A Review of the Influence of the Law on Health Care

Rita Y. Allen 

Focus Item Definitions

Managed Care can be described in three different components:  (1) a variety of techniques intended to reduce the cost of providing health benefits and improve the quality of care, (2) organizations that use those techniques or provide them as services to other organizations, or (3) systems of financing and delivering health care to enrollees organized around managed care techniques and concepts.  Managed Health Care was intended to reduce unnecessary health care costs in a variety of ways.  The growth of managed care in the US was spurred by the enactment of the Health Maintenance Organization Act of 1973.  While managed care techniques were pioneered by health maintenance organizations, they have now attracted controversy because they have largely failed in the overall goal of controlling medical costs.

Example:  In 2005, only a year after United Health Care acquired Oxford Health Plans, they issued an ultimatum to New York doctors… “take both plans or you can’t have either.”  Internist Daniel Brooks didn’t want to take on another managed care plan, so he didn’t sign.  When his Oxford contract expired in October of 2005, it was not renewed.  His practice took a big hit.  Brooks, some other physicians and the Medical Society of New York filed a class-action suit against United. “They alleged that imposing the "all-products" clause on doctors was an unfair and deceptive trade practice and that the insurer was using its market share to force physicians to accept both plans (Terry, 2008).”  United was using coercion to force the acceptance of both plans.  One consultant asserts that if the big companies use these tactics, pushing their weight around, the small companies will try it.  Donald Moy of the New York State Medical Society urges physicians to read their contracts and try to remove unfavorable clauses, such as all-products clauses if they can.  United was dismissed from the case and not held liable; so there was no accountability for their coercion (Terry, 2008).

Tort Reform describes a change in the US civil law system to reduce litigation’s adverse effects on economy.  Tort reform is the changing of the rules applicable to the law of tort. Tort deals with compensation for wrongs and the harm done by one person to another's person, property or other protected interests (such as reputation). Personal injury is the area on which tort reform advocates focus. The levels of compensation for accidents vary greatly, but there has been a general upward trend in the awards for compensation.  In the United States, where a jury decides cases and punitive damages, tort reform has become a contentious political issue, in particular because the high costs of compensation awards are thought by some to have increased the cost of health care. Reform advocates have proposed limiting the number of claims, and capping the awards of damages. Simply said, tort reform is a movement to limit tort litigation and damages.  The term is also used in a political movement that advocates several of these changes.

Example:  In a five to two vote in 2007, the Ohio Supreme Court upheld a state law that put a cap on damages.  The cap is $250,000 or three times the economic damages up to $350,000.  Although this cap exists, it is not absolute.  It can be waived in the case of extraordinary circumstances such as permanent disability.  Ohio has suffered tremendous setbacks in tort reform as the trial lawyer’s labor to preserve a system leaning in their favor.  Gov. Brad Henry had just vetoed a lawsuit reform bill in 2007 because he thought that a damages cap was unconstitutional.  Some lawmakers and business groups continue to pursue reform, but the article indicates that it might be the people who ultimately bring change (Daily, 2008)

Informed Consent means consent by a patient to a surgical or medical procedure, or their participation in a clinical study, after achieving an understanding of the facts and risks involved.  The individual needs to be in possession of his or her reasoning faculties and without an impairment of judgment at the time of consenting. In cases where an individual is provided limited facts, serious ethical issues may arise. Impairments might include illness, intoxication, insufficient sleep, and other health problems.  In cases where an individual is considered unable to give informed consent, another person is generally authorized to give consent on their behalf. Examples of this include the parents or legal guardians of a child and caregivers for the mentally ill.

Example:  In Murphy v. Implicito, a new precedent was established on calculating damages when a patient consents to a medical procedure, but not to a component part of that procedure.  During back surgery, there was a cadaver bone used in David Murphy’s back.  The grafted bone did not fuse, which left Murphy disabled and in continuous pain.  A second surgery was done to remove the bone.  Murphy was subsequently diagnosed with depressive and pain disorder.  Murphy claims that he had discussed with his surgeon that if a bone needed to be used, one should be taken from his hip.  He alleges that he specifically told them not to use a cadaver bone.  The physicians did not recall the conversation and was even unclear as to which physician was involved in the procedure of obtaining the consent form.  The court ruled that since Murphy did consent to the surgery, the damages were limited only to the use of the cadaver bone, not the entire surgery (Keating, 2007).

