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Health Law
University of North Carolina School of Law
Saver, Richard S.


Health Law

Fall 2015



Most uninsured Americans are under 65, because nearly all old people are covered by Medicare
Medicaid + CHIP = largest source of health insurance for children in US
Coverage provisions in an insurance contract are to be liberally construed in favor of the insured to provide the broadest coverage possible

Based on idea that insurance plan is a K, and somewhat of an adhesion K

Insurance company has all the power to set the terms
Therefore should be interpreted against insurer, the drafter

Where a provision is ambiguous, its language must be construed in favor of the insured

Where an insurance company seeks to deny coverage based on an exclusionary clause contained in an insurance policy, the clause must be clear and free from doubt

AND insurer (or its agent) must follow internal procedures

HMOs that become “the institution” that “hold out” the independent contractor as an EE, and also restrict provider selection = vulnerable to ostensible agency arguments

MCOs that market themselves by describing the quality of the providers in their network = give courts another reason to impose on the org a duty to investigate the competency of the providers

Even a salaried physician can feel the effects of capitation bc the ER is going to make those effects trickle down somehow; smaller bonus, poor reviews.
Reasons a hospital might participate in Medicare/Medicaid

Consistent with its charitable vision (wants to help the poor)
Qualify for federal subsidies
Ensure a steady revenue stream

ALWAYS pay attention to whether dr is EE, part of medical staff, or part of Admin
Services in a hospital will always be more expensive than services in a ASC or outpt center: bc hospitals have overhead. That’s why drs/pts/insurers prefer the smaller hospitals/centers.


Cost and quality:

US has high cost, low quality care
Atul Gawande, The Cost Conundrum:

Healthcare costs for Medicare patients in McCallen TX more than double the national average, yet outcomes are no better than average. Neighboring TX city had much lower costs.
Big questions: (1) does competition lead to better quality and lower cost care? Why do people in different parts of the country get different quality and cost care?
Three-fold problem for why they are ordering more and costs are so high:

MCallen ordering more of everything. Doctors are more “entrepreneurial” in McCallen. They own hospitals and labs, so they are incentivized to order more of everything to make more $

Where there is doubt about standard of care/clinical uncertainty, doctors send patients to the facilities they own for additional care.
It is not attributed to differences in training, since doctors in El Paso have similar training from the same state universities.

Fear of med mal drives high costs, overuse of tests, medicines etc. Even though state has put tort caps in place, the practice pattern is hard to change.
Anchor-tenant problem: one facility (usually private) sets a high rate and other facilities think it’s ok to match that rate. This is similar to how an anchor tenant sets the tone for a mall. Here, a few orgs said profit growth was a legit aim and others followed.

Gawande recommends: having someone in charge of totality of costs. ACO model that incorporates elements of Mayo (salary, collaboration) etc: (1) no physician-owned facilities (2) large integrated delivery system w/physicians paid flat salaries, and (3) accountable-care organizations, in which drs collaborate to increase prevention and the quality of care, while discouraging overtreatment, undertreatment, and sheer profiteering.

Other explanations for high cost:

Doctors (ie in McCallen) may be practicing defensive medicine (against med mal claims), even though caps have been instated
4 main market failures (from Furrow)

Assymetrical access to information btw patients and providers

Doctor decides on treatment, and may not know cost
Patient may not know what he needs/wants, unlike with buying a TV
People don’t like thinking of their body as a commodity
Regulation: doctor licensure and insurance regulation

Imperfect agency relationships

Patient goes through agent –employer and insurance company and doctor—so does not have complete information
Agents may have conflicts
Regulation: anti-kickbacks, limit referrals

Moral hazard: people can overuse because insurance decreases cost of care, insurers have incentive to select healthy beneficiaries

Regulation: laws requiring beneficiary pool

Low competition: consolidation in the industry

Regulation: anti-trust laws

Wickline v State (Cal. App. 1986): challenge of cost-containment and reorganizing healthcare (Prospective utilization review vs indemnity insurance)

