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Financial Compensation and Ethical Issues in Health Care

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Mary Cipriano Silva, PhD, RN, FAAN

Abstract

As health care workers enter the twenty-first century, they must understand the relationships among market-driven forces, the health care workforce, and financial compensation. This understanding can be facilitated by a grasp of utilitarian ethical theory and by ethical tenets of justice such as distributive justice, material principles of justice, and justice as fairness. Health care workers also need to understand how unfair financial compensation can demoralize them and compromise their values. However, professional associations and health care managers can take a proactive stance to ensure that organizations are ethical in their approach to financial compensation.

Citation: Silva, M., FAAN (June 10, 1998). "Financial Compensation and Ethical Issues in Health Care." Online Journal of Issues in Nursing. Vol. 3, No. 1., Manuscript 4. Available: www.nursingworld.org/MainMenuCategories/ANAMarketplace/ANAPeriodicals/OJIN/TableofContents/Vol31998/No1June1998/CompensationandEthical.aspx

"Ethics asks us to resist close-heartedness, to keep the heart open." Weston (1997, p. 67)

As health care providers enter the twenty-first century, they are riding a tidal wave of change in health care. This tidal wave has a dual crest -- one related to market-driven forces and the other related to the health care workforce. Both are intertwined and both are steeped in many ethical issues. In this article, however, I will focus on two specific ethical issues related to financial compensation and equity in health care. To accomplish this purpose, I will first discuss relevant background information and ethical tenets that frame the issues. I will then discuss the two ethical issues and suggest professional and managerial strategies to cope with the issues.

Background Information

Market-Driven Forces

Restructuring of health care over the past decade has profoundly affected its methods of delivery and financing. This impetus for restructuring has had as its goal the "access to high-quality effective health care...available to all...." (Korniewicz & Palmer, 1997, p. 109); the authors call this goal the "preferable future" for nursing (1997, p. 109). This "preferable future," however, has been challenged by several factors, especially "a market-driven health system whose defining characteristics are cost cutting, reduced utilization of services, and maximization of revenues and return on investment" (Malone & Marullo, 1997, p. 1). The preceding culprit is often called managed care; mismanaged care is a more appropriate name and excludes those managed care organizations that have decreased cost while increasing quality.

Mismanged care is a hotbed for potential or real ethical issues. In 1995, the American Nurses Association (ANA) published a brochure on "Managed Care: Challenges & Opportunities for Nursing" that noted ethical issues such as lapses in the seamless and coordinated care promised by managed care organizations, the too often unsafe decrease in the use of RNs, and the misuse of financial incentives that profits managed care organizations rather than consumers. In May 1996, the ANA published a "News Release" that highlighted a growing concern of Americans that quality of care was taking a back seat to "the bottom line." In October 1996, Canavan reported in "The American Nurse" about questionable ethical practices in managed care such as lack of full disclosure, gag rules, and compensation plans that reward the withholding of nursing services. In the summer of 1997, Silva highlighted the ethics of consumer rights as mandated in the Managed Care Consumer Protection Act. One of these rights relates to financial compensation that does not adversly affect the health and well-being of consumers. In sum, then, market-driven forces and financial incentives or compensation are closely aligned and, although not always the case, too often have adversely affected health care.

Health Care Workforce

According to Isaacs and Knickman (1997), today's health care workforce is the most rapidly growing part of the American labor market; it is 11 million strong and employs one out of every ten workers. This powerful workforce's largest group is its own 2 million plus registered nurses.


The vast majority of these nurses once comfortably employed in hospitals are now caught up in market-driven forces that at times seem to be beyond their control.

The vast majority of these nurses once comfortably employed in hospitals are now caught up in market-driven forces that at times seem to be beyond their control. According to Hadley (1996), "...nurses need to prepare for the inevitable dislocation that will occur as the result of hospital downsizing and other dramatic changes in the delivery of health services" (p. 6). She calls this challenge the "accepting [of] job insecurity" (p. 6).

With job insecurity comes fear of job changes and losses. This fear is heightened by, among others, the increased hiring of unlicensed assistive personnel (UAPs) despite a lack of empirical outcomes that UAPs increase patient satisfaction or decrease cost. To complicate the situation, the use of UAPs is generally unregulated, allowing employers to determine the staff mix for health care services (Redman, 1998). If employers are driven only by cost containment, they may hire (and have hired) less expensive health providers to replace registered nurses. Again, market-driven forces are at work -- this time altering supply and demand. The result is less demand for registered nurses and, thus, the possibility of decreased and inequitable financial compensation for them.

