The Righteous Organization: Addressing Ethics and Compliance Challenges

1. The Righteous Organization: Addressing Ethics and Compliance Challenges Megan Barry VP, Ethics and Compliance Premier, Inc.

2. The Ethicist

3. Your company is planning layoffs. This information is not yet public, even within the firm. One of the targeted employees asks your advice about making an offer on a house. Do you tell him and risk panicking others? Do you stay silent, possibly jeopardizing his financial future?

4. Setting the Ethics Stage

5. Workplace Pressures • The majority of workers (60%) feel a substantial amount of pressure on the job and more than one out of four (27%) feel a “great deal” of pressure. • Most workers feel some pressure to act unethically or illegally on the job (56%).

6. Workplace Pressures • Half of all workers (48%) reported that, due to pressure, they had engaged in one or more unethical and/or illegal actions during the last year. The most commonly cited sources that highly contribute to pressure in the workplace are “balancing work and family” (52%), “poor internal communications” (51%), “work hours/work load” (51%) and “poor leadership” (51%).

7. Observed Misconduct Most frequently observed types of misconduct: • Abusive or intimidating behavior towards employees (21%) • Lying to employees, customers, vendors or to the public (19%) • Conflicts of interest (18%) • Safety violations (16%) NBES Slide

8. Ethics Resource CenterNational Business Ethics Survey • Key Findings: • Ethics programs make a difference • Written standards, ethics training, ethics offices, and a system for anonymous reporting • 78% of employees are likely to report misconduct if all of these elements exist • Actions Count • Top management acts ethically by: talks about the importance of ethics, informs employees, keeps promises and models ethical behavior observe less misconduct (15%) compared to those who feel top management only talks about ethics or exhibits none of these (56%) • Challenges and Vulnerabilities • Employees in transitioning organizations (undergoing restructuring) observe misconduct and feel pressure at rates that are double those in more stable organizations (44%)

9. Today’s Presentation • Organizational Case Study – Premier

10. Organizational Case Study Premier, Inc.

11. What is a Group Purchasing Organization? (GPO)

12. Owners Affiliates Bringing nation-wide knowledge to benefit local healthcare • Local healthcare Shared goals: Better outcomes Safely reducing cost Owners Affiliates • National alliance • Owned by 200+ not-for-profit hospitals and health systems • Serving more than 1,700 hospitals and 42,000 other providers • Sharing of clinical, labor and supply chain data for benchmarking • $27 billion in group purchasing volume – largest in U.S. • 2006 Malcolm Baldrige National Quality Award Recipient • Highest ethical standards - leading Code of Conduct • Diversity, safety and environmental programs

13. The Beginning… • “Needles” – CBS 60 Minutes focus – “In the U.S., 600,000 needle stick accidents occur every year. Workers stuck by contaminated needles can become infected with deadly viruses such HIV and Hepatitis C. But while many safety needles have been invented, hospitals and clinics often won’t buy them.” • Headlines – article series “Medicine’s Middlemen”

14. “Amid a tangle of wires and worried faces, the brief life of Joshua Diaz was slipping away…

15. The New York Times Articles • March 4, 2002 MEDICINE'S MIDDLEMEN; Questions Raised of Conflicts At 2 Hospital Buying Groups • March 26, 2002 When a Buyer for Hospitals Has a Stake in Drugs It Buys • April 23, 2002 Hospital Products Get Seal of Approval at a Price • April 30, 2002 Hospitals Find Big Buying Groups May Not Come Up With Savings • May 1, 2002 Senate Panel Criticizes Hospital Buying Groups • June 5, 2002 States Accuse Bristol-Myers of Fraud on Taxol • June 7, 2002 A Mission To Save Money, A Record Of Otherwise • August 1, 2002 Accusation Of Conflicts At a Supplier To Hospitals • August 9, 2002 Buying Group For Hospitals Vows Change • August 15, 2002 U.S. Expands Hospital Supply Buying Inquiry • August 25, 2002 Mt. Sinai on a Path Away From the Past • Sept 4, 2002 A Persistent Small Supplier Gets Contract for Hospitals • Sept 7, 2002 Spitzer Opens Inquiry Into the Business Practices of Hospital Buying Groups • October 8, 2002 A Region's Hospital Supplies: Costly Ties • October 24, 2002 Ethics Standards Overhaul Urged for Hospital Buying Groups • Nov 23, 2002 Hospital Network's Switch Is Blow to Novation

