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    Ethics and Social Responsibility in Business and Society

    In this module, we examined ethics and, in particular, ethics in the workplace. We also looked at social responsibility as it pertains to businesses (and other organizations) and the communities in which businesses operate. In this assignment, you will evaluate the level or degree to which a business, organization, and/or government agency is engaging in ethical and socially responsible practices. You will present this evaluation from multiple stakeholder perspectives.
    This assignment will comprise 15% of your total course mark. Part A is a report on ethical standards, and Part B is a report on an ethical or corporate social responsibility issue in society. Each question carries the marks as stated for a total of 100 marks.
    Part A: Instructions
    Read the following:
    ï Donaldson, T. (1996, September). Values in tension: Ethics away from home. Harvard Business Review, 74(5), 48ñ62. [available through the TRU library]
    ï Case Study “Google in China” on pages 467ñ479 of your textbook.
    Answer the following two questions.
    ï Note: In answering the questions, you should demonstrate your ability to incorporate and integrate your learning from all aspects of this module. Ensure that you include information from the course material, the readings, your journal, and your own research.
    ï Question 1: Do you feel that it is possible to develop a universal set of ethical standards for business, or do you believe that cultural differences make universal standards impractical and/or impossible? (15 marks)
    ï Question 2: Do corporations have a right and/or a responsibility to influence ethics in the countries in which they operate? Defend your position. (15 marks)
    Part B: Instructions
    Write a 2500-word double-spaced report on corporate social responsibility and related ethical issues in society. You should demonstrate your ability to integrate your learning from all aspects of this module. Ensure that you include information from the course material, the readings, your journal, and your own research. Select a topical, newsworthy issue that involves ethical and social responsibility issues relating to business and society.
    The following are some topic suggestions. Pick one or choose your own topic and discuss it with your Open Learning faculty member if you have any concerns as to whether your topic is appropriate.
    ï Corporate and/or governmental involvement in China despite international criticism of the Chinese government with regard to human rights of Chinese and Tibetan people. You may choose to reflect on the 2008 summer Olympics in Beijing or other issues that have been in the news with regard to Chinaís human rights record.
    ï Privatization of hospital services in one or more provinces in Canada (e.g. Ontario, Alberta and/or British Columbia).
    ï Pharmaceutical companies and the conflict over making HIV/AIDS drugs available in poor countries.
    ï The Bovine Spongiform Encephalopathy (BSE or mad cow disease) outbreak in the Canadian cattle industry.
    ï Corporations manufacturing and distributing genetically modified foods.
    ï Corporations importing toys from manufacturers in China, given the discovery of lead in some toy products produced in that country.
    ï Wal-Mart or other big-box retail giants establishing operations in Canadian towns and cities.
    ï Another ethical or CSR topic of your choice.
    Your report should cover the following:
    ï Section 1. Introduction: Introduce the topic and identify the CSR (and ethical) issue(s) that are of concern. Then, list the stakeholders that influence or are influenced by this issue. Be specific in naming individuals, groups, associations, and/or government bodies. Cite references for your research. (10 marks)
    ï Section 2. Rationale: Analyze the ethics of the issues involved using three of the methods of ethical reasoning (utility, rights and justice) described on pages 88ñ90 of your textbook. Then, indicate which of the three methods you feel is most helpful in evaluating the ethics of the relevant issue(s). Explain the reasons for your choice.

    Note:In Section 2. Rationale, rather than estimating the actual costs and benefits involved, you may simply identity and describe the costs and benefits that you would consider (if actual cost-benefit information is not provided in the literature).
    ï Section 3. Impacts (What does this mean to my family?): Describe the potential and/or real impacts to you and your family. Are these impacts direct or indirect? Briefly explain why. (5 marks)
    ï Section 4. Impacts (What does this mean to my community?): Explore the potential and/or real impacts on the local or site community, as well as real or potential impacts on other communities. Describe these impacts from multiple perspectives, ensuring you represent both community and corporate (or organizational) perspectives.

    ï Section 5. Impacts (What does this mean to my country?): Are there broader impacts or ramifications associated with this issue? If yes, how do this ethical and CSR issue impact business and society in Canada as a whole? If no, explain why not.



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    improve the quality of … of our society using Tools learnt as well as systems model and systems thinking

    What are the right things to do and how can we do them right from the set of tools and techniques you have learnt so far?

    1.Watch the two videos by Russell Ackoff (on blackboard under videos on UoS Home)
    2. From your observations and experiences (in life) pick a target (system, situation, technology etc) where you believe is important to enhance and improve quality of (doing the right thing)
    3.Plan how it can be done using quality tools and systems (doing it right)
    4How do we measure quality and improvement in your methodology? (think about metrics)



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    Reconstruction and Race Relations

    Examine three (3) methods that the overwhelmingly white southerner power structure used after the Civil War to make the exercise of freedom challenging for former slaves.
    Identify three (3) actions which freed people took in order to challenge the efforts of certain white southerners to keep them in a slave status following the end of the Civil War.
    Describe two (2) aspects of the post-Reconstruction political and social climate that left former slaves and other groups vulnerable to discrimination and second class citizenship. Note: Discuss at least two (2) pieces of legislation at the local, state, and/or federal levels during the nineteenth century that solidified the status of African Americans and other non-white Americans.
    Provide two (2) examples of the effects of racial tension from the nineteenth century which have spilled over into American society today.Use at least three (3) quality academic resources in this assignment.

    HIS105 WEEK 3: The New South and the Industrializing West
    Slide 1 Introduction Welcome to Contemporary US History. In this lesson we will discuss an overview of the topics associated with the New South and the Industrializing West.

    Please go to the next slide.
    Slide 2 Topics The following topics will be covered in this lesson:

    The ìNew Southî
    The Industrializing West
    The Populists

    Please go to the next slide.
    Slide 3 The ìNew Southî Beginning in the late 1870s, white southern landowners and entrepreneurs developed a vision of a ìNew Southî, with a modern, industrial economic system.

    As we saw previously, the defeat of the Confederacy, the abolition of slavery, and the death of the plantation economy provided the South with opportunities to build factories and turn raw materials into finished products: cotton into cloth, tobacco into cigarettes, coal and iron ore into steel.

    One of the few successful industries to come out of the New South was the textile industry, which grew quickly due to the widespread availability of cheap labor and cotton, and due to easier transportation made possible by the growing rail system.

    Remember that is the region where small farmers and agricultural tenants, as well as sharecroppers, suffered decades of long hours, low pay, unsafe working conditions, and deplorable living conditions.

    The ìNew Southî boosters argued that, with its plantation economy destroyed by the Civil War and Reconstruction, the South would develop a new economy more attuned to the industrial capitalism that defined the rest of the American economy.
    Please go to the next slide.
    Slide 4 The ìNew Southî, continued The abolition of slavery in 1865 created the potential for a new economic reality for millions of African-American slaves and their former masters. It is true, however, that for some – especially the elderly – the situation did not change much, as in essence, the new free citizens continued to work for those who were their masters during the slavery era. Most of those who did escape slavery found themselves without security, resources, connections, job prospects, and sometimes, basic civil rights. Nonetheless, others adapted immediately to their newfound freedom and thrived.

    Racial disenfranchisement was a major issue. After the war, several Southern states immediately took measures to ensure that African Americans were still subjected to their masters – now called “employers” – who could still have them jailed for disobedience or arrested if they tried to escape. And donít forget that newly freed slaves also faced other drastic civil rights violations. Laws promoting segregation, and otherwise limiting the rights of African Americans, soon became known as “Jim Crow lawsì.

    Some whites, upset by the abolition of slavery and the defeat of the Confederacy, created new groups and organizations such as the Ku Klux Klan and the White League to maintain the privileged social status of the whites, and to punish African Americans who did not fully submit to the old social order. Blacks accused of crimes could be victims of lynching in some extreme situations, and violence was common.

    Please go to the next slide.
    Slide 5 The ìNew Southî, continued Even as moderate white support for the Reconstruction waned in the 1870s, and as African Americans lost many of the political and economic gains they had achieved during Reconstruction, many blacks continued to build communities and maintain some political power. With the resistance of whites to interracial politics and society clearly evident, many African Americans, including Turner and Campbell, emphasized black-centered communities and organizations.

    The ways in which the Reconstruction era allowed for the building of foundations in black communities can be seen in the development of a parallel civil society within black communities, a process that began during Reconstruction and continued throughout the Jim Crow era.

    Ultimately, despite the overwhelming failure of Reconstruction to realize equal citizenship, it was the creation of these frameworks for the development of black communities that maintained the promise of Reconstruction. Through these efforts, African Americans would attain the education, begin the economic development, and build the supportive communities that would be necessary to eventually challenge Jim Crow.