Financial Compensation and Ethical Tenets

Health care delivery systems, financial compensation, and ethical issues related to resource allocation are intertwined because resources are ultimately finite. Therefore, principled ethical methods for allocation of resources are needed at both the macroallocation (population and groups) and the microallocation (individual) levels. When these preceding resources become scarce, rationing is also involved. The ethical tenets that best fit the relationships between scarce resource allocation and financial compensation are those derived from utilitarian ethical theory and from ethical principles of justice.

Utilitarian Ethical Theory

Many authors have summarized utilitarian ethical theory (e.g. Beauchamp & Childress, 1994; Davis, Aroskar, Liaschenko, & Drought, 1997; Garrett, Baillie, & Garrett, 1998); however, the basic tenets remain the same and are usually based on the writings of the nineteenth century philosopher John Stuart Mill. The basic underlying tenets of Mill's ethical theory are related to the principle of utility and can be summarized as follows:

First, the rightness or wrongness of an act depends on the consequences produced by the act. Second, the consequences produced by an act may cause either happiness (pleasure and the absence of pain) or unhappiness (privation of pleasure and the presence of pain). Thus, utilitarianism is essentially a trade-off philosophy; one that maximizes good and minimizes harm in trade-off situations. Lastly, those acts whose consequences promote happiness tend to be right actions, whereas those acts whose consequences promote unhappiness tend to be wrong actions. (Silva, 1990, p. 23-24).

When assessing consequences, philosophers tend to take one of two positions: (a) one assesses the effect of the consequences on all persons affected by the act; or (b) one assesses the effect of the consequences on those persons most affected by the act. However, the lay person's version of Mill's principle is often simply stated as "the greatest good for the greatest number."

In relating the ethical principle of utility to financial compensation, it seems as if it would be to one's advantage to be "the greatest number."


I submit that one of the most significant factors influencing many nurses' lack of adequate financial compensation is nurses' real or perceived powerlessness.

Ironically, registered nurses are the greatest number in the American health care workforce but do not receive the highest financial compensation (assuming such compensation would be a great good). Obviously, other factors besides large numbers are at work. I submit that one of the most significant factors influencing many nurses' lack of adequate financial compensation is nurses' real or perceived powerlessness. Nurses' powerlessness can occur easily in managed care or other health care organizations where thoughtless cost cutting and the maximization of organizational profits at any price are the priorities. Such priorities, however, usually produce undesirable or harmful consequences both to nurses and to the public they serve and, ultimately, violate the "greatest good for the greatest number" principle.

Ethical Principles of Justice

Many authors also have summarized ethical principles of justice (e.g., Beauchamp & Childress, 1994; Davis, Aroskar, Liaschenko, & Drought, 1997; Garrett, Baillie, & Garrett, 1998); however, the basic tenets remain the same. These tenets focus on justice as giving others their due, justice as fairness, and equitable allocation or distribution of resources/scarce resources. According to Beauchamp and Childress (1994), justice can be defined as "fair, equitable, and appropriate treatment in light of what is due or owed to persons" (p. 327), and distributive justice can be defined as "fair, equitable, and appropriate distribution in society determined by justified norms that structure the terms of social cooperation" (p. 327). Put another way, distributive justice deals with the fair distribution of society's benefits and burdens. In addition to distributive justice, there are material principles of justice that can help health care providers think through allocation of resources/scarce resource decisions. Examples include the following:

  • To each person an equal share
  • To each person according to need
  • To each person according to effort
  • To each person according to contribution
  • To each person according to merit
  • To each person according to free-market exchanges (Beauchamp & Childress, 1994, p. 330).

Material principles of justice must be morally relevant and not capricious (e.g., to each person according to race).

Finally, the philosopher John Rawls offers a creative view of justice. According to Rawls (1971), the following two principles encompass the essence of his theory of "justice as fairness:"

First: each person is to have an equal right to the most extensive basic liberty compatible with a similar liberty for others.

Second: social and economic inequalities are to be arranged so that they are both (a) reasonably expected to be to everyone's advantage, and (b) attached to positions and offices open to all. (p. 60)

What Rawls is saying is that inequalities can be morally justified within a society if they are fair; that is, some persons, corporations and so forth can have societal advantages if, and only if, these advantages benefit the least fortunate members of society such as the poor.

