Administrative Ethics and the Allocation of Scarce Resources


Recent economic forces have created incentives to change the structure of the United States (U.S.) health care system in order to achieve cost containment. Answers to concerns about high cost and complaints about the quality of care are explained by the conditions under which administrative and care decisions are made on a day-to-day basis.

This article provides an introduction to the complexities and challenges of making ethical resource allocation decisions about health care. It introduces the ethical dimensions of decision making as concerns accountability and resource allocation in a complex health care system. Additionally, it presents a recommendation for the use of distributive justice in the allocation of scarce resources. While the subject matter is relevant for all nurses, this article focuses on nurses who are particularly interested in policy-making and management practice.


The U.S. spends more on health care than any nation, and the cost of health care has risen since the mid-1960s at a rate in excess of the rate of inflation or economic growth. Recent incremental health reform efforts have placed increasing emphasis on market forces. These forces have in turn created incentives to change the structure of the U.S. health system in order to achieve cost containment. In spite of increased spending on health care in the U.S., we have not always improved health status (e.g., infant mortality rate). Some of the answers to concerns about high cost and complaints about the quality of care are explained by the conditions under which administrative, and care decisions are made on a day-to-day basis.

This article provides an introduction to the complexities and challenges of making ethical resource allocation decisions about health care. It introduces the ethical dimensions of decision making as concerns accountability and resource allocation in a complex health care system. While the subject matter is relevant for all nurses, this article focuses on nurses who are particularly interested in policy-making and management practice.

According to Silva (1990), the nursing profession has been largely silent about ethical dilemmas in management practice. Such "silence" is perplexing given the frequency of ethical problems experienced by managers. Borawski (1995) conducted a survey of nurse managers and found that a high percentage (28%) had experienced conflict between the moral obligations of their practice and the moral obligations of the profession. Competent and effective nurse leaders and managers must be able to deal with a wide array of issues: social, political and ethical, in the performance of their duties (Brosnan and Roper, 1997). This is critical not only to ensure the success of the organizations and systems in which they work but also to ensure that recipients of services obtain ethically appropriate quality care and treatment.

In the past, those who provided health care were presumed to be governed by beliefs in a set of ethical and social responsibilities that took precedence over economic concerns. Whether or not all providers have been guided by such ideals, providers, managers and policy-makers alike must now take them into consideration along with the health needs of recipients and the financial ramifications of treatment.

Today, some executives and managers are accountable to profit-oriented boards, depending upon the nature of the organization and its mission. State regulators must exercise regulatory oversight on local institutions associated with sophisticated multi-institutional arrangements. Some of these arrangements even span a variety of communities in different states. In the face of changing institutional missions and arrangements, third-party payers are likely to impose limits on expenditures based on criteria that neither reflect nor embody the traditional (altruistic) values previously associated with providing health care and professional service.

The mechanisms of accountability that were once appropriate to a health care system comprised largely of medical professionals and non-profit institutions no longer apply. The U.S. health system now takes into account the imperatives of corporate management, shareholders, and the investment community. This new, evolving accountability is complex, involving formal structures and new regulations. The question is whether this new accountability can ensure that public, private and professional interests (health related and financial) will be served. Policy makers and managers must reconcile the ideals of community service, trust, and professionalism that have long been associated with those who provide health care, in a world in which financial performance is demanded.

Overview of Ethical Principles

With the cost of health care rising rapidly, third-party payers are increasingly less willing to underwrite the cost of various procedures. Both physicians and managers alike face resource allocation decisions that were unheard of only a few years ago. When resources are limited (financial, technical and knowledge resources) equitable and appropriate distribution is necessary. Ethics as a disciplined study of moral decision making provides tools that individuals, organizations and communities may use to determine and justify the norms and structure the terms under which scarce resource allocation decisions are made.

