American Journal of Law & Medicine

The class action suit as a method of patient empowerment in the managed care setting.

I. INTRODUCTION

The American health care system has undergone tremendous transformation over the past few decades. The fee-for-service (FFS) health care system in which physicians enjoyed a great deal of autonomy has become a managed care system in which cost and utilization considerations play a larger role in physician decision making. Although physicians and other health care professionals are still patient advocates, this role often results in a conflict between their own economic interests and their duties to their patients.

Rather than depending on self-sacrificing health care professionals to advocate for them, patients need to assert their own power in the managed care arena.(1) One way to gain such power is to use the class action device in litigation aimed at improving medical care quality, cost and access. Class actions, in fact, are likely to proliferate as managed care organizations (MCOs) grow and affect more patients' lives. There are well-recognized dangers to using the class action device, but if used properly, it could prove a valuable remedy for patients.

This Article will explore the possible use of the class action device in health care litigation. It will examine the changes in the U.S. health care system in an effort to explain partially why patients need more power in the evolving managed care system. It also will examine the drawbacks of class actions and explain why, despite these drawbacks, class actions can better serve patient-plaintiffs in managed care litigation than other remedies. The Article will conclude that the class action can be a powerful tool for asserting patients' political power on certain health care issues.

II. HEALTH CARE LITIGATION AS A REFLECTION OF THE CHANGING INDUSTRY

Health care suits are not the types of cases one typically thinks of in class action terms. When asked to define a health care claim, most people think in terms of personal injury allegedly resulting from caregiver negligence. Such cases, which address quality of care,(2) generally do not lend themselves to class action treatment. Arguably, they are not even the types of cases the drafters of Federal Rule of Civil Procedure 23(3) intended to qualify for class action treatment.(4) Rather than alleging millions of like claims, litigators of typical personal injury claims usually want to make them appear unique. In cases of severe physical injury, for example, an attorney may not want her client sharing the spotlight, and thus a portion of a large recovery, with other plaintiffs. In more mundane disputes, an attorney may not want a jury or court to consider how much imposition of liability will cost in the aggregate. Cases in which these considerations are paramount conflict with the major, overriding requirement of class actions--that the parties banding together as a class have enough in common that representation of all by a few does not offend the notion of due process.(5)

Nevertheless, class action claims are surfacing in a variety of health care cases,(6) in part because of changes in the health care industry. Despite the concerns noted above, class actions appear to be a natural response to industry changes, and this response can help patients assert their concerns with inequities in the system. Through class actions, patients can band together to better their position via impact litigation(7) addressing the health care system in which they find themselves. Although class actions have experienced pendulum swings in public and judicial opinion over the years,(8) they remain the classic method of empowering "groups of people who individually Would be without effective strength to bring their opponents into court at all."(9) Power, after all, "is typically more effective when it is articulated by a group."(10) Class actions also offer private parties the opportunity to redress wrongs that affect the public.(11) Finally, if nothing else, class certification may help plaintiffs by so increasing defendants' potential liability and litigation costs that they decide to settle cases they otherwise might have litigated.(12)

A number of factors may lead to an increase in health care class action suits. First, patients need to assert more authority over the particulars of their health care. The transformation of the industry has led patients to become wary consumers of health care services.(13) Unlike patients in prior eras, today's patients now may believe they need to protect themselves rather than relying on the system, physicians or other providers for protection.(14) Second, economics has become increasingly important in health care. Always a factor even in the FFS system, the profit motive today fosters cutbacks in care rather than overtreatment. In the face of such financial considerations, patients-much like civil rights litigants--may believe they must safeguard hard-won rights such as the right to informed consent.(15) Finally, the law itself (mainly through the Employee Retirement Income Security Act of 1974 (ERISA)(16))--and the way health care professionals, employers, insurers and attorneys have responded to the law in structuring health care benefit plans--may contribute to a rise in the feasibility and incidence of health care class actions.

A. PATIENTS As CONSUMERS

Consumerism serves as a valuable metaphor for examining patients' needs for power in the managed care market. Deterred by litigation costs outweighing their individual damages, especially when the latter are discounted for likelihood (or unlikelihood) of success, "most consumers do not bother to seek individual justice."(17) Patients increasingly realize that they must act like consumers in the health care arena.(18) Rather than being treated as valued individuals who can trust caregivers with whom they have personal relationships, patients now face warnings that the health care system is one in which the buyer must beware.(19) Consumers of credit and financial services looked to class actions in the past to assert themselves in the costly, bureaucratic and technical area of bank regulation.(20) Consumers today may do likewise in the costly, bureaucratic and technical world of health care.

