Journal of Business and Behavioral Sciences: Volume 33 Number 2 ISSN 1946-8113 Fall 2021 in This Issue

JOURNAL OF BUSINESS AND
BEHAVIORAL SCIENCES
Volume 33 Number 2 ISSN 1946-8113 Fall 2021
IN THIS ISSUE
THE GRAND “MAKE-OVER” OF THE UNITED STATES: TIME FOR DRAMATIC CHANGE
C. Kenneth Meyer and Lance Noe
DIVERSITY, EQUITY, AND INCLUSION POLICIES: ARE ORGANIZATIONS TRULY COMMITTED
TO A WORKPLACE CULTURE SHIFT?
Bernadette Baum
REDUCING SUPPLY COSTS IN HEALTHCARE THROUGH THE UTILIZATION OF GROUP
PURCHASING ORGANIZATIONS (GPOS)
Sisk, Schmidt, House, Dayama and Posey
HURRICANE KATRINA’S EFFECT ON OIL COMPANY STOCK PRICES: A TEST OF MARKET
EFFICIENCY
Casey Williams and Frank Bacon
PATIENT READMISSION RATES: THE FUTURE OF THE HOSPITAL READMISSIONS REDUCTION

PROGRAM
Luu, Hunt, Magers, Flores and Dame
FALSE BELIEFS AND THE ILLUSION OF EXPLANATORY DEPTH
Jeffrey J. Bailey
ESTABLISHING EFFECTIVE HOSPITAL DISASTER PREPAREDNESS AND RESPONSE
STRATEGY/PLANS
Kyle, Hunt, Greenhill, Schmidt and Pearson
COVID-19 AND HUMAN RESOURCE MANAGEMENT LITIGATION: WHAT SHOULD EMPLOYERS

DO?
Gerald E. Calvasina and Joyce M. Beggs
THE U.S. MEDICAID DENTAL INSURANCE COVERAGE GAP: ACCESS ISSUES PERSIST FOR
MILLIONS OF ITS CITIZENS
Dominguez, Dame, Schmidt, Greenhill and Dayama
EXAMINING LOYALTY REWARD PROGRAMS BY BRANDS THAT PARTNER WITH SPORTS
TEAMS: A STUDY OF FRENCH CONSUMERS
Clara Loquier and Vasillis Dalakaas
REGIME-SWITCHING IN THE US CONSUMER CREDIT SERIES
Ellis Heath
A COMPARISON OF MORTGAGE DELINQUENCIES FOR THE U.S. VS INDIANA 1998-2015
Paul McGrath and Paolo Miranda
IS THE U.S. DOLLAR LOSING ITS MOMENTUM AS A GLOBAL LEADER?
Adrian McFarland and Balasundram Maniam
A REFEREED PUBLICATION OF THE AMERICAN SOCIETY

OF BUSINESS AND BEHAVIORAL SCIENCES
JOURNAL OF BUSINESS AND BEHAVIORAL SCIENCES
P.O. Box 502147, San Diego, CA 92150-2147: Tel 909-648-2120
Email: [email protected] www.asbbs.org
ISSN: 1946-8113
Editor-in-Chief
Wali I. Mondal
National University
Editorial Board
Karen Blotnicky Henry Findley
Mount Saint Vincent University Troy University
Pani Chakrapani Shamsul Chowdhury

University of Redlands Roosevelt University
Marybeth McCabe Lisa Flynn

National University SUNY, Oneonta
Karina Kasztelnik John Bennett

Tennessee State University Saint Leo University
Sheldon Smith Saiful Huq

Utah Valley University University of New Brunswick
William J. Kehoe Z.S. Andrew Demirdjian

University of Virginia California State University Long
Beach
The Journal of Business and Behavioral Sciences is a publication of the American

Society of Business and Behavioral Sciences (ASBBS). Papers published in the
Journal went through a blind review process prior to acceptance for publication.
The editors wish to thank anonymous referees for their contributions.
The national annual meeting of ASBBS is held in Las Vegas in February/March of
each year and the international meeting is held in June/July of each year. Visit
www.asbbs.org for information regarding ASBBS.
2
JOURNAL OF BUSINESS AND BEHAVIORAL SCIENCES
ISSN 1946-8113
Volume 33, Number 2; Fall 2021
TABLE OF CONTENTS
THE GRAND “MAKE-OVER” OF THE UNITED STATES: TIME FOR DRAMATIC

CHANGE
C. Kenneth Meyer and Lance Noe………………3
DIVERSITY, EQUITY, AND INCLUSION POLICIES: ARE ORGANIZATIONS TRULY
COMMITTED TO A WORKPLACE CULTURE SHIFT?
Bernadette Baum…………….11
REDUCING SUPPLY COSTS IN HEALTHCARE THROUGH THE UTILIZATION OF
GROUP PURCHASING ORGANIZATIONS (GPOS)
Sisk, Schmidt, House, Dayama and Posey……………24
HURRICANE KATRINA’S EFFECT ON OIL COMPANY STOCK PRICES: A TEST OF
MARKET EFFICIENCY
Casey Williams and Frank Bacon……………36
PATIENT READMISSION RATES: THE FUTURE OF THE HOSPITAL

READMISSIONS REDUCTION PROGRAM
Luu, Hunt, Magers, Flores and Dame……….……44
FALSE BELIEFS AND THE ILLUSION OF EXPLANATORY DEPTH
Jeffrey J. Bailey…………………..54
ESTABLISHING EFFECTIVE HOSPITAL DISASTER PREPAREDNESS AND
RESPONSE STRATEGY/PLANS
Kyle, Hunt, Greenhill, Schmidt and Pearson…………………..65
COVID-19 AND HUMAN RESOURCE MANAGEMENT LITIGATION: WHAT

SHOULD EMPLOYERS DO?
Gerald E. Calvasina and Joyce M. Beggs………………………75
THE U.S. MEDICAID DENTAL INSURANCE COVERAGE GAP: ACCESS ISSUES
PERSIST FOR MILLIONS OF ITS CITIZENS
Dominguez, Dame, Schmidt, Greenhill and Dayama………………88
EXAMINING LOYALTY REWARD PROGRAMS BY BRANDS THAT PARTNER
WITH SPORTS TEAMS: A STUDY OF FRENCH CONSUMERS
Clara Loquier and Vasillis Dalakaas…………..103
Ellis Heath………………………….115
A COMPARISON OF MORTGAGE DELINQUENCIES FOR THE U.S. VS INDIANA
1998-2015
Paul McGrath and Paolo Miranda…………………..124
IS THE U.S. DOLLAR LOSING ITS MOMENTUM AS A GLOBAL LEADER?
Adrian McFarland and Balasundram Maniam………….139
3
Journal of Business and Behavioral Sciences
Vol 33, No 2; Fall 2021
THE GRAND “MAKE-OVER” OF THE UNITED STATES: TIME FOR
DRAMATIC CHANGE
C. Kenneth Meyer
Lance Noe
Drake University
Editor’s Note: This paper is based on the Keynote Speech at the ASBBS
Virtual Conference held in March 2021 delivered by Professor C. Kenneth
Meyer, Thomas F. Sheehan Distinguished Professor of Public Administration
at Drake University. Professor Meyer acknowledges the research support of
his colleague Professor Lance Noe in finalizing the publication.
Abstract
This research addresses how we will imagine, administer and manage
governmental enterprises in the post-pandemic world. If previous pandemics
serve as a guide, the environment that public administration will need to adapt
to may feature the following: A more volatile economy and recovery where
recovery comes quickly to some and not to others; an intense “greening” of
the economy, market systems, environmental policies and conservation
practices to meet needs of a world population and sustain the ability to meet
needs for generations; major reduction in revenues for local and state
governments remembering that governments must balance their budgets;
state and city planning departments response to an increased demand for civic
participation in life and design of cities and how will technology impact this
piece of our environment; and in addition the widening gap between those
who are economically advantaged and those who are not, the impact of
advanced technology and digitalization, and, among other topics, the
“Overton Window”—what was previously thought to be impossible, now
becomes feasible, if not necessary.
Introduction
“It was the best of times, it was the worst of times….” Charles
Dickens penned this famous phrase in the 18th C. in reference to the political
and economic turmoil narrated in A Tale of Two Cities as Paris and London
faced the dual American and French Revolutions. Just a few months ago, if a
historian visited the United States, they would have learned about the great
economic prowess of its economy, at least for some, a robust stock market,
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Meyer and Noe
its military strengths, high GDP, low unemployment rates and a myriad of
impressive financial metrics. These measurements were quickly muted in
January to the present, as the United States and over 195 countries world-
wide became the host of an unwelcomed virus that has reached pandemic
proportions.
To say these are chaotic times would be a pedestrian observation at
best. For those in public administration and public policy analysis, we need
to think about the future of governance set within the context of a world-wide
pandemic and massive civil protests and demonstrations on the streets of the
United States. These tumultuous times are characterized by increasing levels
of anxiety, uncertainty, depression, fear, tempered with the triple spirits of
resilience, opportunity and the development of institutional trustworthiness.
The economic, political and social climate that dominates affairs at
all levels of government—national, state and local—are nearly unmatched in
the last century. The crisis was produced by the spread of a tiny virus, a novel
coronavirus (COVID-19) that burst upon the scene and with pandemic
consequences will fundamentally affect how policies and administration will
be made and conducted in the immediate future. The economic strife faced
by state, municipal, and local governments for the next few years (at least)
will leave an indelible impact. The corresponding “shutdown” of the
American economy and its disruptive effect on traditionally accepted ways
of doing things socially and culturally, will leave a lasting footprint on basic
societal structures, mores, and human behavior.
The changes taking place are already palpable in the rapid
transformation of how things we used to take for granted were done, to new
ways of doing things, augmented by technology and public health necessity,
are done. These changes are evident in the following areas: Voting,
telecommuting, education systems (from K-12 to graduate levels), all manner
of shopping (from the mall and main street businesses to Amazon and from
clothing to groceries), Tele-everything (medicine, health care, legal activities,
conferencing (Microsoft Teams, Zoom, Facetime, etc.), insurance claims and
adjustments, travel, recreation and leisure, dining activities, manufacturing,
assembling, production processes and other congregates, to basic citizen-
governmental interactions and essential economic exchanges. And, of
course, the explosive use of FaceBook, Skype, Instagram, Twitter, among
others, and the necessity of social distancing. In addition, there will be an
increase in regional collaboration, lower interest rates and greater
4
indebtedness (later, perhaps higher tax efforts), complicated further by the

decline in globalization, and the rise of populism and “nationalism,” and the
rise of the virtual organization.
Change Endures: Anticipate, implement, Evaluate it and Repeat
Historically, pandemics have left a lasting impact on the ways in
which societies have done things ranging from antiquity to the present time.
The cursory list which follows presents an ecological framework in which
state and local government will be exercised, and some of the new conditions
which will affect how we administer and manage governmental enterprises:
1. The U.S. economy will be mercurial as it attempts to regain the
prowess it held in pre-COVID-19 times, yet there will remain
many foreseen and unforeseen influences that will differentiate a
volatile recovery, making distinctions between “Main street and
Wall street.”
2. Unemployment rates will soar to levels unmatched since the Great
Depression and will be uneven between those who have higher
levels of education and can work in careers that adapt quite easily
to telecommuting, and those who do not, and by variables such as
socioeconomic status, place, and race/ethnicity.
3. Local and state governments will experience a massive decline in
revenues from sundry sources, at least until the economy has a full
recovery. This shortfall will be associated with increased
spending on unemployment, health spending and Medicaid, etc.,
constrained by the “balanced” budget requirement found in most
states.
4. Educational systems, public and private, will need to adapt to new
ways of learning where technology (think Internet) will play an
essential role, and distance education will become commonplace.
5. The fragility and incapacity of governmental health and a myriad
of other major infrastructure systems to respond to medical and
economic demands will be recognized and require major
adjustments, if not revolutionary change (unemployment and
training programs, defunding certain areas of governmental
service (police, justice and security enforcement), energy
production, and climate change). Simultaneously, there is an
ongoing and increased “hollowing out” and politicization of
governmental departments, bureaus and offices.
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Meyer and Noe
6. In re-thinking what changes are incumbent, resilience is required:

This is neither the first nor the last pandemic we will have to face.
Keep in mind that the city has become the defining government
unit of the 21st Century and the new human scale embedded in
urban designs will emphasize livability, accessibility,
affordability, walkability, etc., for people rather than cars;
rethinking HVAC (heating, cooling and ventilation technologies);
housing needs in proximity to employment opportunities;
changing characteristics of housing (larger, separated rooms for
privacy, wired for technology), and, the rapidly changing
demographics of a county edging toward 330 million—a nation
where the majority is soon to become the minority and the
minority the majority. This phenomenon is already evident as
masses of humanity take to the streets to protest the current state
of race relations, access to quality health care, economic, social,
and environment injustice, and among many other problems, the
twin issues of violence and police brutality.
7. The role that advanced technology and digitalization will play in
the life and work of organizations will be explored, examined, and
put into practice. These expected changes will bring a revolution
of how and where work and related processes get done, especially
with the increased use of artificial intelligence (AI), deep learning
and machine learning. In the total scheme of things, the basic
nature of work (from left to right brain) will undergo a major
transformation. accompanied by the advent of new employer-
employee psychological contracts. In addition, the rapid
introduction of an integrated, mobilized and autonomous way of
travel, transportation, and delivery, ranging from everything
electric (cars, buses, trucks, trains, etc.) to the use of drones.
8. An intense “greening” of the economy, market systems,
environmental policies and conservation practices, and so on, in
order to address the accelerating curves of change (hockey stick
shaped): world population growth (8.5 billion people by 2030),
computation and processing (data transmission, storage,
networking, and iCloud),), wasted resources, climate change,
technological explosions (Moore’s Law--smaller, faster cheaper),
and the adverse effects of tribalism, populism, and
uncompromising political partisanship.
6
9. State and City planning departments will need to respond to

increased civic participation in the life and design of cities in these
areas: Street and road construction, parks and recreation, transit
and transportation, zoning laws and building codes—internal and
external, the use of brownfields, rooftops, and public spaces, and
in particular the design and (re)design of our cities. To envision
the future of urban planning, familiarity with the following
concepts will be mandatory because an emphasis will be placed
on creating healthier and greener environments (smaller green
spaces, pedestrian friendly walkways, convenient and safe cycling
routes, traffic calming, superblocks for vehicles, etc., that employ
social distancing notions, while simultaneously increasing
physical activity). While living during COVID-19, city dwellers
will have become familiar with temporary road closures and those
designs that place restrictions on the use of internal and public
spaces, and perhaps, require more initiatives for pollution
reduction, healthier natural and built environments, and designs
that help build community, neighborhood and personal
relationships. Finally, new types of surveillance technology will
be put into place for digital tracing, temperature checks, tracking,
and perhaps electronic vouchers. These technologies will be put
in place based on the needs for safety and security, but bring into
discussion the full scope of civil liberties and their protection.
10. In response to the COVID-19 pandemic, public policy makers and
mangers should ensure that in restructuring and redesigning
institutional structures that large swaths of American society have
their needs met. That is, ensuing that the poorest among us, the
homeless, minorities (religious and racial), and undocumented
immigrants are not neglected. During this time of “punctuated
equilibrium,” or periods of stability interrupted by sudden change,
the goal may be to produce greater equality and efficiencies, but
the unintended consequence or outcome might be the
exacerbation of inequality.
11. Last, the principles inherent in our federal system of government

will be challenged and tested in terms of rightful power, authority,
protections, the “rule of law,” and the proper role of national and
state governments will be debated and litigated during these
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Meyer and Noe
chaotic times. Also, the democratic principles of this republic will

be increasingly threatened by the rise of authoritarianism, attacks
against a “free press,” and the elemental standards of fairness,
equity, justice and TRUTHFULNESS. It will be difficult to
navigate the future and address these existential threats if a nation
cannot agree on what constitute the basic facts of our history,
culture and science.
Summary and Discussion
As this summative list shows, these are challenging times and the
problems and issues that confront policy makers and administrators are
indeed important ones. They become all the more salient as we more fully
realize that the American governmental experience is a work in progress
(“…to form a more perfect union….”), and as we struggle to meet the
demands of “liberty and justice for everyone.”
The oft mentioned desire to return to a state of normalcy when we are

in the throes of a full-blown pandemic is short-sighted; alternatively, a crisis
is a terrible thing to waste! Instead, at this moment, we should focus on re-
thinking how the various systems work and how to improve them, make them
more just, equitable, resilient, sustainable, and responsive to human needs,
and invest in the critical areas of health care, education, social control,
employment, housing, and infrastructure. This is an “Overton Window”—
what was previously thought to be impossible, now becomes feasible, if not
necessary. If we rise to meet the challenge presented by COVID-19, we will
someday, with pride, pass on to future generations how this country faced an
existential threat and, in turn, has bequeathed to posterity a reinvented and
rediscovered way of governance and built a civil society that solidly bends
the “arc of history” toward peace and justice.
The “best of times” remains aspirational if the changes mentioned

above take place that move governmental policies forward and repair the
institutional and structural inequalities and the myriad areas of historical
neglect. The future is full of opportunity if we have the vision and the will
to grasp it, embrace it…then our dream will never die.
8
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317-319. https://doi.
Brookings.edu/research/howorg/10.1016/j.oneear2020.04.004
Bao W (2020). COVID-19 and online teaching in higher education: A case study of
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[accessed July 15, 2020]
Belz S & Sheimer L (2020). How will the coronavirus affect state and local
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Esposito S, Principi N. (2020). School closure during the coronavirus disease 2019
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Goger A & Bateman N (2020). Will inequality increase among older Americans?
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McKibbin W J. (2020). What are the possible economic effects of COVID-19 on
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Vol 33, No 2; Fall 2021
DIVERSITY, EQUITY, AND INCLUSION POLICIES:
ARE ORGANIZATIONS TRULY COMMITTED TO A
WORKPLACE CULTURE SHIFT?
Bernadette Baum
National University
ABSTRACT
This paper proceeds from the premise that true change can only be realized after first
coming to terms with harsh realities. The murder of George Floyd in 2020 sent shock
waves throughout our collective conscience resulting in a racial reckoning unlike
any other in modern history. Calls for change throughout Corporate America had
organizations pledging millions of dollars toward the cause of racial justice. But
now, over one year later, has there been a significant change in workplace equality
following heightened awareness to diversity, equity, and inclusion policies in
organizations, or have we settled back into the status quo? This paper will examine
obstacles to achieving the level of workplace culture shift needed to claim a spot as
a true EEO employer. While generally addressing all legally protected
classifications, the paper will specifically focus on racial discrimination in the
workplace by exploring root causes of racism through a human behavioral lens.
Historical research and legal case studies have shown that racism can be found in all
areas of society and racial discrimination in the workplace has existed for numerous
decades, however, the Black Lives Matter movement and social unrest of 2020 have
found a platform at a time when all aspects of the issue are converging, thereby
making the time ripe for changes in legislation and challenging employers to
reimagine workplace policies on diversity, equity, and inclusion.
Key words: DE&I policies, diversity, equity, inclusion, systemic racism
INTRODUCTION
An unprecedented year in our nation, 2020 will claim a spot in history for a
convergence of high-profile events concerning civil rights issues beneath a backdrop
of a world-wide pandemic. On May 25, 2020, George Floyd, a 46-year-old black
man, was murdered in Minneapolis, Minnesota by a white police officer, Derek
Chauvin, while being arrested on suspicion of using a counterfeit $20 bill. The
following day, excruciatingly explicit videos made by witnesses and security
cameras went viral, striking a nerve in most everyone who watched them due to the
callous disregard for human life exhibited by the police officer. Floyd’s murder led
to world-wide protests against police brutality, police racism, and lack of police
accountability (Hill, et al., 2020). The event launched a modern-day civil rights
movement, re-energizing the Black Lives Matter movement, and mirroring the Civil
Rights movement of the 1960s. The movement resonated with millions of citizens
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Baum
of all races, creeds, and ages who either identified with the stories being reported
from people who had experienced similar treatment, or who had never experienced
such treatment but were struck with horror at how such actions could have
transpired. Despite being in the height of a pandemic, the horrific event propelled
citizens into action as they took to the streets in protest and participated in the
ongoing conversations on the internet. Statistics reveal that between May 26 and
June 7, 2020, the #BlackLivesMatter hashtag had been used roughly 47.8 million
times on Twitter – an average of 3.7 million times per day (Anderson, et al., 2020).
In response to demands for change from anti-racism advocacy groups, new

legislation continues to be passed in several states, as well as police reform bills.
President Biden’s passage of Juneteenth as a Federal holiday acknowledged historic
roots of racism (Pruitt-Young, 2021). Corporate America nationwide rose to the
challenge by pledging millions of dollars toward diversity, equity, and inclusion
(DE&I) programs and professing promises to do better. But have those promises
been kept? Or, has the momentum waned and the initiatives moved down the priority
list? Research shows that even the most genuine of efforts has met with challenges
and obstacles to creating the paradigm shift necessary to achieve positive change in
the area of equality in the workplace. Despite promises, companies are still behind.
The number of companies with a Chief Diversity Officer (CDO) has increased only
marginally in recent years, from 47 percent in 2018 to 52 percent as of February
2021. Many leaders in this space are realizing that pioneering this emerging field is
more challenging than expected and are quickly getting burned out (Gurchiek,
2021).
Through a reminder of key historical events in the history of the United States, this
paper analyzes not only the legal, but socio-psychological impacts of systemic
racism to determine the underlying reasons racial discrimination continues to occur
in the 21st century workplace. A starting point is to understand that history is not
repeating itself, rather, just resurfacing. Acknowledging the fact that racism has
never been uprooted - a consequence of not facing harsh truths – is a step in the
direction toward healing. The discussion will lead to an awareness of the challenges
faced in moving forward as well as highlight obstacles to implementing DE&I
workplace policies. New methods of training to comport with current updates in the
law will be explored with a focus on creating a culture of equality as a means of
fostering a diverse, equitable, and inclusive environment for all employees.
CHANGES IN DIVERSITY POLICIES
It is important to understand the expanding definitions of terms from former

diversity policies to current diversity, equity, and inclusion policies in workplace
settings, both from a legal and sociopsychological view.
Diversity. The basic definition of diversity is the differences between individuals,
based on any attribute, that may lead to the perception that another person is different
from the self (SHRM.org). From a legal policy perspective, considerations of
12
disparate treatment, disparate impact, and stereotyping, among others, are reflected
in policymaking.
Disparate Treatment. Disparate treatment is defined as treating a similarly situated

employee differently because of prohibited Title VII or other employment
discrimination law factors.
Disparate Impact. Disparate impact refers to a deleterious effect of a facially

neutral policy on a Title VII group.
Stereotyping. Stereotyping is a standardized conception held in common by

members of a group. Assumptions are made based on such conceptions that do not
factually represent all members of a group.
According to Title VII of the Civil Rights Act of 1964, it shall be unlawful
employment practice for an employer –
(1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate
against any individual with respect to his compensation, terms, conditions, or
privileges of employment, because of such individual’s race, color, national origin,
sex, or religion. [Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §
2000e-2(a).]
If we stop here, with the above law and theories of law in place, a person of color
may be hired for a position and not be exposed to any adverse actions by the
employer. But that same person of color may not be treated equitably or experience
inclusion in workplace groups in the same way as their similarly situated colleagues
experience equity and inclusion. The expanded DE&I arena is necessary to
holistically address systemic racist and sexist behaviors and implicit biases that have
become commonplace in the work environment in order to remedy toxic cultures in
the workplace.
Equity. A relative form of equality (equal treatment of individuals and groups) that
takes into consideration the needs and characteristics of the individuals, the context
of the situation, and circumstances that result in disparate outcomes (SHRM.org).
Example. People of color represented in the highest levels of organizational

leadership nationwide is an abysmal number. Black people occupy only 3.2% of the
senior leadership roles at large companies in the United States and just 0.8 of all
Fortune 500 CEO positions (Brooks, K. J., 2019).
Pay equity is another example of an ongoing workplace issue with its roots based in
discrimination. Gender pay disparity continues to exist with women earning 82 cents
on every dollar that a similarly situated male earns, excepting black females who
earn 64 cents on every dollar, and Hispanic females earning 57 cents on every dollar
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Baum
of their similarly situated white males (Spiggle, T. 2021; AAUW 2021; Payscale
2021).
Intersectionality. Experiencing more than one type of discrimination at a time, e.g.,

that of being black and female. Intersectionality adversely impacts various
populations of protected classes, illustrating the higher probability of discriminatory
behaviors involving, for example, racism and sexism occurring at the same time.
Inclusion. The extent to which individuals can access information and resources,
are involved in work groups, have the ability to influence decision-making
processes, and can contribute fully and effectively to an organization. “Inclusion” is
also defined as the fulfillment of needs for belongingness and uniqueness. According
to Optimal Distinctiveness Theory, employees’ needs of belongingness and
uniqueness must be met in order for employees to feel included. To feel included,
the unique characteristic of an employee must be valued within a group; more
importantly, though, this uniqueness the person brings to the group must be allowed
and encouraged to remain. Inclusive culture exists in the workplace when an
organizational environment allows people with multiple backgrounds, mindsets, and
ways of thinking to work effectively together and to perform to their highest
potential to achieve organizational objectives based on sound principles
(SHRM.org).
Example. It is important to note that workplace protections from sexual orientation

and gender identity discrimination did not come to the federal arena until June 2020.
Before that time, while members of the LBGTQ+ community were protected from
workplace discrimination and harassment under some state laws, they were not
protected under the federal statute of Title VII of the Civil Rights Act of 1964 and,
as such, some members of the LQBTQ+ community were still shrouded in fear of
revealing how they identify regarding affinity orientation and gender identity.
Weaving DE&I policies into the fabric of the core federal workplace discrimination
statutes - Title VII of the Civil Rights Act of 1964; the Age Discrimination in
Employment Act (ADEA) of 1967; and the Americans with Disabilities Act (ADA)
of 1990 – while rolling out training and development policies is a full-circle
approach to the personal and professional development of employees and sends a
message from leadership that the company is committed to achieving and
maintaining a workplace culture of diversity, equity, and inclusion.
A LOOK AT THEN TO NOW
Beyond the legal and political arena, cries for equality were coming from all
segments of society during the social unrest of the 1960s. In pop culture, for
example, the Beatles did their part in helping to fight racism in the United States
when they refused to perform to a segregated audience in Jacksonville, Florida in
1964 (BBC News, 2011). Much of the music of the time reflected the need and
14
demand for change to address to inequities against Black Americans and women,
among other protected classes. It is no surprise that equal rights movements found a
voice through music, as “music bypasses the brain and resonates straight into the
heart where transformative change happens (Berson, 2020).
When Ruth Bader Ginsburg argued her first sex discrimination case in front of the
United States Supreme Court in 1973 in the case of Frontiero v. Richardson, she
cited abolitionist Sarah Grimké during her oral argument saying, “I ask no favor for
my sex. All I ask of our brethren is that they take their feet off our necks.” The
symbolism highlighting oppression against individuals based on their sex or race
was a testament to the fact that not much had changed since the turn of the 20th
century.
Fast forward to the 21st century and RBG’s statement could not be more figuratively
and literally relevant as when George Floyd was murdered by a knee to his neck.
Forcing society to look, once again, at how far we have come – or not come - in over
four centuries, revealed that old wounds continue to resurface because the necessary
work has not been done to eradicate systemic racism in our society.
Racism and sexism are intertwined and can only be uprooted at the same time
(Steinem, 2015). When examining the plight of people of color and women
throughout history, the same forms of oppression exist rooted in superiority and
patriarchal ideologies. The impact of racism and sexism is far reaching, affecting
every aspect of life from access to education, medical services, housing, and job
opportunities, among other areas, as illustrated below.
▪ According to the Brookings Institution, Black college graduates have higher debt
loads, on average, than White college graduates. Black debt rises over time. White
debt diminishes. Upon graduation, the average Black graduate owes $23,400 vs. the
White graduate’s $16,000. Four years later, the gap triples. Even at the top end of
the income spectrum. Black students have higher student loans ($4,643, on average)
than White students ($3,835), and Black parents take out larger loans to help pay for
college - $3,303 vs. $1,903 (Brown, 2021).
▪ A county-level empirical analysis of structural racism and COVID-19 in the USA

revealed that Black Americans as a community have experienced a long and well
documented history of exploitation and racial discrimination that has in turn
manifested in the form of persistent health disparities and preventable deaths (Bin
Shin, et al. 2021).
▪ In the first quarter of 2020, the Census Bureau reported that black households had
the lowest homeownership rate at 44%, nearly 30 percentage points behind white
households. Racial discriminatory practices prevented people of color from
accumulating wealth through homeownership (Williams, 2020).
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▪ Sixty percent of employed Americans have experienced or witnessed discrimination

at work on the grounds of race, gender, age, or LGBT identity (Srikanth, 2020). A
Gallup poll released in January 2021 found that of the roughly 2,000 Black
employees surveyed, 24% reported being discriminated against in their jobs in the
past year (Williams, 2021).
Specifically, regarding race discrimination in the workplace, a survey conducted by

the Society for Human Resource Management (SHRM) of 1,275 people in the U.S.
found that 49% of Black HR Professionals think that race-based discrimination
exists in their workplace, but only 13% of White HR Professionals agree. The same
survey found that 35% of Black workers say that such discrimination is part of their
workplace, while only 7% of White workers say that this is the case (Gurchiek,
2020). The findings from the report, The Journey to Equity and Inclusion suggest
that while workers agree that racial discrimination exists, there is a vast difference
in perception of how widespread the problem is, indicating a need for more
awareness and understanding of workplace racial inequality.
The Black Lives Matter movement heightened the need for employers to improve
their efforts toward workplace diversity policies. Efforts range across the spectrum
from employers outwardly advocating for change because it is the popular thing to
do in this climate but have no intention of walking the talk, to employers making
genuine efforts toward a paradigm shift in workplace culture but are finding the
challenge overwhelming.
OBSTACLES IN MOVING FORWARD
To engage in meaningful professional growth, a foundation of personal growth must

be present. Individuals lacking in this foundation may pose a major obstacle to
successful DE&I trainings because not every employee is in the same space with
regard to their level of personal growth and emotional intelligence. Every person is
shaped in some degree by their upbringing, whether cultural, religious, societal, or
combinations of all or more influences. Implicit biases and prejudices harbored
within are carried forward to the workplace. Individuals who do not possess a mature
level of emotional intelligence, may engage in acts that can be interpreted as racist
or sexist without realizing the impact of their actions on other individuals. As such,
some organizations may need to move forward in the DE&I space at a very basic
level.
A starting point would include examining the root causes of racism as a threshold
foundation. A look back in history reveals the scourge of slavery and its impact on
society over centuries and how the burden has plagued our nation, along with the
guilt of those actions weighing heavily on our collective conscience. Superiority
ideologies passed down from generation to generation are at the base in the
formation of racial prejudice. Without exposure to diversity and the plight of people
of color in society in general and in the workplace specifically, individuals cannot
16
gain the pertinent information or develop the necessary empathy to address such
issues and begin to remedy them.
Natural human behavior seeks to avoid these painful memories. At times it is easier
to live in denial. Further, when racist actions of violence and discrimination enter
our stream of consciousness, a human impulse is to excuse them away as not being
a problem anymore or, worse, not our problem. But intellectually we know and are
reminded by Dr. Martin Luther King, Jr. that, “Injustice anywhere is a threat to
justice everywhere” (King, Jr., 1963).
Egregious manifestations of racism and sexism are found by uncovering significant

events which have been expunged from history, leaving people unaware of the
perpetuation of racist and sexist actions passed down from generation to generation.
For example, until recently, most textbooks did not include historic events related to
racism such as the Tulsa Race Massacre of 1921. Before 60 Minutes ran a segment
last year of the Tulsa Race Massacre, much of the population had never heard of this
or other atrocities committed against African American communities.
Similarly, most textbooks omitted the participation of African American woman in
the United States space race of the 1960s. Neither had much of the population been
aware of the number of black women mathematicians and engineers instrumental in
sending a man into space 1965 until the appropriately titled movie Hidden Figures
hit the box office. Without this knowledge, a large segment of our society was left
uneducated as to the contributions to science made by African American women.
As if to indicate that if such events are excluded or erased or never spoken of, then
they must not have happened is at the root of oppression. This lack of accountability
has kept Black Americans and all people of color held back over centuries.
Moreover, the release of liability for the heinous crimes committed in the Tulsa
Massacre, for example, and atrocious coverup speaks to the enormity of moral
turpitude surrounding such events. Failure to be held liable through our justice
system, and failure to provide reparations for the victims is an example of the
citizenship plurality that our country was built on. It is rooted in our education and
criminal justice system, and systematically woven into popular culture.
Facing the harsh truths of racism and sexism requires a deep dive into the root causes
of such behaviors. Such exercises are not pleasant and can unearth our own implicit
biases and prejudices in a way that can cause us to examine our entire life beginning
with our familial upbringing and cultural influences and how such influences have
impacted every aspect of our life. Unless and until we do this work, we cannot move
forward. With truth comes change. Change is difficult, uncomfortable, uncertain,
and disruptive to our daily routine. Remaining in the status quo is simpler,
comfortable, secure, and orderly. The truth dismantles the status quo. It forces us to
face our own failings and challenges us to do better every day. But facing the truth
is not easy. It is easier to stay the same and continue to bury the truth down to the
bottom of our list of priorities to handle. As James Baldwin said, “Not everything
that is faced can be changed; but nothing can be changed until it is faced” (Baldwin,
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1962). While the task to achieving workplace equality may seem enormous, even
the smallest efforts toward equality are meaningful and a step in the direction of
creating positive change.
TRAINING METHODS REIMAGINED

