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Enterprise Liability for Medical Malpractice and Health Care Quality Improvement

Published online by Cambridge University Press:  24 February 2021

William M. Sage ,
Kathleen E. Hastings  and
Robert A. Berenson
William M. Sage
Affiliation:
O'Melveny & Myers, Los Angeles, California
Kathleen E. Hastings
Affiliation:
Legal Medicine Program, Agency for Health Care Policy and Research, U.S. Department of Health and Human Services, Washington, D.C.
Robert A. Berenson
Affiliation:
National Capital PPO, Washington, D.C.
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Extract

[Assumptions about quality in health care and its defense] are rooted in the past, a past in which the doctor ruled. Strangely, those assumptions have survived the revolutions that now deny the doctor the sole authority to judge and guide care. The doctor no longer really controls health care, as in the days of solo practice, but, when it comes to quality, the doctor is still held accountable. When the researchers study quality, they focus on the behavior of the physician. When the Quality Assurance Committee meets, it reviews the performance of the physician. When the payers and the regulators turn on their searchlights, they want doctors in their glare. Control is shifting, structure is shifting, the pattern of care is shifting; but accountability is not.

This passage prefaces a landmark report on the application to health care of quality improvement methods used successfully in other industries.

Type
Articles
Information
American Journal of Law & Medicine , Volume 20 , Issue 1-2: Quality of Care and Health Reform: Complementary or Conflicting , 1994 , pp. 1 - 28
Copyright
Copyright © American Society of Law, Medicine and Ethics and Boston University 1994

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Footnotes

‡‡

The views expressed in this article are strictly those of the authors. No official endorsement by the Department of Health and Human Services or any of its components is intended or should be inferred.

References

1 Berwick, Donald M. et al., Curing Health Care: New Strategies for Quality Improvement 12 (1990)Google Scholar.

2 The potential effect of emerging forms of quality improvement on malpractice liability has not escaped notice. See Truhe, Joseph V., Jr., Quality Assessment in the ‘90s: Legal Implications for Hospitals, 26 J. Health & Hosp. L. 171 (1993)Google Scholar; see also Furrow, Barry R., The Changing Role of the Law in Promoting Quality in Health Care: From Sanctioning Outlaws to Managing Outcomes, 26 Hous. L. Rev. 147 (1989)Google Scholar.

3 H.R. 3600, 103d Cong. 1st Sess. § 5311 (1993); S. 1757, 103d Cong., 1st Sess. (1993) [hereinafter Health Security Act].

4 Harvard Medical Practice Study, Patients, Doctors and Lawyers: Medical Injury, Malpractice Litigation and Patient Compensation in New York 3 (1990) [hereinafter Harvard Medical Practice Study].

5 Id. at 6.

6 See Weiler, Paul C. et al., Proposal for Medical Liability Reform, 267 JAMA 2355, 2355 (1992)Google Scholar. Even in justified cases, damages assessed may be excessive. For example, studies have suggested that injuries incurred as the result of medical malpractice are compensated approximately twice as richly as similar injuries caused by non-medical tortfeasors. See Bovbjerg, Randall R. et al., Juries and Justice: Are Malpractice and Other Personal Injuries Created Equal?, 54 L. & Contemp. Probs. 5, 16–21 (1991)Google Scholar.

7 See The American Law Institute, Reporters’ Study: Enterprise Responsibility for Personal Injury 122 (Paul C. Weiler ed. 1991) (hereinafter ALI Report).

8 See Danzon, Patricia M., Medical Malpractice: Theory, Evidence, and Public Policy 130 (1985)Google Scholar; Darling, Lori L., Note, The Applicability of Experience Rating to Medical Malpractice Insurance, 38 Case W. Res. L. Rev. 255, 261-65 (1987-88)Google Scholar.

9 See, e.g., Gilbert Solomon, The Doctor's Co., Practice Guidelines For Managed Care (Aug. 1992) (on file with author) (“The structure of managed care goes against many risk management tenets… . Instead of building [the doctor-patient] relationship, managed care uproots patients from physicians with whom they have enjoyed long-term interactions.“).

10 See ALI Report, supra note 7, at 116, 123.

11 Blendon, Robert J. et al., Bridging the Gap Between Expert and Public Views on Health Care Reform, 269 JAMA 2573, 2575 (1993)Google Scholar.

12 These include limits on damages and attorneys’ fees, reduction of awards based on collateral sources of compensation, repeal of joint and several liability, and shortened statutes of limitations. E.g., Medical Injury Compensation Reform Act of 1975 (MICRA), codified at Cal. Bus. & Prof. Code § 6146 (West 1990), Cal. CRV. Code § 3333 (1970), Cal. CRV. Proc. Code §§ 340.5, 1295 (West 1982). See generally Agency for Health Care Policy and Research, Pub. No. 93-0053, Compendium of Selected State Laws Governing Medical Injury Claims (1993); James, Ludlam, The Real World of Malpractice Tort Reform — Part I, 23 J. Health & Hosp. L. 321 (1990)Google Scholar; James, Ludlam, The Real World of Malpractice Tort Reform — Part II, 23 J. Health & Hosp. L. 353 (1990)Google Scholar.

13 See Sturgis, Robert W., Tort Cost Trends: An International Perspective 1 (1992)Google Scholar; American Medical Association, Trends in US Health Care (1992). The cost of defensive medicine is doubtless higher, but cannot be determined accurately. See infra note 42 and accompanying text.

14 Menzel, Paul T., Consumer Expectations and Access to Health Care: A Commentary, 140 U. PA. L. Rev. 1919, 1919 (1992)Google Scholar.

