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Standards of Care and Standard Form Contracts  Page 1 of 61 - Exhibit 2

Articles Standards of Care and Standard Form Contracts: Distinguishing Patient Rights and Consumer Rights in Managed Care Wendy K. Mariner

Introduction

There is hardly a legislature in the country that is not currently debating the issue of patient rights in managed care. Not surprisingly, legislators, as well as reporters covering the debate, have called upon George J. Annas, Edward R. Utley Professor of Health Law and Chair of the Health Law Department at Boston University, for information and advice. Professor Annas has earned the title of  "father of patient rights" for his decades of research, writing, and advocacy on behalf of indi­vid­uals who need health care and deserve justice.¹

Today, however, one might ask whether patient rights are compatible with managed care.² After all, much of the impetus for managed care was to counter the rising demand for, and cost of, medical care. Much of the managed care industry's success in lowering health insurance premium costs may be attributed to limiting patient choices and treatments, especially in regard to the length of hospital stays.³ Indeed, the managed care industry does not speak of the rights of "patients."  Instead, it describes the rights and responsibilities of members or consumers. ⁴

Professor Annas critiqued "managed care's attempt to transform the patient into a consumer" because it portends the potential loss of important rights for everyone.⁵ The change in language both reflects and encourages conceptualizing health care as a market commodity.⁶While doctors and hospitals have patients, markets have consumers. Annas argues that if patients metamorphose into consumers, the law must continue to protect indi­vid­uals as patients. Just as he developed a model bill of patient rights in 1975,⁷ Annas now proposes a national bill of patient rights for the new era in which managed care plays a prominent role.⁸

Annas has been the trailblazer in patient rights, mapping new ground in law with succinct and pungent writing that captures the essence of a patient's place in medicine. He has left little for the rest of us to do but fill in the details. This article follows in that tradition by developing the distinction between patient rights and consumer rights and examining what the contours of law that protects both might look like. The first section of this article describes the difference between rights ascribed to patients and consumers respectively, and the general nature of laws that have traditionally protected each. Patient rights focus on the relationship between patients, phy­si­cians or other "providers" regarding the type and quality of care provided. Consumer rights focus on purchasing decisions before forming a provider relationship or agreeing to a contract. The second section differentiates the health care delivery and insurance functions of managed care that affect patient rights and consumer rights, respectively, noting that some elements have mixed effects. These differences are developed in the third section, which argues that current efforts to regulate managed care conflate patients with consumers, and that the resulting reliance on consumer choice to protect patient rights is misplaced. Section four outlines the problems with conceptualizing managed care issues solely within the consumer model. The choice of a health plan is but one of many rights today's patients deem important. However, an increasing number of Americans retain little, if any, meaningful choice of health plans. Consumer rights are necessary to help people choose a health plan, but they are not sufficient to protect patients when they need medical care. Moreover, consumer choice encourages a perception that managed care plans can be understood as simple contracts between willing buyers and sellers, with the contract defining all the parties' rights and duties. This raises the question whether contracts should supersede tort obligations in providing patient care. Section five argues that managed care issues cannot always be resolved satisfactorily by applying traditional contract principles exclusive of tort principles. Finally, section six suggests viewing managed care plans as a hybrid incorporating elements of standard form insurance contracts, far removed from the idealized contract model, as well as elements of professional service agreements for personal medical care traditionally governed by tort standards. While some contract doctrines may serve to protect consumers in their financial dealings, the law should protect patients as well as consumers in the complex reality of managed care relationships. Thus, there is a need for extra-contractual tort standards to protect the rights of patients, whether or not they are members of a managed care plan.  

1. Differences Between Consumers and Patients

A. Consumers

Consumers are buyers of goods and services. In the ideal competitive marketplace, buyers and sellers have equal bargaining power, so that their decisions to buy and sell are made freely, without coercion or undue advantage.⁹ Of course, the perfectly competitive market of economic theory has yet to exist. There are mul­ti­ple imbalances between buyers and sellers, in both information and ability to make choices and purchases. In some circumstances, the law has intervened to help make the buyer's bargaining position more equal to that of the seller.^l0

Buyers may be disadvantaged in two ways. They may be unable, wittingly or unwittingly, to make a voluntary choice, or they may be unable to make a desired purchase. Constraints on choice include lack of information or incorrect information about products. Buyers may not be aware of material facts about a product that might dissuade them from buying it. Also, adver­tis­ing influences some buyers' judgments in ways they may not recognize or desire. These informational constraints make it difficult for consumers to make informed choices about whether to buy a certain product. As to the second point, some consumers cannot buy what they would choose because they cannot afford it or it is not available where they are located. Others may have such an immediate need for a product that they must buy whatever is immediately at hand.

Consumer protection laws are intended to protect consumers' freedom to make voluntary choices, not purchases. The law does not concern itself with consumers' inability to pay for a desired product or service. The notion of consumer as buyer implies the ability to pay, but not the capacity to afford whatever one might choose given unlimited financial resources. One does not assume consumers as a class are equal in resources or ability to pay. Nevertheless, the law justified intervention to redress other imbalances in bargaining power.

The major tool of consumer protection laws is information disclosure. Where consumers are likely to lack information that is relevant to deciding whether to buy something, legis­la­tion requires sellers (or manufacturers) to disclose that information. For example, banks are required to inform borrowers of the effective annual percentage rate (APR) of interest charged on a loan.¹¹ Product liability law requires manufacturers and sellers to disclose product risks that would not be expected by the average prudent consumer.¹² The goal is to redress the imbalance in information between buyer and seller, thus moving toward the market ideal that consumers should have perfect information to make reasonably informed choices.¹³Consumer protection laws also prohibit deceptive marketing and adver­tis­ing practices.¹⁴

A second, less often used tool of consumer protection is product standards.¹⁵ The law rarely requires sellers to offer any particular product. However, both state and federal consumer protection legis­la­tion occasionally require that products meet certain safety standards. Both state and federal law prohibit provisions in banking, securities, residential lease, and consumer product sales contracts that are unfair or in violation of public policy. For example, banks are often prohibited from foreclosing on delinquent loans without giving the debtor an opportunity to pay the amount owed. Such statutory limitations typically apply to contracts of adhesion where individual consumers are seldom in positions of bargaining equality with sellers like banks and large corporations.¹⁶

Finally, consumer protection laws also serve the larger goal of promoting market efficiency. In this, they resemble antitrust laws, whose purpose is to foster free and competitive markets, where no seller is able to obtain monopoly power, to achieve the most desirable array of goods and services of the quality and at the lowest prices valued by the population.¹⁷

B. Patients

Everyone is, or will be, a patient, whether or not one has health insurance. The rights of patients developed outside the context of commercial markets, independently of health insurance, and without regard to the existence or source of payment for health care. ¹⁸ Although patients historically purchased their health care, patients were not considered consumers until very recently. This is because the concept of  "patient" denotes a recipient of health care services. Whether, or how, health care might be paid for is irrelevant to the status of patient. One becomes a patient when one is ill, injured or in need of medical care. Ordinarily, a patient is in a relationship with a physician, nurse or other health care professional. The law governing patient rights developed hand-in-hand with the medical profession's increasing capacity to cure disease.

Historically, patients never were in an "equal bargaining relationship" with their phy­si­cians. It was assumed that phy­si­cians have special knowledge and skills that patients do not possess.¹⁹ This is why patients seek the advice and care of phy­si­cians. This inherent imbalance in knowledge and skill is a defining characteristic of the physician-patient relationship. Moreover, patients are usual­ly sick and not able to function at their own normal capacity. Thus, while consumers are in a position of equal bargaining power with sellers, patients are in a position of inequality with phy­si­cians and other health professionals.

Unlike consumer protection law, the law of patient rights does not seek to give patients and phy­si­cians equal medical knowledge. Instead, the law accepts the inequality in knowledge and skill and protects patients by imposing on phy­si­cians a fiduciary duty to use their skills only in the patient's best interest and to provide medical services that meet professionally accepted standards.²⁰ In contrast businesses do not have fiduciary obligations to their customers.²¹ They are in an arm's length relationship.  In general, businesses are not legally bound to meet professional standards of care in their relationships with customers. Businesses may be liable for negligence, strict liability in the manufacture of their products, or misrepresentation. However, customer service does not include a legal duty to protect the customer's best interest or well being.²³

This is not to suggest that patients lack equal respect as persons under law. On the contrary, the doctrine of informed consent grants explicit recognition to patient autonomy and self-determination.²⁴ It is precisely because the patient is more knowledgeable than the physician about the patient's life and wishes, that courts have recognized the patient's common law right to decide what, if any, medical care he or she will receive.²⁵ The patient's right to decide what medical care to accept is somewhat analogous to a consumer's choice of what to buy. However, because medical care requires specialized knowledge that patients lack, courts have imposed on phy­si­cians the common law duty to provide patients with sufficient information to enable them to make decisions about what care to accept.²⁶ Thus, patient rights to make medical decisions require the correlative duty of phy­si­cians to provide information.²⁷

This contrasts with the consumer-seller relationship, in which there is no presumption of specialized knowledge and no general obligation to provide consumers with the information that consumers deem material to deciding to buy a product. Common law principles governing product liability require manufacturers and sellers to offer consumers warnings of risks that would not be expected by the ordinary. ²⁸ However, warnings about medical devices and drugs that are available to patients only through phy­si­cians by prescription need only be given to phy­si­cians.²⁹ This is because their use requires specialized medical knowledge. The physician should act as a "learned intermediary" between the manufacturer and the patient by weighing the risks and benefits of a particular product and by determining whether to recommend it to a patient. Of course, the patient still has the right to reject the recommendation. But it is the physician, not the manufacturer or seller, that has the obligation to provide information to the patient. 

