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Health Care: Legal Issues
- Law and Health Care: Framing the Issues
- Historical View
- Litigation Context
- Challenges to Cost Containment Practices
- Physician Autonomy
- Future Challenges
- Balancing Access with Coverage
- Social Policy Conflicts
In the United States, health care is primarily a private enterprise, run by nongovernmental organizations. The major actors in the system are private health insurers, private physicians, private medical institutions, and private management companies, none of which historically have had cause to align their interests, particularly in the context of legal liability. Even so, the role of governmental actors in US health care has been growing over the past several decades. The governmental actors involved in US health care are predominantly public insurers, most prominently the programs called Medicare (social health insurance for the aged and disabled) and Medicaid (welfare-based medical insurance for the poor). Medicare has been a stable source of public health insurance for people over the age of 65 years since its inception in 1965. Medicaid, on the other hand, is a much more dynamic program, often growing and changing to accommodate other areas of the law, such as changes in welfare rules, but always covering only the poorest citizens. The federal governmental role is poised to increase even more in coming years due to major health care reform embodied in the Patient Protection and Affordable Care Act (the Affordable Care Act (ACA)), which was signed into law in 2010. This law strives to achieve what many other industrialized nations accomplished decades ago: universal health insurance coverage.
The relationship between law and health care in the United States is multilayered and constantly in flux; health care is ensconced in layers of the law. Private common law concepts overlap with public law and constitutional law theories; health care providers are subject to both federal and state regulation of their activities, especially when public insurance is taken as payment for medical services; the federal and state actors often disagree over which governmental body is properly responsible for and thus has power over health care; each type of health care provider is separately regulated by both state and federal agencies and each is subject to differing mechanisms of liability for negligence, fraud, and the like; and costs rose, while access diminished, all of which contributed to a cacophonous health care system.
This research paper encapsulates the relationship between law and health care in the United States, with a focus on how courts have responded to challenges to managed care’s cost containment innovations and the policy changes that litigation may be creating. One source of important litigation change in the past two decades was both a response to, and a reflection of the transition to, a managed care-influenced health care system. How the courts and legislatures responded to these changes in part determined the limitations of the ambitious cost containment initiatives represented by the heavy administrative role of managed care organizations. The move to managed care also included greater enrollment costs and aggressive strategies to exclude undesirable individuals from insurance policies, leading to high rates of uninsurance and underinsurance. Thus, after discussing legal aspects of managed care, the move toward policy-based litigation that appears to be the wave of the future for health care litigation will be considered.
Law and Health Care: Framing the Issues
The legal and medical systems are inextricably intertwined and have long intersected at many points. Since the early 1800s, medical jurisprudence, where physicians are called as expert witnesses and where the courts act to regulate the quality of medical care, has been an integral part of the growth of the health care enterprise. As Mohr noted, “. medical jurisprudence . figured prominently in early American medical history .; neither subject can be fully understood in its modern context without taking the history of legal medicine into account” (Mohr, 1993: p. 251). As this quote suggests, courts have long influenced health care delivery and payment. Even so, the relationship between law and health care has become ever more manifest and more controversial, especially with the high-profile litigation surrounding the ACA.
Acknowledging the ebbs and flows of the relationship between law and medicine, it is arguable that the relationship was essentially stable from the mid-nineteenth century until the mid-1960s (Stryker, 1932). As recently as the late 1960s and the early 1970s, health care attorneys and health care executives had to be concerned with a relatively easy set of legal rules. Both sides could predict the nature and scope of liability litigation because the essential rules establishing the standard of care and the possible types of litigation varied little during this period. A typical court case involved one patient suing one physician, guided by liability rules that reflected judicial deference to physicians in setting the standard of care.
This relative stability was greatly disrupted by two major changes in the health care system: the advent of the managed care organization and its growth, set off by the Health Maintenance Organization Act of 1973, and the establishment of Medicare and Medicaid in 1965. At both the state and federal levels, all three branches of the legal system – legislatures, executive regulatory agencies, and courts – have persistently been involved in setting health care policy and monitoring health care delivery since the mid-1960s, and the regulatory overlay on the prior, stable, and relatively simple mechanisms of liability has created new meanings for legal issues in health care.
The framing of the legal issues in the modern managed care era reflects the dramatic changes in the health care system since the mid-1980s and the resulting policy conflicts that have emerged. For many years, courts have actively monitored quality of care through determining the standard of care for medical liability (Jacobson, 1989; Furrow, 1997) and interpreting contractual definitions of medical necessity (Eddy, 1996; Hall and Anderson, 1992). Courts have also been called on to interpret the vast array of state and federal legislation regulating health care delivery, and that set of regulations has grown both wider and deeper as the major federal programs have aged.
