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Ethics in Managed Care Contracting

Ethics in Managed Care Contracting


Patients are at the center of the health care process. Physicians use their knowledge, skills, and defined processes to provide or coordinate health care for patients. It is the extent to which this relationship is valued, developed, nurtured, and maintained that determines the success of the patient-physician relationship.

This important position at the center of the health care process has left physicians vulnerable to the challenges poised by the changing health care environment. All around them is disagreement and confrontation involving health insurance companies, government payers, physicians and physician groups, ancillary health care providers, and regulatory agencies. Because of their position in the center of the health care process, physicians are drawn into almost every disagreement that takes place between any of the health care entities. Common examples include:

  • Addressing the patient’s need for a medical procedure after the preauthorization for payment has been denied.
  • Justifying the need for a patient to use out-of-network services.
  • Obtaining payment for claims that have been wrongfully denied by the insurance company.
  • Negotiating a contract with a large HMO known to offer financial incentives for cost controls achieved by fewer referrals to specialists or ancillary facilities.

Each example is potentially volatile and troublesome to the physician because of his/her bond with the patient, the potential affect on the patient’s well being, lack of understanding of the opposing party or the patient, lack of control of the situation, or confrontation of value systems. Unfortunately volatility and intense disagreement are seldom beneficial for the patient and only serve to decrease patient satisfaction in the entire health care process.

Many of these conflicts and disagreements cause ethical problems for the physician. Ethical issues arise when negotiating a contract with a managed care firm, implementing the accords of the contract, informing the patient of the managed care decision, and acting as an advocate for the patient.

Addressing these issues and remaining ethical is a dilemma that society has delegated by default to the physician. Historically, the medical profession has been governed by a code of ethics known as bioethics. The question is, Can these medical bioethcial principles be applied in the contracting and the delivery of managed care?

This course will cover the following topics:

  • medical ethics
  • business ethics and how they differ from medical ethics
  • professional codes of ethics
  • managed care contracts – how the physician can remain ethical throughout the negotiating process (a process much different than delivering care)
  • major issues in managed care contracts that cause ethical concerns
  • methods on dealing with ethical conflicts in a managed care world.

A summary of the questions that will be addressed:

1. Do medical ethics apply in business situations? 2. Are business ethics similar or different than medical ethics? 3. What role do professional codes have in negotiating and administering a managed care contract? 4. Do medical ethics apply when negotiating a managed care contract? 5. What is ethical negotiating? 6. What is unethical negotiating? 7. How can a physician be involved in managed care contracts and still remain ethical? 8. What are the methods to handle these ethical conflicts?

CHAPTER ONE Medical Ethics A Review

Medical ethics, also called bio-ethics, were established over time from the fields of philosophy, medicine, politics, sociology, and religion. As science revolutionizes our profession and societal values change, four principles remain constant as a structure for making ethical decisions. The four principles as outlined by Darr consist of the following:

1. Respect for Persons 2. Beneficence 3. Nonmaleficence 4. Justice

I. Respect for Persons:

Respect for persons addresses how the physician treats the individual. Respect for persons is divided into four sub-elements. These elements are the following:

1. Autonomy 2. Truth-telling 3. Confidentiality 4. Fidelity

A. Autonomy

Autonomy reflects the principles of democracy. Autonomy states that each patient should be able to govern his/her own affairs. However, for a patient to govern his or her own affairs they should be rational and not coerced. This basic principle underlies informed consent. Informed consent requires that the patient ultimately make decisions affecting his or her own care. This principle causes conflicts when family members, the health care team (physician, nurse, other treatment team member), or insurance company makes decisions or attempts to make decisions for the patient.

It is also a concern when patients do not have the knowledge to govern themselves. The duty of the health care professional is to provide the patient with the necessary information so that the patient may self-govern. When the patient does not have the mental capacity to govern his or her affairs, the law allows a power of attorney to be issued.

B. Truth-telling

Truth telling states that the physician will tell the whole truth, not a half-truth, or white lie. This requires truth telling even when, in the physician’s opinion, the truth would harm the patient’s psychological well being. Picture yourself as a witness in a malpractice case. You know that if you tell the truth about a fellow physician he/she could be found guilty of malpractice. You are still required to tell the truth even though harm may come to the defendant. Truth telling requires telling the whole truth. This causes conflict when a patient asks about the clinical skills of another physician who, in your estimation, has not maintained his or her skills or is practicing in an unprofessional way. When a situation like this arises, you must balance the application of the above principle so that your response is ethical for both parties involved. Truth telling requires providing the patient with enough information so they can govern their own affairs and make informed decisions.

C. Confidentiality

Confidentiality is the third element of Respect for Persons. Physicians are expected to keep what they learn about patients confidential. The advance of computer information systems is a major threat to this element. Diagnoses are shared with insurers, the government, managed care organizations, and numerous others. However, all are expected to maintain the confidentiality of a patient’s information.

D. Fidelity

The fourth element of Respect for Persons is fidelity. Fidelity means keeping one’s word. Physicians are expected to do what they say they will do with regards to treatment of the patient.

In summary the four parts of Respect for Persons are:

  • Autonomy
  • Confidentiality
  • Truth telling
  • Fidelity

II. Beneficence

Beneficence is acting with charity and kindness to the patient. Medical care is intended to benefit the patient. This requires the physician to do all he/she can to aid the patient. Charity is love of one’s fellow human being, an act of good will, or showing a caring attitude. It is from this principle that many of the not-for-profit charitable health care organizations were formed. Their mission requires that charity care be given even when patients cannot afford to pay for the service. Providing free care in your office is considered beneficence.

III. Nonmaleficence

The third principle in health care is nonmaleficence. This principle is derived from the Hippocratic Oath, First, do no harm.

IV. Justice

The fourth principle, justice, is applicable not only to patient care, but also when making the resource allocation decisions required by Medicaid, Medicare, HMO’s, insurers, and employers. Webster defines justice as being righteous, impartial, and fair. Equal treatment also falls under the category of justice. Justice would require that all patients receive equal treatment for the same contracted service regardless of the source of payment. If the physician has contracted to provide specific services at a given price, then the physician needs to provide services equally, even for a similar, less lucrative contract.

