Patient Injury Incentives in Law

Managed care has become the dominant mode through which citizens in the U.S. obtain their health care. However, as managing costs becomes the primary focus of the health delivery system, possible patient injury associated with the managed care incentive to limit care has become of paramount concern. Generally, it has been assumed that the tort system will provide medical decisionmakers with a strong incentive to provide medically appropriate care that limits patient injury. However, there are grave, legally-based doubts regarding this assumption. First, the federal Employee Retirement Income Security Act of 1974 (ERISA) represents a powerful shield which precludes patients from recovering for injuries incurred due to denial of care by managed care organizations (MCOs). Further, in one area where ERISA has not provided total MCO protection, vicarious liability, most courts have inappropriately exercised jurisdiction over these cases. Importantly, this includes the only federal Court of Appeals decision which held that ERISA does not protect MCOs in these causes of action. These legal improprieties make all of these decisions void and/or renders them without precedential value. It also leaves only one Court of Appeals decision on this matter valid?a decision which held that ERISA preempts vicarious liability claims against MCOs. It bears noting that ERISA does not provide similar liability protection to physicians. Second, independent contractor law also provides a shield against patient injury liability for MCOs. Since the vast majority of physicians enter into legal agreements with MCOs as independent contractors, the standard common law of tort dictates that physicians alone are responsible for all resulting patient injury, regardless of whether the MCO sets up payment structures, imposes practice limitations, and retains the authority to make final treatment authorization or denial decisions. In addition, MCOs contract with physicians using standard termination without cause clauses. These clauses allow MCOs to terminate physician employment for any or no reason at all, i.e., the specter of deselection. Because these clauses are virtually unchallengeable both at the bargaining table and under the standard common law of contract, physicians will be reticent to object to policies and procedures that have potential adverse effects upon patient care due to justified concerns regarding employment. Thus, MCOs are provided with strong incentives to limit costs and deny care due to legal rules that shield them from virtually all liability for these actions. Patients, who require additional and more intensive care as the population ages, have the incentive to seek out this care from the physician with the viable threat of malpractice litigation against the physician if patient injury results, regardless of MCO remuneration and service delivery constraints. Physicians, the actual providers of care, have their incentives torn asunder under the current legal rules. By providing care in excess of MCO dictates, requesting experimental procedures for their patients, and appealing MCO treatment denials, physicians fulfill their ethical obligations to their patients but run the significant risk of deselection, which could potentially violate their ethical obligations to their family and others who rely upon them. On the other hand, by not engaging in this patient advocacy behavior, physicians avoid deselection but violate their ethical obligations to their patients. Beyond creating care conflicts for current patients, the legal system also has significant effects on efforts to improve care for future patients. Under the current legal regime, MCOs have little incentive to engage in patient safety research because of their insulation from patient injury liability and the significant time and resources this research would entail; physicians have little incentive to participate in such efforts because of the threat of deselection due to potential productivity reduction and the possibility that these efforts may make some of their knowledge obsolete. A legislative strategy is proposed that addresses the difficulties created by the present legal rules through creation of a system which aligns MCO and physician incentives to provide patient-centered care and engage in broad-based, patient safety research efforts.