Far too often and for far too long, diversity training methods have been compliance-
based, with a view to mitigating an employer’s exposure to legal liability. Most
training is perceived by employees as a mandatory task that takes time away from
their job duties and deadlines. Many employers are resentful for having to expend
resources to remain in compliance with labor and employment laws. Check-the-box
training - listening to video lectures in isolation, answering questions, passing the
test, receiving a certificate of completion – are the norm. After completion of the
training video, the employee does not have to think about diversity issues again for
another year or more. The employer, in turn, can check the box that the company
has satisfied the requirements of the law, thereby fulfilling legal compliance
responsibilities or be ready for any audit that may be conducted by an EEO agency.
The company has the necessary documentation to prove that the employees have
been trained in workplace diversity laws.
Learning about the elements of the law, however, is quite different from learning
how societal norms impact the behaviors of employees and leaders of an
organization. What has been missing in diversity training is a holistic approach to
the issues of diversity, equity, and inclusion. Tapping into the perceived culture of
the company can provide vital information that can be utilized to create necessary
interventions and preventive measures to restore the health of the entire organization
and all its employees.
STEPS FOR IMMEDIATE ACTION
Conduct a Climate Survey. As with any healthy relationship, the employer-

employee relationship should be built on a foundation of trust and respect. The
original definition of trust is alliance. If the HR Director is professing that the
company is an Equal Employment Opportunity (EEO) organization while individual
leaders of the company are overtly or covertly discriminating against employees,
engaging in retaliatory actions, or condoning such behaviors by inaction, employees
will know that the company’s “zero tolerance” policy is simply a façade, designed
to shield the organization from legal scrutiny. The policy then plays out as a false
commitment, and employees will realize that the leadership of the company is not
concerned about fairness, employee wellness, or maintaining a workplace free from
discrimination. The breakdown of trust will result in disillusionment and low
morale. If trust is lost, the employer-employee relationship shifts from cooperative
and collaborative to isolated and adversarial. Climate surveys can be very useful in
gauging the morale of employees, especially if employees are not inclined to be
forthcoming about problems based on distrust, fear of reprisals, or the existence of
a hostile atmosphere. An organizational development consultant can prepare and
18
administer the surveys independently and in a neutral environment. The results

should be shared with the entire organization along with concrete plans to address
critical issues and shortcomings.
Perform and Internal Pay Audit. Conduct a voluntary pay audit to proactively
assess any racial or gender-related disparities in compensation. Do not wait until a
complaint is filed or an EEO commission notifies the company of an audit.
Depending on the results of the audit, make immediate pay adjustments accordingly.
For example, if the audit reveals a 10% gender pay gap for similarly situated
employees in certain positions, then make a 10% adjustment to the adversely
affected group. This proactive approach will signal to employees that the company
is genuinely concerned about issues of inequity and is making a good faith effort to
initiate remedial actions.
Adjust Recruitment Policies. Findings from a report released in September 2021
based on an online survey of 1,115 North American organizational leaders
conducted in April and May 2021 revealed: Seventy four percent of all respondents
track the diversity of new hires; Sixty-four percent track the diversity of individuals
they recruit (SHRM.org, 2021). Tracking recruitment and selection data is critical
to a company’s DE&I commitments.
STEPS FOR ONGOING ACTION
Onboarding 1-month Class. A new employee’s perception of an organization is

formed in the first few weeks of employment. Conducting an onboarding training
session on Diversity, Equity, and Inclusion in a one-month-long format will be a
testament to the new employees that the DE&I statements professed in the
company’s mission and vision are in fact practiced in the workplace. While the class
is held over a period of one month, the time spent each week is only two hours for a
total of eight hours over the period of the month. Typically, diversity training is
approximately eight hours, but held in one session. The purpose of spreading the
time over a period of one month is to optimize the learning process by allowing time
for necessary reflections on the sensitive topics. The format and examples of
exercises are illustrated below:
Case Studies in a Group Setting. The time is ripe for meaningful, engaging
exercises in a group setting. Similar to taking an employment law class, case studies
should be utilized in a classroom format, to include group breakout sessions with a
subject matter expert facilitating the process. Time should be allowed for journal
reflections, along with voluntary sharing to enrich the learning process. Bystander
intervention could be incorporated into the case studies to illustrate in group sessions
how each person can find their voice and be given the tools to speak up.
Exercise – Reflection Papers. We all harbor implicit biases and prejudices carried
over from our upbringing, culture, and life experiences. In order to be able to
progress professionally, we must first work on our personal development. Facing
our fears and recording them in honest reflections is not an easy task. But when
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given as homework to do personally in a quiet environment, profound revelations

may occur. Then, later in a safe workplace workshop setting, employees may feel
the desire to share and by so doing become enlightened when hearing about
experiences of coworkers.
#1. Write a 2-Page Personal Reflection on the following topic:

What Do You Believe to Be the Root Cause of Racism?
#2. Write a 2-Page Personal Reflection on the following topic:

What Do You Believe to Be the Root Cause of Sexism?
Exercise – Cages. Examine the following excerpt of Oppression by Dr. Marilyn

Frye. Write your reflections in your journal.
Looking at discrimination issues is like looking at a wire birdcage. Look at the wires
closely and you can’t see why a bird can’t just fly around it. But look at it from
further away and you see that the wire you are viewing is only one of many
interconnected wires that form an impenetrable cage that keeps the bird in place.
With discrimination, each little piece may not seem very significant, but put them
together and they form a different existence for one group than another, which keeps
the group from progressing like those without the barriers.
Exercise – Stereotyping. Stereotyping weaves its divisive thread through all areas
of discrimination, sewing its seeds of superiority ideologies, the roots of which run
deep and perpetuate from generation to generation. Assumptions based on protective
classifications can create a deleterious impact on such groups.
Watch the video below: The Look
https://urldefense.proofpoint.com/v2/url?u=https-3A__www.youtube.com_watch-
3Fv-
3DaC7lbdD1hq0&d=DwICAg&c=qwHaVVscXk_NBWd7DQFk0g&r=2GilTHcC
sqRmEHjaWl4fSA&m=pedHAzJXyJO8GjDrCLnK2LXVq7L-
cIoJpYYN6VN4gCE&s=kcAOBZmUvFNU_RtFa-sC7kMGqD3J5kpO-
Yd6e6Hu5nQ&e=
Discuss the observations you made while watching the video. How did you feel
while making your observations? What parts of the video, if any, stood out to you?
Were you surprised by the ending?
STEPS FOR LONG-TERM ACTION
EQ Training. HR professionals can utilize training methodologies associated with

emotional intelligence concepts to orient and train supervisors and non-supervisory
employees. Determining the format and venue of the training depends upon the size
20
of the group to be trained and the type of training to be administered. The

communication exercises can be rolled out in a “train the trainer” format for
leadership and top management first, then to all employees.
This new approach to training will produce a paradigm shift in workplace dynamics.
The process demands a significantly longer expenditure of time and effort than what
is required by law, but the preventive measures have considerable value that extend
beyond monetary benefits. The importance of additional time spent on meaningful
engagement cannot be overstated. The improvement to the company’s culture
through relationship-building exercises designed to foster authentic communication
will go a long way toward creating an environment of trust and respect. Once a
community of trust and respect is built, all the members of the community by their
behavior will set the tone for what is acceptable, and not acceptable, conduct.
CONCLUSION
DE&I efforts should not end once workers are hired. Leadership must regularly
monitor all related metrics and utilize the information implement change toward
continuous improvement. In order to fully realize a shift in workplace culture
surrounding diversity, equity, and inclusion, strong commitments by leadership at
the top levels must be evident and genuine. While there may be a long road ahead to
complete eradication of workplace discrimination and inequality, continuing the
conversation is imperative to effecting positive change.
REFERENCES
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Americans with Disabilities Act of 1990, ¶ 602, § 102.
Anderson, M., Barthel, M., Perrin, A., & Vogels, E. (2020) #BlackLivesMatter
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BBC News, (2021). The Beatles Banned Segregated Audiences, Contract Shows.
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Bennett-Alexander, D., and Hartman, L. (2019). Employment Law for Business,

(9th ed.). NY: McGraw-Hill. ISBN 978-0-07-802379-8.
Berson, G. Z. (2020). Olivia on the Record: A Radical Experiment in Women’s

Music. Aunt Lute Books, 2020.
Bin Tan, S., DeSouza, P., Raifman, M. (2021). Structural Racism and COVID-19 in
the USA. Journal of Racial and Ethnic Health Disparities, Jan. 11, 2021.
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Brooks, K. J. (2019). Why So Many Black Business Professionals are Missing from
the C-suite. Moneywatch, CBS News, December 10, 2019.
Brown, D. A., (2021). College Isn’t the Solution for the Racial Wealth Gap. It’s Part of the
Problem. The Washington Post, April 9, 2021.
Connor, T., Fitzpatrick, S., & Abou-Sabe, K. Silent no more: Inside the USA Gymnastics
sex abuse scandal: Did USA Gymnastics try to silence McKayla, Aly and Maggie?
nbcnews.com, April 23, 2018.
Equal Employment Opportunity Commission. (1980). Guidelines on discrimination

because of sex. Federal Register, 45, 74676-74677.
Fitzgerald, L. F. (2003). Sexual harassment and social justice: Reflections on the distance
yet to go. American Psychologist, 58, 915-924.
Gurchiek, K. (2021). Are You Keeping Your DE&I Commitments? SHRM.Online, May
10, 2021.
Gurchiek, K. (2020). SHRM Research Finds Need for More Awareness, Understanding of
Racial Inequality. SHRM HR News, August 3, 2020.
Hill, E., Tiefenthäler, A., Triebert, C., Jordan, D., Willis, H., & Stein, R. (2020). How
George Floyd Was Killed in Police Custody. The New York Times, May 31, 2020.
Leskinen, E., Cortina, L., & Kabat, D. (2011). Gender harassment: Broadening our
understanding of sex-based harassment at work. Law & Human Behavior, 35, 25-
39.
Maddux, K. (2009). Women’s Suffrage and the Media. Feminist Media Studies, Vol. 9,
Issue1, pp.73-94, February 23, 2009.
McGee, S., & Moore, H., Women’s rights and their money: a timeline from Cleopatra to
Lilly Ledbetter. The Guardian, August 11, 2014.
Payscale, 2021. The State of the Gender Pay Gap in 2021, March 24, 2021.
Pruitt-Young, S., Slavery Didn’t End on Juneteenth: What You Should Know About This
Important Day. npr.org. June 17, 2021.
Shetterly, M. L. (2016). Hidden Figures: The Untold True Story of Four African American
Women Who Helped Launch Our Nation Into Space. William Morrow and
Company, 2016.
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Sojo, V. E., Wood, R. E., & Genat, A. E. (2016). Harmful workplace experiences and
women’s occupational well-being: A meta-analysis. Psychology of Women’s
Quarterly, 40, 10-40.
Spiggle, T. (2021). The Gender Pay Gap: Why It’s Still Here. Forbes. May 26, 2021.
Srikanth, A. (2020). 60 Percent of Americans have seen or been victim of discrimination at
work, new study finds. The Hill, February 11, 2020.
Steinem, G. (2015). Gloria Steinem, My Life on the Road. Random House Publishing
Group, October 27, 2015.
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June 3, 2020.
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discrimination. The Hill, January 12, 2021.
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Vol 33, No 2; Fall 2021
REDUCING SUPPLY COSTS IN HEALTHCARE
THROUGH THE UTILIZATION OF GROUP
PURCHASING ORGANIZATIONS (GPOs)
Sydney Sisk
Ryan N. Schmidt
Morgan E. House
Neeraj Dayama
Mike Posey
Texas Tech University Health Sciences Center
ABSTRACT
Many healthcare organizations experience increasing supply costs on a yearly basis,
including Physician Preference Items (PPI) that account for a sizeable portion of a
hospital’s supply costs. This puts a significant financial strain on the organization
and can impact planning and budgeting for the year. This paper aims to contribute a
review of the literature surrounding Group Purchasing Organizations (GPO) and the
implementation plan on how to create a regional GPO in order to reduce an
organization’s supply costs. The literature review reveals that GPOs are highly
effective in reducing supply costs and bringing in revenue in the form of
administrative fees for the organization. It also proves that the advantages of a GPO
outweigh the disadvantages and that physician input is needed to successfully
implement supply contracts through a GPO. Consequently, the literature suggests
that by being a part of a GPO, hospitals and healthcare organizations can reduce
their supply costs and save their organizations money.
Keywords: supply chain, cost reduction, group purchasing, contracting, negotiations
INTRODUCTION
Universal business practice is to cut costs where the organization can. This is no
different for healthcare organizations. The growing rate of healthcare supply costs
is a concern for many hospitals and becomes more of a financial burden every year.
According to a recent report, the average hospital spent $11.9 million in 2018 on
medical and surgical supplies. Across the United States, this brought the total supply
costs to $38 billion for that year alone (Definitive Healthcare, 2021). Research on
these costs between 2014 and 2018 shows that supply costs increased by 7% each
year across all hospitals (Definitive Healthcare, 2021). This growing expense is
unsustainable for healthcare organizations and needs to be addressed.
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Supply expenses form the second highest share of a hospital’s budget, second to
labor expenses, and the gap between the two is widening over the past several years
(Abdulsalam & Schneller, 2017). Experts have proposed that, in order to reduce
these costs, healthcare organizations should create a regional Group Purchasing
Organization (GPO) that can reduce supply costs across all the regional facilities
through aggregated purchasing volume to bring the best value to each organization.
This paper reviews how increasing supply costs create a financial burden that can be
eased by aggregating purchasing via a regional GPO. Additionally, it proposes an
implementation plan on standardizing processes and products across all
organizational facilities, contracting for each supply category, and how to interact
with clinical staff to ensure the best results.
MEDICAL SUPPLIES AND THEIR INCREASING COST
Consumption of medical supplies at healthcare delivery organizations is ubiquitous.
Each patient visiting a healthcare facility for healthcare services will consume at
least one type of medical supply. Medical supplies are inclusive of the equipment a
physician or institution needs to provide treatment and can include disposable
supplies, diagnostic and testing supplies, medical equipment, pharmaceutical
supplies, acute care supplies, and surgical supplies (“What are Medical Supplies”,
n.d.). Every department within the healthcare organization needs varying supplies to
treat patients safely and effectively. For example, an emergency room needs
tourniquets, wound care supplies, external defibrillators, and endotracheal tubes,
while an oncology clinic needs implantable ports, IV poles, biopsy needles, and
chemotherapy syringe pumps. There are also supplies that almost all facilities have
in common. These include some non-clinical supplies such as chairs, mattresses,
linens, examination tables, storage cabinets, and sterilization cabinets. While some
products might seem more important or more specialized than others, all contribute
to the care provided to the patient and bring overall value to the treatment
experience.
Some supplies have a strong physician preference when it comes to their usage.
These are known as a Physician Preference Item (PPI). How physicians define PPIs
varies across the industry. Some simply define PPIs as “high-cost and high-quality
devices” in order to distinguish them from other lower-cost supplies, whereas others
define PPIs as products that will bring a “higher quality of life” to patients and
require specialized training to use (Burns et al., 2018). Examples of PPIs include:
knee and hip implants, cardiac stents, cardiac rhythm management devices, and
mechanical devices used in spine surgeries (Montgomery & Schneller, 2007).
Across the United States, there has been a significant increase in the utilization of
these supplies over the last two decades. Between 2001 and 2011, implants used in
musculoskeletal procedures grew by over 40% (Burns et al., 2018). By 2013, over
800,000 patients suffering from osteoarthritis received prosthetic joints which are
25
considered to be one of the most successful PPI interventions to improve quality of

life over the past century (Burns et al., 2018). PPIs can make up anywhere from 40
to 60% of a hospital’s total supply expenditure (Burns et al., 2018). Given the vast
amount of PPI annual turnover at any hospital, any price increase on these supplies
will quickly affect the hospital’s annual budget and ability to reduce supply costs.
Moreover, a surge in patient volume can lead to a sharp increase in a hospital’s
supply expenses, which can increase the cost of providing care, and adversely affect
the planned supply budget for the year.
A supply expense includes total cost of all tangible products, and does not include
any labor or service expenses associated with the product (Abdulsalam & Schneller,
2017). The average supply expense per patient admission to United States hospitals
is $4,470 (Abdulsalam & Schneller, 2017) and can considerably vary between
specialties. Children’s psychiatric comes in at the lowest supply expense per
admission at $1,095 per patient (Abdulsalam & Schneller, 2017). The highest
admission expense is within the oncology department at $38,746 (Abdulsalam &
Schneller, 2017). This is likely due to the high costs of oncology pharmaceuticals.
Surgical and orthopedic specialties follow oncology at $17,566 and $10,511
respectively (Abdulsalam & Schneller, 2017). Other specialties such as
rehabilitation, psychiatric, post-acute and long-term care, and cardiology range from
$1,240 to $7,288 per admission (Abdulsalam & Schneller, 2017).
The cost of supplies is an issue for all types of healthcare organizations because
when manufacturers increase rates for one of their product lines, it is also associated
with an increase in rates across other product lines. Moreover, some manufacturers
may increase prices more than once per year, adversely affecting a hospital’s annual
budget plan. Another problem for healthcare organizations is the lack of
standardization in materials which increases the total cost of supplies. Stocking and
using various products that provide the same clinical value but at different prices is
an inefficient process. If hospitals were to standardize and aggregate their spending
on particular products, their supply chain team could effectively negotiate better
pricing for the products and bring financial savings to the organization and
ultimately to the patient. These increasing supply costs cut into the organizations
operating budget and can decrease the revenue that allows hospital doors to remain
open to patients.
LITERATURE REVIEW
The discussion around supply costs and how to go about reducing them has been
going on for years. Yet, many healthcare organizations consider their supply chains
to be at a low level of maturity (Abdulsalam & Schneller, 2017). However, it is clear
to hospital executives that supply costs play a crucial role in a hospital’s operations
and economic stability (Abdulsalam & Schneller, 2017). Reports suggest that
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healthcare organizations who aggregated their purchasing volumes by contracting

with a GPO were able to reduce their supply costs.. A GPO is defined as an entity
that has aggregated buying power to negotiate discounts with suppliers, distributors,
and manufacturers (Yang et al., 2017). A survey of healthcare executives, sponsored
by the American Hospital Association (AHA) and its Association for Healthcare
Resource & Material Management (AHRMM), found that in 2014, 90% of the
healthcare organizations utilized a GPO to help reduce supply costs, and some
organizations used more than one GPO (Burns & Yovovich, 2014). 88% stated that
the GPO brought savings from lower prices and 86% said there were demonstrable
cost-savings and improvements (Burns & Yovovich, 2014). The results of this
survey provide evidence that hospitals around the United States are finding financial
value in joining a GPO.
While reducing these costs is a top priority, the healthcare executives also agree that
patient safety and quality outcomes are of greater importance than reducing costs
through GPO contracting (Thill, n.d.). For this reason, Temple University Health
System in Philadelphia, Pennsylvania implemented a system in which the supply
chain team presents the market data and facts to a clinical team and then bases their
purchasing decisions on what those clinicians need, not what they want (Thill, n.d.).
Provena Health, with locations in Illinois and Indiana, has a similar structure in
which it works with physicians to ensure that a representative from the supply chain
team is present on all calls and meetings with supply manufacturers (Thill, n.d.).
These strategies allow for physicians to have input in the supplies purchased using
a lower GPO negotiated price while also ensuring that these products are clinically
acceptable for patient use.
There are advantages and disadvantages to joining a GPO to reduce supply costs. At
an individual member level, or a hospital level, the advantages include a reduction
of acquisition costs on supplies, reduced transaction costs and administrative costs,
increased supply market information, and an increased focus on core operational
activities (Rego et al., 2013). The disadvantages include lower innovation
capabilities due to being locked in contracts, most likely with commitments, and
standardization lowers the ability to meet the needs of any decentralized users (Rego
et al., 2013). The macro and political advantages include an overall reduction of
supply chain costs and prevention or reduction of corruption (Rego et al., 2013).
However, the political disadvantage is that GPOs prefer working with suppliers with
broad product lines rather than singular product lines, which can be a barrier to
innovation (Rego et al., 2013). The advantages for the overall supply chain across
facilities joining a GPO are numerous. Some examples include: aggregation of
usage volumes to enable more favorable terms with suppliers, a reduction of
duplicated purchasing efforts, development of purchasing expertise, well-inform
selection and rationalized choices, increased economies of scale, and a heightened
ability to react to bigger sized emergencies because of the flexibilities of inventories
27
and coordination (Rego et al., 2013). The costs of coordination that occur when the
GPO size increases are a disadvantage to the overall supply chain (Rego et al., 2013).
Overall, the advantages for a healthcare delivery organization to of purchase via a
GPO far outweigh the disadvantages.
GPOs have proven to be effective in providing value to hospitals or healthcare
organizations that participate. They provide this value through decreased supply
costs and increased revenues brought into the system. Across the healthcare
industry, almost 72% of supply purchases are done through GPO contracts (Yang et
al., 2017). In 2012, GPOs generated over $55.2 billion in cost savings for healthcare
systems (Yang et al., 2017). Hospitals that contracted through a GPO were able to
avoid 44% of the cost associated with items on contract (Abdulsalam & Schneller,
2017). The revenue that hospitals can bring in is through administrative fees that the
manufacturer pays back to the facilities that are negotiated onto the GPO contracts.
There is a government limitation of 3% of the contract price that GPOs are allowed
to collect across each contract (Yang et al., 2017). These administrative fees are
typically used to support the operation of the GPO (Yang et al., 2017). In the survey
sponsored by AHA and AHRMM, 67% of the respondents stated they were able to
obtain revenue through the administrative fees (Burns & Yovovich, 2014). Not only
are GPOs saving institutions money on supply costs, but they are bringing in revenue
for their facilities as well.
REGIONAL GPO AGGREGATION SOLUTION
Some hospitals and healthcare organizations have taken steps to combat the rising
supply costs, but there is still more that can be done. By creating a regional GPO,
organizations can produce greater savings by aggregating their purchasing volume
with those healthcare facilities around them. The regional GPO will be responsible
for negotiating, contracting, benchmarking, and presenting opportunities to the GPO
members for cost-saving supply opportunities and standardization decisions to be
made. A regional GPO will allow for more standardization than a national GPO does
as national GPOs award many manufacturers, but regional GPOs can further
standardize to only a few. Standardization is one way to reduce the massive amount
spent on supplies as it is estimated to bring between 5 to 7% in savings (Kwon et al.,
2016). Having this purchasing power as one larger entity, as opposed to just one
facility or system, allows for greater volume discounts to be negotiated for all
members in the regional GPO. The more standardization and volume discounts, the
more the regional GPO can help address the issue of rising supply costs.
However, for the program to purchase via GPO to be effective, all members of the
regional GPO must be part of the same national GPO. Some national GPOs that
currently contract with healthcare organizations are: Premier, Healthtrust
Purchasing Group, and Vizient., Healthcare executives can utilize services such as
28
benchmarking and data support to ensure they are getting the best value (Burns &
Yovovich, 2014). Benchmarking allows an organization to systematically identify a
benchmark and compare the organization’s data to that benchmark, identifying data
points where the organization can become the new best-in-class (Ettorchi-Tardy et
al., 2012). In this case, benchmark data can compare the prices offered to the
regional GPO to the national low, median, and maximum price averages across each
product. For example, if the regional GPO receives a quote for a coronary balloon
at $200 per balloon, but the national average is $105 per balloon with a maximum
price of $200, then this signals that the manufacturer is offering the highest price in
the market for the balloon. Now the regional GPO has data to go back to the
manufacturer to negotiate with to receive at least the average price, which will save
the facilities $95 per balloon. Knowledge of competitive pricing can allow the
regional GPO to ensure its purchasing prices are fair within the market. Therefore,
total supply cost can be significantly reduced down by means of benchmarking,
bringing significant downstream saving opportunities for for healthcare
organizations contracting with the GPO.
With PPI supplies attributing to such a large portion of a hospital’s supplies expense,
it is critical to obtain the best pricing for those items. The AHA and AHRMM survey
revealed that over half the organizations participating in a national GPO stated that
the organization could get better pricing for PPIs outside of the national GPO,
through a regional GPO contract (Burns & Yovovich, 2014). When making
decisions around these supplies, physicians consider factors such as the technology
of the products, scientific evidence, outcomes in prior patient usage, the longevity
of the implant, and the ease of switching to another vendor (Burns et al., 2018).
Additional factors include manufacturer’s training program around the devices, a
vendor’s reputation, the insurers’ willingness to reimburse the surgeon and hospital,
and the cost of the implant (Burns et al., 2018). Sourcing PPIs through a national
GPO is complicated due to the extremely varying practice preferences of physicians
across different US geographic regions. A regional GPO creates a tighter-knit group
of physicians who might already have the same preferences or can more easily
discuss the considerations with one another to standardize and drive value in supply
pricing. If physicians can agree to standardize in each category, then aggregating the
purchasing power in these products will help reduce the cost of PPIs and bring
downstream savings to each facility.
Next, effective sourcing strategies must be utilized in order to ensure that all
categories can receive a realistic strategy for clinical needs alignment while reducing
supply costs. One example of a sourcing strategy includes multisource-- where
facilities have the option to purchase from three to five manufacturers in the
category. The advantages of a multisource strategy include having multiple vendors
in the space, allowing for varying technology and clinical preferences to be fully
utilized by physicians, while still reducing the overall number of vendors in each
29
category. This is a common strategy for PPI categories and reduces costs because
vendors compete to become one of the three to five vendors thereby aligning their
pricing. However, this strategy is the least likely to provide the highest cost savings.
Another example is a dual-source strategy, in which all products within the category
must be sourced from two vendors, usually with some sort of market share
compliance between the two manufacturers. In a dual-source scenario,
manufacturers are willing to offer lower supply costs because they are guaranteed,
through a contractual agreement, that they will receive a certain portion of the
business. Sole source, which is procuring from one vendor only usually at a high
market share commitment, would allow for the greatest financial savings, however,
opens the door to some risk if the sole awarded vendor cannot supply the product or
has a product recall. Being the sole vendor for the facilities, a vendor will offer their
best pricing in the market to the regional GPO. Capitated pricing (CAP), setting a
maximum price a manufacturer can charge per product, is another sourcing strategy
and is usually used in tandem with multisource or dual-source. A strategy could be
an All-Play CAP, where it’s a multisource situation, but all vendors must agree to a
price at or below the CAP set by the regional GPO. The same would be said for a
dual-source CAP, where the awarded two vendors have to meet CAP. Each category,
such as peripheral vascular, spine implants, or bone cement, will utilize a different
strategy depending on what works best for the clinical team. For example, peripheral
vascular stents and balloons is a PPI category and would likely use an All-Play CAP
strategy to bring in savings because different physicians prefer different products,
however, bone cement could utilize a sole source strategy because there are not too
many clinical differences between competing products and the decision would be
made based more on costs.
To obtain information from as many vendors as possible in each category, the
regional GPO should send out a Request for Information (RFI). An RFI will allow
vendors to submit their products, clinical information surrounding the products, and
the vendor’s experience with similar hospitals or healthcare organizations
(McLaughlin & Olson, 2017). From there, the number of vendors in each category
can be reduced based on the responses and what the needs are for the regional GPO
members (McLaughlin & Olson, 2017). Utilizing the sourcing strategy that aligns
with clinical needs for the category, the regional GPO can then send out a formal
Request for Proposal (RFP) to the reduced vendor list (McLaughlin & Olson, 2017).
The RFP will be asking each vendor for their best proposal or bid that will be used
to decide on which manufacturers are awarded the business in the category, based
on the sourcing strategy. Knowing that the RFP was sent to many of their
competitors, vendors are likely to submit their best pricing to gain or keep the
business. These sourcing strategies address the issue of increasing supply costs by
making sure that facilities elect to award vendors with the lowest pricing while also
30
having the clinical information on hand to ensure there is still a high value for the
patients.
Lastly, involving physicians or other clinical staff involved in the supply decision-
making process will result in lower costs. There are several factors that contribute
to this. One being that, especially for PPIs, physicians work very closely with the
manufacturers and can help guide discussions with them that will bring value to the
table. If a manufacturer is stating that their prices are higher due to technological
advances, but the physicians do not agree, then they can provide the vendor with
clinical feedback as to why those advances do not warrant a higher price. Without
that clinical input, the vendor could get away with charging a higher price. Another
reason for physician involvement is because allowing clinical input upfront will
likely result in higher contract compliance for those agreements with market share
requirements (Thill, n.d.). The end-users must be comfortable using the products,
otherwise, it is ineffective to negotiate and contract for lower pricing on items that
staff will not use (Thill, n.d.). Having the pricing data prepared for the physicians
allows them to see which vendors are offering lower pricing and decide if
standardizing to one, two, or multiple manufacturers will bring the most value based
on their needs. Allowing physicians to decide on any market share commitments
will also allow for greater contract compliance in the future because they were
involved with making that decision and are comfortable with that vendor’s products.
Being compliant on contracts results in lower costs as manufacturers are more
willing to provide better pricing and will not increase prices due to the use of a
competitive product.
IMPLEMENTATION PLAN
There is a need for team effort for regional GPOs to successfully control rising
supply costs. The team includes several members from the organizational structure
of the healthcare organization—1. Director of Supply Chain, 2. Director of Clinical
Value Analysis, 3. Contracts team, 4 Clinical Analyst team, 5. Analytics team, and
6. Chief Executive Officer,
The Director of Supply Chain of the organization creating the regional GPO will
need to spearhead this initiative alongside the Director of Clinical Value Analysis.
Those positions will need to work together to gather the proper team, build out a
Contracts department, a Clinical Analyst team, and an Analytics team. The Director
of Supply Chain will oversee all GPO contract negotiations and will manage the
Contract and Analytics team. The Contract team will be responsible for negotiating
directly with the manufacturers and the Analytics team will pull spend- reports for
all facilities in the GPO and track any associated savings with the contracts. The
Director of Clinical Value Analysis will supervise the Clinical Analysts, ensure all
regional GPO facilities have the proper clinical representation involved in the
31
decision-making process and approve the clinical acceptability of all products

contracted through the GPO. The Clinical Analysts will scrub the spend reports to
ensure all spend pulled is for the appropriate categories and will facilitate all
meetings with decision-makers. Lastly, the Director of Operations will be
responsible for recruiting local hospitals to join the regional GPO and implement all
on-boarding processes to ensure a smooth transition for any new member.
To begin, the Director of Supply Chain should receive final approval from the
hospital’s Chief Executive Officer (CEO) for establishing the regional GPO,
demonstrating the CEO the benefits and effectiveness of cost reduction through
GPOs. Once aproved, the Director of Operations should recruit local hospitals to
join the GPO. This part of the implementation plan will always be ongoing, as
growing the regional GPO will give the team more purchasing leverage with the
manufacturers. While that is happening, the Director of Supply Chain and Director
of Clinical Value Analysis should get a firm handle on any existing contracts, begin
creating the structure of the different clinical sub-teams needed to make decisions,
and hiring personnel for their teams. Once the sub-teams are finalized, expectations
and timelines should be sent to the teams so that the bi-monthly sub-team meetings
and decision-making process can begin. At the end of the projected eight months
start-up timeline, all teams should be fully staffed, the role and responsibilities
explained to all teams involved, and the contract process should be ready to start.
The sub-team decisions and resulting contracts will be broken down by departments,
such as: Imaging, Operating Room, Cardiology, Pharmacy, etc., and then even
further by product category. Examples include contrast media and mammography
categories within Imaging and thrombectomy and hemostasis and vascular closure
devices for Cardiology. Within these sub-teams, there should be bi-monthly
meetings per team, facilitated by the Clinical Analyst and Contracts teammate, with
clinical representation and a Materials Management representative of each facility
participating in the regional GPO to discuss the supply categories and where all
facilities are in terms of total spend and which manufacturers they are currently
using. In these meetings, clinical staff will have an opportunity to provide product
feedback on the supply products used and give direction as to the sourcing strategy
the Contracts team will move forward with to bring value to all facilities. For PPI
products, the Clinical Analyst and Contracts teammate should hold a meeting
directly with physicians who utilize these products as they will more closely dictate
the exact products that will be used. After each sub-team meeting, each facility will
submit a vote, via an electronic voting ballot, as to which manufacturers they want
to contract with and the appropriate sourcing strategy moving forward.
Using the direction provided in the votes submitted, the Contracts team will engage
with the manufacturers to contract at the regional GPO level to bring the best value
to the team. This can include any RFI or RFPs. The Contract team should benchmark
32
all prices submitted to ensure that those prices are aligned with the market and
facilities are not being overcharged. These contracts should include a term length
that is between two to three years to allow for any new technology that might enter
the market during the next couple of years. The pricing should also be fixed and firm
for the term of the agreement so that all facilities can use those prices to plan for
their supply budget over the next couple of years. Fixed and firm pricing will also
fight against the increases that manufacturers typically take every year. If the
sourcing strategy is for a dual-source or sole source, then commitment language will
need to be added into the contract, with a chance for facilities to remedy if the
commitment is not met. Additionally, an administrative fee of up to 3% should be
negotiated into the contract so that the GPO can bring in revenues to help cover the
cost of maintaining contracts. Once these contracts are in place, the teams will begin
the cycle of reviewing and renewing these agreements as it reaches the term date
and starts the sub-team evaluation process all over again.
The last and most crucial part of the implementation plan is to set GPO savings goals
every year. These should be realistic goals set by the Director of Supply Chain that
will lay out which product categories will be up for renewal within each year based
on the contract term dates and how much projected savings the GPO can achieve
based on the projected sourcing strategy. For example, if a large category such as a
PPI project for Cardiac Rhythm Management (CRM) is up for review, then a vendor
reduction strategy to drive value might not be possible but the Director still estimates
that the GPO can achieve a 3% savings on the category based on benchmark data,
then the savings goal should include 3% of the total CRM spend. Once negotiations
are finalized and the final savings have been recorded, the Analytics team will be
responsible for tracking the realized savings. This is how the GPO effectiveness will
be monitored and how to track if each facility is purchasing from the appropriate
vendors given their prior direction and votes. If at any time, the realized savings is
substantially off from the projection and facilities are not compliant with the
contracts, then the team can discuss during their bi-monthly meetings and either
come up with a plan to get back on track or revise the original plan based on current
clinical needs.
CONCLUSION
Medical and surgical supply costs are a rising proportion of hospitals’ operating
costs (Definitive Healthcare, 2021). As hospitals continue to face budgetary
constraints, controlling supply costs becomes a potential opportunity. Supply costs
vary across several factors such as service lines, hospital size, chain affilitation, and
region. Our study proposes that to combat these rising supply costs, healthcare
organizations need to create regional GPOs to aggregate their supply spend and
reduce the overall amount each facility spends on materials. Additionally, the
alignment of the product purchasing contracting team should include both clinical
33
and non-clinical representation to ensure highly regarded decision-making skills in

the areas of contracting and cost-reduction. By negotiating costs with manufacturers,
regional GPOs can reduce the financial burden for the healthcare organizations
through GPO contracts.
REFERENCES
Abdulsalam, Y., & Schneller, E. (2017). Hospital supply expenses: An important
ingredient in health services research. Medical Care Research and Review,
76(2), 240–252. https://doi.org/10.1177/1077558717719928
Burns, L. R., Housman, M. G., Booth, R. E., & Koenig, A. M. (2018). Physician
preference items: what factors matter to surgeons? Does the vendor
matter?. Medical Devices (Auckland, N.Z.), 11, 39–49.
https://doi.org/10.2147/MDER.S151647
Burns, L., & Yovovich, R. (2014). Hospital supply chain executives’ perspectives
on group purchasing: results from a 2014 national survey. Supply Chain
Association. https://www.supplychainassociation.org/wp-
content/uploads/2018/05/AHA_AHRMM_Wharton_2014_Surve.pdf.
Definitive Healthcare. (2021). Changes in hospital medical and surgical supply
costs year-to-year. Healthcare Analytics & Provider Data.
https://www.definitivehc.com/resources/healthcare-insights/changes-in-
supply-costs-year-to-year
Ettorchi-Tardy, A., Levif, M., & Michel, P. (2012). Benchmarking: a method for
continuous quality improvement in health. Healthcare Policy, 7(4), e101–
e119.
Kwon, I. W. G., Kim, S. H., & Martin, D. G. (2016). Healthcare supply chain
management; strategic areas for quality and financial improvement.
Technological Forecasting and Social Change, 113, 422-428.
McLaughlin, D. B., & Olson, J. R. (2017). Healthcare Operations Management.
Chicago, IL: Health Administration Press.
Montgomery, K., & Schneller, E. S. (2007). Hospitals' strategies for orchestrating
selection of physician preference items. The Milbank Quarterly, 85(2),
307–335. https://doi.org/10.1111/j.1468-0009.2007.00489.x
Rego, N., Claro, J., & Pinho de Sousa, J. (2013). A Hybrid Approach for
Integrated Healthcare Cooperative Purchasing and Supply Chain
Configuration. Health Care Management Science, 17(4), 303–320.
https://doi.org/10.1007/s10729-013-9262-y
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Thill, L. (Ed.). (n.d.). Making Contracts Work. The Journal of Healthcare

Contracting. https://www.jhconline.com/making-contracts-work.html.
What are Medical Supplies. MD Supplies. (n.d.).
https://www.mdsupplies.com/What-are-Medical-Supplies.html.
Yang, Y.-C., Cheng, H. K., Ding, C., & Li, S. (2017). To join or not to join group
purchasing organization: A vendor's decision. European Journal of
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https://doi.org/10.1016/j.ejor.2016.08.069
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Vol 33, No 2; Fall 2021
HURRICANE KATRINA’S EFFECT ON OIL COMPANY STOCK

