American Journal of Law & Medicine

Applying fiduciary responsibilities in the managed care context.

I. INTRODUCTION

The cost containment innovations offered by managed care have been needed corrections to the excesses of the fee-for-service health care system. Yet, implementing these innovations raises inevitable questions about conflicts of interest regarding the allocation of resources under managed care. The inherent conflict faced by physicians and health plan administrators between the health care needs of individual patients and the need to preserve scarce resources for patient populations is at issue in the managed care era. The sources of the conflict are the economic incentives that underlie the managed care revolution, such as capitated funding arrangements, limitations on referrals to specialists, bonuses and withholds. In making individual clinical decisions, physicians and administrators potentially infuse their own economic interests into the process.

An additional complication is the increasing tendency of attorneys and physicians to view each other as antagonists, making it difficult to formulate policies to resolve these inherent conflicts.(1) Historically, law and medicine have been interdependent professions.(2) In the early nineteenth century, the two professions cooperated on matters of mutual interest, and there was hope that they could jointly develop a field of legal medicine. At times, however, especially during the past thirty years, that interdependence has led to considerable conflict between physicians and attorneys over the perceived intrusiveness of the legal system into the clinical domain. The conflict between the two professions has been exacerbated in recent years with the decline of physician dominance and authority over health care delivery and the rise of managed care.(3)

Two basic difficulties underlie nearly all conflicts arising under managed care. The first is the problem of forming a binding agreement while in a position of uncertainty regarding the future. At best, it is difficult to specify the future contingencies of medical care in the language of the health plan agreement. When medical needs arise, any contractual ambiguities or tensions lurking beneath the parties' various understandings of the benefit package come to the surface.

The second problem is the reality of scarce resources, which necessitated the development of the modern managed care regime in the first place. It simply is not possible to provide health care on demand without regard to cost. Cost containment is an inevitable feature of health care delivery at the Millennium; the question is not whether there will be cost containment, but how to structure and oversee the process of cost containment. Neither the courts--to whom patients frequently turn when the general need for cost containment turns into the specific need to deny treatment--nor anyone else can successfully resolve managed care disputes by ignoring or wishing away the fundamental fact of scarcity. The mission facing whoever arbitrates managed care disputes is to ensure fair, accurate and efficient administration while also preventing bias or the provision of inadequate care in the name of short-sighted profiteering.

In this Article we describe a process, based on fiduciary duty principles, for resolving potential conflicts of interest arising in managed care and for addressing the mutual antagonism between physicians and attorneys. As Part II of this Article describes, one current topic of legal debate is whether courts should analyze managed care issues under the rubric of tort or contract law. Although both tort and contract are, to some extent, necessary components of a legal regime in managed care, they are not sufficient either individually or in tandem to resolve the types of conflicts and disputes presented in managed care.

As an alternative, Part III proposes (detailed more specifically in Part IV) a regime rooted in the concept of fiduciary duty.(4) A fiduciary--literally, one who is entrusted with the power to act for the benefit of another--owes a duty of loyalty and a duty to exercise care in making decisions.(5) Fiduciary relationships are particularly important in medical care where "the parties are unable to foresee the conditions under which one act produces better results than another,"(6) and where the parties lack adequate information to assess the quality of care.

The underlying justification for using the fiduciary duty model is that a patient's trust in his or her physician is the foundation of a morally acceptable health care system. Patients expect and trust that physicians have control over the resources needed for their care.(7) Many aspects of this relationship of trust--including methods of balancing social and economic concerns and the aspects of a physician's relationship to the managed care plan that must be disclosed to patients--are subjects of intense dispute.(8) The basic need for trust, though, is incontrovertible. Absent trust, managed care cannot survive.

A fiduciary model offers a framework that preserves patient trust while recognizing that changes in the marketplace, including economic incentives to limit the use of health care resources, are unavoidable, at least in the short-term. Part V concludes with a discussion of law and medicine at the Millennium, focusing on why the fiduciary approach can help resolve the tensions unsettling health care delivery.