    Please go to the next slide.
    Slide 6 The Industrializing West One of the last barriers to Western expansion was lifted when the Native Americans were placed on reservations. In addition, the expanding railroad could increasingly get people where they wanted to go. Suddenly the resources of the West seemed limitless.
    By far, the most numerous of Western pioneers were the farmers. Chasing after a dream of stable existence working a homestead of their own, thousands of migrant families had their dreams crushed by the harsh realities of Western life, where nature, isolation, politics, and economics all seemed to work against the farmer.
    Under the Homestead Act, any man or woman twenty-one years old or the head of a family could have 160 acres of undeveloped land by living on it for five years and paying eighteen dollars in fees. They were also required to live on the land, build a home, make improvements, and farm the land before they could own it outright.
    Industrial farming refers to the large demand created by the Industrial Revolution for wheat, corn and pig products. The growing railroad system helped move these commodities from the farmers in the West to the consumers in the Eastern cities.
    Bonanza farms were large, extremely successful farms, principally on the Great Plains and in the West, that emerged during the second half of the 1800s. Deliberate government promotion of westward expansion and advances in farming turned some western farms into “bonanzasî, which were sources of great wealth for their owners.
    Please go to the next slide.
    Slide 7 The Industrializing West, continued Aided by the spread of the railroad that increasingly connected West and East, cattle became the major industry in the grasslands that stretched from Texas to Canada until the 1890ís.
    Initially the cattle industry began on a smaller scale in Texas by Mexican cowboys, called vaqueros. In fact, the very Texas ìlonghornî cattle originally came from Mexico. Cowboys herded cattle on long cattle drives from the open range to railroad stations in Kansas. From there, the cattle were transported to Chicago or other eastern cities. The towns that sprang up along the rail lines, such as Abilene and Dodge City, were referred to as ìCow townsî.
    Another lure to the West was provided by the mining industry. Thousands of optimistic Americans, and even a few foreigners, dreamed of finding a large vein of valuable ore and retiring at a very young age. But very few were so lucky. The chances of an individual prospector finding a valuable lode were slim indeed.
    Please go to the next slide.
    Slide 8 The Industrializing West, continued The rapidly industrializing East bore so little resemblance to most of the American West that it was hard to believe the two regions were part of the same country. Except for few urban centers on the coast, the West knew nothing of cities. Instead, the West was an emerging patchwork of homestead farmers, miners, and cattle ranchers. While Easterners tried to make their way in these and other professions, Native Americans desperately clung to the hopes of maintaining their tribal traditions.
    Conflict between whites and Native Americans was as old as the earliest settlements, and the transcontinental railroad became the catalyst for much of the new conflict. Before its completion, the only Americans to venture westward had done so on horseback or Conestoga wagon. Now thousands more could migrate much more quickly, cheaply, and comfortably. As the numbers of white settlers from the East increased dramatically, conflicts with the native Plains Indian tribes did as well.
    On February 8, 1887, Congress passed the Dawes Act, named for its author, Senator Henry Dawes of Massachusetts. This law allowed for the president to break up reservation land, which was held in common by the members of a tribe, into small allotments to be parceled out to individuals. In other words, Native Americans registering on a tribal “roll” were granted allotments of reservation land.
    In the spring of 1882, the Chinese Exclusion Act was passed by Congress and signed by the President. This act provided an absolute ten year moratorium on Chinese labor immigration. For the first time, Federal law barred entry of an ethnic working group on the idea that it endangered the good order of certain localities.
    Please go to the next slide.
    Slide 9 The Populists There were tremendous economic difficulties associated with Western farm life. First and foremost was overproduction. Because the amount of land under cultivation increased dramatically, and new farming techniques produced greater and greater yields, the food market became so flooded with goods that prices fell sharply. While this might be great for the consumer, the farmer had to grow a tremendous amount of food to recoup enough profits to survive the winter.
    Farmers in the South faced additional problems due to sharecropping. They often got stuck in a cycle of poverty and debt due to having to buy their supplies on credit from local stores. Market changes could easily wipe out these farmersí profits.
    Organization was inevitable. Like the oppressed laboring classes of the East, it was only a matter of time before Western farmers would attempt to use their numbers to effect positive change. And assemble they did: -in their gatherings they soon took the name of Populists. In addition to demanding the free coinage of silver, the Populists called for a host of other reforms. Among the most important they demanded was a graduated income tax, where individuals earning a higher income paid a higher percentage in taxes.
    In addition to creating deflation, as we will better explore in the next slide, farmers suggested that the money supply be expanded to include dollars not backed by gold. The first strategy farmers attempted was to encourage Congress to print greenback dollars like the ones issued during the Civil War. Since the greenbacks were not backed by gold, more dollars could be printed, creating a deflationary effect.
    Please go to the next slide.
    Slide 10 The Populists, continued During the 1870s, farmers in the West and South were afflicted by falling prices, increasing debt, and higher interest rates. The Grange appeared as a national movement to express these farmersí discontent. They succeeded in their calls for the regulation of railroad rates and state regulation of businesses operating in the public interest.
    Another response to poor farming conditions was found in 1877 with the creation of the Southern Farmersí Alliance. The primary concerns of the Alliance were twofold: Southern farmers attempted to band together to purchase equipment and supplies in bulk to obtain lower prices, and they also attempted to reverse the trend of farm prices that had been declining since the early 1870s. The Alliance addressed these concerns by fashioning cooperatives and trade agreements, efforts that improved the lot of some farmers.
    The Populists wanted political reforms as well. We need to realize that at this point, United States Senators were still not elected by the people directly; they were instead chosen by state legislatures. The Populists demanded a constitutional amendment allowing for the direct election of Senators. They demanded democratic reforms, such as an initiative in which citizens could directly introduce debate on a topic in the legislatures. The referendum would allow citizens ó rather than their representatives ó to vote a bill.
    Please go to the next slide.
    Slide 11 The Populists, continued The Farmersí Alliance joined forces with the Knights of Labor in 1892 to form the People’s, or Populist, party. Their platform was sweeping, but the most prominent issue was silver. The Populists demanded free and unlimited coinage of silver at a ratio of 16:1 to gold.
    Primarily over the silver issue, Republican William McKinley defeated Populist William Jennings Bryan in the election of 1896. The election was significant not only because it decided the silver question, which turned out to be of little consequence anyway, but because McKinley ran a campaign with a national approach against Bryan’s more insular one that appealed to only certain groups.
    The Populist Movement declined after 1896, when farmers finally began to prosper and Southern Democrats began to gain support by calling for white solidarity.
    Please go to the next slide.

    Slide 12 Check Your Understanding Multiple Choice

    Q. Historians frequently point out that the ìNew Southî wasnít actually all that ìnew,î since the same politicians ended up back in Washington and both freed slaves and poor whites ended up tied to a sharecropping system that left them in debt, usually to the person they worked for. Industrialization did come to the South after the Civil War, but there were few successes. One of these successes is:

    A1. The cattle industry
    A2. The textile industry
    A3. Southern literature
    A4. Populism

    Correct answer: A2

    Feedback: Also thanks to increasingly easier transportation provided by the railroads the textile industry grew fast in the New South because of the large quantity of cheap labor and the wide availability of cotton.

    Please go to the next slide.
    Slide 13 Summary We have now reached the end of this lesson. Letís take a look at what we have covered.
    We began by discussing the desire from Southerners for a ìNew South.î In some ways, the South did change. A myth emerged that the Civil War had been a just war, and that the South had every right to secede, but that the Confederacy had just been overpowered by the size of the Union army and the state of industrialization in the North.
    A number of southern business leaders hoped to change the economic system of the South, but only the textile industry had any real success ñ and since textiles depended on cotton, cotton remained ìkingî in the South. At the same time, white southerners were trying to maintain their sense of cultural superiority over African Americans, even though many of them were dirt poor themselves.
    We then moved on to learn about the industrializing West. Things changed more in the West than in the South, as farming became mechanized. We reviewed the different industries that were booming at this time, the Homestead Act, and the concepts of industrial farming and bonanza farms. We also looked at issues that arose between the farmers and the Native Americans of the region.
    Finally, we looked at the political changes that took place due to the rapidly industrializing West. Whatever changes came, it seemed the farmers always felt left out. The result of this was the Farmersí Alliance, which began with the socializing of the Grange movement and ended with the establishment of a new political party: The Peopleís Party, better known as the Populists. Their strong agenda moved both major parties to take on some of the major Populist issues, and this, as is usually the case, hammered the last nail into the Populist coffin.
    This completes this lesson.



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    My Xylophone

    Object Journey #4 (1st-person diary entry by the object itself)
    A 2-page report covering one additional later point in the object?s journey but told as a first-person diary written by the object: It should refer to its whole life story up to and including that point: where is it and how does it feel about its travels? It can know it?s about to enter a museum if you like, but it needn?t know this.
    Paper incorporates previous ?stops? on object?s journey.



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    Real Life + Class Essay

    write a short paper relating the content of that chapter to contemporary events in the business world. ? Your paper should summarize one articles published in any reputable online business news source (e.g., and relate it to the recent chapter covered in the course. ? Generally, papers should have at least 3 paragraphs. The first should introduce the concept covered in class that you are about to discuss. The second should briefly summarize the content of the article. Finally, the third paragraph should tie the previous two by explaining how the article relates to the concept chosen. ? You must include the URL of the articles you use. Papers without a full and correct URL will not be graded. ? You may only use recent articles published after 6/1/2013. PPT Will Provide for class information



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    use the text Thompson, L. (2011). Making the team. (4th ed.). Saddle River, NJ: Pearson Education Inc" as a reference. Please look at the rubric and please be solid on this.

    In your opinion, what are some of the best ways to spur creativity in teams? How might distance or not being co-located affect how you implement some of those ways?



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    Gambits to Look Out For

    Order Description
    You are negotiating a major contract with the federal government for a G.P.S. Navigation system that only your company makes. The product has been battle tested in numerous actual war time conditions during the past few years. You are the lead negotiator for your company. You know that the individual representing the U.S. Government is adept at saving the government money on acquisitions of high tech equipment that companies like the one you represent make.

    Write a two (2) page paper in which you:
    Discuss the critical behaviors that you should be mindful of during the negotiating process with the industry members in the scenario. Justify your response.
    Compare the fundamental differences between negotiating contracts with the federal government and a personal negotiation in which one is purchasing a new home or a new car.
    Discuss five (2) skills mentioned in Chapter 26 in the text that you believe would be critical for your success negotiating contracts with the federal government. Provide support for your rationale.
    Use at least three (3) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources.
    Your assignment must follow these formatting requirements:
    Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
    Include a cover page containing the title of the assignment, the studentís name, the professorís name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
    The specific course learning outcomes associated with this assignment are:
    Describe the skills and behavior needed for effective negotiations
    Distinguish contracts and purchasing negotiation activities.
    Use technology and information resources to research issues in contracting and purchasing negotiation techniques.
    Write clearly and concisely about issues in contracting and purchasing negotiation techniques.



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    Order Description
    Hume argues for an emotion-based theory of morality. Give an example of what he’s getting at. Do you agree with his view?

    just answer the question.



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    Organisational Behaviour (OB)

    Read the following case studies and answer all the FOUR questions in both Tasks: (Task 1: Question 1- 25 marks; Question 2- 25 marks; Task 2: Question 1- 25 marks, Question 2 ñ 25 marks)

    TASK 1: Motivation

    Equity in Academia

    When the last student left Melinda Wilkersonís office at 5:30 p.m., the young English Professor just sat, too exhausted to move. Her desk was piled high with student papers, journals, and recommendation forms. “There goes my weekend,” she thought to herself, knowing that just reading and commenting on the thirty journals would take up all of Saturday. She liked reading the journals, getting a glimpse of how her students were reacting to the novels and poems she had them read, watching them grow and change. But recently, as she picked up another journal from the bottomless pile or greeted another student with a smile, she often wondered whether it was all worth it.

    Wilkerson had had such a moment about an hour earlier, when Ron Agua, whose office was across the hall, had waved to her as he walked past her door. “Iím off to the Rat,” he announced. “Come join us if you ever get free.” For a moment Wilkerson had stared blankly at the student before her, pondering the scene at the Rathskeller, the universityís most popular restaurant and meeting place. Agua would be there with four or five of the departmentís senior members, including Alice Bordy, the department chair. All would be glad to have her join them . . . if only she didnít have so much work.

    At the start of her first year as an assistant professor, Wilkerson had accepted her overwhelming workload as part of the territory. Her pay-cheque was smaller and her hours longer than she had expected, but Agua and the other two new faculty members seemed to be suffering under the same burdens.