15 An analogy may be made to the product liability arena. The well-publicized cases relating to the placement of the fuel tank in Ford Pinto automobiles exemplify the reaction of the legal system to a corporate calculus that explicitly balances corporate profit'against the possibility of human injury. The assessment against Ford of criminal penalties and punitive as well as compensatory damages demonstrates that a high standard is expected of corporate organizations when life and health are at stake. See Bennett, Steven C., Developments in the Movement Against Corporate Crime, 65 N.Y.U. L. Rev. 871 (1990)Google Scholar (book review).

16 See Brian, McCormick, Enterprise Liability Out: AMA Steering Toward Traditional Tort Reforms, Am. Med. News, June 28, 1993, at 1, 22.Google Scholar

17 This view is particularly problematic given the increasing evidence that medical malpractice, like other industrial accidents, can best be reduced by improving institutional processes. See infra notes 74-84 and accompanying text.

18 See, e.g., Relman, Arnold S., Medical Practice Under the Clinton Reforms — Avoiding Domination By Business, 329 New Eng. J. Med. 1574 (1993)Google Scholar.

19 See, e.g., Todd, James S., Reform of the Health Care System and Professional Liability, 329 New Eng. J. Med. 1733 (1993)Google Scholar.

20 A discussion of society's preoccupation with physician-dominated practice is found in Hall, Mark A., Institutional Control of Physician Behavior: Legal Barriers to Health Care Cost Containment, 137 U. PA. L. Rev. 431 (1988)Google Scholar; see also Berwick, Donald M. et al., Quality Management in the NHS: The Doctor's Role —II, 304 Brit. Med. J. 304 (1992)Google Scholar (advocating training and professional acceptance of “doctor-managers“); Jim, Montague, Straight Talk: Doctor-Driven Systems Tell How They've Gained Physician Allies, Hosps. & Health Networks, July 5, 1993, at 22.Google Scholar

21 For an analysis of the traditional physician view of the malpractice system, see F., Patrick Hubbard, The Physicians’ Point of View Concerning Medical Malpractice: A Sociological Perspective on the Symbolic Importance of “Tort Reform”, 23 Ga. L. Rev. 295 (1989)Google Scholar. Proposals for enterprise liability that predated widespread managed care contracting and comprehensive health care reform initiatives may have contributed inadvertently to this bias by emphasizing administrative savings rather than quality improvement. See Kenneth S. Abraham & Paul C. Weiler, Organizational Liability for Medical Malpractice: An Alternative to Individual Health Care Provider Liability for Hospital-Related Malpractice (Mar. 1993) (unpublished manuscript on file with author); see also infra note 107 and accompanying text.

22 See Iglehart, John K., The American Health Care System: Introduction, 326 New Eng. J. Med. 962 (1992)Google Scholar; Levit, Katherine R. et al., National Health Expenditures 1990, Health Care Fin. Rev., Fall 1991, at 29Google Scholar; see also Datawatch, Mod. Healthcare, Sept. 28, 1992, at 66.

23 With few exceptions, traditional health insurers have had minimal success claiming that treatments recommended by physicians were unnecessary. See Hall, Mark A. & Anderson, Gerard F., Health Insurers’ Assessment of Medical Necessity, 140 U. PA. L. Rev. 1637 (1992)Google Scholar.

24 See Council on Ethical & Judicial Affairs, American Medical Association, Caring for the Poor, 269 JAMA 2533, 2534 (1993).

25 See Schieber, George J. et al., Health Care Systems in Twenty-Four Countries, Health Aff., Fall 1991, at 22.Google Scholar

26 Approximately 25% of hospital days, 25% of medical procedures and 40% of medications are probably unnecessary. See Brook, Robert H., Practice Guidelines and Practicing Medicine: Are They Compatible?, 262 JAMA 3027, 3028 (1989)Google Scholar. The General Accounting Office has estimated that the annual cost of fraud and abuse exceeds $80 billion, nearly ten percent of health care spending. United States General Accounting Office, Pub. No. GAO/HRD-92-69, Health Insurance: Vulnerable Payers Lose Billions to Fraud and Abuse (1992).

27 See Francis, Leslie P., Consumer Expectations and Access to Health Care, 140 U. PA. L. Rev. 1881 (1992)Google Scholar. In England, for example, patients’ expectations of care are considerably lower. See, e.g., Shine, Kenneth I., A Yank in London — Observations on British Medicine and Science, 145 W.J. Med. 405, 405 (1986)Google Scholar.

28 Fuchs, Victor R., No Pain, No Gain: Perspectives on Cost Containment, 269 JAMA 631, 632 (1993)Google Scholar.

29 The case for rationing is made in Henry, Aaron & Schwartz, William B., Rationing Health Care: The Choice Before Us, 247 Science 418 (1990)Google Scholar.

30 See Mehlman, Maxwell J., Health Care Cost Containment and Medical Technology: A Critique of Waste Theory, 36 CASE W. Res. L. Rev. 778 (1986)Google Scholar. Particularly enlightening is Mehlman's compilation of the many definitions of “waste.” Id. at 784 n.22.

31 It also suggests that diere is no single panacea for the health care crisis. Market competition might increase efficiency through structural changes in the health care delivery system; government sponsorship of health insurance might improve equity. The goal should be to combine incentives for the delivery of cost-effective care with a process to encourage national debate and decision-making with respect to the allocation of certain high-cost services, such as expensive but unproven technologies or care at the end of life. See Paul, Starr & Zelman, Walter A., A Bridge to Compromise: Competition Under a Budget, Health Aff., Supp. 1993, at 7.Google Scholar

32 See generally A. Mitchell Polinskv, An Introduction To Law And Economics (1983).

33 The legal standard of care is likely to evolve to reflect society's changing view of the health care resources to which a patient is entitled. See E., Haavi Morreim, Cost Containment and the Standard of Medical Care, 75 Cal. L. Rev. 1719 (1987)Google Scholar. But see Hirshfeld, Edward B., Should Ethical and Legal Standards For Physicians Be Changed to Accommodate New Models For Rationing Health Caret, 140 U. PA. L. Rev. 1809 (1992)Google Scholar (arguing that the standard of care should not lose focus on individual patients as the result of social imperatives). However, it is overwhelmingly unlikely that the “standard of care” will ever become a “rule of care” — for example through the adoption of national practice guidelines applicable to all clinical situations. See Morreim, supra, at 1728-29. Important benefits may flow from that fact, in that arbiters of health care disputes may add a necessary element of moral and professional judgment to what might otherwise be an impersonal cost-benefit calculation. See infra notes 34-46 and accompanying text.