PRICES: A TEST OF MARKET EFFICIENCY
Casey Williams
Frank Bacon
Longwood University
ABSTRACT
This study tests market efficiency by investigating the effect on oil
company stock prices caused by the landfall of Hurricane Katrina. We should
expect that oil firms with significant investments interests in Katrina’s path
would have negative stock price returns in a certain time frame. Ten oil
companies’ stocks with significant interests in the Gulf of Mexico are
analyzed to determine the effect of Hurricane Katrina on stock price’s risk
adjusted rates of return before and after event date of August 23, 2005.
Results show that stock prices began to drop significantly before the
hurricane made landfall, displaying the market’s semi-strong form of
efficiency. Statistical tests show that the information about the storm made
significant impacts on the difference between the actual average rates of
return of the sample stocks and the corresponding risk adjusted average
expected returns. Results shows that oil company stock price returns started
a downturn at least nine days before Hurricane Katrina made landfall.
Key Words: market efficiency, hurricane, event study
INTRODUCTION
Natural disasters affect the stock market and have significant impacts.
This study examined how fast the market responded to such a disaster. If the
market can impound all the available information, then the stock markets may
be a possible predictor of how much devastation the population can expect.
This study examines the market’s ability to obtain and analyze the
information to predict the impact of Hurricane Katrina by analyzing the risk
adjusted rate of return of the ten selected oil companies.
Hurricane Katrina was one of the worst disasters in US history

causing an estimated 1,800 people to lose their lives and 125 billion dollars
worth of damage. Katrina moved towards land as a category 5, but weakened
to a category 3 when it made landfall through the Gulf, with winds peaking
at 175 mph (Reid, 2020). As was expected, the aftermath was devastating for
36
many, specifically the oil companies who had operations in the Gulf. Katrina
had one of the largest impacts on the US economy that created a devastating
loss of millions for many companies. The purpose of this study is to analyze
the risk adjusted rate of return for the event period as defined as the 30 days
before landfall and 30 days after the event on August 23, 2005.
LITERATURE REVIEW
When a disaster is expected to hit the US, some research will predict
that the stock market will have a devastating negative trend when actually it
has a positive trend. For example, when hurricane Irma hit it caused for the
largest evacuation in history, yet stock prices were increasing. The
predictions of the expected damage were higher than what actually happened,
resulting in less economic impact (Archer, 2017). The same upward trend
happened after Katrina and even though it was one of the costliest hurricanes
in US history, stock market performance recovered very quickly.
Days after Katrina hit, President Bush urged Americans to carpool
and cut all non-essential travel to conserve gasoline (Brown, 2005). The
storm had disrupted the capacity to make and distribute gasoline. Bush
announced the decision to release oil from the nation’s Strategic Petroleum
Reserve to help the refineries that were flooded, destroyed, or struggling from
the storm (Bush, 2005). Even though this immediate decision was made,
stock prices for oil companies such as Exxon Mobil, Apache, and Anadarko
all had spiked. This was a very short-term spike, making investors understand
that disasters tend to have short-term effects on stock prices (Bromels, 2017).
These firms are in high demand for their products so they can expect to see
above average returns for the period after the hurricane until supply and
demand are stabilized. Katrina drove oil prices up due to the damage resulting
in many of the refineries having to close. Firms who were struggling from the
storm saw negative trends in their stock prices because they are responsible
for repairing their own machines (Ro, 2017).
METHODOLOGY AND STUDY SAMPLE
This study sample in Table 1 includes ten different oil and gas refining
companies located in the Gulf that were potentially impacted by Hurricane
Katrina. Some of these firms are the largest in the industry, but they all
suffered direct effects from Hurricane Katrina. The stock price reactions of
the companies to Hurricane Katrina, with the event date of August 23, 2005,
are tested in this study. The event period includes the stock prices for 10
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Williams and Bacon
sample firms and the S&P 500 for 180 days prior to the event and 30 days
after the event.
Table 1. Description of Sample
Ticker Firm Name
COG Cabot Oil & Gas Corporation
APA Apache Corporation
COP Conoco Phillips
DVN Devon Energy Corporation
MRO Marathon Oil Corporation
RRC Range Resources Corporation
XOM Exxon Mobil Corp
BP BP
RDS-B Royal Dutch Shell
CVX Chevron Corporation
To test market efficiency, especially for oil companies, in response to landfall

of Hurricane Katrina and the time period surrounding its landfall, this study
presents the following null and alternate hypothesis:
H10: The risk adjusted rate of return of the stock price of the sample
oil firms is not significantly affected by the event.
oil firms is significantly affected by the event.
oil firms is not significantly affected by this type of information around the
event date as defined by the event period.
oil firms is significantly negatively affected by this type of information
around the event date as defined by the event period.
Using the standard risk adjusted event study methodology in the finance
literature, this study tests the market’s response to the event date August 23,
2005, the landfall of Hurricane Katrina. The required historical data, the stock
price and S&P 500 index over the event period, was collected from the
Internet website https://finance.yahoo.com.
1. The historical stock prices of the 10 sample companies and the S&P 500
index were collected for the event study duration of -180 to +30, with the
event period being defined as -30 and +30 days around the event date of 0.
38
2. Holding period returns of the companies (R) and the corresponding S&P
500 index were calculated using the following formula:
Current Daily Return= (current day close price- previous day close price)
previous day close price
Using the holding period returns, a regression analysis was performed

with the actual daily return for each company as the dependent variable and
regressing it on the corresponding S&P 500 Index, the independent variable.
The analysis was done over the pre-event period (day -180 to day -31) to
obtain the intercept alpha and the standard coefficient beta. Table 2 shows
the alphas and betas for each firm.
Table 2. Stock Sample’s Alphas and Betas

Firm Name Alpha Beta
COG 0.0022779 1.44713665
APA 0.001631267 1.166599914
COP 0.001968086 1.272783733
DVN 0.002391239 1.183839626
MRO 0.002527296 1.21577724
RRC 0.003415795 1.2583247
XOM 0.000883446 1.404519172
BP 0.000636755 0.863548405
RDS-B 0.000746971 0.755067751
CVX 0.000915865 1.105795643
3. The risk adjusted (market model) method was used to calculate the normal
expected returns. The expected returns for each stock, for each day of the
event period were obtained with the formula:
E(R)= alpha+ Beta (Rm)
Rm= return on the market calculated with the S&P 500 index
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Williams and Bacon
4. Then, the excess return (ER) was calculated as:

ER= actual return – E(R)
5. Average Excess Returns were found for each day by averaging the Excess
Returns for each firm on a given day.
AER= Sum of Excess Returns/n
N= number of sample firms (10)
6. In addition, cumulative AER was calculated by adding the AERs for each
day of the event period, days -30 to +30.
7. For the event period, graphs of AER and CAER were plotted to show their
movement over time. Figure 1 models AER plotted against time, and Figure
2 models CAER plotted against time.
QUANTITATIVE TESTS AND RESULTS
Did the hurricane have an effect on the market making the

information surrounding the event significant? In the past, the market has
reacted to events similar to the hurricane. Consequently, one would expect a
significant difference between the actual average daily returns during the
event period of day -30 to day +30 and the risk adjusted expected average
daily returns during the same time period. A significant difference supports
the hypothesis that the risk adjusted rates of return around the event date are
affected by the event. In order to test for the difference, a paired sample t-test
is conducted. The results of the test show there is a significant difference at
the 1% level of significance between the actual average daily return and the
risk adjusted average expected returns. As a result, hypotheses H11 and H21
are supported because there is significant evidence that the risk adjusted rates
of return on and surrounding the event date are affected by information about
the event. With this information, we can conclude that information about the
event caused stocks to react, thus making Katrina impactful.
Another reason for this teat was the answer the question, “Did the
market show weak, semi-strong, or strong market efficiency?” The key to
finding this answer was to examine the AER (Average Excess Return) and
CAER (Cumulative Average Excess Return) in both a statistical test and
graphs. Using a T-test, it is possible to find if the AER and CAER deviate
from zero. After conducting the tests, it confirmed that the AER and CAER
are significantly different from zero, at the 1% level of significance. When
observing the CAER it confirms that starting at approximately Day -9, there
is a visible negative trend in the CAER, showing that the information about
the hurricane affected the stock price prior to the event date of August 23,
2005.
40
Figure 1: Average Excess Returns Over the Event Period
Figure 2: Cumulative Average Excess Returns over the Event Period
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Williams and Bacon
CONCLUSION
This study examined the effect of Hurricane Katrina on the risk

adjusted rate of return for a sample of 10 oil firms’ stocks that were affected
by the event. After conducting the appropriate statistical tests, results
confirmed that information about Hurricane Katrina had a significant
negative effect on the risk adjusted rate of return of the sample’s stock prices.
Specifically, the results show the stock returns dropping significantly prior to
the hurricane reaching land. Graphically, the CAER drops at least nine days
before the hurricane made landfall on August 23, 2005. We can conclude that
the market is reacting with semi-strong efficiency because the stock prices
began to drop in reaction to information regarding the hurricane’s expected
damage. Although the selected stocks experienced temporary decline, the
CAER shows that there was a positive trend that happened during
reconstruction, after the hurricane had diminished.
REFERENCES
Archer, S. (2017). Insurance stocks are rising as Hurricane Irma damage is likely
to be less than expected (FNF, PGR, FAF, ACGL, CB, ALL, NAVG, SIGI,
CINF, KINS) | Markets Insider. Retrieved November 11, 2020, from
https://markets.businessinsider.com/news/stocks/hurricane-irma-insurance-
companies-are-rising-as-hurricane-damages-seem-less-than-expected-2017-
9-1002358841
Bromels, J. (2017, August 29). What Hurricane Harvey Means for Oil Stocks.
Retrieved November 11, 2020, from
https://www.fool.com/investing/2017/08/29/what-hurricane-harvey-means-
for-oil-stocks.aspx
Brown, J. (2005, August 31). Hurricane Katrina's Effect on the Oil Industry.
Retrieved November 11, 2020, from
https://www.pbs.org/newshour/show/hurricane-katrinas-effect-on-the-oil-
industry
Bush: U.S. ready to release oil from SPR. (2005). Retrieved November 11, 2020,
from https://money.cnn.com/2005/09/26/news/economy/bush/
Reid, K. (2020, May 12). 2005 Hurricane Katrina: Facts, FAQs, and how to help.
Retrieved November 11, 2020, from https://www.worldvision.org/disaster-
relief-news-stories/2005-hurricane-katrina-facts
Ro, S. (2017, September 8). What Hurricane Irma Could Mean for Stocks.
Retrieved from https://finance.yahoo.com/news/hurricane-irma-mean-
stocks-105038376.html
42
Spradlin, K. (n.d.). A Test of Market Efficiency: Hurricane Harvey's Effect on Oil

Company Stock Prices (pp. 1-4, Rep.). Farmville, VA.
Weiderman, I. (n.d.). Hurricane Katrina's Effect on Oil Companies' Stock Prices
(pp. 1-4, Rep.). Farmville, VA.
43
Vol 33, No 2; Fall 2021
PATIENT READMISSION RATES:

THE FUTURE OF THE HOSPITAL
READMISSIONS REDUCTION PROGRAM
Tran M. Luu
Sharon Hunt
Brent Magers
Debra Flores
Mark Dame
Abstract
Hospital patient readmission has become one of the most critical quality outcome
measurements alongside mortality and complication rates (Goldfield, 2010).
Hospital patient readmissions are defined as "a hospital admission that occurs within
a specific time frame after discharge from the first admission" (Upadhyay et al.,
2019). Hospital performances often feature patient readmission because it is a good
indicator of quality health care (Goldfield, 2010). Annually, the cost of readmissions
to the health care system is estimated to be 17.4 billion for Medicare (Kripalani et
al., 2014). Unfortunately, approximately 18% of Medicare patients are expected to
be readmitted within 30 days (Donze et al., 2016). Robinsons & Hudali (2017)
denote that increased readmission have been diversely identified, such as age, race,
having a personal health care provider, major surgery, medical comorbidities, length
of hospital stay, previous admissions in the last year, failure to transfer information
to the outpatient setting, early discharge, and the number of medications at
discharge. Therefore, to improve hospital patient readmission, the Centers for
Medicare & Medicaid Services started to publicly report readmission rates in 2009
(Bhalla & Kalhut, 2010). While there are unavoidable readmissions, such as
chemotherapy, some readmissions are preventable, and thus the rate of readmission
is a cause for concern as it indicates healthcare waste that can be avoided (Zhang et
al., 2020).
Key words: hospital readmission rates mortality rates, complication rates, HRRP,
intervention through continuum
LITERATURE REVIEW
Beginning October 1, 2012, under the Patient Protection and Affordable Care Act,
the United States Department of Health and Human Services and Centers for
Medicare & Medicaid Services established Hospital Readmissions Reduction
44
Program (HRRP) to reduce high hospital patient readmissions rates (CMS, 2020).
While there is no national method that aims to reduce readmission for all insurance
types (Medicare, Medicaid, and private), HRRP, created to target Medicare patients,
impacted other types of insurance types (Ferro et al., 2019). Research has shown a
decline for Medicaid with certain medical conditions after implementing HRRP
(Ferro et al., 2019). The program's foundation is linking payments to the quality of
hospital care, such as imposing financial penalties to hospitals with higher than
standard readmission rates (CMS, 2020). The maximum penalties were set at 1%,
2%, and 3%, respectively, in 2013, 2014, and 2015 (McIlvennan et al., 2015). Ferro
et al. (2019) reported that Medicare penalties are roughly 2 billion under HRRP.
Supplementary reports reveal that the penalties have a statistical mean of 200
thousand per hospital (Hoffman & Yakusheva, 2020). Thus, all hospitals are
encouraged to improve their care coordination to reduce avoidable readmissions by
engaging patients and caregivers in the post-discharge process (CMS, 2020).
Under HRRP, the following conditions or procedures are used in the excess
readmission ratio (ERR) to assess hospital performance. They are acute myocardial
infarction, chronic obstructive pulmonary disease, heart failure, pneumonia,
coronary artery bypass graft surgery, elective primary total hip arthroplasty, and
total knee arthroplasty (CMS, 2020). "ERR measures a hospital's relative
performance and is a ratio of the predicted-to expected readmission rates" (CMS,
2020). When measuring the readmission rate, age, sex, and co-existing conditions
are used to adjust the measurements (McIlvennan et al., 2015). However,
socioeconomic status is excluded (Ferro et al., 2019). According to HRRP, all
unplanned readmissions within 30 days of discharge are included, regardless of the
principal diagnoses, but only "excluded some planned readmissions" (CMS, 2020).
Although meant to be an approach to tackle high hospital patient readmission rates,
struggles that hamper the success of such efforts have been cited after the
implementation of HRRP.
FALSE POSITIVES
Policymakers have been pushing to expand the HRRP for all conditions treated in
hospital settings; however, clinicians and researchers disagree (Wadhera et al.,
2019). The following are limitations that demonstrate how the HRRP does not
measure certain factors, why HRRP should not be the only indicator for reducing
hospital patient readmission rates, and why other strategies and initiatives are
encouraged.
The first concern is that HRRP only includes inpatient hospitalizations; therefore,
observation stays and emergency department visits do not count as readmissions
(Wadhera et al., 2019). Hence, this loophole creates a blind spot for the patient
readmission but does not count as such (Wadhera et al., 2019). For example,
45
readmissions can extend beyond 30-day without a penalty (Gupta & Fonarow,
2018). In other instances, providers will be more inclined to admit patients under
different readmission statuses to manipulate the rates. The care provided will be
different than intended, and hospitals might be inclined to pursue this path to avoid
a high readmission rate, negatively affecting patients' care.
The second concern is regarding penalties; the penalty for readmission is higher than
mortality. Studies show an inverse relationship between readmission and mortality
measures, at least in terms of one of the HRRP medical conditions, heart failure
(Ferro et al., 2019). In a sense, an unfair weight is put upon hospitals that keep their
patients alive with readmissions, as they are penalized more than hospitals that let
patients leave and end with higher mortality rates (Wadhera et al., 2019). These
cases show that the HRRP is inadequate in addressing hospitals' performance, but it
could also be creating more disturbance in the healthcare system. A system in which
favors patient mortality over patient readmissions cannot and should not be justified.
The third concern is that the current model for risk factors of readmission is inept.
The model performs poorly at predicting events (Wadhera et al., 2019).
Furthermore, Thompson et al. (2016) demonstrate that the reliability of risk-
standardized readmission rates for medical conditions is limited. Within healthcare,
complicated situations occur, and the current system does a poor job of adjusting the
rates; therefore, the positive results seen with the HRRP in its early days are
questionable and should be viewed under scrutiny. In addition, such limitations will
also pose a setback to the success of HRRP.
The fourth concern is that the initial success of HRRP is overly emphasized, as, in
the early days of implementation, hospitals quickly identified root causes of
readmission to address the impending penalties that would be coming due to hospital
performances (Gupta & Fonarow, 2018). As previously discussed, admitting
patients with different statuses (observation, emergency) could improve
readmissions and avoid financial penalties (Gupta & Fonarow, 2018; Wadhera et al.,
2019) but causes a disturbance in the quality of care provided.
DISCUSSION
Interventions through Care Continuum
Different transitional care interventions across the United States have been executed
to reduce the hospital patient readmission rates, such as Comprehensive Discharge
Planning, Care Transitions Intervention, and Re-Engineered Discharge (Kripalani et
al., 2014). The mentioned interventions have several elements in common, like a
designated nurse for the stay at the hospital, follow-up procedures via phone calls
after discharge, medication reconciliation, and patient education (Kripalani et al.,
2014). Although these interventions appear to address many areas of the care
46
continuum, the interventions were observed and studied at different periods and
identified that a multi-approach would be more likely to significantly reduce patient
readmission than a single intervention approach (Kripalani et al., 2014). Therefore,
a more significant and well-thought-out care intervention with multiple components
is recommended to reduce hospital patient readmissions.
Focused Core Strategies
Warchol et al. (2019) has noted the following core strategies for reducing
readmission: population health, hospital operations, patient interactions, leadership
and mission, and barriers to reducing readmissions. Under population health,
strategies include; patient education and the development of community approaches
to healthcare (Warchol et al., 2019). For hospital operations and patient interactions,
multidisciplinary teams, post-acute services, and monitoring are recorded (Warchol
et al., 2019). In leadership and mission, it is essential to set a mission and vision and
enable members and reduce barriers (Warchol et al., 2019). Lastly, barriers to reduce
readmissions include social factors, patient compliance, and access to care (Warchol
et al., 2019).
Balancing Scale of Penalties
Various recommendations to improve the readmission rates suggest enforcing
weighted penalties according to the timing of readmissions (McIlvennan et al.,
2015). Earlier readmission within the first few days should be penalized instead of
readmission in 30 days as the patient's underlying severity of the disease should not
be used to assess the hospital's performance. Quicker readmission would indicate
poorly coordinated healthcare in the discharge process (McIlvennan et al., 2015).
Perhaps a sliding scale of readmissions should be implemented. For example, a
patient readmitted within 5, 10, 15, 20, 25, 30 days should be penalized accordingly,
with the earliest readmission being dealt out higher penalties and descending as more
days pass before readmission.
The Good and the Bad
HRRP exhibited substantial improvement in the reduction of readmission within the
time it was first implemented; however, Shameer et al. (2017) has reported that in
2015, 2,592 out of 5,627 hospitals, approximately 46%, in the nation received
penalties for failing to tackle its own high hospital patient readmission rates. The
data suggest that although hospitals are being tracked in terms of high readmission
rates, they are not doing what is necessary to address the issue. Although financial
penalties meant to motivate hospitals and leaders to shape up and improve health
care for their patients may have the opposite effect. As mentioned previously,
hospitals could be prioritizing incentives over the quality, safety, and health of their
patients (Gupta & Fonarow, 2018). The system has created a perfect storm in which
47
people become tempted to find loopholes to survive, and in the end, the ones to
suffer the consequences would be the patients, whether it be a delay in providing
care, inappropriate delivery of care, or other forms of trade-offs to reduce the
penalties accumulated.
Furthermore, hospitals that serve more minority patients have higher readmission
rates than others and receive higher penalties (Joynt et al., 2014). Due to already
limited resources, variety of inpatient needs, limited influence in the community,
and misalignment of financial incentives, these hospitals face additional challenges
in reducing readmissions (Joynt et al., 2014). Therefore, hospitals with lesser
resources will be more negatively affected because of the limited ability to tackle
the issue and get further penalized, putting them in a worst stance than before
(Hoffman & Yakusheva, 2020). In addition, socioeconomic status is a determinant
of health and is involved in the process of care (Zhang et al., 2020). Hence, certain
patients are more prone to being readmitted. Thus, socioeconomic factors should be
adjusted according to the HRRP to reflect more accurate results that do not solely
blame hospitals for failing to adhere to the national guidelines and have excess
readmissions. While most hospitals place a high priority on addressing high
readmission, the understanding of their own hospital's performance is limited, and
the impact it has on hospitals is that it can force leaderships to address the issue
head-on, but without adequate strategies to respond to the specific needs of those
hospitals (Joynt et al., 2014).
Solution
After reviewing the literature, and strategies implemented at the federal, state, and
local levels, several factors have been evident in reducing hospital patient
readmission. Therefore, future efforts to improve readmission can be modeled
accordingly. Three extensive processes need to be addressed to modify the current
HRRP: (1) the shortcomings of current assessment measurements, (2) differing
financial incentives, and (3) the creation of a recommended set of nationwide models
and tools to be used to assist in the reduction in patient readmission that includes
discharge process and follow-up.
Assessment Measurements Inadequacy
Several factors that decrease patient readmissions include addressing the current
state of the assessment measurements. Some issues gave rise to the need to
standardize how observation and emergency visits affect readmission. Factoring in
mortality in the adjustment of readmission rates accounts for socioeconomic factors
associated with readmissions, adjusting penalties according to days after
readmission, modifying the current risk assessment factors, and addressing how
community-related strategies can help reduce readmission. Guidelines that clearly
define how observation and emergency visits are classified should be included in the
48
new assessment. Patients returning to the hospital within 30 days with exacerbated
signs and symptoms should be classified as readmission. Plus, the inclusion of
mortality rate should be thoroughly defined as to how it would be adjusted regarding
readmission rates and perhaps a more reasonable penalty for high readmission
versus high mortality. Similarly, patient demographics of different hospitals and
socioeconomic factors affecting high readmissions should also be integrated into the
new measurements.
Financial Incentives
Hospitals should be penalized for bad performance, but hospitals performing well
should also be rewarded according to their reduction rates. The details regarding this
inducement can be further fleshed out if it gains momentum. At the very least, this
method should encourage continual improvement in reducing patient readmission
instead of the one-sided penalties implemented.
Nationwide Guideline
While no model and tool would fit every hospital in the nation, a more standardized
process would be easier to adopt and adapt by providing a guideline that creates the
framework to reduce hospital patient readmission. Models such as the Transition in
Care Framework, screening or prediction tools like HOSPITAL scores, and
discharge tools like the Re-Engineered Discharge (RED) should be used as the
standards moving forward since each component has been shown to have a positive
correlation to reducing hospital patient readmission. Rather than only implementing
one part of the guideline, similarly to the current situation, an all-encompassing
component that includes a recommended model, screening, and discharge tool
should be used concurrently to produce the maximal expectant positive results.
Framework
Backed by the linkage to the efficacy of hospital patient readmission rates, a
guideline known as the Ideal Transition in Care framework should be used as a basis
for transition care from hospital to patient (Kripalani et al., 2014). This multi-
component approach combines multiple models to standardize the procedures in
which the continuum of care is integrated like continuous links on a chain (Kripalani
et al., 2014). The framework follows the sequence of discharge planning, thorough
communication of information, availability, timeliness, clarity, and organization of
information, medication safety, educating patients to promote self-management,
enlisting the help of social and community supports, advance care planning,
coordinating care among team members, monitoring, and managing symptoms after
discharge, and outpatient follow-up (Kripalani et al., 2014). The framework provides
a basis for implementing the protocols to reduce readmission and improve quality
health care. However, it is essential to note that the number of components also
49
correlates to its effectiveness, which supports that more robust, well-thought-out

models will be more likely to have greater effectivity (Kripalani et al., 2014).
Screening Tools
The international HOSPITAL score is a screening tool used as a clinical predictor in
identifying high-risk patients for patient readmissions within 30 days (Robinsons &
Hudali, 2017). The following predictors are included in the HOSPITAL score at
discharge, "hemoglobin, discharge from oncology services, sodium level, procedure
during the index admissions, index type of admission (urgent), number of
admissions during the last 12 months, and length of stay" (Donze et al., 2016).
Several studies (Robinsons & Hudali, 2017; Donze et al., 2016) endorse that the
HOSPITAL scores have good discrimination ability and calibration for predictions
and are preferable to the LACE score, another popular similar prediction model. The
LACE index utilizes four variables to predict the risk of non-selective 30-day
readmission after discharge (Robinsons & Hudali, 2017). The variables are the
length of stay, acuity of admissions, patient comorbidity, and emergency department
use in the 6month duration before readmission (Robinsons & Hudali, 2017). As
such, a study showed that HOSPITAL scores can be calculated before discharge and
has been cited as being excellent for identifying patients at high risk of 30-day
potentially avoidable readmission in a large cohort while LACE is not. (Donze et
al., 2016; Robinsons & Hudali, 2017).
Discharge Tools
The Re-Engineered Discharge (RED) toolkit is a nationwide discharge program that
has been established to be effective against all 30-day readmissions (Mitchell et al.,
2016). The Agency for Healthcare Research and Quality noted a 25% decreased in
30-day readmission with the implementation of RED (Agency for Healthcare
Research and Quality [AHRQ], 2020). RED, the screening tool, addresses the
following factors: delayed transfer of discharge summary, unknown test results, lack
of follow-up, and medicine reconciliation (AHRQ, 2020). The component of RED
includes: making appropriate follow up care appointments, plan for follow up results
that are pending at discharge, organize post-discharge outpatient services and
medical equipment's, identify medicines and plan for obtaining it, reconcile
discharge plan with national guidelines, teach a patient-level discharge plan, educate
patient about diagnoses and medicines, review actions if a problem arises, assess the
degree of understanding of the discharge plan, expedite the transmission of the
discharge summary to clinicians, provide telephone reinforcement of discharge plan
and ascertain the need for language assistance (Mitchell et al., 2016). However, the
successful implementation of RED requires high visible commitment from senior
leadership, empowered interprofessional team, established methods for sharing
50
results and assessing accountabilities, buy-in from staff and stakeholders, and
flexible in-house IT support (Mitchell et al., 2016).
Beyond the HRRP
The HRRP cannot immediately address the high hospital patient readmission rates
as multiple areas need improvement. In addition to relying on the HRRP, population
health can be expanded to include strategies that approach healthcare via local and
community methods. Socioeconomic status is often neglected as part of the care
continuum (Warchol et al., 2019). Inability to afford proper nutrition can also
increase the high readmission rates for specific patient demographics. Barriers to
reducing readmission can be tackled by connecting patients in need with proper
resources to influence their health. Perhaps seen as a given, a leadership and mission
goal that focuses on forming strategies and initiatives to address high hospital patient
readmission rates is often discussed but not practiced (Warchol et al., 2019).
Hospitals are often tasked with various missions; while tedious, it is crucial to
remember that readmissions should be approached proactively as the high hospital
patient readmission rates reflect on the hospital performances and other aspects such
as contributing to healthcare waste.
The Future of Readmissions Concerns
Literature confirms that hospital patient readmission rates hamper quality health care
and negatively affect our nation's financials. The current strategies do produce an
improvement in reduction; however, the nation has since found itself at a languid
pace, in which we are unable to surpass the current level of reduction. Although
high-level quality evidence for any interventions that could be implemented
nationally has not been mentioned, it is for the interest of the United States that we
revamp the current HRRP to be more effective and sustainable. By addressing the
concerns of the program, we can better avoid early readmissions, reduce cost,
improve overall health care quality and patient care. As readmission rates improve,
so do hospital performances, and therefore the national average also heads towards
a more positive direction. Hence, hospitals must continually improve themselves to
be better than the mean of the nation's readmission status and be more accountable
to their patients. While the HRRP does not require implementing specific strategies
to address high readmission, it is to the advantage of the patients that HRRP spends
more time researching a nationwide plan that could be used as a basis when looking
to improve readmission. The differences in interventions, methods, techniques,
tools, and models can all be used effectively, depending on the which hospital and
how well they are received.
In conclusion, the solutions with recommended guidelines were created to improve
the current HRRP and provide more evidence-based strategies recognized to have a
positive impact on readmission and can be used as national strategies. However, the
51
HRRP should not be seen as an all-or-nothing solution as it has been shown that to
combat high readmission rates, different stakeholders have a fair share of
responsibilities. From direct providers to patients and all related healthcare
personnel, each stakeholder needs to do their part to ensure that proper processes are
being carried out to prevent avoidable readmissions. Whether leadership with a
distinct mission or provider's ethical responsibilities to patient compliance, each
factor will be directly correlated to readmission rates.
REFERENCES
Bhalla, R., & Kalkut, G. (2010). Could Medicare readmission policy exacerbate
health care system inequity? Annals of Internal Medicine, 152(2), 114–117.
Donzé, J. D., Williams, M. V., Robinson, E. J., Zimlichman, E., Aujesky, D.,
Vasilevskis, E. E., Kripalani, S., Metlay, J. P., Wallington, T., Fletcher, G.
S., Auerbach, A. D., & Schnipper, J. L. (2016). International Validity of the
HOSPITAL Score to Predict 30-Day Potentially Avoidable Hospital
Readmissions. JAMA Internal Medicine, 176(4), 496–502.
Ferro, E. G., Secemsky, E. A., Wadhera, R. K., Choi, E., Strom, J. B., Wasfy, J. H.,
Wang, Y., Shen, C., & Yeh, R. W. (2019). Patient readmission rates for all
Insurance types after implementation of the Hospital Readmissions
Reduction Program. Health Affairs (Project Hope), 38(4), 585–593.
Goldfield N. (2010). Strategies to decrease the rate of preventable readmission to
hospital. Canadian Medical Association Journal, 182(6), 538–539.
Gupta, A., & Fonarow, G. C. (2018). The Hospital Readmissions Reduction
Program-learning from failure of a healthcare policy. European Journal of
Heart Failure, 20(8), 1169–1174.
Hoffman, G. J., & Yakusheva, O. (2020). Association Between Financial Incentives
in Medicare's Hospital Readmissions Reduction Program and Hospital
Readmission Performance. JAMA Network Open, 3(4), e202044.
https://doi.org/10.1001/jamanetworkopen.2020.2044
Hospital Readmission Reduction Program. Centers for Medicare and Medicaid
Services (CMS). (2020). https://www.cms.gov/Medicare/Quality-
Initiatives-Patient-Assessment-Instruments/Value-Based-
Programs/HRRP/Hospital-Readmission-Reduction-Program
Joynt, K. E., Sarma, N., Epstein, A. M., Jha, A. K., & Weissman, J. S. (2014).
Challenges in reducing readmissions: Lessons from leadership and frontline
52
personnel at eight minority-serving hospitals. Joint Commission Journal on