Ethical Principles, Context and Decision Making

According to Hiller (1986), six ethical principles are relevant for health care leaders. They are: beneficence, non-maleficence, respect for persons, justice, utility and truth telling. In the field of medical ethics, the fundamental principles that guide decision making are autonomy, beneficence, and justice (Beauchamp & Childress, 1989). Policy-makers, managers and providers who face difficult resource allocation decisions may find distributive justice useful in making difficult decisions.

Policy-makers, managers and providers who face difficult resource allocation decisions may find distributive justice useful in making difficult decisions.

The use of ethical principles in decision making by health care providers, policy-makers and managers varies depending upon the context. Among providers, consideration for privacy, individual liberty, and freedom of choice is usually focused on the individual. Among policy-makers, managers, and in public health, autonomy, the right of privacy, and freedom are recognized as long as they do not result in harm to others. From a public or organizational perspective, autonomy may be subordinated to the welfare of others or to society as a whole. Each represents a different context.

Beneficence involves doing no harm, promoting the welfare of others, and doing good. In a public or organizational context, beneficence is the overall goal of policy and practice (public and organizational). As such, it is usually interpreted broadly in light of societal, population, or organizational needs. This is profoundly different than the usual concerns of providers who focus on the more narrow term of rights of the individual.

Justice, whether defined as equality of opportunity, equity of access, or equity in benefits is the core of public health. In serving an entire population, concern is focused on equity among defined social groups. This is an especially important consideration for policy-makers and managers alike regarding the need to protect vulnerable populations and to compensate for persons with disadvantages related to health, culture, education and economics. Distributive justice is important as it involves equitable and appropriate distribution of limited resources.

Ethics applied to populations evokes a number of dilemmas, many of which may be resolved in several ways depending on one's standards and values (also known as normative choices). Data and evidence are relevant to the normative choices that inform ethical decisions in both public and organizational contexts. The general assumptions that underlie the public context for ethical decision making are: the provision of care on the basis of health need without regard to race, religion, gender sexual orientation, or ability to pay; equitable distribution of resources while considering vulnerable groups (i.e., frail elderly, poor, disabled); respect for human rights, including the right to autonomy, privacy, liberty and health, while considering social justice (Roseneau & Roemer, 1996).

The ethical obligations of professionals who are health care executives and managers may vary considerably from those who are providers. While the focus of providers is the individual, the focus of policy-makers and managers is subordinated by obligations to the organization, populations or entire health systems.

Decision-making dilemmas in our system abound. How do we reconcile protection of the public's health and protection of individual rights when they are not mutually consistent? How should scarce resources be allocated and used? How should we balance expenditures and quality of life in cases of chronic and terminal illness? What are appropriate limits on the use of expensive medical technology? What obligations do health care insurers and health care providers have to meet the "right to know" of patients as consumers?

For managers, the ethical and equitable distribution of limited resources is no less critical than the financial solvency of the organization. When maximizing retained earnings is an expectation (such as in "for profit" organizations), fiduciary responsibility requires managers to distribute resources in such a way that the needs and wants of individuals may be pitted against those of the organization or plan and its shareholders. In countries and localities that employ capitated financing of health services, a comparable fiduciary responsibility and dilemma exists in representing and balancing public/government interests and demands against the demands made by individuals on limited public funds.

Distributive Justice

The ethical principle of justice requires that in an egalitarian society all individuals have an equal opportunity to access scarce resources. This ideal requires health care organizations and health plans to provide to individual recipients the care and services that each is due. Providers, managers and policy-makers alike struggle with the complex rules that explicitly define 'what is due'. In many situations, the language of rules (i.e., health plan benefits, public entitlements and organizational policy) fails to enlighten difficult, conflicted or ambiguous decisions. Nor do they always help to reconcile individual demands with the scarcity of the resource. In cases where individual interests and needs conflict with public interests and needs, providers in an organization are likely to feel they must represent the interests and demands of the individual under their care. This leaves policy-makers and managers to interpret or enforce rules governing the decision to allocate or deny resources.

