HEALTH CARE LAW

GWU School of Law

Professor Rosenbaum
Fall 2013

Contents
PART ONE: ACCESS TO HEALTH CARE............................................................................................................................................9
Chapter 1. Barriers to Access and the Right to Health Care..........................................................................................................9
Part 1. Health Insurance and the Uninsured....................................................................................................................................9
Part 2. The Consequences of Being Uninsured..............................................................................................................................10
Part 3. A Right to Health Care..........................................................................................................................................................10
The Right to Health Care.......................................................................................................................................................................10
Chapter 2. The Common Law: From No Duty of Care to Limited Social Responsibility....................................................10
Part 1. A Brief Overview of American Common Law...................................................................................................................10
Part 2. The Basis of the No Duty Principle..................................................................................................................................11
Hurley v. Eddingfield....................................................................................................................................................................11
Part 3. Termination and Formation of the Doctor-Patient Relationship: Undertaking and Abandonment...................12
Ricks v. Budge.................................................................................................................................................................................12

Muse v Charter Hospital of Winston Salem......................................................................................................................12

Part 4. Medical Ethics as the Basis of a Duty to Care....................................................................................................................12
Part 5. The Evolution of the No Duty of Care Principle under the Common Law...............................................................13
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Wilmington Gen. Hosp. v. Manlove...................................................................................................................................13

Childs v. Weis.........................................................................................................................................................................13
Hiser v. Randolph..................................................................................................................................................................13
Dillon v. Silver........................................................................................................................................................................13
Payton v Weaver....................................................................................................................................................................13
New Biloxi Hospital v. Frazier.............................................................................................................................................14
Campbell v. Mincey...............................................................................................................................................................14

EMTALA..................................................................................................................................................................................................14
Chapter 3. Federal Legislative Reform of the No Duty Principle: The Emergency Medical Treatment and Labor Act
(EMTALA)...........................................................................................................................................................................................14
Part 1. Introduction............................................................................................................................................................................14
Part 2. The EMTALA Statute.............................................................................................................................................................15
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Barris v. County of Los Angeles..........................................................................................................................................17

Power v. Arlington Hospital Assn......................................................................................................................................17

Part 3. The Duty to Provide an Appropriate Screening................................................................................................................17

Power v. Arlington Hospital Association....................................................................................................................................17
Summers v. Baptist Medical Center Arkadelphia.....................................................................................................................17
Lewellen v. Schneck Medical Center...........................................................................................................................................18
Part 4. What Does it Mean to Come to the Hospitals Emergency Department?..................................................................18
Part 5. The Duty to Stabilize Persons with Emergency Medical Conditions.............................................................................19
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Bryan v. University of Virginia............................................................................................................................................19
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Moses v. Providence Hospital and Medical Centers........................................................................................................19
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Arrington c. Wong.................................................................................................................................................................19
In the Matter of Baby K.................................................................................................................................................................19
Part 6. The Duty to Stabilize and Furnish A Medically Appropriate Transfer..........................................................................20
Part 7. The Duties of Transferee Hospitals......................................................................................................................................20

Part 8. On-Call Specialists.................................................................................................................................................................20

Dabney v. Fort Walton Beach Medical Center...........................................................................................................................21
Part 9. How Does the EMTALA Stabilization Duty Apply to Inpatients?.................................................................................21
Lopez Soto v. Hawayek..................................................................................................................................................................21
Urban v. King..................................................................................................................................................................................21
Roberts v. Galen..............................................................................................................................................................................21
Harry v. Marchant..........................................................................................................................................................................22
Bryant v. Adventist Health............................................................................................................................................................22
How the Law Creates Access to Health Care.....................................................................................................................................22
Chapter 4. Civil Rights and Access to Health Care.......................................................................................................................22
Part 1. Prohibiting Discrimination on the Basis of Race and National Origin by Recipients of Federal Financial
Assistance under Title VI of the 1964 Civil Rights Act.................................................................................................................23
Part 3. Prohibition of Discrimination on the Basis of Disability: The Americans with Disabilities Act and the Realization
of Health Care as a Public Accommodations.................................................................................................................................24
The Role of Civil Rights law in Access to Health Care......................................................................................................................25
Chapter 5. Direct Public Provision of Medical Care......................................................................................................................25
Part 1. Safety-Net Hospitals..............................................................................................................................................................25
Part 2. Community Health Centers..................................................................................................................................................25
PART TWO: HEALTH CARE FINANCING........................................................................................................................................26
The Rise and Evolution of Insurance...................................................................................................................................................26
Chapter 6. The Rise and Evolution of Health Insurance..............................................................................................................26
Part 1. Health Care Costs and the Search for Solutions................................................................................................................26
Part 2. The Evolution of Heath Insurance and Health Insurance Law.......................................................................................27
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Sorrell v. IMS Health Inc......................................................................................................................................................27