1. The Health Care System Undergoes a Transformation

Until relatively recently, American medicine functioned mainly on a FFS basis.(21) Because the vast majority of American patients had insurance covering most if not all of such charges,(22) patients did not have to deal directly with the costs of their health care.(23) They did not even have to worry about the cost of insurance, because most people received such coverage as an employee benefit.(24) Insurance companies had no incentive to push doctors and hospitals to charge less because they could recoup their costs by raising premiums.(25) And although they watched health insurance costs rise, employers had little incentive to police those costs strictly because they could deduct employee benefits payments from their business income for federal tax purposes.(26) With no one really watching the books, physicians and hospitals provided more and more services because doing so increased their incomes. Costs skyrocketed.

By 1993 medical care costs totaled about fourteen percent of the nation's gross national product.(27) Although the rise in health care costs has slowed,(28) some believe the slowdown may be only temporary.(29) In fact, both private and government health care costs continue to rise, even though the overall rate of increase has slowed.(30)

The slowdown in growth stems from major cost-containment efforts, some of which even pre-date the health care industry's cost crisis. Initially within certain industries,(31) and later in other sectors,(32) health care systems developed that, in effect, were self-contained. That is, new institutions arose that provided health care and served as the entities with which employers contracted to pay for the health care provided.(33)

Moreover, some health care providers had incentives to reduce their costs even if they were not benefits payers or institutionally affiliated with such entities. The federal government instituted one form of managed care in 1983, when it began calculating hospital reimbursements for care provided under the Medicare program based on patients' diagnosis-related-groups (DRGs).(34) In response to the use of DRGs to compute reimbursements, hospitals began to influence what previously had been considered medical decisions solely within the purview of physicians.(35) The DRG system's limited payments encouraged hospitals to ensure that staff and physicians (1) diagnosed patients as suffering from conditions falling within high-payment DRGs; (2) rendered fewer, if any, unnecessary services; and (3) discharged patients as quickly as possible.(36) These measures helped ensure that each patient's care would cost no more than his DRG payment.(37) Hospitals began to implement quality assurance programs in which "personnel other than the patient's treating physicians ... evaluate[d], recommend[ed], or require[d] protocols for the care provided by those physicians,"(38) thus limiting physicians' discretion in managing cases.

Such a reordering of incentives is also true of managed care, which represents a movement away from providing maximum, sometimes unnecessary, services toward minimizing authorized care in a way that, one hopes, does not reduce quality.(39) Many forms of public and private managed care, or "integration of health care financing and delivery systems," have evolved.(40) "Although they may do so in different ways, all forms of managed care attempt to contain costs by modifying the behavior of doctors."(41) Ranging from health maintenance organizations (HMOs) to integrated delivery systems (IDSs) to preferred provider organizations, the choice of organizational form may either foster or impede ethical medical practice.(42) Despite the differences, this Article will not distinguish among MCOs because neither the corporate structural differences nor the possible differences in incentives that flow from the structural distinctions are crucial to the analysis of the utility of the class action device in the managed care setting. Instead, the Article will refer globally to MCOs except in situations that require reference to a particular type of MCO.

In all managed care systems, the payer has more influence over medical (or what should be medical) decisions than in traditional FFS medicine. In some systems, physicians receive bonuses if, at year end, they have limited the number of special tests they have ordered or the number of patient referrals to specialists.(43) In others, the MCO withholds a percentage of a physician's income throughout the year.(44) The physician will receive this "withhold" if she minimizes the specialized types of care recommended or requested.(45) Additionally, many MCOs operate on a capitated basis. Under capitation, physicians and other health care providers(46) receive a set fee per month per patient plan participant.(47) This means the provider receives the same amount for seeing a patient twenty-five times as she receives for seeing that patient only once.(48) Finally, most managed care plans employ systems of concurrent or prospective utilization review (UR). In such systems, unlike retrospective review systems, managed care personnel review medical treatment decisions either before or during implementation.(49) The payer then decides whether it will pay for a recommended treatment based on the utilization reviewer's opinion of the necessity for or appropriateness of that treatment.(50) Thus, patients and physicians know somewhat in advance whether an MCO will pay for a recommended treatment.(51) Like the other cost-containment mechanisms just identified, this financial pressure could motivate physicians to limit care.