Corporate Liability determines the extent to which a corporation can be liable for the acts and omissions of the individuals it employs.  In simplicity, the theory has developed that a corporation is merely a person in law and not a real person; therefore, it can act only through its employees for whom it should be held responsible.  Under the doctrine of respondeat superior or vicarious liability, an employer can be held responsible for the acts of its employees. Vicarious liability can have far reaching results. There have been incidents where federal law upheld convictions even where the employee was acting totally contrary to corporate policy.  As for the limitation that a person should be acting within their own scope of authority, this has been interpreted so largely that it is almost invisible.  Under federal law, a corporation can be held liable for the acts of employees, no matter where they rank in the organizational hierarchy.   An officer or director of a corporation must have had direct involvement in a tortious act, therefore, a corporation should not be held liable for the work of an independent contractor (Weissman, 2007).

Example:  Believed to be the first ruling of its kind in Pennsylvania, a Blair County judge has ruled that methadone clinics can be held liable for corporate negligence.  Alliance Medical Services, Inc. is a private for-profit methadone clinic.  Crystal Ikes, a single mother of three died as a result of a head-on collision shortly after receiving a methadone dose on her 46 mile drive home.  She crossed the median hitting Matthew Stever head-on, leaving him with severe head injuries and permanent neurological damage.  Judge Hiram A. Carpenter ruled that Alliance clearly met the criteria of a healthcare provider, therefore, they were charged with corporate negligence."  Alliance attorneys asserted that corporate liability does not apply to those facilities that only deal with the limited aspects of patient care.  Judge Carpenter said that the allegations meet the two-pronged corporate liability test established in Thompson v. Nason, 1991.  "First, Plaintiff alleges that Alliance knew that its policies were ineffective in protecting the safety of its patients, yet failed to correct them," the judge wrote. "Plaintiff additionally alleges that failure resulted in Ms. Ickes being allowed to leave the facility to operate a vehicle in an overly-sedated state, causing her injuries.  She had complained of being very sleepy after her doses and even fell asleep in the clinic.  Alliance knew that her alertness was compromised and did nothing to stop her from driving home (US Newswire, 2007).”

Health Care Ethics.  Ethics is the science of human duty.  It is a particular system of principles and rules of practice in respect to a single class of human actions such as medical ethics.  Ethics is also a major branch of philosophy which encompasses right conduct and the good life.  Applied ethics is a discipline that attempts to apply ethical theory to real life situations.  For example, "Is getting an abortion immoral?" "Is euthanasia immoral?" "Is affirmative action right or wrong?" and "What are human rights, and how do we determine them?" Personal ethics signifies a moral code for individuals, while social ethics means moral theory applied to groups. Ethics is not limited to specific acts and defined moral codes, but encompasses the whole of moral ideals and behaviors, a person's philosophy of life.

Example:  By the 1980’s, the population was aging and technological advances were astounding.  With a national commitment to the care and cure of the ill, costs began to escalate.  It was suggested that costs were out of control because hospitals were so poorly managed.  The idea was to replace the current system with a better business model.  Profit took the place of science.  Generalists took the place of specialists.  Market dominance took the place of community needs.  Competition took the place of cooperation.  The inversion of the system caused great pain.  Dr. Leah Curtin calls it, “Organizational Schizophrenia.”  The result is right there for all to see.  The new business model has cost more…a lot more.  Physicians are tired and sick.  Nurses are sick at heart and they are leaving.  Only 61% RNs work in hospitals today as opposed to 80% in 1990 (Curtain, 2006).

Health Care Delivery Indicator Definition: Cost

Assessment

Managed Care Organizations were originally intended to shift the emphasis away from the pay-for-service toward many networks of providers that provide a full range of services.  Managed Care Organizations did produce the desired impact of lowering health care costs for individuals, but the overarching cost to the healthcare system, as a whole, has been astounding.  There has been some form of managed care for decades but today managed care is losing its hold on the US healthcare system.  Managed care has grown to be so complicated, it is not the desirable entity that it was years ago.  Almost 12% of physicians in the US do not have any managed care contracts, according to a study released by the Center for Studying Health System Change. Solo physicians were less likely to contract with a managed care plan, as were those who had been in practice for more than 20 years. In terms of specialties, the number of obstetrician/ gynecologists who refused managed care contracts increased from 3.5% in 1996-1997 to 11.8% in 2004-2005 (Jobson, 2006). 

