Patients as consumers: courts, contracts, and the new medical marketplace.

• Author: Hall, Mark A.

The persistent riddle of health-care policy is how to control the costs while improving the quality of care. The riddle's once-promising answer--managed care--has been politically ravaged, and consumerist solutions are now winning favor. This Article examines the legal condition of the patient-as-consumer in today's health-care market, It finds that insurers bargain with some success for rates for the people they insure. The uninsured, however, must contract to pay whatever a provider charges and then are regularly charged prices that are several times insurers 'prices and providers' actual costs. Perhaps because they do not understand the healthcare market, courts generally enforce these contracts. This Article proposes legal solutions to the plight of the patient-as-consumer and asks what that plight tells us about market solutions to the health-care quandary.

TABLE OF CONTENTS INTRODUCTION: PATIENTS AS CONSUMERS IN A NEW MARKETPLACE I. THE MISERABLE MARKET FOR MEDICAL FEES A. Introduction to the Problem of the Medical Marketplace B. Insurers as Purchasers of Health Care C. Shopping for Prices 1. The Effects of Illness on the Patient as Consumer 2. Shopping for Treatments: Patients in the Hands of Doctors 3. Shopping for Doctors D. Doctors' Prices and Doctors' Power E. Hospital Prices F. Summary II. JUDICIAL PROTECTION OF THE PATIENT A. Should Courts Protect Patients? B. How Can Courts Protect Patients? The Supervisory Doctrines 1. Incomplete Contracts 2. Unconscionability 3. Fiduciary Duty 4. A Larger View of the Supervisory Doctrines 5. Determining Reasonable Rates CONCLUSION [Professionals] may, as in the case of a successful doctor, grow rich; but the meaning of their profession, both for themselves and for the public, is not that they make money but that they make health, or safety, or knowledge, or good government or good law.... [Professions uphold] as the criterion of success the end for which the profession, whatever it may be, is carried on, and [subordinate] the inclination, appetites and ambition of individuals to the rules of an organization which has as its object to promote the performance of function.

--R. H. Tawney

The Acquisitive Society

INTRODUCTION: PATIENTS AS CONSUMERS IN A NEW MARKETPLACE

Patients have always been consumers. (1) Before health insurance was common, they shopped in a market for medical services just as they shopped in a market for toasters and tailors. The fifteen percent of us who lack health insurance still shop that way. Even insured patients shop: they make copayments and have coinsurance; they pay extra for doctors and hospitals outside the insurer's network and for drugs outside the insurer's formulary. (2)

Patients have always been consumers, but, today, America's battle to restrain rocketing costs of health care has transformed the world of patients as consumers: Crucially, two recent reforms have (1) pushed more patients into the medical market and (2) made that market a more parlous place.

In one of those reforms--managed care--insurers bargain with doctors and hospitals and give providers incentives to cabin costs. This helps plan members get care less expensively, which is its intent. Unintentionally, how ever, managed care relegates uninsured patients to a new marketplace, a marketplace of uncommon harshness dominated by doctors, hospitals, and insurers. Briefly, insurers aggressively negotiate rates for plan members; uninsured patients must "bargain" individually with providers who are determined to recoup what they bargained away to insurers.

Managed care, then, has momentously changed the market for patients who must be consumers. The latest reform--consumer-directed health care--drives more insured patients into that market. (3) Assisted by a new tax shelter for "health savings accounts," employers and individuals are buying insurance with high deductibles that require patients to pay most medical costs out of pocket. (4) To qualify for the tax shelter, deductibles may range from $1,100 for individuals to $11,000 for families. (5) This is supposed to induce patients to shop like consumers for good care at low prices. (6)