2. The Patient Becomes a Consumer

Patients thus have watched the traditionally personal physician-patient relationship transform into a sterile interaction in which care might be denied or might not be offered because of cost considerations.(52) Public and private sector cost-cuffing initiatives "have accelerated the transformation of health care from a purely professional undertaking to a business enterprise providing professional services."(53) Health care corporations devote increased attention to marketing.(54) Mergers of health care corporations result in huge, often for-profit rather than charitable, conglomerates that provide care.(55) Although some for-profit entities act responsibly and, conversely, not-for-profit status is no guarantee of responsible behavior, the providers resulting from such mergers are to patients a far cry from the Marcus Welbys of old. Consumers of health care services hear that the system today depends not on confidence, trust and personal relationships, but on caveat emptor:

Even though managed care has only recently taken hold in the

bedrock of American medicine, it has already inspired a couple of popular

sayings. One is that managed care is about managing costs, not care. The

other is that the new health plans work really well--so long as you don't

get sick. To these, consumer advocates add a third adage: people should

approach health-care coverage as they would buying a car; shop around,

read the fine print, and buyer beware.(56)

In this respect, patients are no different from countless American employees who have watched their industries become more businesslike. For example, some bemoan die demise of law as a profession and the rise of law firms that operate as businesses.(57) In die media, journalists watch marketing, advertising, graphic appeal and public opinion polls take precedence over news-gathering.(58) In business and industry themselves, thousands of current and former employees wonder what happened to company loyalty as their employers lay them off even though profits and stock prices soar.(59)

With respect to health care coverage, patients in particular lack power. To the extent that employers provide health care benefits, that patients will ever wield consumer power in the eyes of health care corporations is questionable because their employers negotiate their health care coverage for them. In these cases, to exert consumer power over health care corporations, patients need to pressure their employers or to ask their union representatives to do so.(60) Unions traditionally have taken on such a role, and they sometimes continue to do so.(61) Generally, however, they have declined in power and influence throughout the American economy.(62) Because patients have little negotiating power and little information regarding the quality of MCOs,(63) it is difficult for them to group together to assert any coherent voice.

Moreover, patients are not accustomed to acting like consumers. In medicine, they could traditionally depend on their physicians to act in their best interests. "Cost is always a part of the clinical decision,"(64) because taking it into account is good for both society and individual patient care.(65) The shift toward a "buyer beware" system, however, requires a reversal of emphasis and attitude for patients. In one famous case, an MCO avoided liability for a death that allegedly resulted from its refusal to authorize the medical care prescribed by the treating physician.(66) Although it acknowledged that MCOs can sometimes be liable for injury resulting from their UR decisions,(67) the court would not permit physicians to shirk their traditional duty to advocate for their patients.(68) "[A physician] cannot point to the health care payor as the liability scapegoat when the consequences of his own determinative medical decisions go sour."(69) Physicians might not want to argue too strenuously for expensive patient care, however, with the party that pays them, calculates their withholds or bonuses, or credentials them for inclusion on an MCO's list of approved physicians--and patients must modify their behavior to account for these additional physician concerns.(70)

This challenge to the physician-patient relationship benefits no one, because it requires physicians and other health care providers to work against the medical profession's goal of caring for patients. It also erodes patients' trust in the medical profession, which is unfortunate because the success of the health care system depends on trust.(71)

Increasing distrust of physicians and other health care professionals negatively affects the system in at least two ways. First, it focuses patients on the medical liability system as an avenue of relief.(72) Second, it reduces the effectiveness of treatment. Patients who trust their caregivers often report more favorable treatment outcomes.(73) This is especially true in a managed care system, because good managed care depends on patients' active involvement. Any system that seeks to minimize physician visits and emphasizes preventive care requires the cooperation and involvement of patients who are informed about their health care options and are able to exercise some decision-making power.(74)

3. Managed Care Exacerbates the Need for Consumerism

Unfortunately, managed care has not encouraged patients to become more empowered or knowledgeable. Rather, it has had the opposite effect on patients. Structural features of the system and the way the system has treated patients have combined to discourage rather than to empower them.

