American Journal of Law & Medicine

The legal and ethical implications of gag clauses in physician contracts.

I. INTRODUCTION

Throughout history, those in power have feared the consequences of unfettered discourse within their society. The empowered have restricted and directly manipulated discourse in the context of doctor-patient discussions with surprising frequency, resulting in disturbing curtailments of individual autonomy. During the Cultural Revolution, the Chinese government dispatched physicians to peasants' homes to convince them to use contraception.(1) In the 1930s, the Soviet goverrnment expedited the completion of the Siberian railroad by ordering physicians to deny workers, requests for medical leave and to conceal this order from those workers.(2) Recently, Nicolae Ceausescu sought to increase the Romanian birth rate by prohibiting physicians from advising patients about birth control and barring the dissemination of information about condom use to prevent HIV transmission.(3)

Restraints on doctor-patient discussions have not been limited to socialist regimes. In 1988, the Bush Administration implemented a federal regulation prohibiting physicians from discussing abortion with patients in federally funded clinics.(4) Likewise, several states have passed legislation prohibiting doctors in state-funded clinics from discussing abortion with patients.(5)

Governments are not the only entities restricting doctor-patient discussions. In the United States, managed care organizations (MSOs)(6) now wield enough power to regulate doctor-patient discussions to their advantage.(7) By forcing physicians to limit their discussions with patients through contractual gag clauses, MCOs restrict doctor-patient autonomy in the same manner as totalitarian regimes have in the past.

This Article examines the impact gag clauses have on patient and physician autonomy and concludes that gag clauses are illegal, unethical and against public policy. To place gag clauses in the proper context, Part Il chronicles the changes that have occurred in health care during the past decade. Part III surveys the prevalence and range of gag clauses in physician contracts. Collectively, these provisions constrain four major areas of speech. the physician,s ability to (1) inform a patient of available treatment options; (2) disclose the nature of her employment agreement and resulting conflict of interest; (3) solicit patients and pursue her livelihood; and (4) engage in the political debate over health care. Part IV evaluates the legality of these constraints by applying the doctrines of informed consent, fiduciary duty and malpractice, as well as the First Amendment and various statutes. This Part also discusses the possibility of enterprise liability, subject to ERISA preemption. Part V outlines a physician,s ethical obligations. The consequences of either violating or upholding these principles when operating under a gag clause are discussed. Part VI examines the typical means of gag clause enforcement and possible legal defenses to a physician's breach. Finally, Part VII surveys a range of possible responses to the use of gag clauses, including state and federal legislation, concerted physician action and consumer pressure.

II. THE RISE OF MANAGED CARE

Gag clauses are a byproduct of much larger changes in the way Americans receive their health care. These changes have placed economic considerations at the forefront in an attempt to mitigate rapidly rising health care costs.(8) Spending on health care in the U.S. rose from $675 billion in 1990(9) to (950 billion in 1994,(10) representing an increase of forty-one percent in just four years." In 1994, however, numerous MCOs began successfully controlling patient costs and stabilizing insurance premiums, offering the nation a solution to its economic concerns.(12)

The ability of MCOs to dramatically lower costs(13) has brought managed health care delivery to prominence in the U.S.(14) The percentage of Americans enrolled in MCOs through their employer rose from fifty-nine percent in 1987 to ninety-five percent in 1990.(15) Moreover, despite initial resistance by Congress,(16) Medicare and Medicaid recipients have been enrolling in managed care plans at increasing rates.(17)

MCOs reduce health care costs by controlling health care delivery.(18) They assert this control in a variety of ways, resulting in a multitude of health care delivery systems.(19) Most plans charge health care purchasers a fixed monthly fee for each enrollee called a premium.(20) This fee entitles the enrollee to all of the plan's offered health care services.(21) However, enrollees must receive health care services exclusively from approved hospitals and physicians who have agreed to the plan's contractual terms.(22) Because the MCO takes on the risk of a member's ill health, its economic viability depends on its ability to limit expenditures, thus creating an incentive to limit care.(23)