    But now, in her second semester, Wilkerson was beginning to feel that things werenít right. The stream of students knocking on her door persisted, but she noticed that Agua was spending less time talking and more time at his word processor than he had during the first semester. When asked, Agua told her he had reduced his course load because of his extra work on the departmentís hiring and library committees. He seemed surprised when Wilkerson admitted that she didnít know there was such a thing as a course reduction.

    As the semester progressed, Wilkerson realized there was a lot she didnít know about the way the department functioned. Agua would disappear once a week or so to give talks to groups around the state and then would turn those talks into papers for scholarly journalsósomething Wilkerson couldnít dream of having time to do. She and Agua were still good friends, but she began to see differences in their approaches. “I cut down my office hours this semester,” he told her one day. “With all those students around all the time, I just never had a chance to get my work done.”

    Wilkerson had pondered that statement for a few weeks. She thought that dealing with students was “getting work done.” But when salaries for the following year were announced, she realized what Agua meant. He would be making almost £1,000 more than she; the human resources committee viewed his committee work as a valuable asset to the department, his talks around the state had already earned him notoriety, and his three upcoming publications clearly put him ahead of the other first-year professors.

    Wilkerson was confused. Agua hadnít done anything sneaky or immoralóin fact, everything he did was admirable, things she would have liked to do. His trips to the Rat gave him the inside scoop on what to do and whom to talk to, but she couldnít blame him for that either. She could have done exactly the same thing. They worked equally hard, she thought. Yet Agua already was the highly paid star, whereas she was just another overworked instructor.

    As she began piling all the books, papers, and journals into her bag, Wilkerson thought about what she could do. She could quit and go somewhere else where she might be more appreciated, but jobs were hard to find and she suspected that the same thing might happen there. She could charge sex discrimination and demand to be paid as much as Agua, but that would be unfair to him and she didnít really feel discriminated against for being a woman. The university simply didnít value what she did with her time as highly as it valued what Agua did with his.

    Putting on her coat, Wilkerson spotted a piece of paper that had dropped out of one of the journals. She picked it up and saw it was a note from Wendy Martin, one of her freshman students. “Professor Wilkerson,” it read, “I just wanted to thank you for taking the time to talk to me last week. I really needed to talk to someone experienced about it, and all my other professors are men, and I just couldnít have talked to them. You helped me a whole lot.”

    Sighing, Wilkerson folded the note, put it in her bag, and closed her office door. Suddenly the pile of journals and the £1,000 didnít seem so important.

    Answer all the questions (1,500 words)

    1. By applying either MASLOWíS HIERARCYOF NEEDS or HERZBERGíS MOTIVATION-HYGIENE THEORY, explain the factors that have contributed to the dissatisfaction of Wilkerson.
    (25 marks)

    2. How the predicament that Wilkerson is going through could be addressed through VROOMíS EXPECTANCY THEORY?
    (25 marks)

    NB: The answers should briefly explain the theories by providing references (Harvard referencing format).
    TASK 2: Managing Teams
    Teams at Evans RV Wholesale Supply and Distribution Company?

    Evans RV Wholesale Supply and Distribution Company sells parts, equipment, and supplies for recreational vehicles-motor homes, travel trailers, campers, and similar vehicles. In addition, Evans has a service department for the repair and service of RVs. The owner, Alex Evans, bought the company five years ago from its original owner, changed the name of the company, and has finally made it profitable, although it has been rough going. The organization is set up in three divisions: service, retail parts and supplies, and wholesale parts and supplies. Alex, the owner, CEO, and president, has a vice president for each operating division and a vice president of finance and operations. The organization chart shows these divisions and positions.

    In the warehouse there are three groups: receiving (checking orders for completeness, returning defective merchandise, stocking the shelves, filling orders), service parts, and order filling for outgoing shipments. The warehouse group is responsible for all activities related to parts and supplies receiving, storage, and shipping.

    The retail sales division includes all functions related to selling of parts and supplies at the two stores and in the mobile sales trailer. Personnel in the retail division include salespeople and cashiers. The retail salespeople also work in the warehouse because the warehouse also serves as the showroom for walk-in customers.

    In the service department the service manager supervises the service writers, one scheduler, and lead mechanics and technicians. The service department includes the collision repair group at the main store and the service department at the satellite store. The collision repair group has two service writers who have special expertise in collision repair and insurance regulations. Two drivers who move RVs around the “yard” also work in the service division.

    The accounting and finance groups do everything related to the money side of the business, including accounts payable and receivable, cash management, and payroll. Also in this group is the one person who handles all of the traditional personnel functions.

    Alex has run other small businesses and is known as a benevolent owner, always taking care of the loyal employees who work hard and are the backbone of any small business. He is also known as being real tough on anyone who loafs on the job or tries to take unfair advantage of Alex or the company. Most of the employees are either veterans of the RV industry at Evans or elsewhere, or are very young and still learning the business. Alex is working hard to develop a good work ethic among the younger employees and to keep the old-timers fully involved. Since he bought the business, Alex has instituted new, modern, employee-centred human resource policies. However, the company is still a traditional hierarchically structured organization.

    The company is located in a major metropolitan area that has a lot of potential customers for the RV business. The region has many outdoor recreational activities and an active retirement community that either lives in RVs (motor homes, trailers, or mobile homes) or uses them for recreation. The former owner of the business specifically chose not to be in the RV sales business, figuring that parts and service was the better end of the business. Two stores are strategically located on opposite ends of the metropolitan area, and a mobile sales office is moved around the major camping and recreational areas during the peak months of the year.

    When Alex bought the company, the parts and supplies business was only retail, relying on customers to walk in the door to buy something. After buying the business, Alex applied good management, marketing, and cash-management principles to get the company out of the red and into profitability. Although his was not the only such business in town, it was the only one locally owned, and it had a good local following.

    About two years ago, Alex recognized that the nature of the business was changing. First, he saw the large nationwide retailers moving into town. These retailers were using discount pricing in large warehouse-type stores. These large retail stores could use volume purchasing to get lower prices from manufacturers, and they had the large stores necessary to store and shelve the large inventory. Alex, with only two stores, was unable to get such low prices from manufacturers. He also noted that retired people were notorious for shopping around for the lowest prices, but they also appreciated good, friendly customer service. People interested in recreational items also seemed to be following the national trend to shop via catalogues.

    So for a variety of reasons Alex began to develop a wholesale business by becoming a wholesale distributor to the many RV parts and supply businesses in the small towns located in the recreational areas around that state and in surrounding states. At the same time, he created the first catalogue for RV parts and supplies, featuring all the brand-name parts and supplies by category and supplier. The catalogue had a very attractive camping scene on the cover, a combination of attractively displayed items and many pages full of all the possible parts and supplies that the RV owner could think of. Of course, he made placing an order very easy, by phone, mail, or fax, and accepted many easy payment methods. He filled both distributor orders and catalogue orders from his warehouse in the main store using standard mail and parcel delivery services, charging the full delivery costs to the customers. He credits the businessís survival so far to his diversification into the warehouse and catalogue business through which he could directly compete with the national chains.

    Although it is now barely profitable, Alex is concerned about the changes in the industry and the competition and about making the monthly payments on the £5 million loan he got from the bank to buy the business in the first place. In addition, he reads about the latest management techniques and attends various professional conferences around the country. He has been hearing and reading about this team-based organization idea and thinks it might be just the thing to energize his company and take it to the next level of performance and profitability. At the annual strategic planning retreat in August, Alex announced to his top management team that starting on October 1 (the beginning of the next fiscal year), the company would be changing to a team-based arrangement.
    Answer all the questions (1,500 words)

    ï Alex has announced changing the company into a team-based management. What factors should be consider to transform the company into a team-based management? Explain your answer by applying the Team Effectiveness Model (Context, Composition, Work Redesign, and Process).
    (25 marks)

    ï If Alex were to call you in as a consultant, what would you tell him to do? Describe the different types of teams, and justify what type of team (problem-solving team, self-managed team, cross-functional team, and virtual team) would be most suitable to the company.
    (25 marks)

    NB: The answers should briefly explain the theories by providing references (Harvard referencing format).
    Word Limit and weighting for the assessment:
    ï Word Limit ñ Total word limit- 3000 words.
    ï Weight ñ 40% of the module.
    Report Structure:-

    ï Title Page
    ï Table of Content
    ï Executive summary
    ï Introduction
    ï Question 1
    ï Question 2
    ï Question 3
    ï Question 4
    ï Conclusions
    ï References
    ï Bibliography

    Description of Assessment Requirements

    1. All assignments must be word processed ñ handwritten assignments will attract an automatic FAIL grade.

    2. Assignments will be graded on the basis of research done, analysis of the facts collated, stand taken and the justification of the stand.
    3. All research must be referenced using the Harvard Style of Referencing and a Reference and Bibliography list attached. Improper or lack of either of these constitutes plagiarism and students will be awarded a Zero.
    4. Students found copying from other students will also be charged with collusion and awarded a Zero.

    Assessment criteria
    Content-has the question been answered (20 marks maximum)
    ? Weak answer to the question with little or no justification: 1-7
    ? Satisfactory answer with some justification: 8-14
    ? Good answer with good justification: 15-20

    Literature review-Collection of data from a range of sources (35 marks maximum)
    ? Little or no evidence of data: 1-10
    ? Satisfactory range of sources: 11-24
    ? Excellent range of sources: 25-35

    Analysis and evaluation of the case study (35 marks maximum)
    ? Weak analysis with little or no evaluation: 1-10
    ? Satisfactory analysis with some evaluation: 11-24
    ? Good analysis with good evaluation: 25-35
    Presentation, structure and Harvard referencing (10 marks maximum)
    ? Weak presentation, weak structure and poor Harvard referencing: 1-3
    ? Satisfactory presentation, logically structured argument and satisfactory Harvard referencing: 4-6
    ? Good presentation, logically structured argument and satisfactory Harvard referencing: 7-10

    TOTAL MARK: 100 %

    Module Learning Outcomes to be Assessed:-
    ï understand fundamental concepts and principles of management, including the basic roles, skills, and functions of management
    ï understand the nature of change in the organisation.
    ï evaluate the alternative leadership styles and make a decision regarding their appropriate use.

    Marking Scheme

    Topic Marks Possible
    Question 1
    A review of contemporary and academic literature
    Collection of data from a range of sources

    Content and analysis
    Has the question been answered / is the answer focused?

    Question 2
    A review of contemporary and academic literature
    Collection of data from a range of sources

    Content and analysis
    Has the question been answered / is the answer focused?