These situations are contentious and difficult, especially if they are handled in a public forum. Articulated ethical principles such as those related to distributive justice may be useful to inform or guide difficult decisions (Armstrong & Whitlock, 1998). A discussion of how obligations may be calculated and met in management practice using distributive justice principles follows.

Six criteria inform allocation decisions when the dilemma calls for fairness in the distribution of scarce resources. According to Armstrong and Whitlock (1998), the criteria that inform the just distribution of limited resources are: need, equality, contribution, ability to pay, effort, and merit. Each criterion is weighted "in balance" by decision makers to determine whether justice is being served in a particular situation.

  1. Need: While the concept of need may appear to be a useful criterion, most patient situations (those NOT involving strictly elective procedures) involve a known medical need for treatment or service. This is complicated by the fact that individuals may perceive need differently than their professional providers or health plans. When providers advocate for an individual, the professional justification of need may be conflicted. Thus, this may not be the best criterion to base allocation decisions that impact the individual, the organization or society. Indeed, if allocation decisions were based on individual need alone, the finite resources of an organization or health system would be rapidly depleted. Once depleted, the consequences are predictable and both socially and clinically unacceptable.

  2. Equity: The concept of equity sounds relevant and useful; however, it rarely serves well as an effective criterion for allocating health care resources. For example, in any health plan, organization or society, there will be a wide range of demand for services ranging from individuals who require few health care services to those who require continuous care for life. No one would advocate the provision of services to healthy individuals just to get an equal share of publicly financed health care. Likewise, U.S. norms will not support the denial of health care to an individual merely because the number of services or cost of care has exceeded some predetermined quota. Even when payer policies or health plans DECLINE TO PAY, it does not weaken the ethical argument in decisions to treat (allocate or deny services). Resource allocation should not be based upon reimbursement policy ALONE.

    Part of the complexity of management practice and policy making is reflected in Medicare, Medicaid and private insurance plan benefit structures. All use some form of limited payment liability by not covering specified services or by limiting coverage to a maximum, predetermined dollar limit. The notion that a provider or plan would not consider other factors is abhorrent to us. Even egalitarian lottery, while useful in principle, is not utilized in the application of health care resources (even organ transplant allocations) because it is viewed as arbitrary and limited. It should be noted that consistent with our social norms, the historic justification for insurance is the pooling of funds based upon a contract to allow distribution of financial resources from those using less to those using more.

  3. Contribution: The consideration of contribution requires a determination of what an individual might be expected to give to society at a future date. To require a contribution to society as a prerequisite to receive services is likewise considered unfair as a precondition to receiving health care and services. The mechanism of projecting or determining future contributions for prospective recipients such as infants and children, or those from poorly educated and unskilled backgrounds is not realistically feasible. Furthermore, a uniform calculation basis for considering future social contributions is simply not known. In the face of advanced age would we consider past or future contribution?

  4. Ability to Pay: Decisions based on ability to pay are of limited benefit in making allocation decisions based upon the individual situation. Despite the pluralism that characterizes society in the U.S., we recognize and affirm the values of compassion and giving. Individually and collectively Americans give billions of dollars to private charities and to provide foreign aid. To deny health care services based on ability to pay is counter to the fundamental belief in generosity and charitableness held by most. Moreover, most citizens believe that health care in general is a necessity. This is particularly true when it alleviates suffering.

    Ironically, while public policy in the U.S. does not uniformly define a universal set of necessities, public financing programs such as Medicaid and Medicare do explicitly define benefits. Depending upon the individual situation, ability to pay may be considered a compelling criterion for consideration when decision choices involve "elective" treatment and where individual choice was considered in the selection of the health plan.

