BY: EDWARD F. GERARDO
Mr. Gerardo is chief development officer, Bon Secours Richmond Health System,
The personnel of an organization make scores of decisions daily,
often in direct response to the needs of a customer or to make operational improvements.
Virtually all decisions have financial consequences for the organization and,
on careful examination, reflect the values of that organization and staff. Most
of these decisions take place in the context of a situation with discrete parameters,
recognizable consequences, and frequently a well-established culture and value
system that suggests the appropriate course of action. These "habits"
guide the routine of the organization. Occasionally, however, significant events
call for a decision that may profoundly affect relationships among those served,
the culture of the organization, and the very nature and mission of the organization.
Mergers, layoffs, and legal actions are examples of situations with significant
consequences that suggest a more complex and structured discernment process.
For Catholic health care providers today, the challenge of discerning the proper
course of action is all the more exacting because of the nature of the activity
and the values inherent in a religious organization. In the fall of 1999, Bon
Secours Richmond Health System* faced a vexing decision regarding its contract
with the local Aetna health plan. The situation described here is not intended
to be a model for complex ethical decision-making in a Catholic health care
organization, but rather to invite discussion of the values and structures needed
to ensure a comprehensive discernment.
* Bon Secours Richmond is the leading not-for-profit health care system in
central Virginia, consisting of three acute care facilities, with a fourth
under construction, two senior living communities, physician practices and
services, as well as home car„ and hospice care. It is part of Bon Secours
Health System, Inc., a national health system sponsored by the Sisters of
In the 1990s, Bon Secours Richmond Health System had established contractual
relationships with every health care insurer in central Virginia. The system's
St. Mary's Hospital had sought, in addition to an excellent reputation
for compassionate and high-_uality services, to be one of the lower-cost providers
for central Virginia. Although insurers early in the decade contracted with
all area hospitals for their indemnity and PPO products, many tried to control
costs by limiting their HMO enrollees to selected hospitals. Providers accepted
lower reimbursement terms in exchange for an increased volume of patients to
their facilities. The financial risks associated with indemnity and PPO products
are borne, in large part, by individuals or self-insured businesses. The insurer
under an HMO product assumes financial risk and reward.
Bon Secours facilities maintained a charge structure 25 to 40 percent lower
than that of other area hospitals, for two reasons: concern for the cost of
health care in the community, particularly for the out-of-pocket expenses of
patients, and because such a business strategy enabled the organization to capture
greater market share. This allowed for a lower per-unit expense and an acceptable
bottom line. Bon Secours was, in fact, the preferred provider of health plans
for their HMO product. The "win-win" was more business directed to
Bon Secours hospitals for a lower cost to insurers.
The dilemma for health plans in the mid to late 1990s was how to increase their
business. The choices were fairly simple: either merge with or buy out competing
plans, or "open" their limited HMO networks to resemble their PPO
product that gave consumers a greater choice of providers. Several plans did
The merger of US Healthcare and Aetna led to significant changes in the Richmond
market. When Aetna subsequently acquired the central Virginia business of Prudential
and NYLCare, further efforts to reduce payments, in line with Prudential's
capitated coütract, became matters for negotiation. The "new Aetna"
proceeded to allow patients to use previously excluded hospitals — but it
continued to pay Bon Secours rates predicated on the basis of a limited network
arrangement, even though the contract specifically called for higher payments
in the event network changes were implemented. Initially, Aetna did not disclose
to Bon Secours changes in its network of providers and afterwards declined to
make payment adjustments. Failure to adjust payments over the preceding 18 months
and routine claim denials resulted in a several million-dollar payment shortfall
to Bon Secours.
The local Bon Secours chief executive established an internal strategy team
consisting of managed care, finance, hospital administration, and sponsorship
senior team members. The responsibility of this group was to produce data enabling
the team to understand the impact of various potential scenarios, establish
negotiating parameters, and evaluate from several perspectives the responsibilities
and consequences to Bon Secours for this contract. The local system also worked
with corporate staff to establish the approach and acceptance of any final decision.
The management team determined that whether Bon Secours lost the contract or
agreed to a new pricing structure, significant risks were apparent. If Bon Secours
failed to retain its Aetna business, which represented 8 percent of revenue,
the loss of income would place both capital improvement needs and wage increases
in jeopardy. But to agree to such a significant discount in the current business
to the point required by Aetna would adversely affect the stewardship of resources
for the local system. Within a year, Bon Secours could expect other major health
plans to pursue a similar rate structure. In addition to foregoing employee
raises and equipment replacement, Bon Secours could likely face decisions about
the level and quality of care delivered to its patients.
In a mid-September letter to Aetna, Bon Secours was willing to agree to a price
reduction for the PPO contract that would address the needs of local self-insured
employers. The HMO rates, in which all savings accrued to the benefit of the
insurer directly, were unacceptable. Thus, at the end of December 1999, Bon
Secours' agreements with Aetna were terminated.
Bon Secours could have decided that the viability of the local system took
precedence over all other considerations. And indeed, the organization did conclude
that to accept such an agreement would eventually set the local system on a
course of continuous decline. But before reaching such a conclusion outright,
an ethical reflection suggests examining the decision in light of several, at
times competing, values. CHA's annual "Foundations of Catholic Health
Care Leadership" educational program provides such a guide.
The wider questions raised by the situation included:
- Who are the stakeholders for such a decision?
- What risks or issues are raised for Bon Secours' physicians and their
patients by terminating the contract?
- What standard of care is Bon Secours obligated to provide?
