Legal challenges to managed care cost containment programs: An initial assessment

Health Affairs

Volumn 18, Issue 4, 1999, Pages 69-85

  Jacobson, Peter D ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

ARTICLE; COST CONTROL; ECONOMICS; HEALTH CARE DELIVERY; HEALTH CARE POLICY; HEALTH CARE QUALITY; HEALTH INSURANCE; HUMAN; LEGAL ASPECT; PENSION; TREATMENT OUTCOME; UNITED STATES;

COST CONTROL; DELIVERY OF HEALTH CARE; EMPLOYEE RETIREMENT INCOME SECURITY ACT; HEALTH POLICY; HUMANS; MANAGED CARE PROGRAMS; OUTCOME AND PROCESS ASSESSMENT (HEALTH CARE); QUALITY ASSURANCE, HEALTH CARE; UNITED STATES;

EID: 0033158372     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.18.4.69     Document Type: Article

References (58)

1. The searches used the words health maintenance organization, managed care, preferred provider, utilization review, individual practice association, and antitrust. The cases will be statistically analyzed in future work.
2. P.D. Jacobson, "Medical Malpractice and the Tort System," Journal of the American Medical Association 262, no. 23 (1989): 2230-2237; B.R. Furrow, "Managed Care Organizations and Patient Injury: Rethinking Liability," Georgia Law Review (Winter): 419-509; M.A. Hall and G.F. Anderson, "Health Insurers' Assessment of Medical Necessity," University of Pennsylvania Law Review (May 1992): 1637-1712; and D.M. Eddy, "Benefit Language: Criteria That Will Improve Quality while Reducing Costs," Journal of the American Medical Association 275, no. 8 (1996): 650-657.
3. P.D. Jacobson, "Medical Malpractice and the Tort System," Journal of the American Medical Association 262, no. 23 (1989): 2230-2237; B.R. Furrow, "Managed Care Organizations and Patient Injury: Rethinking Liability," Georgia Law Review (Winter): 419-509; M.A. Hall and G.F. Anderson, "Health Insurers' Assessment of Medical Necessity," University of Pennsylvania Law Review (May 1992): 1637-1712; and D.M. Eddy, "Benefit Language: Criteria That Will Improve Quality while Reducing Costs," Journal of the American Medical Association 275, no. 8 (1996): 650-657.
4. P.D. Jacobson, "Medical Malpractice and the Tort System," Journal of the American Medical Association 262, no. 23 (1989): 2230-2237; B.R. Furrow, "Managed Care Organizations and Patient Injury: Rethinking Liability," Georgia Law Review (Winter): 419-509; M.A. Hall and G.F. Anderson, "Health Insurers' Assessment of Medical Necessity," University of Pennsylvania Law Review (May 1992): 1637-1712; and D.M. Eddy, "Benefit Language: Criteria That Will Improve Quality while Reducing Costs," Journal of the American Medical Association 275, no. 8 (1996): 650-657.
5. P.D. Jacobson, "Medical Malpractice and the Tort System," Journal of the American Medical Association 262, no. 23 (1989): 2230-2237; B.R. Furrow, "Managed Care Organizations and Patient Injury: Rethinking Liability," Georgia Law Review (Winter): 419-509; M.A. Hall and G.F. Anderson, "Health Insurers' Assessment of Medical Necessity," University of Pennsylvania Law Review (May 1992): 1637-1712; and D.M. Eddy, "Benefit Language: Criteria That Will Improve Quality while Reducing Costs," Journal of the American Medical Association 275, no. 8 (1996): 650-657.
6. M.A. Hall, "Institutional Control of Physician Behavior: Legal Barriers to Health Care Cost Containment," University of Pennsylvania Law Review (December 1988): 431-536.
7. G.F. Anderson, "The Courts and Health Policy: Strengths and Limitations," Health Affairs (Winter 1992): 95-110.
8. See, for example, J.H. Ferguson, M. Dubinsky, and P.J. Kirsch, "Court-Ordered Reimbursement for Unproven Medical Technology," Journal of the American Medical Association 269, no. 6 (1993): 2116-2121.
9. States can still regulate benefits for commercially insured plans, but states are blocked from enforcing benefit provisions for any ERISA-covered plan.
10. See, for example, Turner v Fallon Community Health Plan, Inc., 127 F.3d 196 (1st Cir. 1997); and Andrews-Clarke v Travelers Insurance Co, 1997 WL 677932 (D. Mass. 1997).
11. PacifiCare of Oklahoma v Burrage, 59 F.3d 151 (10th Cir. 1995); and Dukes v U.S. Healtcare, 57 F.3d 350 (3d Cir. 1995).
