Skyrocketing health care costs are endemic during inflationary periods, affecting not only health care consumers, but also health care providers. Virtually all governmental policymakers recognize spiraling health care costs, but hospital costs continue to escalate faster than the general rate of inflation. In response, alternatives to the traditional physician-patient and hospital-patient relationships have experienced a dramatic resurgence in the last decade, competing for the health care dollar. Two health care alternatives, the health maintenance organizstion (HMO) and the ambulatory surgical center (surgicenter) at which minor surgical procedures can be performed on an out-patient basis. have emerged to provide health care services in a more cost-efficient manner, thereby increasing price competition in the health care sector. The most recent alternative health care system on the health care horizon is the free standing emergency center or “emergicenter.” The growth of these emergicenters within the last few years has heen dramatic—500 in existence as of March 1982.

Skyrocketing health care costs are endemic during inflationary periods, affecting not only health care consumers, but also health care providers. Virtually all governmental policymakers recognize spiraling health care costs, but hospital costs continue to escalate faster than the general rate of inflation. In response, alternatives to the traditional physician-patient and hospital-patient relationships have experienced a dramatic resurgence in the last decade, competing for the health care dollar. Two health care alternatives, the health maintenance organizstion (HMO) and the ambulatory surgical center (surgicenter) at which minor surgical procedures can be performed on an out-patient basis. have emerged to provide health care services in a more cost-efficient manner, thereby increasing price competition in the health care sector. The most recent alternative health care system on the health care horizon is the free standing emergency center or “emergicenter.” The growth of these emergicenters within the last few years has heen dramatic—500 in existence as of March 1982.

In the past several years, a new tort has emerged, one which has been used primarily against insurance companies and which has resulted in an enormous number of damage claims—the tort of bad faith breach of contract. At this time, the tort of bad faith breach of contract has rarely been extended beyond the insurance industry. It is very likely, however, that in the near future, this tort will be extended to other industries that serve the public interest, particularly to health maintenance organizations (HMOs). Currently. many bad faith breach of contract cases against HMOs are being litigated at the trial level. In addition, publicity relating to such suits has appeared in various newspapers and periodicals.

This article discusses the application of this relatively new cause of action to HMOs, and deals with the followng issues: the basis for the analogy between the insurers and HMOs; the grounds for bringing a suit for bad faith breach; and the implications, for HMOs and consumers, of the emergence of this cause of action.

The idea for this article first occurred to me more than one year ago when the Brother Fox case was decided by the New York Court of Appeals, the highest court in New York. At the same time, debate was raging among, and between, lawyers and psychiatrists about the right of involuntary psychiatric patients to refuse antipsychotic medication. Thus. I was led to consider the philosophical and legal relationship between the so-called right to die and the right to refuse psychiatric treatment.

Even though physicians, lawyers, dentists, school teachers, life insurance brokers, and peddlers were licensed in the United States as early as 1890, nursing occupational licensure did not begin until 1938, when New York became the first state to pass such a law. By 1962, eight states had mandatory licensing laws, and sixteen more had nursing boards which claimed that licensure was mandatory.

Today every state requires that nurses who practice within its jurisdiction possess licenses. Since the purpose of nursing licensure is protection of the public, the state may require qualifications which are reasonably related to the practice of nursing. A license, because it is granted upon condition, is not a permanent right, and the state may revoke it if the licensee does not continue to meet licensing standards. The state also has discretion to use remedies less extreme than revocation. It may limit or suspend the license, and/or fine or reprimand the nurse.

Medical staff clinical privileges are usually granted, denied, reduced, suspended, or revoked because of clinical competence and performance. Generally accepted standards for evaluation of clinical competence and performance are published by the Joint Commission on Accreditation of Hospitals. In addition, some states have established standards by statute and by administrative regulations. Hospital medical staffs and governing boards, therefore, have standards to use in evaluating clinical competence and performance. Courts generally uphold hospitals’ employment of these standards as the basis of their decisions about a physician's clinical privileges. However, denial, reduction, suspension, or revocation of clinical privileges based on a physician's disruptive behavior presents a more difficult problem for hospitals because there are no generally accepted standards against which physicians’ behavior can be measured.

Product liability litigation may proceed under several theories when someone has suffered harm caused by a product furnished by a commercial supplier. Liability for injuries or death caused by defective products can be based on the negligence of the manufacturer, wholesaler, or retailer of a product; on breach of warranty; on misrepresentations made by the seller regarding the nature or quality of the product; and on a theory of strict liability. In all cases, however, the plaintiff must prove that the negligence of the supplier of the product or the defective or unreasonably dangerous product itself caused the injury. Very often the testimony of an expert witness on the issues of defect and causation may be required to establish a prima facie case.