One method MCOs use to control costs is centralized decision making for each patient.(24) MCO enrollees must sign up with one of the plan's primary care physicians, who serves as the enrollee's gatekeeper to health care services.(25) The gate-keeper's responsibilities include authorizing all laboratory tests, medical procedures, radiographic studies, and referrals to specialists.(26)

A second method of cost control is management of the gatekeepers.(27) MCOs regulate the primary care provider to gain control over health care decisions formerly made solely by treating physicians.(28) MCOs exert this control by employing utilization review (UR).(29) "[UR] ... involve[s] the review and analysis of appropriateness, medical necessity, cost-effectiveness and quality . . . ."(30) Many MCOs employ physicians or nurses to evaluate routinely the necessity of each health care service proposed by treating physicians.(31) This review often occurs before the plan agrees to cover a recommended treatment to prevent the discussion or delivery of expensive or inappropriate treatment.(32) Some plans impose contractual gag clauses that prohibit discussion of treatment options prior to a plan's authorization.(33) Other gag clauses prohibit the physician from discussing nonapproved treatment altogether in an attempt to prevent a patient dispute over denial of care.(34)

In addition to UR, MCOs influence physicians' decisions through economic incentives.(35) Traditional fee-for-service (FFS) payment of physicians is rapidly being replaced by compensation structures designed to promote cost-conscious decision making.(36) MCOs financially reward physicians for practicing cost-efficient medicine and penalize physicians for not controlling costs.(37) MCOs accomplish this by tying physicians, income to the amount of care that they provide,(38) a technique that causes physicians to limit patient care.(39)

One example of the new physician compensation structures is capitation, which MCOs are using at increasing rates.(40) Under capitation, a physician receives a fixed reimbursement for each patient assigned to her care.(41) Just as a fixed fee, or capitated payment, creates an incentive for the MCO to limit care, capitation maximizes a physician's incentive to limit care, as her compensation essentially decreases each time she evaluates and treats her patient.(42) MCOs are thus able to pass at least some of the economic risk to the physicians.(43) Critics contend that these negative incentives, particularly when coupled with gag clauses, place physicians in an impermissible conflict of interest where their economic incentives collide with the interests of their patients[44] and patient care suffers.(45)

Concern over this disincentive to provide needed treatment prompted Congress to prohibit financial disincentives for doctors treating Medicare and Medicaid patients.[46] The Health Care Financing Administration (HCFA) also responded by promulgating regulations prohibiting managed care plans from directly or indirectly paying physicians to limit services to Medicare or Medicaid patients and providing other safeguards when physician incentive arrangements create "substantial financial risk."(47) These government actions are particularly noteworthy considering the powerful incentive that legislators have to cut Medicare and Medicaid costs.[48] By contrast, MCOs' physician compensation structures outside the context of Medicare and Medicaid have yet to be regulated, which has permitted the pervasive use of riskshifting payment structures.(49)

These new payment and management structures have produced enormous changes in health care delivery. It is widely believed that the "recent marriage of profit making and managed care portends momentous changes in medicine."[50] One change includes the transition from non-profit to for-profit medicine. MCOs that have successfully attracted consumers with competitive premiums while keeping costs low enough to earn a profit have found the industry very lucrative.(51) For example, Health Net, a for-profit offshoot of Blue Cross of Southern California and a typical network-model HMO, saw its revenues explode from $17000 to $17 million in one year.(52) Similarly, U.S. Healthcare has seen profits of $1 million per day, has held cash reserves of $1.2 billion, and has paid its CEO a salary of $20 million per year, not including his holdings of $534 million in company stock.(53) The potential for such large profits combined with the pressure exerted by employers and the government to reduce premiums[54] have created an intense incentive to cut costs.