    Question 3
    A review of contemporary and academic literature
    Collection of data from a range of sources

    Content and analysis
    Has the question been answered / is the answer focused? 10
    Question 4
    A review of contemporary and academic literature
    Collection of data from a range of sources 13
    Content and analysis
    Has the question been answered / is the answer focused?
    Presentation and structure of the assignment including referencing of sources as per the Harvard style. 10
    TOTAL MARK 100



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    Legal Issues case

    to deny, revoke, or restrict the physicianís membership and privileges. In attempting to balance the interests of the hospital,
    its patients, and the infected physician, one approach is to rely on the concept of informed consent. The legal issue is whether hospitals may require
    HIV-positive physicians to give prior notice to their patients about their
    medical condition, as a condition of permitting the physician to treat patients
    at the hospital. In one case, a trial court approved the hospitalís action in
    requiring a surgeon who had AIDS to obtain the specific informed consent of his patients before performing surgery as a condition of restoring
    his surgical privileges.13
    Aside from the issue of the applicantís health status, another controversial issue in credentialing is whether to grant privileges to practitioners who are not trained and licensed as doctors of medicine. Ordinarily,
    nurses do not request staff membership and clinical privileges because they
    are usually employees of the hospital rather than independent practitioners with their own patients. However, many chiropractors, podiatrists, oral
    surgeons, psychologists, nurse-anesthetists, and midwives have applied for
    hospital privileges. Those nonphysician practitioners want the opportunity
    to use the facilities of the hospital for diagnosing and treating their patients.
    Some hospitals and physicians have argued that granting membership and
    privileges to nonphysicians would adversely affect the quality of care provided in the hospital. In response, nonphysicians argue that medical doctors are merely trying to keep out competition and perpetuate their monopoly of hospital services.
    Historically, the Joint Commission required hospitals to limit their
    medical staffs to licensed medical doctors and dentists. This enabled hospitals to use Joint Commission standards as a reason to deny applications from
    practitioners such as chiropractors and podiatrists. However, after challenges
    were made under federal antitrust law, the Joint Commission changed its
    standards to leave the decision up to each individual hospital, subject only
    to the limits of state professional licensure laws. In addition, the Joint
    Commission has broadened the category of practitioners who may be given
    clinical privileges by separating the concepts of staff membership and clinical privileges. According to the Joint Commissionís 2006 Comprehensive
    Accreditation Manual for Hospitals, ì[a]pplicants for membership may
    receive appointment to membership without receiving privileges; applicants
    for privileges need not necessarily be members of the medical staff.î14
    As already discussed, hospitals often enter into exclusive contracts
    with HBPs to provide all of the medical coverage in a particular department of the hospital. In those situations, the physicianís clinical privileges
    may terminate upon expiration of the contract, without the need to demonstrate good cause for terminating those privileges. Alternatively, the
    hospital may permit contract physicians to retain their privileges upon

    Medical Staff Membership and Clinical Privileges

    termination of the contract but effectively prevent them from practicing at
    the hospital by awarding an exclusive contract to someone else.

    Denial or Termination of Membership and Privileges
    As discussed in Chapter 10, in malpractice cases hospitals can be held liable
    for allowing an incompetent physician to provide services in the facility. In
    that type of case, an injured patientóor the estate of a patientówould sue
    the physician for alleged negligence in diagnosis or treatment and may also
    sue the hospital for its own alleged negligence in failing to properly screen
    applicants for clinical privileges. This legal theory of hospital liability is
    referred to as corporate negligence, and it can also be applied to the decision of a network or an MCO permitting a physician to become a participating provider. Under these circumstances, hospitals and other healthcare
    organizations have an incentive to be extremely careful in screening and
    selecting applicants.
    However, if the organization denies the application, it may be sued
    by the disappointed applicant. From the organizationís point of view, it is
    a no-win situation. In effect, the organization has to choose whether it
    would prefer to be sued by an angry practitioner for allegedly unlawful
    exclusion or by patients or their estates for allegedly negligent credentialing. From the practitionerís point of view, the denial or termination of privileges would interfere with the ability to earn a living and cause a lifelong
    injury to professional reputation.
    In the past, physicians who had their privileges revoked might be
    able to get a fresh start by moving to a different part of the country and
    obtaining privileges at a different hospital. Often, cases of threatened revocation were handled by means of a negotiated settlement. In many of
    those cases, the physician would voluntarily resign, and the hospital would
    agree to provide a neutral reference so that the physician could obtain privileges at a different hospital. Although state laws may have required hospitals to report adverse credentialing decisions to the state medical licensing board, those actions were characterized as voluntary resignations, rather
    than as adverse decisions, to avoid the need to make a report.
    Obviously, that system did not address the problem with the physicianís abilities, but merely transferred the problem to another hospital and
    to other patients. Therefore, some states have strengthened their requirements for reporting adverse credentialing decisions to include a voluntary
    resignation under threat of revocation. In addition, the Federation of State
    Medical Boards has established a data bank on physician disciplinary actions,
    and the federal government has established the National Practitioner Data
    Bank (NPDB) pursuant to a 1986 federal statute.15 Under that statute, hospitals and MCOs are required to notify the NPDB of adverse credentialing



    Managing and Regulating the Healthcare System

    actions against physicians. In addition, insurance payments on behalf of
    physicians for medical malpractice must also be reported. Information about
    individual physicians in the NPDB is not available to the public, but hospitals must obtain information from the data bank when physicians apply
    for clinical privileges and every two years thereafter.
    As a mechanism for ensuring patient safety and quality of care, the
    NPDB has had some serious problems because of the reluctance of healthcare organizations to report incidents to the data bank. According to a
    report by the U.S. Department of Health and Human Services Office of
    Inspector General, 60 percent of U.S. hospitals have never reported an
    adverse action, nor have 84 percent of registered MCOs.16 As a practical
    matter, healthcare organizations and physicians have found ways to avoid
    having to file reports to the NPDB, such as resolving credentialing disputes without a reportable adverse action or making payments in malpractice cases on behalf of the hospital rather than on behalf of the physician.
    Despite the weaknesses in the system of reporting to the NPDB,
    more publicity surrounds disciplinary matters than in the past. As already
    discussed, some state governments have strengthened their reporting requirements, and state licensing boards are sharing information about disciplinary actions. In fact, some state boards make information about disciplinary actions available to the public on the Internet.
    Under this more intensive system of reporting and publicity, it is
    much more difficult for a practitioner to simply start over in a new location. This has resulted in more protection for the public as a whole. At the
    same time, the new system increases the economic and professional consequences of an adverse credentialing decision for the affected practitioner.
    Under these circumstances, it is more important than ever to ensure that
    every credentialing decision has a legitimate basis, as well as a realistic way
    to challenge any decision that is improper.
    In some cases, hospitals have revoked clinical privileges for valid reasons, such as incompetence, unethical behavior, and alcoholism or other
    substance abuse. However, some hospitals have also excluded or expelled
    practitioners to prevent them from competing with the hospital or with
    existing members of the medical staff.
    Moreover, in matters of credentialing, the healthcare industry has a
    long history of discrimination on the basis of race, gender, religion, and
    national origin. Before the passage of civil rights legislation, membership
    on some hospital medical staffs was explicitly limited by discriminatory criteria in the medical staff bylaws. Even after the passage of civil rights laws,
    some discrimination in credentialing has continued, but it is usually hidden under expressions of purported concern for the applicantís qualifications or ability to work with others. As in cases of employment discrimination, it may be difficult to determine whether a credentialing decision
    was based on a personís qualifications or on discrimination, in which case

    Medical Staff Membership and Clinical Privileges

    the supposed concern for the personís qualifications was merely a pretext.
    Finally, in the world of complex human relationships, some decisions on
    employment or credentialing involve a mixture of proper and improper

    Judicial Review of Credentialing Decisions
    For the reasons already discussed, a legal remedy must be available by which
    practitioners can appeal an inappropriate denial or termination of their privileges. However, the extent to which credentialing decisions should be subject to review and reversal by the courts is a complex policy issue.
    In fact, tension exists between conflicting public policies in this area
    of the law. On one hand, we want to ensure that practitioners will have an
    effective right of appeal in cases of improper exclusion. However, we also
    want to encourage hospitals and their medical staffs to keep out practitioners who would be likely to pose a danger to the public. In almost all cases,
    those incompetent or unethical practitioners hold licenses from the state,
    which demonstrates that government regulation alone is not sufficient to
    protect the public health and ensure the quality of care. Therefore, we need
    to supplement government regulation with professional self-regulation
    through the mechanism of peer review. The goal for the legal system is to
    develop a remedy that will be effective for the aggrieved practitioner without interfering with the important function of medical peer review in the
    process of credentialing.
    Over time, various legal theories have been in and out of favor as
    possible remedies for allegedly improper credentialing decisions. At first,
    excluded practitioners argued that they had been deprived of their constitutional right to due process of law. However, that has not been an effective theory in this context for several reasons. The constitutional obligation to provide due process of law only applies to units of government,
    such as public hospitals, the actions of which are deemed to be the actions
    of the state. Therefore, a private hospitalís denial or revocation of privileges is not subject to the requirement of due process of law. Under current law, a private hospitalís receipt of Medicare and Medicaid reimbursement or funding from the Hill-Burton program does not turn the private
    hospitalís actions into ìstate action.î17
    Finally, for a public hospital that is subject to the requirements of
    due process, the hospital would only be required to show that it provided
    notice and an opportunity to be heard, as well as some reasonable basis for
    its decision.
    Apart from the constitutional requirement of due process, some
    states have statutes or common-law doctrines that allow courts to review
    the credentialing decisions of private hospitals. Most state courts would



    Managing and Regulating the Healthcare System

    require some evidence that a fair procedure was used and some reasonable
    basis for the decision, but the courtís review of the hospitalís decision would
    be very superficial. Courts recognize that the procedure for credentialing
    hearings may be informal, and the hospital is not required to follow all of
    the procedural requirements of a civil or criminal trial. Moreover, in reviewing the substantive basis for a credentialing decision, courts will ordinarily defer to the judgment of the hospital. As one court has explained,
    No court should substitute its evaluation of such matters for that
    of the Hospital Board . . . Human lives are at stake, and the governing board must be given discretion in its selection so that it
    can have confidence in the competence and moral commitment of
    its staff. The evaluation of professional proficiency of doctors is
    best left to the specialized expertise of their peers, subject only to
    limited judicial surveillance . . . In short, so long as staff selections
    are administered with fairness, geared by a rationale compatible
    with hospital responsibility, and unencumbered with irrelevant
    considerations, a court should not interfere. Courts must not
    attempt to take on the escutcheon of Caduceus.18
    Under these circumstances, and because of the courtís limited standard of
    judicial review, it is very difficult for excluded physicians to prevail in this
    type of case. Even if they were driven out for discriminatory or anticompetitive reasons, they were probably given a written notice in advance and
    some apparent opportunity to be heard. Moreover, the hospitalís written
    decision, which may have been written by the hospitalís attorney, is likely
    to contain a reason that appears to be valid and a recitation of some evidence in support of the decision.
    In addition, state and federal governments have provided immunity
    for most activities in the process of medical peer review. To encourage
    physicians to express themselves freely in the peer-review process, states
    have enacted statutes that provide some immunity for participants and confidentiality for their statements and documents. Similarly, Congress has
    provided immunity from damages for good-faith participation in peerreview activities. That immunity would apply to claims under various legal
    theories, including the antitrust claims discussed in Chapter 9.
    The theory of these state and federal laws is that quality of care
    requires an effective system of peer review, and effective peer review requires
    immunity from damages for the participants. In other words, physicians
    would not participate in the process or provide candid evaluations of their
    peers unless they were given significant protection against the possibility
    of damages and the cost of litigation.
    Theoretically, these state and federal immunities have exceptions that
    preserve the possibility of pursuing legitimate claims. In reality, however,
    it is difficult for a practitioner to obtain effective legal relief, even if the

    Medical Staff Membership and Clinical Privileges

    credentialing decision was made for an improper reason. Thus, our society has made the policy decision to promote quality of care by means of
    professional self-regulation, even though some legitimate grievances by
    practitioners may not be effectively redressed.