34 This conclusion rests on two central assumptions with respect to using economic concepts to assign legal liability for malpractice: first, that consumers have imperfect information about costs and benefits; and second, that liability placed on one party cannot be shifted without cost to another in order to achieve efficiency. Morreim, supra note 33, at 1747. These seem particularly safe assumptions in health care, given the scientific and industrial complexity of the product and the presence of large risk-bearing costs, both of which lead consumers to make many of their purchasing decisions through physicians and insurers.

35 See Eddy, David M., Rationing by Patient Choice, 265 JAMA 105 (1991)Google Scholar.

36 See, e.g., Mehlman, Maxwell J., Rationing Expensive Lifesaving Medical Treatments, 1985 WIS. L. Rev. 239 (1985)Google Scholar. Americans generally feel comfortable when resources are allocated by individuals and families, and uncomfortable when decisions are made by government. Intermediate levels of aggregation, such as schools bearing responsibility for students or labor unions for employees, may also be acceptable if those organizations are accountable to their members or the members are able to re-aggregate themselves fairly easily into new organizations.

37 See Fuchs, Victor R., Centralize Finance, Decentralize Delivery, L.A. Times, Aug. 19, 1993, at B7.Google Scholar

38 See, e.g., Health Security Act, supra note 3, §§ 1154, 1502.

39 See Hadorn, David C., Setting Health Care Priorities in Oregon: Cost-Effectiveness Meets the Rule of Rescue, 265 JAMA 2218 (1991)Google Scholar; W. John, Thomas, The Oregon Medicaid Proposal: Ethical Paralysis, Tragic Democracy, and the Fate of a Utilitarian Health Care Program, 72 OR. L. Rev. 47 (1993)Google Scholar.

40 Cf Furrow, Barry R., The Ethics of Cost-Containment: Bureaucratic Medicine and the Doctor as Patient-Advocate, 3 Notre Dame J.L. Ethics & Pub. Pol'y 187 (1988)Google Scholar; Hirshfeld, supra note 33. See generally David Mechanic, From Advocacy to Allocation: The Evolving American Health Care System (1986).

41 Physicians are directly or indirectly responsible for between 60 and 80 percent of national health care expenditures. See Morreim, supra note 33, at 1723-24. In today's largely fee-for-service environment, it has been estimated that every physician entering practice increases total health care spending by $ 300,000 to $500,000 annually. Josiah Macy, JR. Foundation, 1992 Josiah Macy, JR. Foundation: Annual Report 15 (1992).

42 Robert, Rubin & D., Mendelsohn, Estimating The Costs of Defensive Medicine (Lewin-VHI, Inc.) (Oct. 21, 1992); see also Reynolds, Roger A. et al., The Cost of Medical Professional Liability, 257 JAMA 2776 (1987)Google Scholar.

43 There may also be other ways to assure equity in the health care system, especially if national legislation succeeds in creating universal entitlement and a mechanism to police it. A process for monitoring quality might include standards for participating health plans, disclosure requirements and grievance procedures. See infra notes 115-20 and accompanying text.

44 If this had a significant impact on total health care costs, it might force us to consider, through the legal system, how we as a society respond to cost-benefit decisions affecting health. See supra notes 15, 33. In addition, more centralized allocation mechanisms that might help insulate healdi plans from liability, such as government-sponsored technology assessment and clinical practice guidelines would, be likely to take on increased importance. See ME. REV. STAT. ANN. tit. 24, §§ 2971-2978 (West Supp. 1991) (compliance with practice guidelines as defense to malpractice action).

45 Some front-line physicians also feel ethically obligated to society to practice cost-effectively. The current threat of individual malpractice liability may force these practitioners to assume an unacceptably narrow professional role. See Eddy, David M., Broadening the Responsibilities of Practitioners: The Team Approach, 269 JAMA 1849 (1993)Google Scholar.

46 This article generally follows the Clinton health care reform proposal in using the term “health plan” to denote the entity that receives a capitated annual premium and is responsible for organizing, managing and financing the delivery of health care. See Health Security Act, supra note 3, § 1400. Some health plans are descended from tightly integrated HMOs and prepaid group practices. Others have evolved from indemnity insurers because health care delivery was too costly to allow third-party payment to remain unmanaged. As a consequence of their varied history, skills and incentives, health plans have enjoyed uneven success. See generally Berenson, Robert A., A Physician's View of Managed Care, Health Aff. 106Google Scholar, Winter 1991, at 106 (commentary describing managed care systems from a physician's perspective and contrasting regulatory and managed care approaches). Fee-for-service “health plans” that do not manage care are considered separately in this article. See infra notes 134-39 and accompanying text.

47 See infra note 64 and accompanying text.

48 Health Security Act, supra note 3, §§ 1400-1442.

49 Accountability is particularly important because health plans will be making implicit allocation decisions. David, Mechanic, Professional Judgment and the Rationing of Medical Care, 140 U. PA. L. Rev. 1713, 1746-52 (1992)Google Scholar.