One reason the health care system has discouraged patient involvement stems from the way most health benefits are funded. First, most Americans have health care coverage of some sort,(75) and that coverage obscures the actual cost of treatment.(76) Second, most Americans receive such health care coverage through their employers.(77) To the extent their employers entirely fund their coverage, employees remain ignorant of its cost.(78) Employees whose employers do not entirely fund health care coverage are not exempt from this characterization; they still demonstrate the residual effects of this cost-ignorant mindset in their own attitudes toward health care. Although they pay a portion of their health care costs, and probably make ever-increasing copayments for each physician visit or prescription, they remain somewhat in the dark regarding the true dollar value of the care they receive.

A second reason why patients have remained powerless--or at least have not gained power as consumers--is information flow. Although patients can compare plans' costs, for example by comparing monthly fees, deductibles, required copayments or percentage of prescription costs paid, it is most difficult to judge a managed care system's quality.(79) In fact, there is great debate over how quality should be measured.(80) Despite state(81) and independent(82) efforts to require quality measurement, employers and patients thus lack quality-related information to use in differentiating between plans.(83) Cost, rather than quality, drives marketing of plans to employers and other large group purchasers.(84) This permits the survival of both good and bad MCOs--both those that give patients some power and those that proceed without input from or full disclosure to patients.

Finally, as previously noted, most MCOs operate under a gate-keeping system.(85) Although economically sound, this type of system can dampen some patients' inclinations to be proactive about their own medical care. Because primary care physicians or nurse-practitioners act as gatekeepers to more specialized services, patients who can easily self-diagnose recurring illnesses or conditions may be frustrated by the extra step required to obtain needed tests or specialist consultation.(86) They may, in fact, lose interest in their own care.

Clearly, managed care would work better if patients were more involved. In a system that requires reliance on impersonal alliances of physicians rather than on family doctors who are familiar with their patients, a patient who knows about and understands his own medical needs can greatly assist caregivers. To the extent that MCOs try to reduce medical care costs by emphasizing preventive care, a patient can assist her health care providers by knowing about and understanding preventive and self-testing measures. Additionally, patients who are knowledgeable, active and empowered can better ensure that competition works as it should in the managed care industry so the good organizations succeed and the bad ones fall by the wayside. Patients who feel cut out of the loop are unlikely to be so active.

Without a natural source of consumer power, patients must look to an external source for assistance. The increasingly businesslike tenor of the health care industry has fostered a wariness among patients of their physicians. It thus seems natural for patients to seek to define a class of others who are similarly situated--both to try to assert power and to gain strength through numbers.

B. PATIENTS AS CIVIL RIGHTS ACTIVISTS

In some ways, the shift toward cost containment in American medicine has forced patients to depend on themselves to ensure respect for their rights. For example, one of the bedrock patient rights in the health care system is the right of informed consent.(87) It took years for this principle to become fundamental in medical ethics and law.(88) The shift to managed care is wearing away such rights; it would be understandable if patients felt a need to defend them. Class actions are a classic way to preserve and enforce such hard-won rights.(89)

1. From Paternalism to Patient Autonomy

At one time, the patient occupied a child-like role in the physician-patient relationship.(90) This may have been due to the specific knowledge and training most physicians possessed.(91) It may have stemmed from the technical nature of physicians' expertise, encompassing, as it did and still does, scientific areas most patients find difficult to understand.(92) Perhaps one can attribute it to the mystical status physicians occupied in ancient times.(93) Gender differences may also impact the relationship when patient and physician are of different genders.(94) Whatever the cause, the medical profession generally once behaved paternalistically(95) toward patients.