16. The Industry Responds

17. Industry Initiatives • HIGPA – Health Industry Group Purchasing Association • July, 2002 - HIGPA creates an industry Code of Conduct • 9 Principles • Compliance with Applicable Laws • Conflicts of Interest • Member Relations, Product Evaluation & Vendor Grievances • Use of Contracting Tools • Compliance, Certification & Implementation • Reporting and Education • Disclosure of Vendor Payments • Safety, Cost-Reduction & Clinical Comparability • Diversity

18. Premier Response

19. Outside Verification and Insight • Premier, Inc. hires Kirk O. Hanson, a professor of business ethics, who runs the Markkula Center for Applied Ethics at Santa Clara University in California. • Hanson quoted in the NY Times, ''They have given me free run of the place.'‘ • Hanson promises to release his recommendations publicly. • Report issued October, 2002.

20. Hire an Ethics and Compliance Officer

21. Change Exercise

22. Premier’s Approach • Professor Hanson’s recommendations • U.S. Federal Sentencing Guidelines • Best practices from Business for Social Responsibility • Ethics & Compliance Officer Association • Benchmark study for Premier by Ernst & Young

23. Federal Sentencing Guidelines

24. Background • 1984 - United States Sentencing Commission • 1991 - Federal Sentencing Guidelines Enacted • 2004 – Federal Sentencing Guidelines Updated • “Carrot and Stick” approach • “Stick” - the threat of fines • “Carrot” - reduced fines if the company has in place an “effective program to prevent and detect violations of law” BEFORE an offense occurs

25. Elements of a Compliance and Ethics Program • Standards and procedures to prevent and detect criminal conduct • Responsibility at all levels of the program, together with adequate program resources and authority for its managers • Due diligence in hiring and assigning personnel to positions of substantial authority • Communicating standards and procedures, including a specific requirement for training at all levels • Monitoring, auditing, and non-retaliatory internal guidance/reporting systems, including periodic evaluation of program effectiveness • Promotion and enforcement of compliance and ethical conduct • Taking reasonable steps to respond appropriately and prevent further misconduct upon detecting a violation

26. Revised Guidelines • “Under the revised guidelines, if companies hope to mitigate criminal fines and penalties, they must also promote an organizational culture that encourages commitment to compliance with the law and ethical conduct…” • The new requirement to promote an ethical organizational culture significantly expands the scope of an effective program.

27. What does an ethical culture look like?

28. Changing Perspective

29. Changing Perspective

30. Changing Perspective

31. Changing Perspective

32. Changing Perspective

33. Changing Perspective

34. Changing Perspective

35. Changing Perspective

36. Trevino/Weaver Survey • “What should we look for to determine if an ethics/compliance program is effective?” • Employee awareness of ethical/legal challenges that arise at work • Look for ethics and compliance advice within the company • Delver bad news to management • Ethics/Compliance violations are reported in the organization • Better decision-making • Employee commitment to the organization Source: “Managing Ethics and Legal Compliance: What Works and What Hurts,” Linda Klebe Treviño et al, California Management Review, Winter 1999.