This does not imply, however, that the services should be provided if the patient’s health insurance coverage does not provide for those services. What the physician is confronted with daily is that different payers have different levels of coverage, resulting in different expectations on the part of the payer and patient. From the insurer’s perspective, as long as the patients under their plan receive equal care, then justice has been served for their beneficiaries. Justice can then be summarized by:

  • Impartial treatment
  • Fair treatment to all
  • Equal treatment to all

The question is, Can these concepts that govern medicine be applied when negotiating a managed care contract and in dealing with managed care organizations? Another way to ask this question is, Do medical ethics apply in the business environment? These questions will be addressed in later chapters.

Chapter One Summary

Medical ethics are made up of:

I. Respect for persons

Elements are: 1. Autonomy: Govern one’s own affairs 2. Truth telling: Tell the whole truth 3. Confidentiality: Maintain privacy 4. Fidelity: Keep one’s word

II. Beneficence

Charity: Towards patient

Kindness: Towards patient and patient’s family

III. Nonmaleficence

Do no harm

IV. Justice

Equal treatment for all

Fair in your dealings

Impartial in your treatment decisions

We have now covered respect for persons, beneficence, nonmaleficence and justice. We examined how autonomy, truth telling, confidentiality, and fidelity are part of respect for persons. We also looked at how beneficence and charity are related and how nonmaleficence means do no harm. Lastly, we considered how justice requires impartial, fair, and equal treatment of others.

The bioethical principles reviewed above, that govern the behavior of medical professionals, deal primarily with situations in which the ethical decisions affect one individual: the patient. This is important to keep in mind as you read the remainder of this course.

The remainder of this course will address the following questions:

  • Can I apply medical ethics to managed care?
  • Can I be ethical and still deal with managed care?
  • How do the four principles above apply in negotiations and the implementation of managed care?
  • What methods are there to assist me in remaining ethical when negotiating a contract?
  • Does my professional code of conduct provide any insights that may allow me to remain ethical and yet serve patients in a managed care plan?

CHAPTER TWO Business Ethics A Primer

The Role of Mission Statements

Mission statements are designed to reflect not only the mission of an organization, but also the values of that organization. A great deal of effort is invested in developing mission statements that are complete and yet relatively easy to remember. A mission statement is intended to provide strategic direction to an institution. They can be inspirational, such as the US Army phrase, Be All That You Can Be, or they can provide a broad abstract description of the organization, The Mission of ArcMesa Hospital is to provide quality care, medical education, and research in a patient friendly environment. The mission statement or supplemental statements or policies can list the basic beliefs of an organization; a code of ethics may be a part of this supplemental statement or may be written as a separate policy.

Mission and value statements, (as they are sometimes called), are intended to provide guidance to management and employees on the values of the organization and what is or is not acceptable behavior for employees. Management and employees use these value statements, mission statements, and policies on ethics to guide their own individual behavior.

Some of the questions asked in the development of these statements are:

1. Are there any laws (federal, state, or local) that affect this situation or decision? 2. What resource issues are involved? What resources can be applied to benefit society or many individuals? (Note that this is a different approach than the one-on-one concern in bioethics.) 3. How will the decision affect society as a whole? How will this decision affect the community in which we live? How will this decision affect other businesses? 4. How will this decision affect our stockholders? Our employees? 5. How will this decision reflect the mission, culture, and values of our organization?

The questions above reflect a much broader scope than physicians deal with on a daily basis. In the questions above, one individual’s interests or needs may be subjugated to the common good. Furthermore, one group’s interests may be elevated over another for legal, economic, community, or stakeholder interest, or the values and mission of the business organization.

Organizations will spend years developing mission statements. While the organization’s board of trustees will ultimately approve the mission, values, and ethics statements, surveys and input are sought from all the major stakeholders involved with the firm. These will include the board of trustees, management, employees, customers, and the communities where the corporation resides. Ultimately these mission, value, and ethical policies are meant to provide guidance to the employees, just as the AMA Code of Ethics provides guidance to the members of the American Medical Association. Once you join or become employed you are expected to abide by the guidelines.

Mission statements do have meaning and are taken very seriously by many corporations. For example, the Wall Street Journal publishes its mission and value statement annually in a letter addressed as Dear Reader. Some of the values discussed in that lengthy letter are under sections entitled, fairness and accuracy, a distinction between the news and the views, standing for something, and asking for value. The question is, are these values and ethics statements just compliance oriented or do they reflect real values?

In his article on the ethical blunders of the Firestone tire crisis, Curtis C. Verschoor2 points out that there is a strong link between shareholder rates of return and firms whose value statements encourage accountability, a collegial work environment, and integrity. In fact, companies that excel in promoting values have had a 70% gain in shareholder value while those that did not have shown a decline of 6%.

Verschoor points out that the cornerstone of an ethical corporate culture is having an appropriate code that emphasizes values, contains some interpretation of those values, and is well understood by employees. A compliance type code does not meet these requirements.

Ethical guidelines

Within these mission and value statements are an exact or implied code of ethical conduct. Among Fortune 500 companies, about three fourths have a written code of ethics as part of their statement or as a written policy. Smaller companies are less likely to have a written code of ethics, and the ethical approach in smaller firms, just as in the physician’s own office, tends to be a function of the style of leadership.

Even in large companies, however, the code of ethics may not be distributed, emphasized, or enforced. This failure to emphasize the code occurs because of company merger or acquisition, or because of turnover of key staff or front-line employees. A measure of implementation of ethical principles is whether each new employee reads the code of ethics at the time of hiring, if it is addressed periodically in company communications, and addressed in management meetings.

Ethical codes themselves differ from business to business. Many codes of ethics tend to be procedural; they describe how employees should react when faced with a dilemma affecting their business-related actions. Most codes of ethics describe activities that are illegal or considered unethical. In other words, codes of ethics tend to be a list of do’s and don’ts.

