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


Fall 2016

Professor Saver


Healthcare Markets & Myths about Healthcare

Why Markets Can’t Cure Healthcare

(1) Individuals do not know when they will need care, therefore insurance is required, meaning insurance gets to decide what is covered
(2) Healthcare markets can’t rely on experience or comparisons
(3) People do not get to choose health insurance
(4) Insurance helps subsidize the costs of health care

Market Failures

(1) Asymmetries in information
(2) Uncertainty as to diagnosis, treatment, and outcome
(3) Agency relationship

Conflicts of interest

(4) Health insurance market conditions
(5) Entry is limited and barriers exist

Key Components of Healthcare Markets

(1) Supply

Supply and Demand Issues

Supply and demand don’t line up
There can often be provider-induced demand
Increase in supply can lead to only minimal increases in quality of care

(2) Demand & Substitution

No substitutes/alternatives

(3) 3rd Party Payment

Distorting, less prudent purchasing/service utilization

(4) Moral Hazard

Providing a safety net of coverage can create distorting effects
Can lead to overutilization, as one lacks incentive to guard against risk

(5) Adverse Selection

Selectivity of insurance pool, healthy people versus unhealthy people
Reflects the difficulty in spreading costs

(6) Externalities

Costs that can be pushed on other parties, ex: unhealthy lifestyles

Positive externalities: medical research

(7) Imperfect information

Complex clinical information, inaccessible information

(8) Credence Good

Patient must rely on opinion of intermediary to explain the encounter

(9) Magnitude of Risk

High stake consequences preventing people from re-entering

Ex.: death

(10) Inherent Unpredictability
(11) Off-Market Problems

Uninsured persons

(12) New Technology Changes

This is the lion’s share of healthcare costs

(13) Trust in Market

Patient’s faith in healthcare provider is thought to be important to the quality of care
Market should increase trust

Common Healthcare Myths

(1) Doctors know the best treatment outcomes

Treatments can become part of the standard of care, even though they are NOT always extensively and rigorously tested
Elusive studies

(2) The Standard of Care is Monolithic

Geographic variations exist
Clinical variations exist

(3) There is Certainty
(4) The Definition of Disease is Monolithic

The definition of disease becomes more expansive over time

(5) “Experiments” vs. “Regular” Care

Many forms of “experimental” treatments are rendered in clinical settings such as doctors’ offices

Introductory Case[1]

A payor is NOT always liable, but can be when they corrupt medical judgment.
A provider, on the other hand, is responsible for advocating for the best medical interest of his/her patient, without taking into account what the payor will do

Cost, Quality, Access, Justice & Choice “Bermuda Triangle” – The “Tradeoff” Problem


More access means more issues


Liability issues with cost and regulation

Justice & Choice

Exercising one’s choice in provider, insurance, etc.
How is it being distributed and who is being burdened by this?


Overview of Doctors and Hospitals & Staff Privileges and Hospital-Physician Contracts

Types of Hospitals

Non-profit, private – About 70% of beds
For-profit, private – About 15% of beds
Public, About 15% of beds


General v. Specialty

General = short-term
Specialty = indefinite commitment

Ex.: psychiatric and orthopedic hospitals

Acute v. Chronic
Community vs. Teaching vs. Academic Medical Centers


Basic Hierarchy

Board of Trustees

Legal authority for entire corporation

The Board is legally accountable for the decisions of the medical staff


Oversee business

ystematic and regular way of getting information

Who Accesses NPDB

Hospitals, licensing boards,
HMOs (managed care organizations)

Discretionary, but highly advised

Who Can’t Access NPDB

General public

Could give them access to information that could be misconstrued
Exception: if one wishes to sue a physician, the malpractice attorney may be able to query, but first must prove that the hospital didn’t query the database

What Happens if You Don’t Check

Hospitals who fail to check the Nat’l Practitioner Data Bank are still charged w/ having knowledge

What Needs to be Reported

Investigatory reports don’t need to be reported; just negative removal of privileges

What Happens if You Check and Still Hire

If a hospital finds a disciplinary hearing, but hires the physician anyways, it does NOT automatically mean they are now liable as long as they “reasonably accounted” for the query’s findings


If the doctor’s on probation for 29 days, they do NOT get out on the data bank

[1] Wickline v. State of California – where the California Supreme Court held that it is the patient’s treating physician who must determine when the patient should be discharged from a hospital based on his best medical judgment, not third-party payors of health care services.

[2] Greisman v. Newcomb Hospital – where the New Jersey Supreme Court held that a doctor of osteopathic medicine who was rejected by Newcomb Hospital because of a hospital bylaw requiring courtesy staff applications to have graduated from an AMA-approved medical school was entitled to a common law fairness right.