Since the patient rights movement of the 1970s, patients have consistently received more protection than consumers. While consumers may have access to some of their credit information, patients are entitled to all the information in their medical records because the information belongs to them. Some patients' rights have no analogy in the marketplace. For example, the right to privacy during the course of medical treatment is based on the need for openness and trust in the physician patient relationship, and the fact that the patient often must expose his body to the physician.³⁰

Of special importance is the recognition of patients' rights to emergency care, beginning with court decisions in the 1960s³¹ and culminating in state and federal legis­la­tion requiring hospitals with emergency depart­ments to provide care to patients with emergency medical conditions regardless of insurance coverage or the ability to pay.³² This is the only right to medical care enjoyed by all Americans.³³ The right to emergency care is an entitlement unique in the common law and it is justified entirely by patient need.  Not even housing or education assumes equal importance in the law.³⁴

Courts have recognized patient rights primarily to protect patients against the possibility of phy­si­cians' misuse of expertise. It is little wonder why courts are willing to protect patients where they would not protect consumers. In addition to the difference in circumstances, lack of protection in matters of health care can result in serious disability or death. Moreover, patients do not choose their own medical treatment in the same way that consumers choose to buy services. For the most part, providers must first determine what is appropriate for the patient, and the patient may only accept or refuse what is offered by providers.³⁵

Courts have consistently viewed physician responsibilities to patients as a matter of tort law governing standards of conduct to prevent personal harm.³⁶ The law imposes legal duties on phy­si­cians regardless of their consent.³⁷  In contrast, consumer rights are based primarily in contract law, where the defining characteristic is the voluntary consent of both parties to the contract terms. Courts have not permitted phy­si­cians to contractually alter their fiduciary duties.³⁸

II. Patient Rights and Consumer Rights in Managed Care

Table I of this paper offers a possible classification separating managed care issues into predominantly consumer concerns and predominantly patient concerns. For the purposes of this classification, consumer concerns are defined as issues that are relevant to decisions to purchase and/or join a managed care plan. Patient concerns are defined as issues that are primarily relevant to personal health care, independent of payment. There are, of course, issues that concern both consumers and patients. Included in a third category of mixed issues, shown in Table II, are those issues with the strongest claim to both concerns. This classification does not purport to be either exhaustive or immutable. It is intended primarily to demonstrate that there are important differences between protecting consumers and protecting patients.

companies so that companies will be able to make promised payments to claimants.³⁹ A managed care plan is, in part, an insurance policy. Thus, consumer issues in managed care include a managed care organ­i­za­tion's financial solvency and investments. Furthermore, man­age­ment capacities are relevant because managed care organ­i­za­tions promise to deliver not money payments but health care services to those insured. This requires sufficient expertise and organ­i­za­tion to maintain relationships with and pay providers for the duration of the service period. In addition, the providers must be sufficient in number to provide the services promised to the consumer in the future. Indeed, this assurance is the basic product the consumer seeks. Because medical services are to be provided in the future, and not at the time of the signing of the contract, consumers are justifiably concerned with a managed care organ­i­za­tion's ability to provide care at a later date. A reasonable consumer would not be likely to enter into a contract with an organ­i­za­tion that offered no assurance of being able to fulfill its promises.

Many consumer concerns are information-related because consumers are presumed to base purchasing decisions on information about the products. As noted earlier, the law rarely concerns itself with the nature of products on the market. The managed care industry argues that government should not impose content requirements for managed care plans because organ­i­za­tions should be free to offer a variety of insurance products, and regulation would stifle innovation.⁴⁰ Instead, the emphasis is on facilitating consumer choice by offering information that describes various plan "products."⁴¹ Thus, consumer concerns include disclosure of information about the benefits covered and excluded by a managed care plan, limitations on benefits, and procedures that must be followed to obtain care or coverage. Their concerns also include disclosure of information about phy­si­cians and other health professionals, such as licensure, specialty certification, years of experience, malpractice claims, location, and whether they are accepting patients. Consumers are also concerned with obtaining similar information about health care facilities. Disclosure requirements do not impose any spe­ci­fic substantive requirements on the care provided. However, they help consumers learn what kinds of care may be expected, where, from whom, and under what conditions.

B. Patient Concerns

The quality of care is a uniquely patient-oriented concern, independent of payment.⁴² Quality includes the competence of providers in diagnosing, preventing, and treating illness and injury. Concerns about the quality of care arise primarily when one becomes a patient and seeks diagnosis, prevention, or treatment. The law of professional negligence, of course, imposes on phy­si­cians and other providers a duty of care to patients, without regard to payment.⁴³ The duty arises out of the provider's special knowledge and skill in the treatment of human beings, and the exclusive authority to use that knowledge as conferred by state licensure. Physicians are directly and personally accountable to patients for injuries caused by their failure to conform to the professional standard of care.⁴⁴ Physicians cannot require patients to accept a lower standard of care or waive the right to sue for malpractice.⁴⁵

Other concerns traditionally associated with receiving medical care include privacy and confidentiality of personal medical information. Patients have come to expect their phy­si­cians to keep their personal information confidential and not to disclose it without the patient's approval. Courts justify a physician's obligations to keep patient confidences in order to encourage patients to tell their phy­si­cians anything that might facilitate diagnosing and treating medical conditions.⁴⁶

Arguably, a person ceases being a consumer and becomes a patient upon enrollment in a managed care plan. This is because the individual's relationship with the organ­i­za­tion and its health care professionals is no longer that of buyer to seller. When the person begins to use the plan's services, he or she is a patient. Moreover, as a practical matter, since almost all managed care plans are in effect for a fixed term, typically one year, the consumer is not able to leave the plan, rescind the contract, or return the product until the end of the term. Thus, the person cannot act like a consumer again until the term expires and he or she can choose to remain in the plan or buy a different product.

C. Mixed Concerns

Several components of managed care are relevant to indi­vid­uals both as consumers and as patients. Although the package of benefits covered by an insurance policy traditionally was considered part of the consumer contract, indi­vid­uals are also concerned about the type of treatment they will receive as patients in the event of illness or injury. This is why the so-called bills of patient rights before many legislatures typically include a few spe­ci­fic benefits. The most widely accepted mandated benefit is coverage of emergency care when an individual reasonably believes that serious illness or death could result from an injury or acute medical condition.⁴⁷

Both patients and consumers also have interests in the providers who will take care of them in a managed care plan. Patients and consumers have concerns about access to qualified phy­si­cians and other health professionals who are capable of properly diagnosing and treating their medical conditions. Managed care plans that have a closed panel of phy­si­cians place contractual restraints on the patient's freedom to consult any licensed physician. The managed care industry often considers the number and specialty of phy­si­cians and hospitals in a plan's net­work as one component of the benefit package specified by the insurance contract.⁴⁸ The available pool of providers is also a critical element of the quality of care for patients. Thus, basic requirements such as professional or facility licensure, certification, and accreditation are relevant to both patient concerns about the quality of care they receive, and consumer concerns about the qualifications of the providers to whom they have access through a health plan.

Other factors influencing provider competence and the quality of care can be relevant to both patients and consumers. For example, consumers as well as patients have an interest in ensuring that decisions about their care will not be influenced by conflicts of interest. Thus, statutory prohibitions against referral arrangements, such as those barred by the Medicare Anti-Kickback Statute⁴⁹ and Stark Amendments⁵⁰, so serve both consumers and patients. The same is true of statutory prohibitions against gag clauses that bar phy­si­cians from telling their patients about how they are financially compensated by a managed care plan.⁵¹

Both patients and consumers also have legitimate interests in holding a managed care plan accountable for intentional or negligent errors. Ordinarily, consumer interests lie in enforcing fair contract provisions, including promised benefits, while patients are concerned about the quality of care they receive.⁵² In addition, both consumers and patients have an interest in non-discriminatory treatment and access to plan services. In all instances, consumers and patients expect the plan to be accountable for its promises and obligations. Thus, the plan's legal re­spon­si­bil­ity for its acts and omissions is of critical concern, as are the means to enforce that re­spon­si­bil­ity, the remedies, and the damages available. Although the substance of particular disputes may vary between consumers and patients, managed care plans often provide the same internal remedy, grievance or appeal procedures, for both groups. Thus, one must address the fairness of mechanisms to hold managed care plans accountable simultaneously for both patient and consumer concerns.

III. Conflating Consumers with Patients

The call for regulation of managed care stems from recognition that patients need protection against managed care abuses. ⁵³ However, most proposals for patient rights recently debated in Congress and state legislatures focus on protecting consumer concerns.⁵⁴ Such bills included provisions requiring managed care organ­i­za­tions to give their members information about health plan benefits and limitations, phy­si­cians in the net­work, treatment preauthorization rules, and grievance procedures.⁵⁵ This is consistent with the assumption that, like consumer protection laws, the legis­la­tion's goal is to permit consumers to make a knowledgeable choice of health plans, not to prescribe what the products should be. 