Hailey v. California Physicians' Service.............................................................................................................................28

Part 3. Escalating Costs and New Models of Health Insurance...................................................................................................31

Part 4. The Patient Protection and Affordable Care Act................................................................................................................32
Supplement. Slogging Toward the New Normal: Implementation of the Affordable Care Act.............................................32
Insurer Obligations and Remedies under State Law.........................................................................................................................34
Chapter 7: Defining Insurer Obligations and Remedies Under State Law................................................................................34
Part 1. Remedies for Bad Faith Breach of Contract in Denying Coverage..................................................................................34
Albert H. Wohlers & Co. v. Bartkis..............................................................................................................................................34
ERISA........................................................................................................................................................................................................35
Chapter 8. ERISA................................................................................................................................................................................35
Part 2. History and Statutory Structure...........................................................................................................................................35
Part 3. Fiduciary Duty of Information and Disclosure..................................................................................................................35
Mondry v. American Family Mutual Insurance Company......................................................................................................36
Part 4. Full and Fair Review of Claims............................................................................................................................................36
Shelby County Health Care Corp. v. Majestic Star Casino, LLC Group Health...................................................................36
Part 5. Health Benefit Plan Design and the ERISA Settlor Function...........................................................................................37
McGann v. H&H Music.................................................................................................................................................................37
Jones v. Kodak.................................................................................................................................................................................38
Part 6. Judicial Review of Fiduciary Decisions...............................................................................................................................38

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Firestone Tire & Rubber v. Bruch........................................................................................................................................39
Krauss v. Oxford Health Plans.....................................................................................................................................................40
Part 7. ERISA and Preemption of State Law...................................................................................................................................40
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Shaw v. Delta Airlines...........................................................................................................................................................41

New York State Conference of Blue Cross & Blue Shield Plans v. Travelers................................................................42
California Division of Labor Standards Enforcement v. Dillingham Construction.....................................................42
De Buono v. NYSA-ILA Medical and Clinical Services Fund.........................................................................................43
Boggs v. Boggs.......................................................................................................................................................................43
Foster v. Blue Cross and Blue Shield of Michigan............................................................................................................43
Egelhoff v. Egelhoff...............................................................................................................................................................43
Massachusetts v. Met Life....................................................................................................................................................43
Rush Prudential HMO v. Moran.........................................................................................................................................43
Kentucky Assn of Health Plans, Inc. v. Miller.................................................................................................................44
Pilot Life Insurance Co. v. Dedeaux....................................................................................................................................45
Rush Prudential v. Moran....................................................................................................................................................45
Connecticut General Life v. Insurance Commissioner.....................................................................................................45

The Interaction of Coverage and the Americans with Disabilities Act...........................................................................................46

Chapter 9. Private Health Insurance and Coverage Discrimination...........................................................................................46
Part 1. Introduction............................................................................................................................................................................46
Part 2. The Americans with Disabilities Act...................................................................................................................................46

Doe v. Mutual of Omaha Insurance Company.................................................................................................................46

Medicare...................................................................................................................................................................................................47
Chapter 10. Medicare.........................................................................................................................................................................47
Part 3. Defining the Scope and Limits of the Medicare Entitlement...........................................................................................50
Part 4. Appeals of Individual Medicare Claims Denials..............................................................................................................50
Supplement. Note: The Final Demise of the Improvement Standard.........................................................................................50
Medicaid...................................................................................................................................................................................................51
Chapter 11. Medicaid.........................................................................................................................................................................51
Part 4. Medicaids History.................................................................................................................................................................51
Enactment........................................................................................................................................................................................51
Movement to Medicaid Managed Care: Medicaid as a Market Purchaser............................................................................51
Achievements..................................................................................................................................................................................51
Challenges.......................................................................................................................................................................................51
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National Federation of Independent Business v. Sebelius..............................................................................................52
How Medicaid works.........................................................................................................................................................................53
Statutory Requirements for the States.........................................................................................................................................53
General Requirements...................................................................................................................................................................53
Rules for Assessing Eligibility......................................................................................................................................................54
People Who MUST be Covered....................................................................................................................................................54
Rules for what Medical Care MUST be Covered.......................................................................................................................54
Acceptable State Coverage Limits................................................................................................................................................55
Curtis v. Taylor.......................................................................................................................................................................55
Cowan v. Meyers...................................................................................................................................................................55
Miller v. Whitburn.................................................................................................................................................................55
Dexter v. Kirschner................................................................................................................................................................55
Unacceptable State Coverage Limits...........................................................................................................................................55
Pinnecke..................................................................................................................................................................................55