Quality and Patient Safety, 40(10), 435–437.
Kripalani, S., Theobald, C. N., Anctil, B., & Vasilevskis, E. E. (2014). Reducing
hospital readmission rates: current strategies and future directions. Annual
Review of Medicine, 65, 471–485.
McIlvennan, C. K., Eapen, Z. J., & Allen, L. A. (2015). Hospital readmissions
reduction program. Circulation, 131(20), 1796–1803.
Mitchell, S. E., Martin, J., Holmes, S., van Deusen Lukas, C., Cancino, R., Paasche-
Orlow, M., Brach, C., & Jack, B. (2016). How hospitals re-engineer their
discharge processes to reduce readmissions. Journal for Healthcare
Quality: Official Publication of the National Association for Healthcare
Quality, 38(2), 116–126.
Agency for Healthcare Research and Quality (AHRQ). (2020). Patient Safety: Re-
Engineered Discharge (RED) Toolkit. https://www.ahrq.gov/patient-
safety/settings/hospital/red/toolkit/index.html
Robinson, R., & Hudali, T. (2017). The HOSPITAL score and LACE index as
predictors of 30 day readmission in a retrospective study at a university-
affiliated community hospital. Peer-reviewed Journal, 5, e3137. Thompson,
M. P., Kaplan, C. M., Cao, Y., Bazzoli, G. J., & Waters, T. M. (2016).
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Warchol, S. J., Monestime, J. P., Mayer, R. W., & Chien, W. W. (2019). Strategies
to reduce hospital readmission rates in a non-Medicaid-expansion state.
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& Ancker, J. S. (2020). Assessing the impact of social determinants of
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death. PloS One, 15(6), e0235064.
53
Vol 33, No 2; Fall 2021
FALSE BELIEFS AND THE ILLUSION OF
EXPLANATORY DEPTH
Jeffrey J. Bailey
University of Idaho
ABSTRACT
The purpose of this paper is to connect the concepts of false beliefs and the illusion
of explanatory depth while simultaneously signaling an alarm about the level and
negative consequences of false beliefs. Illusion of explanatory depth is a false belief
about our own explanatory knowledge and has been demonstrated in many
mechanical domains, a few natural domains, and a couple of social-cognitive
domains. In this paper an argument will be made that holding false beliefs is a
common phenomenon and that, while some false beliefs provide benefits, many
false beliefs are problematic. False beliefs and the illusion of explanatory depth
interact reinforcing each other. There are some things we can do to try to correct
our own false beliefs and illusions of explanatory depth. Several managerial
implications are provided.
Keywords: Illusion of Explanatory Depth, False Beliefs, Decision-making, Cognition
INTRODUCTION
False beliefs are not uncommon. We all have false beliefs. Many of our false beliefs
are beneficial to us and that may help explain why they are so common. We will
briefly explore the beneficial aspects of false beliefs in this paper. However, many
of our false beliefs are far from beneficial. False beliefs are often the main
contributors to many disastrous courses of actions such as business spending that
yields no results, poorly made employment decisions, the creation and distribution
of faulty products and services. Changing the focus from the business level to the
individual level of perspective, we see that false beliefs can be even more devasting
for individuals. Individual sometimes ruin life-long relationships because of false
beliefs. Many of life’s worst decisions are based on false beliefs. On January 6th,
2021, thousands of people were propelled by their false beliefs in a “stolen
election” to commit terrible crimes against a country they allege to love. How can
these types of things happen? It has to do with the all too often heavy
consequences of false beliefs. Most of the literature on false beliefs is about
children. Most of the very important consequences related to false beliefs is
connected to adults with false beliefs. We need more understanding of false beliefs
54
held by adults. This paper explores many facets of how and why we often have the
illusion of explanatory depth and false beliefs.
ILLUSION OF EXPLANATORY DEPTH
Rozenblit and Keil (2002) contend that people like to think they can explain the
world they live in. The naïve intuitions that people have about how things work are
rarely questioned because they don’t really have to explain them to anyone. People
have limited knowledge about most phenomena and, furthermore, have poor
knowledge about their knowledge (intuitive epistemology). These combine to
create the illusion of explanatory depth. According to Rozenblit and Keil (2002,
p.521.), the illusion of explanatory depth basically means that people often think
they know “complex phenomena with far greater precision, coherence, and depth
than they really do.” The word “illusion” implies a broader, more general enduring
pattern of error or bias that is not a short-term oversight or mistake or distortion
unlike the terms “error” or “bias” confer (cf. Funder, 1987; Taylor & Brown, 1988).
The illusion of explanatory depth is, basically, a pattern of believing that we know
how things work. It is a pervasive belief that we understand and can explain the
functioning of things around us. This illusion is well documented in the literature.
The illusion has also been made more widely known through popular science
writing of Sloman and Fernbach’s 2017 book, The Knowledge Illusion: Why We
Never Think Alone. These authors surmise that there are so many complex causal
relationships that people need to “live a lie” by ignoring the complexity and
overestimating how much we know about how things work. Social issues are
particularly complex in causes and relationships, so they are particularly difficult to
understand. Sloman and Fernbach state that “instead of appreciating complexity,
people tend to affiliate with one or another social dogma.” Their contention is that
we really don’t think alone, and that as a group we tend to know (someone knows
how a toilet actually functions) things and that we let our group do our thinking for
us. A better understanding of this may help people to be more accurate in assessing
for ourselves what is causing our beliefs and values. Ultimately, it could help us to
correct our false beliefs. People generally blur the boundaries between knowledge
they possess and knowledge they have access to through their community,
basically taking credit for other people’s knowledge (Sloman & Rabb, 2016).
The illusion of explanatory depth develops as a result of a couple of human

information processing patterns. First, it arises partially from the situation where
we solve a problem using a device or tool or theory and then, because our problem
is solved, we incorrectly believe we understand how the device, tool, or theory
functions. According to Rozenblit and Keil (2002, p.522) “When people succeed at
solving problems with devices, they may underestimate how much of their
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understanding lies in relations that are apparent in the object as opposed to being
mentally represented.” A common example of this is the standard toilet, where
most us think we know how it works but, when pressed to explain, we can’t actually
explain how it works. We activate the flush handle, and it works and, almost as
simple as that, we think we understand how the toilet works. Second, people tend
to have confusion about higher and lower-level understanding of things.
Explanations of complex systems are hierarchical, with the overall system and
many levels of subsystems. An understanding of some overall system functioning
can lead us to think we understand how the thing operates, even if we don’t really
know the subsystems and/or how the subsystems operate. Similarly,
understanding one subsystem well can lead us to believe we understand how the
larger overall system functions. Both of these information processing problems
appear to be types of over generalizations in our beliefs about how well we really
understand the phenomena of interest.
People like to think they can explain how and why things happen in the world. We
tend to greatly overestimate our understanding of these complex causal relations.
There is a voluminous literature showing that people tend to be overconfident in
all kinds of judgments, especially about themselves and their knowledge about
specific devices, skills, and their own judgments. The illusion of explanatory depth
is a different, although related, form of this overconfidence. It is different because
the overconfidence occurs in beliefs about complex causal patterns, or
explanations (theory-like thinking), rather than specific pieces of knowledge.
Complex causal patterns are how and why things interact to get the results that
they get.
There is also some evidence for a trait-like state of desiring explanations (Fernbach,
Sloman, St. Louis, & Shube, 2013). Some people really prefer and desire
explanations that are greatly detailed while others do not generally seek deeper
explanations. People who are high in the trait of desiring explanations tend to want
to know more about how things operate. They want to understand complex causal
relationships more accurately. Others are not too interested in finding out the
“true” nature of those complex causal relationships. Those people who are less
concerned with getting accurate explanations may be more prone to the illusion of
explanatory depth and to holding false beliefs.
In business, we are interested in getting certain results such as increased sales,

better productivity, better earnings, etc. The acts (goals, actions, thoughts, etc.) are
complex and have very complex causal patterns. This makes managers and leaders
especially prone to the illusion of explanatory depth regarding these business
goals. If a manager has some knowledge about expectancy theory of motivation
and tries out some new intervention (a policy, reward, etc.) based on her
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understanding of the theory, and it appears to work as the employees appear more
motivated, the manager is very likely to believe she understands the theory quite
well. It is not easy for the manager to conceive of other explanations for the
improved motivation. Furthermore, the success of the intervention provides an
indication to the manager that she understands how the theory works.
FALSE BELIEFS AND SOME CONSEQUENCES
False beliefs are when we believe something to be a certain way and that belief is
different from the way that something actually is in reality. To “believe something”
is, itself, considered to be defined as something that a person accepts as true (cf.
Kahan, 2015). False beliefs are basically the combined ideas of 1) having a belief,
and 2) having that belief be discrepant from a criterion or what really is, at least as
based on the evidence at the present time. According to Kruglanski (1989), the
most prevalent conception of accuracy in social judgment is likely that of a
correspondence between a judgment and a criterion. To the extent that the illusion
of explanatory depth is a discrepancy between what one states or thinks one knows
about the functioning of an entity or an object and what one can actually explain
about that functioning, it is a direct lack of a correspondence - it is a false belief.
As Schneider (2001) notes “being accurate typically means that one has arrived at
a position that is truthful or captures the reality of the situation.” She goes on to
describe how many social judgments depend on interpretation rather than having
a specific, objective criteria for establishing truthfulness. Some concrete facts
provide opportunities for more obviously false or true beliefs about them. The
social, theoretical, interactive, or interpretive nature of many instances of
information make them a subject area where the demarcation of false and true
become more “fuzzy,” and therefore which beliefs are false beliefs. In many of
these situations, we can safely assert that if two groups of people hold strong
beliefs about one specific issue, and those sets of beliefs can’t possibly both be true
at the same time, then one or the other group has members who have false beliefs.
At this point, I think it is fair to note that there are philosophy journals full of
interesting articles that discern, debate, and examine the meaning of truthfulness,
or of “what is true.” For our purposes here, let’s go with convention and say that
false beliefs are those that are not in line with the evidence concerning the beliefs.
There are many benefits to being accurate in our beliefs. The most obvious benefit
is that we will have a better idea of actual reality if we have more accurate beliefs.
A better idea of reality will help us to better determine courses of action as
individuals or as managers and leaders of businesses. There are other benefits. As
noted by Kruglanski (1989), holding accurate beliefs helps people to better predict
things about people and better predict what might be going to take place in the
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future. Additionally, when engaging in decisions involving risk, having less than
realistic beliefs about the risks can result in not taking appropriate preventive
actions, thus placing people and companies in more hazardous situations (Klien &
Kunda, 1992; Weinstein, 1980, 1984; Weinstein & Klein, 1996). There are
numerous empirical findings and theoretical positions demonstrating the negative
effects of holding inaccurate beliefs. Additionally, millions of managers every year
are engaged in furthering their training and education specifically to get better at
understanding the factors that affect their businesses. They want to be better
equipped to make good business decisions and a large part of that effort includes
trying to better forecast and understand situations and causal patterns.
While the main point in this paper is to address false beliefs as they cause problems
for individuals and businesses, it seems appropriate to briefly acknowledge that
there are some situations in which benefits are associated with holding false
beliefs. If we want to understand false beliefs better, we need to know a little bit
about the consequences. The value or utility of the accuracy or inaccuracy of a
belief may be best assessed by considering the response that a person experiences
based on that belief. Sometimes a false belief can be beneficial (c.f., Taylor &
Brown, 1988). We may, for example, be better able to cope if we hold some beliefs
about ourselves – such as about our many positive characteristics, even if those
beliefs happen to be inaccurate. Yet, in general, business decisions that are based
on more accurate beliefs and forecasts will result in business actions that align
better with the given environment and the business objectives. We want to better
understand and predict and make better business decisions.
Most psychology professionals used to consider that holding beliefs that are
counter to the reality of the matter is a sign of mental illness. Basically, this is the
idea being that if one is out of touch with reality then they are mentally ill. This
thinking has been replaced in some quarters with the findings that show that some
illusions are helpful to people’s mental well-being. Most people have the tendency
to believe that positive events are more likely to occur to them in the future than
to other people, according to what Weinstein (1980) has called “unrealistic
optimism.” He also notes that people believe negative events are less likely to occur
to them in the future than to other people. Additionally, Carver and Scheier (2002)
find that when situation-specific information is limited, people may rely even more
heavily on optimism (and related “trait-like” beliefs) than the information at hand
when creating their thoughts and goals. Basically, one’s optimism may be relied on
more to form one’s beliefs than the situational-specific information available. An
optimistic person has the belief that they will have a positive outcome related to
their goals, generally, regardless of the situation-specific information available
about the likely positive or negative outcome relative to the goal. When we have
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inflated beliefs about ourselves, we seldom realize the costs. On the other hand,
we maintain more positively oriented self-conceptualizations.
A general explanation as to why so many of us have so many false beliefs can center
around the consequences associated with the false beliefs. Many, and perhaps
most, of our false beliefs have benefits that are greater than the costs associated
with holding those false beliefs. As Kahan (2015) argues, people are at the same
time knowledge acquirers and identity protectors. Identity protection often is
associated with false beliefs. This basically means that people can learn knowledge
but that won’t, by itself, make them “believe in” something that is antagonistic to
their identity protection. We identify ourselves with groups that are important to
us. That identity can be very important to us. Indeed, patterns of data about “belief
in” such things as evolution fit better with expressive rationality theory than
bounded rationality theory (Kahan & Stanovich, 2016). If an elderly woman in a
small rural town identifies with the other elderly women and men, then she will
likely hold some similar beliefs. If her identity group doesn’t believe in, or even
think much about, human evolution then she will likely also not believe in
evolution. Her believing one way or the other isn’t going to change whether
evolution is true or not. If she makes an error by believing it is not true, she isn’t
going to be hurt by that error. It really doesn’t matter to her if it is true. On the
other hand, if she strengthens her ties to her identity group, she gets comfort and
advantages. So, not believing in evolution is more advantageous for her situation.
Sometimes people hold false beliefs partially because they identify with a particular
group. They sense benefits, or gain favor, by sharing in the beliefs of others in those
particular groups. Shared false-beliefs held by strongly associated identity-groups
can have great costs. Some large-scale atrocities in human history are partially
attributed to strongly felt identity groups holding shared false beliefs and acting on
those beliefs.
We use our cognitive resources to help us form identity-congruent beliefs,

especially for strongly held aspects of opposing cultural identities. A given
individual may be very good at cognitive reasoning, may be very knowledgeable
about what science indicates about evolution, and still may not “believe in”
evolution. We can use our cognitive abilities to reason about that which we already
profess to believe in or not believe in (Mercier & Sperber, 2017). As we developed
over countless generations, people experienced unique problems of coordination
and trust amongst one another. The challenges of coordination and trust are much
larger than any such challenges for other animals. Mercier and Sperber, as well as
others, believe the evidence supports the conclusion that people developed
“reasoning” to be able to justify our own beliefs and to evaluate others’ claims,
primarily because of these problems of trust and coordination. The relevancy here
is that reasoning may be more about justifying beliefs and evaluating others’
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justifications than for developing beliefs. In this view, beliefs come before the
reasoning. This contrasts with how we usually think about it, basically that
reasoning is used to consider and decide what to believe. Thus, someone who has
good reasoning abilities may elaborately defend his or her beliefs, including false
beliefs.
In business, we want accuracy in our predictions and our beliefs about our own
strengths and weaknesses. False beliefs result in lost financial investments, poor
products, and human suffering in ways related to the business operations or
products and services. We often predict the future (forecasts) and decide on
behaviors to take based on our beliefs. When our beliefs are false, we end up
making bad predictions and bad decisions.
PRACTICAL MANAGERIAL IMPLICATIONS
One practical managerial implication is the need to try to reduce the illusion of
explanatory depth to make better business decisions. The most basic way to reduce
the illusion of explanatory depth is to try to explain in detail the process that you
believe you understand well. This “need to actually explain how it works” will
generally bring to the fore the holes in your knowledge about it. Write out your
understanding of how something works – it will quickly highlight your holes in your
true level of understanding.
Even if you can explain something, press yourself to explain it further. Because we
tend to construe complex causal patterns at the abstract, big picture, level, we may
need to be prompted to explain how the “subsystems” operate. For example,
managers often have strong ideas about what drives customer demand for
particular products, or product classes. To the extent their mental models diverge
from the true dynamics driving customer demand, they have an illusion of
explanatory depth. If they are asked to explain it further, it can expose the gaps in
either reasoning or knowledge. As a non-business example, if a person has the
illusion of explanatory depth about how the U.S. federal government works, she
might just explain it in the big picture (abstract) level of construal. First, the
legislative branch (Congress, as provided in Article I of the U.S. Constitution) makes
federal laws. She might explain that the executive branch (President et. al., as
provided in Article II of the U.S. Constitution) shall “execute” the laws and provide
executive functioning for the federal government. Finally, she would conclude that
the third branch of government, the judicial branch (Courts and judges, as provided
in Article III of the U.S. Constitution) decides on constitutionality of laws and
adjudicates the differences that citizens have about circumstances and
interpretation of the laws – at least for those that are deemed to fall within the
federal jurisdiction. She might think that she therefore knows how the federal
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government works. A simple questioning at a deeper level about how each of these
three branches function would likely expose huge gaps in her knowledge of how
the federal government really works. Even if you think you can explain it, then press
yourself to explain each of the next level of subsystems. Things suddenly become
more complex when we force ourselves to consider how the next level of
subsystems operate. If the subject matter of the belief is important to us, we should
strive for more concrete construal levels of explanation to justify our judgments of
our own understanding.
Another way to reduce the illusion of explanatory depth is to recognize that it exists
and question how we came to know, supposedly in great detail, how the device or
entity operates. When we realize that we are attributing to ourselves explanatory
knowledge just because others seem to have it, we can begin to acknowledge our
own lack of explanatory depth. We can work to improve our own knowledge about
how we come to believe something. As Will Rogers noted “You know, we are all
ignorant, only on different subjects.” Being able to accept that we don’t know some
things is good step towards reducing our illusion of explanatory depth and our
degree and sheer quantity of false beliefs we hold. We tend to rely greatly on
others, and we can learn to be more discerning in just which “others” we are going
to rely on.
Another, slightly more technical, method to try to reduce the illusion of explanatory
depth and false beliefs is to specifically seek out “disconfirming
evidence/information.” People almost uniformly seek out information that
confirms what they already believe to be true. When we believe something, we can
find a lot of information to support our beliefs. This is true for two individuals who
have diametrically opposing sets of beliefs on a particular subject. So, it turns out
the notion of trying to disconfirm, as the scientists strive to do, is a better method
to use for individuals who want to try to reduce the number of false beliefs they
hold. We can easily disconfirm our illusion of understanding by disconfirming our
ability to give a concrete, detailed explanation.
Those who know the least about something may also be the least aware of their
lack of knowledge about it (Jansen, Rafferty, & Griffiths, 2021). The Dunning-
Kruger effect suggests that those who are least able to do a particular task are also
the least able to assess how well or how poorly they do the task. This can mean
that managers ought to be aware of the differences in employees’ ability to know
how well they have forecast or made other business decisions. Cognitive reflection
(a trait-like characteristic that varies between people) has important influence on
the illusion of explanatory control. In particular, cognitive reflection sometimes
reduces the illusion and allows for changes in our positions when dealing with
social political explanatory illusions. It is helpful to try to understand the complexity
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of the issues involved. The key here is in generating causal explanations for how a
given political policy would function (say, cap and trade for carbon emissions) for
reductions in both explanatory illusion and movements to the mean of attitude on
the policy. Unfortunately, the focus of the cognitive reflection matters, and such
reflection focused on reasons one is for/against a policy leads to no reduction in
explanatory illusion and strengthens (makes more extreme) their positions (Sloman
& Fernbach, 2017).
Consider that the illusion of explanatory depth and false beliefs may have
developed to be quite common for some adaptive purposes. Both the illusion of
explanatory depth and false beliefs help people to conserve precious cognitive
resources. One such possible adaptive purpose is simply to focus our cognitive
resources on more important things or to conserve our cognitive resources.
Perhaps, the illusion of explanatory depth keeps us from going into ever deeper
levels of understanding about things that we really don’t need to have deeper
understanding about. That is, maybe the illusion of explanatory depth serves to cut
off our mental search for understanding at a point where we can deploy our
cognitive attention towards other more practical challenges. Using our cognitive
resources in an economical manner means that more important issues can have
access to greater resources while less important issues can receive less resource
intensive attention. When we understand some bit about something important and
we also employ the strategy of frugality of cognitive resource usage (resources
conservation), we inappropriately use an abstract construal level and falsely
believe we have a greater depth of understanding.
CONCLUSION
People often experience the illusion of explanatory depth. This is especially the
case for mechanical and related devices, but also for complex social institutions.
The illusion of explanatory depth contributes to strengthening our beliefs about
appropriate courses of action to take. Unfortunately, when the beliefs are false
beliefs, we may make some rather egregious mistakes in the actions we take based
on those false beliefs. Notwithstanding the sphere of false beliefs that result in
some beneficial consequences, it is imperative that we try to do better in
identifying our own false beliefs in other spheres so that we can avoid making costly
mistakes.
REFERENCES
Alter, A.L., Oppenheimer, D.M., & Zemla, J.C. (2010). Missing the Trees for the Forest: A
Construal Level Account of the Illusion of Explanatory Depth. Journal of Personality
and Social Psychology, 99(3), 436-451.
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Carver, C. S., & Scheier, M. F. (2002). Optimism. In C. R. Snyder & S. J. Lopez (Eds.),
Handbook of positive psychology (pp. 231–243). Oxford, UK: Oxford University
Press.
Fernbach, P.M., Sloman, S.A., St. Louis, R., & Shube, J.N. (2012). Explanation Fiends and
Foes: How Mechanistic Detail Determines Understanding and Preference. Journal
of Consumer Research, 39, 1115-1131.
Funder, D.C. (1987). Errors and Mistakes: Evaluating the Accuracy of Social Judgment.
Psychological Bulletin, 101, 75-90.
Jansen, R.A., Rafferty, A.N., & Griffith, T.L. (2021). A Rational Model of the Dunning-Kruger
Effect Supports Insensitivity to Evidence in Low Performers. Nature Human
Behavior, retrieved 7/15/2021 from: A rational model of the Dunning–Kruger
effect supports insensitivity to evidence in low performers (princeton.edu).
Kahan, D. (2015). Climate-Science Communication and the Measurement Problem.

Advances in Political Psychology, 36(suppl. 1), 1-43.
Kahan, D.M. & Stanovich, K. (September 14, 2016). Rationality and Belief in Human
Evolution. Annenberg Public Policy Center Working Paper No. 5, Available at
SSRN: https://ssrn.com/abstract=2838668
Klein, W.M. & Kunda, Z. (1992). Motivated Person Perception: A Social Relations Analysis.
Psychological Bulletin, 102, 390-402.
Kruglanski, A.W. (1989). The Psychology of Being “Right”: The Problem of Accuracy in Social
Perception and Cognition. Psychological Bulletin, 106(3), 395-409.
Mercier, H. & Sperber, D. (2017). The Enigma of Reason. Harvard University Press.
Rozenblit, L. & Keil, F. (2002). The Misunderstood Limits of Folk Science: An Illusion of
Explanatory Depth. Cognitive Science, 26, 521-562.
Schneider, S.L. (2001). In Search of Realistic Optimism: Meaning, Knowledge, and Warm
Fuzzies. American Psychologist, 56(3), 250-263.
Sloman, S.A., Fernback, P. (2017). The Knowledge Illusion: Why We Never Think Alone.
Riverhead Books, NY.
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Sloman, S.A. & Rabb, N. (2016). Your Understanding Is My Understanding: Evidence for a
Community of Knowledge. Psychological Science, 27(1), 1451-1460.
Taylor, S.E. & Brown, J.D. (1988). Illusion and Well-Being: A Social Psychological Perspective
on Mental Health, Psychological Bulletin, 103(2), 193-210.
Weinstein, N. D. (1980). Unrealistic optimism about future life events. Journal of

Personality and Social Psychology, 39, 806-820.
Weinstein, N.D. (1984). Why It Won’t Happen to Me: Perceptions of Risk Factors and
Susceptibility. Health Psychology, 3, 431-457.
Weinstein, N.D. & Klein, W.M. (1996). Unrealistic Optimism: Present and Future. Journal of
Social and Clinical Psychology, 15, 1-8.
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Vol 33, No 2; Fall 2021
ESTABLISHING EFFECTIVE HOSPITAL
DISASTER PREPAREDNESS AND RESPONSE
STRATEGY/PLANS
Melissa G. Kyle
Sharon D. Hunt
Richard G. Greenhill
Ryan N. Schmidt
John S. Pearson
ABSTRACT
Disaster management remains a significant issue in healthcare. Hospitals face a

myriad of disaster risks, both internal and external. External risks include active
shooters and natural disasters. Internal risks emerge from systems failures due to
issues such as loss of utilities and water leaks. While healthcare organizations are
required to establish emergency management programs for federal funding, many
struggle with implementation. This article discusses the development and
implementation of an effective disaster management program through staff training,
implementation of the Incident Command System, and procurement of adequate
assets and resources.
Keywords: Disaster Preparedness, Incident Command System, Healthcare Risk

Management
INTRODUCTION
Disasters are inevitable and can emerge from a host of different factors. No entity or
industry is exempt from this reality, including healthcare. Natural and man-made
disasters impact individuals and communities worldwide every year (Shoaf &
Rotiman, 2000). The United States alone experienced the complete evacuation of
over 150 hospitals from 2000 to 2017 (Aishwarya & Mace, 2019). Of these, 71%
(110) were due to external threats, 16% (24) from man-made threats, and 13% (20)
due to internal threats (Aishwarya & Mace, 2019). External causes for hospital
evacuations included hurricanes (60), wildfires (21), and storms (8), while internal
threats included hospital fires (8) and chemical fumes (4) (Aishwarya & Mace,
2019). Man-made causes included four related to bomb threats (Aishwarya & Mace,
2019).
Threats to healthcare organizations, regardless of the cause, can be devastating.

Preparedness for such disasters, including efforts to maintain business continuity in
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Kyle, Hunt, Greenhill, Schmidt, Pearson
the event of a disaster, is vital to the continuation of operations and overall patient
safety. In addition to internal motives for ensuring preparedness and business
continuity, external motives exist due to national funding requirements for
established disaster relief programs. To meet the response demands from disasters
and events, the federal government has allocated billions of dollars towards response
efforts and preparedness (Slepski, 2005).
Hospitals accredited and funded by the Centers for Medicare and Medicaid Services
(CMS) are required to implement emergency management programs that will them
to continue to provide patient care when disasters occur. However, merely having a
program is insufficient. These programs and plans must be tested and evaluated
periodically to ensure they are sufficient in the event a disaster occurs. CMS
accreditation standards require hospitals to maintain an Emergency Operations Plan
(EOP), describing the procedures and guidance for a response. The plan should be
flexible, incorporating separate standalone emergency response plans (ERP) to
respond to an array of different situations or disasters. This flexibility is known as
an “All Hazards” approach. Unfortunately, the EOP and ERP’s often become a
document of reference and are never fully put into practice. Instead, these documents
sit in binders on shelves and are periodically pulled out to discuss with accrediting
organizations during a survey. The lack of practice creates risk and limitations in the
hospital’s ability to respond effectively when the event occurs.
Disaster preparedness is costly and does not generate revenue or cost savings (Toner,
2017). Even though disasters can strike at any point, the likelihood of a hospital
experiencing a disaster is relatively limited (Toner, 2017). Therefore, hospital
executives struggle to justify the planned operational expenses dedicated to
emergency preparedness efforts (Toner, 2017). Financial backing by leadership for
preparedness activities supports appropriate training for both frontline staff and
leadership, staff drills, and adequate availability of resources and assets. Without
sufficient resources, healthcare organizations may fail to respond adequately when
disasters occur, therefore risking the wellbeing and survival of their patients and
staff. CMS rules specify that facilities participating in Medicare and Medicaid must
have emergency preparedness plans in place and that these should include
coordination with federal, state, and local emergency preparedness systems (Toner,
2017, p.9). Unfortunately, CMS provides zero funding for these mandated initiatives
and does not monitor ongoing compliance (Toner, 2017). Without enforcement and
financial support, the individual hospitals or health systems are left to their own
accord to create compliant programs with strong financial backing to truly be
effective. Therefore, healthcare organizations must garner financial and leadership
support to facilitate robust emergency management programs to be able to respond
when it matters.
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LITERATURE REVIEW
The art of effective emergency management programs is developed through lessons

learned in previous disasters, resulting in a better understanding of how to reduce
risk and increase preparedness. Risk will never be eliminated but rather mitigated;
therefore, challenges for operations to hospitals experiencing disasters remain.
Events such as disasters or pandemics may limit hospital operations and hinder
patient care (Veenema et al., 2016). Crisis standards of care (CSC), according to the
Institute of Medicine (IOM), are defined as “a substantial change in the usual health
care operations and the level of care it is possible to deliver in a public health
emergency, justified by specific circumstances” (Veenema et al., 2016, p.49). In
August of 2005, Hurricane Katrina, a category five hurricane, struck New Orleans\.
The hospitals within the city were unprepared to allocate resources and assets and
did not have clear response planning to ensure safety for their patients. (Lurie et al.,
2015). Many facilities did not invest in developing their evacuation plans, downtime
communications, downtime of their electronic health records, and sustainable power
through their generators (Lurie et al., 2015). As a result, hospitals were left without
electrical power and were therefore unable to operate critical biomedical equipment
or access electronic health records for their patients. Furthermore, they could not
evacuate their patients or receive local assistance from emergency management
offices (Lurie et al., 2015). Healthcare and political leaders learned from these
mistakes. Accordingly, since Hurricane Katrina, many advancements have been
made regarding resources and assets, training, and facility infrastructure to better
improve response to future events. The advancements were offered at the federal
and state level but did not necessarily trickle down to the entity or organizational
level of healthcare organizations and other businesses. The federal government, in
return, required healthcare accrediting organizations to enhance mitigation and
response efforts but did not provide additional means to do so.
After Hurricane Katrina, Hurricane Sandy, a category three storm, hit New York
City. Hurricane Sandy brought extensive flooding and high water across the city,
resulting in the loss of power and the loss of building ventilation controls (Veenema
et al., 2016). Although lessons were learned from Hurricane Katrina, it appears that
this did not result in the improvements needed to effectively manage a disaster of
this magnitude. Several New York hospitals were unprepared and failed to
implement evacuations of patients in the initial stages of the event resulting in a swift
decline of patient care resources, including both supplies and medical equipment,
and evacuations of patients in complete darkness once the hospitals lost generator
power (Veenema et al., 2016). Ultimately, two hospitals had to be completely
evacuated, New York University Langone Medical Center with 300 patients and
Bellevue Hospital with 725 patients. This equates to 1,025 patients total, not
including staff, who were at risk because of poor emergency preparedness planning
and effective mitigation. Even with emergency management program federal
mandates through CMS, the response to Hurricane Sandy displayed the overall
weakness of hospital preparedness for emergency events. (Veenema et al., 2016).
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Efforts to improve emergency response and preparedness have continued. To assist

with improved response and support, coalition groups funded by the Hospital
Preparedness Program (HPP) have formed across the country, partnering with
hospitals and healthcare organizations to assist with disasters (U.S. Department of
Health and Human Services, n.d.). In Texas, there are 22 state Regional Advisory
Council (RAC) division groups that provide support and limited state-funded
resources to healthcare organizations and health systems for disaster preparedness.
In particular, the North Texas Trauma Regional Advisory Council supports local
hospitals and health systems in the North Texas area. Each of the 22 RACs works
with hospitals to manage the operations of the trauma services across the region.
(Texas Department State Health Services, 2021). The RAC participants involve
hospitals and community members whose sole purpose is to ensure effective
management of trauma services within the region (Texas Department State Health
Services, 2021). Members of the RAC may include emergency management and
executive leadership representatives from the hospital, hospital clinicians, both
physicians and nurses, and representatives from the emergency medical service
(EMS) providers across the region (Texas Department State Health Services, 2017).
The community partnership with the RAC can assist with the financial burden
hospitals face when acquiring resources and assets for disaster management. The
challenge, however, results in hospitals not consistently engaging with their local
RAC in acquiring assistance with supporting their programs.
On May 22, 2011, an EF-5 tornado struck Jasper and Newton counties, including
Joplin, Missouri (Missouri Hospital Association, 2012, p.5). The wind speed
registration came in over 200 miles per hour with a destruction path of over six
miles, resulting in the deaths of 161 individuals and injuries to approximately 1,300.
(Missouri Hospital Association, 2012). The tornado caused damage to vast amounts
of property, including the local hospital, St. John’s Regional Medical Center
(Missouri Hospital Association, 2012). The Missouri Hospital Association (MHA)
performed an emergency preparedness assessment against the current Joint
Commission ® standards and elements of performance to determine their
compliance level over four years from 2009 to 2012. The 2012 assessment looked
at the overall percentage of compliance rating for hospitals across Missouri
collectively. Several categories of criteria were assessed during this assessment,
including implementation of the incident command system (ICS), communication,
staff training through the National Incident Management System (NIMS), planning
measures, ICS staffing, redundancy, and ICS operations.
The NIMS system is intended to provide a unified and consistent ability for
emergency management participants to communicate using similar terminology to
facilitate collaborative responses to disaster events (Federal Emergency
Management Administration, 2021). Despite the lessons learned from the Joplin
tornado, only 80% of all Missouri hospitals followed through with future activations
and implementation of their incident command structure when an event occurred
and just 43% created their Emergency Management Committees (EMC), which
would assist in developing and maintaining an effective emergency management
68
program (Missouri Hospital Association, 2012). Additionally, only 86% of the

hospitals trained their leadership and staff on disaster response (Missouri Hospital
Association, 2012).
CMS requires hospitals to be 100% compliant with a documented emergency

management program. However, an area of weakness exists due to the lack of
program verification during accreditation audits. Hospitals escape compliance
verification because it is not considered a focal point for patient safety. Performance
improvement metrics are emphasized within the clinical realm; however, limited
metrics are established when evaluating emergency preparedness program
effectiveness (Lazar et al., 2009). Leadership and committee oversight provide the
support needed for a healthy, compliant, and functioning emergency management
program. Both groups serve as drivers to promote the importance of being prepared
for disasters and protecting patients.
Emergency management regulations issued by CMS require hospitals to

demonstrate how they will evaluate and plan for responses to potential events that
threaten operations regardless of the risk category (Lazar et al., 2009). Healthcare
organizations often view the potential risk of major disasters occurring as low,
causing them to be unresponsive in bolstering response capabilities to strengthen
their programs (Lazar et al., 2009). To change this, hospitals must proactively learn
from historical events by understanding how the event impacted the organization’s
ability to continue operations and reduce future risk by mitigation. Furthermore,
evidence suggests hospital emergency management programs suffer due to limited
funding and resources, lack of staff training, failure to implement an ICS structure
to ensure a compliant NIMS program, and lack of committee oversight ensuring
compliance. Leveraging these elements will provide a foundation for a best practice
emergency management program, setting the hospital up for success in responding
to disasters while saving the lives of its patients and staff.
The federal government remains the key provider of resources for hospital disaster
preparedness and should therefore provide adequate financial assistance. Johnson,
Davey, and Greenhill (2022) described the tenets of federal cooperation:
ASPR Healthcare Readiness cooperative agreement, a program called the
Hospital Preparedness Program (HPP) was created (HPP, 2021). The
program was designed to create a foundation for national healthcare
preparedness. It is the primary source of federal dollars for health system
preparedness and focuses on the improvement of patient outcomes during
emergencies with rapid recovery. The HPP boasts recipients in all 50 U.S.
states, 8 territories with 6.8 billion dollars invested as of April 2021 (HPP
Overview, 2021). The HPP is the convener for regional collaborations that
encourage sustainable health care coalitions (HCC’s) for health care
preparedness and response during emergencies (About HPP, 2021). The
HCC’s are assisted with meeting the core tenets of the Health Care
Preparedness and Response Capabilities 2017 – 2022. This document
69
outlines the high-level objectives that healthcare entities are pushed to meet
to prepare for, respond to, and recover from emergencies. (Johnson et al.,
2022)
RECOMMENDATIONS
Proposed solutions to establish and maintain an effective emergency management

program begins with establishing an Emergency Management Committee (EMC).
The EMC is a regulatory-driven governing body that oversees all operations and
compliance efforts of the program for the hospital. This committee is
interdisciplinary; it supports the success of the program and evaluation of
opportunities for improvement; and provides guidance and direction to hospital
staff, medical staff, and hospital executive leadership regarding the functionality and
implementation of the program. While CMS and other accrediting organizations do
not specify membership, the recommendations include executive leadership (both
operational and nursing), nursing supervisors who manage the daily nursing
operations of the facility, and physician leadership from areas including high-risk
departments such as the Emergency Department, Intensive Care Unit (ICU), and
medical-surgical unit. The committee should also include trauma services and
support services leadership, including engineering, construction, food and nutrition
services, environmental services, and safety. In addition to these roles, the
organization’s leadership should consider other stakeholders who bring forward
expertise in their field who can assist with driving the operations of the incident
management as contributing members of the committee (The Joint Commission,
2021). The committee would also be involved in assessing all regulatory compliance
to which the program is required to adhere. For committee operations transparency,
the committee should report directly to the hospital’s MEC Committee or the
organization’s overarching governing body, such as their Board of Directors. The
direct reporting of the committee’s efforts and programs operations will allow the
organization’s highest level of leadership to be aware of any challenges or successes
of the program, enabling them to provide further support as needed.
Second, a Hospital Incident Command System (HICS) that provides a clear structure
of event management must be established to ensure effective response and recovery
efforts to any potential threat or event the organization may endure. HICS is a system
for utilizing the incident command system (ICS) structure for health care
organizations (U.S. Department of Health and Human Services, n.d.). HICS supports
health care organizations in establishing a set structure to allow for collaboration
when responding to events (California Hospital Association, 2017; U.S. Department
of Health and Human Services, n.d.). The HICS structure includes five command
center staff and four section chiefs leading subdivisions under the section chief’s
scope of responsibility. The command center staff includes an incident commander,
public information officer, safety officer, public liaison officer, and a
medical/technical specialist. The incident commander provides direction in the
management of the event. The public information officer provides feedback and
70
information regarding hospital response to outside agencies such as news

organizations. The safety officer ensures all response efforts are made safely without
placing any additional risk to the patients or staff. The public liaison officer serves
as the direct contact between the hospital and outside agencies, providing additional
support and resources. Finally, the medical/technical specialist provides the
direction for the management of clinical care during the response of the event. The
four-section chiefs under the command staff include planning, operations, logistics,
and finance. The section chief’s role is to provide support and immediate direction
in managing an event to ensure continuous operations of the organization while the
event is occurring.
Third, training and education are key to a successful response during an event. A
robust training program assists in building staff comfort and confidence in how to
effectively respond to an event. The training program would include general hospital
staff and medical providers as both are critical in the response stage. The training
portion would consist of virtual-based learning in addition to hands-on training. The
module training will cover aspects such as understanding the hospital’s emergency
codes and how to respond as a staff member or medical professional. The hands-on
training will translate the module training to reality and provide the staff with critical
thinking abilities to prepare them for an actual event. Both modes of training
together play key roles in providing continuous learning and reminders to staff about
their role and responsibility during an event but also putting the theory into practice.
Fourth, effective disaster responses are generated from mitigation and planning
measures in the development and establishment of an emergency operations plan
(EOP) and subsidiary emergency response plans (ERP) or procedures. The
hospital’s emergency operations plan is intended to address an “all-hazards”
approach, preparing the hospital to respond to myriad potential threats or disasters
that exist. The EOP should incorporate communication, resources and assets, safety
and security, staff responsibilities, utility systems, and clinical/support activities.
These six critical focus areas are the fundamentals of a strong EOP and provide
direction and expectations to the staff and command center staff during an event.
The subsidiary ERP provides more details on how to respond to specific events. This
may include a Code Silver plan to address actions during an active shooter event or
a Code Black plan to cover how to respond during an active tornado. When the EOP
and ERP are not created or implemented, the hospital’s ability to appropriately
respond is limited, creating confusion and placing staff, visitors, and patients in the
hospital at risk.
Fifth, establishing mutual aid or partnership agreements with the local regional
advisory councils (RACs) is needed for event response, business continuity, and
continuous operations. An emergency management program requires mutual aid
agreements as hospitals are not capable of being entirely self-sustaining. In Texas,
the RACs provide state-funded resources and assets, helping to defray the cost of
these expensive, but necessary, items. The RACs receive funding from the federal
71
government through the Hospital Preparedness Program, which operates through

cooperative agreements with states (U.S. Department of Health and Human
Services, n.d.). During periods when supplies and materials may be limited, the
RACs may supplement the hospital’s inventory to assist with supply shortages.
During the COVID-19 response, hospitals across the state and country experienced
this exact scenario. The RACs provided much-needed assistance to hospitals,
helping them to operations moving by providing PPE and medical equipment such
as ventilators.
Finally, the hospital will need to actively budget operational expenses and capital
expenses to set up the emergency management program for success. The program
should be considered part of daily operations, with appropriate financial support,
treating this segment as all other aspects of operations. Failure to financially support
emergency management programs limits appropriate response capabilities and
places patients at risk of receiving inadequate care during an event. Although
regional advisory councils can assist in offsetting resource and asset burdens, they
cannot fully stock a complete hospital inventory for event response. The hospital
must manage current inventory and acquire resources to sustain operations for at
least 96 hours before additional assistance is provided.
These proposed solutions will help hospitals enact and maintain an effective
emergency management plan, which is crucial to responding to the many types of
threats that exist. This should be an important and ongoing aspect of the hospital’s
strategic operating plan and budget.
CONCLUSION
With events such as mass shootings, hurricanes, tornados, wildfires, infectious

diseases, and pandemic events on the rise, the preparedness efforts by all community
stakeholders and hospitals are at an all-time high (Kacik, 2019). The adequate
resources and support for effective response to these events should equal the size
and scope of the events occurring (Kacik, 2019). To protect patient lives and support
continuing operations, hospitals must be prepared for and ready to respond to any
potential disaster or threat. Effective emergency management programs are vital to
achieve this and succeed at saving lives. While the scale of disasters may vary,
consistency of emergency management practice and implementation of a program
will provide the support hospitals need to protect their patients, staff, and visitors.
REFERENCES
Aishwarya, S., & Mace, S. (2019). Reviewing disasters: Hospital evacuations in

the United States from 2000 to 2017. Prehospital and Disaster Medicine,
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California Hospital Association. (2017). Hospital incident command system.

