Duke University Press
Randall R. Bovbjerg and Robert H., Ph.D Miller - Managed Care and Medical Injury: Let's Not Throw Out the Baby with the Backlash - Journal of Health Politics, Policy and Law 24:5 Journal of Health Politics, Policy and Law 24.5 (1999) 1145-1157

Managed Care and Medical Injury:
Let's Not Throw Out the Baby with the Backlash

Randall R. Bovbjerg and Robert H. Miller

Complaints about managed care have lately become a staple of news and political discourse. The most common targets of such backlash are HMOs and delivery systems that provide care to HMO enrollees. Happily, there is more good news than first meets the eye. Backlash supposes that management of care comes only at patient expense, which does not necessarily follow. Good management is a good thing. Quietly, some systems of managing care have been making qualitative improvements as well as cutting costs, even in the case of medical malpractice, the poster child for backlash. Large capitated physician groups appear to be playing an increasing role in such improvements. And measured legal reform seems possible, although not easy to craft and implement, especially given the complexity and rapidity of change.

Why Backlash: Why Now

All backlash, like ancient Gaul, is divided in three parts. The attorneys' part is most obvious: The trial bar has been at the forefront of complaints about limitations on lawsuits and in the background of publicizing managed care "horror stories." 1 Lawyers naturally favor giving complainants [End Page 1145] new legal remedies by modifying ERISA, 2 which has retarded personal injury litigation against employment-based health plans. Suits are meant to compensate injured patients and to deter plans from cutting corners in patient care, but the side effects on attorneys' pocketbooks are presumably not unwelcome.

The physicians' part is more surprising, given doctors' disdain for litigation, even though politics makes for strange bedfellows. As managed care has grown, however, individual physicians have become concerned with pressures they feel to curb their tests and referrals or to limit time with each patient--as well as with pressures on their fees and incomes. The American Medical Association promotes "patient protection" laws regulating managed care in the interest of patients, but also to constrain the market power of managed care plans vis-à-vis less organized fee-for-service physicians. 3

Enrollee-patients are the third part of the backlash. For years, most enjoyed medical benefits without facing full costs. Now, they are feeling the costs of managed care cutbacks without seeing the full benefits. Premium savings have largely gone to the payers--business and government. Where qualitative improvements have occurred, they have been little noticed. Managed care patients complain more about restrictions on choice, poor service, and denial of benefits than do their fee-for-service counterparts, especially if they haven't been persuaded to choose a plan but have been forced into one, 4 although overall patient satisfaction is similar (Miller and Luft 1997). Unhappy patients also provide political cover for the lawyers and doctors to assert their own agendas.

The Fourth Estate plays the enabler for all three groups. The media seem eager to air complaints, especially the gripping horror stories (Gorman 1998; Hendren 1998). [End Page 1146]

Much popular sentiment and two potent interest groups thus support legislation to curb managed care (Marstellar and Bovbjerg 1999). Who is opposed? Mainly the bill payers. They most vehemently oppose an open-ended right to sue (ERIC 1998), 5 the strongest remedy and most contentious reform (Bruni 1999).

Diagnosing the managed care backlash and its political fallout is thus fairly easy. Prognosis and prescription are more difficult.

This essay addresses injuries from medical error. Medical injury is commonly taken as synonymous with malpractice cases, but it's important to consider also the large bulk of negligent injuries that are never discovered or brought as lawsuits. A related, also underappreciated problem is bad outcomes that are avoidable but not demonstrably negligent (i.e., not clearly at variance from a customary clinical standard). Injuries are also often blurred together with denials of benefits. Most disputes over benefits administration feature no patient injury, but perceptions are dominated by unusual, high-profile cases of patients seeking potentially life-prolonging treatment, in which ERISA's limits on remedies can be seen as unfair. 6 The policy debate is about when benefits rules are to be set as general policy, in advance, either by contract or regulation, and when they are to be set case by case, in hindsight, through high-stakes litigation. This is a significant issue, but a different one from avoiding the types of error in service delivery that potentially can affect all patients all the time. The latter errors are our topic here.

