Healthcare Policy & Law
CHAPTER 12
Healthcare Quality Policy and Law
INTRODUCTION
This chapter steps away from the topics of healthcare access and coverage to focus on healthcare quality. As with access and coverage, healthcare quality has various dimensions, and the topic of healthcare quality has increasingly been a focal point of researchers, analysts, health professionals, and consumers. For instance, in the span of only a couple of years, the influential Institute of Medicine (IOM) of the National Academies of Science has released two major reports pertaining to healthcare quality: To Err Is Human: Building a Safer Health System,1 which focused on the specific quality concern of patient safety, and Crossing the Quality Chasm: A New Health System for the 21st Century,2 which described how the healthcare delivery system should be overhauled to improve care.
Like healthcare access and coverage issues, healthcare quality is a key concern in health policy and law. For example, long-standing problems related to the administration of health care—like racial and ethnic health disparities, and the geographic variation in the amount or type of care provided to patients—have drawn responses from policymakers and the legal system. Furthermore, policy and legal responses are often needed as healthcare quality is affected by changes in the marketplace or by advances in medical technology. For instance, institutional payers for healthcare services—traditional insurers, employers, and managed care companies—are more involved in healthcare practice now than was the case historically,3(p26) a fact that has spurred policymakers and courts to reconsider traditional notions of healthcare quality and liability.
The role of law as a monitor of the quality of health care was on display in the context of the no-duty-to-treat principle and the case of Hurley v. Eddingfield.4 Indiana’s physician licensure law was described as a filter to weed out individuals without the requisite skills to safely and adequately practice medicine. Licensure, in theory, permits a second healthcare quality function, as well—it allows state regulators to monitor the conduct of medical practitioners even after they have been licensed, although, as discussed further, this function has not been performed with much vigor over the years.
Holding healthcare professionals and entities liable for substandard care is another (and perhaps the most well-known) legal tool used to promote quality in health care. Physicians have no legal duty to accept a patient into their practice or to provide care upon request, except in limited circumstances. However, a doctor’s decision to treat a patient establishes a legally significant physician–patient relationship, under which the physician owes the patient a reasonable duty of care. Failure to meet what is termed the professional standard of care—the legal standard used in medical negligence cases to determine whether health professionals and entities have adequately discharged their responsibility to provide reasonable care to their patients—can result in legal liability for reasonably foreseeable injuries.a
As you will soon discover, the laws and legal principles that define the circumstances under which aggrieved individuals can successfully sue a managed care organization for substandard care or coverage determinations are complex. This complexity stems from multiple facts. First, the legal framework applied to medical negligence cases was developed long before the advent of managed care. Second, the hybrid nature of managed care (combining as it does the financing and delivery of care) defies easy categorization and makes application of the legal framework challenging. And third, a federal law (the Employee Retirement Income Security Act, or ERISA) pertaining to employee benefit plans preempts (i.e., precludes) many typical state-level legal claims against MCOs.
The next section of this chapter provides a brief overview of healthcare licensure and accreditation in the context of healthcare quality. The chapter then turns to an overview of errors in health care. Although medical errors are only one small component of the broad subject of healthcare quality, they are commonly included in the quality discussion and serve as a jumping-off point for a discussion of healthcare liability. The chapter then turns to a full discussion of the professional standard of care and its evolution, followed by a description of some of the state legal theories under which hospitals, traditional insurers, and MCOs can be held liable for substandard medical professional conduct. It then explores the complex area of how ERISA preempts lawsuits premised on these same legal theories. Finally, the chapter describes the concepts of measuring and incentivizing healthcare quality.