50 See Health Security Act, supra note 3, §§ 1402-1403; see also H.R. 3222, 103d Cong., 1st Sess., §§ 1204-1205 (1993); S. 1770, 103d Cong., 1st Sess., §§ 1111-1112, 1116 (1993). Several states have already enacted significant insurance reforms. E.g., A.B. 1672, 1992 Cal.

51 Under most health care reform proposals, consumers would be able to switch health plans during annual enrollment periods. In addition, consumers would be permitted to disenroll for cause; for example, victims of malpractice might choose to find more competent or careful providers. See, e.g., Health Security Act, supra note 3, § 1323(d). In these situations, some financial incentive might be required to ensure that health plans that have committed malpractice would remain responsible for the cost of continuing medical care. See infra note 127 and accompanying text.

52 Some future medical expenses, notably long-term care, would not be fully covered under the Clinton plan because of the high cost of such a comprehensive entitlement. Health Security Act, supra note 3, § 2001. However, a consensus has emerged to cover such expenses eventually. See id. § 2601 (demonstration project to integrate acute and long-term care).

53 According to data from the Harvard Medical Practice Study, medical injuries in the study population resulted in a total economic cost (insured and uninsured) of $3.8 billion, including $1.95 billion in lost wages and household production, and $1.85 billion in medical care expenditures. Harvard Medical Practice Study, supra note 4, at 8; see also Johnson, William G. et al., The Economic Consequences of Medical Injuries: Implications for a No-Fault Insurance Plan, 267 JAMA 2487, 2489-91 (1992)Google Scholar. Other commentators have reached similar conclusions. See, e.g., Macdonald, Michael G. et al., Health Care Law: A Practical Guide § 14.06[5] (1993)Google Scholar (future medical expenses approximately two-thirds of damages) (“pain and suffering” approaches 50% of damage awards).

54 See supra notes 32-34 and accompanying text. This incentive will exist despite the availability of malpractice insurance. Like hospitals but unlike individual physicians, health plans will purchase commercial malpractice insurance on an experience-rated basis or will self-insure.

55 See Ali Report, supra note 7, at 114; Abraham, Kenneth S. et al., Enterprise Responsibility for Personal Injury: Further Reflections, 30 San Diego L. Rev. 333, 355-58 (1993)Google Scholar; Weiler, Paul C., The Case For No-Fault Medical Liability, 52 MD. L. Rev. 908, 941-42 (1992)Google Scholar.

56 See Macdonald et al., supra note 53, § 12.02[2].

57 See Joint Commission on Accreditation of Healthcare Organizations, Accreditation Manual for Hospitals 44 (1993) [hereinafter JCAHO Manual].

58 Id. at 62-73.

59 For a detailed discussion of the evolving health care industry, see Standard & Poor's Creditweek: Special Edition, Health Care Reform, Sept. 27, 1993.

60 See supra notes 32-34 and accompanying text.

61 See Weiner, Jonathan P. & Gregory de Lissovoy, Razing a Tower of Babel: A Taxonomy for Managed Care and Health Insurance Plans, 18 J. Health Pol. Pol'y & L. 75, 80–86 (1993)Google Scholar.

62 Presentation of Thomas E. Kirchmeier to the American Society of Healthcare Risk Management, Chicago, IL, October 25, 1993.

63 Before the emergence of contract-based provider networks, transaction costs such as the expense of identifying and negotiating with unknown unaffiliated parties or of implementing special payment transfer schemes hampered the success of “channeling” programs and other institutional forms of malpractice accountability. See infra notes 101-03. In addition, private contracting among sophisticated providers with respect to responsibility for malpractice does not raise the concerns about fairness that often impede the development of contractual agreements for dispute resolution, such as binding arbitration, between providers and potentially vulnerable patients. See infra note 105.

64 Current managed care contracts frequently involve the assumption of some degree of financial risk for overutilization. See Hall, supra note 20, at 480-504. Cf. Capron, Alexander M., Containing Health Care Costs: Ethical and Legal Implications of Changes in the Methods of Paying Physicians, 36 Case W. Res. L. Rev. 708, 725-28, 748-50 (1986)Google Scholar. But see 42 U.S.C.A. § 1320a-7a(b) (1988) (prohibiting payments made to induce reduction of services).

65 In such an arrangement, physicians who are employed by an institution, such as interns and residents, would be automatically covered by the terms of the contract between the institution and the plan. Other affiliated practitioners might reach agreement with the institution with respect to coverage.

66 Health Security Act, supra note 3, §§ 1300, 1321, 1400.

67 See infra notes 115-20 and accompanying text.

68 See infra notes 97-100 and accompanying text.

69 Estimates of the cost of defensive medicine have varied. See supra note 42.

70 For example, involving doctors in quality improvement programs has been difficult. Once involved, however, doctors make major contributions. Berwick et al., supra note 1, at 151-53.

71 See supra notes 50-54 and accompanying text.

72 Allegations of malpractice also impose tremendous burdens on defendant physicians. In addition to high premiums, time and hassle in litigation and financial exposure, physicians suffer considerably from the reputational effects of a malpractice suit. See, e.g., Arnold, Relman, Medical Professional Liability and the Relations Between Doctors and Their Patients, in 2 Medical Professional Liability and the Delivery of Obstetrical Care 97 (Rostow, Victoria P. & Bulger, Roger J. eds., 1989)Google Scholar. The unpredictability with which results of litigation are reported to the National Practitioner Data Bank, lack of control over settlements by insurance carriers and uncertainty over the use of reported information add to physicians’ anxiety. Under enterprise liability, physicians might give evidence in malpractice actions against health plans but would not stand as defendants, and many cases should be resolved by less adversarial means. See infra notes 117-20 and accompanying text. Plan-based peer review activities that may become reportable to the NPDB should also prove to be more open and reliable than settlements by insurance carriers. See infra notes 125-126 and accompanying text.

