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Vicarious Liability: Relocating Responsibility For The Quality Of Medical Care

Published online by Cambridge University Press:  24 February 2021

Clark C. Havighurst
Clark C. Havighurst*
Affiliation:
Duke University
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Extract

Managed health care has recently generated a great deal of distrust, even anger, in the public mind. To be sure, much of this public reaction is based on anecdotal evidence and one-dimensional thinking. But many unbiased experts observing managed care today are themselves unhappy with the health care industry's performance. While these observers find little justification for the current political backlash against managed care, they are also disappointed that today's health plans have not made a more positive difference. Indeed, informed observers commonly regret that the new arrangements for the financing and delivery of care have done so little to get physicians to adopt truly efficient practices, achieving not only cost reductions but also substantial improvements in health status and patient outcomes— that is, in the quality of care. Although managed care has not demonstrably harmed the overall quality of health care in the United States, it has done little to improve it.

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Articles
Information
American Journal of Law & Medicine , Volume 26 , Issue 1 , 2000 , pp. 7 - 29
Copyright
Copyright © American Society of Law, Medicine and Ethics and Boston University 2000

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References

1 Most criticisms of managed care overstate the case against it by failing to account for the substantial cost savings managed care has achieved, and by using the unlimited entitlements that consumers came to take for granted in the era of unconstrained fee-for-service medicine as a benchmark. See, e.g., ANDERS, GEORGE, HEALTH AGAINST WEALTH: HMOS AND THE BREAKDOWN OF MEDICAL TRUST 13-15, 22 (1996)Google Scholar(one-sided journalistic attack on health maintenance organizations (HMOs), alleging defects in HMO systems with occasional adverse consequences).

2 See ZELMAN, WALTER A. & BERENSON, ROBERT A., THE MANAGED CARE BLUES AND HOW TO CURE THEM 102-18 (1998)Google Scholar; Robert A. Berenson, Beyond Competition, HEALTH AFF., Mar.-Apr. 1997, at 171, 171-72; Bovbjerg, Randall R. & Miller, Robert H., Managed Care and Medical Injury: Let's Not Throw the Baby Out with the Backlash, 24 J. HEALTH POL., POL'Y & L. 1145 (1999)Google Scholar; Gabel, Jon, Ten Ways HMOs Have Changed During the 1990s, HEALTH AFF., May-June 1997, at 134, 143-44Google Scholar.

3 See Dudley, R. Adams et al., The Impact of Financial Incentives on Quality of Care, 76 MILBANK Q. 649, 673 (1998)Google Scholar (finding “little evidence of any consistent difference in clinical quality between [fee-for-service] and [HMOs]“); Miller, Robert H. & Luft, Harold S., Does Managed Care Lead to Better or Worse Quality of Care?, HEALTH AFF., Sept.-Oct. 1997, at 7, 13-14Google Scholar, 20-22.

4 Even though managed care plans already take more of their cues from legal prescriptions than from prospective customers seeking good value for their money, the political outcry against them suggests that the public still deems them insufficiently accountable for the quality and quantity of care that patients receive. The recent flare-up of populist zeal is rapidly adding new regulatory prescriptions to the already lengthy list of rules with which plans must comply. See Noble, Alice A. & Brennan, Troyen A., The Stages of Managed Care Regulation: Developing Better Rules, 24 J. HEALTH POL., POL'Y & L. 1275 (1999)Google Scholar; Rodwin, Marc A., Consumer Protection and Managed Care: Issues, Reform Proposals, and Trade-Offs, 32 HOUSTON L. REV. 1319, 1359-74 (1996)Google Scholar. See generally Miller, Tracy E., Managed Care Regulation: In the Laboratory of the States, 278 JAMA 1102 (1997)Google Scholar (examining significant state regulation of managed care between 1995 and 1996). On regulatory proposals at the federal level, see generally JOHN S. HOFF, THE PATIENTS’ BILL OF RIGHTS: A PRESCRIPTION FOR MASSIVE FEDERAL HEALTH REGULATION (Heritage Found. Backgrounder No. 1350, Feb. 29, 2000) (partisan description and critique of pending legislation); Bruni, Frank, Curbs on Managed Care Still Divide Parties, N.Y. TIMES, Mar. 17, 1999, at A18Google Scholar; Moran, Donald W., Federal Regulation of Managed Care: An Impulse in Search of a Theory?, HEALTH AFF., Nov.-Dec. 1997, at 7, 19-20Google Scholar.