QUALITY CONTROL THROUGH LICENSURE AND ACCREDITATION
The licensing of healthcare professionals and institutions is an important function of state law. As noted previously, healthcare licensure is centrally about filtering out those who may not have the requisite knowledge or skills to practice medicine; in other words, states exercise their police powers when applying licensure laws in order to protect residents from being subjected to substandard health care. State licensure laws both define the qualifications required to become licensed and the standards that must be met for purposes of maintaining and renewing licenses.5
Important as the licensing function is, however, historically it has been used in the promotion of healthcare quality in only the bluntest sense. This stems from the fact that in most states, the only method by which to promote quality through licensure is, simply, the granting or denial of the license to practice medicine. In other words, there exists no middle ground between being granted a license and not being granted (or renewed for) a license, no ongoing monitoring or application of standards intended to promote quality and ensure competence in the face of evolving medical care practices. In designing licensing laws, most state legislatures assume that medical professional trade associations (e.g., the American Medical Association) and/or accrediting bodies have sufficient ethical and practice standards to effectively regulate healthcare practitioners, and that the “task of quality assurance under licensure is to identify and deal with relatively rare cases of individual provider deviation from those norms.”6 This assumption is correct, to a point—private professional and industry standards do indeed exist, though their effect on day-today quality is debatable. Some commentators maintain that accreditation amounts to little more than self-serving indicia of individual or institutional exceptionalism, while others argue that accreditation plays an important and useful role alongside licensure. There are many examples of healthcare accreditation bodies: The Joint Commission (formerly the Joint Commission on Accreditation of Healthcare Organizations), which may be best known for its review and accreditation of hospitals; the National Committee for Quality Assurance, which accredits managed care organizations; the Healthcare Facilities Accreditation Program; the Commission on Accreditation of Rehabilitation Facilities; the Community Health Accreditation Program; the Utilization Review Accreditation Commission; and others.
A second historical fact related to licensure’s effect (or lack thereof) on healthcare quality—one that plays into detractors’ claims about the self-serving nature of today’s industry-designed accreditation processes—is that state licensing schemes were designed not with healthcare quality per se in mind, but rather with an eye toward protecting the medical professions from unscrupulous or incompetent providers and bad publicity. For example, “a typical medical licensure act of the early 1960s provided for license suspension or revocation when, for example, a physician: (1) had been adjudicated insane; (2) habitually used intoxicants; (3) had practiced criminal abortion or had been convicted of a crime involving moral turpitude; (4) had advertised fraudulently; (5) had misrepresented his credentials to the licensing board; or (6) had employed unlicensed persons to do work reserved for licensed practitioners.”7 Thus, the laws tended to focus on preventing relatively rare instances of grossly poor-quality care, rather than on long-term promotion of high-quality care.
One final topic pertaining to licensure that bears mentioning is the immensely important role it plays in defining the permissible “scope of practice” of the various types of healthcare providers. It is one thing for state legislators to define the meaning of practice for various broad medical fields (e.g., there is not so much overlap between, say, medicine and dentistry as to cause a huge number of policy and legal disputes), but quite another for legislators to define the lawful activities of doctors as compared to physician assistants as compared to nurses, and even more specifically of advanced practice nurses (APNs) as compared to licensed practical nurses (LPNs) as compared to registered nurses (RNs). It is in delineating permissible scopes of practice within fields and subspecialties that fierce policy disputes take place.
Yet, it is not surprising that these disputes take place. Licensure laws define who has the power to engage in medical practice, who gets to practice specific types of health care, and how and when professional standards of conduct are enforced. In short, licensure laws have the power to determine who is in, as they say, and who is out. Some states are relatively more inclusive in their approach to the licensing of healthcare professionals, while others hew closely to a more traditional approach in which physicians are granted broad scope of practice powers while other professionals (e.g., nurses) have far less ability to diagnose and treat patients. The latter approach is being hotly contested, as nurses8 and other non-physician healthcare professionals9 decry their inability to practice to their full education and training, particularly in light of the healthcare workforce shortages that plague the nation10 and the large number of individuals who will be newly able to access health insurance (and thus be more likely to seek care) under the Affordable Care Act.
MEDICAL ERRORS AS A PUBLIC HEALTH CONCERN
Notwithstanding licensure laws and accreditation standards, medical errors are bound to, and often do, occur. And while medical errors are obviously not a new problem, framing the issue as a public health problem is a relatively new phenomenon, and healthcare providers, public health professionals, and policymakers have in recent years committed increased attention to the problem of medical errors.
The extent to which medical errors both occur at all and ultimately result in adverse health outcomes and mortalities indicates that the problem is not confined to one ethnic or racial population, socioeconomic group, or geographic area. A study conducted in Colorado and Utah suggests that 44,000 Americans die each year as a result of hospital-related medical error,1(p1) while a similar study in New York estimates the number to be as high as 98,000.1(p1) Overall, more people die each year from medical errors than from motor vehicle accidents, breast cancer, or AIDS.1(p1) The negative effects of medical errors on individual patients and on society as a whole—including associated reductions in work productivity, lost income, and the costs associated with correcting injuries resulting from errors—support the conclusion that medical errors are properly classified as a public health problem requiring a strong response from policymakers and the legal system.
