Medicine as a public calling.

Author:Bagley, Nicholas
Position:Regulating health care industry as a public utility

INTRODUCTION I. HEALTH CARE: WHERE DO WE GO FROM HERE? A. Supply B. Access C. Discriminatory Prices D. Costs II. THE AMERICAN TRADITION OF PUBLIC UTILITY REGULATION A. The Rise of Public Utility Regulation B. The Attributes of Public Callings 1. Necessity 2. Power C. Medicine's Absence III. PUBLIC UTILITY REGULATION IN THE MEDICAL INDUSTRY A. Supply B. Service 1. Civil Rights 2. Revenue Rulings 3. EMTALA C. Nondiscriminatory Rates D. Fair Rates IV. THE RISE OF PUBLIC UTILITY REGULATION? CONCLUSION INTRODUCTION

The debate over how to tame private medical spending tends to pit advocates of government-provided insurance--a single-payer scheme--against those who would prefer to harness market forces to hold down costs. When it is mentioned at all, the possibility of regulating the medical industry as a public utility is usually dismissed as a political nonstarter. (1) However common it may be in other countries, treating the health-care sector as a public utility is thought to be anathema to American political traditions that valorize patient choice and physician independence, treat hospitals as charities, and are suspicious of state interference in economic affairs. (2)

Missing from this conventional account is the pivotal role that public utility regulation has played in the development of the modern regulatory state. Missing, too, is an appreciation of how extensively such regulation has shaped health law--both for good and ill. Growing out of an ancient common law practice of imposing special obligations on innkeepers and common carriers, public utility regulation evolved during the Gilded Age and the Progressive Era into a comprehensive challenge to the principles of laissez-faire. (3) Such regulation was originally justified--and insulated from constitutional attack--by a developing body of law governing those private businesses that were affected with a public interest. Such businesses could not make unfettered use of their private property; instead, the law imposed "an affirmative obligation ... to be reasonable in dealing with the public." (4) In an influential 1911 treatise, Bruce Wyman divided that affirmative obligation into four distinct duties: "that all must be served, adequate facilities must be provided, reasonable rates must be charged, and no discriminations must be made." (5)

Businesses affected with a public interest were variously described as public callings, public service corporations, and public utilities. They included not only natural monopolies like railroads, ferries, telegraph lines, electric plants, and water works, but also banks, insurance companies, housing interests, stockyards, and mines. (6) Any industry that served an important human need and had the market power to exploit consumers could plausibly be characterized as a public utility. As J. Willard Hurst explained, "[t]he public utility concept rests on recognition that some economic power is wielded at key points of intersection of human relations" and that the law must constrain the behavior of those "new forms of organized power, characterized by great aggregations of capital and great capacity to affect life." (7)

Prior to the Second World War, medicine was typically missing from even the most capacious lists of industries affected with a public interest. Yet that says more about the rudimentary state of medicine than it does about the acceptability of regulating health care as a utility. The private hospital industry was still in its infancy well into the Progressive Era, and hospitals were only slowly shedding their traditional role as charity wards for the dying sick. By today's standards, they remained technologically unsophisticated and relatively cheap. For their part, physicians were independent professionals who sold personal services, not industrialists who put private property to public use. The absence of proven therapies for most illnesses kept medical expenditures in check, as did the competitive, even cutthroat, market for physicians that prevailed in the early decades of the twentieth century. (8)

As Bruce Wyman observed, however, any given industry might fall in and out of the legal category of public callings. (9) And in the decades following the Second World War, the meteoric growth of the medical industry prompted the enactment of federal and state laws that bore the hallmarks of public utility regulation. Collectively, these laws regulated market entry, imposed service obligations, prohibited certain forms of price discrimination, and even fixed prices. (10) In the last decades of the twentieth century, some of this economic regulation gave way in the face of the resurgent belief that market forces, not state control, ought to guide the distribution of healthcare services. (11) But a durable strain of the law has always treated modern medicine as a public calling--even today.