Evaluating Backlash

We start with a basic, if not the basic, policy question: How severe is the problem of medical injury ostensibly in need of reform? Clearly, there is some consumer dissatisfaction with managed care, for which there may be market and legislative remedies, but has managed care increased the incidence or severity of patient injury? Commentators and reformers often assume as self-evident that HMOs and other plans must decrease [End Page 1147] quality and increase injury when they reduce payments or shift patterns of utilization. Not necessarily, for at least six types of reasons.

Where Is the Evidence?

Overall Quality of Care. If managed care caused more medical injuries, this should show up in comparisons of quality of care among types of plans. Yet literature analyses of many studies have found overall quality of care comparable for HMO and non-HMO enrollees, although there is some cause for concern about HMO enrollees with chronic conditions (Miller and Luft 1994, 1997; Dudley et al. 1998). 7

Comparative injury rates are less well studied, except for breast cancer. Failure to diagnose it when still treatable or to treat it properly is the second most common type of malpractice claim, according to thirteen years of claims data from the Physicians Insurers Association of America (Preston 1998). However, again here, there's no pattern of greater medical injury among HMO enrollees. One study of 1984-1990 hospital data did find that non-HMO enrollees had lower risk of death (Lee-Feldstein, Anton-Culver, and Feldstein 1994), yet another of 1984-1992 data found the opposite (Vernon, Heckel, and Jackson 1995). Most recently, an analysis of HMO breast cancer patients diagnosed in 1988-1993 found that fewer were diagnosed at late stages than were non-HMO enrollees and that early-diagnosed HMO and non-HMO patients received similar treatment (Riley et al. 1999), which was consistent with earlier work (Riley et al. 1994). There was much variation across plans, however, which suggests that systematic management could make further improvements.

Incidence of Claims. If managed care injured more patients than indemnity-funded care, one would expect liability claims to have risen along with HMO growth. ERISA raises no obstacle to suing physicians or hospitals, and patients have the same ability to bring liability claims against medical providers regardless of type of health plan, self-pay, or even charity care. Indeed, given the managed care backlash, angry patients might be expected to sue more readily. However, claims rates have remained flat for the last half-decade. 8 The mid-1970s and 1980s [End Page 1148] malpractice "crises," in contrast, saw rapid increases in claims, wholly unrelated to managed care (Harrington and Litan 1988).

Is Less Always Less?

The "Good Old Days." Cutbacks in utilization could lower quality and raise injury risk if patterns of utilization under indemnity insurance had been optimal and payments had been at competitive prices. Neither is known to be true. Even many who oppose managed care recognize that fee-for-service practice often overutilized acute care--sometimes risking patient injuries in the process--and underutilized preventive care and systematic, coordinated care for persons with chronic diseases. The good old days weren't always so good (Zelman and Berenson 1998). Possibly the extreme example of dangerous overutilization was Dr. John Nork, who was personally responsible for nearly a hundred negligent laminectomies in the late 1960s. Such cases are quite rare these days, in large part because of credentialing by managed care. 9

Productivity Improvements. Simply paying less could raise injury risk if managed care did nothing to improve service delivery, for example, by implementing protocols for care or other technologies of medical decision making and service provision. Some insurers indeed seem to run some HMOs on an indemnity insurance model, not changing the system of care, just cutting or limiting fees and utilization in ways unrelated to evidence about medical performance. It is hard to defend such "indemnity with attitude," for eventually doing the same things with less will lead to decreased quality of care and increased medical injury. Buyers will probably not long patronize such plans if given an alternative. Signs abound that buyers want more information about service and clinical quality, starting with HEDIS data, 10 although medical injury has yet to be systematically addressed.

The assumption that cost savings must come at the expense of quality would surprise nonmedical managers because it is missing a key concept [End Page 1149] --increasing productivity. One telephone-switching machine replaces many operators with cords--and also makes many fewer errors connecting calls. Production of services is not a zero-sum game in which buyers can win only if sellers lose. Medicine poses special challenges to management, by its nature requiring numerous highly skilled people to collaborate on complex cases. But many managerial and technological changes may nonetheless make those people more productive--and less fallible. Initial improvements may come in mundane tasks like medical records management and patient scheduling, which nonetheless can help improve accuracy of diagnosis and assure follow-up of abnormal lab results. Longer-run improvements will come from better organization of care and better information systems that help physicians practice better. Already, doctors and hospitals have made substantial progress improving their business processes and information systems for billings and collections. They are only just beginning to similarly improve clinical processes, decision making, and information systems (Bates et al. 1998). Over time, such approaches can improve quality and reduce injury, which can at times also lower costs (Wright 1997; James 1997).