Like all other for-profit entities, MCOs must focus on the bottom line. Critics contend that this shift has resulted in physician payment structures and devices like gag clauses that lead to uninformed patients and inadequate care.(55) Historically, physicians operated autonomously, making patient care decisions based solely on what they deemed to be in the patient's best interest."[56] The 1960s and 1970s saw the legal community curtail physician autonomy in an effort to increase patient autonomy.[57] Judge Robinson's development of the informed consent doctrine in Canterbury v. Spence,(58) predicated on patients, right to self-determination over their bodies, pioneered such efforts. This movement envisioned a trusting relationship in which the physician presented the patient with all treatment options that might improve her health and assisted her with making an educated health care decision.(59) Gag clauses, particularly when used in conjunction with other managed care cost-saving devices, compromise the patient autonomy gained in the 1960s and 1970s[60] by, among other things, prohibiting physicians from presenting patients with all relevant treatment options.[61] This makes gag clauses a particularly troubling cost-cutting technique.

III. TYPES OF GAG CLAUSES

Traditionally, unwritten rules have been used to prohibit doctor-patient discussions of uncovered treatment options.(62) Other physicians report being restricted by oral gag orders.(63) When they attempt to arrange for a treatment or referral that the plan will not cover, physicians are told that such actions are not allowed.[64]

Rather than relying on unwritten rules, MCOs are increasingly using physician contracts to limit patients' information. Specifically, MCOs are including gag clauses in their physicians' employment contracts. These contract provisions prohibit physicians from discussing certain topics with their patients, such as how the physician is compensated or what uncovered treatment options the physician believes are potentially beneficial. The effect of gag clauses is to maintain public ignorance about MCO operations and keep MCOs free from public scrutiny. This enables plans to maximize revenues by limiting care without sacrificing their image as quality health care providers.

The extent of gag clause use is hotly contested. Managed care proponents argue that these provisions are not commonplace and hence not a problem, while patient and physician advocates believe that their use is widespread and problematic. For example, Dr. Peter Kongstvedt, a physician and National Practice Leader of Managed Care Strategy and Medical Management for Ernst & Young's Managed Care Group, testified before a House of Representatives subcommittee that "there have been few concrete examples of unedited contracts that support the claim that such inappropriate 'gag' rules actually exist" and that he has never seen a gag clause in the hundreds of contracts that he has reviewed.(65) Also testifying before a House subcommittee, Karen Ignagni, president and chief executive officer of the American Association of Health Plans, said, '"[w]e have not seen evidence of gag clauses .... What we have seen is liberal interpretations' of contract clauses that doctors have used for political purposes."[66] Mark Sektnan, a legislative advocate for the California Association of HMOs, similarly believes that gag clauses are nonexistent: "We do not believe that our contracts (with doctors) have gag clauses."(67) Even if gag clauses do exist, managed care industry representatives contend that "gag clauses are not an industry practice and that any contract clause that restricts communication between doctors and patients is 'mitigated or vitiated' by other provisions encouraging full and open communications."[68]

In contrast, many physicians and consumer advocates believe that gag clauses are prevalent. For example, Dr. Christine Cassel, while president-elect of the American College of Physicians, stated that gag clauses are becoming more common.(69) John Kaegi, a spokesperson for ChoiceCare of Long Island (a 163,000-member HMO), reported, "[m]y understanding is almost all, if not all, managed care firms have confidentiality clauses,"[70] a particularly far-reaching form of gag clause covering anything from discussion of unauthorized treatment options to contact with patients after a plan has deselected a physician.[71] Sacramento - El Dorado Medical Society Executive Director William Sandberg claimed that "mass terminations" and gag clauses have become commonplace. "To one degree or another, gag rules are in almost all the HMO-type contracts that I've seen."[72] Aynah Askanas, legal counsel for the California Medical Association (CMA), reviews contracts for physicians.[73] She claims to have found gag clauses prohibiting a physician from making negative comments about the plan in approximately twenty percent of all the contracts she has reviewed.(74) However, Askanas believes that the use of outright gag clauses has decreased in response to negative media coverage.(75)