The fit is natural. Public utility regulation aims to address the sorts of problems in market ordering--supply imbalances, access restrictions, and abusive and discriminatory pricing--that have long afflicted the medical industry. Now that the Affordable Care Act (ACA) has eased public concerns about the uninsured, the serious economic challenges facing those with insurance are likely to become more salient. Should the ACA fail to remedy a number of disturbing practices in the medical marketplace, policymakers may find public utility regulation increasingly attractive. Indeed, nascent interest in such regulation suggests that we may already be heading in that direction.

The possibility of regulating medicine as a public utility has not passed altogether unnoticed; (12) indeed, talk of such regulation was common in the 1960s and 1970s. (13) For at least three reasons, however, few recall how deeply the public utility model once influenced medical regulation, and fewer still appreciate how it continues to shape such regulation today.

First, the idea of public utility regulation seems stale. (14) In part, this is a legacy of the modern law-and-economics movement, which has subjected public utility regulation to withering criticism. (15) Deregulation of the airline and trucking industries reinforced the idea that the public utility model, outside a few narrow enclaves, ought to be abandoned. (16) As Barbara Fried explains, modern economists can find "no justification for expanding the lessons of public utility regulation beyond public utilities and other formal or natural monopolies." (17) The ascendance of economics as a discipline--and its particular influence in health policy--may have obscured the influence of the public utility model on health law. (18)

Second, the law of public callings is often thought to do little more than impose a duty on certain businesses to serve all paying customers. In medicine, the Emergency Medical Treatment and Labor Act (EMTALA) resonates with that service duty, as do several antidiscrimination laws with particular significance for health care, mainly Title VI and the Americans with Disabilities Act. But the law of public callings has traditionally involved much more, including the regulation of market entry and the prices charged for services. This sort of extensive economic regulation was a conspicuous feature of health law in the middle decades of the twentieth century. Yet a narrow conception of the duties owed by businesses affected with a public interest misses the link between such regulation and the law of public callings.

Third, questions about insurance coverage have properly consumed the political and academic discourse around health care. Public debate has thus centered on how, if at all, the state should redistribute resources to guarantee insurance to those who might otherwise go without. The sustained focus on the uninsured has drawn attention away from a persistent, ongoing practice of using state power to curb unfair and oppressive practices in the medical marketplace.

This Article aims to recover that neglected tradition of public utility regulation. My claim is not that medicine was once treated as a pure public utility; it was not. My claim, instead, is that laws bearing the characteristic features of public utility regulation became prominent in the decades following the Second World War. Many of those laws remain on the books today. If the American state embraced a public utility model for medicine in the recent past, such an approach would seem to be compatible with our governing institutions and political culture. And the durability of the tradition--the fact that it stretches back more than a century--suggests that the current embrace of market-based approaches in health care may be more ephemeral than it seems. Indeed, as I explain, the pendulum may already be swinging back toward public utility regulation.

Whether treating medicine more like a public utility would count as an improvement is genuinely hard to say. Any effort to closely regulate a large, complex, and rapidly changing industry would be fraught with difficulties. Economic regulation might well create more problems than it would solve. But, absent concrete evidence of the ineffectiveness of such regulation, I see no reason to dismiss it out of hand. Most other countries treat health care as a public utility--albeit as a publicly funded, not privately financed, utility. They typically spend far less for care that, along many dimensions, appears superior to ours. (19) And it is not obvious that health-care markets--which suffer from well-understood failings associated with market concentration, informational asymmetries, and moral hazard--would outperform a rate-setting body that, say, used Medicare's payment system as a model. (20)

So I do mean to give the pendulum a gentle push. Commentators seem defensive, almost embarrassed, to raise the possibility of regulating medicine as a utility. Maybe they fear being tarred as insensitive to the risks of economic regulation, unsophisticated about the...

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