Emergency Preparedness. https://www.calhospitalprepare.org/hics
Federal Emergency Management Administration. (2021, September 4). National

incident management system | fema.gov. National Incident Management
System. https://www.fema.gov/emergency-managers/nims
Hospital Preparedness Program (HPP). (2021) Phe.gov.

https://www.phe.gov/Preparedness/planning/hpp/Pages/default.aspx
HPP Overview Fact Sheet. (2021) Phe.gov.

https://www.phe.gov/Preparedness/planning/hpp/Documents/HPP-
FactSheet-April2021-508.pdf
Johnson, J., Davey, K., & Greenhill, R. (2022). Sultz and Young's Health Care
USA: Understanding Its Organization and Delivery (10th ed.). Burlington:
Jones & Bartlett Learning
Kacik, A. (2019, May 8). U.S. disaster preparedness slows, illustrating fragile
healthcare safety net. Modern Healthcare.
https://www.modernhealthcare.com/operations/us-disaster-preparedness-
slows-illustrating-fragile-healthcare-safety-net
Lazar, E., Cagliuso, N., & Gebbie, K. (2009). Are we ready and how do we know?
the urgent need for performance metrics in hospital emergency
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Katrina: Progress and challenges remain for United States emergency
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Missouri Hospital Association. (2012). Preparedness and partnerships: Lessons

learned from the Missouri disasters of 2011: A focus on Joplin.
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management/joplin_2012_lessons_learnedpdf.pdf?db=web&hash=FEBA1
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Schoaf, K., & Rotiman, S. (2000, September 1). Public health impact of disasters.
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Slepski, L. A. (2005). Emergency preparedness: Concept development for nursing

practice. Nursing Clinics of North America, 40(3), 419–430.
https://doi.org/10.1016/j.cnur.2005.04.011
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councils. https://www.dshs.texas.gov/emstraumasystems/etrarac.shtm
The Joint Commission. (2021, March 21). Is there a required composition of the
emergency management committee?
https://www.jointcommission.org/standards/standard-faqs/critical-access-
hospital/emergency-management-em/000001195/
Toner, E. (2017). Healthcare preparedness: Saving lives. Health Security, 15(1), 8–

11. https://doi.org/10.1089/hs.2016.0090
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Health care preparedness and response capabilities.
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2022-healthcare-pr-capablities.pdf.
U.S. Department of Health and Human Services. (n.d.). About the hospital
preparedness program.
https://www.phe.gov/Preparedness/planning/hpp/Pages/about-hpp.aspx.
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and the Incident Command System.
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es/emergencymanagement.aspx
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Vol 33, No 2; Fall 2021
COVID-19 AND HUMAN RESOURCE MANAGEMENT
LITIGATION: WHAT SHOULD EMPLOYERS DO?
Gerald E. Calvasina
Southern Utah University
Joyce M. Beggs
University of North Carolina Charlotte
ABSTRACT
The COVID-19 Pandemic has created a multitude of problems for employers

including unique employment law allegations. This was to be expected in light of
the extraordinary situation and the variety of laws and regulations being
promulgated and revised since the pandemic began. Basic Human Resource (HR)
law and regulations have in some instances been amended to address the
unprecedented situation that employees and employers are confronting in light of
the global COVID-19 pandemic. The purpose of this paper is to examine how new
and existing laws and regulations are impacting HR decision making and what
employers should be doing to reduce their exposure to litigation while the pandemic
continues.
Key Words: COVID-19, Regulations, Litigation, Decision making
INTRODUCTION
COVID-19 is a disease caused by a novel (new) coronavirus previously not seen in

humans. To be called a pandemic, a disease must be prevalent or widespread over a
country or over the world. The disease is widely believed to have started in Wuhan,
China, and reached a global death toll of 500,000 in six months. On February 9,
2021, the global death toll for COVID-19 reached 2.4 million, and on July 11, 2021,
the US death total increased to 4.1 million (Worldometers, 2021). In February,
2021, the United States death toll was 465,000 which was more than the number
who died in World War 1 and Vietnam. On July 11, 2021, the number of deaths in
the United States reached 615,000 which is approaching the number who died during
the Civil War (Worldometers, 2021). The current situation would certainly meet
the criteria for being categorized as a pandemic and has caused fear, anxiety, stress,
and worry on a personal level and also about the likelihood of an economic disaster.
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Calvasina and Beggs
Of course, the development of vaccines and the population getting vaccinated have
radically altered the pandemic business environment. As the present scenario in the
United States improves, states attempt to return to normal. However, the weekly
death rate is still over 300, and two percent of the COVID-19 cases result in death
(Worldometers, 2021). Although calculations vary from 44% to 48%,
Worldometers estimate that 48% of the United States population is fully vaccinated.
The United States appears to be entering a new phase of the COVID-19 epidemic as
people return to work and try to settle back into normal life. However, most public
health officials are not declaring the pandemic vanquished just suppressed and
suggest that COVID-19 will continue at least in the background for the long term
(Kamp, 2021).
The COVID-19 pandemic created a multitude of problems for employers including

new employment law situations. As would be expected, a variety of laws and
regulations were promulgated and revised. Basic Human Resource (HR) law and
regulations were amended along with new regulations being enacted to address the
unusual situations that employers and employees confront. The purpose of this
paper is to examine new and existing laws and regulations that impact HR decision
making and to provide policy recommendations for employers to reduce their
exposure to litigation.
LAWS INVOLVED
The H1N1 pandemic of 2009 could have helped prepare the country for the COVID-
19 pandemic of 2019. However, there is quite a myriad of laws, Executive Orders,
and administrative agencies that affect HR management practices during the
pandemic. There are the laws enforced by federal agencies such as the Equal
Employment Opportunity Commission and the Occupational Safety and Health
Administration, and those enforced by the Department of Justice. There are also
guidelines such as those from the Centers for Disease Control and the World Health
Organization. In addition, there are pandemic regulations from 50 states, one
district, and the territories. For example, states can regulate whether businesses can
be open, whether customers are allowed inside, whether employees must work at
home, and whether unemployment compensation is available. Consideration of
county level regulations further complicates the present state of regulation. There
are 3143 counties, parishes, and districts. When all the levels of regulation and
enforcement are considered, a very complex system of federal, state, and county or
local regulatory authority is revealed. Moreover, there are the numerous
ramifications created by different regulations being levied depending upon whether
the workers are essential or non-essential. The recommendations and regulations
continue to change as the current situation evolves. As a result, the policy
recommendations to aid in HR decision may also need refinement.
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EEOC
All of the laws enforced by the Equal Employment Opportunity Commission

(EEOC) continue to impact HR decision making during the pandemic (see Table 1).
The EEOC also provides additional guidance as to applicability of these basic
regulations (EEOC A & B, 2020).
Table 1 Laws Enforced by the EEOC

Title VII of the 1964 Civil Rights Act as Amended
The Americans with Disabilities Act
The Rehabilitation Act
The Age Discrimination in Employment Act
The Genetic Information Nondiscrimination Act
BASIC EEOC GUIDANCE
The EEOC publication, Pandemic Preparedness in the Workplace, and the

Americans with Disabilities Act furnish guidance to help employers implement
strategies to navigate the impact of COVID-19 in the workplace (EEOC A&B,
2020). Originally published during the H1N1 outbreak of 2009, it was updated in
March of 2020 to address examples and information regarding COVID-19
specifically. Employers with 15 or more employees are subject to regulations of Title
1 of the ADA, and although there is a pandemic, the basic ADA restrictions still
apply and must be followed. For example, the ADA has rules on making disability-
related inquiries and requiring medical exams of job applicants or employees (see
Table 2). During the pandemic, ADA covered employers may ask employees if they
are experiencing symptoms of COVID-19. What would normally be a restricted
medical inquiry is permitted if employers are relying on Centers for Disease Control
(CDC) or other reputable sources of guidance for what COVID-19 symptoms are.
Given CDC guidance, measuring an employee’s body temperature, which would
normally be considered a medical exam under the ADA and prohibited, is also
permitted during the COVID-19 pandemic (EEOC A & B, 2020).
Table 2 Other basic guidance issued by the EEOC

Does the ADA allow employers to require employees to stay home if they
have symptoms of the COVID-19? YES
Can the employer require a doctor’s note certifying fitness for duty? YES
May an employer administer a COVID-19 test to detect presence of the
virus to employees & job applicants? YES
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Calvasina and Beggs
May an employer administer an antibody test to make decisions about

returning persons to work? NO
May an employer ask an employee coming into the workplace whether a
family member has COVID-19? NO
(EEOC A & B, 2020)
US DEPARTMENT OF LABOR
In addition to EEOC law, laws enforced by the United States Department of Labor,
(US DOL) further impact employers (see Table 3). The US DOL enforces more
than 180 federal laws along with the mandates and regulations to implement the laws
and covers most workplace activities of about 150 million workers and 10 million
workplaces (US DOL, 2021).
Table 3 Major Laws Enforced by the US DOL
The Fair Labor Standards Act

Immigration and Nationality Act
Occupational Safety and Health Act (OSHA)
Employee Retirement Security Act
Comprehensive Omnibus Budget Reconciliation Act of 1985 (COBRA)
Health Insurance Portability and Accountability Act (HIPPA)
Labor-Management Reporting and Disclosure Act
Uniformed Services Employment and Reemployment Rights Act
Family Medical Leave Act
Worker Adjustment and Retraining Notification Act (WARN)
The US DOL has also developed and published a great deal of guidance and
informative resources on the COVID-19 pandemic. The most notable is their
Guidance on Preparing Workplaces for COVID-19 (US DOL Guidance, 2020).
However, the guidance is a recommendation and is advisory in nature; it is not a
standard or regulation. The guidance provides descriptions of mandatory safety and
health standards applicable during a pandemic situation (US DOL Guidance, 2020).
NEW FEDERAL LAW
The Families First Coronavirus Response Act (FFCRA) is the newest piece of
federal law and was signed into law on March 18, 2020. It was designed to alleviate
some of the negative effects of COVID-19 on employees and employers. Additional
laws enacted include the Paycheck Protection Program, Health Care Enforcement
Act, and the Consolidated Appropriations Act that added $900 billion in economic
relief (Investopedia, 2021). This piece of legislation is hailed as the source of new
78
litigation for employers particularly from employees seeking and/or using the
FFCRA’s leave and sick pay provisions (Bernstein & Larson, 2020). According to
the Fisher Phillips Employment Litigation Tracker, as of July 11, 2021, 2786 cases
have been filed with the most common type of case involving remote work and leave
conflict issues (Fisher Phillips, 2021) (see Table 4). While the healthcare industry
has been the industry targeted most frequently, manufacturing, retail, government,
and hospitality are also seeing a large number of cases (Fisher Phillips, 2021).
Bernstein and Larson point out that the vast majority of the cases have not been
adjudicated or resolved, but the allegations made so far provide employers with “a
sense of where and how the conflicts tend to arise” (Bernstein & Larson, 2020).
Table 4 Types of Cases

Cases % of Total Cases
Remote Work/Leave Conflicts 778 28.2%
Employment Discrimination 688 24,9
Retaliation/Whistleblower 682 24.7
Wage & Hour 189 9.2
RECENT CASES
Three cases with a judicial track record include the Gomes v. Steere House (a
nursing and rehabilitation center) case, the Constance v. Hollybrook Golf and Tennis
Club Condominium case, and the Kofler v. Sayde Steeves Cleaning Service, Inc.
case.
In the Gomes v. Steere House case, Ms. Gomes was employed as a Licensed
Practical Nurse (LPN) at Steere House, a nursing rehabilitation center from August
13, 2018 through May 22, 2020. She was exposed to the COVID-19 virus in April
or May of 2020 and eventually contracted the virus (Gomes v. Steere House, 2020).
The virus left her unable to work and she eventually applied for paid leave from
Steere House under the Family Medical Leave Act (FMLA). Ms. Gomes also
brought a claim of retaliation against Steere House alleging that she was terminated
for invoking her rights under the FMLA. While the FMLA would normally not
entitle an employee to paid leave, the FFCRA contained two acts that provided such
relief under the FMLA (Gomes v. Steere House, 2020). Given Ms. Gomes
termination on May 22, 2021 was so soon after her positive COVID-19 test, she was
able to rely on the temporal connection between her request for FMLA leave and
her summary termination. The court concluded that Ms. Gomes allegation that her
former employer terminated her in retaliation for requesting leave under the FMLA
could proceed because she has presented sufficient facts to support a prima facie
case at this stage of the litigation (Gomes v. Steere House, 2020).
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Calvasina and Beggs
The Constance v. Hollybrook Golf and Tennis Club case also involves allegations
of violation of the FFCRA for taking leave as a result of a COVID-19 diagnosis and
retaliation (Constance v. Hollybrook, 2020). In this case, the plaintiff is alleging
that he notified his supervisor on March 27, 2020 that he was experiencing COVID-
19 symptoms and then took time off for testing. Mr. Constance, a maintenance
supervisor, had been employed at the club for over 21 years. Mr. Constance alleges
that after his positive test was confirmed on April 5, 2020, he informed his employer
of the results and voiced concerns for his coworkers. Mr. Constance alleges that he
was told not to tell his colleagues about his positive test to avoid “Chaos” (Constance
v. Hollybrook, 2020). Mr. Constance was told by his doctor to self-isolate and
quarantine until the latter part of April in 2020. He made a full recovery and
informed his employer on April 20, 2020 that his doctor had provided him with a
letter of release permitting him to return to work. Mr. Constance was instructed to
return to the Club’s office on April 22, 2020 where he was immediately terminated
by the Club’s Facilities Director (Constance v. Hollybrook, 2020).
In the Kofler v. Sayde Steeves Cleaning Service, Inc. case, there is a decision on a
motion to dismiss the case by the defendant, Sayde Steeves Cleaning Service – the
motion was denied (Kofler v. Steeves, 2020). Ms. Kofler began working for Sayde
as a residential and commercial cleaner on February 28, 2020. Shortly after being
employed, she asked to take two weeks of unpaid leave in mid-April “to help care
for her newborn grandchild “and Sayde agreed (Kofler v. Steeves, 2020). In March
of 2020, Ms. Kofler’s “two minor children were affected by school closures due to
COVID-19 and as a result were required to stay at home with [Kofler]” (Kofler v.
Steeves, 2020). On or around April 1, 2020, Ms. Kofler requested paid leave in
accordance with FFCRA requirements. The company did not respond to her request
and instead terminated her on or around April 8, 2020 stating that she would be
eligible for rehire in six months (Kofler v. Steeves, 2020). Kofler initiated her
complaint against Sayde Steeves on June 26, 2020 alleging that Sayde Steeves
retaliated against her for pursuing her rights under the FLSA and the FFCRA by
terminating her employment (Kofler v. Steeves, 2020). One of Sayde Steeves’s
arguments for dismissal of the complaint was that the company was not a covered
employer because they were an employer with fewer than fifty employees, the
threshold for coverage under the statute.
The court noted that the exemption is not a blanket exemption that applies to all
small employers and that an authorized officer of the employer must make certain
determinations for the exemption to apply (Kofler v. Steeves, 2020). An employer
seeking the exemption “must document that a determination has been made pursuant
to the criteria set forth by the Department in [Section] 826.40(b) (1)” (Kofler v.
Steeves, 2020). The complaint includes no allegation that Steeves elected the
exemption or satisfied the exemption’s requirements (Kofler v. Steeves, 2020).
80
In all three of the cases cited, retaliation is a key part of the complaints. In general,
in EEO litigation, plaintiffs are not required to be successful on their top complaint;
that is, that they were discriminated against, to be successful on their retaliation
complaint (Walsh, 2019).
As workers return to workplaces, there is likely to be litigation dealing with

vaccinations. One recent lawsuit dealing with mandatory vaccinations was
dismissed. The lawsuit was filed against Houston Methodist by 117 unvaccinated
employees who were told to get vaccinated or lose their jobs. Houston Methodist
was the first U.S. medical facility to require vaccination of all employees. Managers
were required to get shots by April 15 and other employees had until June 7. The
majority of the 26,000 employees did as requested and got their shots. Those who
did not comply filed the lawsuit claiming they were being asked to serve as human
guinea pigs. The basis of their argument was that the vaccine was approved by the
Food and Drug Administration’s Emergency Use Authorization rather than regular
approval. The FDA said that the vaccines met rigorous scientific standards and that
the known benefits outweighed the risks. Judge Lynn Hughes said that the claim by
the unvaccinated group was false (Nagele-Piazza, 2021). This was the first ruling
regarding mandatory COVID-19 vaccination.
POLICY AND PRACTICE RECOMMENDATIONS WHAT SHOULD

EMPLOYERS DO?
Policy and practice recommendations abound from numerous sources including the
EEOC, the U.S. Department of Labor (DOL), and the legal experts on EEO. Much
of the advice is general in nature and for the most part should not be new for
employers and human resource practitioners. For example, employers have been
advised by a variety of sources to develop plans of action for a multitude of potential
situations such as the following: How should an employer respond to an employee’s
request for leave if they show symptoms of or test positive for COVID-19? Whose
guidance should be followed on opening or closing operations? Should the Centers
for Disease Control (CDC) be followed? Or should the state and or local health
agencies be followed?
To facilitate human resource management decision making and EEO compliance,

guidance from the EEOC and the US. DOL have been on the books the longest; and
consequently, HR practitioners should at least be somewhat familiar. The basic
guidance from the EEOC regarding compliance with the Americans with Disabilities
Act (ADA) is something employers covered by the ADA and their HR practitioners
should also be familiar. Moreover, the additional guidance from the US. DOL
publications have been available since the H1N1 outbreak of 2009. Since this
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Calvasina and Beggs
guidance starts out with the recommendation that organizations should have plans
in place for dealing with pandemics, the guidance is more of an update than any new
advice. Employers who have not planned in advance to prepare themselves and their
workers for a pandemic may be potentially worsening outbreak conditions (US.
DOL, 2020). However, training in advance and stockpiling adequate resources for
the present pandemic appeared to be sorely lacking at a variety of levels of American
government and industry.
The Occupational Safety and Health Administration (OSHA)

developed this COVID-19 planning guidance based on traditional
infection prevention and industrial hygiene practices. It focuses on
the need for employers to implement engineering, administrative,
and work practice controls and personal protective equipment
(PPE), as well as considerations for doing so (US. DOL, 2020).
The latest information for employers on protecting workers can be found on the US.
DOL web site under the heading Protecting Workers: Guidance on Mitigating and
Preventing the Spread of COVID-19 in the Workplace
(https://www.osha.gov/coronavirus/safework). Specific guidance for workers is
found in Table 5.
Table 5 What Workers Need to Know about COVID-19 Protections in the

Workplace
▪ The best way to protect yourself is to stay far enough away from
other people so that you are not breathing in particles produced by
an infected person – generally at least 6 feet (about 2 arm lengths),
although this is not a guarantee, especially in enclosed spaces or
those with poor ventilation.
▪ Practice good personal hygiene and wash your hands often. Always
cover your mouth and nose with a tissue when you cough or sneeze
or use the inside of your elbow and do not spit. Monitor your health
daily and be alert for COVID-19 symptoms (e.g., fever, cough,
shortness of breath, or other symptoms of COVID-19).
▪ Face coverings are simple barriers to help prevent your respiratory
droplets or aerosols from reaching others. Not all face coverings
are the same; the CDC recommends that face coverings be made of
at least two layers of a tightly woven breathable fabric, such as
cotton, and should not have exhalation valves or vents.
▪ The main function of wearing a face covering is to protect those
around you, in case you are infected but not showing symptoms.
82
Studies show that face coverings reduce the spray of droplets when
worn over the nose and mouth.
▪ Although not their primary value, studies also show that face
coverings can reduce wearers' risk of infection in certain
circumstances, depending upon the face covering.
▪ You should wear a face covering even if you do not feel sick. This
is because people with COVID-19 who never develop symptoms
(asymptomatic) and those who are not yet showing symptoms (pre-
symptomatic) can still spread the virus to other people.
▪ It is especially important to wear a face covering when you are
unable to stay at least 6 feet apart from others since COVID-19
spreads mainly among people who are in close contact with one
another. But wearing a face covering does not eliminate the need
for physical distancing or other control measures (e.g.,
handwashing).
▪ It is important to wear a face covering and remain physically distant
from co-workers and customers even if you have been vaccinated
because it is not known at this time how vaccination affects
transmissibility.
▪ Many employers have established COVID-19 prevention programs
that include a number of important steps to keep workers safe –
including steps from telework to flexible schedules to personal
protective equipment (PPE) and face coverings. Ask your employer
about plans in your workplace.
US. DOL (https://www.osha.gov/coronavirus/safework)
The DOL web page has detailed guidance for employers to create an effective
COVID-19 prevention program. The DOL reminds employers that under the OSHA
regulations that they are responsible for providing a safe and healthy workplace free
from recognized hazards likely to cause death or serious physical harm. The idea
promoted is that the most effective programs engage workers and their
representatives in program development and implementation. In addition to the
three highlighted recommendations in Table 6, the DOL recommends establishment
of an effective system for communicating with workers and educating and training
workers on the organization’s COVID-19 policies and procedures (US DOL
Protecting Workers, 2021).
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Calvasina and Beggs
Table 6 The Roles of Employers

1. Assignment of a workplace coordinator who will be responsible
for COVID-19 issues on the employer's behalf.
2. Identification of where and how workers might be exposed to

COVID-19 at work. This includes a thorough hazard assessment to
identify potential workplace hazards related to COVID-19. This
assessment will be most effective if it involves workers (and their
representatives) because they are often the people most familiar
with the conditions they face.
3. Identification of a combination of measures that will limit the

spread of COVID-19 in the workplace, in line with the principles
of the hierarchy of controls. This should include a combination of
eliminating the hazard, engineering controls, workplace
administrative policies, personal protective equipment (PPE), and
other measures, prioritizing controls from most to least effective, to
protect workers from COVID-19 hazards. Key examples
(discussed in additional detail below) include:
In addition to these general guidelines, more specific guidance is
available for certain industries.
A. eliminating the hazard by separating and sending home
infected or potentially infected people from the workplace;
B. implementing physical distancing in all communal work
areas [includes remote work and telework];
C. installing barriers where physical distancing cannot be
maintained;
D. suppressing the spread of the hazard using face coverings;
E. improving ventilation;
F. using applicable PPE to protect workers from exposure;
G. providing the supplies necessary for good hygiene
practices; and
H. performing routine cleaning and disinfection
In February 1, 2021, the updated DOL guidance emphasized five recommendations

that are as follows:
▪ Conduct a hazard assessment.
▪ Identify control measures to limit the spread of the virus.
▪ Adopt policies for employee absences that don't punish workers. This can
encourage potentially infected workers to remain home.
84
▪ Ensure that coronavirus policies and procedures are communicated to both

English- and non-English-speaking workers.
▪ Implement protections from retaliation for workers who raise coronavirus-
related concerns (Smith (A), 2021).
Given that three recent cases highlighted earlier all dealt with retaliation, the last
recommendation on retaliation protection for workers who raise coronavirus
concerns is particularly important. Employer’s Guardian also reported that among
the most common employment litigation cases dealing with COVID-19, retaliation
cases are among the top three. Employer’s Guardian also noted that small and
midsize employers are facing 66% of COVID-19 litigation, with 38% of all COVID-
19 lawsuits being filed against employers with 50 or fewer employees (Employer’s
Guardian, 2021). Smith also reported that the Executive Order issued by President
Biden on January 21, 2021 required the Occupational Safety and Health
Administration (OSHA) to consider the need for emergency temporary standards on
COVID-19 such as requiring masks. Emergency standards may be issued quickly
since they can skip the usual government requirements for comments and hearings
(Smith (B), 2021).
SUMMARY AND CONCLUSIONS
In many instances, the COVID-19 pandemic enhanced the need for HR practitioners
and managers to apply what they should already know. Basic elements of EEO
compliance recommendations with respect to preventing retaliation when an
employee attempts to exercise rights guaranteed under the law is a prime example.
Of course, the pandemic has created some unique situations but the basic elements
of EEO compliance are not that different. Risk assessment, policy and procedure
development, communication, training, and control have been advocated for a long,
long time. Another key developing issue for employers involves how to deal with
vaccinations in light of the development of vaccines that may mitigate COVID-19.
Should employers require as a condition of returning to work that employees get
vaccinated? Should employers incentivize employees to get vaccinated? These two
questions have both a variety of employee relations and legal issues that employers
must consider (Smith (C) 2021). The legal risks include possible litigation associated
with the failure to make exceptions for employees who object and potential workers’
compensation liability for individuals who suffer side effects from the mandated
vaccinations (Smith (C), 2021). The H1N1 outbreak of 2009 should have taught HR
practitioners and managers some important lessons. DOL recommendations first
developed then should have been incorporated into organizational planning routines.
The current situation should be a reminder that this could happen again, and planning
and preparation lessons learned this time should be incorporated into future plans to
manage such an on-going crisis.
85
Calvasina and Beggs
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Vol 33, No 2; Fall 2021
THE U.S. MEDICAID DENTAL INSURANCE
COVERAGE GAP: ACCESS ISSUES PERSIST
FOR MILLIONS OF ITS CITIZENS
Tisa M. Dominguez
Mark Dame
Ryan N. Schmidt
Richard G. Greenhill
Neeraj Dayama
ABSTRACT
Oral health is usually excluded or not considered part of primary healthcare,

especially for adults. Disparities in oral health are more likely to impact low-income,
uninsured, ethnic minorities, immigrants, or rural populations who have no access
to quality oral health. Medicaid and the Children’s Health Insurance Program
(CHIP) provide medical and dental services for free or low cost to over 72.5 million
Americans; however, adults are excluded from the dental benefits. Under the
Affordable Care Act (ACA), 39 states have adopted the Medicaid expansion
intending to include dental benefits in their alternative benefit plan (ABP) for
eligible adults up to 138% of the federal poverty level (FPL). Nevertheless, the
twelve states that have not adopted the Medicaid expansion leave over 2 million
adults without dental coverage. The disadvantaged and underserved communities
are at a higher risk for periodontal disease and decay due to social factors that include
poor nutrition, lack of preventive oral health, alcohol and tobacco use, and oral
cancer in older adults. Periodontal disease can cause adverse systemic conditions,
and systemic diseases can cause periodontal disease. This issue leaves the
disadvantaged and underserved adults in pain, ill from infections, in need of
extractions, and facing detrimental effects on their health and quality of life.
Key Words: Dental, Disadvantaged Adults, Federally Qualified Health Center,

Medicaid Expansion, Oral Health
INTRODUCTION
Oral health, especially for adults, is usually excluded from healthcare policies
and practices in the United States. As a result, the disparities in oral health are
more likely to impact low-income, uninsured, ethnic minorities, immigrants, or rural
populations who have no access to quality oral health (Northridge et al., 2020).
Medicaid and the Children’s Health Insurance Program (CHIP) provide medical and
89
dental services for free or low cost to over 72.5 million Americans, including
children ages 18 and younger, disabled individuals ages 19 - 20, parents of children
on Medicaid, seniors, and pregnant women (Medicaid, n.d.). Dental services are
mandatory for children on Medicaid, ages 21 and younger. However, adults are
excluded from Medicaid dental services unless there is a need for oral surgery, such
as emergency extractions.
Under the Affordable Care Act (ACA), 39 states have adopted the Medicaid
expansion intending to include dental benefits in their alternative benefit plan (ABP)
for eligible adults up to 138% of the federal poverty level (FPL) (Kaiser Family
Foundation [KFF], 2021; Chazin et al., 2014). Each state that adopted the expansion
can offer dental benefits from three general categories: emergency only: relief of
pain; limited: diagnostic, preventative, and minor restorative; or extensive:
diagnostic, preventative, minor, and major restorative (Center for Health Care
Strategies, 2021). With the extensive category, Wehby et al. (2019) reported an
increased likelihood of dental visits among low-income adults by nearly 6% in 2016.
This increase indicates that offering the “extensive category” will improve access
for low-income adults. However, states that provided the “limited category” did not
see an increase in dental visits. Nevertheless, the twelve states that have not adopted
the Medicaid expansion leave over 2 million adults without dental coverage. In
addition, a proportion of the Medicaid recipients land in the “coverage gap” with
incomes above the FPL, or they have an income lower than the limit for Marketplace
premium tax credits (Garfield & Damico, 2017). The “coverage gap” beneficiaries
could be eligible for Medicaid if the state they live in chooses to expand coverage
or lower the FPL.
The American Dental Association (ADA) recommends regular dental prophylaxis