    See Joint Commission on Accreditation of Healthcare
    Organizations, 2006 Comprehensive Accreditation Manual for
    Hospitals: The Official Handbook (2006): MS.1.10 [hereinafter
    Official Handbook].
    Id. at MS.2.10.
    Id. at MS.1.10.
    Id. at Elements of Performance for MS.1.10, No. 5.
    Id. at Elements of Performance for MS.1.20, No. 3 (ìThe governing body approves and complies with the medical staff bylaws.î).
    See also Elements of Performance for MS.4.20, No. 5 (authority of
    the governing body).
    Id. at MS.1.30 (prohibiting unilateral amendment of medical staff
    See id. at MS.4.10ñ4.70.
    Id. at Elements of Performance for MS.4.60, No. 3 (appointment
    cannot be longer than two years); Elements of Performance for
    MS.4.20, No. 4 (privileges cannot last longer than two years).
    Id. at Elements of Performance for MS.4.60, No. 5 (ìMembership
    is recommended by the medical staff and granted by the governing
    Id. at Elements of Performance for MS.4.20, Nos. 3, 6, and 7. See
    also id. at Rationale for MS.4.10 (listing the permissible documentation for credentialing).
    Id. at Elements of Performance for MS.4.20, No. 6. See also id. at
    MS.4.80 (the medical staff ís process for handling problems with the
    physical or mental health of its individual members).
    Id. at Elements of Performance for MS.4.20, Note 2 on page MS-22.
    Estate of Behringer v. Medical Center at Princeton, 592 A.2d 1251
    (N.J. Super. 1991).
    Id. at MS-17 (Credentialing, Privileging, and Appointment).
    See Health Care Quality Improvement Act of 1986, Pub. L. No.
    99-660, ßß 421ñ27, 100 Stat. 3743, 3788ñ92 (1986), codified as
    amended at 42 U.S.C. ßß 11131ñ37 (2005).
    U.S. Department of Health and Human Services, Office of
    Inspector General, Managed Care Organization Nonreporting to the



    Managing and Regulating the Healthcare System

    National Practitioner Data Bank: A Signal for Broader Concern,
    OEI-01-99-00690 (May 2001): 4, 8.
    17. See, e.g., Modaber v. Culpepper Memorial Hospital, Inc., 674 F.2d
    1023, 1025ñ26 (4th Cir. 1982).
    18. Sosa v. Val Verde Memorial Hospital, 437 F.2d 173, 177 (5th Cir.




    To provide coverage to persons who are elderly, disabled, or indigent,
    Congress enacted the Medicare and Medicaid laws. The programs that
    resulted from those laws have caused profound changes in the U.S. healthcare system and have made the federal government the largest buyer of
    healthcare services.
    Since the creation of Medicare and Medicaid in the 1960s, many
    legal disputes have raised questions about the meaning and intent of the
    statutes, regulations, and policies that were adopted to implement the programs. In general, those disputes can be categorized as issues of eligibility,
    benefits, or payment. Eligibility refers to the criteria an individual must
    meet to qualify as a beneficiary of the program. In contrast, the issue of
    benefits is a matter of defining the services covered by the program. In
    other words, assuming that a person has qualified as an eligible beneficiary,
    what services are covered and to what extent are they covered? The issue
    of payment refers to the amount of money the program will pay to the facility or practitioner as compensation for providing covered services to an eligible beneficiary, as well as the methodology by which that compensation
    is determined. A separate set of issues involves fraud and abuse of the government payment programs, such as false claims, kickbacks, and self-referrals, which are discussed in detail in this chapter.

    The Medicare Program
    Medicare provides health insurance coverage to approximately 40 million
    people, which makes it the largest health plan in the country. Serious concerns have arisen about the long-term solvency of the program and its ability to meet the needs of the aging baby boom generation. In addition, there
    has been a great deal of dissatisfaction with the limitations on the scope of
    Medicare benefits, particularly in the areas of long-term care and prescription drugs. In 2003, Congress responded to concerns about the lack of



    Managing and Regulating the Healthcare System

    prescription drug coverage by enacting the Medicare Prescription Drug,
    Improvement, and Modernization Act (MMA), which is described later.1
    Nevertheless, concerns persist with regard to the costs and extent of prescription drug coverage under Medicare, and Congress has yet to deal with
    the increasing costs of long-term care.
    The Medicare program was established by federal statute, which is
    referred to as Title XVIII of the Social Security Act. It is a purely federal program administered by the Centers for Medicare & Medicaid Services (CMS),
    formerly known as the Health Care Financing Administration (HCFA), and
    is part of the Department of Health and Human Services (HHS).
    To implement the program, CMS has adopted regulations, which
    are contained in the Code of Federal Regulations and the Federal Register,
    and has published numerous policy manuals on various aspects of the program. In addition, the federal government enters into contracts with private insurance companies to act as intermediaries or carriers on behalf of
    the government and enters into contracts with peer-review organizations
    to review the services rendered to beneficiaries of the program.
    At the time the Medicare program was created in 1965, the intent
    of Congress was merely to provide insurance for elderly persons, not to
    help the larger community or achieve broader social goals. 2 Over time,
    Medicare has become a mechanism to support other goals such as care for
    the indigent, graduate medical education, and healthcare facilities in rural
    areas.3 In addition, Congress uses Medicare participation as a ìhookî by
    imposing various requirements on healthcare providers that choose to participate in that government payment program. In 2000, the U.S. Supreme
    Court concluded that ì[t]he structure and operation of the Medicare program reveal a comprehensive federal assistance enterprise aimed at ensuring the availability of quality health care for the broader community.î4

    Medicare Eligibility and Benefits
    People may qualify for Medicare if they are over the age of 65 years, are
    permanently disabled, or have end-stage renal disease. Part A of Medicare
    primarily covers inpatient hospital services; Part B covers outpatient hospital care, physician services, and some other services and supplies. Although
    Medicare pays for home health services, the program is restrictive about
    paying for nursing home care. In the Balanced Budget Act of 1997 (BBA),5
    Congress created Part C of the Medicare program, now known as Medicare
    Advantage, which allows each beneficiary to choose from a variety of
    approved managed care plans. Alternatively, beneficiaries may choose to
    remain in the traditional fee-for-service program under Parts A and B. In
    the fee-for-service program, beneficiaries have the right to select the provider
    of their choice.6 The 2003 MMA has created a new Part D for prescription drug coverage.

    The Law of Government Payment Programs

    Medicare could be described as schizophrenic because it has two
    inconsistent aspects. In some respects, Medicare resembles an insurance
    plan, because part of the program is funded by premiums that are paid by
    beneficiaries. On the other hand, part of the program is financed by payroll taxes and government revenues. Thus, Medicare also resembles a taxfunded social welfare program, which redistributes wealth among different individuals and groups. In general, Medicare is not means-tested;
    therefore, wealthy retirees can qualify for the program. In fact, some of the
    beneficiaries have much more income and assets than the workers who are
    taxed to support the program. Of course, wealthy and middle-class beneficiaries view the Medicare program as a type of insurance for which they
    insist they already have paid. The MMA takes a significant step toward
    means-testing by requiring beneficiaries with high incomes to pay more
    for Part B coverage.7 As one commentator has pointed out, the move toward
    means-testing could erode the level of political support for the Medicare
    program as a whole.8
    As discussed in Chapter 11, the U.S. Constitution does not require
    Congress to establish and maintain a Medicare program. In other words,
    Congress had the authority to create a Medicare program, but it was not
    constitutionally obligated to do so. In the absence of a constitutional mandate, Congress has considerable flexibility to determine which groups of
    people to assist and which services to cover. In addition, Congress has the
    legal authority to change or even eliminate the Medicare program on a
    prospective basis, regardless of the expectations of beneficiaries or the financial contributions of employees.9 Of course, eliminating the Medicare program altogether would not be politically feasible and would certainly not
    be desirable. However, to maintain the long-term solvency of the program,
    Congress may find it necessary in the future to reform the program in ways
    that would be detrimental to the interests of beneficiaries, and it certainly
    has the legal authority to do so.
    As one type of fundamental reform, some have argued in favor of
    changing Medicare to a premium support or voucher system. Under that
    type of system, the government would not act as an insurer and would not
    pay the medical bills incurred by beneficiaries. Instead, the government
    would give beneficiaries a sum of money or a voucher to purchase the coverage of their choice in the private health insurance market. This type of
    approach would be similar to a defined contribution retirement plan or
    401(k) plan, in which the employees make their own investment decisions
    with the money contributed by their employers. Obviously, changing the
    Medicare program in that manner would have advantages and disadvantages, and the proposal has been met with strong opposition as well as support. Compounding this issue are political and philosophical disputes about
    the appropriate roles of government and the private sector.