Organizational ethics do play a role in directing behavior. A climate in which ethical standards are highly salient (conspicuous) decreases the use of deception by employees even when there are strong individual incentives to act otherwise.

It is worthwhile to ask an HMO for its code of ethics or code of conduct when beginning or renewing a contract. A copy of their code should provide some insight into the organizational culture.

Personal Factors Affecting Business Ethics

Even though the mission, value, and ethical statements of corporations are meant to provide guidance, personal factors play a major role in the ethics of business just as in medicine. These factors stem from both individual values and from moral development. Personal values are individual characteristics that represent the individual’s judgments, standards, past behavior, and personal challenges. They are the essence of the individual. Moral development refers to the personal experience and the way in which values and beliefs are developed and applied by the individual. Moral development, by providing the experiential aspect, affects personal values.

Although employees are expected to give up some of their individualism to represent the values of the corporation, managers, like individual physicians, may interpret the organization’s guidelines through their own personal values, moral experiences, or standards of right and wrong. In some instances this can lead to inconsistency. As one might expect then, personal factors affect ethical decisions differently depending on the business, culture, and emphasis on corporate values and ethics.

Caveat Emptor

Caveat Emptor, translated as Buyer Beware, is a phrase unfamiliar to the medical profession. In the business environment, the buyer is expected to be informed, educated, and assume responsibility for his or her own actions. While it is the responsibility of businesses to provide fair advertising, contracts, and prices, the legal system and business law require that the buyer do a thorough investigation of the contract or purchase before concluding the deal. The law will not protect individuals from their own foolishness or lack of preparation.

This approach is much different in the medical profession where the buyer is expected to receive quality care and the provider is expected to meet all the bioethical principles discussed in Chapter One. In a business environment, the purchaser or persons signing the contract are expected to do a reasonable investigation of the terms prior to putting their name on the line.



All contracts are written and negotiated by two parties. Generally one party will draft the contract – the lawyer, the automobile dealer, the real estate dealer, the building contractor, or the insurance agent. A standard contract, will be designed, that is, a contract intended to protect the interests of the party’s own profession. Businesses or HMOs will frequently send or provide a contract to you, the consumer, and expect you to sign the contract without making modifications. This is the standard contract of the industry, you will be told by the HMO, MSO, or other managed care organization.

The fact is these contracts were written to protect the interests of those providing the contract; if you fail to read the contract then you are not a buyer beware and the law will not protect you from your failure to modify the contract. In other words, you have the right to take any of these standard contracts, line through them, and make any changes in order to protect your own interests. This is not an option; this is the standard in the business profession.

Organizational Models for Addressing Ethics

There are a plethora of structures for addressing ethics in business. These structures are used so that the organization may identify and address ethical issues. One example, shown below, is consistent with the social cognitive model of Stajkovic and Luthans in that it includes personal along with organizational and institutional perspectives (See Figure 1).

At the institutional level, there are laws and policy that affect each individual and organization. Each organization needs to be aware of the laws and policies that affect ethics, and, when necessary, be prepared to intervene to change these laws. For instance, the US Congress passed the Foreign Corrupt Practices Act in 1977; it was modified twice in later years. Involvement at the institutional level is important to insure that lawmakers have a chance to benefit from corporate wisdom before making law, and benefit from corporate experience so that they can change the law. The AMA Code also indicates that physicians should be active in changing laws. This concept is similar between the two professions.

Organizations need to manage ethical decision-making. For example, in the health care industry, hospitals frequently have ethics committees to analyze appropriate care of severely impaired neonates, such as those with anencephaly (no brain). These babies die in just a few hours without intense life support or then die if support is withdrawn. Should they be kept alive at extraordinarily expense – even though they will never function as human beings – or should they be allowed to die? Interestingly, the position of the various stakeholders is always changing. In one case, the parents may want to withdraw life support but the doctor doesn’t – in another case, the doctor advises withdrawal of support, but the parents won’t accept (even though they can’t pay for the care). In the US, the issue is an ethical dilemma. Every organization needs to be aware of potential ethical issues and have a mechanism to address them. For this reason, committees are frequently involved in the organization.

Also at the organizational level, managers should ensure that the company develops a code of ethics, communicates the code of ethics, emphasizes its importance, and provides direction on how employees may raise ethical concerns in a manner that is non-threatening to them. A few simple policies and procedures may accomplish this. Furthermore, management should define a mechanism to analyze potential ethical issues and ensure that ethical considerations are an integral part of management activities. After all, sound ethical decisions are typically based on complex judgements that are the result of increased insights and understanding of upcoming situations.

At a personal level, each employee must be aware of and sensitive to ethical issues that may confront the practice. Many of these may be company or industry specific. Each should participate in initial and periodic communication about ethical issues that describe the company’s code of ethics and related issues. Each employee should feel comfortable approaching supervisors about potential ethical issues and be familiar with a construct to address ethical issues.

Because these three levels (personal, organization, and institutional) constitute the ethical influences for a business culture, the manager should be aware of the issues on each of these levels. The manger should help coordinate management decisions, and also decisions that relate to ethics. He/she should check perceptions and predict effects of anticipated outcomes. He/she should clearly and quickly inform operations about ethical issues.

For instance, a health insurance company may sell benefits that include medical care for elective abortion. The purchasers (employers) demand the benefit and the providers provide it. To other employers this benefit is considered unacceptable, based on strong beliefs about the value of life and the unacceptability of elective abortion. To address this, the manager must be aware of the differences, and quickly communicate these to underwriting department so differences in the community will be recognized.

One organization5 developed ethical guidelines specifically for managed care contract negotiations. The contracts were developed by committees, with the input of ethicists and individuals in the health system. The authors made sure the guidelines were consistent with the mission, values, and principles of the organization. The preface to the statement included such overarching principles as respect for the dignity of the human person, acknowledgement that dignity is protected by the community, and in this organization’s case, that special efforts must be made in caring for the poor.

