Human Resources in Health Care Management

A Living Wage Methodist Hospital, a 400-bed acute care

hospital, is located in a low-income community in a city in the

Southwest. Like other urban hospitals, Methodist Hospital serves a

large number of Medicaid patients. As a result of national legislation,

the number of uninsured patients has decreased over the last three

years, but the hospital remains in a chronic state of financial

distress. Methodist Hospital was recently acquired by a hospital system.


hospital has just experienced a rather bad six months. The

problems started when a supervisor in the housekeeping department

repeatedly violated hospital policy and federal law by tampering with

time sheets for several employees. Three Latino women employees brought

this violation to the attention of the local NBC affiliate. The story

went viral, and within 48 hours it had been broadcast on CNN and MSNBC

and published in USA Today. The hospital’s director of public

relations apologized for this “clerical error” and the

supervisor’s misunderstanding about procedures. The employees

received back compensation for the mistake and were each given a gift

certificate to a local restaurant. The supervisor received a reprimand

but continued to work at the hospital. After the incident was resolved,

several other employees came forward with similar complaints, indicating

that they were afraid at the time to speak up. An internal

investigation of the situation continues.

Less than a month

later, Deborah, who earns $98,100 per year as director of

information technology at Methodist Hospital, was arrested on a DUI

charge after she struck and injured a mother and child at a crosswalk.

The injured mother, who was a dietary aide at Methodist earning $8.50

per hour, was on her way home after picking up her child from daycare.

This arrest was Deborah’s third in five years for DUI, and she had in

fact lost her driver’s license. Her husband, a prominent orthopedic

surgeon at Methodist, worked back channels with the board and the local

police to reduce the charges and keep her on staff at the hospital. The

hospital agreed to keep her on staff but referred her to an employee

assistance program.

A week later, the Wall Street Journal

published a story about wage discrepancies in a sample of inner-city

hospitals throughout the United States. The story was based on a study

conducted by a team of Wall Street Journal reporters working with staff

at the Urban Institute. Of 50 hospitals studied, Methodist Hospital was

cited as having one of the greatest wage disparities between white

and minority employees (at Methodist Hospitals, minorities were

mostly African Americans and Latinos). After controlling for job title

and job responsibilities, tenure in the organization, experience, age,

and other factors, the reporters found systematic racial bias in wages

over the past ten years. Methodist Hospital, in fact, was one of only

six hospitals studied exhibiting such profligate bias.


these incidents, the hospital continued to be a center of

controversy, with repeated stories in the local newspaper,

television, and social media. In the midst of this uproar, the

hospital board met with the senior management team to discuss

how the hospital should repair the damage caused by these

incidents. A community hospital relations team, composed of hospital

staff, the vice president of HR, the director of public relations,

and several community leaders, was formed. After three weeks, the team

issued its report, which recommended several community outreach

initiatives, diversity training for hospital employees, and the

development of a stronger policy outlining expectations of hospital

staff outside of the work setting. Among the team’s additional

recommendations was something new to the hospital, an initiative

that the team highlighted as a way to get the community’s

attention and send a message that the hospital was truly com-

mitted to improving its relationship with the community and

contributing to the city’s economic development.

The report

proposed that the hospital adopt a living wage policy for its

employees. No other living wage policy was in place in the city. In

fact, the hospital would be the largest organization in the state to

adopt any form of living wage policy. The policy would likely

provide a substantial benefit to the lowest-paid employees of the

hospital, who were disproportionately African American and Latino.


reviewing the report, the senior management team and board were

very supportive of most of the recommendations but hesitated on the

living wage policy. Because of the policy’s financial

implications and the uncertainty about the precise meaning of a

living wage, discussion of the proposed living wage policy took up

most of the meeting.

The hospital president had little

familiarity with the idea of a living wage. He had heard about the

concept but had no idea what its financial impact would be or

how it would be implemented. In concept, he agreed that paying people

more would be a popular action. But what would be the financial

impact, and would it cause a ripple effect, increasing wages

through- out the hospital, perhaps resulting in having to decrease

staffing levels? He asked the vice president of finance and the vice

president of HR to develop a two- to three-page summary report

addressing the following questions:

  1. What is the definition of “living wage”?

Has a living wage policy has been put into place in any jurisdictions?

If so, what was the impetus for the policy? What have been the

repercussions, both positive and negative?

  1. How is a

living wage calculated? Does it vary by location, family size,

and other factors? Are there different models or approaches to a

living wage policy?

  1. What is the impact of a living wage

policy on employees in the organization? Specifically, does a

living wage policy raise the wages only for people who are

currently paid below the living wage level? If so, how is the policy

likely to affect internal equity within the organization?

Alternatively, does implementing a living wage policy bump up

everyone’s wages?

  1. In comparison with other hospitals in the city,

Methodist Hospital’s pay structure is right in the middle, and the

hospital has been pretty successful in attracting and retaining

employees. How would the hospital reconcile a living wage policy with

its current compensation system, which is driven mostly by market


  1. What evidence is available on the financial impact of a

living wage policy on organizations? Does such a policy have ancillary

benefits that can be monetized, such as reduced turnover?

Sample Solution