Ethical and Negotiating Case Study: Medical Sterilization, Inc. (“MSI”); Syosset, New York The Background:

Ethical and Negotiating Case Study: Medical Sterilization, Inc. (“MSI”); Syosset, New York The Background:

Topic category: Management

In 1991, MSI, a publicly traded firm providing electronic beam and steam sterilization services to local hospital surgical operating rooms and to sterile medical products suppliers such as Johnson & Johnson, was 36% owned by a Connecticut-based venture capital firm and the remainder of the outstanding stock was held by individual investors or investment trusts (none with any where near the 36% owned by the venture firm which for all intents and purposes had controlling interest at the Board of Directors level). For the hospitals, the Company provided their own surgical instruments in specific surgical case procedural kits (e.g., appendectomies; Caesarean sections; hysterectomies; prostatectomies; etc.) in sterile form and picked up the dirty kits from the previous day and returned them to the Company’s facility for cleaning sterilizing and repackaging. The Company accomplished this in a 100,000 square foot Food and Drug Administration (“FDA”) certified manufacturing facility with a very specific processing layout to avoid mixing dirty surgical instruments and containers with clean and sterile ones (which were delivered between 10 PM and 2 AM every night). Dirty procedural kits were delivered to the north side of the facility and carted into a negative pressure certified filtered clean room (to avoid material becoming airborne and leaving the room) with only fully gowned, booted, masked and gloved employees conducting the extraction from the trucks and the removal of the kits contents onto a conveyor system that was initially “bathed” to remove gross material in near steaming water and then reprocessed in the same room in cleaning baths to achieve cleanliness status. The clean surgical instruments were passed through a wall opening into a clean room with positive pressure but also with fully masked, gloved, gowned and booted employees who reconstructed each surgical procedural tray/kit according to specific contents requirements for the given procedure. Each tray was labeled and wrapped in sterilizer wraps and tapes (these darken when exposed to certain minimal levels of steam heat to indicate penetration and sterilization) and placed upon carts that were transported to the next room which was a series of large certified steam sterilizers that were sealed and, under pressure, heated to industry standard levels for complete sterilization of the kits. When the sterilization cycle was complete, the carts were transported to a clean room at the south end of the building where they were stored until a particular hospital pick list was generated and the appropriate surgical procedural trays/kits were loaded onto carts for delivery the client hospital general between 2 PM and 8 PM the next day. The Company’s trucks were steam cleaned before being loaded with sterile clean instrument carts and delivered the carts to the designated clean delivery areas at each client hospital. The trucks than returned to the same hospitals after making the last clean delivery to pick up the dirty trays/kits as FDA regulations do not permit mixing dirty and clean materials in the same areas. Thus the trucks could only return to the “dirty side” of the Company’s facility to unload the dirty/used trays/kits and had to be steam cleaned before they could reload with clean trays/kits on the other side of the building where the clean trays were stored.

In 1991, the Company had the following operating data:
+ Annual revenues of $8.1 million
– Net loss of $1.1 million in most recent year; the Company had never shown a profit since being established seven years earlier
+ 98 full and part time employees (most working over two shifts from 8PM to 4 AM and 4AM to 12 Noon)
+ 22 hospital accounts over the Greater New York/Long Island/Southern Connecticut area
+ Company fully paid all medical benefits and paid $100 per employee to an outside medical screening organization to conduct medical testing and annual health physicals for all employees on the anniversary of each joining the Company. Results of the annual physicals were reported confidentially to the Company, specifically to the Vice President of Quality Assurance (VP of QA) who kept the results of each employee examination locked in a secure safe on premises. The Problem:
As a result of the annual physical given to one employee, a medical screening report was issued to the VP of QA indicating that the individual had Hepatitis C, a virulent contagious disease of the liver that, in 1991, had no cure. It could be contracted via intimate contact, contact with the infected person’s blood and usually resulted in prolonged health decline and possible death as the liver failed to function over time. The employee in question had an excellent employment record and, indeed, was in line for the next available supervisor’s position as noted in his Company personnel records. The VP of QA immediately informed the President/CEO of the situation as it represented a hazard to fellow employees and the products the Company supplied to clients. The Company procedural requirements and policy dictated that the Occupational Safety and Health Administration (“OSHA”), a Federal agency charged with employee health and safety (for all those employed by the Company) be informed that an infected employee had been identified. Also the FDA, the federal agency had to be informed as that agency is charged with the safety and efficacy of medical equipment and supplies that are used in medical and consumer markets and the infected employee worked in the “Clean Room” and was in direct contact with the products being processed. To further complicate matters another (the third is a charm?) Federal agency, the Office of Economic Opportunity (“OEO”) interceded on behalf of the infected employee as it is charged with protecting the rights of the individual employee against unfair treatment and labor practices and being dismissed or threatened with dismissal especially if the employee has an exemplary work record (as in this case).
The Risks:
The OSHA and FDA agencies are threatening to shut the firm unless the infected employee is removed from the premises as he threatens the health and well being of other employees and the products the Company provides. The OEO is threatening a lawsuit to protect the infected employee’s right to work since a dismissal for Hepatitis C is not legal and will deprive him of his livelihood and coupled with his excellent work record to date. Furthermore, under OEO rules, the Company cannot divulge to anyone else his medical history or condition or it risks a lawsuit for that as well.
Your Task:
Prepare a written response as if YOU were the President/CEO outlining to the Board of Directors of the Company the actions you propose to take and why. Pay particular attention to the ethical conflicts generated as a result of the competing three federal agencies which are at cross purposes here and endanger the Company, its’ clients, its’ investors, its’ employees and the individual employee in question.
1. What are the issues?
2. How do you plan on addressing them?
3. What outcome(s) are you heading towards and what are the potential risks?
4. What would your negotiating points or stance be when you approach each of the three agencies, the employee, and the rest of the employees as a group?
5. What can you publicly divulge without violating the company’s trade secrets?
6. How might you consider the rights of the individual employee?
Some suggestions and “Don’t’s”:
A cure for Hepatitis C has been found and clinically made available over the last year (2010-11) to the public! But this is 1991 and Hepatitis C was a death sentence then so DO NOT say “Wait for a CURE!” or I will fail you automatically.
Research the three Federal agencies but keep in mind the rules have changed for them since 1991 (OSHA, OEO, & FDA).
The County of Nassau (NY) and the State of New York where the Company was based also had equivalent agencies to the federal ones PLUS the Nassau County Department of Public Health so the President/CEO had six (6) governmental groups top deal with, not three!The Company has never made money up this point in time and adding “full employment” for outside legal services was going to be a tremendous burden.




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