There are various causes of medical errors. They can be caused by actions that are, relatively speaking, concrete—such as failing to complete an intended medical course of action, implementing the wrong course of action, using faulty equipment or products in effectuating a course of action, failing to stay abreast of one’s field of medical practice, or health professional inattentiveness. For example, according to the IOM, errors in the prescribing, administering, and dispensing of medications result in at least 1.5 million injuries or deaths annually in the United States.11(pA08) Furthermore, “mistakes in giving drugs are so prevalent in hospitals that, on average, a patient will be subjected to a medication error each day he or she occupies a hospital bed.”11(pA08) Yet according to the IOM, “at least a quarter of the injuries caused by drug errors are clearly preventable,”11(pA08) and some of the errors are spawned by something as simple as name confusion among pharmaceuticals; it is easy to see how physicians, nurses, and pharmacists could easily confuse the arthritis drug Celebrex, the anticonvulsant drug Cerebyx, and the antidepressant drug Celexa when prescribing, administering, and filling medications.12
There are more abstract causes of medical errors, as well. For example, they can result from the fact that “much of medical treatment is still primitive: the etiologies and optimal treatments for many illnesses are not known [and] many treatment techniques, such as cancer chemotherapy, create substantial side effects.”3(p30) Also, many people argue that the culture of medicine—including its history of elitism, its focus on memorization in both diagnosing and treating illness, and its dedication to secrecy when adverse medical outcomes occur—helps to explain the extent of medical errors.
Just as there are multiple causes of medical errors, so are there various strategies—some broad and systemic, others more incremental—for preventing and reducing their occurrence. For instance, hospitals usually employ two vehicles to minimize medical errors and assure quality care for patients: risk management programs and peer review processes. Risk management programs monitor risks associated with nonphysician personnel and with facilities under the direct control of hospital administrators; peer review processes entail a secretive evaluation of hospital-based physician practices by physicians themselves. Most physicians encounter the peer review process when they apply for “staff privileges” at a hospital, which grant doctors the ability to use the hospital for their own private practice, including the ability to admit patients and use the hospital’s resources in treating patients. Once a doctor is granted such privileges, he or she is subject to ongoing peer review. Many analysts maintain that the secretive manner in which the peer review process is conducted stifles meaningful improvements to patient safety, and that it is too reactive, responding to errors only after they have occurred.
Recently, public and private policymakers have begun shifting their attention to medical error reforms that are less reactive and more centered on error prevention and patient safety improvements. There are two primary objectives of these reforms: to redesign healthcare delivery methods and structures to limit the likelihood of human error, and to prepare in advance for the inevitable errors that will occur in healthcare delivery regardless of the amount and types of precautions taken. Medical error reform could entail various approaches, including more standardization of medical procedures, mandatory reporting of medical errors, reducing reliance on memory in medical care, increasing and improving medical information technology systems, encouraging patients to be more participatory in their own medical care, and establishing a national focus on the topic of patient safety.3(pp43–64) For example, the federal Patient Safety and Quality Improvement Act (PSQIA)13 was signed into law in 2005 in response to the IOM’s To Err Is Human report. PSQIA created a system for use by healthcare providers to anonymously report medical error data for systematic analysis. The hope is that by aggregating, analyzing, and disseminating the data analyses to healthcare providers nationwide, healthcare professionals and entities will increase their knowledge about what leads to adverse medical outcomes and alter their practice methods accordingly.
PROMOTING HEALTHCARE QUALITY THROUGH THE STANDARD OF CARE
Not all medical errors rise to the level of being contrary to law. This section details the measure used by the legal system to determine which errors trigger legal protections: the professional standard of care. The standard of care is key both to the provision of high-quality health care and to legal claims that a health professional’s, hospital’s, or managed care organization’s negligence in rendering medical care resulted in injury or death. This type of liability falls under the law of torts, a term that derives from the Latin word for “twisted” and that applies to situations where the actions of an individual or entity “twist away” from being reasonable and result in harm to others. Proving tort liability is not easy generally, and this is no less true in the specific context of medical care. A patient seeking to hold a health professional or entity responsible for substandard care or treatment must demonstrate the appropriate standard of care, a breach of that standard by the defendant, measurable damages (for example, physical pain or emotional suffering), and a causal link between the defendant’s breach and the patient’s injury.b
The Origins of the Standard of Care
The professional standard of care has its origins in 18thcentury English common law. Courts in England had established that a patient looking to hold a physician legally accountable for substandard care had to prove that the doctor violated the customs of his own profession, as determined by other professionals within the profession. In other words, no objective standard was utilized by courts to measure the adequacy of physician practice.c Furthermore, courts were not in the habit of making searching analyses of whether the customs and standards proffered by the profession as defensible were at all reasonable. This type of physician deference was incorporated into America’s legal fabric, as policymakers and courts delegated key decisions about medical practice—including determinations as to whether a specific practice undertaken in the treatment of a particular patient was acceptable or negligent—to the medical profession itself.