Facts: π had surgery. Doctor requested 8 day inpatient stay to recover. Medi-Cal granted only 4 days. Doctor did not appeal and π released at 4 days. While home, her leg got infected then she had to get it amputated. Π claimed that amputation would have been avoided if she had stayed in-patient.
Issue: is insurer (Medi-Cal) liable for a harm that is allegedly caused by its cost containment measures affecting doctor’s medical judgment?
Holding: Insurer not responsible because it did not wrongfully replace/influence doctor’s medical judgment. It might have been different if the appeal had been wrongfully denied, but w/o appeal co. didn’t have opportunity to impact med decision (note that she didn’t sue doctor and doc said he followed standard of care)
Rule: even though insurer not liable here, court recognized that insurer cannot impose unreasonable cost-containment procedures that lead doctors to make inappropriate medical decisions + that insurer could be liable if this happens. Significance: first case predicting that decisions by insurance cos. couldàliability

Balance btw coverage decisions and medical decisions

All coverage decisions cannot be construed as medical decisions, and insurance cos must be able to place some limits on coverage and cost
Physician duty: have a duty not to be intimidated by insurer and still must make care decisions. Liable if they don’t follow the standard of care, and may even have a duty to protest insurer
Payers duty: payers do influence doctors, but cant unreasonably deny appeals and disregard/deny care recommended by physicians
Tension btw physician judgment and system-how much should the doc advocate? How much should payor influence doctor?

Overview of Insurance and Managed Care

First insurance plans:

Blue Cross: based in hospitals, to establish more consistent flow of income during the Depression. Paid hospitals for services directly, charged same community rate to everyone, states had special tax rules
Blue Shield: Doctors followed success of Blue Cross, also did not do indemnity insurance


Insurance: transfer of risk from patient to financing entity
Underwriting: can be of individuals or whole group of employees through employer plan
Premium: price of the policy, based on expected claims and overhead
Pooling: insurers deal with risks by pooling the risk of large # of insured
Underwriting: an insurer’s assessment of the risk presented by an applicant and a determination of whether to take that risk, then setting a premium
Rate-making: process of predicting future losses and expenses and allocati

Privilege, not right, to be able to join a medical staff
Tension: really important to docs to be on, but hospital wants to keep certain docs off

For doctors: have invested so much in getting ot the point where they qualify to be on the med staff that they get really mad when it’s taken away; in most specialties patients need to go to the hospital at some point, so very important for doctors to have those relationships with hospitals
Hospitals perspective: controlling which docs can practice there is key to controlling quality of care

Medical Staff Bylaws


Criteria for how you become part of the medial staff, duties while you are on staff, what DP rights you have under bylaws in there’s an attempt to restrict privileges

Compared to Hospital bylaws: corporate document, govern whole facility not just docs

Tension: hospital admins want to act on its own re: docs or want medical staff to change bylaws

3 main views: binding contract btw hospital and med staff vs. form of self-governance, not binding in court vs. loose K providing guidelines that you can sue on
Main function of med staff: set forth procedures for how to govern doctors (in bylaws), particularly when disciplinary issues arise and medical staff has to follow process that is set forth (Sokol)

courts have typically stayed out of fights between one doctor and medical staff, and generally take the view that as long as hospital follows the rules/processes it set up and didn’t act in bad faith, decision ok (Sokol)

Factors that constrain bylaws

Hospital bylaws control sphere (ie can’t say med staff is taking over towel service)
Joint Commission: outside accrediting agency that set up rules for what hospital has to include in medical staff bylaws for purposes of accreditation. Biggest driving forceàdeemed eligible for CMS $ if accredited
For state hospitals: state laws may limit/set requirements for med staff/bylaws

Shifts in trad’l med staff model: (1) some docs directly compete w hospitals in providing certain services and (2) increasing # of docs choosing to be salaried employees

Staff privileges and Hospital-Physician Contracts

Medical staff controls credentialing process: review applicant physicians and continuing eligibility but H’s governing board has the final legal authority to make decisions

Credentialing: process by which providers are granted access (“privileges”) to facilities where they can see pts
2 types of privileges:

admitting (authority to admit pts to H)
Clinical (authority to use the H to treat pts)

Purposes of credentialing: to assure that doctors meet basic requirements of H for performance at all times

H liability: can be liable to injured pts for negligent credentialing and anti-trust liability for anti-competitive restriction of privilegesàhospitals have incentive to keep some control over med staff + focus on quality and safety