37. Trevino/Weaver Study • Leadership is one of the most important factors in the study • Regularly pay attention to ethics • Take ethics seriously • Care about ethics and values as much as the bottom line • Often for employees Ethics = Fairness

38. Elements of a Compliance and Ethics Program • Standards and procedures to prevent and detect criminal conduct • Responsibility at all levels of the program, together with adequate program resources and authority for its managers • Due diligence in hiring and assigning personnel to positions of substantial authority • Communicating standards and procedures, including a specific requirement for training at all levels • Monitoring, auditing, and non-retaliatory internal guidance/reporting systems, including periodic evaluation of program effectiveness • Promotion and enforcement of compliance and ethical conduct • Taking reasonable steps to respond appropriately and prevent further misconduct upon detecting a violation

39. Elements of a Compliance and Ethics Program • Standards and procedures to prevent and detect criminal conduct • Responsibility at all levels of the program, together with adequate program resources and authority for its managers • Due diligence in hiring and assigning personnel to positions of substantial authority • Communicating standards and procedures, including a specific requirement for training at all levels • Monitoring, auditing, and non-retaliatory internal guidance/reporting systems, including periodic evaluation of program effectiveness • Promotion and enforcement of compliance and ethical conduct • Taking reasonable steps to respond appropriately and prevent further misconduct upon detecting a violation

40. Defining the Terms • Compliance • Business Conduct • Values • Ethics

41. Institute for Global Ethics - Values* • Survey by the Institute for Global Ethics on Moral Values • The survey asked the respondents to choose the five moral values from a list of 15 that were the most important to them. • The top three values: Truth, Compassion, Responsibility • The most frequent choice: Truth • The respondents were also asked to select the single most important value: Compassion topped that list. *Information taken from the research and writings of Rushworth Kidder of the Institute for Global Ethics (IGE).

42. IGE – Sources of Authority • Respondents were asked about their sources of authority, or the people and institutions they relied on for knowing what is morally right. • The respondents ranked six possible sources of authority: modern science, religious leaders, best friends, personal experience, God's word, and government. • The most striking result was the tremendous importance given to personal experience. • Government was far and away the least important source. *Information taken from the research and writings of Rushworth Kidder of the Institute for Global Ethics (IGE).

43. Develop a Code of Business Conduct Guidelines • Integrate existing company values into the Code of Business Conduct • Engage stakeholders to answer the question, “How do we want to be perceived as an organization by owners, customers, business partners, employees and the communities where we operate?” • Focus groups • Training

44. Stakeholder Exercise

45. Auction

46. What happened?

47. Auction Learnings • Sometimes our emotional commitment to something causes us to behave irrationally. • If we step back and think about the outcomes, we are often more likely to act rationally. • Sometimes we think we’ve “won” – when actually we’ve “lost.” (Winner’s curse)

48. Elements of a Compliance and Ethics Program • Standards and procedures to prevent and detect criminal conduct • Responsibility at all levels of the program, together with adequate program resources and authority for its managers • Due diligence in hiring and assigning personnel to positions of substantial authority • Communicating standards and procedures, including a specific requirement for training at all levels • Monitoring, auditing, and non-retaliatory internal guidance/reporting systems, including periodic evaluation of program effectiveness • Promotion and enforcement of compliance and ethical conduct • Taking reasonable steps to respond appropriately and prevent further misconduct upon detecting a violation

49. Reporting Relationship • ECO reports directly to the Audit Committee • Dotted-line reported into the General Counsel (amended to CFO) • Meet with the Audit Committee on a regular basis • Meet with the full Board at least annually

50. Elements of a Compliance and Ethics Program • Standards and procedures to prevent and detect criminal conduct • Responsibility at all levels of the program, together with adequate program resources and authority for its managers • Due diligence in hiring and assigning personnel to positions of substantial authority • Communicating standards and procedures, including a specific requirement for training at all levels • Monitoring, auditing, and non-retaliatory internal guidance/reporting systems, including periodic evaluation of program effectiveness • Promotion and enforcement of compliance and ethical conduct • Taking reasonable steps to respond appropriately and prevent further misconduct upon detecting a violation