Some legis­la­tion requires that health plans cover emergency care and other mandated benefits, such as requiring health plans to pay for a minimum post-delivery hospital stay for women and their newborns.⁵⁶ Some require health plans to permit standing referrals to specialists for certain medical conditions,⁵⁷ while still others prohibit "gag clauses" in contracts with phy­si­cians.⁵⁸ So far, sixteen states require external review of some or all denials of benefits.⁵⁹ In addition, Medicare and Medicaid regulations limit the financial incentive arrangements that participating managed care organ­i­za­tions may use to compensate their phy­si­cians.⁶⁰ These spe­ci­fic statutes resemble consumer protection laws that impose individual product safety standards or bar particular practices in response to consumer com­plaints about spe­ci­fic dangers or deceptions. Laws requiring minimum post-delivery hospital stays, for example, were prompted by outrage from women who felt that they were being denied necessary medical care promised under their health plan.

There has been little pressure, however, for laws that would regulate corporate governance, for-profit or nonprofit status, overall health plan benefit structures, operating expenditures, "medical loss ratios," utilization review standards, or other larger issues. The result is legis­la­tion that tells consumers more about what health plan "products" are on the market, but does little to make the product "safe." Moreover, many state laws are not enforceable against managed care plans offered by employers and unions that are governed by the federal Employee Retirement Income Security Act (ERISA).⁶¹

Fed­er­al legis­la­tion could produce a true national bill of patient rights that Professor Annas proposes. This is because federal legis­la­tion could apply to all patients, regardless of their insurance status.⁶² By and large, however, federal efforts to regulate managed care mimic state law proposals and suffer from the same narrow focus on consumer concerns. Therefore, federal legis­la­tion preempting state law may result in patients having fewer rights than they have now. State managed care legis­la­tion at least has the virtue of leaving patient rights under state law undisturbed.

The legislative emphasis on consumer, as opposed to patient, rights can be illustrated by the recommendations of the President's Advisory Commission.⁶³ One would expect any bill of rights to include the right to informed consent. The Commission's surprisingly worded recommendation says that "consumers have the right and re­spon­si­bil­ity to fully participate in all decisions related to their health care."⁶⁴What counts as participation is not clear. Although the commentary includes a good list of information subject to disclosure, it does not indicate whether its conception of this right includes the well-established right to refuse treatment for any reason.⁶⁵ Similarly, the Commission's statement of a right to confidentiality of health information is less protective than existing law.⁶⁶

The Advisory Commission also recommended that consumers should have "a right to a choice of health care providers sufficient to ensure access to appropriate high-quality health care."⁶⁷ This does not mean that consumers are entitled to choose their health plan or their phy­si­cians. The Commission rejected any requirement that consumers be offered any particular choices. ⁶⁸ As the commentary makes clear, it amounts to a duty on the part of managed care plans to contract with a minimum number of providers to provide covered benefits for plan members.⁶⁹ The Commission argued that this "right" is justified because it benefits the marketplace to have consumers choose among competing "products." The Commission described consumer choice as the "hallmark of a healthy marketplace," enhancing consumer satisfaction and confidence in their caregivers. This may be true, but it is thin justification for a legal right. If, in the future, consumer choice turned out to hinder a "healthy marketplace," would that mean that the consumer's right to choose should be revoked? There was no men­tion of the value of having the market provide products that consumers need. In essence, it was assumed that because the market is the best way to meet the needs of consumers, patient rights should be limited to those things that promote the efficient functioning of a market. This turns the role of patient rights on its head.

IV. Problems with the Consumer Model

The debate over patient rights in managed care and the proposed protective legis­la­tion are based on an idealized consumer model. Proponents of a competitive health insurance market argue that consumer choice will force managed care organ­i­za­tions to compete by improving quality and service, as well as lowering prices, to meet consumer demand.⁷⁰ Hence, the emphasis is on improving consumers' ability to choose among plans by providing accurate and unbiased information. But there are both empirical and conceptual problems with this approach. As a practical matter, consumers are not free to exercise the choices on which a competitive market depends. Furthermore, it is unlikely that they can, or will, make choices about their medical care that will solve the problems of quality or price. In addition, if contract law is the dominant legal paradigm for consumer rights, contract obligations that ignore important concerns of patient care may displace important patient rights now governed by tort law.

Characterizing members of managed care plans as consumers is both inaccurate and misleading. It assumes that indi­vid­uals select and negotiate their own individual contracts with health plans and insurance companies. The emphasis is on the consumer's freedom to choose. But only a tiny proportion of managed care members buy their membership individually from a managed care organ­i­za­tion. This portion includes people who are self-employed and employees of businesses that do not offer group health insurance.⁷¹ Most people obtain their health insurance through their employer or union's group health plan.⁷²  The employer's benefit manager or financial officer typically selects the health plans that the company offers to its employees. Some employers negotiate the terms of the insurance contract but many simply choose among standard plans offered by the managed care organ­i­za­tions and insurers.⁷³ Employees must choose from one or more plans in final form on a take it or leave it basis.⁷⁴  The employee cannot renegotiate the terms of the plan. If the employee is displeased with the plan's offer, his only option is not to enroll. Of course, many employees do not even have that option because their employer only offers one plan.⁷⁵ Furthermore, some plans charge such high premiums that employees cannot afford them, so that choice is illusory.⁷⁶

Critics of employer-provided group insurance argue that most employers base their choice of plans almost exclusive­ly on price, preferring plans with low premiums, with little attention to quality.⁷⁷ The Health Plan and Employer Data and Information Set (HEDIS),⁷⁸ developed by large employers with the National Committee for Quality Assurance, is a welcome attempt to evaluate the quality of care provided by health plans. Unfortunately, the information's utility is limited. It relies primarily on counting the number of members who receive relatively simple procedures like mammograms and immunizations. Patients are more likely to want information about how plans treat diabetes, different forms of cancer, and other complicated conditions. However, it is difficult to measure quality in such cases because of the differences in standards of practice in different locations, and the fact that therapeutic standards are often a moving target. Thus, employers who want to assure their employees of good quality health care find it hard to obtain useful comparative information.

Thus, managed care contracts do not fit the idealized competitive market model of a voluntary negotiated agreement between two indi­vid­uals of equal bargaining power for mutually beneficial trade; the contract is not necessarily voluntary, nor does the individual negotiate it. Indeed, in group health plans, the contract is not between indi­vid­uals at all, but between companies. The individual has no bargaining power and little awareness of the bargaining process. The result is often "membership" in an off-the-shelf standard form plan about which the individual knows little more than the price and rudimentary information about benefits and exclusions. Under these circumstances, it is unlikely that consumer choice can, or will, play the role expected of it in managed care.

V. Problems with the Contract Model

Managed care brought together elements of health insurance and patient care that traditionally have been handled separately by the law. Most courts that have reviewed disputes between patients and managed care organ­i­za­tions have felt constrained to categorize the issues for decision as either wholly contract issues or wholly tort issues.⁷⁹ This has proved particularly problematic in cases involving benefit decisions that influence the nature of patient care, because benefit decisions are typically governed by contract, while patient care decisions are typically governed by tort law.

In Kuhl v. Lincoln National Health Plan of Kansas City, Inc.⁸⁰ the Eighth Circuit faced the question of whether the choice of a particular hospital should be considered a decision about covered benefits under a health plan contract or a decision about the quality of care to be provided.⁸¹ In April 1989, Buddy Kuhl had a heart attack. All the phy­si­cians who examined him agreed that he should have surgery at Barnes Hospital in St. Louis because the hospitals in Kansas City did not have adequate equipment for the surgery. ⁸² Kuhl's health plan, however, was located in Kansas City, and would not authorize the surgery to be performed at Barnes because Barnes hospital was not in its net­work of participating providers.⁸³ In July, the plan reversed its decision, but the Bames surgical team was not available until September.⁸⁴ By then, Kuhl's heart deteriorated to the point where surgery was no longer possible, and his phy­si­cians recommended a heart transplant to save his life.⁸⁵ Pre-certification for a transplant at Barnes was also denied, and Kuhl died in December before his request for reconsideration was decided.⁸⁶ Kuhl's wife sued the plan for medical malpractice, claiming that the plan wrongfully delayed heart surgery.⁸⁷ The court of appeals found that there was no valid malpractice claim because the plan did not make a medical decision. Instead, it characterized the suit as a claim for denial of benefits or improperly processing a claim for benefits defined by the group health plan. ⁸⁸

The court's decision is unsatisfying because it fails to recognize the medical treatment choices imbedded in the plan's actions. Both the patient's medical condition and the recommended surgery were concededly covered as part of the plan's benefits. Thus, the plan did not deny the benefit itself. The plan's objection was not to the surgery, but who performed it and where. A re­spon­si­ble plan would undoubtedly consider the quality of care in selecting a hosptal to provide surgery for its members. Thus, the plan's choice of hospital entails a representation that it will provide good care for a patient. At the very least, the plan's decision has elements of medical judgment for a covered benefit. Like the Lincoln National Health Plan, many health plans limit the providers who care for their patients in order to control both the cost and quality of care. Decisions about how to provide care may share some procedures with decisions about whether a condition or treatment is a covered benefit, but they are also decisions about the quality of care. Medical decisions are often so entangled with benefit decisions that any distinction between the two appears artificial.