What happens when patients buy care in the new medical market? What happens when consumer-directed health care makes even insured patients negotiate prices with doctors and hospitals? The standard hope is that the market will provide, that the market will spread decent products at reasonable prices before consumers, who will choose the right goods at the fight rates. The key but unappreciated fact, however, is that the market for uninsured medical services is a calamity. Patients can rarely amass enough information about services and prices to make good decisions about hiring doctors and buying care. Patients are frequently committed to their doctors, and their doctors normally decide which hospitals to use. Doctors and hospitals commonly require patients to sign contracts obliging them to pay whatever bills the provider cares to present. Providers regularly present and aggressively collect staggering bills unrelated to their costs or to the prices they negotiate with insurers. This is a market few can negotiate wisely, but in which missteps can destroy patients economically. No surprise, then, that the costs of illness--particularly medical bills--contribute to more than half of the personal bankruptcies in the United States. (7)

What should the law do when patients become consumers in this harsh market? Most basically, should patients be treated like any other consumers, and providers like any other vendors? More specifically, how should the law superintend the negotiation of contracts to pay for medical services? Should the law limit those contracts substantively? Do courts have a repertoire of doctrines for ameliorating the market's failure or at least safeguarding patients in extreme cases? If not, can doctrines be developed to make the worlds of managed care and consumer-directed health care safer for patients?

Scholars have strangely neglected these questions. Lawmakers have not recognized their existence, dimensions, or urgency. This is understandable, for lawmakers must rely on scholars to keep up with the medical markets' rapid changes. But while medical markets have been well studied, scholars have virtually ignored the legal questions the new market presents. (8)

We do not imagine that courts can solve the problems of health-care finance. But we believe that courts can and should shield patients from the cruelest consequences of the new market. Sickness, fear, and ignorance make patients inherently vulnerable. When patients must be consumers, their vulnerability deepens as they find themselves trapped in a market that starves them of information, alternatives, and leverage, a market that precludes prudent choice. The law ordinarily safeguards vulnerable consumers in perilous markets, and it eagerly protects patients when they choose medical treatments. More specifically, the common law endows courts with several doctrines that speak to the problems of patients as consumers. The law should recruit and develop these doctrines to shelter patients in the market managed care has created and consumer-directed health care will depend on.

1. THE MISERABLE MARKET FOR MEDICAL FEES

   1. Introduction to the Problem of the Medical Marketplace

      Patients increasingly are consumers. Consumers buy from vendors with interests of their own. Consumers must make well-judged purchases in the market--must evaluate their needs, assess their alternatives, hunt for the best price, and pay the consequent bill. In their rapture for deploying patients to tame medical costs, proponents of consumer-directed health care have descanted on the virtues of markets. But even smart and energetic consumers can struggle, even in good markets. How well can patients manage in the medical market?

      For consumers to evaluate prices, they must know them. Here the problems begin: "Medicine is the one capitalist enterprise to reveal its price tag only after the purchase or transaction is completed." (9) When patients approach a doctor or hospital, they almost never know and can rarely discover what things will cost. Few contracts with doctors and hospitals specify prices. Sometimes there is no contract; the obligation to pay is implied. Physicians' agreements usually refer delphically to "fees," "payments," "accounts," or "balances." (10) Likewise, hospital-admission forms obscurely commit patients to paying all "charges" not covered by insurance. (11) In short, doctors and hospitals insist that patients accept their standard charges, and patients learn what they bought and what it cost only on receiving a bill (if they are marvelously lucky and receive a bill they can understand).

      Should courts enforce onerous bills contracted in this lamentable way? If the market otherwise functions decently, perhaps. (12) But the health-care market is neither fair nor efficient. Rather, it is littered with the dangers of which Professor Eisenberg warns:

      [A] market that involves a monopoly sets the stage for the exploitation of distress; a market in which transactions are complex and differentiated rather than simple and homogeneous sets the stage for the exploitation of transactional incapacity; a market in which actors do not simply take a price established by a general market and are susceptible to transient economic irrationality sets the stage for unfair persuasion; a market that involves imperfect price-information sets the stage for the exploitation of price-ignorance. (13) Lawmakers know little about the strange medical market and thus leave patients to flounder in it. In this Part, therefore, we will chart the market's operation and its consequences. In the next Part, we will ask how the law should succor patients tossed in such stormy seas.

   2. Insurers' as Purchasers of Health Care

      In one large part, the health-care market works plausibly enough. Insurers (public and...