    Managing and Regulating the Healthcare System

    Medicare Payment Issues
    Providers are not legally required to participate in the Medicare program,
    even though participation may be a financial necessity as a practical matter. Because participation is voluntary, the federal government has broad
    authority to impose conditions on healthcare facilities and practitioners
    who choose to participate. In imposing those conditions of participation,
    the government is acting as a buyer, rather than a regulator. However, the
    government is a unique type of buyer, because it has the power to fine or
    imprison healthcare providers who violate its rules.
    The Medicare statute explicitly prohibits federal control of the practice of medicine or the operation of healthcare facilities.10 Nevertheless,
    courts have allowed the Medicare program to limit the payment of providers
    and use mechanisms of cost containment.11 Therefore, the government has
    the power to limit the rate of payment for each type of service and may
    impose administrative requirements for receipt of payment.
    From the providerís point of view, the relationship with the government may appear to be a contractual arrangement, in which the facility or
    practitioner performs services for beneficiaries and receives payment from
    the government for providing those services. However, courts have held
    that the providerís relationship with the government is more than merely
    a contract to perform services in exchange for payment. The U.S. Supreme
    Court has held that providers, as well as patients, are recipients of benefits
    under the federal Medicare program.12
    Moreover, by receiving Medicare reimbursement, a healthcare facility becomes a recipient of federal financial assistance and thereby subjects
    itself to the requirements of additional federal laws.13 However, the mere
    receipt of federal reimbursement does not turn any action of a private hospital into an action of the state; therefore, private hospitals are not subject
    to the same constitutional obligations as government agencies.14
    Almost any licensed provider may choose to participate in the
    Medicare program and receive payment for treating Medicare beneficiaries. The methodology for paying each type of provider is set forth by statute
    and can be quite inflexible. Historically, the program could not pay more
    to particular providers as compensation for a higher level of quality or efficiency. However, in recent years, the Medicare program has developed
    some ìpay for performanceî initiatives and has authorized several demonstration projects to experiment with alternative methods of purchasing services and compensating providers.15
    Originally, the Medicare program paid hospitals for services rendered
    to Medicare patients on the basis of retrospectively determined costs. In
    effect, the government looked at all of the costs that the hospital had
    incurred during the previous year and then paid the hospital the portion
    of the costs that was attributable to the treatment of Medicare beneficiaries. This payment methodology required each hospital to prepare detailed

    The Law of Government Payment Programs

    cost reports listing each item of cost in each department of the hospital
    and allocate various overhead costs to particular allowable and nonallowable cost centers. Of course, the government or its intermediaries had to
    audit those cost reports, and frequent disputes occurred over the amount
    of reimbursement to which the hospital was entitled.
    In addition to being incredibly complex, this system of
    retrospectiveñcost based reimbursement was inherently inflationary. For
    example, if 50 percent of a hospitalís patient days were for the treatment
    of Medicare patients, the Medicare program would reimburse the hospital
    for approximately 50 percent of the hospitalís costs, including the costs of
    building new facilities and acquiring new equipment. Therefore, the hospitalís management and board could build and equip new facilities without much risk, even if the additions were not absolutely necessary, because
    the government was expected to pay almost half of the cost. Just as taxpayers might be more inclined to make expenditures if they are tax
    deductible, hospitals had an incentive to spend money and no real incentive to economize.
    For that reason, the Medicare program eliminated retrospectiveñcost
    based reimbursement of hospitals and replaced it with a new prospective
    payment system (PPS). Under PPS, a hospital that treats a Medicare patient
    will receive an amount of money that is determined prospectively (i.e., in
    advance of treating the patient). The amount of that payment will depend
    on the patientís diagnosis, which will be placed in one of about 500 diagnosis-related groups (DRGs). Because the payment to the hospital is not
    based on the hospitalís costs, the hospital has no incentive to increase its
    costs as a way of maximizing its Medicare reimbursement.
    In fact, the incentive under PPS is just the opposite. If an inpatient
    remains in the hospital for a long time and receives a lot of expensive tests
    and treatments, the cost for treating that patient will probably exceed the
    prospectively determined amount for that DRG, and the hospital will lose
    money on treating that particular patient. However, if the hospital can treat
    the patient for less than the DRG amount, the hospital essentially makes a
    profit on that particular patient. Thus, some people say hospitals now have
    an incentive to discharge patients ìquicker and sicker.î
    Significantly, a hospital has only a limited ability to control its costs
    for treating a particular patient. As discussed in Chapter 7, decisions on
    when to discharge a patient and what services to provide are made by the
    physician, who is often not an employee of the hospital. Nevertheless, some
    hospitals have tried to encourage their physicians to discharge Medicare
    patients as soon as possible and to consider how their decisions regarding
    tests and treatments affect the hospital financially. Some hospitals have even
    tried to give their physicians financial incentives to reduce the cost of treatment. However, Congress has prohibited hospitals from paying physicians
    to reduce the level of services for Medicare and Medicaid patients.16



    Managing and Regulating the Healthcare System

    Over the years, Congress has tried to reduce Medicare expenditures
    by expanding the application of PPS to additional categories of cost and
    additional types of service. For example, the BBA of 1997 replaced cost
    reimbursement for skilled nursing facilities and home health agencies with
    new PPS.
    When the Medicare program was enacted, physicians were paid on
    the basis of ìreasonable charges,î which were similar to the charge screens
    used by commercial insurers. Subsequently, Medicare adopted the ResourceBased Relative Value Scale, under which the program pays more for physician services that require a higher level of training and resources. In addition, the Medicare program limits the amounts physicians may charge for
    services rendered to Medicare patients.
    One of the most controversial issues is whether a willing patient may
    enter into a private contract with a willing physician to pay more than the
    limit for services that are covered by the Medicare program. For example,
    if a private insurance company would pay $200 for a particular physician
    service, and if Medicare would pay only $100 for that service, a physician
    might decide to not accept any more patients who are covered by the
    Medicare program and instead devote more time to treating privately insured
    patients. To obtain the services of that particular physician, some Medicare
    patients might be willing to pay the $200 out of their own pocket, or at
    least the incremental difference of $100, assuming they can afford to do
    so. However, the law severely restricts the ability of Medicare patients and
    their physicians to enter into that type of contract. Under ß 4507 of the
    BBA, Medicare patients may only contract privately for covered services if
    the physician agrees not to bill Medicare for any services to any patient for
    a period of two years. In other words, the only way a physician can privately agree on a higher charge for a covered service is by dropping out of
    the Medicare program for at least two years, which would be totally impractical for most physicians.
    Supporters of private contracting argue that Medicare should not
    interfere with the free-enterprise system. Moreover, they argue that the
    prohibition against private contracts denies access to the services of desirable physicians and prevents those who are willing from purchasing services of higher quality. Opponents respond that private contracting would
    force patients to pay higher fees for physician services, would put elderly
    patients at a disadvantage in bargaining with their physicians, and would
    effectively create one Medicare program for the rich and one for the poor.
    Out of this debate came at least two pieces of proposed legislation.
    In the 105th Congress, Senator Jon Kyl (R-AZ) proposed expanding the
    opportunities for private contracting by sponsoring the Medicare Beneficiary
    Freedom to Contract Act of 1997.17 In response, Representative Pete Stark
    (D-CA) introduced a bill to emphasize the vulnerability of Medicare patients

    The Law of Government Payment Programs

    in attempting to negotiate with their physicians. Representative Starkís bill
    is entitled ìA bill to amend title XVIII of the Social Security Act to limit
    the ability of physicians to demand more money through private contracts
    during periods in which the patient is in an exposed condition.î18
    Many providers complain that the Medicare program does not adequately pay for services rendered to Medicare patients and that the government has refused to provide appropriate increases in rates of payment.
    As a political matter, Congress may find it easier to cut payments to providers
    or reduce the rate of increase in payments to providers, rather than cutting
    Medicare benefits or increasing taxes and premiums. However, at some
    point, there is a danger that reductions in provider payments may have
    adverse effects on quality and access to care, especially if providers are
    unable to shift their costs to private payers in the competitive system of
    managed care.

    Medicare Managed Care and Part C (Medicare Advantage)
    For several years, members of Congress from both political parties have
    attempted to reform the Medicare program in an effort to use the costsaving mechanisms of managed care and provide more choices to beneficiaries. Although Medicare had a health maintenance organization program for many years, only a small percentage of Medicare patients were
    enrolled in managed care plans. In 1997, as part of the BBA, Congress
    added the Medicare+Choice system as Part C of the Medicare program.
    Under the 1997 amendments, a beneficiary could remain in the traditional
    fee-for-service program under Parts A and B or could choose from a variety of qualified Medicare+Choice plans under Part C.
    In the 2003 MMA, Congress again revised the Medicare managed
    care program. Beneficiaries may now choose to join a Medicare Advantage
    Plan, which is operated by a private company and approved by the Medicare
    program. In a Medicare Advantage Plan, the beneficiaryís premiums and
    copayments may be lower than in traditional Medicare, and the Medicare
    Advantage Plan might provide some additional benefits. However, the
    Medicare Advantage Plan might impose additional restrictions, such as limiting the choice of physicians and requiring approval to consult a specialist. Each beneficiary has the option to remain in the traditional fee-forservice program under Parts A and B and, in fact, that is the default option
    unless the beneficiary elects to join a Medicare Advantage Plan.
    Under traditional fee-for-service Medicare, the government acts as
    an insurer and bears the risk of having to pay for all of the covered services needed. In contrast, Part C operates somewhat like a voucher system
    or a defined contribution pension plan. If the beneficiary chooses a Medicare
    managed care plan, the government will make a specified payment to that
    plan on behalf of the beneficiary, instead of paying the expenses actually



    Managing and Regulating the Healthcare System

    incurred by the beneficiary under Parts A and B. In that way, the government can shift the risk of unanticipated expenses to the managed care plan.
    In addition to limiting the governmentís potential liability, the government
    is in the politically advantageous posture of providing desirable benefits to
    the voters while forcing the private managed care plans to make the difficult and unpopular decisions on utilization review and denial of care.

    The Medicare Prescription Drug Benefit (Part D)
    In 2003, Congress enacted the MMA, which creates a new Part D for prescription drug coverage.19 Beneficiaries are not required to enroll in Part
    D, but they may choose to enroll by joining a Medicare drug plan or a
    Medicare managed care plan that includes prescription drug coverage.
    Medicare drug plans are operated by health insurance companies or other
    private companies that are approved by the Medicare program. If the beneficiary chooses a Medicare Advantage Plan under Part C, that plan might
    also include coverage for prescription drugs.
    The MMA includes complex rules with regard to alternatives, costs,
    and coverage. Different plans may have different levels of coverage and different costs. In addition, Medicare prescription drug plans may have a gap
    in coverage after the beneficiary exhausts the standard amount of coverage and before the beneficiary qualifies for the catastrophic coverage. This
    gap is referred to as the ìdoughnut hole.î
    One of the most controversial issues in the Medicare prescription
    drug program is whether the federal government should negotiate prices
    directly with pharmaceutical manufacturers or, alternatively, rely on private drug plans to negotiate with manufacturers. Rather than using
    Medicareís usual system of government-administered pricing, the MMA
    prohibits HHS from establishing the prices or formularies under Medicare
    Part D and participating in those negotiations with manufacturers.20 In
    a subsection of the law entitled ìnoninterference,î Congress provided
    that the Secretary of HHS ìmay not interfere with the negotiationsî
    between pharmaceutical manufacturers and the sponsors of private presctiprtion drug plans.21
    Some people have objected to the noninterference provision and
    have argued that the federal government should attempt to negotiate for
    lower drug prices on behalf of Medicare beneficiaries. On January 5, 2007,
    Congress began consideration of a bill that would require HHS to negotiate prices with drug manufacturers, ìincluding discounts, rebates, and
    other price concessions.î22 Although this proposal appears to present a way
    of reducing costs for the Medicare program, the Congressional Budget
    Office (CBO) concluded that HHS would not be able to negotiate more
    favorable prices than those currently available to prescription drug plans.
    CBOís cost estimate on the proposed legislation follows.