Although debate continues about the existence of gag clauses, the termination of physicians soon after they have spoken out against an MCO suggests that at least some MCOs use and enforce written or unwritten gag clauses. A Harvard Medical School professor Dr. David Himmelstein was terminated within days of criticizing managed care in general and his employer, U.S. Healthcare, in particular on Donahue and in the New England Journal of Medicine.[76] He was later reinstated based on the negative publicity his firing generated,[77] despite the fact that the HMO claimed he was terminated because of overstaffing.[78] In 1992, Foundation Health Corporation terminated Sacramento obstetrician/gynecologist William Miller after he publicly made derogatory comments about the health plan.(79) Ray Mount, a Massachusetts psychologist formerly contracting with CIGNA Health Care and its subsidiary MCC Behavioral Care, commented, "[ylou just don't risk making these people angry," after being terminated within a month of suggesting to a patient's parents that the child receive further treatment after the plan decided that it was unnecessary.[80]

In further support of critics, contentions regarding the prevalence of gag clauses, numerous examples of onerous gag clauses have been publicized.(81) Collectively, these gag clauses constrain four major areas of speech between physicians and patients or the public. The first restraint is on the physician's ability to discuss all available treatment alternatives with patients. Second, gag clauses prohibit disclosure of the plan's physician payment and incentive structure, effectively prohibiting discussion of the physician's conflict of interest. Third, physicians are prevented from discussing other health care providers. Thus, under the guise of a noncompetition covenant, MCOs prevent physicians from fully informing patients about health care options outside the plan. Finally, gag clauses proscribe physicians from engaging in the political discourse surrounding health care in America.

A. Restriction of Doctor-Patient Discussions of Treatment Alternatives

In 1996, Congress debated passage of The Patient Right to Know Act,(82) which would prohibit MCOs from restricting doctor-patient communications. Various individuals testified about the damage imposed or potentially imposed by gag clauses, particularly those provisions that restrict doctor-patient discussion of treatment alternatives. Dr. Robert McAfee, former president of the American Medical Association (AMA), testified before the U.S. House of Representatives, Subcommittee on Health and Environment that "[t]hese contractual provisions are designed and implemented with the intent to control physician behavior and to limit a patient's access to the full range of information that is needed for them [sic] to make informed decisions and provide informed consent about the proper course of their [sic] medical treatment."(83) Dr. McAfee expresses the concern many physicians have about gag clauses that limit doctor-patient discussion of treatment alternatives.[84]

1. Gag Clauses Specifically Restricting Discussion of Treatment Alternatives

One type of gag clause, worded in a variety of ways, restricts a physician's discussion of treatment options with her patient by preventing the physician from disclosing treatment options that the MCO determines are inappropriate. The first variation of this clause prohibits physicians from discussing treatment alternatives with patients until the plan has agreed to pay for them. For example, Kaiser Permanente in Ohio issued a directive that stated, "[d]o not discuss proposed treatments with Kaiser Permanente members prior to receiving authorization" from the plan.(85) implicitly, this clause prohibits a physician from ever disclosing a treatment option that the plan deems unnecessary, and thus will not cover.

The second variation of this type of gag clause prohibits physicians from making statements to patients that would undermine the patients, confidence in the MCO. One MCO's contracts include the provision "[p]hysician shall agree not to take an action or make any communication which undermines or could undermine the confidence of enrollees . . . in [the plan] or the quality of [the plan's] coverage."[86] Another clause, found in the contract of ChoiceCare in Cincinnati, states, a "[physician shall] take no action nor make any communication which undermines or could undermine the confidence of enrollees, potential enrollees, their employers, plan sponsors or the public in Choice Care, or in the quality of care which ChoiceCare enrollees receive."(87) Although this restriction may appear to be based on justifiable business reasons, it prevents a physician from informing a patient about a treatment option that the plan will not cover, even if the physician believes that the treatment is necessary or beneficial. Suggesting that a course of treatment may be beneficial or even life-saving, but reporting that the plan will not cover it could be construed as disparaging or as suggesting that the plan offers substandard care. Hence, the physician may feet unable to explore all treatment options with the patient.