The committee developed 12 issues they wanted addressed in their managed care contracts.

These issues are listed below, and the bioethcial principle that each issue supports is shown in parentheses.


1. Uninsured/underinsured: Serve the poor and encourage insurance companies to do likewise. (Justice) 2. Information access and confidentiality: Respect confidentiality of patients, physicians, employers, and payers. (Confidentiality) 3. Life issues in contracts: Insure that the contract is in concert with the organization’s values on life issues. (Nonmaleficence) 4. Manner of setting limits: Identify criteria to insure organization is doing what their mission requires. (Fidelity) 5. Ethical negotiating: Negotiate contracts in a fair manner. Identify the items to be negotiated. (Justice) 6. Person: Ensure that members have a choice (Autonomy), communicate information on the plan. (Truth-telling) 7. Quality: Develop policies that safeguard quality and balance the cost/quality equation. NOTE: The inclusion of cost and the sense of the greater good. (Justice) 8. Quality assessment: Design tools to see that patient needs are understood. 9. Financial resources: See that quality will not be sacrificed for financial gain. Negotiate for a sufficient margin to allow for growth and the provision of services while recognizing the role of insurance in managing risk. 10. Human resources: Treat employees in just manner. (Justice) NOTE: See how this statement now extends beyond the patient and to other stakeholders, employees. 11. Choice: Insure adequate panels to give patients choice. (Autonomy) 12. Overall effect: Realign the organization with the changing delivery system.

This organization recognized the ethical conflicts inherent in managed care, reviewed the mission and values statement, and then developed guidelines for the employees to follow. The lesson is that organizations can and do develop ethical guidelines for the employees in the contracting and implementation of managed care, and that many of the guidelines reflect the principles of bioethics.

A Comparison of the Differences between Medical and Business Ethics

In summary, business ethics are drawn from the mission and values statements, and medical ethics are drawn from the principles of bioethics. Business ethics are broader in scope and meant to serve several stakeholder groups while medical ethics are directed more toward a single individual. Bioethical principles, however, form the basis for organizational statements and may be applied to negotiating a managed care contract.

According to Joseph Bacarraco, an ethics professor at Harvard University, there are some constructs that have served managers well. The construct is composed of five questions that embody the work of the great ethicists:

What provides the greatest good for the greatest number of people?

This question, based on Kant’s Categorical Imperative, (if an action is not right for everyone, then it is not right for anyone), helps identify the stakeholders and how they will be influenced. The action with the most positives and fewest negatives is usually the best course, presuming all stakeholders are considered. However, if we do not identify all the stakeholders, then we have not assessed all the positives and negatives. Furthermore, any action will have positive consequences for some people and negative consequences for others. If we only focus on the good outcomes of an action, it is easy to ignore ethical issues raised by the negative consequences experienced by some stakeholders.

Is it right for me or others to take the action repetitively?

This question is Descartes’ Rule of Change. Descarte argues that if an action cannot be taken repeatedly, then it is not right to be taken at any time. For instance, if we find ourselves arguing that we are going to do something just this once, then it is a sign that we recognize that taking the action even once is not the right thing to do. Furthermore, if we think that something can be done by us, but that others should not be privileged to do so, then we are considering an action that clearly has negative consequences, and to which we would ourselves not want to be subject. This question, therefore, also contains the essence of the Golden Rule, which states that you should do unto others, as you would have them do unto you.

Does the action trample on any human rights?

An action that tramples on human rights – namely life and liberty – should be avoided at all costs. We consider human rights so fundamental, so basic to our existence, that any action that does not account for these basic human rights is not acceptable. This is where the four principles of bioethics apply.

What do I become if I undertake this action?

Does taking this action make me into a potential monster in the eyes of others? If so, then that is a clear sign that culture, and the ethics of the culture, will find the action unethical, regardless of the other arguments in its favor.

Will the solution work in the real world as the world is?

Ethical issues apply to a real world and real people. If it won’t work in this world, without the world changing, then it is not a feasible solution to any real problem.

The use of these constructs does have a role in developing the value and ethics statements of businesses and, as discussed in Chapter Six, can give some guidance for behavior, particularly the physician who has moved from practice to management and is now a physician leader.

Status of Business Ethics

There is a growing concern about the lack of ethics amongst businesses in our society. This concern is due to several factors. The Securities and Exchange Commission has expressed great concern about the stated earnings of numerous corporations. The SEC feels there is too much creative accounting occurring and that many financial statements overstate earnings. The number of curriculum vitae for individuals applying for management positions that have been falsified rose from 9% over the last forty years to close to 20% in the late nineties. Employee theft has risen and recent studies show that many MBA graduates, up to 70%, would be willing to falsify their earnings reports if thought that they would benefit from it and would not be caught. The business environment, in the opinion of the authors, is much less concerned about ethics than they were two decades ago. The good news is that in the late 1990s business recognized this trend and a recent survey by the Ethics Research Center showed that 90% of employees expected their firm to do what was right and not just what was profitable.7

However, despite this potential reversal of a negative trend in ethics, the authors still recommend that any physician entering a negotiation should be cautious and not assume that the other side will negotiate in good faith until they have proven that they will. In other words, Caveat Emptor.

FIGURE 1. A Diagram of the process in organizations

Chapter Two Summary

1. Mission and value statements are designed to reflect the culture and values of a business organization and give guidance to managers and employees.

2. Business codes are a compilation of institutional, organizational, and personal values.

3. Business statements are the result of extensive input from all stakeholders involved with the firm, the board of trustees, owners, management, employees, customers, suppliers, and the community.

4. Business ethics contrast with medical ethics because business ethics often focus on the greater good while medical ethics generally focus on the individual patient.

5. While many organizations use codes of ethics, the application of these ethics may be inconsistent as different employees interpret the codes in different ways.