5 The current political firestorm is threatening in particular to consume certain federal statutory protections that health plans currently enjoy against certain kinds of state regulation and against personal injury lawsuits alleging mistakes by plans in enforcing coverage limits in their contracts with subscribers. See generally HOFF, supra note 4; Mariner, Wendy K., State Regulation of Managed Care and the Employee Retirement Income Security Act, 335 NEW ENG. J. MED. 1986 (1996)Google Scholar (discussing the stifling effects of the Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. No. 93-406, 88 Stat. 829 (codified as amended in scattered sections of 26 U.S.C. and 29 U.S.C.) on state regulation of managed care).

6 As explained later, the proposed legislation would bar a health plan or a subcontractor from restoring the traditional, arguably dysfunctional pattern, by shifting the liability risk all the way back down to individual physicians or small physician groups. See infra Part IV. Room would be left, however, for consumers to elect pure indemnity coverage with unlimited choice of provider or a plan with a point-of-service option—in which cases a patient injured by provider negligence would look for compensation only to the provider he selected.

7 See generally Robinson, James C., The Future of Managed Care Organization, HEALTH AFF., Mar.-Apr. 1999, at 7Google Scholar (overview of trends in health care organizations).

8 See Sage, William M., Enterprise Liability and the Emerging Managed Health Care System, LAW & CONTEMP. PROBS., Spring 1997, at 159, 162-66Google Scholar (describing how the term “enterprise liability” was used by the Clinton administration's health reform task force in floating a version of vicarious liability in 1993). For other endorsements of “enterprise liability,” see Sage, William M. et al., Enterprise Liability for Medical Malpractice and Health Care Quality Improvement, 20 AM. J.L. & MED. 1, 1-2 (1994)Google Scholar (joining a “chorus of voices that proposes to refocus liability for medical malpractice on the organizations that will increasingly bear practical responsibility for providing health care services“); Studdert, David M. & Brennan, Troyen A., Deterrence in a Divided World: Emerging Problems for Malpractice Law in an Era of Managed Care, 15 BEHAV. SCI. & L. 21, 48 (1997)Google Scholar (concluding that enterprise liability, though “no panacea for achieving sharp deterrence in the malpractice sphere, … [is] capable of correcting some aspects of the incompatibility between malpractice law and new organizational models“). See generally Havighurst, Clark C., Making Health Plans Accountable for the Quality of Care, 31 GA. L. REV. 587, 587-647 (1997)Google Scholar (developing themes elaborated in this article). Reasons for preferring the term “vicarious liability” are discussed infra note 53.

9 See, e.g., HOFF, supra note 4; Mariner, supra note 5, at 1986.

10 For an article with a compelling title that makes this point, see generally Brook, Robert H., Managed Care Is Not the Problem, Quality Is, 278 JAMA 1612 (1997)Google Scholar.

11 See Berenson, Robert A., Beyond Competition, HEALTH AFF., Mar.-Apr. 1997, at 171, 171CrossRefGoogle Scholar (noting that “the logic of managed competition suggests that within each health care market, networks with different and distinct organizational characteristics and internal cultures will form and compete” but that “health care markets have not evolved that way“).

12 See Robinson, supra note 7, at 19 (explaining “the economics of vertical disintegration” and observing, “[t]he administrative, information, and clinical competencies required for an organization that actually delivers health care are quite distinct from those of an organization that develops, markets, and monitors contractual networks.“).

13 See ZELMAN & BERENSON, supra note 2, at 88.

14 See id. at 69-72.

15 Thus, most of today's health plans fill roles similar to those filled by indemnity insurers in the fee-for-service area, acting essentially as third-party financers of care that is decided upon, for the most part, by largely autonomous subcontractors and the physicians they select.

[T]he most recent trends suggest that… managed care plans may wind up watering down their products to such a degree that the potential for real coordination and for cost and quality control may be lost. Today much of managed care—with expanding networks of physicians and groups, easier access to specialists, and in some situations, less intrusive utilization review—is beginning to look and act ominously like the old fee-for-service system, only with lower provider reimbursement rates.

Id. at 12.