The paternalism manifested itself in, for example, physicians' decisions to operate on patients against their wishes or to treat patients without informing them of the risks attendant to treatment. In Schloendorff v. Society of New York Hospital, one of the most quoted decisions in American medical jurisprudence, the court considered a case in which two physicians allegedly removed a fibroid tumor from a patient without consent.(96) Prior to surgery, the physicians had ascertained that the patient, a woman complaining of a stomach disorder, had a tumor.(97) They could not, however, determine the type of tumor without an examination conducted while the patient was anesthetized.(98) While she was anesthetized, the physicians did more than conduct an examination; they removed the tumor.(99) The patient thereafter suffered from gangrene and other complications.(100) She sued, claiming that she had consented to the examination but had specifically withheld consent to the operation.(101)

Similarly, in Canterbury v. Spence, a nineteen-year-old man complaining of back pain underwent surgery to correct a suspected ruptured disc.(102) After the operation, the patient, due either to the operation or to a fall from his bed, became partially paralyzed and incontinent.(103) His neurosurgeon had informed his mother that the recommended operation was "not any more [serious] than any other operation."(104) In fact, however, there was a risk of paralysis attendant to the operation about which neither the patient nor his mother knew before consenting to it.(105)

The law devised a remedy for patients who find themselves in these situations--a remedy that was soon ensconced in medical ethics.(106) Both Schloendorff and Canterbury are famous for helping to establish patient autonomy and self-determination as concepts physicians are to honor.(107) In Schloendorff, the court admonished physicians that, "Every human being of adult years and sound mind has a right to determine what shall be done with his own body; and a surgeon who performs an operation without his patient's consent, commits an assault, for which he is liable in damages."(108) In Canterbury, the court recognized a cause of action for the physicians' failure "adequately to disclose the risks and alternatives of proposed treatment."(109) It explained:

True consent to what happens to one's self is the informed exercise of

a choice, and that entails an opportunity to evaluate knowledgeably the

options available and the risks attendant upon each. The average patient

has little or no understanding of the medical arts, and ordinarily has only

his physician to whom he can look for enlightenment with which to reach

an intelligent decision. From these almost axiomatic considerations springs

the need, and in turn the requirement, of a reasonable divulgence

by physician to patient to make such a decision possible.(110)

Combined, these principles form the bedrock of informed consent doctrine.(111) They also surface in modern cases, in which at least one court has ruled that an MCO has a fiduciary duty to disclose its referral-discouraging financial incentives.(112)

2. Patient Autonomy Takes a Back Seat to Management of Care

The structure and incentives of managed care threaten, or at least raise questions regarding, quality of care.(113) Few patients know the full range of facts material to medical decision making. Their realization of this state of affairs, coupled with increased UR and corporate denials of care, has caused patients to lose confidence in the MCO system as a whole.(114) They need to feel as if they have enough power to protect themselves from losing any more important rights.

Both under the law and as a matter of medical ethics, patients still nominally make informed decisions about their own medical care. It seems more likely now, however, that a patient will be unable to obtain desired treatment for economic reasons.(115) The courts tell physicians to advocate for their individual patients,(116) but the insurers paying the physicians' bills pressure them to advocate for patient populations instead.(117) Specifically, by giving them economic incentives to limit or eliminate tests or referrals that physicians formerly may have routinely authorized, MCOs urge physicians to put societal or plan-wide concerns ahead of individual patient needs. Prospective UR and physicians' economic incentives to limit treatment leave patients out of the decision-making picture in many instances.(118) At one time, MCOs even issued "gag rules" prohibiting physicians from discussing with patients (1) treatments their plans do not cover; and/or (2) their economic arrangements with the organizations.(119)

In many states, MCOs need not reveal the presence of such economic incentives to refuse or limit recommendations for care.(120) Recent state and federal legislation, enacted only after public outcry, drastically restricted the ability of MCOs to use undisclosed financial incentives to limit care.(121) The need for such legislation in the first place, however, raises concerns about gutting the doctrine of informed consent. Moreover, the deletion of gag clauses does not mean that physicians believe they can disclose without adverse consequences.(122) Patients operate from limited medical knowledge and must trust their physicians to recommend the best treatment for them. In most cases, a patient cannot know when a physician has failed to mention a treatment option because it is exceedingly expensive and its use would risk reduction of the physician's year-end bonus.(123)

Even laws requiring disclosure of financial incentives and invalidating gag rules fail to rectify matters. The laws were hard-won; and it is not as if, once alerted to patients' concerns, insurers and MCOs voluntarily changed their practices. De jure change does not mean de facto change will follow.(124)

Suspicions about information levels combine with UR and the specter of the corporation overruling physicians' treatment decisions to paint for patients a bleak picture indeed. They know that, in a managed care setting, "a doctor's allegiance is divided between her patient and the health plan that employs her."(125) Patients who believe their physicians are "health care brokers"(126) likely believe they cannot rely on those physicians to advocate for them. As a result, these patients lose both their ability to participate in medical decision making and their confidence that someone else will have their best interests in mind when making decisions regarding their medical care.(127) Not only are patients personally without power; they also have no one they trust looking out for their interests and exercising power to safeguard their rights. Thus, they may see the need to band together.