The law’s reliance on health professionals to determine the appropriate standard of medical care was not without its problems. In effect, this laissez-faire approach made it virtually impossible for an injured patient to successfully recover monetary damages from a negligent doctor, because the patient was required to find another health professional willing to testify that the doctor’s treatment violated the customary standard of care. (This type of testimony was certainly uncommon, as health professionals rarely openly questioned the practices of other members of the profession.) Moreover, using professional custom as the touchstone for determining legal liability had the effect of thwarting the modernization of medical care, because practicing physicians knew they would be judged, in essence, based on how other physicians customarily practiced.
Furthermore, establishing a violation of professional custom was not the only hurdle injured patients had to clear in their effort to hold their physicians legally accountable for substandard care. English courts also developed what became known as the “locality rule,” which held that testimony provided on behalf of a patient as to whether a physician’s actions met the standard of care could only come from physicians who practiced within the same or similar locality as the physician on trial. Thus, not only did aggrieved patients need to find a physician willing to testify that a fellow member of the profession violated customary practice, they needed to find this expert witness within the (or a similar) locality in which the defendant-doctor actually practiced.14 As they did with the professional custom rule, U.S. courts gradually adopted the English locality rule. For example, the Supreme Judicial Court of Massachusetts ruled that a small-town physician was bound to possess only the skill that physicians and surgeons of ordinary ability and skill, practicing in similar localities with opportunities for no larger experience, ordinarily possess, and that he was not bound to possess the high degree of art and skill possessed by eminent surgeons practicing in larger cities and making a specialty of the practice of surgery.15
Courts’ application of the locality rule severely limited patients’ ability to bring medical malpractice actions against their physicians. Indeed, some injured patients were prevented from even initially mounting a case, because they were unable to convince a “geographic colleague” of their own physician to serve as an expert witness. (This problem was particularly acute in rural communities where there were fewer doctors to begin with, and where collegiality was the norm.) Furthermore, the locality rule likely resulted in at least a few local medical standards that were set by doctors who were less than completely skilled. The rule had another effect, as well: It led to a gulf among localities and cities in the standard of medical care practiced, and thus to different standards of care for similarly situated patients. Imagine, for example (notwithstanding the fact that the professional custom rule generally discouraged advancements in the standard of medical care), that physicians in a large town or city upgraded their practice techniques to reflect new medical technologies. Small-town practitioners had little incentive to model their big-city colleagues in the improvement of their own practice techniques, because the locality rule limited testimony as to the reasonableness of a physician’s care to practitioners in the same or similar locality as the doctor on trial and their own actions would never be measured against the elevated techniques of their big-city counterparts.
By the 1950s, policymakers and courts grew wary of a healthcare system effectively in charge of policing itself; not surprisingly, this view was reflective of society more broadly, which during the Civil Rights Era adopted a set of values heavily influenced by social justice and circumspect of concentrated institutional power. It also reflected the fact that no matter how chilling the effects of the professional custom and locality rules, the practice of medicine—particularly the dissemination of medical research findings—had obviously evolved from the 1800s. These facts both vastly altered the law’s approach to measuring physician care and promoted higher-quality health care.14
The Evolution of the Standard of Care
Under the law’s modernized approach to the standard of care, both legal pillars of the physician autonomy era—the professional custom rule and the locality rule—were more or less razed.
The Professional Custom Rule
Courts no longer defer to professional custom as solely determinative of whether a physician’s actions reached the accepted standard of care. Instead, courts now analyze whether the custom itself is reasonable in light of existing medical knowledge and technology.d Although evidence of professional custom remains probative in determining whether the standard of care has been met, courts consider a range of other relevant evidence as well. Thus, the benchmark courts employ today to determine whether a health professional’s treatment of a particular patient rose to the standard of care is whether it was reasonable given the “totality of circumstances.”
