tender should integrate both the hospital and primary
health care in a local health care concept. We went back to the politicians with the suggestion.
We thought that this local concept should be interesting to be a part of and to develop. We
believed that even the staff in Simrishamn and the municipality should be interested in this
form. Further, we ourselves thought that it was a very good idea. In other places primary care
had been removed from the hospitals ( Jan Svanell, Project leader, 2002-11-13).
One problem before the transition to new ways of running the hospitals in Skane was
that there was no description of what tasks each hospital should perform when the
hospitals were un-twinned. The possibility of escalating costs was worrying and there
was a clear need to carefully plan the division of the twinned hospitals and the future
structure of medical care. With a lack of directives, the TC assumed that the existing
activities in general should continue in each respective hospital. Before the negotiations
the TC organized ideas and visions groups, amongst other things at Simrishamn
Hospital, with employees who wanted to be part of and affect the process. Many
employees became engaged. Various interest groups had the task to describe the
resources at the hospital that a prospective entrepreneur should be able to take over
and make suggestions as to development possibilities. In this way part of the
conditions for tender were determined by employees of Simrishamn Hospital.
As well as the interest groups mentioned above, the TC initiated a professional
reference group at the hospital in Simrishamn. Meanwhile, the civil servants surveyed
the market to see if there was interest in submitting a tender. News spread quickly that
something was happening in Simrishamn and several interested parties made
themselves known to the TC. The group had informal discussions with ten different
parties, of which two were from Germany. These informal dialogues concerned the
interested parties visiting the hospital and giving their comments on what they should
be able to do with the hospital, how they thought that the offer to tender was set out and
the tender conditions that would directly make them decide not to submit a tender. In
this way the TC acquired good knowledge about how an attractive tender offer should be
written. Three of the ten interested parties submitted tenders when the time came.
The TC took the initiative to see the appointment of a political committee that
represented both the region and the district, the two political levels involved. The offer
to tender should include an agreement on the transfer with the region and an
agreement for the running of the hospital with the district, both of which should be
signed simultaneously. The political committee had representatives from both the
majority and minority groups, something that proved to be of great value in the Cooperation and
process. Before the formal tendering process began, the interested parties also had the competition
opportunity to meet the political committee, listen to the politicians and present their
ambitions in general terms. In this way, the politicians could get to know the actors
that were interested in the contract. However, once the tendering process began, the
politicians left the arena and the civil servants carried out the negotiations until the
final decision would be taken at political level. 735
The offer to tender consisted of four parts. The district committees description of
the offer to tender included the visions of the politicians about local medical care. The
hospital leadership assembled a statement of the current status of the Simrishamn
Hospital that described both the activities carried out in the hospital and the resources
that would be transferred. A third document presented the visions and possibilities
that the staff could see. A fourth document from the Regional board set out the formal
conditions for the eventual transfer. By the time that these four documents were ready,
approximately a year had passed since the decision to privatize the hospital in
Simrishamn was taken in November 1998 and it would take another six months before
the whole process was concluded and an entrepreneur could take over:
With hindsight I can draw conclusions regarding the offer to tender. The description of the
mission should rather be visionary and stimulate entrepreneurs to formulate their own
solutions. The description of the resources to be transferred therefore must be very detailed.
Nearly all the questions asked about the offer to tender concerned details about the resources
that would be transferred ( Jan Svanell, Project leader, 2002-11-13).
Three tenders were submitted. All three were well-formed and were possible
contenders. One of the tenders had a cost-basis in line with the current financial
framework of the Skane Region and he was excluded from the tendering process. The
other two were clearly under this level. There was a quite drawn-out process where the
TC met with the two interested parties up until a few weeks before the contract was
due to be signed. Negotiations took place in several steps. They started with a
discussion about the content of the agreement. This included a discussion to clarify
that the interested parties understood completely what the Skane Region, as purchaser,
wanted to achieve. The second stage concerned how the purchaser should be able to
exert control to ensure that the activities are run and developed in accordance with the
intentions of the agreement. In these negotiations the basis was laid for the balanced
scorecard that came to be adopted as the long-term control and follow-up instrument
for the purchaser. Finally, the formula for the financial details was discussed.
Following the negation phase, the formulation of the contract was rather a formality
that could be carried out without difficulty. The only problems concerned specifying
the resources that were involved in the transfer and to make reservations for
unintentional incorrect information in connection to the transfer.
The contract to run local medical care for a five-year period with the possibility of a
further year extension went to the Praktikertjanst. This company succeeded in creating
the greatest trust in their ability to carry out the purchasers wishes and further made a
lower tender. The contract was signed on 5 June 2000 and commenced on 1 November
2000.
When Praktikertjanst won the contract, they registered a subsidiary company
called Narsjukvarden O sterlen Ltd. The board of the newly registered company
consisted of nine individuals. Five of these were chosen by Praktikertjanst, including
IJHCQA the MD, Kenneth Grann. The chairman was Anne-Sophie Sjoberg with long experience
23,8 of the market side of Praktikertjanst and also MD for another subsidiary company,
Praktikertjanst Narsjukvard Ltd. The board also had a doctor and orthopaedic expert
from Slottsstadens Hospital in Malmo, the MD for AB Medical X-Rays Ltd and Uno
Levinsson, MD for a local food and drink company. There were also four
representatives of the staff, two ordinary and two deputy member.
736 Local medical care was obviously a new term for the services that did not demand
the specialized resources of the big hospital. Notable for local medical care was close
co-operation, both medically and organizationally, between primary care, other
specialist care and municipal health and medical care.
In the contract, the company had the right to run other health and medical care over
and above the commitment to local medical care if there was another long-term financier
than the Skane Region. The existing property would be used for the operation of the
business and the Skane Region reserved the right to make an additional contract for
these operations. The thought was that the contractor should be able to develop its own
profile and in this way gain a broader financial base. Narsjukvarden O sterlen Ltd
profiled itself within the area of elective surgery and during 2001 Skane Region signed a
supplementary contract that included elective surgery in the specialist areas of
orthopaedics, general surgery, urology and gynaecology within defined operational
areas.