6. Caveat Emptor should be applied when negotiating managed care contracts.

7. It is advisable to request a code of ethics from the managed care firm you plan to serve.

CHAPTER THREE The Role of Professional Codes in Managed Care

The law sets minimum standards of behavior. Professional associations usually adopt more stringent guidelines and the professional group does the monitoring of these guidelines. As a result, professional associations have higher standards than the law. From this concept comes the phrase,

It may be legal but unethical. There are hundreds of laws governing managed care on such subjects as emergency care, utilization review, benefits, and appeals. Remember, however, that laws adhere to a minimum standard and obeying the law does not make an individual or organization ethical. Codes of ethics require a higher level of dedication.

Just as the AMA has developed a Code of Ethics for physicians so have organizations that support health care administrators and managed care executives. The highlights of these codes are presented below so that the reader may gain an appreciation of the content of these codes and how they differ.

A summary of the codes from the American Medical Association (AMA), American College of Healthcare Executives (ACHE), and American Association of Health Plans (AAHP) appears below. The ACHE is the professional organization of the majority of hospital administrators and the AAHP is the professional organization for health plans. After the summaries, a comparison of the similarities and differences are presented.

Professional Codes

Professional organizations such as the American College of Health Care Executives (ACHE) and others have professional codes just as the American Medical Association (AMA) does for their membership. In addition to ethical codes, these companies have ethics committees that review violations by the membership. Similar to the medical profession, these organizations require due process hearings before their membership is penalized or the members? privileges revoked.

The codes of the ACHE and American Association of Health Plans (AAHP) are in the appendices to this course. Summary outlines are discussed in this chapter. It is highly recommended that the reader read these statements in full to better understand the values both organizations expect their members to uphold. As the codes are covered, the principle of bioethics to which each applies is shown in parentheses.

American Medical Association

The AMA clearly states that its ethical statements are to benefit the patient; however, it states the physician must also recognize a duty to society, to other health professionals, and to self. The physician should, according to the statements, be competent, compassionate (Beneficence) and have respect for patients (Respect for Persons). The physician should be honest, expose fraud, obey the laws (Fidelity), maintain confidentiality (Confidentiality), inform patients of relevant information (Truth-telling), work as a team member, and contribute to the community. The code also gives a physician the latitude to choose whom to serve.

The Fundamental Elements of the Patient-Physician Relationship recognizes the right to govern one’s own affairs (Autonomy) and receive copies of all medical records (Truth-telling). The code states that the patient has the right to courtesy and respect, (Respect for persons and Beneficence). The elements again emphasize a confidentiality that should be maintained except where laws dictate differently. The physician should also provide treatment as long as medically indicated (Justice). The elements further state that the physician should be an advocate for the patient, and that patients have a right to adequate health care. However, this right is contingent upon society’s willingness to pay if the patient cannot – a major problem.

American College of Healthcare Executives

The ACHE lists the responsibilities of its members as upholding values and ethics, acting with honesty, fairness, and in good faith (Fidelity). NOTE: The term “good faith” is an important concept in negotiation and will be discussed in the next chapter. The ACHE member is also expected to follow all laws, remain competent, and respect confidentiality (Confidentiality).

The code further outlines specific responsibilities to patients, the organization, and to employees. The administrator is expected to evaluate the quality of care, inform patients of their rights (Truth-telling), ensure patients autonomy over their own affairs (Autonomy), ensure confidentiality (Confidentiality), and prevent discrimination (Justice).

When it comes to the organizational responsibilities, the ACHE member is expected to allocate resources in an ethical manner, work to improve services for the community, and be truthful (Truth-telling). NOTE: The words resource allocation and community are concepts that reach far beyond the individual patient.

In regards to the employees, ACHE members are expected to develop a working environment that supports ethical behavior, provides avenues for ethical discussions and reporting of violations, is free from harassment and discrimination (Justice), is safe, encourages maximum use of employee talents, and provides for due process – a term familiar to physicians.

In addition, administrators are expected to avoid conflicts of interest, make full disclosure, and accept no gifts. The code further defines actions related to COMMUNITY and SOCIETY (Justice). In these areas, the ACHE executive is expected to work to meet the needs of the community, ensure reasonable access, be a public spokesperson, and educate the community on health matters.

American Association of Health Plans (AAHP)

The AAHP states that their Code of Conduct has three objectives:

1. Communicate facts about how health plans work for the benefit of the patients.

2. Be responsive to the concerns of patients, physicians, and others to meet the needs of the patient.

3. Strive for high levels of accountability.

The AAHP format is topical and has a section on patient information, patient appeals, patient confidentiality, patient choice, patient access to specialty care, transitioning from one provider to another, emergency care, quality assessment, practice guidelines, utilization management, prescription drugs, and physician application forms.

The patient information section includes provisions on Truth-telling:

  • providing all the information patients need to maintain their health
  • informing the patient about the plan’s structure and benefits
  • informing the patient about Utilization Management, pre-certification and other procedures
  • publishing physician networks
  • informing patients about what pharmaceuticals are covered
  • providing information on how physicians are paid
  • not preventing physicians from discussing all treatment options.

The code of conduct also covers Justice:

  • designing and outlining appeals processes
  • patient access to family physicians
  • access to specialty physicians
  • emergency care

Items that address Confidentiality, Fidelity, and Autonomy are:

  • health plans that safeguard patient information
  • appeal plans that ensure the plan is delivering what it promised
  • patients who have the information they need to make decisions

Nonmaleficence is addressed in the opening lines of the code when the AAHP states that health plans work for the benefit of patients – a broad statement covering Beneficence and Nonmaleficence.

A comparison of the codes of the AMA, ACHE, and AAHP are shown below. Shown is the number of times each item is specifically addressed. The codes imply the principles in numerous phrases but the authors attempted to only count each item where it was specifically addressed. Other readers may record different results; different phrases in the codes could result in varied conclusions.

Respect for Persons is only mentioned specifically in the AMA code, yet the sub-elements of Truth-telling and Confidentiality are covered numerous times in each of the codes. It is noteworthy that Autonomy is not found in the code for the AAHP. This is logical as the patients have turned over some of their rights under Autonomy to the health plan and it is now the patient and health plan together that make the final decisions.