Are Systems Being Ignored?

New Systems Approaches to Errors. Many physicians and hospital administrators are coming to believe that improving medical results and reducing medical injuries calls for a systems approach like that used in industry (Tye 1999). Increased complexity makes it far harder for any doctor to go it alone. For about the last decade, the philosophy of "continuous quality improvement" has sought to apply industrial insights to medicine (Berwick 1989; Laffel and Blumenthal 1989). Advocates of "patient safety" have lately sought to do the same for medical errors (Leape 1994). A systems approach calls for organization not characteristic of traditional decentralized, fee-for-service practice (except for hospital-run care). Rather, it's more akin to management of care--not fiscal management, but clinical management. In contrast, legal accountability focuses on the individual practitioner for licensure, for discipline, and for medical liability. The implicit model is that individuals are the ones who need to be trained and held accountable. Surely they do, but individuals can often perform better when helped by organized systems around them.

New Delivery Systems. Importantly, delivery systems are emerging that have the motivation and means to effectively use systems approaches to [End Page 1150] clinical management. All provider organizations that accept insurance risk have new injury-avoiding incentives. Because they have agreed to deliver needed care at fixed price, they must now pay themselves for any extra hospital days from a postoperative infection, for reparative surgery after laceration of bile duct during a laparoscopic cholecystectomy, or for more elaborate intervention needed after delayed diagnosis. In contrast, under indemnity coverage, providers earned new fees from treating new harm resulting from medical intervention.

Of particular importance for medical injury are the new risk-bearing provider institutions that increasingly manage medical services in California and elsewhere (Robinson 1998; Robinson and Casalino 1995, 1996; Casalino 1998). These groups have the clinical management capability to improve practices, including reduction of medical injuries; they also have financial incentives to do so because they face both insurance risk and liability risk. In California, such institutions are typically large, capitated physician group practices or tightly integrated independent practice associations (IPAs), including those that are controlled by, or contract with, physician practice management firms and hospital-led delivery systems. In other states, provider-based management can take different forms, as can bearing of liability risk and health insurance risk.

The Need to Learn More

Today's environment is thus giving birth to many new organizations, along with new methods for reducing medical injuries. Policy discussions and regulatory proposals too often lump all developments together as "managed care." The term has come to include so many different entities that it obscures real differences in processes of care--and potentially outcomes--by quite different types of delivery systems. Better policy needs evidence about what specific organizational types and activities "work" to reduce injury.

To learn more, we are studying the development of "leading-edge" practices of physician groups and hospitals for improving patient safety. 11 These often seem to arise from systems developed to manage medical quality or liability risk. A particular focus is the new provider institutions noted above, 12 as they have financial incentives and clinical management capability to implement systematic change. The potential for significant [End Page 1151] reduction in patient injuries is quite exciting; advanced developments are so new that they have not yet even been well conceptualized, much less assessed.

We are also studying the impacts of legal liability. The law may help reduce injuries, for example, by motivating organizations to find ways to improve and by highlighting problem areas or less competent practitioners. But law may also hurt, for example, by raising liability risks for any departures from customary fee-for-services practices (Bovbjerg 1977) or by making medical practitioners reluctant to analyze information about injuries or errors that might be used against them later by trial attorneys (Liang 1999). It is worth recalling that the life's blood of entrepreneurial innovation in general is risk taking and freedom of information (Valéry 1999). Heavy-handed application of liability, in contrast, fosters conservatism and secrecy.

Because new organizations and promising new methods are emerging to reduce medical injury, it's important not to throw the baby out with the backlash.

The Dangers of Backlash

Accountability and transparency are good. A dissatisfied populace and disgruntled providers are not good. Some reforms hold promise for making progress on all these fronts--notably including disclosure of financial arrangements and results, and adjustment of payment levels for patient risk, which lessens any pressure to shortchange the very ill. Such reforms promote improvement across the board. A very different, safety-valve function may be served by external appeals of plans' benefit denials, probably of limited value to the population as a whole, but quite important to individuals affected. Some enhanced accountability for health plans' coverage determinations seems likely, especially for egregious bad acting. As to errors in clinical management, physicians and hospitals are already liable in tort, whether or not influenced by an HMO, and it is an open question how much new liability should be superimposed on what types of entities.