The mixed nature of many managed care decisions blurs the boundary between medical and benefit decisions that courts use to classify legal claims. By and large, benefit decisions have been judged according to contract law, while tort law governed medical decisions. But just as it is difficult to distinguish benefit decisions from medical decisions in managed care, it is often impossible to neatly separate contractual issues from tort issues in managed care disputes. An insurer's obligation to decide claims in good faith, for example, is an extra-contractual duty enforceable by a tort cause of action on the part of an insured. These duties, however, are limited to the insurer's actions in deciding whether a claim qualifies as a covered benefit.

Managed care goes further. It has imported into its contracts service obligations and standards of professional conduct ordinarily governed by tort law. Managed care plans sometimes offer services directly to their members, such as advice and assistance in selecting particular phy­si­cians, hospitals, and treatment. They may encourage members to use the plan's preventive care services and exercise club activities. In addition and monitor phy­si­cians, hospitals, and other service providers that their members use.⁸⁹ They may also specify a drug formula to be used by providers. The methods used to pay providers may create incentives to recommend particular treatments and not others.⁹⁰ Paradoxically, then, contractual provisions affect the type and quality of care provided to patients, and tort standards govern the services provided as insurance benefits. It is becoming impossible to characterize components of managed care as wholly contractual or wholly tort, which makes it quite difficult to determine which body of law governs.

If all managed care decisions are benefit decisions governed by contract, then it is impossible to hold the health plan accountable for its influence on the quality of care provided to the patient. For example, suppose that a managed care plan covers services provided only by phy­si­cians that it has selected to be in its net­work. For several years, a patient with a recurrent cough is seen by a net­work physician who negligently fails to diagnose lung cancer until the patient is terminally ill. Under the benefit/quality-of-care distinction, the plan satisfied its obligations to the patient to provide covered benefits by paying for visits to its participating physician. Although the patient's estate may have a cause of action for negligence against the physician, it will have no case against the health care plan even though the patient's choice of physician was influenced by the fact that the plan selects and pays for that physician's services. The patient might have made the effort to see another physician outside the net­work, but that option would have appeared unnecessary because treatment was a covered benefit. The patient's right to obtain medical care that meets acceptable medical standards was affected by the plan's selection of a limited net­work of phy­si­cians to provide covered benefits. A plan has a re­spon­si­bil­ity to ensure that its phy­si­cians are competent and provide acceptable medical care for covered medical conditions^.91 This is a tort obligation, but it arises out of the plan's contractual obligations to the patient.

Several commentators argue that indi­vid­uals should be free to agree to a lower standard of care in return for paying a lower premium or fee. This, in effect, waives their right to bring a negligence suit for substandard ⁹² Arguments against permitting such contracts include the patient's relative lack of bargaining power and the difficulty of appreciating what a lower or different standard of care might mean. But such proposals raise the broader question of whether contract provisions should supersede any and all patient rights grounded in tort.

For example, suppose that a patient refuses a recommended amputation to stop a gangrenous infection, and therefore requires a lengthy hospitalization.⁹³ Could the patient's health plan refuse to cover the hospitalization on the ground that it is not medically necessary and therefore not a covered benefit? The patient might have avoided hospitalization had he agreed to amputation, and the plan would have avoided the resulting expense. But the insurance contract should not override the patient's right to refuse treatment. If the plan properly upholds the patient's refusal, can it still deny coverage of the hospitalization? What if the contract provides it will pay only for treatment that it has pre-authorized as medically appropriate, and that other forms of treatment will not be covered? As long as the treatment options are medically acceptable, patients who exercise their right to refuse treatment should not be penalized by forfeiting their benefit coverage.

There are many exam­ples of the ways that tort-based patient rights and contract-based health plan rights can interact and conflict in managed care. Patient rights to confidentiality of their medical information are often affected by insurance contracts. Employers may obtain patient records to monitor health plan costs for their employees.⁹⁴ But disclosure of personal medical information violates a patient's right to confidentiality. Contract provisions requiring patient consent to disclosure effectively vitiate this right.

For many years, courts insisted that buyers have an obligation to read the terms of their contracts and are bound by them whether they read them or not.⁹⁵ During the 1960s and 1970s, many courts and commentators found that classical contract law theory failed to capture the reality of agreements or their performance, and, as a result, the courts fashioned more flexible standards for interpreting contractual obligations.⁹⁶ Many courts have claimed to interpret provisions in light of the parties' expectations.⁹⁷ Others allowed the parties' deeds or oral representations to modify contractual obligations on the ground that the actions spoke louder than written words.⁹⁸ However, there has been little judicial challenge to the premise that the goal is to interpret the contract itself, not to require the contract to conform to any broader goals of social policy. Moreover, the past decade reveals evidence that courts may be returning to a more classical approach to deciding contract cases.⁹⁹ This includes perpetuating the untenable assumption that people know and understand all the terms and conditions of a written agreement, and therefore, have agreed to them and should be bound by them.

Several scholars used classical contract theory to argue that patients should be bound by exclusions and limitations in their health insurance contracts.¹⁰⁰ The argument is usual­ly part of a strategy to reduce health care costs by reducing the demand for health care covered by insurance. It is assumed that when patients get sick, they often want medical care that is not covered by their health insurance contract and that courts often grant coverage in spite of contract exclusions. ¹⁰¹ The remedy is better enforce­ment of contractual limitations. This is sometimes justified as upholding the individual patient's "freedom" to choose a cheaper health plan with fewer benefits. ¹⁰² Insurers would then be justified in refusing care that is not covered because the limitations were freely and rationally agreed to by both parties to the contract.

This argument carries an eerie echo of Lochner v. State of New York ¹⁰³ in which "freedom of contract" was used to justify enforcing contracts of adhesion against employees.¹⁰⁴  Long ago, Professor Freidrich Kessler warned of the dangers of such freedom:  

• Society, when granting freedom of contract, does not guarantee that all   members of the community will be able to make use of it to the same   extent. On the contrary, the law, by protecting the unequal distribution   of property, does nothing to prevent freedom of contract from   becoming a one-sided privilege. Society, by proclaiming freedom of   contract, guarantees that it will not interfere with the exercise of power   by contract. Freedom of contract enables enterprisers to legislate by   contract and, what is even more important, to legislate in a sub­stan­tial­ly   authoritarian manner without using the appearance of authoritarian   forms. Standard contracts in particular could thus become effective   instruments in the hands of powerful industrial and commercial  overlords enabling them to impose a new feudal order of their own   making upon a vast host of vassals. ¹⁰⁵

Fears of such overreaching may motivate public backlash against managed care. Even if such fears have no foundation, they undergird strong resistance to blind enforce­ment of contracts. Where courts declined to enforce contract limitations, they sometimes resorted to unpersuasive textual interpretations, finding ambiguity where there was none, or questionable applications of consumer expectation theories to avoid serious harm or expense to patients. Such interpretations only highlight the lack of fit between contract doctrines and managed care problems. Too often, patient concerns have little to do with how to interpret the contract. Rather, they arise from contract provisions of which patients were not aware and, when discovered, find unfair. Consumer protection laws provided some counterweight to the theory of freedom of contract's potential for private authoritarianism. However, legis­la­tion designed to remedy contract issues alone did not address the concerns of patients in managed care. Future law governing managed care, therefore, cannot be limited exclusive­ly to contract.

At the same time, patients cannot expect managed care plans to provide whatever a patient might want, without regard to quality, effectiveness, or cost. Unlimited health care is not a realistic option. Patients may expect more care than can or should reasonably be provided in some circumstances.¹⁰⁶ After years of public debate over health care costs, the public may be beginning to appreciate the cost of unlimited care. Nevertheless, indi­vid­uals are likely to perceive a virtually unlimited need for care when they or their loved ones are sick. ¹⁰⁷ Even if they decide to forgo some kinds of care, they may rightly expect to have the choice. This means that they are likely to expect that their insurance covers the care that their physician recommends and they accept. When people are sick, they act like patients, not consumers, and they may not be willing to hear that a health plan contract excludes the care. ¹⁰⁸

Although patient rights do not include rights to unlimited care, they simply do not address financial or resource issues. Tort law deals with standards of care, not the cost of care. Tort law recognized patient rights to make decisions about their own care and Americans cherish this right as part of their autonomy.  Annas correctly points out that to argue against individual self-determination is to argue against the most fundamental value of the American political system. ¹⁰⁹   Arguments  based in contract alone are not likely to be persuasive.

This suggests that, by itself, neither contract nor tort offers a sufficient or satisfactory basis for defining the array of legal rights and obligations arising out of managed care plans.  Moreover, the interaction of tort and contract issues in managed care argues against picking one or the other to control a mixed issue.  Managed care creates both contract and tort relationships with consumers who become patients.  Contracts are a useful way to regulate financial transactions.  Tort law is better suited to defining rights and obligations in personal and professional relationships.  Yet, the line dividing contract and tort in managed care is as permeable as the line dividing decisions about benefits and the quality of care.  Standards for judging managed care must acount for its insurance and financial performance as well as it provision of services.  This will require a new synthesis of the law applicable to managed care decisions.  

