Management practice and ethical issues in the healthcare industry - Research Paper Example

? Management practice and ethical issues in the healthcare industry inserts here -1st initial, of college/university] Abstract The paper reviews the management practice of cost reduction or cost cutting in health care organizations and the ethical issues that may arise due to such a strategy. A comparison of a similar situation within the banking industry has also been done. It can be seen that cost cutting is a part of prudent management, but it does provides incentive or motivation at act unethically in both industries. The difference is that the type of unethical practice is not the same due to the nature of service provided. The healthcare industry can take cues from bank strategies to find a solution. There are also common elements that can be applied across all types of organizations including healthcare. Financial constraints often force managements to compromise on health and medical care. The suggestions provided at the end of the paper may help the industry to overcome or reduce this unethical practice. Keywords: management practice, cost reduction, ethics, healthcare and banking industry Management practice and ethical issues in the healthcare industry There is a simple commonly used and popular adage that ‘health is wealth’. If a person is healthy, then he or she can be in a position to lead a comfortable or even wealthy lifestyle. Hence it is the individual responsibility to see that one’s health is maintained. Unfortunately this does not happen in real life situations and many factors like lifestyle, pollution, and genetic disorders can cause serious and chronic diseases. When this happens, it is natural that a person resorts to healthcare providers in order to find a cure. But ironically, the rising costs of healthcare especially in the United States have come to such a stage that many are not able to meet their healthcare expenses if needed. This in turn forces the management of healthcare institutions to force physicians (and others directly involved in patient care) to cut down on expenses. In other words, the money spent on a patient should not exceed the capacity of that person to pay for it. This paper looks at the ethical viewpoint on such a stand taken by the management. It is true that most businesses follow the same strategy of cutting down or optimizing their spending. But it is felt that the area of health care is different because it is considered to be a divine profession, an example being the Hippocrates Oath. But management practices (for practical purposes) often do not see it that way. Denying a patient due and diligent healthcare can be hence considered to be unethical. There may be many areas in the area of healthcare where ethical issues may come up. The area of study here looks specifically at the management practice of cutting costs that could result inadequate healthcare which could result in not curing the disease and even death or disability to the patient. In the process, the paper will look at the same management practice (mentioned above) in a non-medical industry and provide practical suggestions as to how effective cost cutting can be done without compromising on quality of service. The industry selected in this case will be the banking and finance industry. Conflict between costs and patient care – ethical issues As mentioned earlier, financial constraints due to various reasons (that will be discussed in this paper) will result between a conflict between cost cutting and patient care. The following sections will review the various aspects of management practices (with focus on cost cutting or reduction) and its ethical repercussions. The importance of management Management of resources, whether human, finance, raw materials, finished products or any other factors associated with human endeavor is essential for survival and success. This is true whether is the organization is formed for profit or not. In fact the concept of management is so important that many theories and practices have evolved over the years. This applies for healthcare organizations as well. Even though many of the earlier management concepts have been outdated, some of the practices are still considered important. Optimizing or cutting costs is an example. Taylor’s scientific management theory proposes that production could be improved by scientifically managing the work behavior and pattern of factory workers. This aspect is still a part of management practice, especially when competition is high and also in instances of recessions as can be seen in the current globalized environment. The general functions of any management include “planning, organizing, staffing, directing, controlling, coordinating and representing” (Goldsmith, 2011, 97). It can be seen that controlling and directing are integral functions of management. One of the key elements that contribute to the success of controlling is to prepare a budget and see to it that the expenses do not exceed the estimates. The next section will deal with this practice in the context of healthcare organizations. Management practice – cost cutting/reduction Cost reduction or cutting is often seen as an accepted practice in management circles. But the correct term to be used in this instance is continuous cost reduction programs which should be implemented so as to become a part of the core-competency of an organization (The Institute of Management and Administration, 2006). In order to achieve this, the concept of cost-discipline will have to strategized and implemented in the organization. Hence, cost reduction through discipline does not mean forcing healthcare providers to compromise on their duties as physicians, nurses and other hospital staff. In other words, an organization will have to look at other means and ways to achieve this objective. This is especially relevant for healthcare organizations because their basic mission is not profit oriented, but generating enough revenue for efficient service. But when cost-discipline