16 See id. at 65.

17 See id. at 73.

18 See id. at 81-82.

19 In theory, physician decisions are cabined by the legal duty to adhere to professional standards, creating a presumed accountability that allows health plans to disclaim responsibility for rationing decisions that physicians make. But the tactic of shifting rationing responsibility to physicians may soon not be so readily available, depending on the outcome of a case currently pending in the U.S. Supreme Court. See Hedrick v. Pegram, 145 F. 3d 362 (7th Cir. 1998), reh'g en banc denied, 170 F.3d 683 (7th Cir. 1999) (four judges dissenting), cert, granted, 120 S.Ct. 10 (1999) (raising the question of whether sub rosa rationing by physicians under financial incentives to limit care provided is subject to challenge as a fiduciary breach under ERISA).

20 To be sure, health plans still engage in some explicit rationing of “experimental” treatments. It would seem that they do so, however, only because new technologies are by definition not yet governed by professional standards. See CLARK C. HAVIGHURST, HEALTH CARE CHOICES: PRIVATE CONTRACTS AS INSTRUMENTS OF HEALTH REFORM, 190-200 (1995) (arguing that health plans defer excessively to professional standards rather than developing their own contractual ones and, following this logic, that they should cease distinguishing between experimental and other procedures).

21 See BARRY R. FURROW ET AL., HEALTH LAW § 5-49 (West Hornbook Series 1995) (differentiating between various forms of integrated delivery systems).

22 See U.S. Dep't of Justice & Fed. Trade Comm'n, Statements of Antitrust Enforcement Policy in Health Care 61 (Statement 8: Physician Network Joint Ventures, August 1996) (describing and applying antitrust law to physician efforts to engage in collective bargaining with health plans).

23 See HAVIGHURST, supra note 20, at 118-22; see also Petrovitch v. Share Health Plan, Inc., 719 N.E.2d 756, 762-63 (111. 1999) (quoting provisions in HMO literature). Aetna-U.S. Healthcare HMOs include the following clause in their subscriber contracts: “Participating Physicians maintain the physician-patient relationship with Members and are solely responsible to Members for all Medical Services which are rendered by Participating Physicians.” See Complaint, O'Neil v. Aetna Inc., 2:99CV284 (S.D. Miss. Hattiesburg Div. complaint filed Oct. 7, 1999). Similarly, Aetna's member handbook instructs enrollees to “understand that participating doctors and other health care providers who care for you are not employees of the HMO and that the HMO does not control them.” Id. These provisions, obviously inserted by the HMOs for the purpose of avoiding vicarious liability, have been challenged in recent class-action litigation as a misrepresentation of the actual relationship between Aetna HMOs and their physicians, implying more independence than actually exists. This charge calls attention to how plans are trying to have it both ways, avoiding legal responsibility while seeking to influence physician decisions.

24 Cf. Maio v. Aetna, Inc., No. CIV. A. 99-1969, 1999 WL 800315 (E.D. Pa. Sept. 29, 1999) (defendant health plans successfully defended themselves in class action for fraud by alleging that the “statements concerning th[eir] commitment to quality health care are ‘mere puffery'“).

25 See COMMITTEE ON QUALITY OF HEALTH CARE IN AMERICA, INSTITUTE OF MED., TO ERR IS HUMAN: BUILDING A SAFER HEALTH SYSTEM 33-34 (Linda T. Kohn et al. eds., 1999).

26 See 1 HARVARD MED. PRACTICE STUDY, PATIENTS, DOCTORS, AND LAWYERS: MEDICAL INJURY, MALPRACTICE LITIGATION, AND PATIENT COMPENSATION IN NEW YORK 3, 6-1, 6-9, 11-1 (1990); see also Studdert, David M., et al., Costs of Medical Injuries in Utah and Colorado, 36 INQUIRY 255 (1999)Google Scholar (analyzing iatrogenic injuries in Utah and Colorado hospitals).

27 See WEILER, PAUL C. ET AL., A MEASURE OF MALPRACTICE: MEDICAL INJURY, MALPRACTICE LITIGATION, AND PATIENT COMPENSATION 55 (1993)Google Scholar.

28 See Chassin, Mark R., Is Health Care Ready for Six Sigma Quality?, 76 MILBANK Q. 565, 570-78 (1998)Google Scholar; see also Schuster, Marc A. et al., How Good is the Quality of Health Care in the United States?, 76 MILBANK Q. 517, 517-63 (1998)CrossRefGoogle Scholar.