  5. Patient Effort: Patient effort may be a useful criterion in that patients who fail to observe medical advice or who are habitually non-compliant call into question the level of effort that they are willing to expend to help themselves. It is reasonable to consider the value of spending limited resources on individuals who have not contributed a reasonable level of effort (cooperation) to support the care they receive. This is not a relevant factor, however, in all cases, and would not be appropriate for situations involving children, mental impairment, and so forth. In situations involving chemical dependency and high-risk personal behavior, it is certainly controversial. One only need consider sexually transmitted diseases and smoking to realize the complexity of considering this criterion in withholding or limiting resources.

  6. Merit: From an ethical standpoint, perhaps the best criterion upon which one could base allocation decisions is that of merit. Defined as the potential to benefit from the additional investment of limited health care resources, merit is particularly valuable as a criterion upon which to base difficult or limited resource allocation decisions for individual and population-defined situations. The use of merit requires that data or evidence-based decision making be adopted. Empirically derived data from clinical research is especially useful. Availability of data and whether conflicting sources and authorities for data exist may complicate its use in a given situation.

Policy and Management Decision Challenges

The idea of making treatment decisions based on the availability of resources is repugnant to many. In an ideal world, there would be no limit to resources available. In reality, health care resources are now and will continue to be limited. Therefore, resources are being rationed based upon either implicit or explicit considerations or criteria. As the age of the U.S. population increases with its demands on scarce resources; providers, managers, policymakers, and recipients must all become involved in prioritizing the conflicting claims on these scarce resources.

Pressures are likely to continue on health plans and/or employers to approve high cost and controversial options that may have inadequate evidence to support decisions for their use. Transplants for instance may be demanded by severely ill patients and their treating physicians, even when there are data that indicate benefit may be unlikely. Such situations can spiral out of control and end up in the legal, media, and legislative arenas far removed from health care situations and decision makers. This is particularly true for controversial, high technology procedures and cases that attract the public's attention.

For executives of health plans and provider organizations, the challenge is to develop and implement a proactive, consistent, fair, scientifically sound process for handling treatment decisions. Employing a process to rationally and expeditiously deal with demands for experimental, extraordinary or high cost care before an organization finds itself in a politically charged situation is recommended. Van Amerongen (1998) calls for use of a strategy that employs the following elements: consistency, flexibility, full consideration of all medical factors (based on best medical evidence), ethical consideration for the patient, and optimal outcomes. Recall the recent public scrutiny of Mickey Mantle's transplant or the birth of the McCaughey septuplets in considering the merits of managers adopting an articulated proactive plan for such situations.

Issues in Resource Production and Access to Health Care: Social and Managerial Dilemmas

The production and acquisition of resources (health personnel, facilities, drugs, equipment, and knowledge) is not without consequences that force decisions about resource allocation. From a public health point of view, the need for equitable access to quality institutions and the fair distribution of health care facilities should take priority over an individual real estate developer's goals or the preferences of for-profit hospital owners. Policy makers and managers may ensure the availability of a number of facilities that create choices for communities. Whether the need is for public and private hospitals, community clinics and health centers, inpatient and outpatient mental health facilities, or long-term care facilities and hospices, the availability of facilities directly determines whether choice is an option. In many urban centers, when there is a lack of choice, what is at stake is the survival of facilities that provide an enormous volume of care for the poor. (Fogel & Mac Quarrie, 1994).

Policymakers and managers struggle to ensure the solvency of urban teaching facilities in order to ensure access to highly specialized care for vulnerable populations. They must consider profitability, competition and minimum access in a delicate balancing act that has profound professional, community and individual impact.

The development of various forms of managed care and health maintenance organizations, prepaid group practices, preferred provider organizations, and independent practice associations raises a different set of ethical questions. The U.S. managed care experience seems designed to minimize cost more than advance the effectiveness of health care. The anticipated benefits of managed care are being tested in use. If managed care ends up constraining costs by depriving individuals of needed medical attention (reducing medically appropriate access to specialists, for example), then it violates the ethical principle of beneficence by interfering with doing good for the patient. If publicly financed managed care for Medicaid and Medicare recipients are employed as a cost containment scheme without regard for quality of care, they risk the health of recipients (Roseneau and Roemer, 1996).