Cooperation and control


During the tendering process, a basis to be able to regulate the relation with the new
entrepreneur for local medical care in Simrishamn was developed at the District
Committees offices. The result was a unique agreement. Instead of a traditional
follow-up of production volumes and finances, the TC formulated a balanced scorecard
to describe the goals for the contract. During the contract period this balanced
scorecard was the basis for following up that the activities developed in line with the
District Committees intentions. The goal was expressed neither in DRG-points,
amount of care provided, number of days of care provided nor doctor visits. Instead the
goal became more health-orientated work coupled with the ambition that the citizens in
the catchment area should have great degree of access to medical care and feel secure.
The local medical care contract had a clear development direction from the very
beginning. The ambition to develop local medical care, a wholly new term, in the
Simrishamn area, demanded new forms of control that gave the contractor room to
successively develop new working practices in the spirit of the contract. At the same
time, the purchaser would have the possibility to affect and follow-up the mission and
not least exercise cost control. Concepts as system development and cooperation
became keywords:
We have developed a balanced scorecard to regulate the co-operation between the purchaser and
the supplier (Birgitta Viklund, Director for Ystad-Osterlen Medical District, 13 November 2002).
The district committee did not view the balanced scorecard as primarily a control
instrument but more as a tool that both partners could use to develop the operations
according to the overall vision of the contract. Within the framework of this instrument,
the district committee should be better at formulating and expressing the intentions
generated at the political level. The company should also have room to negotiate and
develop the business in line with the district committees visions. The parties could later Cooperation and
develop measurement and descriptions for the activities. These were not only useful to competition
the district committee, but also for the company leadership and workforce to be able to
judge the operating costs in relation to results and quality of service.
From the purchasers side, the balanced scorecard was attractive for several
reasons. First, the leadership of the district committee saw it as suitable to be able to
take the political goals and then break them down into factors for success in operations 737
and follow-up. Second, was the possibility to take into consideration various
perspectives on health care. These different perspectives were certainly seen as
connected, but they were not possible to condense into some overall measure. Instead
the term balance was interpreted as a balance between perspectives of the operations
that were in the frame of the balanced scorecard.
In the contract there was an unrefined script to the scorecard that the District
Committee wanted to develop further in cooperation with the entrepreneur. The vision was
formulated in the following way: to supply, within a given financial framework, an
individual and health oriented local medical care that leads to security and better health for
the inhabitants of Osterlen. The scorecard included four perspectives: a health
perspective, a direction perspective, an inhabitant/patient perspective and a financial
perspective. Within each perspective there were goals, critical success factors, a
strategy/action plan and a number of critical control mechanisms or follow up parameters.
Within the health perspective the goal was formulated as: improve the health of the
population. The direction perspective was a unique construction for this scorecard. In
this perspective the purchaser developed the term local medical care and the special
mission for the actual tender. Local medical care in the actual goal-setting was about:
contributing to the health of the population of Osterlen through developing local
medical care in a dynamic and boundary-crossing co-operation between specialist care,
primary care and medical care in the home. The inhabitant perspective concerned
both the population of the area and the patients. The goal here was that: local medical
care should enjoy the populations confidence as well as characterizing good quality
and suitable medical care. In the financial perspective the entrepreneur had a role for
the financial development of the district by: contributing to lowering the total cost of