FOOTNOTES: 

1.Professor Annas literally wrote the book on patient rights: George J. Annas. The Rights of Patients (2d ed. 1989) [hereinafter The Rights of Patients]. Other books by George Annas dealing with patient rights issues include Some Choice: Law, Medicine, and the Market (1998) [hereinafter Some Choice]. Standard of Care: The Law of American Bioethics(1993) [hereinafter Standard of Care];and Judging Medicine (1988) [hereinafter Judging Medicine]. Professor Annas has also written extensively on the rights of research subjects, who may or may not also be patients. See, e.g., The Nazi Doctors and the Nuremberg Code: Human Rights in Human Experimentation (George J. Annas & Michael A. Grodon eds., 1992). George J. Annas et al., The Subject's Dilemma (1977). Top

2. The term "managed care" is used in its broadest sense to mean any health insurance plan that. in exchange for a fixed premium, finances and arranges for medical care for a group of indi­vid­uals, with varying degrees of man­age­ment of the medical care provided to those indi­vid­uals or the mechanisms for delivering such care. The National Conference of State Legislatures has defined managed care as:

a term that describes health care systems that integrate the financing and delivery of appropriate health services to covered indi­vid­uals by arrangements with selected providers to furnish a comprehensive set of health services, explicit standards for selection of health care providers, formal programs for ongoing quality assurance and utilization review, and significant financial incentives for members to use providers and procedures associated with the plan.

Kenneth R. Wing et al.. The Law and American Health Care 83 (1998) (quoting The "National Conference of State Legislatures). Insurance companies, hospital and medical service companies, and employers offer managed care plans in a wide variety of structures, from closed panel health maintenance organ­i­za­tions (HMOs), to preferred provider organ­i­za­tions (PPOs), to networks of insurers and groups of phy­si­cians and hospitals. For a reasonably comprehensive description of the types of managed care organ­i­za­tions, see Health Law Center, Aspen Publications, Managed Care Organizations, Affiliated Entities, and Integrated Delivery Systems, Managed Care Law Manual 1-9 (1997). For descriptions of the recent growth and variety of managed care organ­i­za­tions, see generally  Jon Gabel, Ten Way's HMOs Have Changed During the 1990s, 16 Health Aff. 134 (1997);  Alice G.Gosfield. The New Playing Field, 41 St. Louis  L.J. 869 (1997). Top

3. .See Wendy K. Mariner, Business V. Medical Ethics: Conflicting Standards for Managed Care, 23 Am. J.L. Med. & Ethics 236 (1995). Managed care organ­i­za­tions have recently begun to raise premiums, prompting renewed fears that the cost reductions achieved to date were one time only savings, and that, given a growing elderly population and more advances in medical technology, higher premiums are necessary to cover new costs. See Ian Fisher, H.M.O. Premiums Rising Sharp/y, Stoking Debate on Managed Care, N.Y. Times, Jan. 11, 1998, at A23.  A Health Care Financing Administration report predicts that national health expenditures will double to $2.1 trillion in 2007. See Robert Pear, Sharp Rise Predicted in Health-Care Spending in the Next Decade, N.Y. Times, Sept. 15, 1998, at A21. for seminal accounts of the inevitability of such increases. see Henry Aaron & William B. Schwartz, Rationing Health Care: The Choice Before Us, 247 Science 41 8 (1990); William B. Schwartz, The Inevitable Failure qf Current Cost-Containment Strategies: Why They Provide Only Temporary Relief, 257 JAMA 220 (1987). Top

4. See, e.g.. National Comm'n for Quality Assurance, Standards for Accreditation of Managed Care Organizations, 49-53 (1996): President's Advisory Comm'n on Consumer Protection and Quality in the Health Care Indus., Consumer Rights and Responsibilities, Report to the President (Nov. 1997) [hereinafter. President's Advisory Comm'n]; Principles for Consumer Prolection ( 1997) (a joint statement of Kaiser Permanente, Group Health of Puget Sound, Health Insurance Plan (HIP), and Families USA). Health plan contracts typically refer to individual members as members or enrollees.Top

5. See Geo J. Annas, A National Bill of Patient Rights, 338 New Eng. J. Med.  695, 696 (1998) [hereinafter A National Bill]Top

6. This follows a general shift from medical terminology to market terminology, in which phy­si­cians, nurses, dentists, hospitals, home health agencies, other professionals and facilities are all called "providers" or, sometimes "vendors." and the proportion of premium revenues spent on patient care is the "medical loss ratio." Insurers have also called their insureds "covered lives," which does not include people without insurance. See Some Choice, supra note 1, at 44-51 (arguing that the market metaphors used in health care have transformed not only the way people think about medicine, but also misrepresent reality); see also generally Edmund D. Pellegrino, Words Can Hurt You: Some Reflections on the Metaphors of Managed Care, 7 J. Am. Bd.of Fam. Prac. 505 (1994) (noting how the use of certain terms changes the general perception of health care).Top

7. See George J. Annas, The Rights of Hospital Patients (1975). Top

8. See A National Bll, supra note 5, at 697-99. Annas proposes that the following categories of patient rights be protected by national legis­la­tion applicable to all  Americans, whether or not they are covered by health insurance or managed care: The right to treatment information; the right to privacy and dignity; the right to refuse treatment; the right to emergency care; and the right to an advocate. In addition, he proposes that consumers with health insurance should be entitled to information about the health plan and financial incentives for phy­si­cians to limit care, payment for emergency care. a reasonable choice of primary care phy­si­cians, reasonable access to specialists, timely access to an independent appeals mechanism for denial of benefits, and free communication with one's physician without health plan interference. See id Top

9. See generally Mark A. Hall, Medical Spending Decisions: The Law, Ethics, and Economics of Rationing Mechanisms (1997); Richard A. Epstein, Mortal Peril: Our Inalienable Right to Health Care? ( 1997). Top

10. See generally Mark A.Rodwin, Consumer Protection and Managed Care Issues: Reform Proposals, and Trade-Offs, 32 Hous. L. Rev. 1319 (1996) (providing a comprehensive analysis of consumer protection issues in managed care). Top

11. See, e.g., Consumer Credit Protection Act,15 U.S.C. §§ 1601-1694 (1997 & Supp.); Real Estate Settlement Procedures Act, 15 U.S.C.  §§ 2601-2617 (1994). Top

12. See Restatement (Second) of Torts § 402A cmts.j, k (1965); Restatement (Third) of Torts: Product liability § 2 cmt. i, § 10 (1998). Top

13. Disclosure of product information is not a panacea, however. Even assuming, contrary to much evidence, that relevant information can be collected and distributed in a useful form, consumers are often unable to understand it or act on it. See Marc A. Rodwin, Physicians Conflicts of interest:  The  Limitations of Disclosure, 321 New Eng. J. Med 1405, 1406 (1989); see also Marc A.Rodwin, Medicine, Money & Morals: Physicians' Conflicts of Interest216-17 (1993) (noting that laypeople are significantly less familiar with medical matters than with market and financial matters, so that obtaining and understanding medical infomiation is especially difficult for patients): Susan Edgman-Levitan &. Paul D. Cleary, What Information Do Consumers Want and Need?.Health Aff.,Winter, 1996, at 42, 44; John E. Ware, What Information Do Consumers Want and How Do They Use It?, 33 Med. Care JS25 (J.Supp 1995). Top

14. See Morgan v. Cincinnati Ins. Co., 307 N.W.2d 53, 54 (Mich. 1981) ("Recognizing the disparity in the bargaining positions of the companies which write insurance and the consumers who buy the policies, both the statutory law and Judicial decisions have aimed at making certain that the interests of every insured are protected."). Top

15. lf managed care organ­i­za­tions considered their insurance policies or health plans to be "products" then argu­ab­ly, such products could carry an implied warranty of merchantability or fitness for use, which includes at least minimum standards of quality in the care actually provided.  For an argument that managed care plans should be subject to an implied warranty of quality, see generally William S.Brewbaker III. Medical Malpractice and Managed Care Organizations: The Imp!ied Warranty of Quality,. 60L & Contemp. Probs. 117 (1997). Top

16. For the seminal exposition of contracts of adhesion, see generally Friedrich Kessler, Contracts of Adhesion -- Some Thoughts about Freedom of 'Contract, 43 Colum. L. Rev. 629 (1943). Top

17. The U.S. Supreme Court's often cited statement on the purpose of antitrust laws appeared in Northen Pacific Railway Co. v. United States, 356 U.S. 1, 3 (1958).  There, the Court stated:  

The Shenman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions. But even if that premise were open to question, the policy unequivocally laid down by the Act is competition. Top

18.  See A National Bill, supra note 5, at 697. Top

19. See Jay Katz, The Silent World of Doctor and Patient 1-29 (1984). Top

20. See generally Robert Burt, Taking Care of Srangers: The Rule of Law in Doctor-Patient Relationships (1979). Physicians and many other health professionals such as nurses, dentists or optometrists must be licensed under state law intended to set minimum (some would say minimal) requirements for specialized knowledge and skill. See George J. Annas el al American Health Law 668-74 (1990). Top

21. For-profit corporations have a (financial) fiduciary obligation to their investors.  See Mariner, supra note 3, at 238. Top