is not effective, the management will be forced to resort to unethical practices which affect patient care. In short, healthcare managers have a similar position with regard to their counterparts in business, the one major difference being the objective – financial viability and patient care over profitability (Dracopoulou, 2006). The importance of ethics in healthcare management The concept of ethics has been a point of discussion and debate even during the days of Aristotle, Kant and continues even today. There are many organizations over the world that provides ethical guidelines for different disciplines and activities. An example would be the Code of ethics published by the American College of Health Executives (ACHE). The ACHE code of ethics provides four areas where ethics should be put into practice. They are responsibilities towards general healthcare, the patients, employees, the organization, and the society (American College of Health Executives, 2007). Even though they are primarily meant for healthcare executives, the code provides useful ethical guidelines for the management of healthcare organizations. The relevant guidelines that pertain to this paper are given here. One of the main responsibilities with regard to ethics is to find and disclose any conflicts between available financial resources and other areas which include quality of treatment. Another duty is to develop a procedure that does not in any way compromise on quality of treatment. Abuse of power either by management or professionals should not be tolerated. When resources are limited, proper allocation should be ensured that it does not lead to ethical issues. It is also important to develop improved management standards and sound business practices. Reasons for compromising on patient and healthcare Health insurance coverage. The rising costs of healthcare in the US mean that most low and middle income groups may not be able to afford cost of treatment especially in the case of major and chronic diseases. It is imperative that such classes be insured either by private or government agencies. But a study by the U.S. Census Bureau shows that the number of uninsured people in the country is increasing over the years (DeNavas-Walt, Proctor & Smith, 2010). According to the Bureau, the percentage was 16.7 in 2009, while the figure stood at 15.4 the previous year (refer to figure 1 in appendix). The number of people covered by health insurance also decreased, the first time since 1987, the figure for 2009 being 255 million. In short, such a large population may not be able to pay for their healthcare expenses forcing hospital and healthcare managements (especially privately owned ones) to force doctors to provide inadequate medical and healthcare. To add fuel to this situation, the Federal Government and the opposition are now planning withdrawal of state funding for healthcare especially in the area of Medicaid. The recession combined with lack of insurance means most people (poor and unemployed) have to resort to such programs like Medicaid. Many states (South Carolina for example) do not have the budgetary resources to contribute towards the scheme (Kennard, 2011). There is also the issue of underinsured citizens where nearly 25 million people cannot bridge the gap between their insurance coverage and actual medical expenses. Unemployment and recession. Unemployment and recession are other reasons due to which patients are unable to meet healthcare expenses. Recession by itself is a catalyst to unemployment. When both these occur at the same time, inability of affected persons to pay out of their own hands is impossible. Rising healthcare costs. Rapid development in medical technology has definitely helped in improving healthcare, especially in developed economies. But the downturn is that the cost of treatment will also increase proportionately making healthcare all the more unaffordable. Unethical practices with regard to cost cutting or reduction Like in any business organization, the volume of work done by physicians will naturally result in an increase in revenue for the healthcare organization. But due to reasons mentioned earlier, the ability of the patient to pay becomes a factor here. Hence, a management practice of forcing or motivating physicians not to provide overuse of services is being followed in some institutions. To this effect, financial incentives are being offered aimed at achieving a “more conservative use of medical services” (Weber, 2001, 46). But this, according to the author, may lead to ethical issues. If the incentive is too high, the professional may refrain from providing even necessary services because it is perceived as a reduction in income received by the physician. Another instance is refusing to re-admit a patient because his or her previous stay at the healthcare centre resulted in financial loss to the institution. In such a case, it is better that the patient goes to some other more humane institution rather than being rejected due to the sole reason of cost reduction (Weber, 2001). There are also instances when a hospital discharges a patient due to economic reasons (inability to pay bills or lack of insurance coverage) even though the person, in clinical judgment of physician is not ready to be discharged. In some instances, healthcare organizations listen to the directives or opinions of insurance companies rather than base their judgment on providing adequate treatment and care. Some hospitals indulge in the practice of refusing to admit a patient eligible for emergency medical care due to insufficient insurance coverage. This practice is now considered illegal by the passing of the Emergency Medical Treatment and Active Labor Act (EMTALA). Above are some of the examples of unethical issues that arise due to the management practice of cost reduction or cost cutting. The ethical issues and solutions will be recommended later in this paper after reviewing the management practices followed by the banking and financial industry. Costs and customer care in the banking industry