The devil is in the details: managed care and the unforeseen costs of utilization review as a cost containment mechanism.

• Author: Saunier, Benjamin

ABSTRACT: This article addresses issues of liability when a single-payor in a national health care system makes a decision based on a utilization review program that injures the patient as a result. In Part I, the history of Managed Care Organizations (MCOs) is discussed to establish an understanding of the current health care landscape. Part II explains MCOs' use of utilization review to contain costs and analyzes the manner in which courts have addressed the issue of MCO liability for patient injuries sustained from denial of coverage. Finally, Part III concludes that current case law may limit a patient's access to a remedy for injuries sustained from a utilization review decision in a single-payor national health care system.

Introduction

Health care has once again been placed in the national spotlight. Unfortunately, the attention is not for great advancements in technology or the advent of a miracle drug, but rather for the exceedingly high cost of health care. With Americans spending more than $2.3 trillion in 2008 in health care expenditures, (1) there is no disagreement that health care costs have inflated beyond the pocketbooks of most U.S. citizens. (2) The increase in costs have been attributed to such factors as technological advances, inflation, increased needs of a growing elderly population, longer life spans, and the cost of medical liability. (3)

The genesis of the growth of health care costs stems from the advent of the third-party payor, such as insurance companies. (4) In a traditional patient-provider relationship, the patient would pay for medical care on a fee-for-service basis. (5) In a fee-for-service system, the patient would seek care and then pay for the care at a rate determined by the physician for the services rendered. (6) With the introduction of the third-party payor, the traditional fee-for-service arrangement became slightly skewed because the patient was no longer involved in the financial transaction of health care, and the provider was assured to be paid. (7) This setting encouraged the over-utilization of treatment by providers, increasing the revenues of providers and costs to patients. (8) Reacting to a dramatic escalation of health care costs, private and government insurers shifted from traditional fee-for-service plans to managed care. (9)

Managed care is defined as "processes or techniques used by any entity that delivers, administers and/or assumes risk for health services in order to control or influence the quality, accessibility, utilization, costs and prices, or outcomes of such services provided to a defined population." (10) The purpose of a managed care organization (MCO) is to achieve cost control by implementing aggressive cost containment mechanisms. (11) One such mechanism is utilization review, which is employed to limit reimbursement of medical care that is determined to be medically necessary. (12) Medical necessity is determined through the judgment of the provider and an MCO's predetermined criteria. If the predetermined criteria are not satisfied, the coverage is denied and the treating physician does not provide that course of treatment. (13) With the provider and the MCO making joint determinations regarding a patient's access to certain care, there is an inherent liability for decisions that adversely affect the patient and cause injury. However, the question the courts seem to struggle with answering is who should bear the liability in these situations, the provider or the MCO.

This question becomes more complicated when the government is the MCO. In 1965, the government responded to the difficulty of Americans affording health care through the creation of Medicare and Medicaid. (14) Medicare and Medicaid are the equivalent of a government operated MCO whose purpose is to provide affordable health insurance to the indigent, disabled, and elderly through the implementation of cost containment mechanisms. (15) Similar to private MCOs, the government has adopted utilization review procedures to control expenditures for Medicare and Medicaid claims. (16) There is difficulty in allocating liability to the government for injuries sustained from the denial of care because there may often be a strong public policy of containing cost for the benefit of all Medicare and Medicaid members, which alters typical tort liability. This alteration may leave patients without any remedy for the damages they have incurred.

The issue of liability when a patient suffers an injury as a result of a government-operated MCO denying care could become more significant as health care costs continue to increase. With the continued escalation of health care costs, more Americans are unable to afford health insurance, which has sparked vigorous debate over how to reform health care. (17) One resolution, passed by the Senate in December 2009, (18) extends insurance to more individuals through various incentives and appropriates more funds to Medicaid to increase enrollment. (19) The Senate's resolution increasing Medicaid enrollment is consistent with a movement in the United States toward a national, or single-payor, health care system. Some supporters of a government operated health care system propose extending Medicare and Medicaid to all Americans in an effort to ensure all Americans have access to health care. Recognizing health care as a limited resource, supporters also propose using cost containment mechanisms, such as utilization review, to keep the cost of health care reasonable.

Although a single-payor national health care system may provide "free" access to health care for all, there may still remain some unintended costs. The rationing of a limited resource as vital as health care contains some inherent issues of liability. The liability stems from the denial of those resources, such as treatment, through a utilization review program that results in a patient injury. Establishing liability often requires a discussion of whether the denial of treatment was a result of a pure payment eligibility decision or a pure medical decision. (20) Determining whether the decision to deny treatment was a medical decision or eligibility decision may be convoluted, and allocating liability to a party becomes difficult. (21) Was the patient's injury the result of a medical decision in which the provider is liable? Did the injury stem from a pure eligibility decision, which places liability with the payor? Or even if the ultimate decision to withhold a particular treatment was made by the provider, was the provider's decision an attempt to stay within the coverage limitations of the MCO, shifting the liability onto the payor?

The purpose of this Note is to address issues of liability when a single-payor in a national health care system makes a decision based on a utilization review program that injures the patient as a result. In Part I, the history of MCOs will be discussed to establish an understanding of the current health care landscape. Part II will explain MCOs' use of utilization review to contain costs and analyze the manner in which courts have addressed the issue of MCO liability for patient injuries sustained from denial of coverage. Finally, Part III will argue that current case law may limit a patient's access to a remedy for injuries sustained from a utilization review decision in a single-payor, national health care system.

1. Managed Care

   1. The Ascension of Managed Care

      Traditionally, individuals and families had one physician. (22) The doctor-patient relationship consisted of the patient seeking treatment for an injury or illness and the doctor using his professional judgment to diagnose and treat. To compensate for the doctor's service, a fee-for-service arrangement was created in which the doctor would treat the patient for a set fee, and the patient would pay for the service out-of-pocket. (23) This dynamic began to change as health insurance companies evolved "in an attempt to deliver [medical] care [to more individuals] at [an] affordable [price]." (24)

      Insurance companies continued payment of medical bills in the traditional method of fee-for-service (25) despite their obligations for indemnifying the patient's medical expenses. (26) Typically, a physician would provide treatment, submit the fee to the insurance company, and the insurance company would pay the bill, no questions asked. (27) As a consequence of this arrangement, insurance companies offered "no incentive for the [provider] or patient to maintain [health care] costs," shielding them from considering the financial component of providing health care. (28) Under this arrangement, however, the relationship between the patient and physician remained virtually unaltered, leaving the liability of injuries sustained from a course of treatment solely on the provider.

      Despite insurance companies' efforts to provide affordable health care, the insurance industry came under scrutiny as a consequence of the increasing costs in health care. The insurance industry's adoption of a fee-for-service payment system enabled physicians to provide unnecessary diagnostic tests and "over utilize treatment." (29) Providers' desire not to be a party to an unfavorable malpractice lawsuit and the no-questions-asked payments by insurance companies encouraged providers to generate enormous revenues without apprehension of review. (30) This environment led to significant increases in health care costs affecting the pocketbooks of both the insurance companies and the patient.

      Another significant event contributing to the dramatic increase in health care expenditures was the passage of the Social Security Amendments of 1965, (31) which created Medicare and Medicaid. (32) The creation of Medicare and Medicaid was a reaction to the increasing costs of medicine and an attempt to provide care to those who had difficulty affording it themselves: the elderly, the disabled, and the poor. (33) Providers were dubious of...