Health Care Law

A trend toward "managed care" and away from "fee-for-service" medicine has been sparked by significant changes in the health insurance industry. Health care insurance originated in the 1930s with Blue Cross (hospitalization coverage) and Blue Shield (physician services coverage). It traditionally has stayed out of the provision of health care services and has served as a third-party indemnitor for health care expenses; that is, in exchange for the payment of a monthly premium, a health care insurance company agrees to indemnify, or be responsible for, its insured's health care costs pursuant to the specific provisions in the health insurance policy purchased.

Skyrocketing costs in health care spurred public and private reform. The federal Medicare Program introduced diagnosis-related-groups (DRGs) in 1983, which for the first time set predetermined limits on the amounts that Medicare would pay to hospitals for patients with a particular diagnosis. Employers seeking lower health care costs for employees have increasingly chosen MANAGED CARE options like HMOs and preferred provider organizations (PPOs), both of which use cooperation and joint efforts among patients, health care providers, and payers to manage health care delivery so as to reduce costs by eliminating administrative inefficiency as well as unnecessary medical treatment.

Health care law will continue to be affected by the country's move toward managed care as the predominant health care delivery model. For example, HMOs' potential liability for medical malpractice could increase because many HMOs operate on a "staff model" whereby physicians are explicitly hired as "employees," thus making it easier to demonstrate respondeat superior liability for the negligent acts of their physicians. In addition, many HMOs exercise greater control over the discretion of individual physicians with regard not only to primary care but also to specialist referrals and the prescribing of certain drugs. The historical bright line forbidding the corporate practice of medicine is thus blurred even further by managed care.

HMOs operate on a prepaid basis, making monthly capitation (i.e., per patient) payments to participating physicians and physician groups. PPOs operate on a reduced-fee schedule, offering lower fees for patients who seek care from a "preferred provider," who functions both as a primary care doctor and as a gatekeeper for such tasks as specialist referrals. Both use "networks" of physicians and health care providers. The standard duty to provide medical care applies to physicians in these networks, but new issues arise regarding the payment or reimbursement of expenses. Some managed-care plans offer limited "out-of-network" benefits, some offer none at all. Should an employer change health plans, an employee with an established physician-patient relationship might find that the treating physician is not part of the new provider's network. If the patient cannot or will not cover subsequent medical costs independently, who has the responsibility to secure alternative treatment for the patient? Who should pay for that treatment? These questions have not yet been resolved. Many patients in this situation start over again with a new physician, out of economic necessity, and many are not happy about that involuntary termination of the physician-patient relationship.

Another potential issue for physician networks and "integrated delivery systems" (which include primary care physicians, specialists, and hospitals) is price-fixing, which has traditionally been held to be per se illegal under the Sherman Act. PPOs are under particular scrutiny in this regard, as a PPO is a group of health care providers who agree to discounted fees in exchange for bulk business (e.g., medical care for all of a particular company's employees). These providers are individual economic entities, and as such they must exercise great care in the concerted, joint effort of setting prices and fees, in order to avoid accusations of conspiracy to restrain trade through illegal price-fixing. Likewise, integrated delivery systems must be ever mindful of Clayton Act prohibitions against monopolies, and they must carefully tailor their joint ventures and other agreements to minimize their anticompetitive effects on relevant markets.

Congress has sought unsuccessfully to pass so-called Patients' Bill of Rights—legislation to improve PATIENTS' RIGHTS under private health insurance plans, which cover as many as 169 million Americans. In 2000, Democrats in both houses of Congress pushed for legislative reforms to address perceived shortcomings in the HMO industry. They sought an appeals process to allow patients to challenge HMO decisions before a board of independent doctors. They also fought to give patients the right to sue HMOs in state court for damages resulting from delays and improper denials of treatment. Polls suggested that as many as 70 percent of Americans favored such reforms.

Senate Republicans and most House Republicans, however, feared that the reforms would increase the cost of health care, drive up insurance premiums, and thus add to the already 43 million Americans who are uninsured. Senate Republicans in 1999 and 2000 sought to pass their own patients' bill of rights, and although the bill garnered support in both houses, Democrats and Republicans were unable to reach a compromise about specific portions of the bill.

With the subject reaching an impasse in Congress, as of 2003 at least 45 states have enacted their own versions of a patients' bill of rights. In April 2003, the U.S. Supreme Court, in Kentucky Association of Health Plans v. Miller, 538 U.S. 329, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003), reviewed a provision of Kentucky's Health Care Reform Act that sought to regulate HMOs. The HMO in the case claimed that Kentucky's law was pre-empted by the EMPLOYEE RETIREMENT INCOME SECURITY ACT of 1974 (ERISA). The Court, per Justice ANTONIN SCALIA disagreed, holding that the Kentucky law regulated insurance, rather than an employee retirement plan, and thus that the ERISA preemption does not apply.