73 See, e.g., Jonathan, Lomas, Do Practice Guidelines Guide Practice? The Effect of a Consensus Statement on the Practice of Physicians, 321 New Eng. J. Med. 1306, 1310 (1989)Google Scholar (suggesting that the perceived threat of malpractice litigation prevents physicians from adopting clinically sound practice guidelines).

74 Berwick, Donald M., Continuous Improvement as an Ideal in Health Care, 320 New Eng. J. Med. 53 (1989)Google Scholar; Berwick, Donald M. et al., Quality Management in the NHS; The Doctor's Role — I, 304 Brit. Med. J. 235 (1992)Google Scholar Glenn, Laffel & Berwick, Donald M., Quality in Health Care, 268 JAMA 407 (1992)Google Scholar; Melum, Mara M. & Sinoris, Marie E., Total Quality Management in Health Care: Taking Stock, 1 Quality MCMT. Health Care 59 (Summer 1993)Google Scholar. TQM is even making headway in England. Berwick et al., supra note 20.

75 Lindgren, Orley H. et al., Medical Malpractice Risk Management Early Warning Systems, Law & Contemp. Probs., Spring 1991, at 23CrossRefGoogle Scholar; Morlock, Laura L. & Malitz, Faye E., Do Hospital Risk Management Programs Make a Difference?: Relationships Between Risk Management Program Activities and Hospital Malpractice Claims Experience, Law & Contemp. Probs., Spring 1991, at 1, 6-7CrossRefGoogle Scholar.

76 Flood, Ann B. & W., Richard Scott, Hospital Structure and Performance 227-77 (1987)Google Scholar; see also Sang-O, Rhee, Relative Importance of Physician's Personal and Situational Characteristics for the Quality of Patient Care, 18 J. Health Soc. Behav. 10 (1977)Google Scholar (degree of hospital control over practice is direcdy associated with quality).

77 See Kibbe, David C. & Scoville, Richard P., Computer Software for Health Care CQI, 1 Quality Mgmt. Health Care 59 (Summer 1993)Google Scholar; McPhee, Stephen J. et al., Promoting Cancer Prevention Activities by Primary Care Physicians, 266 JAMA 538 (1991)Google Scholar (computerized reminder systems improved cancer prevention by community-based physicians).

78 Eichhorn, John H. et al., Standards for Patient Monitoring During Anesthesia at Harvard Medical School, 256 JAMA 1017, 1017 (1986)Google Scholar.

79 Kirchmeier, supra note 62.

80 Hospital-based risk managers do this in the current system. An additional advantage of unitary liability is that misunderstandings resulting from lack of coordination can be prevented; for example, a large hospital bill being sent to a patient who has received poor care and is considering suing his physician.

81 Some errors not related to performance, such as failure to screen for certain cancers or to monitor fetal distress, should be amenable to practice guidelines at an institutional or governmental level.

82 See Physician Insurers Association of America, Medication Error Study 5 (1993).

83 Id. at 19, 24.

84 An analogy is “human error” by an airplane pilot, which is less likely to result from a highly technical judgment than from fatigue or distraction.

85 See Hall, supra note 20, at 518.

86 Enterprise liability would have important consequences for malpractice reporting mechanisms such as the NPDB. See infra notes 125-26 and accompanying text.

87 See, e.g., Health Security Act, supra note 3, §§ 1404, 1410-1413, 5000-5013.

88 See W., Page Keeton et al., Prosser & Keeton on the Law of Torts, § 32, at 189-92 (5th ed. 1984).Google Scholar

89 See Truhe, Joseph V., Jr., Quality Assessment in the ‘90s: Legal Implications for Hospitals, 26 J. Health & Hosp. L. 171, 176-77 (1993)Google Scholar. As a practical matter, integrating responsibility for obtaining informed consent with general disclosure of information by health plans to subscribers is much simpler than requiring physicians to disclose to patients on a case-by-case basis the specific economic pressures to which they may be subject.

90 See Edward, Felsenthal, Medical Plans Take on Greater Liability, Wall ST. J., Oct. 18, 1993, at B8.Google Scholar

91 Strict liability by manufacturers for defective products is arguably the most important example of the corporatization of responsibility for personal injury, and shares with medical malpractice a blend of tort and contract law concepts. However, readers should be careful not to confuse enterprise liability for medical malpractice with “enterprise liability” as used in some product liability cases to denote “marketshare” liability. See, e.g., Sindell v. Abbott Labs., 607 P.2d 924 (Cal.), cert, denied, 449 U.S. 912 (1980); Priest, George L., The Invention of Enterprise Liability: A Critical History of the Intellectual Foundations of Modem Tort Law, 14 J. Legal Stud. 461 (1985)Google Scholar.

92 See Hirshfeld, supra note 33, at 1816-17 n.18.

93 In these tightly integrated enterprises, liability for the acts of employed physicians combines with other strong financial and organizational incentives to assure that care delivered is safe and effective. See Reuter, Stewart R., Toward a More Realistic and Consistent Use of Respondeat Superior in the Hospital, 29 ST. Louis U. L.J. 601 (1985)Google Scholar; Woodward, Henry L., Note, Borrowed Servants and the Theory of Enterprise Liability, 76 Yale LJ. 807 (1967)Google Scholar. At least one case has extended the liability of a staff-model HMO to unaffiliated “consulting physicians” selected by the HMO staff. Schleier v. Kaiser Found. Health Plan of the Mid-Atlantic States, 876 F.2d 174 (D.C. Cir. 1989). But see Mitts v. HIP of Greater New York, 478 N.Y.S.2d 911 (1984) (summary judgment upheld in favor of a staff model HMO on the grounds that it “does not treat or render medical services or care“).