In responding to litigation challenging managed care cost containment practices, courts have had to confront the question of what role the judiciary should play in monitoring the health care system relative to legislatures. Courts face the tension of applying common law liability principles to new situations or deferring to elected representatives to set potentially bad or inequitable public policy. In the modern health care environment, courts are asked to distinguish the economic aspects of managed care that order relationships between health plans, physicians, and patients, from the monetary incentives that contribute to below-standard care. The former are more traditionally legislative prerogatives, while the latter are traditionally within the judicial purview. For those cases decided in the courts, judges determine whether the issues should be resolved by contract or tort (civil wrongs such as negligence) law. The difference is that recovery under contract is more difficult and damage awards are lower. What complicates matters is that in managed care, the insurance (i.e., contract) and medical care (i.e., potential negligence) are combined in one entity.
The same questions regarding the role of the judiciary, deference to legislatures, and public policy concerns arise in the context of public insurance mechanisms, but the questions become even more complex. This is because the federal government and the states fight over whose power is primary when making decisions about Medicaid, which is funded and structured by the federal government but administered and supplementally funded by the states, as well as Medicare, which accounts for a large portion of the national budget and thus draws political and economic scrutiny. This means that health care providers get caught in the fight, vying often for fair payment, and also being forced to choose a position among these governmental power struggles. In addition, any misuse of the public insurance funds leads to steep penalties at both the federal and the state levels, leading potentially to both civil and criminal liability.
Common law liability doctrine has traditionally emerged incrementally to adapt to changing circumstances, taking time for the actual contours of a doctrine of liability to be assessed. Nevertheless, certain themes have emerged in modern health care litigation that are likely to continue to evolve so long as the United States maintains its fragmented health care system.
Despite variation in states’ case law, the trend has been that courts apply traditional liability doctrine to managed care entities (Furrow, 1997). For early models of Health Maintenance Organizations, the most restrictive form of managed care, the law had already developed holding them liable for torts (civil wrongs) committed by their employees. The courts have also applied indirect liability doctrines, such as vicarious liability and agency principles, to other managed care organizational forms, which exercise less intense administrative oversight, for malpractice committed by an independent physician.
In determining vicarious liability, courts look to the health insurer’s control over the physician or how the entity markets its physicians. The greater the indications of control and the more the organization markets the quality of its physician panel, the greater is the likelihood that the managed care organization will be held vicariously liable. In a leading case, Boyd v. Albert Einstein Medical Center, 547 A.2d 1229 (Pa. Super. 1988), the court held that an independent practice association (IPA) could be liable for an individual physician’s medical malpractice because the patient reasonably believed that the IPA controlled the physician. The court rejected the IPA’s argument that it was not liable because the physician was an independent contractor, holding that the physician could still be an agent with respect to the patient. A key element to managed care liability is whether the managed care organization has sufficient control to override a physician’s clinical decisions. This occurs through such mechanisms as utilization review, which allows the insurer to evaluate a physician’s medical decisions and deny payment for such care.
Challenges to Cost Containment Practices
Health care accounts for a large percentage of the United States’ gross domestic product as well as federal and state budgets, and so cost containment is often part of the national conversation. Of course, this is not so different from other countries with more centralized health care systems, but the spending is harder to control because of the significant role of private actors and their distinct interests. The conflict between population-based cost containment and access for individual health insurance subscribers has created large quantities of case law, all of it complicated by the multiplicity of actors in a given case and the evolving nature of the organizational structures in the health care system. Just as the courts had to adapt medical liability principles to the emergence of hospitals as central to health care delivery in the 1960s, the same process is now underway with regard to the ever-morphing organizational forms that form the umbrella concept of managed care. In addition, many health care providers are aligning their interests, making provider liability more complex as well. Sorting out which party is legally responsible for delayed or denied care, and the acceptable level of care resulting from cost containment strategies, remains a challenge for both state and federal courts. The idea of rationing is still a tough one for legislatures to swallow, and they have de facto deferred rationing to nongovernmental organizations.
Nonetheless, courts have not impeded the implementation of cost containment initiatives exemplified by health maintenance organizations and other forms of managed care (Jacobson, 1999). Courts have upheld cost containment programs, except when such programs are seen as limiting access to life-sustaining treatment. For example, state and federal courts have generally rejected challenges to financial incentives (although some courts have allowed such challenges to proceed to trial), utilization management programs, and contractual challenges to benefit denials.
Few courts have been willing to usurp legislative choices in formulating health care policy or to obstruct the market in organizing and delivering health care services, and some courts specifically deflect to legislature’s allegations that managed care incentives violate public policy. One reason for this is that courts have interpreted narrowly a federal law called the Employee Retirement Income Security Act to block state court challenges to cost containment programs that deny health benefit coverage. Another reason is that courts look to contract law to determine the extent of litigating parties’ obligations and responsibilities, especially in physicians’ litigation against managed care organizations. Although the trend toward contract is neither unlimited nor uniform, it represents a potentially profound shift from the early 1970s, when courts were perceived as protectors of individuals, to the modern era when courts act more as supporters of market-based changes.