22. See A National Bill, supra note 5, at 695. Top

23. For a thoughtful dis­cus­sion of the nature of the fiduciary status of phy­si­cians, see generally Marc A. Rodwin, Strains in the Fiduciary Metaphor: Divided Physician Loyalties and Obligations in a Changing Health Care System, 21 Am. J.L. &. Med. 241 (1995). Top

24. See generally The Rights of Patients, supra note 1; Judging Medicine, supra note 1, at 27-35; Ruth Faden & Tom Beauchamp,  A History and Theory of Informed Consent (1986); President's Comm'n for the Study of Ethical Problems in Medicine and Biomedical and Behavioral Research, Making Health Care Decisions: The Ethical and Legal Implications of informed Consent in the Patient-Practitioner Relationship (1982). Top

25. .See Canterbury v.Spence, 464 F.2d 772 (D.C.App,1972).Cobb sv.Grant, 502 P.2d 1 (1972). Top

26. See cases cited supra note 25. Top

27. See generally ''Drummond Rennie, Informed Consent by "Well-Nigh Abject" Adults, 32  New. Eng. J. Med. 971 (1980). To date, courts have recognized the duty to provide information only for phy­si­cians. If other health professionals are re­spon­si­ble for making medical recommendations to patients, then they may also be become bound by a similar duty. Top

28. See Restatement (Second) of Torts §§ 388-389; Restatement (Third) of Torts ' 2 (1998). Top

29. See Margaret Gilhooley, Learned Intermediaries, Prescription Drugs.and Patient Information, 30 St. Louis U. L.J. 633, 699 (1986), Nancy K. Plant, The Learned Intermediary Doctrine: Some New Medicine for on Old Ailment, 81 Iowa L. Rev. 1007,1007 (1996). Top

30. See also Roe v. Wade, 410 U.S. 113, 153 (1973) (recognizing a different constitutional right to privacy, encompassing a woman's right to decide to terminate her pregnancy, but emphasizing that the decision was a medical decision to be made in the privacy of the physician-patient relationship). See generally Privacy Protection Study Comm'n, Personal Privacy in an Information Society  1977), George J. Annas, et al. The Right of Privacy Protects the Doctor-Patient Relationship, 263 New Engl. J. Med. 858 (1991). See, e.g., Estate of Berthiaume v. Pratt, 365 A.2d 792, 797 (Me. 1976) (discussing privacy during treatment); Horne v. Patton, 287 So.2d 824 (Ala. 1974) (discussing confidentiality); Hague v. Williams, 181 A.2d 345, 349 (N.J. 1962) (discussing confidentiality). Top

31. See Manlove v.Wilmington Gen. Hosp 174 A.2d  l35 (1961) recognizing a state common law obligation for private hospitals oflering emergency services to provide care in an emergency); Karen Rothenberg, Who Cares?The Evolution of the Legal Duty to Provide Emergency Care, 26 Hous. L. Rev. 21, 33-50 (1989). Top

32. Texas was the first state to adopt such legis­la­tion. See Tex. Health & Safely Code Ann. §  4438(a) (superceded by Tex. Health & Safety Code §§ 311.021-311.022 (West 1992)). The federal law applies to all hospitals with emergency depart­ments that participate in Medicare or Medicaid, although the obligation to provide emergency care applies to all patients with an emergency medical condition or women in active labor. See Emergency Medical Treatment and Active Labor Act, 42 U.S.C.  §1395dd (1994). Top

33. States have an obligation to attend to the serious medical needs of prisoners and pretrial detainees incarcerated in correctional institutions under the U.S. Supreme Court's interpretation of the Eighth Amendment because they are unable to obtain medical care without the state's permission and assistance. See Estelle v. Gamble, 429 U.S. 97 (1976) (finding that the state's "deliberate indifference" to the serious medical needs of prisoners can violate the Eighth Amendment's prohibition against cruel and unusual treatment). Top

34. See, e.g., City of Clebimie v. Cleburne Living Ctr., Inc.. 473 U.S. 432 (1985). Top

35. See Adam Yarmolinsky, Supporting the Patient, 332 New. Eng. J. Med. 602, 602 (1995) ("Patients may be the only consumers who have to seek permission from someone else in order to obtain services") Top

36. Legislation has supplemented or modified some common law principles with respect to the confidentiality of medical records and the patient's right to gain access to, and copies of, such records. See The Rights of Patients, supra note 1, at 160-74. Top

37. Indeed, the obligation to provide information as required by the doctrine of informed consent was strenuously resisted by many in the medical profession for many years. See generally Katz, supra note 19. Top

38. There have been several proposals to allow providers and patients to contractually alter the standard of care in return for lower charges, either to reduce health care costs in general or to reduce the frequency or cost of malpractice claims. See generally. e.g., Richard A. Epstein, Medical Malpractice: The Case for Contract, 1976 Am. Bar Found. Res. J. 87 (1976); see also Clark C. Havighurst, Private Reform of Tort Law Dogma: Market Opportunities and Legal Obstacles, 49 Law & Contemp. Probs. 143 1986). See e.g., Clark C. Havighurst, Making Health Plans Accountable for the Quality of Care, 31 Ga. L. Rev. 587, 589 (1997) (proposing enterprise liability as an exclusive remedy for patients, with opportunities to reduce liability by voluntary contractual waivers). For arguments against contractual limitations on the standard of care, see generally P. S. Atiyah, Medical Malpractice and The Contract/Tort Boundary. 49 Law & Contemp. Probs. 287 (1986), Sylvia A. Law, Medical Malpractice: Can the Private SectorFind Relief?-Perspectives on the Reform Agenda. 49 Law & Contemp. Probs. 305-20 (1986), Randall Bjovberg, Medical Malpractice: Problems & Reforms (1995). Top

39. See Henry T.Greely, The Regulation of Private Insurance, in Health Care Corporate Law: Formation and Regulation § 8.13.1 (Mark Hall ed., 1997). Top

40. Examples of testimony before legislative committees and white papers can be found at the web sites of trade associations, such as the American Association of Health Plans (AAHP) and the Health Insurance Association of America. Some non-profit health plans favor some types of government regulation. See generally Steve Zatkin, A Health Plan's View of Government Regulation, Health Aff.,  Nov./Dec., 1997, at 33. Top

41. Alain C. Enthoven's early advocacy of prepaid group health plans argued that consumers would force plans to improve quality and reduce premiums prices by choosing and joining only the best plans. See generally Alain C. Enthoven. Health Plan: The Only Practical Solution to the Soaring Cost of Medical Care (1980). Current proponents of leaving health insurance, including managed care, to a more or less unregulated market use the same or similar arguments. See. e.g., Regina Hertzlinger, Market Driven Health Care (1997). Epstein, supra note 9; Alain C. Enthoven & Sara J. Singer, Markets and Collective Action in Regulating Managed Care, Health Aff.., Nov./Dec. 1997, at 26. Top

42. This is not to suggest that measuring quality is a simple matter. See generally Robert H. Miller &. Harold S. Luft, Does Managed Care Lead to Better or Worse Quality of Care?, Health Aff., Sept/Oct 1997, at 7 (1997). Report to the Chairman, Committee on Labor and Human Resources, Health Care Reform: "Report Cards" Are Useful but Significant Issues Need to be Addressed (1994); Symposium,  The Limited Regulatory Potential of Medical Technology Assessment, 82 Va. L. Rev. 1525 (1996): Arnold Epstein, Performance Reports on Quality Prototypes, Problems and Prospects, 333 New Eng, J. Med. 57 (1995): Wendy K. Mariner, Outcomes Assessment in Health Care Reform: Promise and Limitations. 20 Am. J.L. &. Med. 37 (1994): Jerome P. Kassirer, The Quality of Care and the Quality of Measuring It, 329 New Eng. J. Med. 1293 Top

43. Payment may serve as evidence that a physician-patient relationship exists in order to determine whether a physician owes a duty of care to the patient. Nonetheless, the law applies to the relationship, however created, not because of any payment made. See generally. Wing et al, supra note 2, at 606-12. Top

44. Even state laws governing incorporation generally prohibit phy­si­cians (and other professionals) from insulating them­selves against personal liability for negligence in the performance of their professional services. See generally. The Rights of Patients, supra note 1.  Top

45.See Emory Univ. v. Proubianski, 282 S.E.2d 903 (Ga. l981); Tunkl v.Regents of Unv.of Cal., 383 P.2d 441 (Cal. 1963) (holding that release of liability for free medical care generally unenforceable as against public policy). Top

46. See cases cited supra note 30. Top

47. See, e.g., dis­cus­sion supra note 32. Top

48. It is undoubtedly for this reason that the National Association of Insurance Commissioners' Managed Care Plan Network Adequacy Model Act contains provisions on net­work adequacy which require that a health plan have arrangements with a sufficient number and types of providers to meet the anticipated medical needs of its entire membership. See National Ass'n of Insurance. Comm'rs, Managed Care Plan Network Adequacy Model Act, NAID Model Laws, Regulations and Guidelines 74-1 -74-13 (1996). The President's Advisory Commission recommended a similar requirement based on the NAIC language. Top