Tort Reform is slowly producing the desired impact of reducing costs. Increased litigation and the lack of affordable malpractice insurance have been very costly.   But,  based on the analysis of $4.5 billion in losses, the Aon's 2005 Hospital Professional Liability and Physician Liability Benchmark Analysis has reported that, the annual frequency trend has decreased by one percent over the past year.  Some explanations of this could be that hospitals and physicians have made great efforts to reduce medical errors and increase quality care.  There is also an alternative market emerging in response to the crisis of malpractice insurance who has acted upon financial incentives (Healthcare, 2005).

Informed Consent – Almost all hospitals use some form of informed consent process before a patient undergoes a medical procedure but, many of these processes do not adequately meet their objectives.  As a result, hospitals are vulnerable, suffer lost revenue, inefficiency, and increased malpractice.  A recent study in the Archives of Surgery found that more than two thirds of the patients in the US do not receive any written information about their condition from their doctor.  Other studies have shown that up to 75% of the consent forms are incomplete.  Sometimes paperwork gets lost, and sometimes the incorrect paperwork is with the patient.  This can delay valuable time.  One minute of delay in the OR costs $20.  With an average of 10 minutes delay per patient, that’s $200 per case.  Based on studies of lost or incomplete informed consent paperwork, the annual cost could exceed $3.3 billion.  The means the annual cost of this problem per hospital is approximately $580,000 (Baum, 2006).  The process of informed consent, with all its ramifications, has been very costly to the healthcare industry.

Corporate Liability is showing a small bright light.  Hospital claims are at new lows.  This is according to the Aon Corporation 2007 Hospital Professional Liability and Physician Liability Benchmark Analysis released last year. The annual report, the most comprehensive look at liability claims in the U.S. health care industry, is published by Aon Corporation (NYSE: AOC) in conjunction with the American Society for Healthcare Risk Management.  For three straight years, the industry has seen no increase. This year’s low is the lowest in eight years, which means that Corporate Liability laws are having an effect on lowering healthcare costs. In addition, the study found that those hospitals recognized for their patient safety environments, had significantly lower liability loss costs compared to the national averages (Aon, 2007).

Health Care Ethics is very controversial.   For all industries in the United States the percent of revenue median profit has been between 2% and 5%.  The drug companies profit percent of revenue is 19%, and it is going up every year.  We have bought into this insatiable bottomless pit and we are paying the price.  39% of the cost of drug expenditures going up each year is due to physicians writing more prescriptions.  We are a medicated society; we want a quick, simple fix.  Many Americans do not want to pay the price of self discipline and altered lifestyle to bring health to their body; they want to take a pill.  They want a name given to their illness so they can feel special.  That’s why the medical profession’s DSM manual is about four inches think today.  The first DSM manual was not quite ¼ inch thick. Additionally, the doctor really doesn’t want to spend the time to labor over the working process of bringing forth the optimum life when they can write a prescription in 15 seconds (Lex, 2003).

In 1992, because marketing practices of pharmaceutical companies had become quite controversial, the American Medical Association (AMA) developed guidelines regarding appropriate interactions between pharmaceutical companies and the medical community.  At that time, the pharmaceutical industry was spending between $5,000 and $6,000 per year per physician on product promotion.  There was great concern that residents would have difficulty dealing objectively with the barrage of literature and enticements they would encounter (Brotzman & Mark, 1992).  In 2004 the pharmaceutical industry spent $21 Billon on promotion.  $18.4 Billion of that was direct marketing to physicians.  In 2004, there were approximately 600,000 practicing physicians in the United States, meaning that the drug companies were spending $30,000 per year, per physician in materials promotions.  Twelve percent of the drug company revenue goes to research and development.  30 percent goes to marketing and administration.  They combine these two together to disguise the massive percentage that actually goes to marketing (Lex, 2003).  Although there have been great efforts to exercise ethics in the healthcare industry, the desired impact of lowering costs by reducing unethical behavior has happened very minimally. 