Courts have ruled that people who are dissatisfied with managed care, including physicians, should take their case to legislatures. This has represented a dramatic departure from the era when courts deferred to physician dominance. And, physicians had a reasonable expectation that courts would protect the physician–patient relationship from interference by managed care plans. On balance, the essence of the health care system lies with the physician–patient relationship, and courts consistently protected physician dominance in the past (Kapp, 1985; Hall, 1988). But, courts have not done so in the managed care era. To the extent that physicians have been able to secure protections through the courts, it has largely been through fair process requirements and retaining the legal standard of professional care.
The question is why courts are not deferring to physicians; what has changed over time to cause the courts’ shift from protecting physician dominance to reinforcing managed care’s dominance? One potential answer is that courts respond to changes in the underlying environment. As the nature of health care delivery has changed, it stands to reason that courts would begin to incorporate those changes. Slowly but surely, courts have internalized cost containment goals in developing legal doctrine, rather than ensuring the primacy of the physician– patient relationship.
Nevertheless, state legislatures have responded to physicians’ complaints by implementing protective regulations, which are now also reflected in the federal ACA. State laws have limited some of the cost containment practices that were on the rise in the late 1980s and 1990s, leading to turnabout for managed care organizations. Even if courts were not willing to rein in the financially dominant managed care organizations, some state legislatures have been able to do so. The federal government has followed these states’ lead in the ACA by ending certain practices that had led, over time, to deep inequities in access to and level of coverage by health insurance.
During the next few years, the legal system will face many questions regarding health care both as implemented and in terms of pure public policy. Major policy questions, such as how to balance the health care access and coverage needs of individual patients with the cost containment goals of the health care system and how to reconcile conflicting social policy goals, seem to more often be decided through judicial processes. This section considers some current and future trends in the overlap between law and medicine.
Balancing Access with Coverage
No easy solution exists for balancing the individual patient’s access to health care with conserving health insurers’ assets for the entire patient population. Private health insurers in the United States often opt for protecting their economic wellbeing and that of their shareholders, and patients seek care regardless of its cost – creating constant tension that can lead to life or death litigation.
Despite its name, the ACA leans toward health care access rather than toward cost management. The Act focused on creating a health insurance home for every US citizen because health insurance is the gatekeeper for health care in the United States. To facilitate health insurance coverage, the Act put an end to certain practices, such as policy rescission and preexisting coverage exclusions, which disproportionately excluded the chronically ill, the poor, people of color, and women from health insurance coverage. To ensure a large risk pool to cover the expense of the additional covered lives, the Congress required that every person (with some exceptions) obtain health insurance coverage or pay a tax penalty for failure to carry insurance. In a highly publicized litigation, a private business organization and half of the states challenged the constitutionality of the ‘individual mandate’ as well as the expansion of the Medicaid program, which helps to provide health coverage to the poor who could not afford private insurance policies, even with federal tax subsidies. These aspects of the ACA were upheld by the US Supreme Court in National Federation of Independent Business v. Sebelius, 132 S. Ct. 2566 (2012), although the Medicaid expansion was rendered optional for states when it had been created as a mandatory Medicaid eligibility expansion. But, the win for federal lawmaking may be short lived.
This type of policy-challenging litigation may become the wave of the future. Already, additional challenges to the ACA’s health insurance rules are percolating in lower federal courts. Once again, the proper role of the judiciary in health care policy choices has come to the fore, but now on a much broader scale, as the judiciary has been asked to consider not the decisions of private health executives, but those of the federal legislative and executive branches, which were striving to ameliorate a nationwide, and growing, problem by enacting the ACA.
Social Policy Conflicts
A plethora of legislation has placed health care providers, institutions, and executives in the policy-making cross fire. Some regulations, such as antifraud and abuse measures, are specifically designed to reduce health care costs. Others, such as the Emergency Medical Treatment and Labor Act, are designed to improve access through a point of rescue in the emergency room, regardless of the cost. Taken alone, each individual law is defensible. Taken together, however, the social policy goals of cost containment, improving access to health care, and improving quality of care conflict across statutes and regulations. Complying with all the federal and state laws that apply to health care providers and health insurers may be impossible. And, the multiple layers of law impacting medicine reflect disjointed social policy.
The fundamental policy tensions that underlie such laws are arguably better left to the political branches of government, but courts are mired in litigation regarding health care both on a macro- and a microlevel. Courts’ involvement ranges from simple medical liability for negligence cases to major questions about access to courts for Medicaid beneficiaries and the constitutionality of major health care legislation. Each of these cases, whether adjudicating interpersonal conflicts or wholesale social policy, has a ripple effect in health care.
Other countries may not learn much from the managed care model, as it has created a long stream of litigation and other strife in the United States, resulting in a significant toning down of the original (health maintenance organization) model throughout the early 2000s. On the other hand, it seems likely that most countries will face the need to impose cost constraints on their national health care systems. These choices are already evident in the British and Canadian systems, which are facing the dual pressures of governmental budget concerns and the private sector performing alongside the public system. Reconciling cost containment with institutional stakeholders’ objectives, patients’ interests, and limited governmental resources takes compromise, careful planning, and often contentious debate. Even then, it can be difficult to ensure that changes are implemented fairly and equitably, and lawmaking by litigation can derail even the most meticulous efforts.
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