In relating the ethical principles of justice to financial compensation, one begins to understand how complex this issue is. First, one must come to grips with very different perspectives of justice (e.g., justice as equality irrespective of fairness or justice as fairness irrespective of equality).


In today's health care environment where allocation of scarce health care resources has become a battleground, the "traditional" or the "typical" financial compensation ethic does not apply.

Next, one must apply these notions to just allocation or distribution of resources/scarce resources.

When examining the traditional ethic for financial compensation for registered nurses, one or more of the preceding morally justified principles of material justice typically have applied. The nurse's financial compensation has been based on a cost of living increase for all (to each nurse an equal share), on quality work (to each nurse according to merit), and/or on hard work (to each nurse according to effort).

However, in today's health care environment where allocation of scarce health care resources has become a battleground, the "traditional" or the "typical" financial compensation ethic does not apply. For example, in managed (or rather mismanaged) care organizations, the nurse's financial compensation may be tied to efficiency regardless of client need (to each nurse according to speed) or to the unjustified withholding of nursing services (to each nurse according to the nurse's ability to increase the organization's profits). Efficiency and organizational profits without regard for either the nurse's or the client's legitimate needs are unethical and severely undermine the ethical principles of justice.

Financial Compensation and Ethical Issues

With the preceding background information and ethical tenets as prologue, I now turn to two ethical issues that emerge from financial compensation:

How do unfair systems of financial compensation generate ethical issues in health care?

How do unfair systems of financial compensation affect ethical values of nurses?

Ethical Issues

In response to the question, "How do unfair systems of financial compensation generate ethical issues in health care?," I will first turn to physician practice because of the current impact of incentives on their practice. According to Jecker (1994), "Just as the advent of diagnosis-related groups (DRGs) under Medicare created financial incentives for health providers to undertreat patients, so, too, it is argued that new arrangements, such as HMOs, PPOs, and IPAs, create incentives for physicians to contain cost by limiting beneficial patient care" (p. 532).

Jecker (1994) goes on to explain her thesis. She states that incentives to limit care may be both nonmonetary or monetary. Nonmonetary incentives may involve, for example, peer or superior pressure on those physicians who do not advance the financial well-being of their employers.


When the primary beneficiary of patient care decisions are not patients but HMOs or their equivalents, not only is the ethical principle of justice violated but also the ethical principle of autonomy as guaranteed by the American Nurses' Association's Code for Nurses with Interpretive Statements.

Monetary incentives may involve, for example, rewarding those physicians "who practice medicine frugally by directly tying physicians' incomes to the numbers of procedures and referrals they make over a given period and penalizing those who perform too many procedures by blocking promotions and salary increases" (p. 533).

A vivid example of this phenomenon at work was presented by Zoloth-Dorfman and Rubin (1995), who practice as bioethicists in the San Francisco Bay Area. A physician presented a lengthy story to the bioethics committee on which Zoloth-Dorfman and Rubin are members. A summary of his story follows:

The physician called the HMO to obtain permission to remove pilar tumors on a patient's scalp. The HMO approved the surgery but would not approve payment for a pathology report on the tumors because the chance of malignancy was remote. Despite the physician's insistence for a pathology report, it was denied. The HMO consultant told the physician that he could do whatever he wanted to with the tumors, including trashing them. Outraged by this response, the physician paid for the pathology report himself and, upon advice of his liability insurer, documented his communication with the HMO and sent copies to the medical society.

The bioethics committee supported the physician's stance and even added its protests to his correspondence sent to the medical society. A few months later the physician learned that his decision was not without cost. The following is what he told the bioethics committee:

All of the physicians on the HMO panel have 10 percent of their reimbursement withheld routinely until the end of the year when they are rated against their peers regarding practice patterns (utilization, prescription of non-generic drugs, et cetera) and rewarded or penalized accordingly. The maximum reward a physician can receive back is 150 percent of his initial "10 percent withheld;" the maximum penalty is a 65 percent loss of the initial 10 percent withheld. I received my first-ever negative rating on quality based on this incident, and I was given the maximum financial penalty. In a letter from the HMO I was told, "The forwarding of a copy of your letter to the patient and to [the local medical society] suggests strongly that you are not acting in a collegial mode with us in this matter. [We] sincerely [wish] to partner with [our] providers in the deliverance of quality necessary care. In order to do this there must be a mutual trust and understanding of our respective roles. Medical necessity is determined on the basis of sound science. Your communication regarding this matter will become part of our Quality Management file." I now am concerned about being removed from the HMO physician panel, which provides me with a large proportion of my referrals. I guess I could describe my experience as one of "getting dinged on quality for improving quality." (Zoloth-Dorfman & Rubin, p. 343)