12. 958 F. Supp. 1137 (E.D. Va. 1997). See also McClellan v HMO of Pa, 604 A.2d 1053, 1056, footnote 6 (Pa. Super. 1992). However, the widely noted case of Fox v Health Net of California, No. 219692 (Cal. Super. Ct. 1993) resulted in a substantial settlement following a $90 million jury award for Health Net's refusal to pay for a bone marrow transplant. Fox challenged the role of the defendant's financial motivations in the clinical decision.
13. I am indebted to my colleague Edward Goldman for this observation.
14. 1996 WL 525518, Fla. App. 4 Dist., 1996.
15. 1 F. Supp. 420 (D. N.J. 1998). See also Pappas v Asbel, 1998 Pa. LEXIS 2718 (Pa. 1998).
16. Likewise, in Herdrich v Pegram, 154 F.3d 362 (7th Cir. 1998), the court held that a patient could sue for breach of fiduciary duty based on an allegation that the physician's economic incentives led to delayed care, which resulted in an adverse outcome and improper financial gain to the MCO. However, the court specifically noted that the existence of economic incentives to limit care would not automatically be tantamount to a breach of fiduciary duty. See also E.H. Morreim, "Benefits Decisions in ERISA Plans: Diminishing Deference to Fiduciaries and an Emerging Problem for Provider-Sponsored Organizations," Tennessee Law Review 65, no. 12 (1998): 511-553.
17. See, for example. Self v Children's Associated Medical Group, Cal. Super. Ct., No. 695870, 1998, where a jury awarded damages to a physician who was fired in violation of a California statute for providing too many tests and spending too much time with patients.
18. 1998 U.S. Dist. LEXIS 13326 (N.D. Tex. 1998).
19. No. 96 Civ. 1107 (SHS), S.D. N.Y., 23 July 1997.
20. 107 F.3d 625 (8th Cir. 1997). See also Drolet v Healthsource, Inc., No. CV-96-166-B (D. N.H. 1997).
21. Varol v Blue Cross and Blue Shield, Inc., 708 F. Supp.826 (E.D. Mich. 1989); Wickline v State of California, 239 Cal. Rptr. 810 (Cal. Ct. App. 1986); and Sarchette v Blue Shield of California, 223 Cal. Rptr. 76 (Cal. 1987).
22. Wickline v State of California.
23. Sarchette v Blue Shield of California; and Wilson v Blue Cross of Southern California, 271 Cal. Rptr. 876 (Cal. Ct. App. 1990).
24. Bush v Dake, No. 86-25767, Mich. Cir. Ct., Saginaw County, 27 April 1989; and Berel v HCA Health Services of Texas, Inc., 881 S.W.2d 21 (Tex. App. 1994).
25. Long v Great West Life and Annuity Insurance Company, 1998 Wyo. LEXIS 62.
26. 965 F.2d 1321 (5th Cir. 1992).
27. 88 F.3d 1482 (7th Cir. 1996); and Tolton v American Biodyne, Inc., 48 F.3d 937 (6th Cir. 1995).
28. M.A. Hall et al., "Judicial Protection of Managed Care Consumers: An Empirical Study," Seton Hall Law Review 26 (1996): 1055-2069. See also G. Anderson, M.A. Hall, and T.R. Smith, "When Courts Review Medical Appropriateness," Medical Care 36, no. 8 (1998): 1295-1302.
29. M.A. Hall et al., "Judicial Protection of Managed Care Consumers: An Empirical Study," Seton Hall Law Review 26 (1996): 1055-2069. See also G. Anderson, M.A. Hall, and T.R. Smith, "When Courts Review Medical Appropriateness," Medical Care 36, no. 8 (1998): 1295-1302.
30. The regression analysis by Hall and colleagues attributes this result to being in federal court rather than to ERISA. For a critique of these results, see W.M. Sage, "Judicial Opinions Involving Health Insurance Coverage: Trompe l'Oeil or Window on the World?" Indiana Law Review 31, no. 1 (1998): 49-73.
31. E.H. Morreim, "Medicine Meets Resource Limits: Restructuring the Legal Standard of Care," University of Pittsburgh Low Review 59 (1997): 1-95 (page 46, footnote 148).
32. See, for example, Nazay v Miller, 949 F.2d 1323 (3d Cir. 1991); and Loyola University v Humana Insurance Co., 966 F.2d 895 (7th Cir. 1993).
33. See, for example, Bailey v Blue Cross Blue Shield, 866 F. Supp. 277 (E.D. Va. 1994), aff'd 67 F.3d 53 (4th Cir. 1995). This also could expose plans to bad-faith denial claims. See, for example, McEvoy v Group Health Cooperative of Eau Claire, 570 N.W.2d 397 (Wis. 1997); and Goodrich v Aetna U.S. Healthcare of California, Inc., Cal. Super. Ct., RCV020499, 1999.
34. Morreim, "Benefits Decisions in ERISA Plans; " and P.D. Jacobson and S. Pomfret, "Form, Function, and Managed Care Torts: Achieving Fairness and Equity in ERISA Jurisprudence," Houston Law Review (Winter 1998): 985-1078.