Furthermore, it is no longer the case that evidence as to what is and is not customary medical practice is limited to what medical professionals themselves testify. Although evidence as to medical custom may still be introduced by medical professionals, objective clinical and scientific evidence—such as scientific research and clinical trial results—are now considered relevant in determining medical negligence. For example, the well-known case of Helling v. Carey16 shows how advances in medical knowledge can obliterate long-standing medical customs and replace them with new requirements. In Helling, a 32-year-old woman sought treatment from a series of ophthalmologists for glaucoma-type symptoms. The ophthalmologists, however, refrained from screening the patient for glaucoma, on the ground that professional custom only called for the screen in patients beyond the age of 40 because the incidence of glaucoma in younger people was low. The State of Washington’s Supreme Court ruled that notwithstanding the fact that the ophthalmologists had properly adhered to accepted custom, the custom itself was outdated based on current medical knowledge and was therefore unreasonable. The court effectively determined that a new treatment standard was required of the ophthalmology profession, and held that the defendant-physicians were liable for the patient’s blindness.
The key legal principle at work in Helling is that courts can (and do, in rare circumstances) determine for an entire industry (medical or otherwise) what is legally required of them, despite long-standing industry practices. This principle is premised on the famous case of The T.J. Hooper,17 in which the U.S. Second Circuit Court of Appeals held that a tugboat company was liable for damages to cargo it was shipping because the company failed to maintain radio-receiving equipment that could have warned the crew of a storm that battered the boat. The company argued that it should not be liable for the damage because at the time it was not typical practice in the tugboat industry to carry radio equipment. In response, the court wrote:
There are, no doubt, cases where courts seem to make the general practice of the calling the standard of proper diligence. … Indeed in most cases reasonable prudence is in fact common prudence; but strictly it is never its measure; a whole calling may have unduly lagged in the adoption of new and available devices. It never may set its own tests, however persuasive be its usages. Courts must in the end say what is required; there are precautions so imperative that even their universal disregard will not excuse their omission.18
Essentially, the court determined that the tugboat company was not acting reasonably under the circumstances, but was instead hewing too closely (and foolishly) to what should have been considered an outmoded industry practice. This same view appeared to drive the court in Helling v. Carey, as well. Indeed, the idea that the quality of health care provided by a health professional should be measured by an objective standard based on reasonableness under the circumstances—rather than by other professionals cloaked in the protections of outright autonomy—is today considered the norm. Furthermore, this view extends to big cities and small towns alike, and to both well-off and indigent patients.
TORT LIABILITY OF HOSPITALS, INSURERS, AND MANAGED CARE ORGANIZATIONS
Just as physicians are now held to a national standard of care in cases challenging the quality of their care and treatment, so too have courts moved to apply this same standard to hospitals, traditional health insurers, and managed care organizations. The following sections consider each of these in turn.
Hospital Liability
By the early 1900s, the healthcare industry began to rely much more heavily than had been the case previously on hospitals (as opposed to physicians’ offices or patients’ homes) as a focus of patient care. As with all healthcare settings, hospital-based medical practice created circumstances that led patients to challenge the quality of care provided. Out of necessity, the legal system (specifically, state-level courts) responded to these challenges by applying theories of liability—premised on the national standard of care—meant to hold hospitals accountable for negligence that occurred within their walls. Two theories—one premised on hospitals’ relationship with doctors and one based on the actions and decisions of hospitals themselves—dominate the field of hospital liability. The former theory is called vicarious liability; the latter is termed corporate liability.
Vicarious Liability
The concept of vicarious liability, which maintains that one party can be held legally accountable for the actions of another party based solely on the type of relationship existing between the two parties, is premised on the long-standing principles of “agency” law. Under this field of law, where one party to a relationship effectively serves (or is held out to society) as an agent of another party, a court can assign legal responsibility to the other party where the agent’s actions negligently result in injury to a person or damage to property. For example, vicarious liability allows a hospital to be held responsible in some situations for the negligent acts of the doctors that practice medicine under its roof—not because the hospital itself somehow acted negligently, but rather because the doctor is (or is viewed as by the law) an agent of the hospital.
One relatively easy way for a plaintiff to win a lawsuit premised on vicarious liability is to establish through evidence that the two parties at issue are engaged in an employer–employee relationship, and that the employee (i.e., the agent) was acting within the normal scope of her professional duties when the act of negligence occurred. In these instances, courts frequently look to the employer to adequately supervise the employee while on the job and hold the employer responsible when an employee’s negligent acts occur within the parameters of the employee’s job responsibilities.