Why such elaboration on this story? Because the ethical issue raised is profound and because the tying of clinical decisions to financial compensation is real and has begun to affect nurses' financial compensation. When the primary beneficiary of patient care decisions are not patients but HMOs or their equivalents, not only is the ethical principle of justice violated but also the ethical principle of autonomy as guaranteed by the American Nurses' Association's Code for Nurses with Interpretive Statements (1985) as specified in the following two provisions:

The nurse acts to safeguard the client and the public when health care and safety are affected by the incompetent, unethical, or illegal practice of any person [or organization] (p. 1).

The nurse assumes responsibility and accountability for individual nursing judgments and actions (p. 1).

In sum, then, unfair systems of financial compensation may place health care providers in unethical situations where not only their personal integrity but also their professional integrity are compromised.

Ethical Values

Having addressed the relationship between unfair systems of financial compensation and ethical issues in health care, I now turn to the second question raised earlier, "How do unfair systems of financial compensation affect ethical values of nurses?" An example involving "dirty hands" will be discussed. In a dirty hands situation, "...one agent is morally forced by someone else's immorality to do what is, or otherwise would be, wrong" (Mohr & Mahon, 1996, p. 29). These authors emphasize that a crucial element of the dirty hands phenomenon is the part that organizations play in creating immoral situations that eventually justify one's acting with dirty hands. Witness the dirty hands scenario now being played out by the tobacco corporations. The tobacco industry's lust for profits and their apparent success in corrupting each other's values led to lies about the dangers of cigarette smoking and to glamorizing a potentially lethal drug that has addicted many young Americans.

How might the tobacco industry situation be played out in health care organizations? Health is now considered to be big business and herein lies the paradox. The goal of health care is to prevent or remove harm, not to inflict harm, or to do good in matters related to the health and well-being of patients and clients. The goal of big business is profit. As the health care industry becomes increasingly "corporationalized," it must compete to stay viable.

Although the principles of efficiency, competition, and profit making are not unethical when prudently applied, they become problematic when the corporate culture ceases to be morally responsible to its employees and clients. This lack of moral responsibility in health care organizations can lead to abuses such as charging for services never rendered, unwillingness to pay for legitimate benefit claims, financially penalizing consumers who use out-of-system providers, or financially penalizing providers who exceed capitation prepayments.

Nurses working in the preceding type of environment are at risk for what Mohr and Mahon (1996) call "dirty hands." The two authors reported that the effect of morally deviant decisions and work environments on nurses that Mohr interviewed caused anger and feelings of fear, powerlessness, and guilt. Nurses responded by avoiding negative situations or encounters, numbing and stifling their feelings, disengaging from their work, and pretending the organization was not morally deviant and just getting on with the tasks at hand.

I emphasize here that the preceding nurses worked in (or apparently chose to work in) a morally deviant for-profit hospital. I assume these nurses were paid for their work, although financial compensation was not noted in the article. The question, then, to be raised here is this: What would be fair financial compensation for the tainting of one's professional values? In other words, what would be fair financial compensation for dirty hands? In light of these questions, I submit that none of these nurses received adequate financial compensation.

Professional and Managerial Strategies

The following professional and managerial strategies are suggested to cope with ethical issues related to financial compensation in health care.

The American Nurses Association, as well as other relevant professional organizations, should craft carefully documented position statements that deal with the ethics of financial compensation for the present and the projected health care environment.

The American Nurses Association, as well as other relevant professional organizations, should inform its members of specific policies and procedures to follow when the members believe themselves to be employed in morally deviant organizations that exploit fair financial compensation for employees for the organization's unfair gain.

State Nurses Associations should inform their members of real or potential financial compensation conflicts of interest that could undermine a nurse's or a health care organization's integrity.

Management should develop a philosophy of business ethics that is shared with all employees and that includes, among other factors, the organization's vision of what constitutes ethical financial compensation for its employees.

Management should ensure that all managers and employees understand the relationship between the ethics of justice and fair financial compensation.

