The Challenge of Regulating Managed Care

13. The Role of Private Litigation in Monitoring Managed Care

  The Role of Private Litigation in Monitoring Managed Care Peter D. Jacobson During the past decade, health-care delivery has been evolving away from a system in which individual physicians provide care for individual patients toward a system characterized by large patient populations within integrated delivery systems. Perhaps the most dominant social force behind this transformation has been the need to contain the rising cost of delivering health-care services. The success of these recent changes, especially the cost-containment initiatives introduced by managed-care organizations, depends largely on whether the cost-containment efforts and other managed-care innovations can lower health-care costs without reducing quality of care. Yet, the ability to sustain and expand those innovations also depends on how courts decide litigation challenging these innovations. If courts consistently rule in favor of individual patients’ service delivery needs, it may be dif‹cult to sustain cost-control mechanisms. But if courts consistently rule in favor of cost containment, individuals will have little recourse when medical care is denied. Judicial decisions will also in›uence the expansion of the new organizational forms and physician autonomy. In responding to the litigation, judges face a threshold question of what role courts should play in monitoring the managed-care environment relative to legislatures. Courts face the tension of applying common law liability principles to new situations (perhaps by depicting public policy considerations) or deferring to elected representatives to set public policy. In the new health-care environment, courts will be asked to distinguish the economic aspects of managed care that order relationships among health plans, physicians, and patients from the incentives that contribute to below-standard care. The former are more traditionally legislative prerogatives while the latter are traditionally within the judicial purview. The evolution of both common law and constitutional law is replete with examples of this tension, with courts expanding liability principles in some instances (such as imposing strict liability for massproduced goods) and deferring to the legislatures in others (such as with physician-assisted suicide). 175 This chapter provides an initial assessment of how the courts have ruled in private litigation affecting managed-care cost-containment initiatives.1 By cost-containment initiatives, I mean that set of managed-care practices designed to reduce the costs of health care, such as prospective utilization management , capitated funding arrangements, limitations on choice of providers, and other incentives (e.g., bonuses and withholds) that encourage providers to limit medical treatment. The chapter addresses the role of private litigation in monitoring health plans’ quality of care and in setting the liability context in holding plans accountable for their cost-containment initiatives. It will also assess the type of litigation that has emerged to date, how the courts have ruled, and what factors courts have considered in rendering judgments in managedcare cases. The presentation is organized around ‹ve interrelated questions: • What are the emerging trends in managed-care liability? • How are courts deciding challenges to cost-containment initiatives? • Do courts understand the underlying changes in health-care delivery? • Are courts deferring to the market, or is health care treated differently than other commodities? • Are courts deferring to the legislatures to set public policy in managed care? Taken together, the answers to these questions will enable stakeholders and policymakers to understand the courts’ receptivity to changing circumstances and the ›exibility with which MCOs will be allowed to operate. The analysis will provide an initial look at the development of legal doctrine in managed care, what policies legislators and regulators should consider in response, and how health-care delivery, especially physician autonomy, might be in›uenced by the emerging trends. Private Litigation The involvement of the courts in monitoring health care is not new. For many years, courts have been actively involved in monitoring quality of care through medical liability determinations by establishing the applicable standard of care (Jacobson 1989) and in interpreting the range of bene‹ts to be provided through contractual determinations of what constitutes medical necessity (Hall and Anderson 1992; Eddy 1996). Courts have also been called upon to interpret the vast array of state and federal legislation regulating health-care delivery. What is new in the managed-care environment are the types of issues likely to emerge, particularly the con›ict between population-based cost containment and access for individual subscribers, the multiplicity of actors in a given case, and the evolving nature of the organizational structures. 176 The Challenge of Regulating Managed Care [3.133.79.70] Project MUSE (2024-04-25...