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Health Care Quality, Licensing & Liability
Wayne State University Law School
Hammer, Peter J.

1. Regulation or Competition p. 2-7
State and Federal controls:
Physician licensure
Accreditation of hospitals and other facilities
Supervision of provider behavior by government payers
Regulation of insurance industry practices
Certificate of need regulation
Competition is still there à market improving regulations:
Spread of HMOs and insurance products that promote choice
Removing regulatory barriers to competition through antitrust enforcement (no monopolies)
Regulating health insurance to encourage transparency and choice
Limiting providers’ ability to take advantage of their position through self-referral practices or accepting kickbacks
Why regulation?
Market imperfections:
Imperfect agency relations
Ex: People “purchase” health care through multiple assistants
Get from employer à ER chooses insurer à physicians guide choices
“Imperfect agents”: subject to conflicts of interest or do not fully understand the needs of consumers/patients
Information gaps and asymmetry
Patients v. provider
Providers v. patients v. payers
Moral hazard
Ex: Overuse of medical care because insurance lowers cost of each purchase for insured individuals.
Strong incentive to engage in “favorable risk selection”
Healthcare markets for hospital services, physician specialty services and commercial insurance are highly concentrated
Regulatory barriers inhibit entry into hospital and physician services markets
Competition v. Regulation are complementary
Above market imperfections call for regulations that help fix other problems
ACA is designed to improve competitiveness by imposing a host of regulations
2. Illness p. 7-20
Defining sickness
WHO definition of health: “a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity”
Health: the performance of each body part of its natural function
Theoretical: opposite of disease
Practical/ethical notion: opposite of illness
Can be defined as a subset of disease
1. An illness must be a reasonably serious disease with incapacitating effects that make it undesirable
2. To call a disease an illness is to view its owner as deserving special treatment and diminished moral accountability
Illness is a socially constructed deviance; something more than biological abnormality is needed
Our understanding of illness affects society. Defining a condition as an illness to be aggressively treated rather than a condition of life has significant economic effects
It is best thought of as a continuum
Disease is a bigger circle, illness is a manifestation of a disease
Ex. illness à hardening of the arteries; disease à heart attack
Insurances covers “illness” and not things that are “not illness”
Illness affects individuals
Illness affects society
Relieves responsibility
Loss of control
Costs money in lost time and medical expense
Economic effects
Obligation to pay
Katskee v. Blue Cross/Blue Shield of Nebraska [10] – Ambiguous Insurance Policy & Defining Disease/Illness
Facts: Plaintiff was diagnosed as suffering genetic condition which made her very susceptible to breast/ovarian cancer; did not have it at the time, but was in high risk category. This was considered a syndrome. At recommendation of doctor, she had a complete hysterectomy. BCBS denied coverage of the surgery, arguing that plaintiff’s condition did not constitute an “illness” and was not “medically necessary.” “Illness” was defined in the policy as “bodily disorder or disease.” Policy did not define bodily disorder or disease. BCBS maintained that a precondition towards cancer is not a disease.
Women with this disorder had a 50% chance to develop ovarian cancer and surgery was “prophylactic.”
Holding: Definitional approach
In light of plain and ordinary meaning of “illness” “bodily disorder” and “disease”, P’s condition constitutes an illness within the meaning of the policy
RULE: an insurance policy that is ambiguous will be interpreted in favor of the insured
Reasoning: Court’s approach to illness:
P’s condition is a deviation from what is considered a normal, healthy state of physical state or structure. The abnormality or deviation from a normal state arises in part from the genetic makeup of P. The unhealthy state results in P’s substantial risk of developing cancer
The recommended surgery is intended to correct the morbid state by eliminating or reducing the risk
Court says: not every precondition is necessarily an illness within the meaning of the insurance policy
**What is getting the court to decide this? The seriousness of the harm? The probability of it developing into a disease? A strong medical consensus for the court to defer to? The advocacy of the lawyers? Was the claim processed poorly? Are the contractual definitions unclear?
**What if this were considered a pre existing condition?
**Disease means different things in different cases
Court says: “bodily disorder” and “disease” (as defining illness) encompass any abnormal condition of the body or its components of such a degree that in its natural progression would be expected to be problematic, a deviation from the health or normal state affecting the functions or tissues of the body; an inherent defect of the body; or a morbid physical or mental state which deviates from or interrupts the normal structure of any part, organ, or system of body manifested by symptoms or signs.
This case shows disconnect between medical reality and legal frames
Legal realism: court can manipulate to find coverage or no coverage as they want
Conditions that precede illnesses will be caught more frequently as improvements are made in technology; insurers will therefore have to question how remote a risk will activate coverage
**If she gets the surgery as a preventative measure, it might be an unnecessary procedure that makes all insurance premiums increase; alternatively, if she doesn’t get it and the syndrome develops into a disease, it might cost way more to get her healthy than the preventative procedure would have cost
3. Quality p. 20-64
Different Approaches to quality:
Donabeedian: T

s used to measure and police quality:
Structure: how entity is organized
Hard, tangible things
Ex. MRI machines, size of facility, number of doctors to patient ratio, etc
Process: how info is shared
Ensuring people are doing the process of care that they’re supposed to be doing
‘Medicine in action,’ protocols for certain diagnostics (ex. how many people get beta blockers with certain symptoms, etc), supervisory roles
Outcome: measuring ‘better’
Change in patient’s current and future health status
Note: Outcome measures have advantages over process and structure measures since the goal of health care is the best possible outcome of the patient
Infections in hospital, mortality, years added to life, patient satisfaction
Quality Regulation Tools à quality is regulated as a public policy matter through:
Licensing and revocation
Government regulations
Tort/malpractice system
Professional self regulation
Practice guidelines
Market competition
Sponsors (health plan)
Wennberg’s Medical Practice Variation
System causes of unwanted variation:
Misuse of preference: sensitive care
Poor communication between doctor and patient regarding risks and benefits of alternative treatments
Patient dependency on a physician’s opinion in sorting out preferences
Inadequate evaluation of treatment theory
Effects of health care finance system that rewards procedures, not time spent or the quality of decision making
1. Effective care
Interventions that are medically necessary on the basis of clinical outcomes evidence
Benefits outweigh the risks so that virtually all patients with medical needs should receive them
2. Preference-sensitive care
Treatments for which there are two or more treatment alternatives, with the choice of treatment involving tradeoffs based on patient preference
3. Apply-sensitive care
Services such as physician visits, referrals to specialists, hospitalizations
In Medicare, usually for chronically ill patients
Approaches to quality improvement
Rely on traditional forces of professional ethics and socialization
Expand the role of the marketplace, using dissemination of quality information to consumers and buyers of health on the theory that buyers will reject lower quality providers
Improve current modes of self-regulation of the medical profession and the industry
Accreditation, medical staff privileges, medical licensing actions
Process by which a patient sues for malpractice can be improved
Government can intervene