    The Law of Government Payment Programs

    January 10, 2007
    Honorable John D. Dingell
    Committee on Energy and Commerce
    U.S. House of Representatives
    Washington, DC 20515
    Dear Mr. Chairman:
    At the request of your staff, the Congressional Budget Office has reviewed
    H.R. 4, the Medicare Prescription Drug Price Negotiation Act of 2007, as introduced on January 5, 2007. The bill would revise section 1860D-11(i) of the Social
    Security Act, which is commonly known as the ìnoninterference provisionî
    because it prohibits the Secretary of Health and Human Services from participating in the negotiations between drug manufacturers, pharmacies, and sponsors of prescription drug plans (PDPs) involved in Part D of Medicare, or from
    requiring a particular formulary or price structure for covered Part D drugs.
    H.R. 4 would require the Secretary to negotiate with drug manufacturers
    the prices that could be charged to PDPs for covered drugs. However, the bill
    would prohibit the Secretary from requiring a particular formulary and would
    allow PDPs to negotiate prices that are lower than those obtained by the
    Secretary. The bill would also require the Secretary to report to the Congress
    every six months on the results of his negotiations with drug manufacturers.
    CBO estimates that H.R. 4 would have a negligible effect on federal spending because we anticipate that the Secretary would be unable to negotiate
    prices across the broad range of covered Part D drugs that are more favorable
    than those obtained by PDPs under current law. Since the legislation specifically directs the Secretary to negotiate only about the prices that could be
    charged to PDPs, and explicitly indicates that the Secretary would not have
    authority to negotiate about some other factors that may influence the prescription drug market, we assume that the negotiations would be limited solely
    to a discussion about the prices to be charged to PDPs. In that context, the
    Secretaryís ability to influence the outcome of those negotiations would be
    limited. For example, without the authority to establish a formulary, we believe
    that the Secretary would not be able to encourage the use of particular drugs
    by Part D beneficiaries, and as a result would lack the leverage to obtain significant discounts in his negotiations with drug manufacturers.
    Instead, prices for covered Part D drugs would continue to be determined
    through negotiations between drug manufacturers and PDPs. Under current
    law, PDPs are allowed to establish formulariesósubject to certain limitsóand
    thus have some ability to direct demand to drugs produced by one manufacturer rather than another. The PDPs also bear substantial financial risk and
    therefore have strong incentives to negotiate price discounts in order to control their costs and offer coverage that attracts enrollees through features such



    Managing and Regulating the Healthcare System

    as low premiums and cost-sharing requirements. Therefore, the PDPs have both
    the incentives and the tools to negotiate drug prices that the government, under
    the legislation, would not have. H.R. 4 would not alter that essential dynamic.
    I hope this information is helpful to you. The CBO staff contacts for further
    information are Eric Rollins and Shinobu Suzuki.
    Donald B. Marron
    Acting Director
    cc: Honorable Joe Barton
    Ranking Member

    The Medicaid Program
    Medicaid is a means-tested, social welfare program that uses tax revenues
    to provide health coverage for persons who cannot afford private health
    insurance. Unlike Medicare, which is a purely federal program, Medicaid
    is operated and funded by both state and federal governments. This situation gives rise to interesting issues of federalism, as well as occasional disputes over the powers and duties of each level of government.

    An Exercise in Federalism
    The federal Medicaid statute, known as Title XIX of the Social Security Act,
    was enacted by Congress pursuant to its conditional spending power. By means
    of that statute, Congress makes an offer to the government of each state. If
    a state establishes a medical assistance program that meets all of the federal
    standards, the federal government will provide a large share of the cost of that
    program in the form of federal financial participation (FFP). In other words,
    states have the option to establish a medical assistance program, but they are
    not required to do so. Even though the program is voluntary, every state has
    established a Medicaid program to obtain its share of FFP.
    If a state decides to participate, it is legally required to comply with
    the federal statutes and regulations, and state agencies are required to submit a Medicaid plan to HHS for approval. Even after the stateís plan is
    approved, the secretary of HHS has the authority to terminate all or part
    of a stateís FFP if the state violates federal requirements. Although the state
    program must meet minimum federal requirements, states have flexibility
    in some aspects of their programs, and the federal government may grant
    waivers of specific federal requirements at the request of a state.
    One of the federal standards that some states have sought to avoid
    is the requirement that beneficiaries are entitled to their free choice of
    provider. That federal requirement interfered with efforts by state
    agencies to develop managed care programs for their Medicaid beneficiaries.

    The Law of Government Payment Programs

    Therefore, Medicaid officials in many states had asked the federal government to waive the requirement for free choice of provider. In 1997, Congress
    simplified the process by enacting ß 4701 of the BBA, which allowed states
    to put most Medicaid beneficiaries into managed care programs without
    requesting a federal waiver.
    Some people think the federal government should give the states
    even more flexibility to design and operate their own medical assistance
    programs without having to meet federal requirements or request a federal waiver. In 1995, the Republican-dominated House of Representatives
    passed a bill to change Medicaid to a block-grant system, under which the
    federal government would provide funding for the individual states to operate their own medical assistance programs. 23 However, the Democratic
    minority in Congress argued that eliminating federal standards would have
    an adverse effect on Medicaid beneficiaries. Eventually, the bill containing
    the Republican block-grant proposal was vetoed by President Clinton, but
    that did not end the dispute over the appropriate role for the federal and
    state governments in the Medicaid program.
    With regard to enforcement, the federal Medicaid statute makes it
    clear that the Secretary of HHS has the ability, by threatening to reduce
    or terminate federal funds, to compel state Medicaid agencies to comply
    with federal laws. However, disagreements have occurred over whether
    Medicaid beneficiaries and providers have the right to sue state Medicaid
    agencies in federal court to require a state to comply with federal statutes
    and regulations.24 The mere fact that a federal law exists on a subject does
    not necessarily mean individuals have a private right of action as a means
    of enforcing that law.

    Eligibility for Medicaid
    As a social welfare program, Medicaid eligibility is restricted to persons
    with limited income and assets. Some people are considered to be categorically eligible for Medicaid because they fit within certain categories of persons on public assistance. In the past, persons receiving cash payments
    under the Aid to Families with Dependent Children program were categorically eligible for the Medicaid program, as were disabled persons who
    received payments under the Supplemental Security Income program.
    However, the 1996 welfare reform legislation abolished the Aid to Families
    with Dependent Children program, substituted the new Temporary
    Assistance for Needy Families program, and made categorical eligibility for
    Medicaid more complicated.
    Medicaid eligibility is limited to U.S. citizens and to those
    immigrants who fit within the category of ìqualified aliens.î Thus,
    undocumented aliens are generally not eligible for Medicaid, but there is
    an exception for emergency treatment, including labor and delivery. In
    addition, Section 6036 of the Deficit Reduction Act of 2005 requires states



    Managing and Regulating the Healthcare System

    to document the citizenship status of Medicaid applicants and recipients,
    and requires participants to prove their citizenship status with documentary evidence.25
    In addition to qualification for Medicaid as ìcategorically needy,î
    some people may qualify for Medicaid as ìmedically needyî if they have
    very high medical expenses. For example, people with chronic conditions
    may spend so much money on medical care that they ìspend downî to the
    poverty level, in which case they may qualify for Medicaid.
    Similarly, many residents of nursing homes will exhaust all of their
    resources and thereby qualify for Medicaid. Most Americans do not have
    long termñcare insurance, and most health insurance policies will not pay
    the cost for room and board in a nursing home, which can be extremely
    expensive. In addition, the Medicare program is restrictive about paying
    for nursing home care. Therefore, even if people enter nursing homes as
    private, paying residents, they may quickly exhaust their remaining funds,
    at which time the Medicaid program may become responsible for their
    expenses. For this reason, Medicaid is not merely a program for recipients
    of public assistance. It is also a way of paying the nursing home costs for
    many middle-class retirees, instead of imposing those costs on their own
    adult children.
    Some people go so far as to transfer their remaining assets to other
    family members as a way to qualify for Medicaid, a practice that raises
    several legal and ethical issues. Some people believe it is unethical for
    wealthy retirees to give substantial assets to their adult children and then
    apply for Medicaid when they have no more resources. However, others respond that people who worked hard and paid taxes for 40 or 50
    years ought to be able to leave some of their money or property to their
    families, without having every penny dissipated for nursing home care.
    As a legal matter, people who transfer assets for less than fair market
    value within a certain number of years before entering a nursing home
    and applying for Medicaid may be disqualified for nursing home benefits for several years. 26

    Medicaid Benefits
    As in other aspects of the Medicaid program, states have some flexibility on
    the issue of which benefits to cover, provided that the states meet the basic
    requirements established by federal law. In fact, federal law specifies services
    all states must cover, services states may cover at their option, and services
    states may not cover at all with funds from the Medicaid program. If a state
    chooses to do so, it may offer certain optional services, such as eyeglasses,
    and the state will receive FFP for the cost of those optional services.
    The minimum federal requirements are different for the categorically needy and the medically needy. 27 In addition, special service
    requirements are in place for eligible beneficiaries under the age of 21 years,

