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

ARTICLES Managed Care, Utilization Review, and Financial Risk Shifting: Compensating Patients for Health Care Cost Containment Injuries* Vernellia R. Randall** TABLE OF CONTENTS Prelude .............................................. I. Introduction ....................................... II. Historical Background ............................. A. Overview of Historical Development ........... 1. From Home to Hospital ..................... 2. The Coming of the Blues ................... 3. World War II and Beyond .................. 4. Medicare and Medicaid ..................... B. Impact of Third-Party Payers on Health Care.. C. The Development of Managed Care Products .. 1. Health Maintenance Organizations ......... 2. Preferred Provider Organizations ........... D. Summ ary ...................................... III. Third-Party Cost Containment Measures .......... A. Utilization Review ............................. 3 6 9 10 10 11 12 13 14 19 20 22 24 26 27 * Copyright © 1994 Vernellia R. Randall. All Rights Reserved. ** Assistant Professor of Law, University of Dayton. B.S.N. 1972, University of Texas; M.S.N. 1978, University of Washington; J.D. 1987, Northwestern School of Law, Lewis and Clark College. As usual, whatever success this project represents is due in significant part to the unwavering support and encouragement of many persons. In particular, I owe a very special thanks to Professor Martha Davis, University of South Dakota, who spent part of the summer mentoring a neophyte. I acknowledge with gratitude the help of Professor Harry Gerla, Dean Francis Conte, Dean Robert Driscoll, Professors Vincene Verdun, Jim Durham, Lawrence Wohl, Dale Searcy, and Michael Sobol. I would like to thank my research assistants: Janelle Johnson, Lisa Feeling, and Scott Hauert. Finally, I would like to thank Evelyn Patrick Boss and the other editors of the University of Puget Sound Law Review for their excellent editorial suggestions. 2 University of Puget Sound Law Review [Vol. 17:1 1. Utilization Review Defined ................. 2. Utilization Review Structure ............... B. Strict Enforcement Through Financial Risk Shifting ........................................ C. Effects of Cost Containment Measures on Health Care .................................... 1. Assuring Quality Care in the Managed Care Product ..................................... 2. Maintaining the Ethical Basis of Health C are ........................................ 3. Maintaining Access to Health Care ......... D. Sum mary ...................................... IV. Traditional Theories of Liability ................... A. Negligence (or Direct Liability) for Injuries Caused by Cost Containment Measures ........ B. Corporate Negligence Doctrine ................. C. Respondeat Superior Doctrine .................. D. Ostensible Agency Doctrine .................... 1. Boyd v. Albert Einstein Medical Center ..... 2. Williams v. Good Health Plus .............. 3. Analysis of Boyd and Williams ............. E. Summ ary ...................................... 27 28 V. ERISA as a Barrier to Compensation for Injuries ... 65 A. Background .................................... B. Corcoran v. United HealthCare................. VI. The Medical Injury Compensation Fund-A Proposal ........................................... A. Problems with the Tort System ................ B. Elements of a Medical Injury Compensation Fund .................................. 1. Defining Compensable Medical Injuries .... 2. Compensation .............................. 3. Financing the Fund ......................... 4. Duty of Public Notice ....................... 5. Exem ptions ................................. 6. Attorney's Fees ............................. C. Problems of a Medical Injury Compensation Fund ........................................... 1. Fiscal Stability ............................. 2. Fraud, Abuse, and Malingering ............. 3. Constitutionality ............................ 4. Political Feasibility ......................... 66 68 30 32 33 36 38 40 41 42 48 53 55 58 60 62 65 73 73 76 77 78 78 79 79 79 80 80 81 81 82 1993] Compensatingfor Health Care Injuries D. Benefits and Consequences of a Medical Injury Compensation Fund ............................ 1. Reduced Administrative Costs .............. 2. Increased Participation ..................... 3. Reduced Monetary Recovery ................ 4. Greater Spread of the Cost of Managed Care Injuries ............................... E. Summ ary ...................................... VII. Conclusion ......................................... 82 82 83 83 84 84 84 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' 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 1. As opposed to the art. 4 University of Puget Sound Law Review [Vol. 17:1 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'6tre for t (...truncated)