medical care consumption.
When it had become clear which company would be awarded the contract, the
district committee appointed a working group with representatives of both the
purchaser and the supplier. Their work started with further developing the scorecard.
Many of the measurements showed themselves as being difficult in practice to carry
out. To follow-up the first year of operations it was decided instead to have a start
card including important and practically measurable variables. However, the
performance targets for these variables were missing. Neither the purchaser nor the
supplier really knew in detail what could and should be performed. In practice, the
performance for the first year (and previous experiences) became the starting point for
the continued formulation of performance targets at the indicator level.
During 2001, the development group worked especially with medical results. The
Skane Region had a certain interest in this work. The thought was that the result could
be used in a regional context in the future. A number of indicators were followed up
annually. However, for some operations no measurements were done at all.
IJHCQA Measurement was replaced by follow-up dialog and soft descriptions of activities
23,8 difficult to measure.

Using the balanced scorecard


In the contract between Region Skane and Narsjukvarden O sterlen Ltd the balanced
scorecard was presented that the purchaser could use to control operations, quality and
738 development concerned in the contract (see Figure 1). But in the contract there was also
an agreement that the parties together should further develop the balanced scorecard:
With these perspectives and common goals as a basis the parties undertake during the
contract period to develop further the follow-up and parameters in the scorecard (contract 5
June 2000, page 6).
The administrative leadership at the district committee saw this formulation as a
pragmatic solution of a difficult problem. The district committee neither could, nor
wished to translate the concept local medical care into tangible and detailed
requirements:
The time has past where one tells the other about what to do. Instead this is about
co-operation to develop tomorrows solutions that we cannot see clearly today (Birgitta
Viklund, Director for Ystad-Osterlen Medical District, December 2004).
In the cooperation, however, the purchaser had the responsibility of driving development
work forward, while the entrepreneur had the main responsibility for carrying out the
measurements that the parties agreed upon. The leading administrators in the district
committees office underline that the balanced scorecard has been a valuable tool in the
co-operation between the parties in more than one way. It provided a basis for the
dialogue that occurred between the parties about how the overarching goals could be
met. A dialogue that included much more than the factors enshrined in the
measurements. The balanced scorecard became the basis for deeper discussions about
the goals that were difficult or impossible to measure:
The scorecard has been a precondition for the dialogue that we have had. But even if we begin
to talk about the parameters that exist in the scorecard, the conversations have led to us
arriving at and agreeing upon questions that cannot be measured. But the scorecard has been
the basis for these dialogues. (Christina Stahl, Strategic Planning Officer, 26 November 2004).
The private entrepreneur had great freedom when it came to realizing the goals set out in
the contract. Neither the District Committees leading politicians nor the administrators
could or wanted to prescribe any detailed directions or guidelines to the supplier. Instead
the purchaser realized that the entrepreneur knew best how the overarching goals could
be achieved. The important factor was that the parties could produce common
interpretations of what the goals in the four perspectives meant and that they were in
agreement about what success factors were needed for developing operations:
We wanted to give the freedom to the entrepreneur to be able to provide new solutions that
led to the goals we had formulated (Birgitta Viklund, Director for Ystad-Osterlen Medical
District 26 November 2004).
Four to five times a year the administrators at the district committees office followed
up the developments at Narsjukvarden Osterlen Ltd. Once a year, the politicians at the
District Committee received a report at a meeting with the district committees health
Cooperation and
competition