(dental cleaning) twice a year to maintain optimal oral health (n.d.). However,
Medicaid recipients may not have the ability to pay out-of-pocket costs for public or
private insurance coverage for an exam, radiographs, and dental prophylaxis. These
prices can range from $200 - $600. The price increases if treatment is needed for
periodontal scaling and root planning (SCRPs), fillings, crowns, or root canals.
Hegde and Awan (2019) reported that one in two adults in the United States, or 64.7
million adults, have periodontal disease. Poor oral health can lead to periodontal
disease. This chronic inflammatory disease affects the tissues and bone that support
the teeth, which can cause bone loss and tooth mobility. To maintain optimal oral
health and halt the progression of periodontal disease, dentists recommend having
periodontal maintenance every three to four months, which, as stated above, entails
hundreds of dollars for each visit.
The disadvantaged and underserved communities are at a higher risk for periodontal
disease and decay due to social factors. These social factors include poor nutrition,
lack of preventive oral health, poor restorative oral health care quality, excessive
alcohol and tobacco use, and oral cancer in older adults (Northridge et al., 2020).
When a patient has decay, periodontal disease, or possible oral cancer and does not
90
seek care from a dental provider, this may lead to tooth loss and, eventually,
edentulism. Edentulism means a patient has completely lost all-natural teeth,
reducing a patient’s quality of life, self-image, and daily functioning (Gil-Montoya
et al., 2015). The Center for Health Care Strategies (2021) reported that 42% of low-
income adults ages 20 to 64 need dental treatment due to decay or periodontal
disease, and more than one-third of those 65 and older have lost all of their natural
teeth. Untreated, periodontal disease has been linked to several systemic diseases;
atherosclerosis, pulmonary disease, diabetes, respiratory, stroke, osteoporosis, and
kidney disease (Kane, 2017). In addition, it is believed that the inflammation in the
oral cavity can get into the bloodstream and cause damage to the heart and cause
respiratory problems. Since Medicaid does not cover dental services for adults in
most states, many will not seek a dentist due to financial difficulties. Consequently,
what follows is decay, tooth loss, edentulism, and possibly chronic diseases, diseases
that overall cost more than years of series of dental visits (Heilmann, Tsakos, &
Watt, 2015).
In addition, the disadvantaged population has had difficulty finding a dentist that
accepts Medicaid. Only 20% of practicing dentists nationwide accept Medicaid
(Chazin et al., 2014). Many dentists are hesitant to participate in government
programs because they only get reimbursed as little as half of the private insurance
patients. This issue leaves the disadvantaged and underserved adults in pain, ill from
infections, in need of extractions, and facing detrimental effects on their health and
quality of life.
DESCRIPTION OF THE PROBLEM
Chazin et al. (2014) reported that the federal government considers dental coverage
for adults “optional” for all states. It is usually eliminated or substantially cut from
funding due to budget constraints. These funding cuts cause a severe barrier to oral
health for low-income adults, who usually cannot afford to pay out-of-pocket for
dental services. In addition, federal regulations require states that do not offer dental
benefits to pay for medical and surgical services related to the oral cavity (Chazin et
al., 2014).
Hinton and Paradise stated that 49% of adults with private insurance had a dental
visit last year, compared to 20% of adults with Medicaid and 17% of uninsured
adults (2016). Since Medicaid does not cover dental services for adults, many will
not seek dental care due to financial difficulties. Instead, they wait until they have
pain, are ill from infections, or require extractions, which usually cost more than
seeing a dentist for preventative services. Unfortunately, if low-income adults
cannot afford regular preventative dental visits, the patient might wait until they are
experiencing oral pain before going to the emergency room. Akinlotan and
Ferdinand reported 2.2 million visits in 2015 to emergency rooms for nontraumatic
dental conditions, costing over 2 billion dollars and increasing annually (2020). Over
time, a persistent lack of dental care for low-income adults may result in low
91
intentions to take care of their oral health, reinforcing existing disparities (Hinton &
Paradise, 2016).
As stated above, poor oral health can lead to periodontal disease. The disadvantaged
and underserved communities are at a higher risk for periodontal disease and decay
due to social factors that include poor nutrition, lack of preventive oral health,
excessive alcohol and tobacco use, and oral cancer in older adults (Northridge et al.,
2020). Drinking excessive alcohol increases the risk of developing oral cancer.
Smoking and drinking alcohol together multiplies the risk of oral cancer and
oropharyngeal cancer (American Cancer Society, n.d.). According to Johnson et al.
(2012), oral cancers are more prevalent in low socioeconomic status groups.
Furthermore, many studies have shown poor oral health (periodontal disease)
associated with several systemic diseases; atherosclerosis, pulmonary disease,
diabetes, respiratory, stroke, osteoporosis, and kidney disease (Kane, 2017).
Atherosclerosis is the narrowing of the blood flow in the arteries due to cholesterol
buildup in the vessel walls. Patients with a history of cerebrovascular attacks have
worse oral health than people that see the dentist regularly (Kane, 2017). Pulmonary
diseases involve the aspiration of bacteria, viruses, and fungi from the oral cavity or
oropharynx into the lower respiratory tract, causing an infection (Kane, 2017).
Diabetes is a chronic disease of disrupted glycemic control resulting from a lack of
insulin production or systemic insulin resistance (Kane, 2017). Periodontal disease
can cause adverse systemic conditions, and systemic diseases can cause periodontal
disease (Hegde & Awan, 2019). Diabetes is a great example, it can negatively affect
oral health, and periodontitis can negatively impact glycemic control (Kane, 2017).
Also, when a patient receives treatment for one disease, it could improve the other
condition. In addition, the removal of the bacteria from the oral cavity, periodontal
SCRPs, and the use of oral antibiotics have the most significant impact on glycemic
control and periodontal disease in diabetic patients (Kane, 2017). And this is why it
is important to take oral health seriously.
Complications associated with these systemic diseases can cause “morbidity and
mortality” and are costly to the government’s healthcare system, affecting taxpayers
(Harris, 2019). Yet, the federal government does not mandate dental coverage for
adults. Each state has the “option” to pay for dental coverage for Medicaid
recipients. Some states choose to reduce or eliminate dental coverage from the
budget to save money. Without the financial support from the states through
Medicaid expansion, there will be more emergency room visits for preventable
dental issues. In addition, the cost of care and treatment for these oral-health-related
chronic conditions are costly and come with additional expenses paid by the state
Medicaid budget (DentaQuest Ventures, 2020).
When diseases, infections, and cancers start in the oral cavity, they can spread
throughout the body and cause severe and lifelong issues. This leaves the
disadvantaged and underserved adults with pain, ill from infections, in need of
92
extractions, and facing overall adverse effects on their general health and quality of
life. This is thought to save the government money but may end up being more
costly.
RESEARCH AND LITERATURE REVIEW
The American Dental Association (ADA) (n.d.) recommends regular dental

prophylaxis twice a year to maintain optimal oral health. Unfortunately, Medicaid
recipients may not have the ability to pay out-of-pocket costs for public or private
insurance coverage for an exam, radiographs, and dental prophylaxis, leading to
gingivitis or periodontal disease. These services can range from $200 - $600; the
price increases if treatment is needed for any other services. For example,
DentaQuest Ventures (2020) stated that 51% of patients’ oral health was their
primary concern over heart, eye, skin, digestive, and even mental health. However,
in 2013-2016, one out of five adults did not receive dental care due to cost. In
addition, patients who wait until they are in pain usually require more extensive
treatment; fillings, crowns, root canals, or extractions may be needed. In contrast,
some dental issues could be entirely prevented with regular dental prophylaxis every
six months.
Gingivitis is characterized by the inflammation, swelling, and bleeding of the

gingiva. The gingiva will heal with regular dental prophylaxis, brushing twice a day
for two minutes and flossing at night before bedtime. Oral hygiene homecare
impacts the microbes in the oral cavity. Good oral hygiene has a simple flora
dominated by gram-positive cocci, rods, and gram-negative cocci (Kane, 2017).
Poor oral hygiene changes to a complex flora of anaerobic gram-negative organisms,
which accumulate in the pocket depths and cause inflammation, damaging the
supporting structures; this eventuality is called periodontitis (Kane, 2017). This
chronic inflammatory disease affects the tissues and bone that support the teeth,
which can cause bone loss and tooth mobility. Hegde and Awan (2019) reported that
one in two adults in the United States, or 64.7 million adults, have periodontal
disease. To maintain oral health and halt the progression of periodontal disease,
dentists recommend having perio maintenance every three to four months, which
entails hundreds of dollars for each visit.
Furthermore, the disadvantaged population of all ages has difficulty finding a dentist
that accepts Medicaid. Only 20% of practicing dentists nationwide accept Medicaid
(Chazin et al., 2014). There are several reasons dentists do not participate in
Medicaid; dental reimbursement rates are low, and no-show rates are high (Jackson,
2021). In 2014, a high no-show rate of 45.7% posed serious financial and healthcare
concerns for all providers (Jackson, 2021). Additionally, some Medicaid recipients
may have more challenges getting to an appointment due to no transportation, not
being able to take time off of work, and gaps in health literacy (Chazin et al., 2014).
According to Hinton & Paradise (2016), nationally, 27% of all adults ages 20-64
have dental caries, and 44% have an income below 100% of the federal poverty level
93
(FPL). Thus, a consistent lack of access to dental care results in common

misconceptions among low-income adults, emphasizing the existing disparities. For
example, some low-income adults may not be aware of the need for regular dental
prophylaxis and possibly cannot afford dental appointments. Their coverage and
access challenges have led to increased dental-related emergency room visits and
uncompensated care over several years—costs mainly paid for by taxpayers (Chazin
et al., 2014).
Most states that eliminated the dental benefits for adults with the Medicaid
expansion led to increased emergency room visits. Every 14 seconds, nationwide,
adults visit the emergency room for dental-related issues and costing the healthcare
system over $2.4 billion (DentaQuest Ventures, 2020). Unfortunately, most
emergency rooms do not have a dentist on staff to provide comprehensive dental
care. When patients are seen in the emergency room, they are not treated for cavities
or periodontal diseases. Instead, they are merely given antibiotics or pain medication
until they can contact a dentist. Akinlotan and Ferdinand’s (2020) study summarized
their systematic literature review of 63 articles published between 2010 and 2020
using the Andersen Behavioral Model as a guide. They took the adjusted odds ratios
(ORs) and confidence intervals (CIs) and measured the association between
predictors and emergency room visits for nontraumatic dental conditions (NTDCs).
They found that uninsured patients were three times more likely to visit the
emergency room with an NTDC than private insurance patients (Akinlotan &
Ferdinand, 2020).
Conversely, when dental coverage is provided through Medicaid expansion,

preventative dental services increase, and emergency room visits for non-traumatic
dental conditions decrease (DentaQuest Ventures, 2020). Also, with preventative
dental services covered for adults every three, four, or six months, the dental
hygienist and dentist can treat cavities, check for infections, manage periodontal
disease, and detect oral cancer in adults.’ Hence, Medicaid expansion catches any
adverse effects quickly when seeing patients regularly.
In another study by Patel et al. (2019), their cross-sectional analysis of 47 million

American adults ages 30 and older from the National Health and Nutrition
Examination Survey (NHANES) 2015-2016 found that the lack of dental coverage
and access to dental care contributed to healthcare disparities and poor oral health
outcomes in people with low socioeconomic status. Furthermore, the study explains
that people in the low socioeconomic group with limited access to preventative
dental services will likely have severe periodontitis.
The American Rescue Plan Act of 2021 encourages non-expansion states to expand
by providing temporary fiscal incentives for states to implement the ACA Medicaid
expansion (Corallo et al., 2021). The federal government pays 90% of Medicaid
coverage for adults covered through the ACA expansion. Under the new law,
American Rescue Plan Act will provide a 5% increase in the state’s regular or
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traditional match rate for two years (Corallo et al., 2021). In addition, the Families
First Coronavirus Response Act (FFCRA) and the Public Health Emergency (PHE)
have already provided a 6.2% incentive for states that expand their Medicaid.
Corallo et al. estimate that new states’ cost for the Medicaid expansion would be
$6.8 billion over two years; with the 11.2% incentives, states could receive $16.4
billion, which would result in an estimated financial benefit of $9.6 billion for the
two years (2021). The data shows that Medicaid expansion will be a win-win for all
states, disadvantaged populations, and underserved adults already on or eligible for
Medicaid.
IDENTIFICATION AND DISCUSSION OF SOLUTIONS
As of February 2019, 37 states have adopted the expansion of Medicaid, and now
12.6 million Americans are eligible to receive medical and dental coverage
(Rudowitz et al., 2019). Medicaid is for all Americans who meet the eligibility
requirements and are guaranteed coverage. In addition, the states are guaranteed the
federal matching dollars of at least 50% and possibly a higher rate for poorer states
(Rudowitz et al., 2019). As of now, the twelve states have neither expanded
Medicaid or passed ballots to initiate the expansion. The non-expanded Medicaid
states can cover millions of low-income adults who cannot afford other healthcare
coverage options. By refusing the expansion, states are missing out on billions in
federal funding to help low-income adults and help the economy.
Medicaid and the Children’s Health Insurance Program (CHIP) provide medical and
dental services for free or low cost to over 72.5 million Americans, including
children ages 18 and younger, disabled individuals ages 19 - 20, parents of children
on Medicaid, seniors, and pregnant women (Medicaid, n.d.). Before Medicaid and
CHIPs were approved and available to millions of Americans, the states built a
robust provider network, bargained contracts, invested in care coordination efforts,
and provided support; by collaborating with all providers for the disadvantaged
“children” population (Hinton & Paradise, 2016). This same program can be
implemented for the disadvantaged “adult” population.
Moving toward an integrated, “whole-person” care for Medicaid recipients will

ensure that patients receive coordinated care from groups of physicians, hospitals,
dentists, and other healthcare providers, just like the Accountable Care
Organizations (ACOs) with Medicare recipients (Centers for Medicare & Medicaid
Services, n.d.). Then, when ACOs successfully deliver quality care and
conservatively spend healthcare money wisely, there will be savings to all involved.
In addition, physicians and dentists need to collaborate more and share information
that can impact the patients’ health. For example, Kane (2017) found that most
patients with chronic conditions do not think that issues in the oral cavity can affect
their hearts, lungs, and bones. However, the relationships are apparent with oral and
systemic diseases that call for increased collaboration. What’s more, as stated above,
95
altering any coexisting (diabetes and periodontal disease) state may prevent a severe
life-threatening medical event.
The 37 states that expanded Medicaid under the Affordable Care Act (ACA)
provided noticeable benefits for the economy and low-income adults and their
families. For example, Buchmueller et al. (2020) reported that the expanded
Medicaid states helped unemployed workers access medical and dental care and
lowered mortality. Healthcare coverage supports the adults’ ability to work and
increases employability. For example, the United States had 164 million working
hours lost yearly due to oral diseases (DentaQuest Ventures, 2020). In addition, 29%
of low-income adults state that their teeth affect their confidence when interviewing
for a job. After states expanded Medicaid, several studies concluded that hospitals’
uncompensated care was cut in half and helped create jobs, boosting the state’s
economy (Buchmueller et al., 2020). The spillover benefits helped the economy by
reducing debt and helping improve credit scores.
Decker and Lipton (2015) found that states that expanded Medicaid increased access
to dentists and reduced dental caries in children. Nevertheless, Medicaid payment
rates affected adult recipients and their access to dental care. For example, the
Medicaid dental fee increased from $37.57 to $40.04 between 2000 and 2009, and
in 2014, the ACA required that Medicaid fees increase to Medicare rates, which
resulted in a 2.5 % increase (Decker & Lipton, 2015). These results imply that even
if a state expands Medicaid, they need to increase Medicaid payment rates so the
adults will have access to dental care. Focusing on improving dental benefits will
result in a healthier population, improving oral health, increasing dental providers,
patient satisfaction, and overall health outcomes, reducing costs, mortality, and
disabilities (DentaQuest Ventures, 2020).
Community health centers are a vital source of dental care for adult Medicaid
recipients and underserved communities. In 2014, community health centers were
able to serve 22.5 million patients, 46% were Medicaid beneficiaries, and 28% were
uninsured patients (Hinton & Paradise, 2016). In addition, the ACA invested in
health center expansions, established a five-year $11 billion Health Center Trust
Fund, and provided $1.5 billion to pay for medical and dental providers to work in
the health centers (Hinton & Paradise, 2016). The ACA trust fund made it possible
for the states that expanded Medicaid to increase dental care access for eligible
adults.
Another way to potentially expand access to dental services for low-income adults
is to modify the rules on “scope-of-practice,” allowing Registered Dental Hygienists
(RDH) to provide dental services without a dentist present or direct supervision
(Hinton & Paradise, 2016). Expanding the scope-of-practice enables RDHs to
provide direct access to low-income adults and underserved communities in mobile
dental clinics, nursing homes, and walk-in clinics. At the same time, the remote
dentist and the entire team have access to demographics, radiographs, and intraoral
photos using electronic dental records to determine the level of care needed. RDHs
96
and dental therapists can be trained and licensed to perform restorative treatments,
allowing the dentist to provide more complex procedures (Chazin et al., 2014). With
the expansion of the RDH and dental therapist workforce, dental care for low-
income adults will increase accessibility. Alaska, Minnesota, and Maine have
already accepted and licensed mid-level providers known as dental therapists to
improve access to dental care in underserved communities. In addition, some states
may need to amend the Medicaid reimbursement policies to allow RDHs to bill
directly for services provided to Medicaid recipients (Hinton & Paradise, 2016).
The National Dental Pipeline Program is another way to increase access to dental
care in underserved populations. The Dental Pipeline creates a partnership between
dental schools and community-based healthcare organizations. Their program aims
to eliminate racial and ethnic disparities and increase diversity enrollment among
dental schools faculty and students (Pipeline Profession & Practice, n.d.). In
addition, developing a diverse oral health workforce will help minority providers
arrange care for minority communities. The program gives grants to dental schools;
however, the dental schools have to establish community-based clinical education
programs, revise the curriculum to integrate community-based practice experiences,
and select a program that will increase recruitment for minorities (Pipeline
Profession & Practice, n.d.).
PROPOSED IMPLEMENTATION PLAN
The US oral health care delivery system has failed to assure vulnerable populations
from dental caries and periodontal diseases, which remains prevalent of all chronic
diseases over time, despite being largely preventable. Improving the oral health of
low-income adults involves expanding coverage, oral health education, improving
access and care delivery. Medicaid plays an essential role in this area; however,
some states have not expanded, leaving millions with no dental coverage. The
proposed plan is opening a Federally Qualified Health Center (FQHC) with RDHs
and dental therapists providing free, reduced-cost, and accepting Medicaid for dental
services (Texas Department of State Health Services, n.d). The proposed
implementation plan expands the “scope-of-practice” for RDHs and dental
therapists to be trained and licensed to provide dental services without a dentist
present or direct supervision. Remote dentists and the entire team have access to
demographics, radiographs, and intraoral photos using electronic dental records to
determine the level of care needed. The proposed implementation plan would
improve access and care delivery of dental services to low-income and underserved
populations.
The first step is to apply to become a funded health center with the Health Resources
& Services Administration. Federal funding will be awarded to recipients under
section 330 of the Public Health Services (PHS) Act. The New Access Points (NAP)
is funding to establish a new site to deliver comprehensive health care services in
medically underserviced areas or for medically underserved populations (Health
97
Resources & Services Administration, 2020). The estimated award amount is up to

$650,000 per year, subject to the availability of appropriated funds, total annual
available $50,000,000 (Bureau of Primary Health Care, 2019). After the approval of
funds, the second step is to find a building that will have easy access and care
delivery of dental services in the area with a shortage of dental health professionals
and public bus routes.
The third step is to receive approval to participate in Medicaid, allowing Medicaid

to reimburse RDHs and dental therapists for services rendered directly. The federal
law requires states to cover specific groups. For example, low-income families,
pregnant women and children, and individuals with Supplemental Security Income
(SSI) (Medicaid, n.d.). While waiting for approval, the staff will still provide dental
services to all children and adults in need for free or at a low cost.
The fourth step is contacting dental hygiene directors from Tarrant County College
and Texas Women’s University to set up a meeting. FQHC would like to offer
community service hours to the second-year students in the dental hygiene
programs. In addition, provide the directors with the mission and goals FQHC would
like to accomplish by providing dental services to low-income adults and
underserved communities, emphasizing prevention and wellness.
Opening an FQHC will hire four RDHs, three dental therapists, three dental
assistants, two dentists (off-site), two nurses (off-site), and two insurance
coordinators. FQHC will hire a diversified group of employees who believe in an
inclusive culture and encourage empathy and understanding. Our mission is to
improve access to dental care for underserved populations in the Northside area of
Fort Worth, Texas. The four RDHs will provide dental prevention, dental
prophylaxis, scaling and root planing (SCRPs), radiographs, intraoral photos, and
oral cancer screenings while using electronic dental records. In addition, the three
dental therapists will provide comprehensive exams and perform restorative
treatments after approval from one of the off-site dentists. Finally, collaborate with
nurses regarding resources and the relationship between our patients’ oral and severe
systemic needs. FQHC will provide dental care for low-income adults and
underserved communities with preventative and restorative services to mitigate
dental emergency room visits and save the government billions.
There will be student RDHs volunteering in the FQHC from local dental hygiene
programs at Tarrant County College and Texas Women’s University on Mondays,
Wednesdays, and Fridays. The three dental therapists will supervise the RDH
volunteers while they are providing dental services to all patients in the FQHC. The
two insurance coordinators will schedule all appointments and verify insurance as
needed. In 2014, a high no-show rate of 45.7% posed serious financial and
healthcare concerns for all providers of Medicaid (Jackson, 2021). So, reminding
and educating all patients on the importance of showing up for dental appointments,
98
verifying current contact information, providing public bus routes, and ensuring
open provider-patient communication.
FQHC has identified conflicts with financial, education, and physical barriers and
developed solutions as a team. The physical barrier was the first barrier FQHC
developed a solution for by finding a location near the public bus route in the
neighborhood where they will be delivering needed dental services for low-income
adults and underserved communities. The conflicts with finances are free, low costs,
and accepting Medicaid recipients for dental services. Finally, on education
conflicts, FQHC addressed the patients’ lack of knowledge of resources and ways to
gain access to them, provided ways to decrease the emergency room visits, and
stressed the importance of prevention and wellness.
CONCLUSION
The US oral health care delivery system has failed to assure vulnerable populations
from dental caries and periodontal diseases, which remains prevalent of all chronic
diseases over time, despite being largely preventable. In addition, the lack of dental
coverage and access to dental care contributed to healthcare disparities and poor oral
health outcomes in people with low socioeconomic status. By states refusing the
Medicaid expansion, they are leaving millions without dental coverage and missing
out on billions of federal funding, which would help the economy. Opening FQHC
and providing dental care for low-income adults and underserved communities with
preventative and restorative services will mitigate dental emergency room visits and
save the government billions. When FQHC focuses on enhancing oral health
benefits, it will result in a healthier community, increase satisfaction among
providers and patients, and improve oral and overall health outcomes while reducing
costs, mortality, and disability.
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adopt the ACA Medicaid expansion: Implications for state spending. KFF.
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Vol 33, No 2; Fall 2021
EXAMINING LOYALTY REWARD PROGRAMS BY BRANDS THAT
PARTNER WITH SPORTS TEAMS: A STUDY OF FRENCH
CONSUMERS
Clara Loquier
IÉSEG School of Management
Vassilis Dalakas
California State University San Marcos
ABSTRACT
This study used a sample of French consumers that included highly identified
fans of French soccer club Paris Saint-Germain (PSG), low-identification
fans, and non-fans, to examine their responses to loyalty reward benefits for
different brands. The reward benefits were either tied to the team (e.g., team-
related experiences) or not (e.g., vouchers for the brand). Results showed that
highly identified fans found the team-related benefits more desirable than the
low-identification fans and non-fans. Also, highly identified fans found
several of the team-related benefits more desirable than the benefits not
relating to the team. The findings provide useful managerial insight regarding
the value of brands partnering with sports teams and offering team-related
benefits as part of the brand’s loyalty reward program.
KEY WORDS: fan identification, loyalty, soccer, sponsorship, sports
INTRODUCTION
American Airlines launched their Frequent Flier program in 1981, considered

the first full-scale loyalty program of the modern era (O’ Malley, 1998) and
since then many brands have been using some form of a loyalty program in
an effort to attract and retain customers and cultivate higher loyalty rates
among their most valuable customers (Lacey and Sneath, 2006). A majority
of consumers in many countries are enrolled and participate in at least one
such program (Melancon, Noble, and Noble, 2010, Rowley, 2004).
In an effort to make their loyalty program more attractive, brands that partner
with sports teams (e.g., sponsors) often include reward benefits that are tied
to their sponsored team. For example, Marriott, a sponsor of Manchester
United offers its customers opportunities to redeem their hotel points for
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Loquier and Dalakas
experiences related to the team (e.g., child being a mascot walking to the pitch
with the team before a game). Sports provide strong emotional connections
to many fans and it is reasonable to expect that such benefits would be
especially appealing to fans and, therefore, increase their patronage of and
loyalty to the brand offering them.
This study intends to provide insight regarding this topic. Specifically, using
a sample of French consumers, we examine fan responses to potential loyalty
reward benefits that are either tied to a team (leading French soccer club Paris
Saint-Germain) or not. Subsequently, we compare responses to the different
benefits options between highly identified fans of the team and low-
identification fans and non-fans of the team. The results provide useful
managerial insight to brands partnering with sports teams regarding.
CONCEPTUAL BACKGROUND AND HYPOTHESES
The rewards offered by loyalty programs are critical in influencing

consumers’ decision if the costs (e.g., financial commitment to a brand) are
worthwhile (Kim and Ahn, 2017; Kim, Shi, and Srinivasan, 2001). Brands
typically offer economic rewards where consumers can exchange the points
they earn for discounted or free airline flights or free hotel stays (Tanford,
Shoemaker, and Dinca, 2016). However, some brands also reward their loyal
customers with non-financial benefits, like senior membership status (Drèze
and Nunes, 2009; Ivanic, 2015). Melancon, Noble, and Noble (2010) found
that social rewards lead to affective commitment, while perceived economic
rewards lead to continuance commitment. Exclusive rewards for high-loyalty
customers are especially meaningful, especially for loyal customers of sports
teams like season ticket holders (Dalakas, Tseng, and Melancon, 2021).
Sponsorship is “an investment, in cash or in kind, in an activity, in return for

access to the exploitable commercial potential associated with that activity”
(Meenaghan, 1991, p. 36) and many brands engage in sports sponsorship as
a way to achieve their marketing objectives (Cornwell and Kwon, 2020).
Partnering with a sports team allows the brand access to team-related benefits
that the brand may offer as part of its reward benefits in its loyalty program.
The emotional connection between many fans and their favorite teams is
strong, which would make such reward benefits especially attractive to the
fans of the team. However, the degree of identification a fan has with his or
her favorite team varies (Dalakas and Levin, 2005) and the effect of fandom
varies accordingly.
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Research has found consistent support for the positive effects of sports
sponsorship for a sponsoring brand in terms of response from the highly
identified fans of a sponsored team. Essentially, a liking transfer takes place
where the affinity toward a team translates into favorable attitudes and
purchase intentions toward a brand sponsoring the team (Dalakas and Levin,
2005). This effect is especially pronounced among highly identified (Davies,
Veloutsou, and Costa, 2006; Madrigal, 2001; Madrigal and Dalakas, 2008;
Smith, Graetz, and Westerbeek, 2008).
We expect that a similar process will take place in regard to a sponsor’s

offerings of team-related benefits but also that the appeal of team-related
benefits will vary depending on one’s level of attachment to the team.
Therefore, we hypothesize that:
H1: High identification fans will evaluate more favorably a brand’s loyalty
reward benefits that relate to their team that the brand sponsors than the
low identification fans or the non- fans.
Along these lines, research has also established that highly identified fans
tend to evaluate anything related to their favorite team more favorably and
information is processed in a manner that illustrates an in-group bias
(Madrigal and Dalakas, 2008), even when there may be objective information
suggesting it should not (Bee and Dalakas, 2015). For example, highly
identified fans have been found to attribute a team’s victories to internal
causes and losses to external causes (Wann and Schrader, 2000) and to
evaluate favorably fans of their team and unfavorably fans of an opposing
team (Wann and Dolan, 1994).
We expect to find a similar tendency in the context of loyalty reward benefits

where team-related benefits will also be considered especially attractive and
desirable. On the other hand, we expect the opposite tendency among non-
fans. Therefore, we hypothesize that:
H2: High identification fans will evaluate more favorably a brand’s loyalty
reward benefits that relate to their team that the brand sponsors than
loyalty reward benefits that do not relate to their team.
H3: Non-fans will evaluate more favorably a brand’s loyalty reward benefits
that do not relate to a team than loyalty reward benefits that relate to a
team that the brand sponsors
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Loquier and Dalakas
METHOD
The survey was shared with a convenience sample of French consumers

online through social networks (e.g., the first author’s LinkedIn). Of 114
returned surveys, a total of 98 were completed and usable. Females
constituted 39% of the sample. The sample was fairly equally divided
between students (56%) and non-students (44%); similarly, 64% of the
sample was younger than 24 years old.
The study focused on the French soccer club Paris Saint-Germain (PSG), the
champion of the French Soccer League (Ligue 1) and runner-up of the 2020 UEFA
Champions League Competition. Therefore, participants were asked to indicate
their favorite soccer club and answer questions from the Sport Spectator
Identification Scale (Wann and Branscombe, 1993) regarding their favorite
club. Examples of the scale questions include “how important is it to you that
your team wins” and “how much do you see yourself as a fan of your team?”
Fifty-seven of the respondents (more than half) indicated their favorite club
was PSG, the focal team for the study.
The survey proceeded to asked questions about loyalty benefits for brands
from different product categories. We used a mix of brands to avoid any
potential biases associated with one specific product category. Along those
lines, we used some brands that are actual sponsors of the club and some
brands that are not. Specifically, respondents were asked to indicate the
desirability of 20 different benefits from 9 different brands, presented in pairs
for each brand with one team-related benefit and one not related to the team
for each pair. For example, “how desirable do you consider the following
benefits as a reward for a loyalty program for Nike? (Assume you need the
same number of reward points for each benefit)” The pair of benefits in this
case was a) a discovery day at the Camp des Loges and meeting with the
players and b) a 250€ voucher for Nike.
RESULTS
We used a median split to divide the PSG fans into high and low identification
fans. Fans whose mean score on the identification scale was 4.25 or lower
were classified as low-identification fans and fans with a mean score of 4.26
or higher were classified as highly identified fans.
Our first hypothesis predicted that highly identified fans would evaluate the
team-related benefits more favorably than the low-identification fans and the
106
non-fans would. To test the hypothesis, we used an ANOVA test to compare

all three groups in regard to the all team-related benefits. The table below
summarizes the test results.
Table 1. ANOVA Test Comparing Fans’ Perceptions of Desirability of

Team-Related Benefits
Benefits Significance Group Mean
Offered by Nike - A discovery day at the Camp Not fans 4.85

des Loges and a meeting with the players p < .05 Low ID fans 5.2.
High ID fans 6.17
Offered by ALL (Accor Live Limitless) - Two Not fans 5.29
free seats at the Parc des Princes in a box for a p < .05 Low ID fans 5.29
Ligue 1 match of your choice High ID fans 6.41
Offered by McDonald's - Two seats for a Ligue Not fans 5.02
1 PSG match of your choice p < .05 Low ID fans 5.54
High ID fans 6.14
Offered by BeinSport - Shirt of a PSG player of Not fans 5.07
your choice signed by the player p < .05 Low ID fans 5.00
High ID fans 6.28
Offered by Unibet - Meeting the PSG player of Not fans 4.80
your choice p < .05 Low ID fans 5.36
High ID fans 6.21
Offered by EASport - 400€ gift card at the PSG Not fans 4.76
shop p < .05 Low ID fans 5.00
High ID fans 6.34
Offered by Hisense - Visit of the Parc des Not fans 4.98
Princes with 2 tickets for a PSG Ligue 1 match p < .05 Low ID fans 5.68
and meeting the players after the match High ID fans 6.38
Offered by Renault - Two invitations in the Not fans 5.17
Marquinhos box (meal included) during a Ligue p< .05 Low ID fans 5.29
1 match and meeting with the player at the end High ID fans 6.24
of the match
Offered by Orange - A PSG Ligue 1 match in a Not fans 3.93
sofa right next to the pitch p< .05 Low ID fans 4.21
High ID fans 5.00
Consistent with H1, highly identified fans perceived significantly more

favorably each of the team-related benefits compared to the low-
identification fans of the team and those who were not fans of the team.
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Loquier and Dalakas
Therefore, H1 was supported.
Our second hypothesis predicted that highly identified fans would evaluate
more favorably loyalty reward benefits that related to their team than
benefits that did not relate to their team.
Table 2. Paired-Sample T-Tests for Team-Related Benefits and Non-
Team-Related Benefits for Highly Identified Fans
Mean Mean of team-related Mean of non-
Name of the sponsor Significance benefits team related
benefits
Offered by Nike p > .05 6.17 5.93
(not significant)
Offered by ALL p > .05 6.41 6.07

(not significant)
Offered by ALL (2) p > .05 6.59 6.07

(not significant)
Offered by McDonald's p < .05 6.14 4.72
Offered by BeinSport p > .05 6.28 5.93

(not significant)
Offered by Unibet p < .05 6.20 5.07
Offered by EASport p < .05 6.34 5.45
Offered by Hisense p < .05 6.38 5.48
Offered by Renault p < .05 6.24 5.17
Offered by Orange p > .05 5.00 4.66

(not significant)
108
To test this hypothesis, we conducted paired sample T-Test for the team-
related benefits and for non-team related benefits for the highly identified
fans. The table below summarizes the test results.
In all cases, the means for the team-related benefits were higher than the
means for the benefits that were not related to the team. However, the
difference was significant for half of them and not significant for the other
half. Thus, our H2 was partly supported.
The third hypothesis predicted that non-fans would evaluate the benefits
that were not related to the team more favorably than the benefits related
to the team.
Table 3. Paired-Sample T-Tests for Team-Related Benefits and Non-
Team-Related Benefits for Non-Fans
Mean of teamMean of non-
Name of the sponsor Significance related team related
benefits benefits
Offered by Nike p <.05 4.85 6.00
Offered by ALL p <.05 5.29 5.68

(not significant)
Offered by ALL (2) p <.05 5.76 6.02
(not significant)
Offered by McDonald's p <.05 5.02 4.20
(not significant)
Offered by BeinSport p <.05 5.07 5.24
(not significant)
Offered by Unibet p <.05 4.80 4.54
(not significant)
Offered by EASport p <.05 4.76 5.22
(not significant)
Offered by Hisense p <.05 4.98 5.22
(not significant)
Offered by Renault p <.05 5.17 4.85
(not significant)
Offered by Orange p < .05 3.93 4.37
(not significant)
Similar to the test for H2, we used paired sample T-Tests for the team-
related benefits and for the non-team related benefits for all of the
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Loquier and Dalakas
respondents who were not fans of the team. The table below summarizes
the results of the test.
Overall, with the exception of one benefit, H3 was not supported and there
was not significant difference in perception of team-related benefits vs.
benefits not relating to the team among non-fans.
DISCUSSION AND IMPLICATIONS
The positive response of highly identified fans to team-related benefits

compared to benefits not related to the team provides additional support for
why brands should pursue partnerships with sports teams. In addition to the
benefits that previous research established where positive attitudes and
intentions are elicited simply because of the brand’s association with the
team, our study shows that the partnership can also function as a loyalty-
building mechanism. Fans’ identification with their team and desire to enjoy
team-related items or experiences can indeed motivate increased patronage
and loyalty to a brand offering such items and experiences as loyalty rewards.
It is important to note that a brand cannot offer such benefits without an
official partnership with the team, further confirming the benefits of aligning
with sports teams.
Another noteworthy observation regarding the appeal of team-related

benefits to highly identified fans is the fact that many of them, particularly
the experiential ones, are of high emotional value to the fans while being of
low cost to the brand. For example, having a fan cash in many loyalty points
in exchange for the opportunity to shake hands with some players after
practice and take a picture with them costs nothing extra to the brand or to
the team or the players. However, for the fan/consumer this can be an
extremely exciting and memorable moment. Considering that the traditional
non-team-related benefit one could get in exchange for these points would
normally be free products or services from the brand, the team-related benefit
seems to be a win-win scenario for both the highly identified fans and for the
brand.
While team-related benefits are appealing to the highly identified fans, it is

important for a brand to also offer other benefits not related to the team. The
results suggested that in some cases there was no significant difference
between desirability of team-related benefits and benefits not related to the
team for highly identified fans. Moreover, low-identification fans and non-
fans are less favorable toward team-related benefits compared to the highly
110
identified fans. Also, the fact that there was no difference in the perception
of non-team benefits and team benefits among fans was surprising in the
sense that it did not support our hypothesis about them liking non-team
benefits more. However, at the same time it also shows they do not like team-
related benefits more, reinforcing the need for a brand to offer both. Marriott,
a sponsor of well-known English club Manchester United, seems to be doing
a good job in that respect. Marriott customers have the option of cashing in
their loyalty points for hotel stays (needing more points for nicer hotels in
more desirable locations) or for Manchester United experiences.
LIMITATIONS AND FUTURE RESEARCH
The study used a French convenience sample and focused on one French
club. While studies on fan identification show the effects are fairly similar
across countries, sports, and teams, it will nonetheless be beneficial to study this
topic in the context of other sports/teams in other countries. Additionally,
although the study did not rely on a student sample, many of the respondents
were young, which may have an effect on their perception of the different
benefits. Therefore, it is recommended to have more research using older
samples.
Despite the limitations, the study provides worthwhile insight on this

important but under researched topic of fan response to loyalty reward
benefits by brands that align with sports teams. We hope it will stimulate
further interest in this area with more research exploring different angles and
making further contributions.
REFERENCES
Bee, C., and V. Dalakas (2015), “Rivalries and Sponsor Affiliation:

Examining the Effects of Social Identity and Argument Strength on
Responses to Sponsorship-Related Advertising Messages,” Journal
of Marketing Communications, 21 (No.6), 408-424.
Cornwell, T.B., and Y. Kwon (2020), “Sponsorship-Linked Marketing:

Research Surpluses and Shortages,” Journal of the Academy of
Marketing Science, 48 (No.7), 607-629.
Dalakas, V., and A. Levin (2005), “The Balance Theory Domino: How
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Sponsorships May Elicit Negative Consumer Attitudes,” Advances

in Consumer Research, 32, 91–97.
Dalakas, V., M. Tseng, and J. Melancon (2021), “Encouraging and

Rewarding Customer Loyalty: Key Considerations for Sports
Teams,” Association of Marketing Theory and Practice
Proceedings, 32.
Davies, F., C. Veloutsou, and A. Costa (2005), “Investigating the

Influence of a Joint Sponsorship of Rival Teams on Supporter
Attitudes and Brand Preferences,” Journal of Marketing
Communications, 12 (No.1), 31-48.
Drèze, X., and J.C. Nunes (2009), “Feeling Superior: The Impact of
Loyalty Program Structure on Consumers’ Perceptions of Status,”
Journal of Consumer Research, 35 (No.6), 890–905.
Ivanic, A.S. (2015), “Status Has Its Privileges: The Psychological Benefit
of Status-Reinforcing Behaviors,” Psychology & Marketing, 32 (
No.7), 697–708.
Kim, K., and S.J. Ahn, (2017), “Rewards that Undermine Customer
Loyalty? A Motivational Approach to Loyalty Programs,”
Psychology & Marketing, 34 (No.9), 842-852.
Kim, B.D., M. Shi, and K. Srinivasan (2001), “Reward Programs and

Tacit Collusion,” Marketing Science, 20 (No.2), 99-120.
Lacey, R., and Sneath, J. Z. (2006), “Customer Loyalty Programs: Are

They Fair to Consumers?”, Journal of Consumer Marketing, 23
(No.7), 458-464.
Madrigal, R. (2001), “Social Identity Effects in a Belief–Attitude–

Intentions Hierarchy: Implications for Corporate Sponsorship,”
Psychology & Marketing, 18 (No.2), 145-165.
112
Madrigal, R., and V. Dalakas (2008), “Consumer Psychology of Sport:

More than Just A Game,” in H. Haugtvedt Curtis P., P. Herr, and
F.R. Kardes (Eds.), Handbook of Consumer Psychology (pp. 857–
876). New York: Lawrence Erlbaum Associates.
Meenaghan, T. (1991), “The Role of Sponsorship in the Marketing

Communications Mix,” International Journal of Advertising, 10
(No.1), 35-47.
Melancon, J.P, S.M. Noble, and C.H. Noble (2010), “Managing Rewards
to Enhance Relational Worth,” Journal of the Academy of
Marketing Science, 39 (No.3), 341-362.
O’Malley, L. (1998), “Can Loyalty Schemes Really Build Loyalty?”