29 See TROYEN A. BRENNAN & DONALD M. BERWICK, NEW RULES: REGULATION, MARKETS, AND THE QUALITY OF AMERICAN HEALTH CARE 297-333 (1996) (describing techniques of “repair“— the identification of quality failures after the fact, followed by aggressive action to prevent their recurrence—and “culling“—the forceful removal of defective elements from a system).

30 See Leape, Lucian L., Error in Medicine, 23 JAMA 1851, 1852 (1994)Google Scholar (discussing the aviation industry); Chassin, supra note 28, at 567-70 (discussing industrial processes).

31 See Berwick, Donald M., Continuous Quality Improvement as an Ideal in Health Care, 320 NEW ENG. J. MED. 53, 53-56 (1989)Google Scholar; Chassin, supra note 28, at 578-87. See generally BRENNAN & BERWICK, supra note 29, at 297-333; IMPROVING CLINICAL PRACTICE: TOTAL QUALITY MANAGEMENT AND THE PHYSICIAN (David Blumenthal & Ann C. Scheck eds., 1995) (collection of works analyzing various continuous quality improvement and total quality management applications in health care); MICHAEL L. MILLENSON, DEMANDING MEDICAL EXCELLENCE: DOCTORS AND ACCOUNTABILITY IN THE INFORMATION AGE 244-67 (1997) (constructive journalistic appraisal of weaknesses in the implementation of medical knowledge, expressing optimism concerning prospects for improvement); Leape, supra note 30, at 1857 (classic article advocating systematic attention to preventing errors in treatment).

32 “Unsafe care is one of the prices we pay for not having organized systems of care with clear lines of accountability… . Most third party payment systems provide little incentive for a health care organization to improve safety, nor do they recognize and reward safety or quality.” COMMITTEE ON QUALITY OF HEALTH CARE IN AMERICA, supra note 25, at 3.

33 See Dudley et al., supra note 3, at 655-56 (observing that “when quality is hard to measure, there are many ways to increase return on equity by lowering quality,” and that “[i]n situations where consumers or payors are more sensitive to price than quality—[perhaps] because they cannot measure quality … —it may also be possible to increase return on equity without providing high quality“).

34 See, e.g., Mark R. Chassin et al., Benefits and Hazards of Reporting Medical Outcomes Publicly, 334 NEW ENG. J. MED. 394, 395 (1996) (finding that patients did not avoid hospitals or physicians based on New York State's publication of mortality rates for coronary bypass surgery). Despite the fact that health plans did not respond to New York State's publication of mortality rates, (perhaps because of purchasers’ disinterest in quality, lower prices charged by poorer hospitals, or the fact that, unlike many other adverse outcomes, a heart patient's death involves few additional costs to the plan and indeed may actually save it money), the New York disclosures did apparently lead to improved outcomes, perhaps because institutions were concerned about their reputations. See Hannan, Edward L. et al., Improving the Outcomes of Coronary Artery Bypass Surgery in New York State, 271 JAMA 761, 761, 763-65 (1995)Google Scholar.

35 See Shortell, Stephen M. et al., Assessing the Impact of Continuous Quality Improvement on Clinical Practice: What Will It Take to Accelerate Progress, 76 MILBANK Q. 593, 609 (1998)Google Scholar (“Although there are ‘pockets of improvement,’ no evidence has yet emerged of an organization-wide impact on quality.“); Blumenthal, David & Kilo, Charles M., A Report Card on Continuous Quality Improvement, 76 MILBANK Q. 625, 635 (1998)Google Scholar (“There simply are no organization-wide success stories out there… .“); see also Chassin, Mark R., Improving the Quality of Health Care, 335 NEW ENG. J. MED. 1060, 1060-62 (1996)CrossRefGoogle Scholar (observing physician distrust of quality-assurance efforts).

36 See Blumenthal & Kilo, supra note 35, at 635.

37 See id. at 637-38.

38 See Abraham, Kenneth & Weiler, Paul C., Enterprise Medical Liability and the Evolution of the American Health Care System, 108 HARV. L. REV. 381, 417-18 (1994)Google Scholar.

