The balanced scorecard in health care: a multilevel latent variable approach

Purpose – The purpose of this paper is to propose a practical conceptualization of the balanced scorecard (BSC) to describe the mechanism producing creation of monetary value for hospitals in the territorial context of Lombardy region (Italy). Design/methodology/approach – The authors propose a model‐building strategy that assigns key indicators to key performance areas, and identifies causal relationships between key performance areas. Second, the authors utilize a suitable statistical approach to estimate causal relationships among involved latent variables, taking into account the hierarchical structure of data. Utilizing a suitable data decomposition, the causal model is applied separately to the within data (hospitals) and to the between data (local health agencies). Findings – In the measurement model a new latent construct (medical human capital) was found that resumes the amount of formal training and the performance of surgical staff in hospitals. The estimated causal models reflect the usual directional assumptions, supposed in a typical BSC causal scheme, with some differences. For local health agencies, fruits (financial measures) are strongly related to clinical processes (leaves) for which the medical human capital constitutes its unique trunk. However, for hospitals, fruits (financial measures) are directly linked to clinical processes and Patient Satisfaction. Research limitations/implications – The main limitations of this study are the lack of new independent data to validate the obtained causal structures and the limited number of indicators that reflect the deficiency of available information in regional administrative archives. Originality/value – The present study may be useful to guide further efforts which attempt to conceptualize BSC in the health sector. As more information can be made available, other performance indicators can prove to be linked with this structure using the same methodology.