94 See, e.g., Darling v. Charleston Community Memorial Hosp., 211 N.E.2d 253 (111. 1965).

95 See, e.g., Grewe v. Mt. Clemens Gen. Hosp., 273 N.W.2d 429 (Mich. 1978); Kashishian v. Port, 481 N.W.2d 277 (Wis. 1992).

96 See, e.g., Decker v. Saini, No. 88-361768NH, 1991 WL 277590 (Mich. Cir. Ct. Sept. 17, 1991) (closed panel nature of HMO was sufficient to establish agency); Dunn v. Praiss, 606 A.2d 862 (N.J. Super. Ct. 1992); Boyd v. Albert Einstein Medical Ctr., 547 A.2d 1229 (Pa. Super. Ct. 1988) (advertisements by HMO claiming that its physicians were competent established agency for a negligent breast biopsy); see also Mc-Clellan v. Health Maintenance Org. of Pa., 604 A.2d 1053 (Pa. Super. Ct. 1992).

97 See Johnd., Blum, An Analysis of Legal Liability in Health Care Utilization Review and Case Management, 26 Hous. L. Rev. 191 (1989).Google Scholar

98 239 Cal. Rptr. 810 (1986) (dictum).

99 Id. at 819.

100 271 Cal. Rptr. 876 (1990).

101 As of 1987, t h e Harvard program had enrolled 4,200 independent physicians and the FOJP covered 1,200 independent physicians. See Ann P. Wood, Channeling: Medical Liability Insurance Concept Being Widely Discussed By Hospitals, Pediatric News, Jan. 1987, at 10. See also Report of the New York State Insurance Department on Medical Malpractice: A Balanced Prescription for Change 18 (1988); Steves, Myron F., Jr., A Proposal to Improve the Cost to Benefit Relationships in the Medical Professional Liability Insurance System, 1975 Duke L.J. 1305, 1324-31 (1975)Google Scholar.

102 See Channeling: What's in it for Doctors and Hospitals?, Med. Staff News, Mar. 1986, at 5; Holzer, James F., Channeling Programs Aid MD-Hospital Cooperation, HOSPITALS, Apr. 5, 1987, at 92Google Scholar; Robert, Markowitz & Barbara, Challan, Confronting the Medical Malpractice Crisis: A View From the Bridge, Healthcare Executive, Jan./Feb. 1986, at 38.Google Scholar

103 This is also the principal difficulty with Weiler and Abraham's proposal to “assign” physicians to hospitals for the purpose of liability. See Abraham & Weiler, supra note 21, at 3-6; Weiner & de Lissovoy, supra note 61.

104 28 U.S.C. §§ 2671-2680 (Federal Tort Claims Act, especially § 2676 relating to exclusiveness of remedy); 28 C.F.R. § 543 (1993) (Bureau of Prisons)); 32 C.F.R. § 61 (1993) (malpractice claims against military and civilian personnel of the armed forces); 38 C.F.R. § 14.514 (1993); 38 C.F.R. § 14.610 (1993) (suits against Department of Veterans Affairs employees based upon medical care and treatment).

105 See, e.g., Madden v. Kaiser Found. Hosps., 552 P.2d 1178 (Ct. 1976) (upholding Kaiser's binding arbitration requirement). But see Kaiser Found. Hosps. v. Coburn, 19 Cal. App. 4th 513 (1993) (vacating arbitration award for failure to disclose possible bias of arbitrator).

106 See ALI REPORT, supra note 7. The concept was subsequently described in greater detail. See Paul C. Weiler, Medical Malpractice on Trial 122-32 (1991); Abraham et al., supra note 55, at 355-58; Weiler, supra note 55, at 941-42; Report Of The National Leadership Coalition For Health Care REFORM 26-27 (1991); Paul C. Weiler & Troyen A. Brennan, Medical Malpractice: Background Paper Prepared for the Pepper Commission (Feb. 1990) (on file with author); Abraham et al., supra note 55. Other commentators have described similar approaches. See, e.g., Furrow, Barry R., Medical Malpractice and Cost Containment: Tightening the Screws, 36 CASE W. Res. L. Rev. 985, 1030-32 (1986)Google Scholar; Morreim, supra note 33, at 1746-50.

107 ALI Report, supra note 7, at 111-26. The system proposed by Weiler, Abraham and others attempted to put hospitals in a position to manage more effectively their own liability risks while relieving individual practitioners from the burdens of the current medical liability system. Weiler postulated that hospitals, as complex and stable entities, would be better able to purchase insurance (or to self-insure) and would be able to spread and manage risk within their organization more successfully than individual physicians. The result would be to increase system efficiencies (fewer defendants and attorneys, lower insurance administration costs) without reducing individual rights to recover damages. Weiler also described the incentives that a shift of medical injury liability from individual to institution creates for reducing the numbers of medically caused adverse events. Id.; see also Weiler et al., supra note 6, at 2355.

108 See supra notes 4-6 and accompanying text.

109 See A. Mitchell Polinsky, supra note 30, at 11-14; Coase, Ronald H., The Problem of Social Cost, 3 J.L. & Econ. 1, 15 (1960)Google Scholar. “Transaction costs” include the expenses of communication and coordination that result when several parties attempt to act collectively.

110 See Harvard Medical Practice Study, supra note 3; see generally Danzon, supra note 8.

111 For example, poor patients are less likely than others to sue in cases of negligence. See Burstin, Helen R. et al., Do the Poor Sue Morel A Case-Control Study of Malpractice Claims and Socioeconomic Status, 270 JAMA 1697, 1700 (1993)Google Scholar.