39 See DANZON, PATRICIA, MEDICAL MALPRACTICE: THEORY, EVIDENCE, AND PUBLIC POLICY 5 (1985)Google Scholar.

40 See generally Marsteller, Jill A. et al., The Resurgence of Selective Contracting Restrictions, 22 J. HEALTH POL., POL'Y & L. 1133 (1997)Google Scholar (analyzing state “any willing provider” and “freedom of choice” laws).

41 See infra note 67.

42 See, e.g., Elsesser v. Hospital of Philadelphia College, 802 F. Supp. 1286, 1291 (E.D. Pa. 1992) (recognizing HMO duty triggered by representations of selectivity).

43 It is notable that ERISA would probably not preclude a state legislative initiative or a state court ruling adopting vicarious liability as a matter of common law. See Dukes v. U.S. Healthcare, Inc., 57 F.3d 350, 351-61 (3d Cir. 1995) (allowing a vicarious liability malpractice claim against an HMO for a physician's tort to proceed in state court; holding that ordinary state efforts to police quality were not preempted by ERISA); Pacificare of Oklahoma, Inc. v. Burrage, 59 F.3d 151, 153- 55 (10th Cir. 1995); Hinterlong v. Baldwin, 720 N.E.2d 315 (111. App. 1999).

44 The proposed statute is offered for discussion purposes, and any questions about its drafting should not distract attention from the larger issues.

45 Although the term “health plan” is not defined, it would be defined broadly to include even indemnity insurers and self-insured employers. Because vicarious liability would apply only as a default rule, however, such entities could shift the liability burden routinely to more appropriate risk bearers.

46 Thus, a health plan could, if it seemed efficient, arrange for roughly the allocation of responsibility prominently advocated by Kenneth Abraham and Paul Weiler. See Abraham & Weiler, supra note 38, at 415-20. This allocation would minimize opportunities for plaintiffs to sue both a hospital for its own (or its employees’) alleged negligence and the plan (or its subcontractor) for a physician's alleged malpractice. See id. at 406. One object of the default rule would be to authorize contractual arrangements that save the litigation costs and double exposure associated with lawsuits targeting multiple defendants.

47 See DANZON, supra note 39, at 226 (“rough calculation suggests that if the number of negligent injuries is, generously, 20% lower than it otherwise would be because of the incentives for care created by the malpractice system, the system is worth retaining, despite its costs“); Lawthers, Ann G. et al., Physicians’ Perceptions of the Risk of Being Sued, 17 J. HEALTH POL., POL'Y & L. 463, 473-79 (1992)Google Scholar (finding, through interviews, that physicians made changes in their practices as a result of malpractice litigation pressure; also finding that physicians greatly exaggerate the risk of suit, leading to protective behavior); Schwartz, Gary T., Reality in Economic Analysis of Tort Law: Does Tort Law Really Deter?, 42 UCLA L. REV. 377, 444 (1994)Google Scholar (estimating that the current malpractice system probably justifies its cost). The deterrent effect of the National Practitioner Data Bank (to which malpractice judgments and settlements against individual physicians must be reported and which must be consulted by entities having future dealings with those physicians) need not be lost in a system based on vicarious liability. See 42 U.S.C.A. § 1320a-7e (1999) (establishing the National Practitioner Data Bank).

48 See GUIDO CALABRESI, THE COSTS OF ACCIDENTS: A LEGAL AND ECONOMIC ANALYSIS 135-73 (1970) (recommending a general deterrence approach to accident liability, including assigning liability in such a way as to create incentives to ensure appropriate attention to quality and to target parties who, given transaction costs, are generally in the best position directly or indirectly to control quality and to influence outcomes).

49 See generally Chassin, supra note 35 (discussing the fact that cost-concerned managed care organizations (MCOs) were seeking to improve quality of care delivered by their providers). While MCOs surely bear many of these costs already, vicarious liability would give them not only new reasons to concern themselves with quality but also new legitimacy in demanding that providers make quality improvements.

50 Under old forms of financing, physicians could, at no cost to themselves, seek to avoid the unpleasantness of future malpractice suits by taking special precautions, whether appropriate or inappropriate. Capitation arrangements, however, may make the provider bear the cost of such precautions while not affecting the weak, largely non-financial incentives to take them. Once again, one sees the need to keep quality (that is, patient outcomes) centrally in view in an increasingly costsensitive environment.