35. Morreim, "Benefits Decisions in ERISA Plans; " and P.D. Jacobson and S. Pomfret, "Form, Function, and Managed Care Torts: Achieving Fairness and Equity in ERISA Jurisprudence," Houston Law Review (Winter 1998): 985-1078.
36. 1997 U.S. Dist. LEXIS 3941 (N.D. Cal. 1997).
37. 938 P.2d 903 (Cal. 1997).
38. 65 F.3d 1406 (7th Cir. 1995).
39. See also Federal Trade Commission v Butterworth, 946 F. Supp. 1285 (W.D. Mich. 1996); and United States v Mercy Health Services, 902 F. Supp. 968 (N.D. Iowa 1995).
40. 1996 WL 282069 (S.D. N.Y.), rev'don other grounds, 107 F.3d 2 (2d Cir. 1997).
41. 114 F.3d 9(2d Cir. 1997).
42. 63 Cal. Rptr. 202 (Cal. Ct. App. 2d Dist. 1997). See also New Jersey Psychological Association v MCC Behavioral Care, Inc., 1997 U.S. Dist. LEXIS 16338 (D. N.J. 1997).
43. J.D. Blum, "The Evolution of Physician Credentialing into Managed Care Selective Contracting," American Journal of Low and Medicine 22, no. 2-3 (1996): 173-203.
44. Harper v Healthsource, Inc., 674 A.2d 962 (N.H. 1996); and Rudolph v Pennsylvania Blue Shield, 717 A.2d 508 (Pa. 1998).
45. Federal Trade Commission v Butterworth; Blue Cross and Blue Shield of Wisconsin v Marshfield, 65 F.3d 1406 (7th Cir. 1995); McClellan v HMO of Pennsylvania, 686 A.2d 801 (Pa. 1996); and ERISA-related UM cases.
46. T.L. Greaney, "Night Landings on an Aircraft Carrier: Hospital Mergers and Antitrust Law," American Journal of Law and Medicine 23 (1997): 191-220.
47. See R. Rosenblatt, S. Law, and S. Rosenbaum, Low and the American Health Care System (Westbury, N.Y.: Foundation Press, 1997); and Jacobson and Pomfret, "Form, Function, and Managed Care Torts."
48. See R. Rosenblatt, S. Law, and S. Rosenbaum, Low and the American Health Care System (Westbury, N.Y.: Foundation Press, 1997); and Jacobson and Pomfret, "Form, Function, and Managed Care Torts."
49. See, for example, Crocco v Xerox Corp., 956 F. Supp. 129 (D. Conn. 1997), 137 F.3d 125 (2d Cir. 1998); and Murphy v Board of Medical Examiners of the State of Arizona, 949 P.2d 530 (Ariz. App. 1997).
50. See, for example, C.C. Havighurst, Health Care Choices: Private Contract as Instruments of Health Care Reform (Washington: AEI Press, 1995).
51. U.S. v Mercy Health Services; and Blue Cross and Blue Shield of Wisconsin v Marshfield.
52. R.J. Mooney, "The New Conceptualism in Contract Law," Oregon Law Review (Winter 1995): 1131-1207.
53. In Doe v SEPTA, 72 F.3d 1133 (3d Cir. 1995) and Creason v State Department of Health Services, 957 P.2d 1323 (Cal. 1998), the courts made this trade-off explicitly. See also E.H. Morreim, "Moral Justice and Legal Justice in Managed Care: The Ascent of Contributive Justice," Journal of Law, Medicine, and Ethics (Fall 1995): 247-265. One might argue that Herdrich v Pegram, 154 F.3d 362 (7th Cir. 1998), represents a departure from this thesis, in part because the court said that "market forces are insufficient to cure the deleterious effects of managed care on the health care industry." However, the opinion goes far beyond what other courts have held, the court was required to accept the facts as alleged in the motion to dismiss, and the issues will be revisited when the case is tried in the district court. Other courts might instead follow the forceful dissenting opinion in the request for reconsideration, written by well-respected judges who would explicitly defer to market forces in structuring financial incentives (Herdrich v Pegram, 170 F.3d 683 [7th Cir. 1999]).
54. See, for example, Andrews-Clarke v Travelers Insurance Co.
55. An exception to this is Muse v Charter Hospital of Winston-Salem, Inc., 452 S.E.2d 589 (Ct. App. N.C. 1995).
56. M.B. Kapp, "Medicine and Law: A Symbiotic Relationship?" American Journal of Medicine 78, no. 6 (1985): 903-907.
57. D.C. Hadorn, "Emerging Parallels in the American Health Care and Legal-Judicial Systems," American Journal of Law and Medicine 18, no. 1-2 (1992): 73-96; and Hall and Anderson, "Health Insurers' Assessment of Medical Necessity."
58. D.C. Hadorn, "Emerging Parallels in the American Health Care and Legal-Judicial Systems," American Journal of Law and Medicine 18, no. 1-2 (1992): 73-96; and Hall and Anderson, "Health Insurers' Assessment of Medical Necessity."