49. 42 U.S.C. § 1320a-7b(b) (1994). Top

50. 42 U.S.C. §1395nn (1994). Top

51. Most statutory prohibitions against gag clauses ensure that phy­si­cians are free to tell patients about treatment options, including those not covered by the patient's health plan. They do not typically require disclosure of other types of information, such as physician com­pen­sa­tion. The Massachusetts' statute does not require any disclosure by phy­si­cians. It merely prohibits health plans from refusing to contract with or pay phy­si­cians who tell patients about treatment options. See Mass. Gen. Laws ch. 175. §§ 108. 110 (1998). Gag clauses that restrict individual patient care recommendations are most closely related to patient concerns. Fed­er­al legis­la­tion prohibiting gag clauses has not yet been enacted. See, e.g., The Patient Right to Know Act, S. 449, 105th Cong. §§ 1-4(1997) Top

52. Quality concerns include not only the quality of care that is provided, but also a failure to provide care, as in missed diagnoses, misdiagnoses, and failures to provide treatment in accordance with the appropriate standard of care. Top

53. The word ''abuses'' is used to emphasize that the practices complained of are not inherent in managed care. For exam­ples of such com­plaints, see generally George Anders, Health Against Wealth: HMOs and the Breakdown of Medical Trust Care and (1996); Thomas Bodenheimer, The HMO Backlash Righteous or Reactionary?, 335 New Eng. J. Med. 1601 (1996); Jerome P. Kassirer. Managing Managed Care's Tarnished Image, 337 New Eng. J.Med. 338 (1997); David S. Hilzenrath, Backlash Builds Over Managed Care; Frustrated Consumers Push for Tougher Laws, Wash. Post, June 30, 1997, at A1. Many media reports about managed care emphasize problems or perceived abuses. See Paul M. Ellwood & George D. Lundberg, Managed Care: A Work in Progress, 276 JAMA 1083, 1084 (1996); see generally Karen lgnagni, Covering a Breaking Revolution: The Media and Managed Care, Health Aff.,  Jan/Feb. 1997, at 26 (1998). Top

54. ln l998.Congress failed to pass any of the bills introduced to regulate managed care or protect consumers. The House of Representatives passed the Republican leadership's bill in July 1998. The Patient Protection Act of 1998, H.R. 4250, sponsored by Rep. Newt Gingrich (D-Ga.) and others, which later died in the Senate along with the competing bills, such as The Patients' Bill of Rights Act of 1998, S. 1890, sponsored by Sen. Tom Daschle and others. See S. 1890, 105th Cong. (1998), Top

55. For analyses of earlier state legis­la­tion adopted by the states, see Geraldine Dallek et al.. 1 Consumer Protection in State HMO Laws, Analysis and Recommendations (1995); Patricia Butler & K. Polzer, Private-Sector Health Coverage: Variations in Consumer Protections under ERISA and State Law (1996). Top

56. Maryland was the first state to adopt such a law, quickly followed by New Jersey, Massachusetts, and other states. See George Annas, Women and Children First, 333 New Eng. J. Med. 1647, 1648 (1995). However, the Employee Retirement Income Security Act (ERISA), precludes enforce­ment of such mandated benefits against self-funded ERISA plans. See Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985). For overviews of the effect of ERISA on state legis­la­tion to regulate managed care, see Wendy K. Mariner, State Regulation of Managed Care and the Employee Retirement Income Security Act, 335 New Engl. J. Med. 1986 (1996). Congress adopted the Mothers and Newborns Protection Act, 29 U.S.C. § 1185 (1997), which amended ERISA to imposed minimum standards on all plans offering childbirth benefits. See id. Top

57. See Fred J. Hellinger. The Expanding Scope of State Legislation. 276 JAMA  1065,1066 (1996). Top

58.  For a critical view of gag clauses, see generally Steffie Woolhandler & David U. Himmelstein, Extreme Risk - The New Corporate Proposition for Physicians, 333 New Eng. J. Med. 1706 (1995). Top

59. See U.S. General Accounting Office, HMO Complaints and Appeals: Most Key Procedures in Place, but Others Valued by Consumers Largely Absent, GAO/HEHS-98-119 (May 1998). See generally  George J. Annas, Patients Rights in Managed Care - Exit. Voice and Choice 337 New Eng. J. Med. 210 (1997). Top

60. See Requirements for Physician Incentive Plans, 42 C.F.R. § 417.479 (1997). Top

61. See generally Mariner. supra note 56 at 1986; Mary Ann Chirba-Martin & Troyen A. Brennan, The Critical Role of ERISA in State Health Reform, 13 Health Aff. 142- (1994) Top

62. See A National Bill, supra note 5, at 697. Top

63. It is significant that the Comission did not recommend that the "rights" be enacted into law to ensure that they would be legally enforceable. Top

64. President's Advisory Comm'n, supra note 4, at ch. 4. The Commentary notes that open communication promotes positive outcomes, compliance and consumer satisfaction.  In particular, the justification of this right is the "asymmetry of information between consumer and heathh care provider."  Id.  This supports the physician's legal duty to provide information to patients.  But that duty is premised on the individual patient's right to autonomy and self-determination, which the commission fails to men­tion. Top

65. The information should include treatment options, their benefits, the risks, and the consequences, the use of advance directives, methods of physician com­pen­sa­tion, and other financial interests that could influence treatment decisions. See id. Top

66. The Commission states that "the quality of the health care system also depends on the regular exchange of information between providers, employers, plans, public health authorities, researchers, and other users." Id., at ch. 6. With such a wide exchange, it is hard to imagine who does not have access to one's confidential medical information. The Commission notes that individually identifiable information should not be disclosed without written consent except "in very limited circumstances where there is a clear legal basis for doing so." Id. These reasons include "medical or health care research for which an institutional review board has determined anonymous records will not suffice, invest­i­ga­tion of health care fraud, and public health reporting." Id. This evidence's either poor drafting or a misunderstanding of the law governing federally funded research with human subjects, which precludes the use of identifiable information for research without written consent. Top

67. Id at ch.2. The language tracks that of the National Association of lnsurance Commissioners' Model Act. This is certainly a necessary element of a plan, since no plan should be considered competent to offer services if it does not have the professional resources to provide care. Top

68. The Commission decided that it was "unacceptable" to recommend that people be given more choice because it would cost more and employers might reduce or drop coverage. See id. However, the percentage of employees covered by employer-provided plans steadily declined during the past decade while premium costs remained relatively stable. See U.S. General Accounting Office,  Employment-Based Health Insurance: Costs Increase and Family Coverage Decreases (Feb.1997). Top

69. The Commission rejected any requirement that plans contract with all qualified providers or that plans allow members to see providers outside the plan's net­work. Plans are permitted to have closed panels of providers as long as the pool itself is adequately large. See President's Advisory Comm'n, supra note 4, at ch. 2. Top

70. See generally Hall, supra note 9. Epstein, supra note 9; Enthoven supra note 41. Top

71. About 150 miillion people are insured under group health insurance plans offered by private employers and trade unions. About ten million people are enrolled in managed care plans under individual policies. See Employee Benefit Research Institute, EBRI Databook OD Employee Benefits (1995). Top

72. Because employers outnumber unions that offer health benefits, for simplicity, this article uses the term "employer" rather than employers, unions, and multiemployer groups. See Thomas Bodenheimer & Kip Sullivan, How Large Employers Are Shaping the Health Care Marketplace, 338 New Eng. J. Med. 1084, I086 (1998). Nor do indi­vid­uals that get their benefits from government programs like Medicare and Medicaid negotiate a health plan contract because a federal statute defines the benefits and regulations. Theoretically, beneficiaries could peruse the law to determine their spe­ci­fic entitlements, although few do and it is unclear how many, including attorneys, understand what the law covers. Both Medicare and Medicaid issued summaries for beneficiaries, which may or may not be more informative than the summaries issued by private plans. At the same time, there is no pretense that beneficiaries negotiate the terms of their coverage. Courts consistently find such programs to be voluntarily offered by government, which defines the benefits. See Harris v. McRae, 448 U.S. 297,299 (1980). Beneficiaries are not denied benefits on the theory that they have agreed to limitations. Top

73. Havighurst argues that employees are well served by having relatively sophisticated employers negotiate health insurance contracts on their behalf. See dark C. Havighurst, Prospective Self-Denial: Can Consumers Contract Today to Accept Health Care Rationing Tomorrow". 140 U. Pa. L. Rev. 1755, U67n.27 (1992). Top

74. See Maxwell J. Mehiman, Fiduciary Contracting: Limitations on Bargaining Between Patients and Health Care Providers 5I U.Pitt.L. Rev. 365, 370 (1990). In fact, employees typically receive only a summary of benefits, not the plan itself. Top

75. About 48% of moderate and large employers reported offering only one plan in the 1995 KPMG Peat Marwick Health Benefits Survey. Thirty-five percent of moderate and large employers offered three or more plans. Small employers are less likely to offer a choice of plans, although many still offer indemnity insurance instead of managed care plans. .See Lynn Etheredge et al., What is Driving Health Standards of Care and Standard Form Contracts System Change?, Health Aff., Winter 1996, at 93, 94. See also Atul A. Gawande et al., Does Dissatisfaction With Health Plans Stem From Having No Choice?, Health Aff., Sept./Oct. 1998 , at l84,187 (noting that 42% of those insured through either their employer or spouse have no choice of health plans). Top