    The Law of Government Payment Programs

    for whom the state is required to provide ìearly and periodic screening,
    diagnostic, and treatment services,î or EPSDT. 28 For childrenís health
    advocates, the EPSDT requirement may also provide a mechanism to obtain
    important services that would otherwise be unavailable as a result of limitations on specific services.29
    In regard to required services, the federal regulation at 42 C.F.R.
    ß 440.230(c) provides that a state ìmay not arbitrarily deny or reduce the
    amount, duration, or scope of a required service . . . to an otherwise eligible recipient solely because of the diagnosis, type of illness, or condition.î In other words, a state Medicaid agency may limit a service on the
    basis of medical necessity, but it may not provide less coverage on the basis
    of the particular type of illness. For example, the Iowa Medicaid agency
    decided that it would not pay for sex-change operations, on the grounds
    that they are never a medically necessary treatment for the condition of
    transsexualism. However, a sex-change operation, which is also known as
    sex reassignment surgery, is the only available treatment for that condition.
    Therefore, a federal court of appeals ruled that Iowa was arbitrarily denying services to Medicaid beneficiaries solely because of the diagnosis, type
    of illness, or condition.30 Even though Iowa may want to use its limited
    Medicaid funds for other purposes, federal law provides that Iowa cannot
    deny required Medicaid services on the basis of the patientís condition,
    which in that case was transsexualism.
    Obviously, that type of case raises difficult policy issues of how to
    allocate limited financial resources, as well as interesting issues of federalism. Similar issues have arisen in cases seeking Medicaid funding for expensive organ transplants.31 In those cases, a stateís refusal to pay for the transplant may cause the death of an identifiable child or adult. Instead of paying
    for the transplant, however, the state could use that money to provide
    healthcare services to hundreds of people. Those unidentified people may
    go without care if the federal government forces the state to use its Medicaid
    funds to pay for the transplant. Aside from the ethical issue of determining the ìrightî thing to do are separate issues of determining who should
    make the decision and how the decision should be made.
    Several years ago, the state of Oregon squarely addressed these difficult questions by requesting a federal waiver as a demonstration project
    for its state Medicaid program.32 In addition to using the techniques of
    managed care, Oregon wanted to avoid the federal requirements on
    the broad scope of covered services and procedures. First, Oregon used a
    public process to prioritize different procedures in terms of their cost and
    benefit and then decided to cover only those procedures that ranked above
    a particular cutoff point on the list. With the money Oregon would save
    by not covering low-ranking procedures, it would expand Medicaid eligibility to many more people in the state. Obviously, that proposal required
    a waiver from the federal government. Among other problems, it might



    Managing and Regulating the Healthcare System

    constitute a denial of service solely because of the type of illness or condition, which would violate federal Medicaid law. Moreover, there were some
    initial concerns that the Oregon plan might discriminate against disabled
    persons, in violation of the Americans with Disabilities Act, by refusing to
    cover procedures that are needed by persons with disabilities. Eventually
    those concerns were resolved, and the federal government granted the
    Medicaid waiver. In doing so, the federal government took an important
    step toward state flexibility in the Medicaid program and permitted an
    interesting experiment in rationing care.
    With regard to services states may not cover, the federal law known
    as the Hyde Amendment generally prohibits the states from using Medicaid
    funds to pay for abortions. Thus, states have the option to use their own
    non-Medicaid funds to pay for lawful abortions but ordinarily may not use
    Medicaid funds, which include a large percentage of FFP.
    As discussed in Chapter 13, abortion at an early stage of pregnancy
    is a lawful procedure, which state governments may not prohibit or prevent. Therefore, some people have argued that the government is required
    to pay for that lawful procedure, especially because the government pays
    for prenatal care, delivery, and other pregnancy-related services. However,
    the U.S. Supreme Court has rejected that argument and has held that the
    government may prohibit the use of Medicaid funds to pay for abortions.
    In other words, the government cannot stop a woman from choosing to
    have an abortion at an early stage of pregnancy, but the government is not
    obligated to pay for the chosen procedure. As the Supreme Court has
    [I]t simply does not follow that a womanís freedom of choice carries with it a constitutional entitlement to the financial resources
    to avail herself of the full range of protected choices . . . although
    government may not place obstacles in the path of a womanís
    exercise of her freedom of choice, it need not remove those not of
    its own creation. Indigency falls in the latter category. The financial constraints that restrict an indigent womanís ability to enjoy
    the full range of constitutionally protected freedom of choice are
    the product not of governmental restrictions on access to abortions, but rather of her indigency.33
    In addition, the Supreme Court reasoned that Congress has a legitimate
    interest in protecting potential life; therefore, Congress may give financial
    incentives to women on Medicaid to encourage them to choose childbirth
    over abortion.34 Although many people would disagree with the Supreme
    Courtís reasoning, it is currently the law of the land. However, some state
    supreme courts have held that there is a right to public funding of abortion under their state constitutions.35

    The Law of Government Payment Programs

    Medicaid Payment Issues
    Because of budgetary limitations and increasing costs, states have tried to
    reduce Medicaid payments to healthcare facilities and practitioners, or at
    least reduce the rate of increases in those payments. As discussed previously
    in connection with the Medicare program, there is a danger that reducing
    payments to providers may cause problems in quality and access to care.
    In 1998, one of the largest nursing home chains in the country threatened
    to withdraw from the Medicaid program at many of its facilities because
    of the companyís dissatisfaction with Medicaid payment rates.36 Although
    that company subsequently changed its plans, the problem of provider dissatisfaction may become even more serious in the future.
    For individual practitioners, such as physicians and dentists, low rates
    of payment may discourage participation in the program and thereby create serious problems in access to care. According to the federal statute,
    state Medicaid plans must ensure that payment is ìsufficient to enlist enough
    providers so that care and services are available under the plan at least to
    the extent that such care and services are available to the general population in the geographic area.î37 In practice, however, Medicaid payment
    rates are often too low to satisfy this federal mandate. For example, only
    16 percent of dentists in North Carolina participate in the Medicaid program, which led beneficiaries to file suit against state officials on the grounds
    that they have been denied the equal access required by federal law.38

    The SCHIP Program
    In the BBA of 1997, Congress created the State Childrenís Health Insurance
    Program (SCHIP) as Title XXI of the Social Security Act.39 The purpose
    of the new law was to provide federal funding to the states to provide health
    insurance coverage for targeted low-income children who do not have access
    to other forms of coverage. In essence, these children fall through the cracks
    in the system because their families have too much money to qualify for
    Medicaid and not enough money to purchase health insurance in the private market. Under Title XXI, states have the option of using the federal
    funds to expand their state Medicaid program, create a separate program,
    or do some combination of both.
    SCHIP is similar to Medicaid in that each state operates its own program pursuant to a federally approved plan, with funding from both federal
    and state governments. However, important differences exist between SCHIP
    and Medicaid, as explained in a report by the U.S. General Accounting Office,
    which is now known as the Government Accountability Office.
    Medicaid is an open-ended entitlement, meaning the federal government will pay its share of state expenditures for people covered
    under a stateís approved Medicaid plan, and enrollment for those
    eligible cannot be limited. . . .



    Managing and Regulating the Healthcare System

    In contrast to Medicaid, SCHIP is not an open-ended entitlement. The Congress in 1997 appropriated a fixed amount for
    the program. . . . In certain circumstances states may restrict
    enrollment if their allotment of federal funds has been expended,
    but to date, SCHIP spending for most states has fallen well below
    allotment levels for a variety of reasons.40
    In fact, the federal SCHIP statute explicitly provides that, ì[n]othing in this title shall be construed as providing an individual with an entitlement to child health assistance under a State child health plan.î 41
    However, the statute does provide a state entitlement to the allotment of
    federal funds and thereby obligates the federal government to pay those
    amounts to the states.42 As some commentators have explained, ìThe legislation entitles states, not children.î43

    Fraud and Abuse of the Medicare and
    Medicaid Programs
    Fraud and abuse has been one of the top enforcement priorities of the federal Department of Justice and United States attorneys. In addition, many
    states are devoting substantial resources to fighting Medicaid fraud. The
    priority given to healthcare fraud and abuse should not be surprising in
    light of the amount of money involved. Several healthcare companies have
    had to pay more than $100 million each to resolve charges of fraud and
    abuse. For example, in October 2001, a pharmaceutical manufacturer agreed
    to pay $875 million in settlement of civil claims and criminal charges, including more than $559 million as a result of filing false and fraudulent Medicare
    and Medicaid claims.
    In addition to fines and other monetary penalties, some types of
    healthcare fraud and abuse are punishable by imprisonment in the federal
    penitentiary. Moreover, one of the most severe penalties for a healthcare
    provider is exclusion from the Medicare and Medicaid programs, because
    that could effectively put the provider out of business.
    Suits can also be brought by whistle-blowers, who claim that particular healthcare providers have cheated the federal government.44 Under
    the federal False Claims Act (FCA), the whistle-blower may receive a share
    of any money that the provider is forced to pay to the government, and
    that may amount to millions of dollars for the whistle-blower. Under these
    circumstances, disgruntled employees or former employees, from executives
    to billing clerks, have a tremendous incentive to turn in their employers.
    As will be discussed, some healthcare providers and provider associations have argued that the government is inappropriately using fraud and
    abuse laws to challenge honest mistakes and good-faith differences of

    The Law of Government Payment Programs

    opinion. Government officials, however, repeatedly insist that there are no
    penalties for honest mistakes, other than returning the money that was
    erroneously claimed. Moreover, commentators have found providersí complaints to be somewhat exaggerated.45
    Some cases of alleged fraud and abuse have involved differences of
    opinion over the proper interpretation of complex reimbursement rules.
    However, other cases have involved providers that were clearly dishonest,
    such as those that billed for services they never provided at all. Even if only
    a small percentage of Medicare and Medicaid claims are improper, that
    could represent millions or even billions of dollars in government funds.
    As described in Figure 8.1, false or fraudulent claims are only one
    of three categories in the substantive law of healthcare fraud and abuse. In
    addition, laws prohibit kickbacks in exchange for referrals and certain types
    of self-referral arrangements. Each of these three categories is examined in
    detail in the sections that follow, together with a discussion of compliance
    programs and corporate integrity agreements.

    False Claims
    Healthcare facilities and practitioners provide services to individual Medicare
    and Medicaid beneficiaries and then rely on the government or its agents
    to pay the bills for services that have already been rendered. From the perspective of the government and its taxpayers, this situation presents an interesting practical problem. When the government purchases tangible goods,
    such as computer equipment or battleships, agents of the government can
    inspect the goods to ensure that they have been delivered and meet all applicable specifications. When the government purchases services, however, it
    may be more difficult to verify that the tasks were really performed and
    appropriately completed. Verifying the appropriate performance of services
    is even more difficult when the services are not provided at a government
    facility or are not provided to agents of the government.
    That is precisely the problem presented by the Medicare and Medicaid
    programs. Specifically, these programs contend with the following issues:

    The government is usually purchasing services rather than tangible
    The services are provided to beneficiaries of the programs rather
    than to agents of the government.
    The services are usually provided at thousands of remote locations
    rather than at an office of a payment program.
    The complexity of professional services makes it very difficult to
    question their quality and appropriateness.
    The personal and confidential nature of medical care makes it
    impossible for agents of the government to observe the services at
    the time they are performed.



    Managing and Regulating the Healthcare System

    FIGURE 8.1
    Law of Fraud
    and Abuse





    Federal felony
    for Medicare
    and Medicaid



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