I. Introduction

The escalation of health care costs has put the words “cost control” FN2 on everyone's lips and has forced society to reevaluate the American health care system. FN3 Early reimbursement plans rewarded physicians for providing expensive and sometimes unnecessary treatment. FN4 Third-party payers and government then developed alternative market-driven plans, which economically penalized physicians for providing what was perceived to be unnecessary care.

In particular, third-party payers have depended on managed care products, which revolutionize the relationship among third-party payers, physicians, and patients. FN5 Under managed care products, the risk of financial loss shifts from third-party payers to physicians. The clear problem with this approach is that physicians, concerned that they will be left to cover costs *7 for which the third-party payer refuses reimbursement, will cut necessary services and will leave patients almost completely out of the decision-making process. FN6

Without proper controls, the zeal of third-party payers to lower costs encourages physicians not only to eliminate unnecessary care, but to eliminate beneficial care as well. Furthermore, risk shifting has the potential to worsen problems of access to health care service. FN7 The actual impact of managed care products on physician behavior is unknown, and the uncertainty makes the product dangerous to the patient. Because the patient is left with significantly less control over health care decisions than was previously available, the danger is unreasonable. FN8

Third-party payers use techniques for risk shifting that are designed to encourage physicians to push their practices to the outer limits of acceptable medical standards. FN9 Because quality measurement FN10 is difficult at best, such actions may make it hard to decide where acceptable medical practice ends and malpractice begins. Moreover, if managed care products are allowed to determine the standard of care, how can injured patients support claims against those products for physician negligence? In other words, will cost containment efforts imposed by third-party payers constitute a defense to medical malpractice claims?

While the goal of financial risk shifting is to reduce unnecessary care and so-called “marginally helpful care,” without appropriate safeguards the potential exists for withholding necessary and potentially helpful care. If a person is injured because the physician failed to provide marginally helpful care, what legal standard of care applies? Will the standard of care be based on whether the unprovided service was “medically necessary”? Will the definition of “medically necessary” be based on the statistical person or on the individual patient?

  • 8 The courts have not yet allowed financially interested providers to redefine the medical standard of care. There is some risk, however, that such a self-serving redefinition may indeed occur and result in uncompensated injury to patients. It is this potential risk of uncompensated injury from which patients must be protected. Traditionally, the law affords significant respect for the physician-patient relationship, a relationship that must be based on trust. If society chooses to allow third-party payers to tamper with the physician-patient relationship, society must force those third-party payers to take responsibility for the injuries that occur. FN11



It will serve this society little if lower health care costs are achieved by means of uncompensated injuries to individuals. It will serve this society little if-in the interest of reducing government taxes or increasing profits or market share for third-party payers-society adopts a system in which the rule is “caveat patients.” It will serve this society little if a market-based system aggravates inherent class differences.

Managed care products are potentially dangerous to individual patients and to society. The entities that can minimize that danger are the third-party payers who design, plan, and benefit from managed care products. Yet, because of the peculiar nature of the relationships among patient, physician, and third-party payer, current legal theories are inadequate to promote safety, to shift the risk, and to spread the burden. FN12 Tort theories put an extraordinary burden on the plaintiff in areas where the defendant has the more complete knowledge, often the only knowledge. Tort theories are also inadequate because of the effect of utilization review and financial risk shifting, which recasts injury-producing decisions that would previously have been analyzed in terms of negligence as nonnegligent judgmental conduct. FN13

The tort system produces a significant element of chance, heavy transactional costs, inadequate compensation recovery, enormous malpractice premiums, and ineffectual deterrents. Furthermore, even if tort theories could provide an adequate remedy, the Employee Retirement Security Act of 1974 *9 (ERISA) FN14 restricts or denies coverage for injuries based on utilization review activities and financial risk shifting. FN15 Given society's desire to control health care costs through cost containment activities, alternate mechanisms should be developed to compensate the victims who are injured by such activities. A medical injury compensation fund could provide appropriate compensation, not only to the victims of cost containment activities, but also to others receiving medical injuries.

This Article examines current tort remedies for personal injury claims and explores the problems that arise when these remedies are applied to physicians' actions that are directed by third-party payers. Part II of this Article explores the organization and historical development of managed health care products. Part III considers the past and present uses of the utilization review process and financial risk shifting. Part IV explores the applicability of traditional theories of tort liability to third-party payers, including direct liability of third-party payers who market managed care products. Part V considers the barriers that ERISA presents to compensating patients for cost containment injuries. Part VI proposes a no-fault medical injury compensation scheme as a legislative remedy for cost containment and other medical injuries.