Management should establish "Administrative Ethics Committees" where ethical dilemmas related to management issues such as unfair financial compensation can be discussed.

Management should understand that they set the tone for either an ethically untainted or an ethically tainted organization by what they do.

Finally, management should understand that, above all, they should practice ethics with an open heart (Weston, 1997, pp. 67-83). Open-heartedness means that managers treat employees as people and not as objects that they can manipulate for the organization's financial or other gains.

If the preceding professional and managerial strategies are followed regarding financial compensation, health care organizations are more likely to become and to be viewed as wiser, kinder organizations "with a heart."

Author

Mary Cipriano Silva, PhD, RN, FAAN

Dr. Silva received her B.S.N. and M.S. from the Ohio State University, her Ph.D. from the University of Maryland, and her post doctorate from Georgetown University. She is a professor and the Director of the Office of Health Care Ethics, College of Nursing and Health Science, George Mason University, Fairfax, Virginia. She presently teaches a doctoral course on "Ethics in Health Care Administration" and is engaged in scholarship and research related to health care ethics. Dr. Silva also currently serves on the ANA Code of Ethics Project Task Force to revise the 1985 Code for Nurses.

References

American Nurses Association. (1985). Code for nurses with interpretive statements. Kansas City, KS: Author.

American Nurses Association. (1995). Managed care: Challenges & opportunities for nursing. Nursing facts from the American Nurses Association. Washington, DC: Author.

American Nurses Association. (May 9, 1996). National survey reveals serious concerns among Americans about cost-cutting trends in patient care. News Release. Washington, DC: Author.

Beauchamp, T. L., & Childress, J. F. (1994). Principles of biomedical ethics (4th ed.). New York: Oxford University Press.

Canavan, K. (October 1996). Nursing addresses troubling trends in managed care. The American Nurse. Washington, DC: American Nurses Association.

Davis, A. J., Aroskar, M. A., Liaschenko, J., & Drought, T. S. (1997). Ethical dilemmas and nursing practice (4th ed.). Stamford, CT: Appleton & Lange.

Garrett, T. M., Baillie, H. W., & Garrett, R. M. (1998). Health care ethics: Principles and problems (3rd ed.). Upper Saddle River, NJ: Prentice Hall.

Hadley, E. H. (1996). Nursing in the political and economic marketplace: Challenges for the 21st century. Nursing Outlook, 44, 6-10.

Isaacs, S. L., & Knickman, J. R. (Eds.). (1997). Editors' introduction. In S. L. Isaacs & J. R. Knickman (Eds.). To improve health and health care 1997: The Robert Wood Johnson Foundation Anthology. San Francisco: Jossey-Bass.

Jecker, N. S. (1994). Managed competition and managed care: What are the ethical issues? Clinics in Geriatric Medicine, 10, 527-539.

Korniewicz, D. M., & Palmer, M. H. (1997). The preferable future for nursing. Nursing Outlook, 45, 108-113.

Malone, B. L., & Marullo, G. (September, 1997). Workforce trends among U.S. registered nurses: A report for the International Council of Nurses ICN Workforce Forum. American Nurses Association Policy Series. Washington, DC: American Nurses Association. (nursingworld.org/MainMenuCategories/HealthcareandPolicyIssues/Reports/WorkforceTrends.aspx).

Mohr, W. K., & Mahon, M. M. (1996). Dirty hands: The underside of marketplace health care. Advances in Nursing Science, 19 (1), 28-37.

Rawls, J. (1971). A theory of justice. Cambridge, MA: The Belknap Press of Harvard University Press.

Redman, B. K. (1998). The health policy process and nursing. In J. A. Dienemann (Ed.), Nursing administration: Managing patient care (2nd ed., pp. 45-46). Stamford, CT: Appleton & Lange.

Silva, M. C. (1990). Ethical decision making in nursing administration. Norwalk, CT: Appleton & Lange.

Silva, M. C. (1997). Ethics of consumer rights in managed care. Nursing Connections, 10 (2), 24-26.

Weston, A. (1997). A practical companion to ethics. New York: Oxford University Press.

Zoloth-Dorfman, L., & Rubin, S. (1995). The patient as commodity: Managed care and the question of ethics. The Journal of Clinical Ethics, 6, 339-357.


© 1998 Online Journal of Issues in Nursing
Article published June 10, 1998.


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