II. THE TORT VS. CONTRACT DEBATE(9)

In the fee-for-service system, disputes regarding a patient's insurance coverage were governed by contract law. Disputes regarding the care the patient received from a provider were governed by tort law and focused on whether the provider had satisfied the standard of care. Contract analysis emphasizes that the parties have entered into an agreement and attempts to explain how that earlier agreement bears on the present situation; the contract model adopts an ex ante, pre-dispute perspective. Tort, on the other hand, examines the situation from the ex post perspective, highlighting the fact that the circumstances of a subsequent dispute usually could not have been anticipated when the parties formed the plan.

In the new managed care model, the insurance and health care delivery functions combine into one entity. This changes the litigation context in several ways. With the integration of financing and health care delivery, refusing coverage means denying care altogether. In their capacity as insurers, managed care organizations (MCOs) may deny health care recommended by the patient's physician or may only agree to provide limited funding for certain clinical interventions. If the patient suffers an adverse outcome as a result of this decision, which legal regime should govern the subsequent legal claim--tort or contract? Although contract-based solutions have greatly predominated, each legal rule has its adherents in the literature. Both regimes have features that address, and comport well with, certain aspects of managed care.(10)

The basic case for contract is that the market will provide the type and level of choices that consumers want. For Clark Havighurst and other contract proponents,(11) the rationale for the primacy of contract is that consumers can directly exercise sovereignty over cost, quality and service.(12) As an instrument of market arrangements, contractual freedom will force health care providers to compete on both price and quality to retain customers. Paul Rubin notes that purchasers have an incentive to choose an efficient plan, defined as "one that provides all cost-justified care and no more,"(13) and that contracts allow individuals to decide how much they desire to spend on health care relative to other commodities.(14) Contract proponents also argue that contracting shifts the responsibility of health care decisions back to the patient where it belongs.(15)

The most powerful argument against the contract perspective in health care is the absence of adequate patient information. Unlike most consumer contracts, where the consumer can anticipate his or her needs and assess the costs of the product being purchased, most patients cannot anticipate their future medical needs when the contract is signed.(16) It is difficult for patients to comprehend the potential risks and to bargain over them in advance. By definition, medical error is an accidental byproduct of the provider-patient relationship. The combination of "lack of information, inability to evaluate risk, and the inequality of bargaining power" is a powerful rejoinder to the pro-contract viewpoint.(17) The contractarian case assumes a separation between benefit decisions, traditionally a matter for contract interpretation, and medical treatment decisions, traditionally overseen by tort law's standard of care. In fact, most of the litigated cases depend on individual clinical decisions that are rarely influenced by the terms of the contract.(18) Since these clinical decisions do not usually depend on interpretations of available benefits, contract law may have little to say about how they are resolved.

Many advocates of a contract-based system have thoroughly presented the case against tort. In brief, these commentators believe that the tort system is inefficient and random in providing compensation, has very high administrative costs, does not deter wrongdoing, sets standards of care too high and provides benefits that consumers would generally not be willing to pay for in the market. These advocates argue that tort awards increase the cost of health care without providing commensurate benefits.(19)

Both the tort and contract regimes have considerable shortcomings in terms of their conceptual or practical ability to handle the conflicts posed by managed care. Although particular aspects of managed care seem to resemble contract-governed or tort-governed activities, "[i]t is becoming impossible to characterize components of managed care as wholly contractual or wholly tort, which makes it quite difficult to determine which body of law governs."(20) As a result, the tort-contract debate is a dead end in addressing managed cafe's potential conflicts.

III. AN ALTERNATIVE--FIDUCIARY DUTY

Since both tort and contract appear to be inadequate as methods for resolving potential conflicts between an individual patient and an MCO's patient population,(21) we need to develop alternative approaches.(22) The concept of fiduciary duty is one option for resolving such disputes. One reason is that the fiduciary model is already part of the managed care decision-making process through the Employee Retirement Income Security Act of 1974 (ERISA).(23) ERISA recognizes that individual clinical decisions may sometimes be made in the context of a potential conflict with the goal of preserving assets for the managed care patient population. …

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