Conclusion

Managed Care - There are roughly 600 organizations in the US that pay claims each with $50 million in annual premium, or more.  That makes them large enough to dedicate staff to provider relations.  There is still a plethora of vital managed care organizations in the US.  My suggestion for what would improve managed care is to dedicate employees to provider relations.  Claims payers pick the networks that match their operations.  For example, an employer may specify the desire to work with doctors that are considered experts in dealing with their employees.  Insurers with businesses in many states may choose based solely on willingness to accept fee discounts.   Mark Sidney, Claims Operations for Liberty Mutual’s markets says, "If we can pick the doctors, a five percent savings in losses may be possible (Rousmaniere, 2008).

The patient’s health and well being has long been far from the center of the focus.  The only way for our system to truly be turned around is to bring the patient back to the center of the focus.  With the dollar sign at the center of our health care system, we are symbolic of a train headed downhill.  Unless actions are taken to drive the physicians back to value-based, positive-sum competition, our train will surely wreck.  This seems like such a monumental task as it must be enabled by each provider individually.  What do we do to motivate providers to this new, unselfish place?  What do we do to motivate providers to work together for the sole purpose of facilitating health to all those who are sick (while truly believing in the payback of a value-based system)?  A few people who are willing to say no more crossed purposes and publicly implement the value-based competition could change the world.  This is the challenge set before us.

Tort Reform is working, but working at whose expense?  Is the poor consumer getting run over?  Is someone’s life-long debilitation now only worth $250,000…or maybe $350,000?  Lawmakers cannot agree on what should be done about tort reform.  This has set trial lawyers against medical providers.  Doctors pay more for malpractice insurance and the increase is passed on to the patients.  Is a healthcare professional liable if they are responsible for 60% of the cause of injury…what about 1%?  My only solution for this problem is a stricter implementation of checks and balances.  This is a complicated issue with no pat answers.

Informed Consent - Many companies are now establishing a newly-developed position within their company called the CPO (Chief Privacy Officer).  The American Health Information Management Association (AHIMA) has already endorsed its support of the position in the areas of healthcare and patient records.  This position was developed as a result of necessary control of the right and wrong ways to use personal information.  My suggestion for the solution of the problems stemming from informed consent is to either extend the job description of this newly positioned CPO to oversee all informed consent paperwork, or, to designate one person, perhaps a CICO (Corporate Informed Consent Officer) to be responsible for all aspects of informed consent.  I realize that this may sound a little out in left field, but I do remember the time when many people died from inaccurate doses of anesthesia. Necessity soon created dedicated professionals who were Anesthesiologists, dedicated to the safety and care of individuals going into surgery.  My reason for elaborating on the position of the CPO here is because I feel that a dedicated person in charge of informed consent will greatly reduce risks and mistakes.  Many firms are finding that having a CPO is really good business as the CPO helps them create effective marketing strategies that adhere to all privacy laws.  The position of CPO must be highly qualified in the areas of technology, law, ethics and information.  Probably the most important component of the CPO position is monitoring the information systems of the company ensuring safety and privacy for all involved.  A CPO’s position will also include training staff on privacy issues and working with governmental agencies.  The key direction for the CPO in marketing ethics, or the CICO in medical procedures is to maximize service and eliminate risks (Pemberton, 2002).

Corporate Liability is headed in the right direction. After Enron, Congress acted quickly to pass stiff laws to discourage white-collar crime in both individuals and corporations.  The public outcry for justification of corporate crooks and aggressive prosecutions created a definite advantage.  Corporations should take definable steps to prevent and detect crime by employees.  When a corporation has done this, that corporation does not need to be specifically deterred.  If a conviction results, even after the corporation has taken all responsible steps, the message received could be that, “no good deed will go unpunished.”  There is no value in punishing a corporation such as this because it has already taken the steps to deter criminal actions.  But all this scrutiny on the current legal system has shown new challenges.  Corporate criminal liability has been stretched almost past its limits.  It is time for more reform giving clarity and focus to criminal corporate liability and the prosecutor’s role in pursuing fraud.  A company that assesses its own risk, and establishes systems to address that risk should be safe from criminal prosecution (Weissman, 2007).  We need to continue in the same direction while investigating ways to further fine tune the process.  A key component from my analysis above is to drive all hospitals into “patient safety environments.”  These hospitals had lower liability costs than the national average. 

Health Care Ethics - The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) is responsible for much of the recent organizational ethics in the healthcare industry.  A wide variety of programs have been developed including formal procedures for addressing an organization’s ethical problems, combining ethics and compliance programs, developing processes to clarify the organization’s behavior, training of ethical behavior and offering feedback on ethical performance (Winkler & Gruen, 2005).