51 See Brennan, Troyen A., The Role of Regulation in Quality Improvement, 76 MILBANK Q. 709, 721 (1998)Google Scholar (reporting “a deterrent effect in analyses of hospitals but not of individual physicians, which suggests that hospitals recognized the deterrence signal but that physicians did not.“). Hospital risk management and quality-assurance programs were installed following the 1970s malpractice crisis and appear to be more than mere attempts to assuage criticism or to comply minimally with statutory requirements. For further elaboration on such programs, see generally JAMES E. ORLIKOFF & AUDRONE M. VANAGUNAS, AMERICAN HOSP. ASS'N, MALPRACTICE PREVENTION AND LIABILITY CONTROL FOR HOSPITALS (2d ed. 1988); GLENN T. TROYER & STEVEN L. SALMAN, HANDBOOK OF HEALTH CARE RISK MANAGEMENT (1986); WILLIAM O. ROBERTSON, MEDICAL MALPRACTICE: A PREVENTIVE APPROACH (1985) (a physician's report on risk management in Washington State). But see Morlock, Laura L. & Malitz, Faye E., Do Hospital Risk Management Programs Make A Difference?, LAW & CONTEMP. PROBS., Spring 1991, at 1Google Scholar, 20-22 (finding little effect of risk management, other than certain educational activities, on malpractice claims experience in 40 hospitals).

52 See Grady, Mark F., Why Are People Negligent? Technology, Nondurable Precautions, and the Medical Malpractice Explosion, 82 Nw. U.L. REV. 293, 310-11 (1988)Google Scholar (observing that much negligence theory is concerned with inducing “durable precautions,” such as the installation of better systems and methods, and not with punishing mere human errors). A key to better prevention is systematic reporting of untoward events, which providers currently resist out of fear of triggering lawsuits or other adverse consequences in a system prone to assigning blame whenever an injury occurs. Although vicarious liability would not entirely overcome physicians’ fears in this regard, MCOs are in a good position to induce disclosure, by penalizing non-disclosure, taking an understanding attitude toward human error, employing sensitive information constructively in collaborative efforts with physicians to prevent recurrence, and ensuring that the information is protected from discovery in litigation by statutory privileges. See generally COMMITTEE ON QUALITY OF HEALTH CARE IN AMERICA, supra note 25, at 74-113.

53 Indeed, the author's reason for preferring the term “vicarious liability” over “enterprise liability“—both terms are familiar to lawyers—is that the former term better conveys that the plan's liability is derivative under agency principles, not direct. The distinction between the two kinds of plan liability, vicarious and direct, is important to preserve in this context precisely because it underscores that it is the physician, not the plan, who actually provides care and has the primary legal duty to the patient—that is, that medical care remains a professional, not a corporate, undertaking even under managed care. “Enterprise liability,” on the other hand, not only obliterates this crucial nuance, but it is also often understood to involve some departure from the fault principle and, in health care contexts, to include—or even to stand exclusively for—plans’ liability for negligence or bad faith in administering coverage and managing utilization.

54 See JOINT COMM. ON ACCREDITATION OF HEALTHCARE ORGS., COMPREHENSIVE ACCREDITATION MANUAL FOR HOSPITALS MS.1 (1997) (stating hospital accreditation requirement: “One or more organized, self-governing medical staffs have overall responsibility for the quality of the professional services provided by individuals with clinical privileges, as well as the responsibility of accounting therefore [sic] to the governing body.“); see also Havighurst, Clark C., Doctors and Hospitals: An Antitrust Perspective on Traditional Relationships, 1984 DUKE L.J. 1071, 1077-92Google Scholar (reviewing the role of physicians in hospital governance).

55 See. e.g., Annas, George J., A National Bill of Patients’ Rights, 338 NEW ENG. J. MED. 695, 698-99 (1998)Google Scholar (listing “the right to an advocate” as one of five “rights” of managed care enrollees); Kassirer, Jerome P., Managing Care—Should We Adopt a New Ethic?, 339 NEW ENG. J. MED. 397, 397-98(1998)Google Scholar.

56 See Sage, William M., Physicians as Advocates, 35 HOUSTON L. REV. 1529, 1571-74 (1999)Google Scholar.

57 But see Krause, Joan, Reconceptualizing Informed Consent in an Era of Health Care Cost Containment, 85 IOWA L. REV. 261 (1999)Google Scholar (questioning whether law clearly requires disclosure of alternative treatments and advocating clarification).