Fidelity (keeping one’s word) is heavily emphasized in the AAHP code but not in the AMA or ACHE code. Health Plans are making great efforts to provide the benefits contracted for and want to make this very clear to the patient, provider, and public.

Beneficence has more emphasis in the AMA code. This, too, is logical as ACHE and AAHP members have less patient contact than physicians do. All three codes imply Nonmaleficence and Beneficence by indicating they are for the good of the patient.

Justice is covered by all codes but receives more emphasis in the ACHE code. This also makes sense because the administrator must ensure justice for not just patients but also employees, payers, and the community.

There are similarities and differences between the objectives and values of these organizations. When one considers the different emphasis in business ethics and medical ethics, the reasons for conflict are evident. More reasons for divergence will be discussed in Chapter Five Ethical Negotiating in Managed Care, and Chapter Six Ethical Issues in Managed Care.

World Medical Association

A summary of all the major principles of bioethics can be found in the oath (the Geneva Oath), oath of the World Medical Association.

I solemnly pledge myself to conconsecrate my life to the service of humanity (Beneficence); I will practice my profession with conscience and dignity; the health of my patients will be my first consideration.

I will respect the secrets which are confided in me (Confidentiality); I will not permit considerations of religion, nationality, race or party politics or social standing (Justice) to intervene between my duty and my patient; I will maintain the utmost respect for human life (Nonmaleficence) even under threat.

I will not use my medical knowledge contrary to the laws of humanity (Justice). I make these promises solemnly, freely and upon my honor (Fidelity).

Chapter Three Summary

1. Codes exist for all individuals involved in the managed care process, physicians, administrators and health plan executives and managers.

2. Administrators and health plan codes are somewhat broader in scope with administrator codes placing heavy emphasis on Justice for all and health plan codes placing heavy emphasis on accountability and delivering the services promised in the contract (Fidelity).

3. All the codes address most of the elements in the four principles of medical ethics.

4. All codes state or imply that they are for the benefit of the patient (Beneficence).

5. The health plan’s emphasis is on Truth-telling, Confidentiality, and Justice.

6. The code for administrators emphasizes Justice for all.

7. The code for physicians places more emphasis on Beneficence than the other codes.

CHAPTER FOUR Ethical Negotiating and Managed Care Contracts

Negotiating Contracts

Good faith negotiating is a phrase used in business to describe ethical behavior in negotiation. Bad faith refers to conducting negotiations unethically.

Good faith is a concept that has developed over time based on the Judean-Christian principles that are the genesis of many of the laws, ethics, and morals of western civilization. The basics of “good faith” can be traced as far back as the Old and New Testaments. From these concepts, good faith has evolved as a common phrase used throughout the history of civilization to describe ethical negotiating.

Good faith is more of an umbrella term for guiding principles. It describes in general terms the philosophy and ethics of the individual or corporation. Specific instances of good faith are deduced from the overall guiding principles.

Before continuing further, the reader should know that in most negotiating books and courses, the term good faith is not addressed. The company or corporation with whom the physician negotiates might not be familiar with the concept.

You will find that your integrity and the integrity of those with whom you negotiate will decide whether the agreement is successful or not. Without good faith and trust, parties will be unable to discuss what their genuine interests are, state their true criteria, and devise innovative options that will make the contract win-win for both parties. When entering a negotiation, look for companies that have a reputation for good faith.

Good faith should result in the following:

  • interests of both parties are met
  • all parties are able to comply with applicable laws
  • parties who have an agreement are able to work in an amiable, trusting relationship so that disagreements or issues about the signed contract can be resolved for the benefit of all concerned
  • all parties are able to follow their professional code of ethics

Trust Between Negotiators

It is said by some that trust is an important ingredient to a successful long-term personal or business relationship. Hence, we would expect trust to be center-stage in discussion about negotiation.

It is easy to grasp the essence of trust, but more difficult to define it. Trust can be defined in terms of self-interested behavior and belief in the social good of others. Jones8 defined trust as not acting opportunistically for one’s own self-interest. Similarly, Butler uses Zand’s definition of trust as a willingness to risk increasing one’s vulnerability to a person whose behavior is beyond one’s control. Therefore, trust has to do with considering the welfare of others before promoting one’s individual benefit.

One study of trust between two people showed that trust is influenced by cognitive and affect- based factors. This means that trust comes from both our thoughts (deduction and induction) about the situation, and our perceptions of that person’s physical and mental appearance. This makes sense on a personal level because experience tells us we would base trust on a particular situation and on our judgment of a certain person. For example, if we were considering entrusting our child’s safety to a babysitter, we would base our decision on cognitive factors such as babysitter’s age, experience in babysitting, and reputation in the community. We would also base our decision on physical appearance, style of dress, and apparent mental state, each of which contributes to our assessment of affect.

Trust between organizations is more difficult, because organizations are complex entities. Key individuals (leaders) play an important role in establishing trust within an organization,11 suggesting that key individuals play an important role in establishing trust between organizations.

Is trust in negotiation a precondition of cooperation or a result of cooperation?

The correct answer is probably, “Trust is both a precondition and a result of cooperation.” Without some degree of trust, negotiation cannot proceed. In fact, Butler has shown that initial trust expectations will lead to information sharing, and that logrolling will be associated with the quantity of information shared between negotiators. Thus, progress in negotiation may be initiated and/or limited by the degree of trust established prior to or during early phases of negotiation. This lends support to the concepts of “developing a relationship” which is important to the pre-meeting conversational banter common in American business meetings. Both styles provide a medium and setting for negotiators to get to know each other, assess each other, and develop a level of trust. In the absence of trust, there is no need to negotiate, since the negotiator cannot predict that the counterpart’s behavior will comply with the negotiated agreement. On the other hand, any interaction with the counterpart will serve to modify the initial perception of trust, consistent with McAllister’s theory that cognitive factors influence trust.