The expected advantages of managed care are: team practice, emphasis on primary care, generous use of diagnostic and therapeutic outpatient services, and prudent use of hospitalization, all contributing to cost containment. The possible disadvantage of managed care systems is that they may restrict choice of provider, underserve enrollees, and may only demonstrate cost containment through cost shifting (Lutz, 1981). It is policymakers and managers who must design and manage organizations that are ethical, effective and efficient.

The ethical issues in managed care are most sharply illustrated by the question of who decides what is medically necessary. Is it the provider, the health plan, the insurer, the employer, or the state legislature? This question is not unique to private sector managed care. It is also relevant to publicly financed care (Medicare and Medicaid). On the one hand, providers have a legal and ethical duty to provide the standard of care that others would provide in similar circumstances. On the other hand, insurers have traditionally specified what is covered or not covered as medically necessary in insurance contracts: a priori establishment of necessity.

As more and more integrated health care delivery systems are formed, as more mergers of managed care organizations occur, and as pressures for cost containment persist, ethical issues concerning conflicts of interest, quality of care choices, restraints on expenditures, and patients' rights will attain increasing importance. The principles of autonomy, beneficence, and justice will be severely tested in the resolution of the problems facing our complex, corporate health care system. If health care is delivered with expectations to achieve retained earnings (profit), as is the case today, then the ethical dilemma between patients' interests and earnings will be a continuing problem. Meanwhile, both consumers and employers are concerned about cost and quality of care (Mohr & Mahon, 1996).


Perhaps the impact of the array of problems, issues, and the myriad difficult decisions that policymakers and managers make may be softened by imaginative and rational strategies to finance, organize, and deliver health care when resources are scarce. Decisions related to scarce resource allocations must be made in consideration of the ethical principles of autonomy, beneficence, and especially justice. Ethical issues related to scarce resource allocation are likely to become increasingly complex in the future. Thus, it is imperative that health care leaders diligently and ethically continue to explore these issues.

Errata Notice:

P.J. Maddox, author of "Administrative Ethics and the Allocation of Scarce Resources," published December 31, 1998, recently advised us that she in some instances inadvertently omitted to give appropriate credit to one of her cited sources, an article by Christopher R. Armstrong and Robin Whitlock, "The Cost of Care: Two Troublesome Cases in Health Care Ethics," published in the Physician Executive 24(6) (November-December, 1998), pages 32-35. Dr. Maddox apologies for this oversight, which was unknown to us when we published the December 31, 1998 article in the form that we did.


P.J. Maddox, EdD, MSN

Dr. Maddox received her doctorate from Teachers College, Columbia University, New York, in Health Systems Administration. She came to George Mason University in 1995 from the National Institutes of Health (NIH), Bethesda, MD, where she was a member of the executive management team for the Clinical Center of the NIH. She has held executive management and academic teaching appointments in a variety of universities and academic medical centers. Dr. Maddox currently serves as Coordinator of the Graduate Program in Health Systems Management at George Mason University. In addition to healthcare finance, Dr. Maddox's academic and research interests are concerned with the application of qualitative and quantitative research methods in health management and in analyzing the impact of managed care arrangements on the cost, quality and access to health services. She also serves as faculty to the Center for Health Policy and Ethics and the Center for Outcomes Research and Data Analysis at George Mason University.

© 1998 Online Journal of Issues in Nursing
Article published December 31, 1998


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Citation: Maddox, P., (Dec. 31, 1998). Administrative Ethics and the Allocation of Scarce Resources Online Journal of Issues in Nursing. Vol 3, No. 3, Manuacript 5. Available: www.nursingworld/MainMenuCategories/ANAMarketplace/ANAPeriodicals/OJIN/TableofContents/Vol31998/No3Dec1998/ScarceResources.aspx