76. See generally Jon R. Gabel et al., Small Employers and Their Health Benefits.1988-!996: An Awkward Adolescence, Health Aff., Sept./Oct. 1997,at l03 (analyzing KPMG Peat Marwick survey on small employer utilization of health care plans): see also generally John R. Gabel et al., When Employers Choose Health Plans, Do NCQA Acceditation and HEDIS Data Count? Sept 1998) <http://www.cmwf.org/programs/health_care/gabel_ncqa_293.asp> (noting that only five percent of employers reported HEDIS data as "very important" in selecting an HMO for their employees; only one percent of employers provided any HEDIS data to their employees). Top

77. See Mehlman, supra note 74, at 376. Top

78. For a full description of HEDIS, see National Commitee for Quality Asurance (visited Dec. 2, 1998) <http://www.ncqa.org> .Top

79. See.e.g., Corcoran v.United Health Care, Inc., 965 F.2d l321,1331 (5thCir. 1992). Top

80. 999 F.2d 298 (8th Cir. 1993). Top

81. See id at 302. The primary legal issue was whether Kuhl's wife's malpractice claim was preempted by ERISA, but resolution of that issue required determining whether the health plan made a medical decision; which would be judged according to negligence standards in state court, or merely denied a claim for benefits under an employee group contract, which would be governed by ERISA. See id. at 304. Top

82. See id. at 300. Kuhl's plan phy­si­cians found that Kuhl was at risk for sudden death from ventricular tachycardia and recommended bypass surgery together with electrophysiologically guided left ventricular aneurysm resection and subendocardial resection, all needed within a few weeks. See id. The health plan's participating cardiologists and cardiac surgeon agreed that their hospitals did not have the necessary equipment and that no physician in Kansas City had as much experience or success with this type of surgery as the Barnes phy­si­cians. See id.Top

83. See id. Top

84. See id. Top

85. See id. Top

86. See id. Top

87. See Kuhl, 999 F.2d at 300. Top

88. See id. at 303. The effect of that decision was to dismiss any state law claim for malpractice. Kuhl's family could bring a claim for nonpayment of benefits under ERISA. However, even if successful, the remedy would be limited to the cost of  the benefit itself and exclude any damages for personal injury. For a dis­cus­sion of the effect of ERISA on negligence claims against managed care plans, see generally Wendy K. Mariner, Liability for Managed Care Decisions: The Employee Retirement Income Security Act (ERISA) and the Uneven Playing Field, 86 Am. J. Pub. Health 863 (1996). Top

89. See generally John D. Blum, The Evolution of Physician Credentialing into Managed Care Selective Contracting, 22 Am. J.L. & Med. 173 (1996); Mark A. Kadzielski et al., Credentialing for Managed Care Providers: Risks and Opportunities, 18 Whittier L. Rev. 87 (1996).  Top

90. For a description of the types of incentive com­pen­sa­tion methods in use, see generally Marsha R. Gold et al., A National Survey of the Arrangements Managed-Care Plans Make with Physicians, 333 New Eng. J. Med. 1678 (1995). For a summary of concerns about the effect of financial incentives on physician behavior, see generally Barry R. Furrow, Incentivizing Medical Practice: What (If Anything) Happens to Professionalism, 1 Widener. L. Symp. J. 1 (1996). Top

91. If a plan acts with reasonable diligence and the physician is indeed competent, but makes a negligent error, the plan would have no liability to the patient, unless the physician were the plan's employee or agent. See generally Barry R. Furrow, Managed Care Organizations and Patient Injury: Rethinking Liability, 31 Ga. L. Rev. 419 (1997). For the early development of corporate liability in managed care, see generally John D. Blum, An Analysis of Legal Liability; in Health CareUtilization Review and Case Management, 26 House. L.Rv 191 (1989). Top

92. See dis­cus­sion supra note 38. Top

93. See Lane v. Candura, 376 N.E.2d 1232. 1233 (Mass. App. Ct. 1978). Top

94. See Doe v.Southeastern Penn. Trans.Auth., 72 F.3d  1133 (3rd Cir.l995). Top

95. Meyerson criticizes such decisions on the ground that '' [c]ourts should not presume something they know is untrue." Michael I. Meyerson, The Reunification of Contract Law: The Objective Theory of Consumer Form Contracts, 47 U. Miami L. Rev. 1263, 1326 n.40 (1993). As to the resulting law, he notes, "[i]f it is both unreasonable and undesirable to have consumers read these [standard] terms, courts should not fashion legal rules in a futile attempt to force consumers to read these terms or to punish those who do not." Id. at 1270. Top

96. Not coincidentally, many of the first consumer protection laws were adopted during the same period. See Rodwin, supra note 10, at 1333. Top

97. Professor Keeton may have been the first to suggest that one of the unifying principles underlying seemingly inconsistent court decisions was that the reasonable expectations of the parties to an insurance contract would be enforced even where the policy language dictated a different result. See Robert E. Keeton. Insurance Law at Variance with Policy Provisions, 83 Harv. L. Rev. 961, 967 (1970). Top

98. Such exceptions to the parole evidence rule, however, have been somewhat limited in application. Top

99. See Ralph James Mooney, The New Conceptualism in Contract Law, 74 Or. L. Rev. 1131, 1189 (1995) (arguing that courts have resurrected much of classical contract law's abstract and formal rides, emphasizing "freedom of contract" and market place economics, and that such roles have tended to favor large economically powerful entities, including banks, employers, and insurance companies). For earlier predictions of the same trend, see E. Allan Farnsworth, Developments in Contract Law During the 1980's: The Top Ten, 41 Case W. Res. L. Rev. 203, 216 (1990); Kerry L. Macintosh, Gilmore Spoke Too Soon: Contract Rise from the Ashes of the Bad Faith Tort, 27 Loy. L.A. L. Rev. 483, 534 (1994). A similar retrenchment can be seen in tort law. See Thoedore Eisenberg & James A. Henderson, Inside the Quiet Revolution in Products Liability, 39 UCLA L. Rev. 731, 788 (1992). Top

100. See Mark.A.Hall & Gerald F.Anderson, Health Insurers' Assessment of Medical Necessity, 140 U. Pa. L.Rev. 1637, 1647 (1992); Havighurst, supra note 73,at 1764. Top

101. The degree to which courts actually favor insured plaintiffs in benefit disputes is a matter of some controversy. Although both insured indi­vid­uals and insurers can point to spe­ci­fic horror stories, the court decisions do not demonstrate any uniform bias. Hall studied 203 published decisions on medical necessity issued from 1960 to 1994 and found patients won in thirty-nine percent of federal appeals and 62% of state appeals. The results varied based on the type of insurance, with plaintiffs winning 54% of all private insurance cases. 70% of public benefit program court decisions, and 31% of government employee health insurance cases. Insurer discretion to interpret the contract produced marked differences, with plaintiffs winning 80% of cases in which the insurer did not reserve the discretion to interpret the contract, and 37 % of cases in which the insurer did reserve discretion. See Mark A. Hall el al.. Judicial Protection of Managed Care Consumers: An Empirical Study of Insurance Coverage Disputes, 26 Seton Hall L.Rev. 1055, 1064 (1996); see also Willy E.Rice, Judicial Bias, The Insurance Industry and Consumer Protection: An Empirical Analysis of State Supreme Courts' Bad-Faith, Breach-of-Contract, Breach-of-Covenant-of-Good-Faithand Excess-Judgment Decisions, 41 Cath. U. L. Rev. 325, 377 (1992) (finding different results in courts in different parts of the country). Top

102. Havighurst has argued that health plans "should therefore be alert for opportunities to assist consumers in economizing by surrendering legal rights that systematically induce or excuse excessive spending by phy­si­cians." Havighurst, supra note 73, at 1794. Top

103. 198 U.S. 45, 64  (1905) (holding that the limitation of employment in bakeries to 60 hours a week and 10 hours a day is an arbitrary interference with the freedom to contract guaranteed by the U.S. Constitution). Top

104. See id. Top

105. Kessier, supra note 16, at 640. Top

106. Annas cautions that patients caanot be condemned for expecting and demanding more and better medical care. For decades, phy­si­cians and hospitals fostered the notion that their services were necessary and valuable, and the more technologically advanced, and expensive, the better. Traditional indemnity insurance did little to counter such impressions until relatively recently. In many respects, the health care system reaped what it sowed. At the same time, patients do not always demand more care. A recurrent theme in the patient rights arena was the resistance some patients and their families meet when they refused care. See Standard of Care, supra note 1, at 215. Top

107. No one disputes the American romance with medical care, or the tendency to demand whatever is possible to treat an illness, especially a potentially fatal illness. There is a wealth of literature debating the causes of, and possible solutions to, increasing demand for medical care. For a comprehensive dis­cus­sion, see Daniel Callahan, Whal Kind of Life: The Limits of Medical Progress (1990). For an social and psychological analysis of Americans' focus on health, see Arthur J. Barsky, Worried Sick Our Troubled Quest for Wellness (1988). Top

108. Annas noted that "there is no possibility of containing costs (and thus making quality medical care available to all Americans) unless we can come to grips with our mortality." Standard of Care, supra note 1, at 214-15. Top

109. See id. Top

 

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