The banking industry was chosen because it can be considered under the classification ‘service’ just like the healthcare industry. Like any other industry, cost optimization and reduction is a natural management practice. Many banks now go in for strategies like electronic banking, outsourcing, and ATMs to increase competitiveness as well as to bring down costs. While these two comparisons focus on financial efficiency through cost cutting, the type of unethical practices are different. But what is important is that cost cutting should not be a reason for unethical practices. One important strategy that improves customer service, while reducing costs in the long run, is the use of automated teller machines or ATMs. Many banks extensively use such machines at various locations even where they do not have branches so that customers can withdraw cash and perform several other banking transactions without physically going to a branch office. These can be purchased from third party vendors with proprietary or ready-made software (Wonglimpiyarat, 2005). There are several advantages that ATMs offer to customers and to the bank itself. Customers can save money and time by not physically going to a branch office. They need have to wait in queue for longer periods when compared to transacting with a human teller. Banking companies have instituted to eliminate or reduce unethical practices while at the same time effectively cut costs. In fact ATMs process about fifty percent more transactions per month at lower costs (per transaction) when compared to employees (Rose & Hudgins, 2010, 115). The authors state that some banks even charge higher service fees for face to face transactions where the customer has a choice of using an ATM instead. Banks can cut costs by reducing the number of employees because a large part of day to day transactions can be done through ATMs. Moreover many banks allow the use of limited transactions like withdrawal and verifying account balances through the ATMs of other banks as well. Debit and credit cards are another example of effective cost reduction or cutting. They can be used in lieu of cash in many business establishments worldwide. Customers have the additional security of not carrying large amounts of currency on their person when they travel which is a potential security risk. Banks will charge a commission from retailers (merchant service fee) who accept such cards resulting in increased revenue (Edwards, 2004). Credit cards also offer the advantage of cash facility which is similar to a loan taken from a bank. It will also provide additional revenue for the amount of loan taken via the card. Only irresponsible use will the customer be at a disadvantage. Here again the bank can increase quality of customer service without increasing or expanding their operations. This is especially true in areas where opening a brick and mortar branch may be unviable. The emergence of the internet and its popularity has resulted in the development of electronic commerce across all areas of financial transactions. In this instance, called electronic banking (e-banking), financial institutions can expand their facilities into new areas, even internationally without additional brick and mortar investment. Apart from reducing costs like rent, salaries and other expenses, customer service and satisfaction is enhanced. Tying up with a reputed website development company or by having their own dedicated IT department, banks can set up an electronic banking network (Alam, Siddiqui & Sreeja, 2009). Once the infrastructure is complete, the facilities offered will be available to any account holder with internet access. Once they are logged into the website, it practically becomes a virtual branch for the bank. Most of the transactions that are traditionally done through a brick and mortar branch can be replicated in an electronic banking site. But it will depend on the technical capabilities of the bank, its policies and also the statutes and regulations of the country or region in which the customer is transacting. One of the most popular attractions of e-commerce is online shopping (Terlutter, Diehl & Okazaki, 2010). In this regard, banks have tie-ups with other e-commerce sites to enable online shopping which is a direct source of revenue through charging of transaction costs. If implemented and maintained properly with up-to-date technology, loyalty of customers will be ensured. This can help bring down costs of advertising and other promotional activities. Ethical issues in electronic banking As the popularity of e-commerce and electronic has gained popularity, instances of internal and external fraud has also increased. Internal fraud means unethical use of the bank’s assets for personal gain by employees. This often happens when employees gain access of customer username and passwords which should be classified as confidential information (Royal Bank of Scotland, n.d.). It could also happen when an employee has access to the whole procedure that is required to complete a financial transaction. Illegal (electronic transfer of funds from customer accounts to an employee account, manipulation of payroll, adding ghost vendors, hiking vendor bills above actual figures etc are some of the ways that exhibit unethical behavior by employees (Goldman, 2010). In some instances collusion of outsiders may be required to perpetuate the fraud. As mentioned earlier, banks resort to electronic banking and ATMs as a means of long term cost reduction. But dishonest employees have found ways to commit fraud using their insider knowledge and also loopholes in the security of the IT system. Steps taken by banks to prevent unethical behavior (fraud) include pre-checking credentials before hiring, rotation of duties so that an employee does not remain too long in a particular post, and having several layers of checks and authorizations before a transaction is completed. Strategic management to prevent unethical practices Business ethics is now considered to be a part of strategic management and management