58 See Issues and Standards for Managed Care: Hearings on H.R. 2976 Before the Subcomm. on Health and Env't of the House Comm. on Commerce, 104th Cong. 66, 66 (1996) (statement of the American Medical Association, presented by Robert E. McAfee) (stating that gag clauses “undermine a physician's ability to provide his or her patients with the best possible care“). “Gag clauses” are implicit or explicit components of physician-MCO contracts that “prohibit physicians from discussing certain topics with their patients, such as how the physician is compensated or what uncovered treatment options the physician believes are potentially beneficial.” Martin, Julia A. & Bjerknes, Lisa K., The Legal and Ethical Implications of Gag Clauses in Physician Contracts, 22 AM. J.L. & MED. 433, 441 (1996)Google Scholar.

59 A possible concern is that physicians participating in several MCOs (as many physicians currently do) would not be amenable to efforts by any one MCO to influence their practice style in the interest of improved quality. A related problem is that any individual MCO has a weak incentive to take aggressive quality-improving actions if its competitors will free-ride off of any success it achieves in modifying physician behavior. Physicians likely modify their practice style in treating all their patients, not only those of the MCO innovator. One possible solution to these problems might be collective action by MCOs to educate physicians and share quality-related information. See generally Berenson, Robert A. et al., Conceptual Issues in Collaboration, in INSTITUTE OF MED., COLLABORATION AMONG COMPETING MANAGED CARE ORGANIZATIONS FOR QUALITY IMPROVEMENT 6, 6-32 (Donaldson, Molla S. ed., 1999)Google Scholar (discussing what collective actions are possible within antitrust constraints). Another possibility is a tightening of physician networks, reversing the recent trend towards large unintegrated networks, and greater dependency by each physician on a small number of highly integrated MCOs. If vicarious liability adds significant new incentives for health plans and their subcontractors to organize physicians into efficient units dedicated to maximizing quality under cost constraints, it can be declared at least a qualified policy success.

60 In Sloan v. Metropolitan Health Council, Inc., 516 N.E.2d 1104, 1109 (Ind. App. 1987), the court held an HMO liable for an employee physician's negligence, despite the defense that “the professional must exercise a professional judgment that the principal [the HMO employer] may not properly control.” The court observed that the HMO physicians were subject to some control by the plan's medical director.

61 See. e.g., Petrovich v. Share Health Plan, Inc., 719 N.E.2d 756, 763-68 (111. 1999); Boyd v. Albert Einstein Medical Center, 547 A.2d 1229, 1232 (Pa. Super. 1988).

62 See, e.g., Petrovitch, 719 N.E.2d at 765-68 (HMO denied summary judgment because physician's apparent agency was not dispelled by handbook or by membership certificate, which specified that physicians were independent contractors but was not shown to have been called to plaintiffs attention); see also supra note 23.

63 See, e.g., Petrovich, 719 N.E.2d at 770-75 (summary judgment denied to HMO because its various ways of influencing physicians might be found to amount to sufficient control to justify finding implied agency, despite independent contractor relationship); Chase v. Independent Practice Ass'n, 583 N.E.2d 251, 253-54 (Mass. App. 1991) (attenuated relationship between plan, subcontractor and physician made control impossible, negating vicarious liability).

64 See, e.g., RESTATEMENT (SECOND) OF AGENCY § 214 (1958) (“A … principal who is under a duty … to have care used to protect others … and who confides the performance of such duty to a servant or other person is subject to liability to such others for harm caused to them by the failure of such agent to perform the duty.“).

65 See CLARK C. HAVIGHURST ET AL., HEALTH CARE LAW AND POLICY: READINGS, NOTES, AND QUESTIONS 630-41 (1998) (collecting and discussing relevant legal materials).

66 Another way to rationalize enterprise liability would be to draw from the law of products liability and recognize an “implied warranty” that the care provided will meet at least a minimum standard of quality. See generally Brewbaker, William S., III, Medical Malpractice and Managed Care Organizations: The Implied Warranty of Quality, LAW & CONTEMP. PROBS., Spring 1997, at 117Google Scholar, 133. As noted earlier, however, vicarious liability would preserve professional responsibility and might therefore pose a lesser threat to professionalism than this otherwise valid theory of enterprise liability. See supra note 53.