- What work environment, in terms of equipment and facilities, is needed to
care for patients?
- What obligations to its employees does the organization have?
- What community or mission services are put in jeopardy by accepting this
- What stake does the wider community have in this decision?
- What options do employers have for health care services?
Promotion of Human Dignity Health care organizations exist to promote
and improve the health of patients. If care is compromised through inadequate
staff, delayed care, or aged equipment, then an organization risks failing to
address the moral claims of its patients. The "stakeholders" with
the strongest claim on the conduct and performance of a health care enterprise
are the patients and their family members. Good quality care is the essential
and tangible reflection of a provider's intent to honor the dignity and
promote the well-being of the person. Moreover, although all providers are expected
to go beyond corporal concerns and attend to patients' emotional and spiritual
needs, faith-based providers have an expressed accountability to patients and
families to provide the necessary services that address these needs.
For health care providers, the essence of a contract negotiation is the ability
to have sufficient resources to fulfill responsibilities and satisfy future
needs. Whenever resources are limited, leadership must evaluate to what extent
the ramifications of those scarce, or diminishing, resources are likely to cause
a reduction in compassionate quality care.
The perpetual task of administration is to increase business and achieve expense
savings. When revenue is declining, pressure to reduce costs is that much greater.
Most executives and their teams try to reduce the nonclinical components of
the cost equation (travel, marketing, purchased services, support functions,
etc.) while seeking to preserve the necessary resources to administer excellent
care. When the savings required are in the millions of dollars, the areas of
focus include the postponement of technology and plant investments and, invariably,
labor savings through staffing levels and redesigned care models. Significant
contract changes can place an organization on the slippery slope that views
health care as a commodity and the patient as the "customer" who is
entitled to purchase only so much service.
Care for Poor and Vulnerable Persons Beyond direct patient care and
the walls of the hospital are populations whose health status is disproportionately
at risk by virtue of genetic, social, and economic conditions. Because Catholic
and other faith-based providers recognize that "being with" and caring
for the least valued among society brings the Gospel to life, preservation of
these mission activities and services is an ethical priority for the institution.
No one organization can address all the needs of the most vulnerable. Every
organization must match its capabilities with the appropriate needs of the community.
A Catholic provider's presence and witness within a community, however,
cannot be exchanged for a need to preserve the "core business." Second,
faith-based providers should not be baited by "the marketplace" into
either establishing different standards or tiers of health care delivery based
on economic ability or social standing, or selectively pursuing preferred payer
populations. Because the market seeks to eliminate or avoid activity that has
no economic value, mission-driven institutions must continuously be vigilant
that their decision making gives consideration for the needs of those with limited
Promote the Common Good Several additional members of the community
are affected by the termination of a payer contract. Perhaps the greatest level
of disruption occurred for ambulatory patients of Bon Secours' physicians
who had only one health plan option (Aetna) through their employer. Several
hundred people had to transfer medical records and establish new primary care
relationships. A historical bond with a physician is a significant part of a
person's health maintenance, and trust developed over time is not readily
transferred to a clinician who has little familiarity with the person and his/her
conditions, thoughts, and perceptions. Ongoing payer participation not only
provides a stable and predictable business climate, but may be essential to
the community's access of one of the more significant components to good
health: an effective relationship with a health care provider.
The "common good" depends frequently on the particular circumstances
of the situation. In light of the common good, what obligations to the community
would Bon Secours have had if it had not been the lower-cost provider? Or, in
another circumstance, the sole acute care provider in the community?
Finally, business and citizens in the community always evaluate the reputation
of a provider in light of change. Communication with constituents throughout
the community is not only good public relations, but is also an obligation of
an organization seeking to act faithfully.
Before this event, the management team did not have a formal organizational
process for evaluating and reflecting on the ethical import of its managed care
contracts. The long-standing policy of having agreements with all health plans
became instead an opportunity to establish a more formal structure for understanding
the impact of contracts on the organization's obligations to patients,
community, staff, and its own future. Fortunately, the vice president for sponsorship
and other senior team members were cognizant of placing the discussion in the
context of the principles and values affirmed by Catholic health care. Nonetheless,
the "habit" of reflecting in an inclusive, multidimensional manner
requires a planned approach within an established forum, or else it is likely
to remain ad hoc and dependent on the gifts of individual leaders.
As Sr. Carol Taylor's article indicates, The
Buck Stops Here, moral agency requires developed competencies. The ongoing
education and formation of executive leadership should enable an organization
to assimilate ethical concerns and obligations to stakeholders into the decision-making
process. Frequently these elements emerge as a result of a significant issue
or crisis. However, routine discussions around budget, capital priorities, risk
management, and internal audit functions (to name a few) are opportunities to
use instruments, such as those presented by Taylor, to discern the moral good
and reaffirm the mission and vision shaping our activity as faith-based providers
in health care.
For the past year and half Bon Secours has not been a provider in the Aetna
network of central Virginia. The health system has been able to replace a majority
of the business, in part from the transition of many thousands of enrollees
into other health plans that include the Bon Secours' facilities within
their networks. Health care remains both a local and relational experience for
most of the population. One's personal physician and the experience of
compassionate care still render considerable influence in the selection of health
coverage. And although the outcome proved more financially positive than Bon
Secours' leaders originally anticipated, the benefits to the organizational
culture, perception, and commitment to the community brought renewed strength
and sense of purpose.
Copyright © 2001 by the Catholic Health Association of the United States
For reprint permission, contact Betty Crosby or call (314) 253-3477.