There are dangers of overkill from backlash-driven reform. One danger is consumer and political overreaction to exaggerated fears that may drive buyers to open provider networks to indemnity-style inclusiveness. This would discourage the constructive evolution of well-run, organized provider groups; it would reduce the chances for further organized innovation in patient safety, especially outside of hospitals; and it would leave [End Page 1152] much provider behavior not subject to oversight by any clinically expert entity.

Another danger could arise from open-ended and unstructured legal reform allowing lawsuits against HMOs and other health plans, followed by very successful innovation by the litigators. It is not certain where this will lead, as reform proposals are vague about lawsuits. They typically set no standards, either as to what entities may be sued, how found liable, or for what measures of damages. 13 The potential for greatly increased litigation and awards is substantial, however, as juries seem willing to impose high damages after second-guessing HMOs in cases of sympathetic claimants.

This could have unintended consequences. For one, pressures would be great to remove constraints on patient access to expensive, specialist-driven therapies. 14 This could siphon large amounts of money away from more prosaic but likely more powerful ways of improving patient outcomes, such as improved primary or secondary prevention (e.g., disease management). Litigation can make companies pay awards but it cannot make buyers willing to increase premium payments to cover them. For another, greatly increased liability might lead HMOs and others held liable to assert even more direct controls over clinicians. They may well not be the best managers, 15 and more health plan "interference" with physicians is certainly not what reformers seek.

With regard to liability, the ideal is to have injury risk imposed on those best able to control the costs of injury plus the costs of injury avoidance (Calabresi 1970); negligence measured by the cost-effectiveness of alternative precautions proven by evidence-based medicine rather than expert testimony of medical custom (Bovbjerg 1977; Morreim 1997); and damages structured to send good deterrent signals without imposing unpredictable, open-ended liability (Bovbjerg, Sloan, and Blumstein 1989). [End Page 1153] There are substantial problems with the existing law of malpractice in these regards, and backlash-generated reform proposals do not even reach such issues.


In sum, there are reasons that management of HMO enrollees' clinical care may improve patient safety at the level of delivery of care, even operating with fewer resources. This does not mean that every effort at management will succeed. Indeed, most fledgling enterprises and would-be innovations fail. But enough may succeed to develop systems of care to improve outcomes. It is important for analysts and legislators to maintain open minds about the promise as well as the pitfalls of managed care.

One hopes that health care finance and delivery is moving to a new era, where managing quality (and avoiding injury) will be more important than just managing spending or benefits coverage. Perhaps both the market and the law can begin to discourage health plans from engaging in simple cost cutting unmindful of impact on outcomes, without penalizing entities that cost-effectively promote safety even though they inevitably continue to suffer some injuries. The greatest promise of managed care is cost-effective clinical management, including organized oversight of clinicians and systematic new ways of reducing risk of injury to patients.

On the legal front, it is important that any change in liability law promote rather than inhibit better management of health risks. On the market side, we see the evolution of risk-bearing physician groups as a hopeful development. Many doctors began to organize partly to fight managed care, but may end by better managing care themselves.

The Urban Institute

University of California, San Francisco

Randall R. Bovbjerg, a health policy analyst and lawyer, is a principal research associate at the Urban Institute. Issues of medical injury and liability are one of his specialties. Since the mid-1970s, he has published one book, three symposium issues of law journals, and over thirty articles in the area, and has often testified or advised task forces. Current projects include not only the one described in this issue's article, but also trends in state and local health policy under "new federalism," how states regulate managed care, and ways to track and improve the performance of state licensing of nurses.

Robert H. Miller, a health economist, is associate professor of health economics in residence at the Institute for Health Policy Studies and Institute for Health and Aging, University of California, San Francisco. He has published articles on the effects of capitation on health plan performance and health care organization change, as well as on acute and long-term care services for chronically impaired seniors. Three of his current projects focus on changes in physician organizations, including efforts to reduce medical injuries, the economics of health information technology, and the effect of risk bearing on ownership and contractual relationships and management of clinical care.