Prohibitions on portraying the plan in a negative light are related to the "undermining confidence" clauses and have similar consequences. For example, a HealthNet physician contract stated that "[p]hysician agrees not to disparage plan or its processes, programs or policies to any persons, including members or other participating providers. Disparagement of plan will be treated as an administrative compliance failure."(88) Another MCO physician contract, reviewed by the CMA, states, "(Plan) and Provider (Physician) shall portray each other in a positive light to Enrollees and the public."(89)

Yet another type of gag clause used to prevent discussion of uncovered treatments is the "limiting referral" clause. Kurt Davis, a Foundation Health spokesperson, explained that the plan uses this clause to "prevent providers from shifting patients to whatever plan reimburses them with the highest fee."[90] The clause, however, effectively forecloses a physician from suggesting an uncovered treatment by restricting the physician from charging the patient for services the plan does not cover or from referring the patient to physicians either inside or outside the plan for uncovered care.[91] For example, one MCO contract states, "[p]rovider agrees not to directly contact (Plan) Members in regard to business-related matters (Plan) without (Plan's) prior written approval."(92) This clause implies that treatment options, "business-related matters," shall not be discussed without permission, and that a physician cannot market or offer a treatment that the plan may deem unnecessary even if the physician believes it is medically indicated and the patient wants it.(93)

Clauses preventing solicitation of patients and advice to disenroll constrain the physician in a similar manner. An example from a Foundation Health contract states, "[n]either provider (the doctor) nor any employee ... shall solicit or attempt to convince or otherwise persuade any beneficiary (patient) not to participate or to discontinue participation in any Foundation program."(94) A California MCO provider contract demonstrates another example, stating, "[p]rovider will not knowingly or directly advise any member to disenroll ... and will not solicit any member to become enrolled with any other health maintenance organization."(95) If the patient's treating physician determines that the patient's condition warrants a visit to an expert outside of the plan or an uncovered treatment, under these provisions, she is not free to express this opinion to her patient. This limits the physician only to providing tests, referrals or treatments that the plan covers, unless she offers the uncovered services free of charge. The option of offering services free of charge is not available if the plan has an anti-disparagement clause.(96)

2. Confidentiality Clauses

Confidentiality clauses present an even subtler form of gag clause. According to the AMA, broadly worded confidentiality clauses are used to limit discussion of unauthorized treatment, among other things.(97) According to John Kaegi, a spokesperson for ChoiceCare of Long Island, almost all, if not all, MCOs impose confidentiality clauses on physicians.(98) An example of this type of provision was published in the New England Journal of Medicine: "Physician shall keep the Proprietary Information [payment rates, utilization-review procedures, etc.] and this Agreement strictly confidential."(99) An even broader confidentiality clause was used by a New Jersey HMO, which required that its specialists "treat as confidential this agreement (including compensation provisions hereof), all guidelines, reports and procedures, quality assurance procedures, credentialing procedures and all other information ... made available to the specialist."(100) Although John Kaegi claims that confidentiality clauses such as these are `"simply boilerplate' designed to protect proprietary information from competitors,"(101) the effect is to force the physician to withhold discussion of treatment options not covered by the plan.

B. Disclosure of Conflicts of Interest

Confidentiality clauses also prevent physicians from disclosing conflicts of interest to patients. Many physician contracts containing confidentiality clauses require that the physician not disclose the terms of her employment agreement.(102) Proponents argue that these restrictions are fair and necessary because reimbursement schedules are business secrets requiring protection.(103) As Cleveland health attorney Anthea Daniels states in American Medical News, "[f]rom the patient perspective, as long as quality care is being rendered, why should they care how the compensation works?"(104) As discussed above, compensation structures affect patient care.(105) Without disclosing the financial arrangements or terms of the contract, a physician cannot explain to a patient how the physician's financial incentives are adverse to the patient's interests.

C. Doctor-Patient Discussion of Treatment Outside the Plan

Many provisions in MCO contracts circumscribe the physician's ability to compete with the plan by prohibiting the physician from treating patients directly or as members of another plan to which the physician belongs. Plans argue that these provisions are merely inserted to protect patients from physicians who steer them toward the plan that compensates physicians at the highest rates. …

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