However, many “agents” of the companies they are hired to work for are not formal employees; rather, they are hired as independent contractors. Indeed, this is true of most hospital–physician relationships. Historically, agency law respected hiring entities’ decisions to hire individuals as independent contractors rather than as employees, and the general legal rule is that employers are not accountable for the illegal actions of these contractors. Nonetheless, there are exceptions to this rule, and courts have developed theories of vicarious liability—such as actual agency, apparent agency, and nondelegable duty—that are more concerned with the scope of an employer–independent contractor relationship than with the formal characterization of the relationship as determined by the parties themselves. In other words, employers cannot avoid legal liability simply by labeling a hired worker as an independent contractor, because courts will analyze the relationship to determine whether it operates at the end of the day like a typical employer–employee relationship.
Actual agency exists—and the negligence of an independent contractor can be imputed to his employer—when the employer exercises de facto supervision and control over the contractor. Thus, for example, agency can be shown to exist between a healthcare corporation and a health professional when the particular facts pertaining to the relationship reveal that the corporation actually exercises control over the professional, even though the professional is not technically an employee. Similarly, the doctrine of apparent agency (also called ostensible agency) is another exception to the general rule that employers should not be legally exposed for the negligence of their independent contractors. In the context of health care, this type of agency exists, for example, when a patient seeks care from a hospital emergency department (rather than from any particular physician working in that department) and the hospital has led patients to believe that physicians are employees of the hospital (for example, via a billboard extolling the skills of the physicians who practice in its emergency department).21 Finally, courts have also associated the doctrine of vicarious liability with certain duties considered so important to society as to be legally “nondelegable.” For example, the importance of a hospital’s obligation to maintain control over the care provided in its emergency department led one court to rule that it would be improper for the hospital to claim immunity from vicarious liability when its independent contractor furnished substandard medical care.22
Corporate Liability
As opposed to vicarious hospital liability, which is predicated on the negligence of individual health professionals, corporate liability holds hospitals accountable for their own “institutional” acts or omissions. In other words, a hospital can also be held liable when its own negligent acts as a corporation cause or contribute to a patient’s injury. Several general areas give rise to litigation around hospitals’ direct quality of care duties to patients: failure to screen out incompetent providers (i.e., negligence in the hiring of clinicians), failure to maintain high-quality practice standards, failure to take adequate action against clinicians whose practices fall below accepted standards, and failure to maintain proper equipment and supplies.14
The most famous hospital corporate liability case is Darling v. Charleston Community Memorial Hospital.23 In Darling, the Illinois Supreme Court found Memorial Hospital liable for negligent treatment provided to plaintiff Dorrence Darling, an 18-year-old who suffered a broken leg while playing in a college football game. The poor treatment Darling received by the hospital’s emergency room staff—his leg cast was not properly constructed and its application cut off blood circulation—ultimately resulted in amputation of Darling’s leg below the knee. The court held the hospital liable not for the actions of the emergency room staff, but for its own negligence: according to the court, Memorial Hospital did not maintain a sufficient number of qualified nurses for postemergency-room bedside care (when Darling’s leg became gangrenous), and it neither reviewed the care provided by the treating physician nor required the physician to consult with other members of the hospital staff.
Insurer Liability
Like hospitals, conventional (i.e., indemnity) health insurers historically were not susceptible to being sued under tort principles; rather, they were subject mainly to breach of contract lawsuits when they failed to reimburse medical claims for services covered under beneficiaries’ health insurance policies. This stemmed from two related facts: first, normative insurer practice was to leave medical judgments and treatment decisions in the hands of doctors, meaning that it was rare for an insurer-related action to lead to the type of injury covered by tort law; second, to the extent that an insurer did deny a beneficiary’s claim for insurance coverage, it did so retrospectively—in other words, after the beneficiary received needed diagnostic tests, treatments, medications, and so on. This effectively meant that when beneficiaries sued their health insurer, they did so not because they had been physically or emotionally injured by the insurer’s decision to deny an insurance claim, but because there was a dispute as to whether the insurer was going to pay for the already-received medical care.24 Thus, although coverage denials had potentially enormous economic implications for affected beneficiaries, they did not tend to raise healthcare access or quality issues.