Along with trust, other actions are important in an ethical or good faith negotiation.

1. Maintain confidentiality (Confidentiality)

Discussions, during negotiation of a contract, should be kept confidential for both parties. Confidentiality is a bioethical principle that can be applied in negotiation. Proprietary information discussed during contract negotiations, the agreements, and particularly prices are considered proprietary information. It is a violation of good faith to discuss the negotiations or the results of negotiations with outside parties.

2. Furnish information (Truth-telling)

Good faith requires that both parties report accurate data and figures so that both parties may prepare for the contract. Accurate data and figures are required for utilization review, proposed volume, actuarial risks, and other data on the patient populations. Good faith will also require the full disclosure in the contract of all contract terms, including appendices.

3. Decide issues to be negotiated (Truth-telling)

Good faith requires that both parties put on the table all issues to be discussed. In other words, neither party should hold back on issues that they want as part of the contract. Agreeing on the subject of negotiation is critical to establishing trust.

4. Be able to access the decision-making authority (Beneficence)

Good faith requires that the parties involved in negotiation have the ability to make decisions or have access to the decision-maker. It is extremely difficult to negotiate with those who have the inability to make a decision. If decision-makers are not party to, or readily accessible to a negotiation, it is not considered good faith. Physicians will frequently see this situation with an HMO where the negotiator will have to check with the higher authority. At some point, the physician should be able to discuss the contract with higher authority. If the HMO makes it extremely difficult to reach a higher authority, this is not good faith.

5. Bargain on real issues (Truth-telling)

Good faith requires negotiating on the meat of the contract of the period. Surface issues or minor issues that are only meant to distract from negotiating on the contract are not considered to be good faith.

6. Place agreements in writing (Fidelity)

Good faith requires that any agreement is put in writing, including telephone conversations, letters, and meeting minutes. Verbal agreements lend themselves to errors and misinterpretations at a later date. Good faith requires all discussions be put in writing.

Bad Faith Negotiating

Bad faith is more easily defined than good faith. Bad faith would be giving false statements, offering bribes, giving kickbacks, knowingly violating laws, disregarding the truth or lying.

There is a legal definition of lying. It is intending to mislead, and to accomplish deliberate actions that mislead the party involved. Lying, according to legal description, is also defined as being intensely deceptive. Lying is bad faith. Other examples of bad faith are listed below:

Accepting bribes

Violating laws or encouraging the other side to violate laws (such as antitrust)

Failing to furnish accurate facts and figures for negotiation

Imposing conditions on negotiations before you will begin

Withdrawing offers, such as the HMO or physician making an offer, not a good faith offer, with the intent of pulling it back later

Failure to put agreement(s) in writing

Making public statements outside of negotiation

Not intending to abide by the agreements in the contract

Good faith then, is described as a concept based on the philosophical, religious, and legal heritage of western civilization. To be ethical, the physician should apply the principles of good faith. The physician should also be able to recognize bad faith. For example, if the HMO does negotiate in bad faith, the physician should consider pointing out the bad faith to the HMO and, if the behavior continues, terminate the negotiation. The physician could also insist on expanding the contract so that he or she will be protected from a company that negotiates in bad faith. In other words, leave nothing to chance and have every detail of the contract in writing. If a firm negotiates in bad faith during the negotiation, they will likely act in bad faith during the contract.

For market reasons, physicians may be forced to sign a contract with a specific organization. Make sure the contract has been expanded and the staff is prepared to hold this HMO to the line and take legal action if necessary when their bad faith actions become detrimental to the practice.

As stated earlier there are some overarching concepts that determine good faith actions. Some of these are shown below:

The Rotary Four-Way Test

Rotary International has, in its effort to combine good faith, business ethics and history, devised a Four-Way Test to help determine if actions are ethical in a business situation. This is an excellent guide to use in managed care contracting. The questions are:

  • Is it the truth? (Truth-telling)
  • Will it be beneficial to all concerned? (Nonmaleficence)
  • Is it fair to all concerned? (Justice)
  • Will it build meaningful relationships? (Beneficence)

Utilizing the Rotary Four-Way Test you can determine if your actions and the actions of others are in good faith. Some additional concepts are shown below, that if followed, will make you an ethical negotiator.

When in doubt, don’t. – Saul W. Gellerman

There is a time when integrity should take the rudder from loyalty. – Thomas Watson

Honesty is the cornerstone of all success, without which confidence and ability to perform ceases to exist. – Mary K. Ash

Doing what is right and just and fair – Proverbs 1:3

Do not accept a bribe. – Exodus 23:8

But accurate ways and measures are his delight. – Proverbs 11:1

Value a man who speaks the truth. – Proverbs 16:13

Chapter Four Summary

1. Trust is important in a negotiation.

2. Good Faith is a broad concept that governs ethical negotiating. However, there are specifics that factor into an ethical negotiation, namely, confidentiality, truth-telling, agreeing on the subjects to be negotiated, being able to meet or talk with the decision authority, and placing all agreements, especially verbal, in writing.

3. Bad faith unethical negotiating includes lying, bribes, side-stepping laws, withdrawing offers, and signing an agreement but not intending to live up to its provisions.

4. There are many concepts in good faith negotiating that are similar if not exactly related to concepts in medical ethics.

5. Medical ethical principles can be applied when negotiating.

  • Respect for persons
  • Beneficience
  • Nonmaleficience
  • Justice

These can be applied by using the Rotary Four Way Test and other concepts such as When in doubt don’t, and Do what is just and right and fair.

6. If the physician, for market reasons, contracts with a firm about which he or she has ethical concerns (Caveat Emptor) he or she should either terminate the relationship or address the issues directly with upper level management and assure that the contract is written in excoriating detail, and that any verbal commitments are put in writing.

CHAPTER FIVE Ethical Issues in Managed Care Contracts

Ethical issues abound in managed care contracts and the administration of these contracts. However, before this chapter addresses those issues, some background on the causes for these issues and conflicts is necessary.