This essay was funded by the IMPACS program of the Robert Wood Johnson Foundation, but the authors are solely responsible for its content.

1. There are many Web sites devoted to such stories (e.g., HARP 1999, Physicians Who Care 1998, The HMO Page, 1998.).

2. The Employee Retirement and Income Security Act of 1974, as amended, 29 U.S.C. §1001 et seq. Of late, courts appear increasingly to allow suits against health plans to proceed that until

recently were deemed preempted by ERISA's procedure for benefit disputes, which does not allow full tort style damages (Rooney 1998).

3. Organized medicine today supports not merely "any willing provider" laws to protect them from being selected out of an HMO's network (Marsteller et al. 1997) but also other protections, notably including the right to sue health plans (AMA 1998). The stance is ironic, as most physicians have long hated tort law and tort lawyers for the intrusions of liability claims into clinical judgment and earlier in the decade opposed "enterprise liability" for health plans, lest this encourage plans to intrude on clinical practice (Priest 1993).

4. At its heart, the backlash represents a failure of agency and of information. Employee-patients don't feel well represented when, contrary to the initial competitive promise of multiple-option, informed choice, they are forced into a single managed care plan, especially one that cuts them off from one or more of their physicians. Increasingly, enrollees have only one option.

5. Note also that federal law has never allowed Medicare and Medicaid to be sued over benefits determinations or over any impact its payment systems may have on patient care.

6. The seminal case is Fox v. HealthNet, in which a plaintiff won a huge jury verdict because of a plan's refusal to cover autologous bone marrow transplant for advanced breast cancer (Fox v. HealthNet, Civ. No. 219692, 1993 WL 794305 [Riverside County Super. Ct./Central Cal. 23 December 1993]). Insurers have always faced such claims, traditionally over excluding "experimental" procedures and including "medically necessary" ones (Hall et al. 1996). In the aftermath of Fox, almost all plans began to cover the disputed procedure (Jeffrey and Winslow 1999).

7. For theory on how capitation may and may not affect quality, see Berwick 1996.

8. According to the St. Paul companies, the largest single source of coverage for physicians, as of year end 1997, standardized claims frequency was 15.8 per 100 insured physicians. For 1996 it was 16.0; for 1995, 16.7; for 1994, 14.1; for 1993, 14.3. No increases were expected for official 1998 statistics when released (information obtained from personal communication with senior executive at St. Paul Fire and Marine Insurance. 23 March 1999).

9. We owe this Norkian insight to an executive at a physician mutual liability insurance company. Though quite hostile to managed care for its incursions on independent physician practice, the executive volunteered this observation, attributing the improvement to managed care. Another factor of course is increased oversight from hospitals that face enterprise liability for not checking on physicians--as was imposed in litigation over Nork's behavior (Furrow et al. 1991).

10. The Health Plan Employer Data and Information Set comes from the National Committee for Quality Assurance. See http://www.ncqa.org/pages/policy/hedis/hedis.htm.

11. "Reducing Medical Injuries--Advanced Methods in Capitated Physician Organizations," Robert Wood Johnson Foundation grant no. 033501, 1 January 1998. See also Larkin 1998.

12. See previous subsection, "New Delivery Systems."

13. Many proposed federal patient protection acts would allow whatever new common law or statutory rights of recovery states may develop, simply eliminating ERISA preemption to allow personal injury and wrongful death suits under state law, such as the Patients' Bill of Rights Act of 1999, S.240 (Senators Thomas Daschle [D-SD] and Edward Kennedy [D-MA]), §302(a), amending ERISA to provide that "nothing in this title shall . . . impair . . . any cause of action . . . in connection with the provision of" ERISA benefits. An exception is the Promoting Responsible Managed Care Act of 1999, S. 374, 106th Congress, 1st sess. (Senators John Chafee [R-RI], Bob Graham [R-FL] et al.), which provides for new federal investigatory powers and specifies new civil monetary penalties, up to $50,000 per individual harm from "unreasonable denial or delay of benefits" and $250,000 for a "pattern or practice" of such behavior, §141(c)(1)(A)(i) and (ii).

14. There are some signs that this may already be happening (Weinstein 1999).

15. Such matters are discussed in the literature on "enterprise liability," for which a good starting point is the debate taken up in Sage et al. 1994 and Abraham and Weiler 1994.


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