Wall St. Jour: Oct 28, 1999 :HMO Lawsuits
HMO lawsuits will drive up costs.
HMOS will be forced to
- spend more on healthcare :Good for providers ( HRC ).
-spend more on good reliable providers ( HRC ) instead of on cheaper fly by
nights, to avoid lawsuits, ( good for HRC ).
" Markets, by contrast, respond to the predicament that people find
themselves in before the fact. It asks them to choose coverage and price
levels before they know their individual health needs. But after tragedy
occurs, no rationing of health care is satisfactory. Desperate patients
demand pricey specialists, expensive procedures and experimental
treatments ".
TA
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Commentary
Oct. 28, 1999
interactive.wsj.com
HMO Lawsuits:
A Liability for Patients, Too
By Richard A. Epstein, a professor at the University of Chicago Law
School.
One of the major initiatives on today's policy screen is to expose
health-maintenance organizations to tort liability for patients' bad medical
outcomes.Last month California enacted legislation expanding HMO tort
liability. In Washington, Reps. Charlie Norwood (R., Ga.) and John
Dingell (D., Mich.) are leading the charge to remove the federal statutory
barriers to tort suits against employer health plans that improperly deny
benefits to its members.
At the same time, the state courts have joined the chase on two theories.
The narrower theory, which tracks the Norwood-Dingell bill, allows the
patient to hold the HMO responsible for its own dereliction, typically its
refusal to authorize some needed treatment. The more ambitious theory,
just embraced in Illinois, holds the HMO vicariously liable for the
physician's negligence, even if the HMO is guilty of no negligence of its
own.
Two arguments buttress this position. First, stringent HMO controls
make physicians de facto employees of the plan, and not mere
"independent contractors." Alternatively, the HMO holds itself out to its
customers as being responsible for physician care by announcing, for
example, that it will take care of "all your health-care needs" by supplying
"comprehensive high-quality service."
The philosophy driving expanded liability is easy to discern. Brushing aside
the prospect of increased cost, the Illinois court noted: "Market forces
alone are insufficient to cure the deleterious effects of managed care in the
health care industry." The court added that HMOs are subject to the same
rules as everyone else. Part right, and part wrong. Right, because HMOs
are not "special" organizations, governed by their own set of rules. Wrong,
because Congress and the courts hold HMOs to unsound general rules.
Tough tort rules of liability make sense for protecting strangers from
business misdeeds. The firm that pollutes the air or runs down an innocent
pedestrian must be made to internalize the costs that it imposes on others
by assuming liability, thereby preventing the firm from receiving forced
subsidies from the people it injures. No business should remain in
operation if its own revenues cannot cover the costs it inflicts on outsiders.
In this context, principles of vicarious liability and negligence strengthen the
market system by counteracting the implicit liability subsidy.
Patients, however, are not strangers to the HMO. They have an
opportunity, either alone or in groups, to enter into contracts that specify in
advance the level of services provided and the fees to be charged for those
services. Where's the market failure when both parties to the transaction
have the incentive to seek the right level of care for the right price? Using
employers and other third-party agents stops clever HMOs from duping
gullible employees who overlook the fine print in their contracts.
In this setting, each extra dollar of damage payments and litigation
expenses at the back end requires fresh funding at the front end. To cover
their higher costs, HMOs must raise fees and lose market share as
employers pull out from plans that are now priced for more than they're
worth. Alternatively, the HMOs get hit by price controls, at which point
they exit the field unless bankruptcy gets them first. It's no accident that the
number of uninsured moves up hand in hand with each new legal mandate.
Physicians, who chafe under HMO practice restrictions, may cheer the
HMOs' pending demise. But their patients should be suspicious about this
new celebration of physician autonomy and the familiar claims of inferior
medical service. The HMO is no cute marketing trick. It responds to
serious structural flaws in the old deals whereby third-party insurers signed
blank checks for whatever services conscientious physicians ordered. That
cozy arrangement induced excessive, and often unnecessary, amounts of
medical care; "better safe than sorry" sounds great when someone else
pays the bill. The HMO helped address both problems. Its increased level
of service review cut out some of the excesses. Furthermore, elaborate
HMO databases often provided solid information as to which treatments
worked, and which did not.
The right question to ask is not whether HMOs misfire. It is whether they
perform as well as the next-best alternative. Viewed in the round, the
modern studies are virtually unanimous that HMOs, on average, provide
care equal to that under the older fee-for-service system, and at a lower
price. Surveys also indicate that most members, most of the time, are
satisfied with the care they receive.
The demonization of the HMO in today's folk culture doesn't depend on
detailed knowledge of success or failure in any given case. The problem
lies in the law of large numbers. Any system that enrolls tens of millions of
members is sure to produce some injustices and outrages. These stories
quickly make it to the front pages and the legislative hearings. The success
stories are forgotten as the pressure builds for reform that in fixing outliers
imperils the system as a whole.
Markets, by contrast, respond to the predicament that people find
themselves in before the fact. It asks them to choose coverage and price
levels before they know their individual health needs. But after tragedy
occurs, no rationing of health care is satisfactory. Desperate patients
demand pricey specialists, expensive procedures and experimental
treatments.
HMOs were born because their members want both effective care and
low prices--which requires HMOs to act both as providers who give care
and as gatekeepers who can deny excessive care. If direct tort liability
were cost-justified, then HMOs would voluntarily adopt it. But imposing
unwanted tort liability on the HMO impairs its ability to discharge that
critical, if unpleasant, checking function. Individual physicians and practice
groups can be counted on to defend themselves from charges of medical
malpractice by saying that the HMO made us do it. The HMO that calls
99.9% of the cases correctly could be bankrupted by decisions deemed
incorrect after the fact in 0.1% of the cases.
When the dust settles, the supporters of the new tort initiatives will
conclude that failed markets must be replaced by direct government
provision of comprehensive health care, uncontaminated by the crude
profit motive. They will neglect to mention that these "market failures" were
driven by a network of government regulations of which tort liability is only
the most conspicuous. Yet when government health care is besieged by
liability, the next wave of reforms will immunize the government programs
from tort liability.
Our object lesson: market failures, so-called, lead to government
regulation, while failed government regulation leads to, well, more
government regulation. An outraged American public that gets what it
wants may get what it deserves. |