When physicians were an independent cottage industry, the only direct relationship was between the patient and the physician. In this case the concepts of medical ethics, Responsibility for Persons (Autonomy, Truth-telling, Confidentiality, and Fidelity) along with Beneficence, Nonmaleficience and Justice were more easily comprehended and applied. The advent of health insurance inserted a third party between the physician and the patient and inserted a third party ethic between the patient and the application of medical ethical concepts.

The population demanded health insurance in order to share the economic risk of catastrophic illness. The public seemed content to see the ensurers and the government handle the paperwork and arrange for payment. As a result, insurers and the government began to manage care. The patients did not understand that by asking the government and insurer to be responsible for the costs and delivery of health care, they transferred some of their rights traditionally held under medical ethics to their government or insurer.

Further detail of this conundrum is outlined below.

I. Respect for Persons

The patient holds the physician responsible for enforcing patient rights but has abrogated their responsibility to the third party through contracts (or by voting to have government control their care).

The patient has unknowingly transferred the relationship of beneficence to third parties whose responsibility is not only to the patient but also to the greater good of society, placing the organization in a situation where it is serving two masters, a situation where it cannot always succeed.

II. Beneficence

This puts the physician in the middle of a no-win situation, attempting to be the patient’s advocate, as specified in the AMA code of ethics, yet dealing with the patient’s contracting entity whom the patient, by assigning his/her rights to a third party, has given different instructions when he/she agreed to the contract.

Not-for-profit hospitals historically served all patients, and charity and kindness was their mission.

However, due to contracts, laws, government regulations and economic constraints, their role has been markedly diminished.

III. Nonmaleficence

The question for the third parties here is, Do no harm to whom? The individual patient, the taxpayer, the stock holders, or society as a whole?

IV. Justice

With the inclusion of third parties in the relationship, the dilemma remains: who decides impartial treatment and who will pay for it? Clearly, it is not the physician and not the patient. The government wants impartial treatment, but as overseers of the purse, and as dictated by the patient and society, they are not willing to pay for these services.

This is a compelling issue and the reasons for this transfer of rights and responsibilities have numerous causes far beyond the scope of this course. However, the fundamental shift of the relationship between physician and patient has been affected far beyond what the patient anticipated when he/she enrolled for insurance. However, society and patients do not, unless there is a trend back to give patients more involvement in the economic decisions that affect their care, intend to alter this agreement. This places the physician in a position of arguing with the patient’s contractor. The patient has, essentially, handed over his/her rights to the HMO, and is distressed when the HMO exercises the terms of the contract for the greater good rather than for the individual. It is no wonder the physician is frustrated and unable to meet the needs of the patient in this environment.

In addition to the above, the managed care contracting process is distant from the patient and deals with administrative issues that are not patient advocate related. The terminology alone (covered lives, cost-benefit, medical-loss ratio, pre-approval) and dehumanizes the process.


Marketing, in its true sense, requires determining the needs of a population and then devising services to meet those needs. Marketing, on the other hand, also includes advertising, or creating demand when consumers either do not realize they have a need or in fact have no need at all but are encouraged to purchase a product. Marketing in managed care is a combination of all of the above.

Marketing in managed care requires researching the needs of the population to be serviced, developing a product for that population, contracting for those services, and insuring the implementation and delivery of those services. In this case, the marketing is in needs assessment, a contract to meet those needs, and the delivery of those services to the population.

Advertising is an attempt to get consumers to purchase a product that has already been developed. Information is disseminated about a particular product and enrollment is sought. The ethical issue is, does advertising seek populations for the benefit of the HMO, or is the advertising addressed to those who have a need and are just being made aware of the product?

The American Hospital Association’s philosophy is that advertising should be used to educate the public about health care services. The advertisement should provide public accountability and may or may not increase market share, and should be truthful, fair, accurate and complete, and not raise unrealistic expectations (Truth-telling, Fidelity, Nonmaleficience, Justice). Comparisons between different health care entities should be fully substantiated. To determine whether the HMO is marketing, (seeking to meet the needs of the population) the marketing materials should be reviewed in light of the statements above. If the materials are intended to meet the needs of the population and educate the public about the services, this is considered ethical marketing. If the advertising is not truthful, fair, accurate, or complete, and raises unrealistic expectations, or provides false promises, it is considered unethical.

Other contract positions may be asked if the managed care contracting care organization can use the physician’s name or practice in the advertising and brochures. The physician should maintain his or her right to review the materials in which their name will be placed and determine whether the marketing brochures meet the ethical guidelines of the industry.

Adverse Selection

Adverse selection is the process of selecting patients that could increase the profitability of the managed health care organization. Selecting could mean choosing high quality patients and leaving out those with the greatest need, or assuring that those with the greatest need are not signed into the managed care agreement. Bioethical principles could be used to determine if adverse selection is negatively affecting individual patients. Insurers should have a broad base – a concept of insurance stating that in order to cover sick patients, healthy patients should be included in order that the premiums from the healthy cover the sick. This makes it the social responsibility of insurance agencies to ensure coverage of the population they underwrite and yet see an adequate return to their stockholders. As a result, HMOs cannot financially sustain losses or enroll all patients that have great medical needs without enrolling healthy patients as well.

Utilization Review

As physicians know, managed care organizations have established bureaucracy to review the services of providers. These offices are complete with reports, forms, denials, appeals, and delays. If the utilization review is intended to improve the quality of medical care, this would be considered ethical. However, if the review is designed to maximize income or minimize service through delays, requiring reports to be complete in the minutia, delaying payments, and refusing to allow providers to deal with those in higher authority, then the UR is unethical. If the HMO has utilization review with the intent of preventing over-utilization and is meant to improve the care provided to patients, the plan could be considered ethical. The physician, however, should still require a summary of the major points in the utilization review plan that is attached to the contract. One note of caution is that many HMOs will attempt to get the physician to sign a contract without seeing the utilization review plan. Utilization review plans are not normally included as part of the main contract, but as attachments. Do not sign a contract without the attachments or seeing

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