739

Figure 1.
Goal fulfilment
Narsjukvarden Osterlen
Ltd 2004
IJHCQA and medical care strategist and the chief doctor with the entrepreneur. They went
23,8 through all the measurements that had been carried out within the frame of the
balanced scorecard and commented on deviations from the goals from their respective
roles as purchaser and supplier. The chief doctor had a special responsibility to take up
the measurements carried out in the patient/direction perspectives and the committees
representative put special weight upon measurements that concerned the health of the
740 population and the viewpoints of the patients.
After four years the medical director stated that there had been a change of interest
among the politicians. From focusing on performance and finance, now they put
patient reactions and health aspects of the population in the foreground. The number of
treatments and doctor visits was no longer the primary follow up for the purchaser.
This was on the contractors table. Instead patient perception of availability and
medical results were given the highest priority by the politicians.
The balanced scorecard had no employee perspective. That was perhaps natural as
responsibility for employees would be an internal matter for the contractor. There was
though an exception. When it concerned the cooperation between the company and the
municipal health and medical care there was a follow up of the attitudes of the staff.
The district committee followed up how both the parties experienced the relation
between them. This led to Narsjukvarden Ltd taking several concrete initiatives to
improve relations. Amongst other things, the municipal employees were invited to
mutual training activities. This training led not only to better treatment
within municipal medical care and therefore fewer emergency visits from patients in
municipal housing, but also to a better climate of co-operation. The signing out
procedure for patients, who were in the municipal sphere of responsibility, was
improved. The nurses who learned to know one another through the shared training
took informal contact and a responsibility that the signing out procedure would work.
The balanced scorecard had in its patient perspective demands for the follow-up on
current waiting times. The Skane Region introduced a flow model where factual
waiting times should be measured, and not just the estimated waiting times that were
usually reported. Here the entrepreneur played an active part and gave feedback to the
region on weaknesses and possibilities of the model. In this process the demand for the
follow up of factual waiting times within the frames of the BSC was a driving force. In
the flow model it was evident whether the waiting times depended on the capacity of
the hospital or other factors.