C. PATIENTS As VICTIMS OF THE SYSTEM

Closely related to the view of patients as civil rights activists, patients may believe they need to assert for themselves because they are otherwise unable to achieve justice, especially concerning quality of health care. Both federal and state laws erect barriers to redress patient injury in litigation. First, there is the ERISA vacuum.(128) Americans who obtain health care coverage through employee benefit plans--that is, the majority of Americans(129)--stand a good chance of learning that ERISA, the federal law governing employee welfare and pension plans, preempts any claim they might assert to compel payment for care. On the surface, this does not sound particularly terrible. In reality, however, ERISA claims often inadequately redress the types of injuries patients most often claim in the managed care system.

UR cases most starkly illustrate this situation. Cases such as Corcoran v. United Healthcare, Inc.(130) and Cannon v. Group Health Service of Oklahoma, Inc.(131) have received much attention in academic literature.(132) Most saliently, Corcoran and Cannon involved deaths arguably caused by payers' refusals to authorize payment for physician-recommended treatment. In Corcoran, a patient and her husband sued for the death of their fetus after their HMO refused to authorize twenty-four-hour-a-day nursing care during a difficult pregnancy.(133) In Cannon, the husband of a patient who died of leukemia sued after the patient's HMO delayed authorizing payment for an autologous bone marrow transplant.(134) Although these two cases are noteworthy, they are not unique.(135) Courts have ruled that because the entity performing UR is interpreting an ERISA plan, ERISA preempts any state-law claim a plaintiff tries to assert. Then, paradoxically, they hold that ERISA does not provide a cause of action to redress this type of injury.(136) Thus, plaintiffs in such cases entirely lack a cause of action.(137)

As a result, health care providers and plans enjoy a "zone of no liability"(138) in the law as it is now developing. Courts have interpreted ERISA's broad preemption provisions to foreclose resort to state-law remedies in cases of injury caused by UR decisions. Yet ERISA's enforcement scheme, although described by the U.S. Supreme Court as "comprehensive,"(139) falls far short of providing the complete relief that patients seek.

For example, patients may wish to allege claims based on fraud, negligent misrepresentation or failure to obtain informed consent(140) against their MCOs for treating professionals' failures to disclose certain aspects of arrangements with providers. If their benefits are provided through an employee benefits plan, however, such state-law claims will not succeed; they must proceed under ERISA.(141) And under ERISA, damages are limited.(142)

Moreover, such gaps do not exist only in the quality-of-care area. To the extent that patients protest decisions to deny them access to certain types of treatment,(143) a plan administrator's decision might be somewhat insulated from judicial review. In Firestone Tire & Rubber Co. v. Bruch, the Supreme Court ruled that an ERISA fiduciary's benefits determination is subject to de novo review unless the fiduciary has express discretion to construe the plan's terms,(144) in which case the standard of review could be the more lenient arbitrary and capricious standard.(145) Since Bruch, the exception has effectively swallowed the rule as plans simply revised their documents to accord their administrators the level of discretion necessary to invoke the more lenient standard of review.(146) Even attempts to argue that the administrator made the decision in bad faith will likely be preempted, subjecting the claim only to remedies available under ERISA.(147) The result is, if not another liability-free zone of activity, certainly a limited-liability area in which MCOs can operate.

Finally, even if ERISA does not preempt a patient's claim, it may be difficult to recover under state-law causes of action. State law indicating that MCOs may be liable for injury they cause through UR is in its infancy.(148) One option, for example, is to attempt to hold an HMO or an MCO liable for its own negligence in making UR decisions. To date, however, few courts have explicitly endorsed this theory of liability. In Wickline v. State, the California Court of Appeals endorsed in dicta the notion that "[t]hird party payors of health care services can be held legally accountable when medically inappropriate decisions result from defects in the design or implementation of cost containment mechanisms. …

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