In the years following the Darling decision, however, courts began to apply tort liability principles to traditional indemnity insurers when their coverage decisions were at least partially responsible for an individual’s injury or death,25which had the effect of opening insurers to a fuller range of potential damages (e.g., pain and suffering) than had been the case previously (when under breach of contract principles insurers were only liable for the actual cost of care they had initially declined to cover). This increased exposure to liability grew out of the fact that insurers were becoming more aggressive in their use of prospective coverage decisions, and courts were aware of how these types of coverage determinations could impact access to and the quality of health care. The advent of managed care as the primary mechanism for delivering and financing health care only magnified this concern given managed care’s use of techniques such as utilization review, and opened the door to one of the most contentious aspects of health services quality today: the extent to which patients can sue managed care organizations for negligent coverage or treatment decisions.
Managed Care Liability
Just as state courts were important in the extension of tort principles to health professionals, hospitals, and insurers, so too did they inaugurate application of these principles to managed care organizations. Modern managed care organizations are complex structures that heavily regulate the practices of their network physicians. Indeed, perhaps the most defining aspect of managed care is its oversight of physician medical judgment through various mechanisms—utilization review, practice guidelines, physician payment incentives, and so on.
A function of managed care’s oversight of physician practice is that there is no longer any doubt that application of the professional standard of care for the purpose of determining negligence extends beyond the literal quality of health care delivered and reaches the very coverage of that care. This is because managed care has so altered coverage decision-making practices to focus on prospective decisions; where this type of coverage determination used to be the exception, it is now the rule. Instead of coverage denials leading to disputes over who was going to pay for an alreadyreceived medical service, prospective managed care coverage decisions more or less determine whether an individual receives treatment at all.26
Needless to say, prospective coverage decisions’ negative impact on individuals’ ability to access necessary, highquality care is no small policy matter. At the same time, in one critical legal sense it does not particularly matter whether a dispute between an MCO and one of its beneficiaries is framed as one of negligence in healthcare quality or healthcare coverage—either way, the key issue is whether the medical judgment exercised by the MCO met the professional standard of care. In applying this standard, courts have had little trouble finding MCOs liable under state law both for the negligence of their network physicians and for their own direct negligence. (However, as discussed in the next section, these court decisions presume the nonapplicability of ERISA, a federal law that often precludes individuals from suing their managed care company under state tort laws.)
There have been a number of cases in which courts have determined that MCOs can be held vicariously liable for the negligent actions of their network physicians where a patient can prove an agency relationship under one of the theories (actual agency, apparent agency, or nondelegable duty) described previously. In these cases, courts perform an exhaustive examination of the facts to determine the specific relationship between the treating physician and the MCO or the ways in which the MCO portrays and obligates itself to its beneficiaries. For example, in the case of Boyd v. Albert Einstein Medical Center,27 a Pennsylvania court closely analyzed a health maintenance organization’s (HMO) literature for evidence of a contractual relationship to its beneficiaries to determine whether the HMO could be held vicariously liable under a theory of apparent agency for the treatment of a woman who died after physicians negligently treated her for a lump in her breast. Among other things, the court noted that the HMO’s contract with its beneficiaries agreed to “provide healthcare services and benefits to members in order to protect and promote their health,” and that the patients’ contractual relationship was with the HMO, not with any individual physician in the HMO’s network. In the end, the court determined that because the patient looked to the HMO itself for care and the HMO held itself out as providing care through its network physicians, the HMO was vicariously liable for the patient’s negligent treatment.
Similarly, courts have applied the doctrine of corporate liability to managed care organizations. Courts have given various reasons for subjecting MCOs to this type of liability: at least in their role as arrangers or providers of health care, MCOs are much like hospitals; MCOs have the resources to monitor and improve the quality of healthcare delivery; and MCOs maintain tremendous authority over the makeup of their physician networks. The case of Jones v. Chicago HMO Ltd. of Illinois28 is a good example of the application of corporate liability principles to managed care. In Jones, the plaintiff called her MCO-appointed physician (Dr. Jordan) after her three-month-old daughter (Shawndale) fell ill with constipation, fever, and other problems. Both an assistant to Dr. Jordan and, eventually, Dr. Jordan himself, explained that Shawndale should not be brought to the physician’s office but should instead be treated at home with castor oil. A day later, Shawndale was still sick and her mother took her to a hospital emergency room, where she was diagnosed with bacterial meningitis secondary to an ear infection. Shawndale was permanently disabled as a result of the meningitis. It emerged through pretrial testimony that the defendant MCO had assigned 4,500–6,000 patients to Dr. Jordan, far more than its own medical director deemed acceptable under the professional standard of care. The Illinois Supreme Court agreed, ruling that MCOs breach a legal duty as a corporate entity by assigning an excessive number of patients to any single network physician, because doing so can affect the quality of care provided to beneficiaries.