            On July 1, 2002, a new marketing code took effect.  This code, designed by the Pharmaceutical Research and Manufacturers of America (PhRMA), was to stop gifts and dinners to doctors and their staff.  It was even going to stop cash give-always.  There was no accountability to the code; it was voluntary.  Because of the federal anti-trust law, the new code could not be made mandatory.  The code was quite specific.  “Companies should generally not provide entertainment or recreational activities to healthcare professionals. Thus, companies should not invite healthcare professionals to sporting events, concerts, or shows, or provide them with recreational activities such as hunting, fishing, boating, ski trips, or golf outings, even if those entertainment events or recreational activities are used to facilitate informational interchanges between the [pharmaceutical] company representative and the healthcare professional.”  It’s sad that we have to have a code to tell our physicians not to allow these things to affect the quality of treatment they deliver to those who have entrusted their lives to them (Nozar, 2002). 

Healthcare providers have been pushed from the coexistence of the past into aggressive competition.  Fewer patients, fewer acute care beds filled, and fewer reimbursement dollars have forced hospitals and physicians to market their services like any other commercial sellers; but have they crossed the ethical lines in the process?  In the article, Taking the Train to a World of Strangers: health care marketing and ethics, the question is asked if the marketing of healthcare can be a “moral exemption for business?”  Can healthcare providers take a train to a place where the relationship of healthcare professional and patient is “only casual or commercial?”  We are so close to this today.  In most businesses, it is not unethical to conduct transactions at arm’s length, but in the industry of healthcare where the assumption is made that all decisions and transactions have the best interest of the patient at heart, the ethical indications are somewhat different than most businesses.  Ms. Schore sees patients as being different than other consumerism in three distinct ways.  First of all, the ill or injured are in a position of vulnerability and dependability.  They generally do not possess the knowledge of how to heal themselves and they depend upon the skill of a provider to restore them to health.  For the most part, they are also unable to judge the quality of medical care they receive.  Secondly, a patient’s quality of life and even life itself is in the hands of the provider.  A patient frequently discloses intimate information in order to facilitate recovery.  Thirdly, the history of the healing relationship between doctor and patient leads the patient to trust that the doctor has their very best interest at heart.  They do not perceive, nor believe, that a doctor will recommend open-heart surgery for the sole purpose of making money.  Providers are ethically obligated to put the health of the patient first.  Those who are sick have no way of judging the effectiveness of treatment as they do the effectiveness of deodorant.  Marketing ethics is very different in the world of healthcare than it is in the world of other consumerism (Nelson, Clark, Goldman & Schore, 1989).

            A Fiduciary Model for Healthcare Marketing Ethics is necessary.  This model projects that marketing representatives should be held to the same ethical standards as are the providers. “The main characteristics of this model concern the primacy of the patient's good, the avoidance of unnecessary services, high standards of honesty and accuracy, and public accountability.”  Healthcare marketing should place the patient’s good above that of the provider’s economic advantage.  In the world of most commercial marketing, the method of operation is to “create” the need or desire for a product where the need or desire was not present, but in the world of healthcare marketing this is unethical.  Some years ago a Nevada hospital stimulated occupancy by offering discount rates and a weekly drawing for a free vacation cruise.  Unethical.  The burden lies with the provider for high standards of honesty and accuracy.  It should not be the patient’s responsibility to weed through misleading information to find the truth.  An example of this was where a hospital advertised that it was “more than a safe place to have your baby.”  This particular hospital did not even have a newborn intensive care unit making it an unsafe place for a critically ill newborn.  Unethical.  A physician may attempt to recoup some of his losses for discounting services by performing unnecessary or marginal services.  Unethical.  There is a legitimate place for marketing in healthcare as long as it ethical (Nelson, et al., 1989).

  For my conclusion, I would like to make a vivid analogy of the ethical complications of the healthcare system in today’s world.  It is much like endometriosis.  Like a complex interconnecting spider web, this disease works silently and painfully until is takes over the human body, eventually to the point of death if not stopped.  There is no cure for it; however, there is one thing that will stop its growth; that is childbirth.   Sometimes childbirth will kill the growth of endometriosis for life.  Until America conceives and labors over new life in our healthcare system, the web of destruction will continue to grow. Community service must replace market dominance.  We must return to a value-based system where the health of the patient is far more important than the dollar.

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