67 See, e.g., Petrovich, 719 N.E.2d at 756. Many observers will be inclined to believe that common law courts, in holdings like Petrovich that make it relatively easy for a plaintiff to establish an HMO's vicarious liability, are making HMOs appropriately accountable and that legislation of the kind proposed here is not necessary. Yet the Petrovich holding clearly imposes vicarious liability only as a penalty for the HMO's interfering with medical decisions in the interest of cost containment and not as an inducement to encourage all plans to take a more active and constructive role in improving quality. Id. at 763-64, 770-76. Perversely, the signal to health plans is to take less, not more, responsibility for the quality of care.

68 A recent Institute of Medicine conference examined “total quality management, marketplace competition, regulation, and payment incentives,” as possible strategies for quality improvement “and found each strategy both promising and wanting.” See Chassin, supra note 28, at 583. While legal liability was not regarded as a promising enough contributor to quality improvement to even be placed on the conference agenda, the paper on regulation addressed the topic in passing. See id. Cf. Brennan, supra note 51, at 720 (“Many do not consider tort law when addressing regulation of health care quality, despite the fact that this branch of law has as one of its major social goals … the deterrence of behavior that leads to medical injuries.“).

69 See Metzloff, Thomas B., Understanding the Malpractice Wars, 106 HARV. L. REV. 1169, 1169 (1993)Google Scholar.

70 See generally WEILER ET AL., supra note 27, at 77-109. In a public policy appraisal, only transaction costs, not total awards, should count against the system, because the amounts transferred to patients to compensate them for their injuries are not new social costs (although some observers would certainly object that shifting them would “increase the cost of health care“)- See id. at 13-32.

71 But see Abraham & Weiler, supra note 38, at 406 (1994) (estimating that hospital-focused enterprise liability would save as much as 30% of litigation costs by eliminating multiple defendants).

72 See supra note 47.

73 See discussion supra note 25 and accompanying text.

74 Patricia Danzon, a leading law-and-economics scholar, has questioned whether MCO liability would be desirable, given what she observes as the limited ability of health plans to control physician behavior. See Danzon, Patricia, Tort Liability: A Minefield for Managed Care, 26 J. LEGAL STUD. 491, 502-16 (1997)Google Scholar. Danzon did not consider, however, the possibility that vicarious liability might be made a limited default rule by statute, as proposed herein.

75 See 1 HARVARD MED. PRACTICE STUDY, supra note 26, ch. 7; WEILER ET AL., supra note 27, at 61-64 (noting that in a New York study, “slightly more than 7 patients suffered a negligent adverse event for every patient who filed a tort claim“); see also Studdert et al., supra note 26, at 255 (reporting experience in Utah and Colorado).

76 See SCHWARZ, M. ROY, LIABILITY CRISIS: THE PHYSICIANS’ VIEWPOINT, MEDICAL MALPRACTICE—TORT REFORM 16, 24 (Hamner, James E. & Jennings, B.R. eds. 1987)Google Scholar (describing juries as “instinctively wish[ing] to help the plaintiffs as they would want others to help them if they were in a similar situation“). But see NEIL VIDMAR, MEDICAL MALPRACTICE AND THE AMERICAN JURY 191-220 (1995) (citing but questioning, studies suggesting jury awards are more generous in malpractice cases than in other cases because “they perceive that the defendant cannot afford to pay more“).

77 See Metzloff, Thomas B., Resolving Malpractice Disputes: Imaging the Jury's Shadow, LAW & CONTEMP. PROBS., Winter 1991, at 43, 64 n. 77Google Scholar, 115 (1991) (citing numerous studies that found relatively low plaintiff victory rates in medical malpractice cases and concluding that the empirical evidence tends to show a relatively low rate of plaintiff victories). The juries rendering such verdicts today are not likely to be under any illusion that physicians themselves, rather than their liability insurers, actually pay any judgments against them in malpractice cases.

78 See HAVIGHURST, supra note 20, ch. 8 (suggesting that any one of the many malpractice reforms that have been considered for implementation through legislation should also be achievable by private contract).

79 COMMITTEE ON QUALITY OF HEALTH CARE IN AMERICA, supra note 25, at 3.