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Hospitals reduce billing complaints by anticipating them

Organizations are frequently advised to respond quickly to a crisis that threatens their public image, such as the Tylenol contamination or Pentium chip defect scares. Less has been said, however, about what organizations can do to avert potentially costly problems by anticipating them. A new study led by Robert Sutton, professor of industrial engineering and engineering management in the Stanford School of Engineering, finds that hospitals routinely anticipate customer complaints about bills and act to suppress them.

At the unidentified hospitals that were studied, the researchers found that both carrots and sticks were used to discourage customer inquiries about bills. "Hilltop Hospital did small favors, like knocking off dollar amounts, while other hospitals used threats," in response to inquiries about bills, said Sutton, who co-directs the Center for Work, Technology and Organization in the engineering school. "Most seemed to use both carrots and sticks."

Hilltop is a fictitious name used in reporting study results in this month's edition of Organization Science, a journal published by the Institute of Management Sciences. Sutton's co-authors were Kimberly Elsbach of the University of California-Davis and Kristine Principe, formerly of Emory University.

The hospital's threats were similar in type to those of the Internal Revenue Service, who remind taxpayers with complaints that if they demand a review, it can lead to higher taxes as well as to lower ones, Sutton said. "The hospitals will say, 'You may win but you will have to fill out all these forms and it's a time-consuming process.'"

Hospitals also discourage inquiries, he said, by itemizing their services in ways that are least likely to generate questions. "Something you recognize on the bill, like aspirin, will tend to be cheap, while they might charge you 15 times as much for something obscure that costs them the same amount."

In general, he said, "hospitals have a standard operating procedure in place to anticipate complaints, and our reading of it is that they try to distract the customer, diminish his complaint and sometimes just overwhelm him or her."

In their conclusions, the researchers pointed out that such preemptory actions by customer service personnel may be less risky than trying to change an organization's image through more public marketing or public relations efforts, but the tactics also can be used by managers to avoid accountability and responsibility.

The tactics were often successful in the short term. More often than not, the hospitals did not need to act on their threats. As one complainer explained to researchers, he dropped his complaint because he was "worn down" by administrators who conveyed the message that "they don't want any hassles."

Such tactics might be less successful in the long run, Sutton said, if customers have a choice and decide to seek future service elsewhere. But he also noted that "customers are not always right" and some are too costly to keep.

"Southwest Airlines has a policy where they fire obnoxious customers. If you are too obnoxious, the CEO will write you a letter asking you not to fly Southwest again," Sutton said.

Another type of preemptive public image management involves keeping public or consumer expectations low, Sutton said he found in studies with Roderick Kramer, associate professor of organizational behavior at the Stanford Graduate School of Business. "With arms negotiations between Reagan and Gorbachev, the strategy of the Reagan people was to keep expectations low so that no matter what happened at Reykjavik, the public would be satisfied."


By Kathleen O'Toole

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