The question of costs


One problem was to work out a suitable payment model. Performance-related payment
was not seen as being able to pursue a development according to the district
committees intentions and fixed payments gave the entrepreneur incentive to reduce
volumes:
Our ambition to develop local medical care involves that all the boundaries that are not sound
for the patients shall be abolished. This makes performance related-payments impossible.
This would only lock the system into the current form. Really, we should use the system that
the emperor used for his doctors in former years in Japan. They only got paid when the
emperor was well (Birgitta Viklund, Director for Ystad-Osterlen Medical District, 26
November 2004).
The payment system should give the entrepreneur great room to propose solutions in Cooperation and
line with the long-term goals. But at the same time, it was important to secure the competition
desired availability to medical care for the population and that the entrepreneur works
for increased integration between various levels of care:
Our intentions were formed when we sent out the offer to tender. But during the negotiations
with the various parties who tendered, the balanced scorecard and the payment model 741
changed in content. Those who tendered pointed out the weaknesses in our model, the
contradictions and parts that did not support our overarching ideas. Cooperation began at the
negotiating table (Birgitta Viklund, Director for Ystad-Osterlen Medical District, 26
November 2004).
The final payment model was a mix of fixed payments and commission. Inpatients
were compensated as geriatric/rehabilitation with fixed and floating payments while
other was compensated according to the number of registered DRG-points with a
volume ceiling. Outpatients also had a fixed and a variable component. If the estimated
volumes were exceeded this was paid for above the fixed fee, but the unit price was
reduced to a sum that was equivalent to the companys working costs:
As it was easy to identify the catchment area we could estimate suitable levels for provision
of medical and health care. For this volume, the entrepreneur received a fixed fee. Volumes
above this were paid by a variable payment that was lower than average and so low that it
shouldnt stimulate volume expansion ( Jan Svanell, Project leader, 13 November 2002).
The variable payments varied from 113 SEK per district nurse visit to 302 SEK per
doctor visit. In the spirit of the contract all doctors visits are paid for, regardless of the
speciality with the same low payments. The catchment area for the entrepreneur was
well defined and the volumes calculated on an expected demand form the area. The
thought was that it should not be interesting at all for the entrepreneur to compete with
the public health care providers and expand volumes through taking over patients
from other districts/catchment areas. The Skane Region had already paid for these
patients by budget allocation to the public health care providers.
In the payment model there was also a possibility for adjustment of the total payment
linked to the parameters in the balanced scorecard. The result, according to some
follow-up parameters, could adjust the payment upwards or downwards. The variables
patient satisfaction, registered waiting times, medical results and more expensive
treatments like MR consultations were the basis for payments above the fixed fees and
gave the entrepreneur a possibility to increase income. Total payments could be adjusted
by ^ 2 percent. Patient satisfaction was continually monitored by means of touch
screens and if the entrepreneur reached 90 percent on a satisfaction index the total
payment would be increased by 0.5 percent. If this indicator was under 80 percent the
total payment would be reduced instead by 0.5 percent. The medical results were taken
from the national quality register. In accordance with the spirit of the contract even the
payment model could be an object for revision following discussions between the
partners. Within the financial framework, part of the payment system was changed for
example, part of the compensation (payment) was transferred from inpatients to
outpatients (day care) at the same pace as the care system was reorganized.
IJHCQA Discussion
23,8 Atmosphere
Under the heading atmosphere Williamson (Williamson, 1975) emphasizes that the
transformation between market and hierarchy incorporates interaction effects to be
taken into account:
Technological separability does not imply attitudinal separability (Williamson, 1975, p. 37).
742
The privatization of health care in Simrishamn got an overflowing support from citizen
in general and from employees at the hospital in particular. The explanation is simple.
All parties concerned perceived that the hospital was threatened by a closedown. The
staff could lose their employment and citizen could lose the security that a local
hospital offers. The hospital became a pawn at the election 1998 and the Conservative
Party promised to keep and to privatize the hospital. The new independent corporate
form was considered a guarantor for a survival of the hospital. Staff member and
specifically chief medical officers was involved in the purchase process. They
participated in the design of the public procurement and gave interested tenders ideas
about the possibilities of development. The privatization in Simrishamn was carried
throw in a very positive atmosphere.

