S-OX and Healthcare

13 11 2010

My introduction to Sarbanes-Oxley, hereafter referred to as SOX, came during my work as a trade analyst working to classify and qualify products for NAFTA preference during the importation process.  Our business utilized an Excel based template to enter equations and determine percentages of qualification for this federal program.  If during the copy and paste step of the formulas any error was made, we could be qualifying products that should not have been eligible, or vice versa.  Through our business’ implementation of SOX approved checks and balances, we were able to spot check our work for accuracy and ensure that we had applied the due diligence required by law to ensure the goods’ eligibility for importation incise reduction.  And that is the basic purpose behind SOX, to ensure a means of verifying data and implementing random audits to said data.

In the early 21st century businesses such as Enron Corporation and WorldCom began to fail after many years of falsifying investment books to hide their losses, and boost their profits (Kuschnik, 4).  Two US Senators, Mike Oxley and Paul Sarbanes, set about to “reinforce the framework established by the 1933 and 1934 Securities Acts,” per Mr. Sarbanes (Lucas).  To this end, they mandated that businesses be audited by independent auditors who work for an audit committee.  To again quote Senator Sarbanes:

“The auditors work for the audit committee: they are hired, fired, and overseen by the audit committee. They are not hired and fired by the very people they are auditing, which was previously the case. In the past, the management would hire and fire the auditors. It used to be that management hired and fired the auditors, who were responsible for blowing the whistle on the managers. This situation was risky because it gave rise to serious potential conflicts of interest. The legislation changed all of that” (Lucas).

In addition to incorporating independent audit protocols for for-profit organizations, SOX provided the ability for criminal charges to be levied against violating businesses, and instituted provisions to protect whistle-blowers who knew of fraudulent activities within the business (Kuschnik).

These implementations could have positive impacts on the health care industry in numerous manners.  One such impact involves hospitals that may be forced to adopt more strict ethics in regards to their financial decisions, which would limit the risks for investors; this could result in more capital for the benefit of the hospital, the patients, and the community at large (Ginn & Hetico).  With the transparency of audits required by SOX, investors who might otherwise be hesitant to invest their monies in health care, may find security in such a transaction.  Other impacts of a positive nature include the potential for improved health care.  Inadequate health care that is billed to a patient or covering agency may be regarded as fraudulent under the False Claims Act, if the monies were collected and a profit was made from such activity (Bader 2).  Through the involvement of SOX auditing protocols, these violations could be better discovered and steps to eradicate such issues could be made at the board level and implemented down to the individual staff members.

There are arguments against the inclusion of SOX in the health care industry are, in my opinion, weak and baseless.  Most circulate around the idea of the costliness of implementing auditing controls and the hiring of external audit committees (Bader 7).  I will agree that the initial task of creating audit control measures can prove time-consuming, and until the practice is second nature that the pulling of sample records for audits may be confusing; over time this becomes easier to complete and does not cause much, if any, downtime.  As for the hiring of external auditors or the expenses related to setting up audit boards, by working with other small medical practices in similar situations, resources can be shared, as long as the physician isn’t auditing his own practice.

SOX brings a level of accountability into all businesses that make a profit.  It creates a hierarchy of responsible parties, preventing any one individual from indemnifying themselves simply because they weren’t the one directly handling the record-keeping.  I believe that SOX makes all employees think twice of the risks associated with their involvement on any level in fraudulent or unethical behavior, and this secures a means for employees to safely alert official persons to investigate issues without fear of repercussion.  Having seen this in action in a few other businesses where I have worked, I find no reason to not support the idea of it being applied to the health care industry.

Works Cited

Bader, Barry.  “Applying Sarbanes-Oxley to Healthcare Quality.”  Great Boards: Volume X-Number 1.  Spring 2010.


Benner, Kate.  “Is Sarbanes-Oxley a Failure?”  http://money.cnn.com/2010/03/23/news/economy/sarbanes_oxley.fortune/index.htm.  March 2010.


Farrell, Greg.  “Sarbanes-Oxley Law Has Been A Pretty Clean Sweep.”  http://www.usatoday.com/money/companies/regulation/2007-07-29-sarbanes-oxley_N.htm.  July 2007.


Ginn, Gregory & Hetico, Hope.  “Applicability to Hospitals and Medical Organizations.”  http://medicalexecutivepost.com/2008/01/09/sarbanes-oxley-and-the-healthcare-industry/. January 2008.


Herrman, R. Michael & Malek, Linda.  “The Potential Impact of Sarbanes-Oxley on the Health Care Industry.”  New York Law Journal: Volume 229-Number 50.  March 2003.


Kuschnik, Bernard.  “The Sarbanes-Oxley Act: Big Brother is Watching You or Adequate Measures of Corporate Governance Regulation?”  http://businesslaw.newark.rutgers.edu/RBLJ_vol5_no1_kuschnik.pdf.  November 2010.


Liptak, Adam & Norris, Floyd.  “Justices Uphold Sarbanes-Oxley Act.”  http://www.nytimes.com/2010/06/29/business/29accounting.html?_r=1&dbk.  June 2010.


Lucas, Nancy.  “An Interview with United States Senator Paul S Sarbanes.”  http://findarticles.com/p/articles/mi_m0NXD/is_1_11/ai_n25101748/pg_8/?tag=content;col1.  November 2010.






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