This section reviewed generally the application of the professional standard of care to hospitals, insurers, and managed care organizations and described certain state-level theories of liability that are implicated when patients claim that the care they received fell short of this standard. However, as alluded to earlier, the federal Employee Retirement Income Security Act often preempts (i.e., supersedes) these kinds of state law liability claims against insurers and managed care organizations. This chapter now turns to a discussion of ERISA and its preemptive force.
Public Reporting
In addition to informing providers about the quality of care they deliver, quality information enables consumers to make more informed provider choices. The federal Centers for Medicare and Medicaid Services (CMS) currently posts a significant amount of quality and cost of care information on their suite of Compare websites (e.g., Hospital Comparei). The ACA also expanded required public reporting to Medicare physicians and several other provider types including long-term care hospitals, inpatient rehabilitation hospitals, psychiatric hospitals, hospice programs, and non-PPS cancer hospitals. Information reported must include the quality measures as well as assessments of patient health outcomes, risk-adjusted resource use, efficiency, patient experience, and other relevant information deemed appropriate by the HHS Secretary. In 2013, CMS also changed their data release policy, further enhancing transparency by publishing annual data sets containing physician-identifiable information on utilization, payment, and submitted charges in the Medicare Part B program.
Value-Based Purchasing
The voluntary quality improvement programs described above have focused on developing provider-specific quality measures and incentivizing providers to report specific quality information. Typically, the programs have begun with providers collecting and reporting information to CMS and then transitioned to linking incentive payments to the reporting. While these “pay for reporting” programs have been successful in encouraging providers to assess the quality of care they are delivering through the reporting mechanisms, they do not take into account individual patient outcomes or population health outcomes (i.e., they do not “pay for performance”). However, CMS’s End Stage Renal Disease (ESRD) facility Quality Incentive Program (QIP) began reducing payments to facilities that do not meet or exceed certain performance benchmarks in 2012. In addition, as authorized by the DRA, CMS has implemented a similar type of payment program that does not pay hospitals a higher rate associated with treatment of specific conditions if the conditions were acquired in the hospital (termed “hospital-acquired conditions” or HACs), rather than present on admission. It is worth noting that these programs are not unique to the Medicare program; many state Medicaid programs and private payers are also developing and implementing similar programs.j
Until passage of the ACA, CMS was not able to move beyond “pay for reporting” programs or the hospital HAC program because it did not have the necessary legal authority to vary payments based on actual provider performance. Specifically, the ACA requires the implementation of Medicare value-based purchasing programs for hospitals (other than psychiatric hospitals, rehabilitation hospitals, children’s hospitals, long-term care hospitals, and certain cancer treatment and research facilities) and physicians (through a payment modifier) and the development of plans to implement value-based purchasing programs for skilled nursing facilities, home health agencies, and ambulatory surgical centers. These programs require the Medicare program to financially reward and penalize providers based on their performance on specified quality measures and other indicators, such as rates of readmission and hospital-acquired conditions. For example, through the hospital value-based purchasing program, eligible hospitals began receiving incentive payments for discharges after October 1, 2012, that met certain performance standards. Selected measures on which the hospital performance are evaluated include patient experience measures (based on the hospital’s HCAHPS score) and clinical process of care measures related to acute myocardial infarctions, heart failure, pneumonia, surgeries as measured by the Surgical Care Improvement Project, and healthcareassociated infections. Information regarding the performance of individual hospitals under the program is available online through the Hospital Compare website, in addition to aggregate information on the program.
The ACA authorized a physician and physician practice group value-based purchasing program that provided differential payments to physicians and physician practice groups under the fee schedule based on the quality of care furnished compared to cost. MACRA replaces the ACA’s physician value-based payment modifier with the MIPS beginning in 2020. The MIPS will include a value-based payment modifier under a new methodology that evaluates physician performance on quality and resource utilization/efficiency measures relevant to specific patient conditions and treatment protocols.
In early 2015, the HHS announced its goal of tying 30% of fee-for-service Medicare payments to value through alternative payment models, such as Accountable Care Organizations (ACOs) or bundled payment arrangements, by the end of 2016 and 50% of those payments by the end of 2018. The HHS also seeks to tie 85% of payments to value through programs such as hospital value-based purchasing and hospital readmissions reduction by the end of 2016 and 90% of payments by the end of 2018. Similarly, MACRA provides funding to entities to assist physicians in adopting alternative payment models that vary payment based on the quality of care delivered.