Marketing Intelligence & Planning, 16 (No.1), 47-55.
Rowley, J. (2004), “Loyalty and Reward Schemes: How Much is Your

Loyalty Worth?” The Marketing Review, 4 (No.2), 121-138.
Smith, A., B. Graetz, B., and H. Westerbeek (2008), “Sport Sponsorship,

Team Support and Purchase Intentions”, Journal of Marketing
Communications, 14 (No.5), 387-404.
Tanford, S., S. Shoemaker, and A. Dinca (2016), “Back to the Future:

Progress and Trends in Hotel Loyalty Marketing,” International
Journal of Contemporary Hospitality Management, 28 (No.9), 1937-
1967.
Wann, D.L., and N.R. Branscombe (1993), “Sports Fans: Measuring

Degree of Identification with Their Team,” International Journal of
Sport Psychology, 24 (No.1), 1-17.
Wann, D.L., and T.J. Dolan (1994), “Influence of Spectators’
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Identification on Evaluation of the Past, Present, and Future

Performance of a Sports Team,” Perceptual & Motor Skills, 78
(No.2), 547-552.
Wann, D.L., and M.P. Schrader (2000), “Controllability and Stability in

The Self-Serving Attributions of Sport Spectators,” Journal of Social
Psychology, 140 (No.2), 160-168.
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Vol 33, No 2; Fall 2021
Ellis Heath
Valdosta State University
ABSTRACT
Here we look at the varying states of the US consumer credit series. We

employ a Markov-switching model to the consumer credit series to see if these
exhibit different states of behavior. Our results suggest that these series are highly
persistent. They also suggest that there is a cyclical component to one consumer
credit series (revolving), but not the other. This indicates that when one of these
series is in a high growth state it is not likely to switch to a different state and vice
versa. This is very similar to the behavior of US GDP and US business cycles. Finally,
given the different behavior of the two consumer credit series, it would be
important to treat them as separate variable. In this study, we evaluate various
consumer credit instruments to assess whether they are cyclical or not. Our
analysis suggests that some instruments, like credit cards, are cyclical and
persistent while other, like car loans, are not.
Key Words: Credit, Federal Reserve, Business cycles, Markov-switching
INTRODUCTION
The Federal Reserve releases the U.S. consumer credit series on a monthly basis.
The US Consumer Credit series provide a snapshot of the health of household
finance. For this reason, it is one of the more anticipated economic indicators
coming from the Federal Reserve. It is made up of three series. They are: Total
Consumer Credit Owned and Securitized, Outstanding (consumer credit); Total
Revolving Credit Owned and Securitized, Outstanding (revolving consumer credit);
and finally, Total Nonrevolving Credit Owned and Securitized, Outstanding
(nonrevolving consumer credit). These series are reported to the public by the
Board of Governors of the Federal Reserve System in its G.19 Statistical Release.
Revolving consumer credit represents unsecured credit plans and credit plans that
are secured by collateral. Typically, in these schemes one borrows a predetermined
limit. After which, the loan can be repaid in one payment or multiple payments.
Credit cards would be an example of this and indeed are the largest component of
this series. Nonrevolving consumer credit is similar to revolving consumer credit in
that the loans may be unsecured or secured by collateral. They differ in that
nonrevolving consumer credit represents a closed-end arrangement where the
loan must be repaid on a predetermined schedule. If the borrower needs more
funding, the borrower and lender must agree on new terms. Examples of these
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Heath
would be vehicle loans, loans for education, and personal loans. Car loans and
education loans represent the majority of these types of loans. Combining these
two series we get consumer credit.
This research is aimed at empirical forecasting. It would also be useful for

theoretical modeling of the financial sector. Little investigation into the behavior
of the U.S. consumer credit series has been done. Studies of regime-switching in
the finance and monetary literature are numerous as are studies that model credit
series. Nevertheless, studies that focus on varying states of behavior for these
important time series do not exist. Exploring these state changes in consumer
credit and its sub-series could have important implications and provide useful
insights for monetary and financial economics.
Frequently time series data exhibit cyclical variations. This characteristic is

commonly seen in business cycle dating research. Popular dating techniques use
ad hoc rules. For example, the "newspaper" definition of a recession requires at
least two consecutive quarters of negative real GDP growth. Officially, business
cycles are dated by the National Bureau of Economic Research (NBER), but even
their dating technique might be considered ad hoc given that it is done through the
wisdom of a committee with no known concrete algorithm. In an effort to move
towards a sounder method rooted in statistics, Hamilton (1989) introduced the
Markov-switching model as applied to real GDP. This opened the door to a new
area of research in which state-space models were developed based on the original
work by Hamilton (1989) and expanded upon by others. (See Garcia and Perron
(1996), Engel and Hamilton (1990), and Kim, Nelson, and Startz (1998)). This
method also expanded to other time series that showed varying states. The
literature does not give any expectations as to what we might find from these
series. Fulford (2010) looks at credit limit effects on consumer credit. Fulford and
Schuh (2015) and Fulford and Schuh (2017) look at how consumer credit varies over
both life cycles and the business cycle, but as of yet, no one has looked at cyclical
variations in these series. Here we look at the varying states of these consumer
credit series mentioned above. We examine these series to see if their behavior is
time-dependent. Specifically, we apply a Markov-switching model to the consumer
credit series and its sub-series to see if they exhibit different states of behavior.
We find here that all series are highly persistent. This indicates that when one of
these series is in a high growth state or a low growth state they are not likely to
switch to a different state. This is very similar to the behavior of US GDP and US
business cycles. We also find that revolving consumer credit exhibits cyclical
behavior while for nonrevolving consumer credit it is difficult to show.
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In the next section, we discuss the data that will be used. Section III illustrates the
framework in which the estimations for this study will be made. Section IV presents
the empirical results. Section V provides a discussion of these results and Section
VI concludes.
DATA
The data for this study was obtained from the Federal Reserve Economic Data
(FRED) of the Federal Reserve Bank of St. Louis. The series are:
1) Consumer credit (Total Consumer Credit Owned and

Securitized, Outstanding - TOTALSL)
2) Revolving consumer credit (Total Revolving Credit Owned and Securitized,
Outstanding - REVOLSL)
3) Nonrevolving consumer credit (Total Nonrevolving Credit Owned and
Securitized, Outstanding - NONREVSL)
4) PCE (Personal Consumption Expenditures - PCEPI)
All time series are reported monthly. The three consumer credit series are given in
billions of current US dollars and are seasonally adjusted. The PCE variable is used
to convert the variables of interest into real terms. The PCE series has been
reported from 1959; the revolving consumer credit series has been reported since
1968 while the other two credit series have been reported since 1943. Since
revolving consumer credit did not exist before 1968, consumer credit equaled
nonrevolving consumer credit. For this reason, we use January of 1968 as the first
observation for all series. From January 1968 through November 2020 there are
635 observations. The summary statistics for the three consumer credit series in
real terms and in billions of US dollars are reported in Table 1 below:
Table 1
Standard
Variable Observations Mean Deviation Minimum Maximum
Nonrevolving consumer
635 1258.83 660.48 561.41 2863.20
credit
Revolving consumer
635 521.28 374.58 7.01 1087.85
credit
Consumer credit 635 1780.11 995.98 568.42 3791.98
These three time series in real terms are depicted over time in Figure 1 below:
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Heath
Figure 1
From the graph, it seems that each series is unlikely to be stationary. All three
exhibit a trend or drift, especially beginning in the late 1990’s.
Figures 2a-c below show the three consumer credit series in logarithmic form:
Figure 2a
Figure 2b
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Figure 2c
Now the variances of the series appear to increase with time. In Figures 3a-c, the
logarithmic differences of the three series are given:
Figure 3a
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Heath
Figure 3b
Figure 3c
Finally, all series appear to be covariance stationary. Also, the economic intuition
behind using the logarithmic differences is reasonable since we are concerned with
the percent change in the consumer credit series. Still, there might be some
concern with episodic spikes in the variance of these series and further modeling
might seem appropriate to some; here, however, no further adjustments will be
made since a model cannot be expected to explain everything.
ESTIMATION FRAMEWORK
We estimate an autoregressive model of each consumer credit series in the U.S.

where parameters depend on an unobserved state indicator. Smoothed maximum
likelihood parameter estimates of a Markov-switching model will be used to
indicate "recessionary" periods for this credit series. Following convention and as
a starting point, a threshold of 0.5 will indicate the probability of a low-growth state
to mark turning points of credit growth. This threshold will be adjusted as needed.
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The model to fit is given as:

4
𝑦𝑡 − 𝛼𝑠𝑡 = ∑ 𝛾𝑖 (𝑦𝑡−1 − 𝛼𝑠𝑡−1 ) + 𝑒𝑡 , 𝑒𝑡 ~𝑁(0, 𝜎 2 )
𝑖=1
𝛼𝑠𝑡 = 𝛼1 𝑆1 + 𝛼0 (1 − 𝑆𝑡 )
where yt equals the credit series and where st = {0,1} acts as a particular
realization of a random variable St, indicating the unobserved state of the
economy. The probability of the present quarter being in a contractionary credit
phase given that credit was contracting in the previous quarter equals p, such
that
𝑃(𝑆𝑡 = 1|𝑆𝑡−1 = 1) = 𝑝,
𝑃(𝑆𝑡 = 0|𝑆𝑡−1 = 1) = 1 − 𝑝,
𝑃(𝑆𝑡 = 0|𝑆𝑡−1 = 0) = 𝑞,
𝑃(𝑆𝑡 = 1|𝑆𝑡−1 = 0) = 1 − 𝑞,
and p+q=1. The transition matrix for the Markov chain is given by
𝑞 1−𝑝
𝑃=( )
1−𝑞 𝑝
Maximum likelihood parameter estimates and probabilities of latent state

variables are produced using the filtering algorithm of Hamilton (1989) and the
smoothing algorithm of Kim (1994) and Kim and Nelson (1999). In other words, this
technique will indicate the probability that a particular month is in an
"expansionary" or "recessionary" state.
EMPIRICAL RESULTS
The results are reported in Table 2:
Table 2
P>|z| for P>|z| for
Variable State 1 State 2 State 1 State 2 p11 p21
Revolving
-10.77 2.03 0.00 0.00 0.92 0.01
consumer credit
Nonrevolving
-0.42 7.44 0.59 0.00 0.98 0.02
consumer credit
Total consumer
-0.37 9.96 0.68 0.00 0.98 0.02
credit
State 1 represents the low-growth state and state 2 represents the high-growth
state. They can be thought of as a “recessionary” and “expansionary” indicator,
respectively. For the revolving credit variable, the low-growth state average is
negative 10.77 percent while the high-growth state average is 2.03 percent. For the
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Heath
nonrevolving consumer credit series, the low-growth state average is negative 0.42
percent with 7.44 percent being the high-growth state average. For the total
consumer credit series, the averages are similar to those in the nonrevolving
consumer credit series, negative 0.37 percent and 9.96 percent respectively.
For the revolving consumer credit series, both states appear to be statistically
significant. In the other series, the low-growth state mean is not statistically
significant. This would suggest that there is week support for state changes in the
nonrevolving and total consumer credit series. However, the revolving consumer
credit series shows strong support for a state-dependent mean.
The interpretation of the p11 and p21 variables is as follows: p11 gives the
estimated probability of staying in state 1 if the series is currently in state 1; the
p21 variable is the estimated probability of moving to state 1 given that the series
is currently in state 2.
If revolving consumer credit is in its low-growth state, then there is 92 percent

probability of it staying in that state and there is an 8 percent probability that it
moves into the high-growth state. If the revolving consumer credit series is in the
high-growth state, there is only a 1 percent chance that it moves to the low-growth
state and a 99 percent chance that it stays in the high-growth state.
For nonrevolving consumer credit and total consumer credit, there is a 98 percent
chance that they stay in the low-growth state given that they are currently in the
low-growth state and a 2 percent chance that they move to the high-growth state
from the low-growth state. For movements from the high-growth state to the low-
growth state, the estimated probabilities are the same (2 percent) and for staying
in the high-growth state are the same as well (98 percent).
The p11 and p21 variables indicate a high level of persistence in these series. This
level of persistence is very high, even for state-space variables. It is not uncommon
that series which exhibit cycles also exhibit persistence (For example, see Hamilton
(1989) and Hamilton (1994)).
DISCUSSION OF RESULTS
All credit series exhibit high degrees of persistence. When one state is obtained, it
is very unlikely that the series will switch to a different state. This is common
behavior in US business cycles and US GDP. It should not be surprising that US credit
series behave in a similar fashion. That said, the state 1 significance levels for the
nonrevolving and total credit series detract somewhat from the claim of varying
122
states in those series. However, the statistical significance in the revolving credit
series provides strong evidence for varying states in that series.
This suggests that revolving credit shows cyclical behavior similar to business
cycles. Therefore, credit that has an open-end arrangement will behave very
differently depending on whether they are in a “recessionary” phase or
“expansionary” one. As mentioned earlier credit cards are the largest component
of this series. Closed-end credit arrangements, or nonrevolving consumer credit,
does not appear to have this cyclical nature that its open-end cousin does. The
terms for this type of credit are set in advance and for this reason, they may be
more immune to cyclical changes in the economy. Again, the largest examples of
nonrevolving consumer credit are car loans and loans for education. The behavior
of the total consumer credit series is much more akin to the nonrevolving consumer
credit series than the revolving consumer credit series. Given that nonrevolving
consumer credit makes up about 70 percent of total consumer credit, this result
should not be surprising. Furthermore, given the very different behavior between
the nonrevolving and revolving consumer credit series, one might question the use
of total consumer credit as a variable interest. Other studies have found that when
measuring variance, nonrevolving consumer credit and revolving consumer credit
behave very differently as well (See Heath (2018)). In other words, any studies on
consumer credit should look at nonrevolving and revolving separately or at least
treat them as separate variables.
CONCLUSION
In this paper, the US consumer credit as reported by the Federal Reserve—total,

nonrevolving, revolving--are examined. The answer to the question of whether
consumer credit is cyclical in nature turns out to be ambiguous. Given its close ties
to business cycles in the US, one might assume that it is, but as is often the case in
economics the answer depends on what type of credit we are examining. Revolving
credit, which included credit card loans, is indeed very cyclical, but car and
education loans which represent the bulk of nonrevolving credit are not; or at least,
statistically, they have not demonstrated a cyclical behavior. Also, all series
demonstrated a strong level of persistence. Once a series is in one phase of its
cycle, it takes a lot for it to move to another. This is especially true for revolving
consumer credit given the statistical significance of its results here.
These results are important because understanding the cyclical nature and
persistence of consumer credit is useful for both forecasting and modelling. Also,
the lack of statistical significance for nonrevolving consumer credit suggests that it
should be viewed differently from revolving consumer credit. Furthermore, this
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Heath
also suggests that use of total consumer credit should be done with extreme
caution given how differently its components behave.
REFERENCES
Engel, C. and J. D. Hamilton (1990). “Long swings in the dollar: Are they in the
data and do markets know it?” American Economic Review 80: 689–713.
Fulford, S.L. (2010) “How Important Is Variability in Consumer Credit Limits?”

Federal Reserve Bank of Boston Working Papers, No 14-8.
Fulford, S.L. & Schuh, S. (2015) “Consumer revolving credit and debt over the
life cycle and business cycle.” Federal Reserve Bank of Boston Working
Papers, No 15-17.
Fulford, S.L. & Schuh, S. (2017). “Credit card utilization and consumption over
the life cycle and business cycle.” Federal Reserve Bank of Boston
Working Papers, No 17-14.
Garcia, R. and P. Perron (1996). “An analysis of the real interest rate under
regime shifts.” Review of Economics and Statistics, 78: 111-125.
Hamilton, J.D. (1989). “A new approach to the economic analysis of

nonstationary time series and the business cycle.” Econometrica, 57(2),
357-384.
Hamilton, J.D. (1994). Time Series Analysis. Princeton, NJ: Princeton University
Press.
Heath, E. (2018). “Modeling Volatility of US Consumer Credit Series.” Academy

of Business Disciplines, 11(1), 27-41.
Kim, C.J. (1994). “Dynamic linear models with Markov-switching.” Journal of

econometrics, 60, 1-22.
Kim, C.J. and C.R. Nelson (1999). State-space models with regime switching.
Cambridge, Massachusetts: MIT Press.
Kim, C.J., C. R. Nelson and R. Startz (1998). “Testing for mean reversion in
heteroskedastic data based on Gibbs-sampling-augmented
randomization.” Journal of Empirical Finance 5: 131–154.
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Vol 33, No 2; Fall 2021
A COMPARISON OF MORTGAGE DELINQUENCIES FOR THE U.S.
VS INDIANA 1998-2015
Paul McGrath
Paolo Miranda
Purdue University Northwest
ABSTRACT
Historically, the rate of past due mortgages has been slightly higher in Indiana than
the U.S. We find, as expected, that unemployment rate differences between
Indiana and the nation explains some of the delinquency differentials. In addition,
the difference in employment in the manufacturing sector between Indiana and
the U.S., wherein Indiana boasts significant employment, also explain the observed
delinquency differentials.
Keywords: Mortgage delinquencies, Unemployment, Manufacturing employment
INTRODUCTION
U.S. mortgage delinquencies reached Post WW-II highs in 2010, before beginning
a slight decline to the present. Based on quarterly data from the Mortgage Bankers
Association (MBA), in healthy economic times we find roughly 4 to 5 percent of all
mortgages past due. Following the economic recessions of 1980 to 1982, 1990 to
1991, and 2001 to 2002 we find that the percent past due nudged above 5 percent.
The U.S. financial crisis that began in the year 2007 accompanied a drop in home
values, as illustrated by the Case-Shiller index, of approximately 32 percent
between January 2007 and November 2011. Along with the decrease in housing
prices and an increase in unemployment, came a significant increment in past due
mortgages.
The ability to anticipate changes in the delinquency profile may be of value to
decision-makers in public administration, the financial services sector, and the
construction sector of the economy. Increases in the number of mortgage
delinquencies and possible subsequent foreclosures exert downward pressure on
home values (Dudley 2012, Hartley 2010, Mian, Sifi and Trebi 2011). In turn,
household and business balance sheets deteriorate, adversely impacting their
borrowing capacity (Bernanke 2012, Schweitzer and Shane 2010). Any resulting
inventory overhang of foreclosed homes acts as a drag on new home construction
and can drain capital from financial institutions (Dudley 2010). Unoccupied homes
erode the tax base of municipalities (Fitzpatrick IV and Zenker 2011) and the pile-
up of foreclosure proceedings may strain the judicial system.
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McGrath and Miranda
Historically, the rate of past due mortgages has been slightly higher in Indiana than
the U.S.,. Also, Indiana falls a bit behind the nation in many economic categories
as can be seen in Table 1. Based upon 2014 data, Indiana ranked 38th amongst the
states in terms of median income. The state’s poverty rate was slightly above the
national average while college graduation figures lagged behind the national
average. Both population increase and the median value of homes were below the
national average. That said, Indiana’s homeownership rate was significantly above
the national average.
Aspects of the Indiana labor market relative to the aggregate paint a different
picture. Over the time period under consideration , Indiana’s unemployment rate
was generally lower than the national rate until 2005, a few years before the start
of the economic crisis. Indiana’s rate was generally higher through 2013 before
dropping below the national average.
Save the unemployment rate comparison, given this snap shot of the state’s
economy, it may not be surprising that the mortgage delinquency rates for Indiana
are generally greater than the national average. In Chart 1 a comparison of the
percentage of mortgages past due for the time period 1998Q1 through 2015Q2 is
presented. Indeed, Indiana’s delinquent mortgage rate is statistically higher than
the U.S. rate with the difference being noticeably larger after the year 2000.
Table 1. A snapshot comparison Indiana in 2014 The U.S. in 2014

Median income $48,737 $53,482
(ranked as 38th state)
Poverty rate 15.2% 14.8%
Percentage of persons 25 years or 23.6% 29.3%
older with a Bachelor’s degree or
higher
Median value of owner-occupied $122,700 $175,000
housing
Population change since 2010 + 1.7% + 3.3%
Homeownership rate 69.5% 64.4%
Unemployment rate 5.7% 6.2%
Source: STATS Indiana and Bureau of Labor Statistics.
One mortgage product of keen interest is the sub-prime mortgage category. The
comparison of delinquencies for this product is shown in Chart 2. Save for the first
few years of the time period, Indiana’s delinquency rate for sub-prime mortgages
is higher than that of the US, overall. But Indiana’s mortgage delinquency rates
closely tracked the national pattern during the housing crises.
126
Chart 1. Percent of Mortgages Past Due, US v. Indiana: 1998Q1

- 2015Q2
13.00
11.00
9.00
7.00
5.00
3.00
Q4.1998
Q1.2010
Q1.1998
Q3.1999
Q2.2000
Q1.2001
Q4.2001
Q3.2002
Q2.2003
Q1.2004
Q4.2004
Q3.2005
Q2.2006
Q1.2007
Q4.2007
Q3.2008
Q2.2009
Q4.2010
Q3.2011
Q2.2012
Q1.2013
Q4.2013
Q3.2014
Q2.2015
All Mortgages Past Due: U.S. (SA, %)
All Mortgages Past Due: Indiana (SA, %)
Source: Mortgage Bankers Association (MBA)
Chart 2. Sub Prime Mortgages Past Due, US v. Indiana:

1998Q1 - 2015Q2
30.00
25.00
20.00
15.00
10.00
5.00
Q1.2004
Q3.2008
Q1.1998
Q4.1998
Q3.1999
Q2.2000
Q1.2001
Q4.2001
Q3.2002
Q2.2003
Q4.2004
Q3.2005
Q2.2006
Q1.2007
Q4.2007
Q2.2009
Q1.2010
Q4.2010
Q3.2011
Q2.2012
Q1.2013
Q4.2013
Q3.2014
Q2.2015
Past due Subprimes % SAUS SA Past due Subprimes % IN
Source: Mortgage Bankers Association

Interestingly, trouble began to appear in Indiana earlier than the U.S. as a whole.
This is particularly true of the subprime mortgage category. The 2000 - 2001
recession, while not terribly challenging for the nation as a whole, was damaging
to Indiana and other states, such as Wisconsin, where manufacturing employment
comprises a larger portion of the workforce. As a result, beginning in the year 2000
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McGrath and Miranda
delinquencies increased more significantly in Indiana than the rest of the U.S. and
never fell to previous recession rates. This change was particularly seen amongst
subprime mortgages.
Chart 1 shows that while the general delinquency rate for the U.S. increased from
4 to 5.2 percent between the beginning and end of the year 2000, the rate then
trended downward until the beginning of 2006, when cracks in the mortgage
market began to appear. However, Indiana’s experience was different. Like the rest
of the U.S. , Indiana delinquencies began to rise at the beginning of 2000. Here the
data diverges as Indiana’s rate never really declined. Thus from 2002 through 2006
Indiana’s delinquency rate trended upward, while the U.S. rate trended downward.
The general mortgage delinquency trends described here are consistent with the
findings of Kinghorn (2011) and McGranahan (2007). In both studies the differing
delinquency rates between the U.S. and Indiana are shown. It is also demonstrated
the higher delinquency rates in Indiana compared with the U.S. for the period
beginning 1997.
Recalling Chart 2, which depicts the experience with sub-prime delinquencies, it is
somewhat different than we see for all mortgages. Both the U.S. and Indiana
experienced a sharp rise in delinquencies in the sub-prime market with the 2000
recession. The rate for the U.S. peaked in the second quarter of 2002, and then
declined into 2005. But the rate for Indiana continued to climb for another 3
quarters.
Then another aspect of Indiana’s labor market, beyond the unemployment rate,
may be important. Indiana boasts the highest percentage of employment in the
manufacturing sector among the 50 states, and roughly double the national
average. Employment in this relatively well-paid sector was adversely impacted
during the 2000 to 2001 recession and has not really recovered since. Chart 3
illustrates the long-term trend in employment in manufacturing for the U.S. and
Indiana. Employment in this sector has declined both in Indiana and the nation, as
a whole. But a noticeable drop occurred in Indiana before the U.S., as a whole.
The outline of this paper is as follows. In the Data and Methodology section we
describe the delinquency data and provide an overview of the time series behavior
of the data. Following in the section titled Preliminary Results we report on our
findings relating delinquencies to unemployment and to employment in
manufacturing.
128
Chart 3. Percentage of Employment in Manufacturing, US v.

Indiana: 1998Q1 - 2015Q2
24.00
22.00
20.00
18.00
16.00
14.00
12.00
10.00
8.00
Q4.1998
Q1.2010
Q1.1998
Q3.1999
Q2.2000
Q1.2001
Q4.2001
Q3.2002
Q2.2003
Q1.2004
Q4.2004
Q3.2005
Q2.2006
Q1.2007
Q4.2007
Q3.2008
Q2.2009
Q4.2010
Q3.2011
Q2.2012
Q1.2013
Q4.2013
Q3.2014
Q2.2015
Pct Employment in Manufacturing US
Pct Employment in Manufacturing IN
Source: Bureau of Labor Statistics
DATA AND METHODOLOGY
To examine the profile of mortgage delinquencies we use seasonally adjusted

quarterly data on mortgage delinquencies collected by the Mortgage Bankers
Association (MBA) for the time period 1998 to 2015. The data begins with the 1979
year, but the sub-prime data is available beginning in 1998. Since we wish to
examine this product, specifically, we will use the first quarter of 1998 as our
beginning point for all series. The available data at the time of this study covers
until the year 2015, hence encompassing the two recessions of the 2000 decade.
We wish to examine the differentials in delinquency rates between the Indiana and
the U.S., as a whole, for this time period. In Chart 4 we illustrate the differentials
between the delinquency rates for all mortgages and for the sub-prime product as
measured by the U.S. minus the Indiana delinquency rate. We will define ALL
MORT DIFF as the differential for all mortgage products and SUBPRIME MORT DIFF
as the differential for sub-prime mortgages, all referred to mortgage delinquencies.
Indiana’s rate for delinquencies is on average 1.03 percent greater than the U.S. for
all mortgages and 1.48% for sub-prime mortgages. But the standard deviation for
the sub-prime differential is almost two times greater (1.53 percent vs. 0.77
percent).
In Chart 4 we see the much higher volatility the difference in sub-prime
delinquencies has compared to the volatility of all delinquent mortgages before the
year 2007. The statistics reflect this reality showing a standard deviation of 2.09
percent for the difference in sub-primes delinquencies for the U.S. vs a standard
deviation of 0.79 percent for all mortgages combined for years before 2007. The
data past 2007 do not show the same difference in volatility, to the contrary, both
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McGrath and Miranda
series are more homogeneous after 2007. The volatility for these years is 0.36
percent for the difference in total mortgages and 0.47 percent for the difference in
sub-primes.
Chart 4. Differential in the Percent of Mortgages Past Due,

the U.S. minus Indiana: 1998Q1 - 2015Q2
3.00
Explanatory note: A positive value indicates
2.00 U.S. rate rate higher than Indiana rate
1.00
0.00
Q1.1998
Q4.1998
Q3.1999
Q2.2000
Q1.2001
Q4.2001
Q3.2002
Q2.2003
Q1.2004
Q4.2004
Q3.2005
Q2.2006
Q1.2007
Q4.2007
Q3.2008
Q2.2009
Q1.2010
Q4.2010
Q3.2011
Q2.2012
Q1.2013
Q4.2013
Q3.2014
Q2.2015
-1.00
-2.00
-3.00
-4.00
-5.00
-6.00
All past due diff All subs past due
Source: Mortgage Bankers Association
In Chart 4 we can see the difference in sub-prime mortgage delinquencies to

decrease from about 2 percent to almost minus 6 percent. This drop in the
difference signifies Indiana going from having a lower proportion of delinquent
sub-prime mortgages with respect to the U.S. to having a larger than the U.S.
proportion of delinquent sub-prime mortgages. As expressed in previous
paragraphs, the relative increase in sub-prime mortgage delinquencies in Indiana
with respect to the U.S. coincides with the recession of the year 2000. The
difference between the U.S. and Indiana for all mortgages does not seem to have
been as affected by the year 2008 recession.
Further, we wish to examine if unemployment rate differentials and manufacturing
employment rate differentials can provide explanation of the observed
delinquency rate differentials. Based upon data from the Bureau of Labor Statistics
(BLS) we show in Chart 5 the differential in the unemployment rate for the U.S. and
Indiana. A positive value implies that the overall U.S. unemployment rate is greater
than Indiana’s rate. UE DIFF will be defined as the unemployment differential with
a mean of 0.44 percent and a standard deviation of 0.74 percent. One notes that
from 1998 through the trough of the Great Recession in 2009, Indiana’s rate rose
relative to the nation as a whole. However, since the trough in 2009, Indiana has
closed the gap.
130
Chart 5. Differential in Unemployment Rates, the U.S. minus

Indiana: 1998Q1 - 2015Q2
2
1.5
1
0.5
0
Q3.2005
Q1.1998
Q4.1998
Q3.1999
Q2.2000
Q1.2001
Q4.2001
Q3.2002
Q2.2003
Q1.2004
Q4.2004
Q2.2006
Q1.2007
Q4.2007
Q3.2008
Q2.2009
Q1.2010
Q4.2010
Q3.2011
Q2.2012
Q1.2013
Q4.2013
Q3.2014
Q2.2015
-0.5
-1
-1.5
-2
To address the possible effects differences in change in manufacturing

employment between the U.S. and Indiana can have on mortgage delinquencies,
we use the difference between the manufacturing employment rate in the U.S. and
the manufacturing employment rate in Indiana. This variable is titled MANUDIFF
and we might hypothesize that as manufacturing employment in Indiana falls
relative to the US, mortgage delinquencies in Indiana increase relative to the U.S.,
implying a negative relationship.
The behavior of the MANUDIFF variable is illustrated in Chart 6, below. One notes
that from 1999 to 2001 Indiana’s manufacturing sector performed very poorly vs.
the U.S., but then recovered quicker. Following this, Indiana experienced seven
years of poor employment performance in this sector, improved quicker than the
nation, as a whole in the Great Recession and has since trended downward. The
positive, upward trend in mortgage delinquency differentials seems to coincide
with this observation.
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McGrath and Miranda
Chart 6. Differential in Percentage of Employment in

Manufacturing , The U.S. minus Indiana: 1998Q1 - 2015Q2
-4.00
Q1.2010
Q1.1998
Q4.1998
Q3.1999
Q2.2000
Q1.2001
Q4.2001
Q3.2002
Q2.2003
Q1.2004
Q4.2004
Q3.2005
Q2.2006
Q1.2007
Q4.2007
Q3.2008
Q2.2009
Q4.2010
Q3.2011
Q2.2012
Q1.2013
Q4.2013
Q3.2014
Q2.2015
-5.00
-6.00
-7.00
-8.00
-9.00
-10.00
PRELIMINARY RESULTS
Since many economic time series present autocorrelation, we use a Dickey-Fuller

test for the time series used in this study. The result is that all the time series used
present autocorrelation. For that reason, we use linear regressions with Newey-
West standard errors. We use the 30-year interest rate and the difference in
housing price index between the U.S. and Indiana as control variables. The main
reason for using these two variables is the effect that interest rates may have in
the decision to buy a house or to refinance the house. Also, higher house prices act
as a deterrent to buyers, especially in a recessionary period or in times of high
economic uncertainty.
First we examine if measured differentials in unemployment rates and differentials
in manufacturing sector employment rates impact mortgage delinquencies. The
first four results, shown in Table 2, arise from simple models based upon the
measured unemployment differential (UE DIFF). For the differential in all mortgage
delinquencies, we first test:
ALL MORT DIFF = α0 + α1 × UE DIFF + ε, (1)
and for sub-prime mortgage delinquencies:
SUBPRIME MORT DIFF = β0 + β1 × UE DIFF + δ. (2)
132
Table 2: Results of unemployment difference vs mortgage delinquency difference

ALL MORT DIFF SUBPRIME MORT DIFF
constant -1.38 (-11.82) -1.59 (-4.17)
**
UE DIFF 0.77 (6.45) 0.76 (1.26)
F 41.66 1.58
Prob > F 0.00 0.21
Notes: Table presenting the results of the regressions with Newey-West standard
errors where the difference in unemployment between the U.S. and Indiana is the
independent variable. The dependent variables are the difference in delinquent
mortgages between the U.S. and Indiana and the difference in sub-prime mortgage
delinquencies between the U.S. and Indiana. T-stats in parentheses, ** significant
at the 95% level of confidence, * significant at the 90% level of confidence.
Observing the results for all mortgage delinquencies reported Table 2, one can see
the positive and significant coefficient of the unemployment rate differential when
all delinquent mortgages are considered as the dependent variable. This result
implies that as the Indiana unemployment rate rises (falls) relative the nation’s,
delinquencies in Indiana rise (fall) relative to the nation’s average. This result is to
be expected since an increase in unemployment in either the whole U.S. or Indiana
should bring about an increased number of people who find themselves unable to
pay their mortgage. This result is consistent with McGranahan (2007) findings,
where the unemployment rate has a positive and statistically significant coefficient.
The results for delinquencies arising from sub-prime mortgages are more muddied.
The expected result of a positive and significant relationship between the U.S. and
Indiana’s unemployment differential and the sub-prime delinquency differential is
not borne by the data. This is puzzling because sub-prime mortgages were taken
by persons whose ability to pay was low, hence needing a small change in their
employment situation to be unable to pay the mortgage. One possible explanation
of this result is that the employment loss was mostly for borrowers who were not
classified as sub-prime.
To control for two factors likely to affect the delinquency rate, we turn to the 30-
year treasury rate and to the difference between the home price indexes in the
U.S. and Indiana. The 30-year rate was chosen as a control variable because a high
interest rate makes for a more difficult refinancing of a house in case of
unemployment. The differential in price between the U.S. and Indiana house price
indexes was chosen because if a house can be sold for a higher price than originally
paid, it is more likely than the owner could repay whatever is left of the mortgage
in case of loss of employment. The house price indexes for both the U.S. and
Indiana are presented in Chart 7.
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McGrath and Miranda
Chart 7. House Price Index, US v. Indiana: 1998Q1 - 2015Q2

230
210
190
The US
170
150
130
Indiana
110
90
Q1.1991
Q1.1992
Q1.1993
Q1.1994
Q1.1995
Q1.1996
Q1.1997
Q1.1998
Q1.1999
Q1.2000
Q1.2001
Q1.2002
Q1.2003
Q1.2004
Q1.2005
Q1.2006
Q1.2007
Q1.2008
Q1.2009
Q1.2010
Q1.2011
Q1.2012
Q1.2013
Q1.2014
Q1.2015
House Values US House Values IN
From Chart 7 we can see both the U.S. and Indiana experienced increasing property
values until mid-2006. The increase in house values for the U.S. is markedly higher
than for Indiana until the year 2006, approximately. For the both the U.S. and
Indiana house values decreased until the year 2010, before beginning recoveries.
More specifically, during the period 1991 to 2007 the U.S. housing price index grew
at an annual compounded rate of 5.12 percent per year while that for Indiana’s
grew at 3.33 percent per year. The period 2007 to 2012 brought an annualized drop
of 1.71 percent in the U.S. house index and 0.43 for Indiana. Finally, the period
2012 to 2017 brought an annual growth in the house index of 1.15 percent for the
U.S. and 0.65 percent for Indiana.
The effect of the growth, or decrease, of the housing index value in the proportion
of delinquent mortgages can be hypothesized as follows: an increase in the value
of the index should decrease the proportion of delinquent mortgages since the
homeowner can sell the property to pay the remainder of the mortgage or can
more easily refinance using a loan against the property. If the difference between
the U.S. and Indiana housing price indexes increase, the difference of the number
of delinquent mortgages between the U,S, and Indiana should decrease. This
implies a negative coefficient for the difference in house price indexes. We label
this variable VALUE DIFF, below.
An increase in the 30-year interest rate should make the refinancing more difficult
for anybody who is already defaulting since it implies higher payments. Also, an
increase in interest rates for persons who are on a floating rate mortgage could
push them to default. We expect the coefficient for the 30-year rate to be positive
since an increase in rates should provoke an increase in mortgage delinquencies.
134
The results obtained when adding the 30-year interest rate and the difference in
house price indexes differentials to equations (1) and (2) yield the following:
ALL MORT DIFF = α0 + α1 × UE DIFF + α2 × 30 YR RATE
+ α3 × VALUE DIFF + ε, (3)
SUBPRIME MORT DIFF = β0 + β1 × UE DIFF + β2 × 30 YR RATE