The information problem


The contract between the Skane Region and the contractor included a balanced
scorecard, which was the purchasers tool to control operations, quality and
development. In this model the various goals of the politicians had been formulated.
The goals were as much about taking care of the citizens and patients interests as to
bring about the integration between various levels of care. The signed contract
contained certain follow-up indicators. But there was also an agreement that the
indicators would be completed later during the mutual development work that the
parties were agreed on to carry out. It was first during the negotiations between the
district committee and the tendering companies that the emerging control form came to
the fore. Certainly the perspectives, the goal setting and success factors were clear but
the indicators were not fully formed in the start card. Already at the first dialogue the
prospective entrepreneur revealed contradictions that the parties could eliminate
together. This concerned, for example, the economic perspective and the payment
model. The dialogue with the prospective entrepreneur resulted in a revised payment
model and gave a single payment per doctor visit, regardless of speciality and a
smaller part of the total payment in the form of variable payments. The tender group
repeated also an experience form the process that they would like to bring forward.
The objectives of a contract should be formulated vaguely and room left for tendering
companies to develop ideas and show how they will use their special competences. The
resources included in the take- over should be specified in detail so that the
entrepreneur can see the platform on which to begin to build.
In his examination of the purchaser role of within the Skane Region, Pfeiler (2002)
highlights the balanced scorecard studied here as a good example of how the
demands/goals of the process can be clarified and integrated in the ongoing
communication between purchaser and provider. The report underlines with
satisfaction that the contract includes both demands for medical results and an
ambitions to follow up of the quality of these.
We can demonstrate that the district committee as purchaser could have taken the Cooperation and
risk that is often discussed in connection to privatization of medical care. Opponents to competition
private systems maintain that the risk increases because the economic responsibility
comes before quality. Studies of private medical care have also pointed out that
patients leave the hospitals quicker and sicker (Preston, 1992) and that costs are
simply shifted from hospitals to other areas of society (Chua and Preston, 1994).
Through the follow up of quality in the Inhabitants perspective in the BSC the 743
purchaser gets regular measurements of both medical quality indicators and
patient-perceived quality (cf. Peters and Ryan, 1999; Colaneri, 1999; Santiago, 1999;
Jones and Filip, 2000; Chow-Chua and Goh, 2002; McGills Hall et al., 2003; Kolins
Givan, 2005; Patel et al., 2006). The mission for local medical care is characterized
further by integration between the hospital and other forms of care in the local
community. In the direction perspective of the BSC there are regular follow-ups that
these intentions are actually being realized.
The balanced scorecard has also offered a new language for dialogue between the
partners. The tendering companies had, during the tender phase of the hospital in
Simrishamn, not only the possibility but also encouraged to affect how the mission
should be formed in line with the purchasers development ambitions. Relations
between the Region Skane tender group (TC) and the prospective entrepreneur are
more reminiscent of the relation between co-operative partners rather than the
traditional description of contractor and purchaser. This is a conscious strategy from
the district committees civil servants. The visions of local medical care that form the
basis for the tender can be firmed up in a contract. The representatives of the region
would like instead to develop a co-operation with the prospective entrepreneur to drive
the development during the contract period based on experiences gained together.
Based on the balanced scorecard, the control of the entrepreneur has also changed
under the contract period. Initially the ambition was to develop the indicators that
could be used to put the objectives in operation regarding the respective perspectives.
Later some measurements are toned down and instead the follow up becomes more
important through dialogue between the parties. This dialogue emanates from goals
and success factors in the balanced scorecard with descriptions of development held in
as high regard as measurement of the same.
Really, this development is not especially surprising. Medical care is an area where
control by means of measurements has obvious limitations (Ouchi, 1979, 1980):
Under conditions of ambiguity, of loose coupling, and of uncertainty, measurement with
reliability and with precision is not possible. A control system based on such measurement is
likely to systematically reward a narrow range of maladaptive behavior, leading ultimately to
organizational decline. It may be that, under such conditions, the clan form of control, which
operates by stressing values and objectives as much as behavior, is preferable. An
organization which evaluates people on their values, their motivations, can tolerate wide
differences in styles of performance; that is exactly what is desirable under conditions of
ambiguity, when means-ends relationships are only poorly understood; it encourages
experimentation and variety (Ouchi, 1979, p. 845).
The balanced scorecard becomes the base in the language that facilitates the dialogue
between the parties, a language that may reduce the risk for information asymmetry
and opportunism (cf. Williamson, 1975). But the discussions within the scorecards
framework will lead to a transfer of interest for politicians within the District
IJHCQA Committee. In the role as citizen representatives, the experiences of the patients have a
23,8 far greater importance. As well as the follow ups that we have noted above the
politicians have regularly organized meetings with the citizens out in the localities and
introduced special notices that public hospitals would not use to record patient
satisfaction.
But it is noted that the balanced scorecard as developed does not correspond to the
744 model that the authors presented (Kaplan and Norton, 1992, 1993, 1996a, b). Instead a
translation occurs from the original and an adaptation to the special situation
(Czarniawska and Sevon, 1996; Sahlin-Andersson and Engwall, 2002). The concept
balance changes character (cp. Kaplan and Norton, 1996b, p. viii) and is defined in
this context as a balance between the perspectives that were used. This also means that
the hierarchy between the perspectives that Kaplan and Norton promote are no longer
current. Furthermore, in the relation between the purchaser and provider some
measures will later be toned down to the advantage of descriptions of the development.
The purchasers experiences are that development was necessary when measurements
proved to be impossible to carry out with precision.