112 About 25% of malpractice claims involve two or more defendants. United States General Accounting Office, Medical Malpractice: Characteristics Of Claims Closed In 1984, Pub. No. GAO/HRD-87-55, at 26 (1987).

113 As a result, the expense of litigation can be considerable. In 1984, insurers spent an average of $10,985 to investigate and defend each claim closed. Id. at 20.

114 Much as universal coverage and purchasing arrangements through health alliances should reduce small-group inefficiencies in the health insurance market by pooling risk, enterprise liability should improve the market for malpractice coverage. At present, individual practitioners in high-risk areas may face substantial increases in premiums as the result of a single large claim in their region and specialty. One of the most troubling effects of high premiums is the reduction in patient access to services such as obstetrical care. See, e.g., Dana Hughes et al., Obstetrical Care for Low-Income Women: The Effects of Medical Malpractice on Community Health Centers, in Medical Professional Liability and the Delivery of Obstetrical Care 59 (Victoria P. Rostow & Roger J. Bulger eds., 1989). Enterprise liability should diversify the risks associated with these practitioners by aggregating them with other providers across the full range of care defined by the national health care benefit package.

115 see, e.g., Health Security Act, supra note 3, §§ 1321, 1325, 1326, 1404, 1405, 1408, 5202.

116 Id. §§1405, 5201-5243.

117 Id. §5302.

118 Possible methods of ADR include arbitration, mediation or early offers of settlement. There is a sizeable literature on ADR in medical malpractice. See, e.g., Danzon, supra note 8, at 202-04 (1985); Metzloff, Thomas B., Alternative Dispute Resolution Strategies in Medical Malpractice, 9 Alaska L. Rev. 429 (1993)Google Scholar]; Sloan, Frank A. et. al., Effects of Tort Reform on the Value of Closed Medical Malpractice Claims: A Microanalysis, 14 J. Health Pol. Pol'y & L. 663, 677 (1989)Google Scholar; see also Corbett, Richard B. & Leap, Terry L., Medical Malpractice Arbitration, 29 Med. Group Mgmt. 4 (1982)Google Scholar; Clark C. Havighurst & Thomas B. Metzloff, Commentary: S. 1232 — A Late Entry in the Race for Malpractice Reform, Law & Contemp. Probs., Spring 1991, at 179, 184-85; Medical Malpractice: Lessons for Reform, Law & Contemp. Probs., Winter/Spring 1991 (Randall R. Bovbjerg & Thomas B. Metzloff eds.).

119 Plans may also develop more far-reaching compensation mechanisms if, in their experience, such mechanisms result in increased patient satisfaction and lower overall liability costs. These might include accelerated compensation for certain injuries or no-fault compensation systems. It is important to remember that, regardless of enterprise liability, health plans will in effect be liable for the cost of future medical care on a no-fault basis to the extent that such care is part of the mandated benefit package. Compensat ing the other components of damages on a no-fault basis may ultimately be more efficient for plans than attempting to distinguish “bad acting” from a “bad outcome” through judicial or other means. See Weiler, supra note 106; see also Tancredi, Laurence R. & Bovbjerg, Randall R., Rethinking Responsibility for Patient Injury: Accelerated-Compensation Events, A Malpractice and Quality Reform Ripe for a Test, Law & Contemp. Probs., Spring 1991, at 147Google Scholar; Tancredi, Laurence R. & Bovbjerg, Randall R., Creating Outcomes-based Systems for Quality and Malpractice Reform: Methodology of Accelerated Compensation Events (ACEs), 70 Milbank Q. 183 (1992)Google Scholar.

120 See Morreim, supra note 33, at 1752-56; see also supra, note 105.

121 See supra notes 17-21 and accompanying text.

122 See, e.g., Health Care Reform: Hearings Before the Subcomm. on Health of the House Comm. on Ways and Means, H.R. Subcomm. on Health, Comm. on Ways and Means, 103d Cong., 1st Sess., 58-59 (1993) (statement of Richard F. Corlin, American Medical Association).

123 Note, The Ostensible Agency Doctrine: In Search of the Deep Pocketl, 57 U.M.K.C. L. REV. 917 (1989). Of course, to the extent that legitimate claims are brought against institutions that would not have been brought against individuals, the system will have been improved.

124 See Bovbjerg, Randall R. et al., Valuing Life and Limb in Tort: Scheduling “Pain and Suffering”, 83 Nw. U. L. Rev. 908 (1989)Google Scholar.

125 The NPDB was established by the Health Care Quality Improvement Act of 1986. Publ. L. No. 99-660, 100 Stat. 3784-92 (codified at 42 U.S.C. §§ 11101-11152) (1988)). Unfortunately, these efforts have not proved successful, in part because the accuracy of reports has been difficult to ensure and because provider institutions have lacked incentives to investigate credentials thoroughly.

126 To the extent that the misdeeds of enterprises rather than individuals become reportable to the NPDB or its successor, public access would be desirable, and might become part of mandatory disclosure by health plans. An institutional reporting process would likely be spared the controversy that has surrounded individual reporting. For example, because of the randomness and error associated with individual reports, the AMA has changed its position on the NPDB and now advocates dissolving it. AMA Board of Trustees, Resolution of June 15, 1993.

127 For example, the Health Security Act requires annual open enrollment periods. See supra note 51.

128 See supra notes 46-67 and accompanying text.

129 See supra note 59.

130 The Health Security Act requires all health plans to offer an out-of-network option. Health Security Act, supra note 3, § 1402.

131 A variety of existing laws and accreditation standards require hospitals to treat patients who require immediate attention. See, e.g., Pub. L. No. 99-272, § 9121, 100 Stat. 82, 164 (1986) (codified as amended at 42 U.S.C.A. §§ 1395cc-dd (West Supp. 1992)) (federal “anti-dumping” law); Jcaho Manual, supra note 57, at 31, 33. The Health Security Act requires all health plans to offer emergency services regardless of the patient's affiliation. Health Security Act, supra note 3, § 1406.