+ β3 × VALUE DIFF + δ. (4)
The results of estimating equations (3) and (4) between are presented in Table 3.
One can see that once the control variables are introduced, the significance of the
difference in unemployment disappears for both all mortgage delinquencies and
sub-prime mortgage delinquencies. Also, one can see that the sign of the control
variables is as hypothesized. Counter intuitively, this result suggests the most
important variables when it comes to mortgage delinquency to be the interest rate
and the price of the house. This result is consistent with McGranahan, who finds
the market value of the house to be significant, and with a negative sign, when the
dependent variable is the proportion of delinquent mortgages. The employment
status of the homeowner seems to matter less than the two control variables used.
Table 3: Results with the control variables added

Constant -1.46 (-5.97) -3.55 (-3.93)
UE DIFF 0.11 (0.97) -0.59 (-1.04)
**
30 YR RATE 0.11 (2.63) 0.57 (3.62)**
Difference in house
-0.029 (-6.36)** -0.056 (-3.06)**
price indexes
F-statistic 50.79 14.71
prob > F 0 0
** represents significance at the 5% level, * represents significance at 10% level
One can see that once the control variables are introduced, the significance of the
difference in unemployment disappears for both all mortgage delinquencies and
sub-prime mortgage delinquencies. Also, one can see that the sign of the control
variables is as hypothesized. Counter intuitively, this result suggests the most
important variables when it comes to mortgage delinquency to be the interest rate
and the price of the house. The employment status of the homeowner seems to
matter less than the two control variables used.
With more of Indiana’s employment concentrated in the manufacturing sector, and
that sector experiencing a long-run decline, we would like to examine if changes in
this type of employment impacts delinquencies. To test this, we estimate the
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McGrath and Miranda
following four equations including the Indiana vs. U.S. differential in manufacturing
employment, MANUDIFF. For the differential in all mortgage delinquencies, we
test:
ALL MORT DIFF = α0 + α1 × MANUDIFF + ε, (5)
SUBPRIME MORT DIFF = β0 + β1 × MANUDIFF + δ. (6)
With the additional control variables included,

ALL MORT DIFF = α0 + α1 × MANUΔDIFF + α2 × 30 YR RATE
+ α3 × VALUE DIFF + ε, (7)
SUBPRIME MORT DIFF = β0 + β1 × MANUΔDIFF + β2 × 30 YR RATE

+ β3 × VALUE DIFF + δ. (8)
The results of estimating equations (5) and (6) are presented in Table 4, while the
results of equations (7) and (8) are presented in Table 5. One can see the
manufacturing employment to affect the total number of delinquent mortgages.
From Table (4) we conclude that the higher the manufacturing employment in the
U.S. compared to Indiana, the less the mortgages delinquencies in the U.S.
compared to Indiana. Thus the sign for the coefficient for manufacturing
employment is the correct one. Conversely, since manufacturing employment, as
percent of the workforce, has been higher in Indiana than in the U.S., the fraction
of mortgage delinquencies in Indiana should be less than in the U.S. Given the
actual experience over this time period this implies that as employment in Indiana’s
manufacturing sector falls more rapidly than that of the U.S., the rate of delinquent
mortgages in Indiana rises relative to the U.S. The F-statistic of about 5 for the
model indicates that manufacturing employment effectively explains mortgage
delinquencies. When delinquencies in the sub-prime market become the
dependent variable in the second column, we find that the MANUDIFF variable
has no explanatory power.
When adding the control variables, the difference in manufacturing employment is
no longer significant for all mortgage difference, the significance being taken by the
30-yr interest rate and the difference in the house price indexes. In a similar way
to the regressions run with the unemployment difference as independent variable,
the significance is taken by the control variables.
136
Table 4: Regressions with manufacturing employment

Constant -4.82 (-3.09)** 0.84 (0.33)
MANUDIFF -0.47 (-2.25)** 0.29 (0.81)
F 5.05 0.66
prob > F 0.03 0.42
** indicates significance at the 95% level.
Estimating equations (7) and (8), which adds the 30-year interest rate and
difference in the house price indexes, provide the results in Table 5.
Table 5: regressions with manufacturing employment and control variables

Constant -1.07 (-1.20) 7.61 (2.49)
MANUDIFF 0.05 (0.46) 1.17 (3.3)**
**
30 YR RATE 0.13 (3.34) 0.28 (2.97)**
VALUE DIFF -0.03 (-8.70)** -0.07 (-6.49)**
F 42.19 23.65
prob > F 0 0
** indicates significance at the 95% level.
This result indicates the importance of the interest rates and house prices in
mortgage delinquency. When the control variables are used with the difference in
manufacturing employment with the sub-prime mortgage difference as the
dependent variable, the difference in manufacturing employment becomes
statistically significant and with a positive sign. The positive sign for the difference
in manufacturing employment in this particular equation suggests that the larger
the difference in manufacturing employment between the U.S. and Indiana, the
larger the difference in sub-prime mortgage delinquencies. As with previous
regressions, the signs for the 30-year rate and the difference in housing price are
as expected.
CONCLUSIONS
Using data available through the Mortgage Bankers Association we examined the
differential in Indiana’s mortgage delinquencies compared with that of the U.S.,
overall. The time period under consideration is 1998 to 2015. This appears critical
because: while Indiana’s experience largely shadowed the nation’s through the
Great Recession, the period between the recession of 2000 to 2001 and the
beginning of the financial crises was a defining period for Indiana. it appears
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McGrath and Miranda
mortgage problems seem to have piled up in Indiana much earlier than the nation.
Indiana is characterized by a larger portion of its workforce employed in
manufacturing, thereby increasing its exposure to the rapid decline in such
employment that has occurred over the last few decades in the U.S. This change
seems to have manifested itself into problems with mortgages that preceded the
financial crises and the Great Recession.
REFERENCES
Bernanke,B., 2012.“The U.S. Housing Market: Current Conditions and Policy

Considerations.” Board of Governors of the Federal Reserve System.
Dudley, W.C., 2012. “Housing and the Economic Recovery,” Speech to the New Jersey
Bankers Association Forum, Iselin, NJ, January 6.
Federal Deposit Insurance Corporation (FDIC) Statement of Policy 5000, Uniform retail
credit classification and account management policy. Available at:
http://www.fdic.gov/regulations/laws/rules/5000-1000.html
Fitzpatrick IV, T. and Zenker, M.’ 2011. “Municipal Finance in the Face of Falling Property
Values,” Federal Reserve Bank of Cleveland Economic Commentary, Number
2011-25, December.
Hartley, D., 2010. “The Impact of Foreclosures on the Housing Market,” Federal Reserve
Bank of Cleveland Economic Commentary, No. 2010-15, October.
Kinghorn, M, 2011, “Indiana’s Ongoing Foreclosure Crisis”, Indiana Business Review,

Summer 2011
McGranahan, Leslie, 2007, “The Determinants of State Foreclosure Rates: Investigating

the Case of Indiana”, Profitwise News and Views, December
Mian Atif, Sufi, A. and Trebi, F.,2011.“Foreclosures, House Prices,and the Real Economy,”
SSRN Working paper series available at SSRN: http://ssrn.com/abstract=1722195.
Miranda, P. and McGrath, P., 2011. “Forecasting Aggregate U.S. Mortgage Delinquencies,”
Journal of Applied Financial Research, Volume 1, 75-83.
Schweitzer, M. E. and Shane, S. 2010. “The Effect of Falling Home Prices on Small Business
Borrowing,” Federal Reserve Bank of Cleveland Economic Commentary, Number
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138
Vol 33, No 2; Fall 2021
IS THE U.S. DOLLAR LOSING ITS MOMENTUM AS A
GLOBAL LEADER?
Adrian McFarland
Balasundram Maniam
Sam Houston State University
ABSTRACT
The United States is seen as a leader in many aspects across the globe, when
compared with other countries. Leading in things such as currency, cultural
influence, power and as an economic leader. The United States looks to
continue to innovate and lead the charge in all categories. The United States
dollar has been the global leader in currency for the past while, but with other
countries’ currencies gaining in popularity, the dollar could be losing the
momentum it once had. This paper will look at the United States dollar status
and momentum as the current global leader and look at if the current
momentum it has is diminishing at all.
Keywords: hegemony, currency, internationalization, United States, China
INTRODUCTION
Economic growth is the backbone of every country on the globe.

Growing in such a way that puts the country at the forefront of the economic
leaderboard so to speak. However, to be an economic leader and have
abundant prosperity the country itself must be at the top of its game.
Countries such as the United States, China, Europe, and others have
consistently grown upwards with the goal of being the global leader with their
country’s currency. The process of becoming the global leader is a long,
strenuous path, but a few are able to consistently strive for the top spot.
The United States dollar since its beginning has been striving for
economic global leadership. With persistence and few key moves from the
United States history, it has been proclaimed global currency leader, thus
beating out other very large and prosperous countries. A lot has taken place
for the United States dollar to be a global leader, but it will take much more
effort to keep it there with the multitude of things that attempt to topple the
dollars’ dominance stance.
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McFarland and Maniam
This paper will look at the overarching idea of if the United States
dollar is losing its momentum as a global leader. The paper will first begin
with the history and current power of the United States dollar to give
background on where the dollar’s current hegemony came from and how it is
currently thriving. Next it will discuss the United States dollar relationship
with foreign countries, showing how the United States dollar directly effects
other countries. Finally, the paper will conclude with the recent COVID-19
pandemic, and the toll that it took on the dollar.
LITERATURE REVIEW
Middlekoop (2016) provides an historical overview of the history of

the United States dollar, starting from the very first centralized bank in the
late 1700’s. Speaking about Robert Morris and his role within setting up the
first credit system. He works his way up to World War I in 1914, World War
II in the 1940’s discussing the assistance the United States was able to provide
to other countries. Proceeding from there, Ezrati (2015) touches on the
banking system in the 1920’s. He talks about the pre and post-World War II
status of the United States dollar and how at one point it was seen in a similar
light as Europe’s Pound. Progressing through the mid and late 1900’s with
the U.S. dollar and economy growth, with some possible hiccups along the
way.
On a more current note, Prakken & Varvares (2015) displays recent
context of the status of the United States dollar starting in 2014. They explore
how the U.S. dollar has strengthened among the fluctuation of imports,
exports, and interest rates while also touching on how that effects the
economic status of the United States. Faudot & Ponsot (2016) transition over
to a more global view of the impact on the U.S. dollar. They show the impact
the U.S. dollar has on the international scene. Stating countries that are in the
beginning phases of development economically, they are most likely to
accept the full embrace of the U.S. dollar rather than larger, more
economically stable countries. They present multiple stats of how much the
United States dollar has grown in other countries over thirty to forty-year
period. Following up on the topic of international relevance Shatz (2016)
demonstrates how the economy of the United States connects with the rest of
the world. Shatz goes in depth on the four different ways the US interconnects
with the world through the economy. On top of those ways, he touches on
U.S. dollar swap lines and the significance that has on a global scale. Harrel,
Rosenberg, Cohen, Shiffman, Singh & Szubin (2019) take a slightly different
approach to discuss the economic dominance as well as the U.S. economic
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coercion future. They go in depth on the measures the United States took with
its foreign competitors such as China, Russia, and Europe. Furthermore, they
describe concerns with foreign country investments in the technology portion
of the U.S.
Haar (2020) takes a new direction to focus primarily on China and the
concern there is with them being a top competitor with the United States for
the world’s dominant power. He referenced the 2008 financial crisis and the
repercussions that followed due to China holding the majority of the U.S.
debt during this time. Even with those past events, it states that there is a
negative connotation associated with China due to their past fraudulent
activities as well as their mean nature with other countries. Lew (2021) takes
a position of demonstrating how the United States economy is stronger than
most people realize and is able to resist many different situations that may
come its way in the future. He isn’t concerned with the status or position
China has on the U.S. and he believes that the U.S. wouldn’t be affected
significantly by any of China’s moves. Roach (2020) on the other hand takes
an opposite stance regarding the U.S. dollar. Believing that the United States
dollar reign as global currency is ending, he even makes a prediction of the
plunge.
Ke (2020) starts the discussion off early in the year on if China could
use the United States economic downturn from the pandemic as a way to be
able to take the lead on the U.S. dollar. Following along the same path,
Kusumhadi & Permana (2021) take a more global approach to how the
COVID-19 pandemic has affected the global financial markets. They use the
assistance of data and charts to help display the negative effect the pandemic
had globally.
This paper is going to discuss the central theme of is the United States
dollar losing its momentum as a global leader in 3 major topics. It will start
with the history of the United States dollar and proceed to the current power
of the dollar. The following topic will be going over the United States dollar’s
relationship with foreign countries. Lastly, it will touch on how the COVID-
19 pandemic effected the momentum the dollar had and the new trajectory as
the globe moves past the pandemic.
THE HISTORY AND CURRENT POWER OF THE DOLLAR
The United States dollar has had a long-standing history since its
inception. Growing alongside other major currencies, with no real sight of
overtaking them. The first central bank was created in 1781, by a man named
Robert Morris, who is known as the father of the credit system (Middlekoop
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2016). Fast forward to the early 1900’s, the U.S. dollar has begun to rise in
popularity across the globe. It was being used more and more especially
during the first World War. With the Pound leaving the gold standard in 1914,
the currency began to become very weak, so the U.S. dollar became
significantly more important with this new role to fill in and out the United
States (Middlekoop 2016). With the dollar taking on this new-found role, it
was slowly becoming dominant as a world reserve currency. By the 1920’s,
after the World War hurt the European economy and the Pound leaving the
gold standard, the United States dollar began gaining the necessary qualities
needed to be in the top spot (Ezrati 2015). These multiple events happening
caused there to be a huge growth of the United States economy as well as a
booming trade market that used the dollar. The intense popularity and growth
of the U.S. dollar as a global reserve currency helped the country achieve a
more stable financial position since it was now able to borrow any amount of
money at any time, thus being able to thrive during distressing times (Lew
2021).
The United States dollar took a strong hold on the spot of global
reserve currency and didn’t let go. It spread like wildfire across the globe
especially after World War II when countries like France and others needed
huge financial help (Middlekoop 2016). These struggling countries were very
quick to embrace the U.S. dollar as it was their new life line of their
economies. During times of financial global instability, countries would rush
to the safety of U.S. bonds and other secure financial items as they are safe
assets internationally to ensure there isn’t any loss for them (Jiang,
Krishnamurthy, & Lustig 2018). The U.S. dollar has a very unique position
to where through its credibility, status, and other qualities, it was easily
accepted by new developing countries. While the abundance availability and
widespread acceptance it gave the United States a large advantage since it
could be used to pay military personnel, any foreign supplies, or any party in
general. The U.S. was essentially able to weaponize the dollar to have a
greater dominance over their global counterparts (Keaney 2017). By being
the world’s largest economy and being the reserve currency, the United States
is able to continue to grow and push its power even further. If a country was
cut off or couldn’t do business with the U.S. then they would be in a tight
spot. With this kind of power the United States would be able to essentially
police other countries if they were doing something that the U.S. didn’t like
by placing sanctions on them. Placing a sanction on a country would cause
significant headache by preventing their business or trade (Lew 2021). For
example, North Korea is isolated and shut off from the majority of other
countries. One of the countries that helps North Korea the most is China, so
if ever North Korea does something that negatively effects the United States
142
or any other countries the U.S. will initiate sanctions on China which will
ultimately hurt North Korea. However, even with the large-scale embrace of
the U.S. dollar there were still countries that were either hesitant or didn’t
want to be covered by the embrace of the United States.
(Ivashina, Scharfstein, & Stein, 2015)

Since the 1970’s the United States dollar has been through some ups and
downs as the global reserve currency. The perceived value of the U.S. dollar
has increased and decreased in comparison to other currencies. The U.S. still
has a commanding lead as the economic powerhouse but countries like China
and Germany are close behind (Ezrati 2015). International financial markets
make up a large chuck and over time, the assets/liabilities that are in other
countries banks have grown to about ten trillion. In the chart below you can
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see the steady increase which puts international banks almost to the same
level as U.S. banks (Ivashina, Scharfstein & Stein 2015).
China is working its hardest to convince other countries to abandon the dollar
and to adopt the Yuan as their primary currency. They have been somewhat
successful in doing so; but even with this going on, the United States dollar
is still leaps ahead in terms of the strongest economy. It is a given that other
currencies like the Euro/RMB/Yen will grow over time, but none are in the
position to take over the dollar. These other currencies are not yet widely
accepted like the U.S. dollar, so that is a big crutch in them gaining strength
(Lew 2021). More recently, since June of 2014, the dollar has had a
significant spike in its strength up to about ten percent. This rise is beneficial
for the United States as it boosts foreign export prices, lowering the price on
imports and ultimately going to a path of low interest rates (Prakken &
Varvares 2015). This positive growth for the dollar also helps its popularity
and acceptance as a global currency, because if the economy is doing well
more countries are more likely to be open to accepting the transition.
According to the Harrell, Rosenberg, Cohen, Shiffman, Singh &
Szubin (2019), the United States has 6 pillars of economic leverage that keeps
it strong and at the top spot as an
economic powerhouse. Starting off the list would be the strength of the U.S.
dollar as the global currency. The United States dollar makes up about 605
of the total global reserves as well as more than fifty percent of the total debt
issuance. Companies that are issuing out debt want to do so in dollars because
the dollar market has so much depth and it makes it easier for them to spend
the money anywhere in the world. Since the dollar does currently dominate
the global market for those that don’t use the dollar are at a large disadvantage
to the prosperity that is available with the U.S. dollar. This would give the
United States a significant level of power over many other countries as they
relied heavily on the dollar to assist during their economic hardships
(Costigan, Cottle & Keys 2017). As touched on prior, countries like North
Korea will use companies in disguise to be able to directly affiliate with the
dollar to be able to have access to trade among other things. The next pillar
is keeping U.S. banks in good standing with foreign countries. This is
incredibly important since having a good relationship with U.S. banks gives
them full access to both the dollar to spend but as well as an overall
relationship with the United States. Foreign entities will not risk being in bad
standing because if they are, they could be subject to large fines as well as
losing access to the U.S. financial System. Costigan, Cottle & Keys (2017)
agree that especially in a post-World War era, the adoption of the dollar was
key to keep the strategic power of the dollar on the rise.
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The third pillar is the size and ability of the U.S. market. By the United
States having such a large economy, it can choose who they open the
economy to. When countries are faced with the ultimatum of continuing
business with the U.S. economy or dropping the other negative thing they are
doing. Most countries will comply with the United States wishes to be able
to continue their access to the prosperous dollar and economy. Skerritt (2019)
goes on to state that with hegemonic status the U.S. has to be able to say yes
or no to other countries doing business with them is the most effective way
to be a secure world power. This gives the United States a leg up when
making economic deals with foreign countries. Next up on the list is the sheer
depth of United States companies within global foreign supply chains.
Having such a large bandwidth of U.S. companies within these foreign supply
chains gives the U.S. economy an additional level of power. Skerritt (2019)
continues that with the current bandwidth of the United States in these foreign
supply chains, it further supports the idea that the U.S. is unable to be
challenged. This is great due to the other countries are relying so heavily on
the United States, which gives the U.S. a further sense of stability across the
world scale. The following pillar of having large bandwidth of investments
in foreign entities is another important pillar. This one is particularly
important because by the U.S. having large amounts of investments in foreign
countries means that the United States has that much more power over that
country economically. With the threat of being able to pull the investments it
keeps other countries in good graces with the United States. Lastly, having
very transparent requirements of the financial system. This is essential so no
matter what country is doing business, trading or utilizing the U.S. dollar
there are strict rules to keep everything running smoothly.
There has been a perception that the United States would have a
decline as the global leader. This perception comes from the momentum from
the financial crisis that have happened as well as the growth of currencies
from other countries. Even with the many factors that some perceive the
United States will lose its top spot, it won’t happen anytime soon (Keaney
2017).
As portrayed above the U.S dollar and its economy are very strong as
the global reserve currency. From the time it overtook the place of the Pound
up until the present day it is still dominating its role. By having a solid
background on the dollar, this paper will move into focusing on the U.S.
dollar direct involvement with foreign countries.
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THE U.S. DOLLAR WITH FOREIGN COUNTRIES
From the very beginning of the United States dollar, it has made
strides to continually progress in maintaining its status as the global reserve
currency. The U.S. dollar has made advances as other currencies around the
globe prove its worth as this dominant currency. This is something it has to
do to prevent other countries such as China or Europe from taking the
spotlight.
The United States dollar, for many decades, has been an essential
factor within the economy of the world. It is so essential to the global
financial system that no matter what consequences might stem from the
political or economic situations the U.S. goes though, it will still remain
dominant (Costigan, Cottle & Keys, 2017). The key to the U.S. dollar
dominance is that there really aren’t any other global options that check all
the boxes that are needed from a global currency. For example, the European
Monetary Union is mostly incomplete, which makes it not a good contender
for the spot. Places such as Japan have a variable debt situation which makes
it hard for the country to grow and other countries in the United Kingdom are
on an economic decline. In addition to that, the United States dollar makes
up over half of the foreign exchange reserves. (Segal, Goodman, Dongxiao,
Cory, Raymond, Reinsch & Ming, 2019). In feeble attempts to promote other
currencies, rather than the dollar, by these emerging countries have shown,
there isn’t a credible alternative that has been found. Since these developing
countries lack the resources to provide a currency that can rival the dollar, the
more developed countries are looked upon as the future issuers of a currency
that could go against the dollar (Faudot & Ponsot, 2016).
From a high-level perspective, the U.S. dollar continual dominance
from other currencies is comprised of a few key factors. The first being that
these newer growing markets look towards the dollar for safe assets, as they
know the dollar will not fluctuate as much as their currency will. The other
thing is the fact that so many foreign banks hold very large amounts of U.S.
dollar reserves that it would be basically impossible for a decline to happen
to the dollar without it wrecking these banks in the process (Roach 2020).
These countries that have vast amounts of debt are impacted in a negative
manner regarding the countries overall growth as compared to those with
much lower debt. The issue of debt is a large reason why a lot of these foreign
currencies have trouble gaining momentum and spreading in popularity
(Kharusi & Ada, 2018). The United States dollar connects with other
countries and their currency through four unique ways. Those ways being
through trade, foreign direct investments, the energy revolution and lastly
through its influence of the Federal Reserve over the global economy.
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The U.S dollar is used more widely across the globe than its
counterparts, like the RMB or the Pound, in foreign transactions. These
countries borrow and lend currency in the dollar rather than other easily
accessible currency due to the fact that these financial institutions can trust
that the dollar will always be there when they need it. The Federal Reserve
has set up relations with about 14 central banks in foreign countries to create
an easy swap of currency (Shatz 2016). For example, in France, the amount
of United States dollar exports rose almost thirty percent in the last 38 years.
Joining alongside France, Australia’s exports grew significantly as 75% of
them were invoiced using the dollar. Toping all of those would be Latin
American, who rely heavily on the dollar, totaled out upwards of 94% of their
exports were invoiced in the U.S. dollar (Faudot & Ponsot, 2016). As time
progresses, the U.S. dollar continues to prove its stability and dominance
around the world. These countries, especially Latin America.
McCauley, McGuire, Sushko, Michaelides, & Tanyeri (2015) state
that upwards of 3/4ths of the credit that is given out by the U.S. dollar are
coming from Europe area with countries like UK, Japan, Canada, and a few
Nordic countries. With that being said, China holds the number one spot for
currency held by U.S. dollars with a whopping one trillion dollars (Lew
2021). Even with that large of an amount, the dollar has such wide and deep
roots across the globe that there wouldn’t be a way for China to tank the
overall value of the dollar to make its currency look better. In 2008, during
the financial crisis the United States was going through, at that point in time,
the U.S had become the largest holder of debt and China was the country that
the U.S owed all the money to (Haar, 2020). China’s RMB would be the
dollar’s biggest competitor for the global reserve currency spot. With China’s
RMB continually striving to overtake the U.S. dollar a few things must be
taken into consideration of their currency. The first thing is it must be a freely
useable type of currency, meaning that it must have the capability to be used
in a wide range of international transactions like the U.S. dollar is able to.
Studies show that the RMB was not up to par for this status in 2010 but has
increased since 2015. Even with such an increase it still only accounts for a
fraction of the foreign exchange reserves as compared with the U.S. dollar
(Segal, Goodman, Dongxiao, Cory, Raymond, Reinsch… Ming, 2019).
During 2016, the United States saw a rise in both their imports and
exports, reaching upwards of almost 2%. This was an increase that hasn’t
been seen in many years. During this time, the U.S. dollar had increased in
overall value when compared to the other major currencies around the globe.
This increase was due to the significant increase in economic status
conditions that were being seen in the United States at the time. The stronger
the dollar becomes typically what happens is it will lower the price for both
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imports and exports, and this goes hand in hand with oil prices (Trantin,
2017). Countries like Russia and China are constantly challenging the United
States when it comes to oil prices and the available currency to be used to
make those transactions. It’s seen that a specific country’s currencies are
more likely to be used when the country’s currency is doing well because that
would entail lower crude oil prices. With the constant competition between
the United States with China and Russia, the U.S. uses a wide variety of
economic tactics to ensure that the dollar stays strong over their currency
while also maintaining low import and export prices (Harrell, Rosenberg,
Cohen, Shiffman, Singh & Szubin 2019). The dollar has had a certain grasp
on the reserve currency of the globe since after the second World War, but in
reality, if any other currency were to take command within the oil trading
industry, then the U.S dollar’s hegemonic status would take a significant hit
(Costigan, Cottle, & Keys, 2017).
Regarding the dollar’s hegemonic status, Roach (2020) expresses
that the United States dollar would be nearing its end. He predicted an
upwards of thirty-five percent drop as the country comes out of the worst part
of the pandemic in 2021. These claims are coming from an increase the
deterioration of the savings position that the U.S. once had, along with the
defense that there is no other option than the dollar is starting to crumble as
well. Even with these bold statements Roach (2020) goes on to conclude with
even the number of things that are starting to happen that negatively effects
the hegemonic status of the dollar, the dollar will continue to maintain the top
spot regardless of many thoughts of its downfall.
The United States dollar will continually have to deal with threats and
competition from other developed countries like, China, Russia and Europe,
as they strive to build up their currency’s status to attempt to overtake the
U.S. dollar for the spot of global reserve currency. Through this type of
competition with other currencies it actually works in the U.S. dollar’s favor
by continually making it strong since it has to adapt to any situation that may
arise. A situation that would significantly hurt all currencies and the world
economy was the COVID-19 pandemic. This was a situation that grew
rapidly from the start of its recognition and spread all over the globe effecting
everything.
TOLL THE PANDEMIC TOOK ON THE DOLLAR AND THE

ECONOMY
The impact that the COVID-19 pandemic had on the world was
unprecedented as it turned the global economy upside down very quickly, but
148
it kept the financial market down for about a year. Covid was seen as the most
serious crisis since that of the World Wars, by quite literally bringing all
economic activity to a screeching halt (Ke 2020). As seen in the chart below
you can see the significant impact that pandemic took on each of the major
countries.
149
(Kusumahadi & Permana, 2021)
150
As the pandemic grew, there was a rapid downward spiral in the

global financial market because of the fear of the unknown that was
overtaking the globe. The fear of the unknown pandemic that was making a
rapid appearance all across the world was causing investors to act out in an
unnormal way. According to Kusumahadi & Permana (2021), the S&P 500
index has a loss of over 5 trillion dollars. Since there was so much fear and
anxiety about the unknown pandemic, it was greatly affecting all economies
worldwide. Even the U.S. being the global reserve currency was heavily
affected. Stock prices show the strength and prosperity of the country, but
when a crisis like that happens it causes investors to make irrational decisions
thus greatly effecting the overall economy. Every single country in the above
chart experiences a negative trend when the pandemic emerged. In March of
2020 every country’s returns hit their lowest points as that was the beginning
of a global economic shutdown. However, countries that responded
positively with a plan of action were able to correct their trend and help it
increase back to normal levels quicker than others (Kusumahadi & Permana
2021).
Covid’s effect on the international monetary system was large, but
even with the negative impact it had it actually strengthened the international
currency status of the U.S. dollar. This was due to the fact that as the market
began to correct itself the majority of countries looked to the dollar as a sense
of safety and trust for the hope of improving the financial situation (Ke 2020).
However, in the future, the constant fluctuation of the monetary system could
actually open up an opportunity for the RMB to take the lead over the dollar.
The Chinese economy was able to get their market corrected back much
quicker and didn’t take as low of an initial blow as compared to the U.S.
economy. This actually brought to light that the Chinese RMB could actually
have potential to take the top spot from the U.S. dollar. China was on quick
with the realization of how slow the United States was to reach to the
pandemic as compared with them, thus opening the chance of the opportunity
for China’s RMB to make leaps in advancement while the U.S. dollar was
still down (Haar, 2020).
According to Ke 2020, the main cause of the failed global safety net
is because the dollar was the only safety net, so when it sank, the whole
financial system went down with it. The U.S. dollar isn’t in unlimited supply
so there is not an option to continually printing money when a crisis happens.
The solution is simple, diversify the international reserve currencies. This
means bringing currencies other than the dollar to the top and sharing the
spotlight. China is currently trying to put the RMB in the same spot at the
dollar to alleviate any uncertainties, as well as assist with stabilizing the
global economy. Even though during the main part of COVID, China wasn’t
151
being viewed in a good light as their narrative and the numbers they were
producing just didn’t match up with what was actually happening (Haar
2020). This could be good to help prepare for the next global crisis, but it the
meantime it would significantly cut down the momentum the dollar has built
over the past decades.
IMPLICATIONS FOR THE FUTURE
The future of the United States dollar is bright, and its path of growth
is pretty clear. It has had a great amount of support and use from the majority
of the world as the global reserve currency. The U.S. dollar will continue to
grow and adapt as new situations or economic conditions take place. The only
concern for the dollar would be another global pandemic. Due to the fact that
China’s RMB and their economy was able to recover quite a bit fast than the
U.S. economy. This might point out a weak spot for the U.S. dollar.
However, without another pandemic, the U.S dollar should continue
in hegemonic journey as a global reserve currency and continue to lead the
way for what other currencies should strive to be. With the amount of support
and depth the U.S. dollar has across the world in foreign centralized banks,
there shouldn’t be an issue with the dollar losing its momentum as the global
reserve currency anytime in the near future.
SUMMARY AND CONCLUSION
The United States dollar has grown significantly since the early
1900’s. Seeing the growth pattern the dollar has had since then is very
promising. It shows that the dollar has a good foundation for what it is based
on, as well as, it has deep roots globally, so it is very supported by the
majority of countries. With this kind of network, the dollar is very strong and
it would take a lot for it to be removed as the global reserve currency.
From analyzing how the U.S. dollar interacts and its role with other
countries, it can be seen that the continued support from other countries and
the amount of safety they see the dollar as having, displays the sheer power
of it. When comparing the dollar to other currencies that are working their
way to try and take the title of global reserve currency, it really brings to light
the negative qualities of the other currencies. Even with a global pandemic
tanking, the global financial system, during that time of distress people were
looking to the dollar for safety and the U.S. economy for assistance to get
back on their feet.
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The U.S. dollar has had a great trajectory since it became the sole
global currency. The momentum of the dollar will continue for many years
to come. The number of qualities that the dollar has when compared to other
currencies shows that there isn’t a real threat to the status of the dollar quite
yet. With that being said, until China’s RMB or another growing currency is
able to grow in popularity and trust to the level of the dollar, it will continue
to reign supreme.
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JOURNAL OF BUSINESS AND

PATIENT READMISSION RATES: THE FUTURE OF THE HOSPITAL READMISSIONS REDUCTION

COVID-19 AND HUMAN RESOURCE MANAGEMENT LITIGATION: WHAT SHOULD EMPLOYERS

A REFEREED PUBLICATION OF THE AMERICAN SOCIETY

Pani Chakrapani Shamsul Chowdhury

Marybeth McCabe Lisa Flynn

Karina Kasztelnik John Bennett

Sheldon Smith Saiful Huq

William J. Kehoe Z.S. Andrew Demirdjian

The Journal of Business and Behavioral Sciences is a publication of the American

THE GRAND “MAKE-OVER” OF THE UNITED STATES: TIME FOR DRAMATIC

PATIENT READMISSION RATES: THE FUTURE OF THE HOSPITAL

COVID-19 AND HUMAN RESOURCE MANAGEMENT LITIGATION: WHAT

indebtedness (later, perhaps higher tax efforts), complicated further by the

6. In re-thinking what changes are incumbent, resilience is required:

9. State and City planning departments will need to respond to

11. Last, the principles inherent in our federal system of government

chaotic times. Also, the democratic principles of this republic will

The oft mentioned desire to return to a state of normalcy when we are

The “best of times” remains aspirational if the changes mentioned

Mudassir H (2020). Covid-19 will fuel the next wave of innovation

Nicola A, Alsafi Z, et.al. (2020). The socio-economic implications of the

Key words: DE&I policies, diversity, equity, inclusion, systemic racism

In response to demands for change from anti-racism advocacy groups, new

CHANGES IN DIVERSITY POLICIES

It is important to understand the expanding definitions of terms from former

Disparate Treatment. Disparate treatment is defined as treating a similarly situated

Disparate Impact. Disparate impact refers to a deleterious effect of a facially

Stereotyping. Stereotyping is a standardized conception held in common by

Example. People of color represented in the highest levels of organizational

Intersectionality. Experiencing more than one type of discrimination at a time, e.g.,

Example. It is important to note that workplace protections from sexual orientation

A LOOK AT THEN TO NOW

▪ A county-level empirical analysis of structural racism and COVID-19 in the USA

▪ Sixty percent of employed Americans have experienced or witnessed discrimination

Specifically, regarding race discrimination in the workplace, a survey conducted by

OBSTACLES IN MOVING FORWARD

To engage in meaningful professional growth, a foundation of personal growth must

Egregious manifestations of racism and sexism are found by uncovering significant

TRAINING METHODS REIMAGINED

STEPS FOR IMMEDIATE ACTION

Conduct a Climate Survey. As with any healthy relationship, the employer-

administer the surveys independently and in a neutral environment. The results

Onboarding 1-month Class. A new employee’s perception of an organization is

given as homework to do personally in a quiet environment, profound revelations

#1. Write a 2-Page Personal Reflection on the following topic:

#2. Write a 2-Page Personal Reflection on the following topic:

Exercise – Cages. Examine the following excerpt of Oppression by Dr. Marilyn

Watch the video below: The Look

STEPS FOR LONG-TERM ACTION

EQ Training. HR professionals can utilize training methodologies associated with

of the group to be trained and the type of training to be administered. The

Americans with Disabilities Act of 1990, ¶ 602, § 102.

Bennett-Alexander, D., and Hartman, L. (2019). Employment Law for Business,

Berson, G. Z. (2020). Olivia on the Record: A Radical Experiment in Women’s

Equal Employment Opportunity Commission. (1980). Guidelines on discrimination

considered to be one of the most successful PPI interventions to improve quality of

healthcare organizations who aggregated their purchasing volumes by contracting

decision-making process and approve the clinical acceptability of all products