Payment form and social costs


In the main agreement with the Skane Region concerning local medical care, the
entrepreneur receives approximately 45 percent of the total sum as fixed payments
(Grufman, 2004). Added to this are variable payments, estimated to cover the
companys running costs. The payment system was designed to avoid increased health
care production over estimated needs. However, the entrepreneur could win financial
advantages from lower his standards of quality. The district committee implements
evaluation of health care quality through measurements within the frames of the
balanced scorecard to reduce the risk of undesirable developments.
Several of the articles on BSC in health care organizations describe financial success
stories. They illustrate how health care organizations have been able to reduce costs
using the BSC (Berger, 2004; Gonzalez et al., 2006; Colman, 2006) and solve financial
crises (Meliones, 2000; Meliones, 2001; Meliones et al., 2001; Mathias, 2001; Jones and
Filip, 2000).
In total, in this case, the district committee reckoned in the year 2000 that the
payments to the entrepreneur over the contract period would be 12 percent under the
costs if it had kept the hospital as it was. However, during the period the costs in the
public hospitals have been noticeably greater than estimated. Therefore the financial
advantages of the contract form have been considerably greater than reckoned in 2000.
At the same time we can observe that the entrepreneur in Simrishamn has endured
significantly tougher financial conditions than other hospitals in the Skane Region.
With this contract the Skane Region was only the purchaser and the responsibility for
any eventual loss was solely that of the owner, Praktikertjanst Ltd. In the public owned
hospital companies and public hospitals the Skane Region was forced to inject funds to
cover losses. Narsjukvarden O sterlen Ltd had only a recalculation clause that gave
them compensation for inflation and a small supplement (e.g. 3.15 percent in 2002). In
the nearest public hospital that recalculation was almost 15 percent in 2002. However,
this also had consequences for the entrepreneur, according to a study of the agreement
by Ohrlings Pricewaterhouse Coopers in May 2002:
It means that different hospitals work under different conditions and that Narsjukvarden Cooperation and
Osterlen Ltd in the middle to long term can have difficulty in competing with the public sector
regarding salary levels, equipment and competence development ( Johansson et al., 2002, p. 9). competition
The contract expired 2006, but the entrepreneur, Praktikertjanst Ltd, did not submit a
tender, when the tendering for a new five-year contract period begun in the end of 2005.
There was no first mover advantages (Williamson, 1975), and a new entrepreneur now
has the responsibility for health care in the district under new conditions. 745
Control through co-operation
At first glance, there seems to be a dilemma that the entrepreneur that shall be
controlled, to avoid negative effects of the competition with other health care providers
in the district, at the same time is part of the development of the balanced scorecard
that it will be evaluated through. The Skane Region wants to control the entrepreneur
and at the same time co-operate with the same.
In the first phase of the tender process this was a solution to a problem. The
purchaser did not know what would be suitable for operating the hospital, the
necessary success factors or which measurements would really be possible or
desirable. The purchaser could not and did not want to formulate an agreement that
would include a concrete control instrument and later could be used to build a case for
compensation on. Instead the prospective entrepreneur was given the task to work on
the forming of measures that should provide a base for evaluating its own
performances. But we regard the result of this as obviously successful for the Skane
Region. The co-operation between the parties within the frame for goals and success
factors in the balanced scorecard results in the parties developing common goals
during the contract period. In the control context this is called goal congruence
(Anthony and Govindarajan, 1995). Ouchi (1980) notes that each organization should
seek a cost effective control system:
In order to mediate transactions efficiently, any organizational form must reduce either the
ambiguity of performance evaluation or the goal incongruence between parties (Ouchi, 1980
p. 135).
Through developing a balanced scorecard in cooperation with the contactor the Skane
Region designed a control system that reduced the ambiguity of performance
evaluation by measurement. At the same time, however, by this co-operation they have
worked for goal congruence within the framework of a balanced scorecard.

