MMC Medicaid Managed Care Case Study: Ethics and Leadership

Introduction

In the early 1990s, a new Medicaid managed care company, MMCC, set up operations directly across the street from a major medical center in downtown Baltimore that served many low-income patients. The company appears to have adopted a strategy aimed at maximizing revenues without delivering genuine value to its patients. Because MMCC is compensated upon enrolling new patients, it has a strong financial incentive to grow its client base. However, it is simultaneously expected to provide services to the patients under its care. Rather than fulfilling this obligation, MMCC has deliberately created bottlenecks that prevent patients from accessing healthcare services, thereby maximizing short-term profits at the expense of patient welfare.

All companies must have a strategy that generates a return on investment for their stakeholders. Some organizations focus on maximizing short-term profits, while others pursue sustainable growth models. MMCC is clearly oriented toward short-term profitability, with little regard for its value proposition to clients. Its current strategy is ultimately unsustainable, and operations will likely cease at some point in the future. Although the model may generate profits in the near term, the organization is not adding value to its community. Eventually, the system will likely be revised to address the inefficiencies being created relative to the broader set of stakeholders.

Major Problems and Secondary Issues

In this scenario, the appropriate role is that of an external consultant to MMCC. The advantage of this position lies in the ability to place the organization's operations within the broader context of its role in the local community. This position also enables the recommendation of a more sustainable business strategy that serves patients, investors, and the public interest simultaneously.

MMCC presumably has some existing operational capacity to serve the community. However, rather than improving efficiency, the organization has focused narrowly on its medical loss ratio and has implemented a series of unethical strategies to increase margins by avoiding the provision of services to patients. Specific tactics used to manipulate the medical loss ratio include:

Enrolling poor people during the holiday season by offering free turkeys at neighborhood locations, then — when patients needed care — informing them they had to travel across the city to a different site to receive medical services. Additionally, the organization maintains too few phone operators to answer calls and schedule appointments, too few parking spaces at its healthcare delivery site, and too few chairs in the waiting room for patients who do manage to find parking.

Organizational Strengths and Weaknesses

In essence, the organization is deliberately limiting its capacity to provide services so that it does not have to pay for them. This strategy exposes MMCC to substantial external threats. The primary source of risk is that the organization is operating inefficiently from the perspective of the local community and the use of public funds, making it a natural target for healthcare reform efforts. Legal risks are also present, as the company almost certainly has contractual obligations to meet the needs of its patients. Because it is purposely circumventing these obligations, MMCC could face civil lawsuits for damages or even criminal liability for its actions.

This situation calls for a transformational leader to change the organizational culture and establish a new vision grounded in a sustainable strategy. The organization can be analyzed through a systems approach to create a model that delivers value to the local community while also producing returns for investors. Implementing such a strategy will require strong leadership. Every organization develops a culture in which employees and stakeholders form a set of shared values and norms. Once an organizational culture is established, it becomes extremely difficult to change and will require extraordinary leadership to overcome the barriers to organizational transformation.

Leadership is a complex subject, and no fewer than six to eight major approaches have emerged in the academic literature (Kilburg & Donohue, 2011). Transformational leadership is defined by a leader's ability to change or transform people and organizations, and to shape organizational culture. In this case, leadership could come from the external consultant, who could use leadership skills to clearly illustrate the legal and reputational liabilities the organization is generating with its current strategy, while simultaneously promoting the benefits of a more sustainable approach.

Alternatives and Recommended Solution

Transformational leadership is concerned with emotions, values, ethics, standards, and long-term goals. The consultant would need to appeal to the moral sensibilities of the company's decision makers. Transformational leadership involves an exceptional form of influence that moves followers beyond their immediate self-interests to consider an extended set of stakeholders. In this case, that extended set includes the health of low-income citizens in the local community as well as the taxpayers who are publicly funding the operation. Under MMCC's current strategy, neither of these stakeholder groups is receiving adequate value from the organization's operating model.

The transformational leadership model is the approach most suited to the consultant's role. This model describes leaders who are able to influence individuals to reach their full potential by setting challenging expectations — an approach that, in many cases, leads employees to achieve higher performance (Bass, 1999). The individuals most in need of leadership here are the decision makers at MMCC. They must be made aware of the harm their current strategy is causing and the potential liability it is creating. This situation also presents an opportunity for the organization to transform its performance in relation to an extended set of stakeholders and begin creating genuine value for the community and taxpayers.

Bass (1985) defined transformational leadership as a leader's ability to push followers beyond their immediate self-interests. The consultant's core task is to move the organization away from its fixation on short-term profitability toward a longer-term perspective. The organization can still pursue its own interests under this model — indeed, it would be in MMCC's long-term best interest to develop operations that are efficient and effective in creating value for the local community.

An alternative course of action for the consultant would be to act as a whistleblower and report the organization's unethical operations to the relevant authorities — either the local legal system or the state's Medicaid office. The consultant is presumably also a taxpayer and could thus be considered part of the broader stakeholder group harmed by MMCC's conduct. However, any such action would need to be weighed against the consultant's contractual obligations to MMCC, as violating those agreements while serving as a professional services provider could expose the consultant to liability. Both alternatives warrant careful consideration. If MMCC can be persuaded to adopt a more sustainable operating model, that outcome would likely represent the best possible result for all parties involved.

Evaluation of the consultant's performance could be assessed along the lines of healthcare improvements to the local community. Patient health outcomes, for example, represent one meaningful metric. Health outcomes could also be considered alongside financial metrics: by implementing a more sustainable strategy, MMCC could reduce the costs of essential services through greater operational efficiency, simultaneously improving health outcomes and investor returns.

The organization should adopt a broader set of performance metrics based on its results relative to an extended group of stakeholders. This approach would improve the organization's long-term sustainability and could create a business model that remains profitable indefinitely — as opposed to one that generates returns only in the short term before collapsing under the weight of its own inefficiencies.