discipline (McNamara, 2004). The author has provided detailed guidelines and steps which can be implemented by the management to prevent unethical behavior. The first step is to understand that ethics management is a process rather than a beliefs and values. Hence many managers assume that it cannot be managed and is dependent on individual traits and characteristics. The management should promote and instill a preferred behavior in the organization. Another aspect to be considered is that ‘prevention is better than cure’. Discussion of the concept of ethics in groups (cross-functional) and publicizing the outcomes will be useful. It is okay to value forgiveness as long the erring employee does not indulge in unethical behavior in the future. In order for this strategy to be successful, it is imperative that support from the top management should exist. For example, if the chief executive is indifferent to this strategy, employees may feel that there is hypocrisy on his part and become cynical about the process. So, the CEO should be involved in developing, implementing, and participating in this strategic management process. Apart from this ethical behavior should start at the top so that employees at lower levels can look up to them and set standards for themselves. Ethics committees at the board and management levels should be established to monitor and report the effectiveness of the program. They should also be responsible for reporting any suspicious activities on the part of an employee which could become an ethical issue later. An ombudsman should be appointed to coordinate the whole process. He or she should be the sole person in charge to see that the ethics program becomes an integral part of the organization. Implementation of strategies learnt from the banking industry into the healthcare industry Both the industries mentioned above can be classified as proving service to customers/patients. But each has its own unique characteristics of cost reduction (as management practice) without compromising on quality of service. The technical remedies (in banking) to prevent ethical issues may not be applicable in the healthcare sector. But what is important is that the former has evolved innovative strategies to prevent or at least reduce such tendencies. Another difference is that in banking, frauds could be committed across the whole hierarchy of the organization. In the case of the healthcare industry, unethical behavior is often resorted to by the management and forced down on employees (for example, physicians). The common factors that can be implemented are the guidelines provided by McNamara in the previous section. With regard to the healthcare industry, cost discipline and efficient use of resources can help relieve the financial burden that is the root cause of unethical patient care. Implementing cost discipline and continuous cost reduction involves the following steps - reduction or elimination of waste, evolving a strategy of best practices and introduction of new technology that can reduce costs (Institute of Management and Administration, 2004). Strict implementation of statutes and laws like EMTALA will also contribute in reduction of unethical behavior. Conclusion A comparative study of the banking and healthcare industry has been done here with regard to unethical practices that arise due to the management practice of cost reduction or cutting. It can take some cues from the banking industry especially with regard to steps taken to prevent or reduce unethical behavior by employees. There are some common factors that are applicable to all industries whether its aim is profit or social service. The healthcare industry in their own way should innovate and implement effective cost saving measures without unduly compromising patient care. It is inevitable that healthcare costs are rising due to technological improvements and other factors. But compromising on patient care (which is unethical) is not a solution for this panacea. References Alam, M.F., Siddiqui, T., & Sreeja, K.R. (2009). Recent Developments In Computing And Its Applications. I.K. International Publishing House. American College of Health Executives , Initials. (2007). Ache code of ethics. Retrieved from http://www.ache.org/abt_ache/code.cfm#preamble. DeNavas-Walt, C, Proctor, B.D., & Smith J.C. (2010). Income, poverty and health insurance in the United States: 2009. U.S. Census Bureau, retrieved from http://www.census.gov/prod/2010pubs/p60-238.pdf Dracopoulou, S. (2006). Ethics and values in health care management. Routledge. Edwards, B. (2004). Credit management handbook. Gower Publishing Goldman, P. (2010). Financial Services Anti-Fraud Risk and Control Workbook. Wiley. Goldsmith, S. B. (2011). Principles of health care management. Jones & Bartlett Learning. Kennard, M (2011). US doctors braced for deep cuts in spending, Financial Times. Retrieved from http://www.ft.com/intl/cms/s/0/43d680fe-9b66-11e0-bbc6-00144feabdc0,dwp_uuid=b92c9d66-97df-11de-8d3d-00144feabdc0.html#axzz1UVRp3kUn McNamara, C. (2004). Complete Guide to Ethics Management: An Ethics Toolkit for Managers, Managementhelp.org. Retrieved from http://managementhelp.org/businessethics/ethics-guide.htm Rose, P.S. & Hudgins, S.C. (2010). Bank management and financial services. Tata Mc-Graw-Hill. Royal Bank of Scotland (n.d.). Employee fraud. Retrieved from http://www.rbs.co.uk/corporate/banking/g5/corporate-security/employee.ashx Terlutter, R,. Diehl, S, & Okazaki, S. (2010). Advances in advertising research. Gabler Verlag The Institute of Management and Administration (2006). Cost reduction and control best practices. Wiley. U.S. Census Bureau (2010). Income, poverty and health insurance coverage in the United States: 2009. Retrieved from http://www.census.gov/prod/2010pubs/p60-238.pdf Weber, L. J. (2001). Business ethics in healthcare: beyond compliance. Indiana University Press Wonglimpiyarat, J. (2005). Strategies of Competition in the Bank Card Business. Sussex University Press. Appendix Figure no 1 (U.S. Census Bureau, 2010, 24). Read More