Managed Care, Utilization Review, and Financial Risk Shifting: Compensating Patients for Health Care Cost Containment Injuries

• Publication year: 1993

UNIVERSITY OF PUGET SOUND LAW REVIEWVolume 17, No. 1FALL 1993

ARTICLES

Managed Care, Utilization Review, and Financial Risk Shifting: Compensating Patients for Health Care Cost Containment Injuries(fn*)

Vernellia R. Randall(fn**)

Table of Contents

Prelude................................................... 3

I. Introduction....................................... 6

II. Historical Background............................. 9

A. Overview of Historical Development........... 10

1. From Home to Hospital ..................... 10

2. The Coming of the Blues ................... 11

3. World War II and Beyond .................. 12

4. Medicare and Medicaid ..................... 13

B. Impact of Third-Party Payers on Health Care.. 14

C. The Development of Managed Care Products .. 19

1. Health Maintenance Organizations ......... 20

2. Preferred Provider Organizations ........... 22

D. Summary ...................................... 24

III. Third-Party Cost Containment Measures .......... 26

A. Utilization Review ............................. 27

1. Utilization Review Defined ................. 27

2. Utilization Review Structure ............... 28

B. Strict Enforcement Through Financial Risk Shifting ........................................ 30

C. Effects of Cost Containment Measures on Health Care .................................... 32

1. Assuring Quality Care in the Managed Care Product ..................................... 33

2. Maintaining the Ethical Basis of Health C are ........................................ 36

3. Maintaining Access to Health Care ......... 38

D. Summary ...................................... 40

IV. Traditional Theories of Liability ................... 41

A. Negligence (or Direct Liability) for Injuries Caused by Cost Containment Measures ........ 42

B. Corporate Negligence Doctrine ................. 48

C. Respondeat Superior Doctrine .................. 53

D. Ostensible Agency Doctrine .................... 55

1. Boyd v. Albert Einstein Medical Center ..... 58

2. Williams v. Good Health Plus .............. 60

3. Analysis of Boyd and Williams ............. 62

E. Summary ...................................... 65

V. ERISA as a Barrier to Compensation for Injuries ... 65

A. Background .................................... 66

B. Corcoran v. United HealthCare ................. 68

VI. The Medical Injury Compensation Fund-A Proposal ........................................... 73

A. Problems with the Tort System ................ 73

B. Elements of a Medical Injury Compensation Fund .................................. 76

1. Defining Compensable Medical Injuries .... 77

2. Compensation .............................. 78

3. Financing the Fund ......................... 78

4. Duty of Public Notice ....................... 79

5. Exem ptions ................................. 79

6. Attorney's Fees ............................. 79

C. Problems of a Medical Injury Compensation Fund ........................................... 80

1. Fiscal Stability ............................. 80

2. Fraud, Abuse, and Malingering ............. 81

3. Constitutionality ............................ 81

4. Political Feasibility ......................... 82

D. Benefits and Consequences of a Medical Injury Compensation Fund ............................ 82

1. Reduced Administrative Costs .............. 82

2. Increased Participation ..................... 83

3. Reduced Monetary Recovery ................ 83

4. Greater Spread of the Cost of Managed Care Injuries ............................... 84

E. Summary ...................................... 84

VII. Conclusion ......................................... 84

D. Benefits and Consequences of a Medical Injury Compensation Fund............................ 82

PRELUDE

The delivery of health care services is an intensely personal activity. Patients necessarily place their physical well-being in the hands of other persons, either physicians or other providers. Because health care technology and the science of medicine(fn1) have progressed so swiftly over the past hundred years, the focus and direction of the relationships among the parties involved in the delivery of health care have changed dramatically. As technology and science developed, the cost of transferring skills and services from the provider to the patient grew geometrically. In the days when the physician-patient relationship was considered more art than science, delivery consisted of a one-to-one transfer of skills. The physician looked at the patient, listened to a description of the patient's symptoms, conducted a few very simple tests, prescribed drugs or conduct that the physician believed might help, and promised to return later to see if, in fact, she had helped. Today, as medicine moves more toward science and technology, the physician is likely to use looking and listening only as a starting point. She then refers the patient for sophisticated machine testing of many varieties and for more looking and listening by other providers having narrow specialties. The end result is a final diagnosis that takes into account the expertise of perhaps dozens of people.

As these changes have made the practice of medicine more and more complex, the cost of health care delivery has increased and has become a national concern. At some point, the cost becomes greater than the benefit. We are now involved in a search for a new means of determining when, to whom, and how much of such services we, as a nation, should provide. This search has been characterized as the need for cost containment. It is being carried out in many ways and in many areas of the health care industry. One view of acceptable limitations on the delivery of health care is called "managed care." But managed care, like other programs in the past, has become so focused on the problem of cost that it may very well be losing sight of what should be the overriding purpose of health care-the well-being of the patient. After all, the patient is the raison d'etre for the entire system. The patient's well-being is not directly aided by cost containment, but the patient's well-being is the focus of other important health care issues, such as quality of care and access to care. The manner in which cost containment, quality of care, and access to care interact and the priorities given to them will determine the future structure of our nation's health care system.

We now seem to be entering into a new phase of health care delivery. A hundred years ago, the physician-patient relationship was the core of the health care system. That relationship remained central to any health care delivery changes taking place until around 1970. Even with the introduction of third-party payers in the form of insurance plans, the physician-patient relationship remained unaffected. The physician determined what services would be delivered to the patient; the patient received the services, having paid premiums (or having premiums paid for his benefit) to the third-party payer; the third-party payer either reimbursed the patient or paid the physician directly. The third-party payer simply had no right to affect the physician-patient relationship and, in fact, did not affect that relationship.

After 1970, however, a new triangle of relationships came into being. In this triangle, the third-party payer not only contracts with the patient to finance the patient's health care needs, it also contracts with physicians and other providers to provide those health care needs. Two problems arise from this second contractual relationship. First, through "utilization review," the third-party payer assumes the right to direct the means and methods of providing the health care services. Second, through its contracts with providers, the third-party payer induces compliance with utilization review by means of financial rewards and penalties, or financial "risk shifting."

These two new aspects of health care relationships, utilization review and financial risk shifting, create the possibility that patients may be injured in totally new ways. Before the new relationships were created, the only way a patient could be medically injured was through the physician's conduct. With the advent of the new relationships, patients may be indirectly medically injured because decisions may be made based on some statistical norm, not on the patient's individual condition. Further, the patient may be medically injured by conduct of the physician, not because of the physician's own decision, but because of a third-party payer's guidelines, with which the physician is trying to comply. For example, consider the cases of Kim, Brad, and Barbara.

Kim needs an operation on her knee. Through her employer, Kim has health insurance with a preferred provider organization (PPO). One doctor, a member of the PPO, recommends an operation. Another doctor recommends a procedure that is more expensive but will require less healing time. Kim cannot go to the second doctor, who is not a member of the PPO, because she cannot afford to pay for the operation herself. When she has the operation recommended by the PPO doctor, she takes two months longer to heal than if she had the more expensive operation.

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