132 At present, the most successful health plans are often those that offer an out-of-network option, but provide in-network services of sufficient quality so that patients seldom elect higher cost, out-of-network care. If health plans can “free ride” on the malpractice liability of out-of-network providers, the cost pressures for internal quality improvement will be reduced.

133 Joint and several liability would be most effective if all physicians seeing out-of-network patients were required to maintain adequate malpractice insurance. This would prevent health plans from always serving as the “deep pocket” in malpractice claims, and would provide a clear financial incentive for physicians to affiliate with health plans and thereby save the cost of individual coverage. Hospitals in most states currently require the physicians on their medical staffs to have adequate insurance. See Macdonald et al., supra note 53, § 13.06[2].

134 Another potential problem is the indiscriminate manner in which physicians in certain states, notably California, have entered into managed care contracts with health plans. Physicians with a multiplicity of affiliations would be less likely to develop allegiances to particular health plans as a result of enterprise liability, and would remain subject to confusing and potentially contradictory quality control procedures. However, it appears that the obvious inefficiency of this practice is inducing the contracting process to become more selective and leading providers to consolidate their existing affiliations. The adoption of enterprise liability might accelerate this trend by promoting physician loyalty and forcing health plans to adopt more careful contracting criteria.

135 The Health Security Act requires each health alliance to offer at least one fee-for-service plan. Health Security Act, supra note 3, § 1322.

136 See Health Security Act, supra note 3, §§ 1221-1224.

137 One concept underlying enterprise liability — that the cost of patient injury should be included in the overall costs of the health care system — would remain applicable even in non-competitive settings. If comprehensive health care reform is enacted, all state and regional health care delivery systems may become subject to national budget constraints. See Health Security Act, supra note 3, §§ 6001-6041. The effect of malpractice litigation on a state's or health plan's ability to meet its budget would therefore be clearly visible, rather than being perceived as a political battle between doctors and trial lawyers that has relatively little to do with care delivery. If the costs imposed by medical malpractice litigation proved to be disproportionate to the benefits received by injured patients, states might be more likely to enact additional reforms quickly.

138 This might be acceptable in the case of physicians treating patients for conditions not within a national benefit package, such as cosmetic surgery. It might also be acceptable for physicians with a small number of fee-for-service patients, either because the incremental cost would not be high or because it would induce them to join health plans and thereby improve overall system efficiency. However, there are approximately 32 million total Medicare beneficiaries, about 30 million of whom receive health care from providers in fee-for-service arrangements. If physicians remained individually liable in Medicare or other fee-for-service arrangements serving large populations, much of the savings in psychic harm and insurance purchasing created by enterprise liability might not be realized. This would probably be the case despite the fact that Medicare beneficiaries tend to sue less often and that those who do tend to receive smaller, more predictable damage awards. See Beebe, James C., An Outlier Pool for Medicare HMO Payments, Health Care Fin. Rev., Fall 1992, at 31Google Scholar; Levit, Katherine R. et al., Americans’ Health Insurance Coverage-1980-1991, Health Care Fin. Rev., Fall 1992, at 31Google Scholar.

139 See Weiler et al., supra note 6, at 2356-57.

140 See Keeton et al., supra note 88, at 33-47.

141 Physicians engaging in reckless or intentional harm would also remain subject to criminal prosecution, if appropriate, because (politics aside) public enforcement carries minimal risk of strategic behavior.

142 See Restatement (Second) of Torts § 402A cmt. j (1964); Keeton, William P., Products Liability — Drugs and Cosmetics, 25 Vand. L. Rev. 131, 137-39 (1972)Google Scholar.

143 Enterprise liability would make the most sense if health plans acted as bulk purchasers of medical products for their affiliated providers and were sophisticated enough to evaluate the risks associated with those products. Plans would therefore be able to negotiate with manufacturers to obtain prices that reflected the new apportionment of liability risk and still created adequate incentives for manufacturers to improve product safety. See Sage, William M., Drug Product Liability and Health Care Delivery Systems, 40 Stan. L. Rev. 989, 993 (1988)Google Scholar.

144 Robert, Pear, Clinton Advisers Outline Big Shift For Malpractice, N.Y. TIMES, May 21, 1993, at AlGoogle Scholar.

145 Id

146 Enterprise liability also triggered strong opposition from physician-owned malpractice insurance companies. If physicians affiliated with health plans were able to forgo personal liability insurance, many of these companies would be forced into other lines of business. Some have speculated that the close financial and professional ties between physician-owned insurance companies and state medical societies influenced the position taken on enterprise liability by the American Medical Association and its constituent organizations. David, Rogers, Initial Clinton Medical Malpractice Reform Plan Pulled After Resistance by Entrenched Interests, Wall ST. J., June 15, 1993, at A18.Google Scholar

147 See E., Haavi Morreim, Economic Disclosure and Economic Advocacy: New Duties in the Medical Standard of Care, 12 J. Legal Med. 275, 289-95 (1991)Google Scholar.

148 See David, Mechanic, Professional Judgment and the Rationing of Medical Care, 140 U. PA. L. Rev. 1713 (1992)Google Scholar (recognizing the need for a blend of rationing approaches).

149 The Canadian system controls costs through a combination of price regulation and rationing. Ironically, because the Canadian system does not reduce inefficient utilization except through a certificate of need process (in fact, it promotes it), it may require less restructuring of the health care delivery system and therefore less intrusion on individual medical practice than a competitive approach. See Evans, Robert G. et al., Controlling Health Expenditures — The Canadian Reality, 320 New Eng. J. Med. 571, 574-76 (1989)Google Scholar.