Conclusions
We have observed that this privatization was accomplished in a very positive
atmosphere making the strategic change quite easy for the Skane Region (Pettigrew
et al., 1992). The threat of closure and difficulties of co-operating with a neighboring
hospital gave a positive attitude to the reform both in the local community and
amongst the hospitals employees. A form of hospital that was freestanding in relation
to the politically controlled public hospitals was seen as the savior from closure for
Simrishamn.
The tender process also expresses certain imaginable experiences. According to the
actors in this process the mission in a contract of this kind should be formulated
vaguely and room left for the contractor to develop ideas and show how it will use its
IJHCQA special competences. But the resources shall be specified in detail so that the
23,8 entrepreneur will know the platform on which to begin to build.
Depending on bidding procedure under open competition the contract gave lower
costs for society than running operation under public authority. Experiences from
Simrishamn show that it is possible to form a payment system that does not encourage
increases in volume, but stimulates the entrepreneur to monitor the interests of patients
746 and maintain the quality of service. A precondition for this is that the catchment area is
well defined so that normal volumes can be estimated. Another condition was a
balanced scorecard where demands/goals on the quality process can be clarified and
integrated into the ongoing communication between purchaser and health care
provider. The mission for local medical care is further characterized by integration
between the hospital and other institutions within the local community and a limit to
pass on costs to other health care actors. Within the direction perspective in BSC
there is a regular following up of that these intensions will also be realized. Instead of a
detailed contract as transactions cost theory would prescribe the purchaser forms a
control structure that limits the contractors space of action, but leaves place for new
and original solutions.
The information problem has been solved by the implementation of the balanced
scorecard. However, the top-down control in this model (Kaplan and Norton, 1996b) has
been replaced by a dialogue between the parties and a balance between perspectives
(cf. Aidemark, 2001). Certain measurements were impossible to carry out with
precision and were replaced by description and dialogue. The balanced scorecard has
provided a language for that dialogue and a platform for generating new ideas. There
is an expressed respect for the contractor and an ambition to channel the development
optimism and richness of ideas that exists with the entrepreneur and employees. The
balance between the perspectives means that the BSC integrated the purchasers and
the providers different interests when they together developed the concept of local
medical care.
The control system has also led to a change of interest amongst the politicians in the
district committee. The traditional measurements of costs and volumes became less
interesting. The financial aspects are solved with the contract and production is seen as
the contractors responsibility. Instead the politicians concentrate on patient
satisfaction and the interests of the citizens.
On a theoretical level, there seems to be a dilemma between wanting to control the
entrepreneur and to co-operate with him. During the tendering the ambition to
co-operate was to solve the problem to make an attractive offer to tender. And the
competition for the contract results in lower costs for health care than operations in
public form. During the five-year contract this co-operation strategy came out as recipe
for success. The risk of information asymmetry was reduced through dialogue on a
regular basis and by the measurements within the balanced scorecard model. This
privatization under co-operation involved both an ambition to improve
goal-congruence and to reduce the ambiguity of performance evaluation by
measurement within the frames of the balanced scorecard.

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Corresponding author
Lars-Goran Aidemark can be contacted at: Lars-Goran.Aidemark@vxu.se

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