 Weaver v Reagan...................................................................................................................................................................55
Rules on Provider Participation and Compensation.................................................................................................................55
Getting the Plan Approved...........................................................................................................................................................56
Medicaid Statutory Entitlement.......................................................................................................................................................56
Private Enforcement of Federal Obligations...................................................................................................................................56
Chevron U.S.A. Inc. v. Echazabal.................................................................................................................................................56
Providers Rights when dealing with the Termination of Contract with the State...............................................................57

Goldberg v. Kelly...................................................................................................................................................................57

MEDCARE HMO v. Bradley................................................................................................................................................57

Beneficiaries Rights when there is a Violation of the State Plan.............................................................................................57
Beneficiaries and Providers Rights when the State Plan is in Violation of the Federal Medicaid Statute........................57
Implied Right of Action/Supremacy Clause.............................................................................................................................57

Rosado v. Wyman..................................................................................................................................................................57

Douglas v. Independent Living Center of Southern California.....................................................................................57

Wos v. E.M.A..........................................................................................................................................................................59
General Federal Cause of Action Statute - 42 USC 1983...........................................................................................................60

Maine v. Thiboutot................................................................................................................................................................60

Wilder v. Virginia..................................................................................................................................................................61

Suter v. Artist M.....................................................................................................................................................................61

Blessing v. Freestone.............................................................................................................................................................61

Gonzaga v. Doe......................................................................................................................................................................61
Special Concerns: Americans with Disabilities Act..................................................................................................................62
Paying for Health Care...........................................................................................................................................................................63
Chapter 12. Paying for Health Care: Conceptual and Structural Considerations.....................................................................63
Introduction.........................................................................................................................................................................................63
Provider Payment...............................................................................................................................................................................64
What services to cover?.................................................................................................................................................................64
Setting Payment Rate.....................................................................................................................................................................64
Selecting Payment Method...........................................................................................................................................................65
Pay for Performance.......................................................................................................................................................................65
Special Issues for Medicare and Medicaid......................................................................................................................................65
Disproportionate Share (DSH) Payments...................................................................................................................................65
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Adena Regional Medical Center v. Leavitt........................................................................................................................66
Bad Debt..........................................................................................................................................................................................66
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Battle Creek v. Leavett..........................................................................................................................................................66
Medical Necessity..........................................................................................................................................................................67
Special Issue for Private Insurance..................................................................................................................................................67
Provider Access to Health Insurance Markets: Selection and De-selection...........................................................................67
Fair Procedure Doctrine Applies to Exclusion...........................................................................................................................67
Palm Medical Group v. State Compensation Ins. Fund..................................................................................................67
Any Willing Provider Laws..........................................................................................................................................................68
ERISA Preemption and Provider Payment.................................................................................................................................68
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Franciscan Skemp v. Central States.....................................................................................................................................68
PART THREE: HEALTH CARE QUALITY.........................................................................................................................................70
Medical Malpractice...............................................................................................................................................................................70
Chapter 14. Medical Malpractice and Health Care Quality.........................................................................................................70
Part 1. What Does Medical Malpractice Tell Is About Health Care Quality?............................................................................70

Part 2. From Physician Authority to Egalitarian Social Contract and Market Competition: Medical Malpractice Law and
Transformation of the Professional Standard of Care...................................................................................................................72
Part 3. From Local Medical Customer Practices to a National Standard of Acceptable Care..........................................72

Shilkret v. Annapolis Emergency Hospital Association..................................................................................................73

Hall v. Hilbun.........................................................................................................................................................................73

Part 4. The Problem of Competing Standards: The Two Schools of Thought or Respectable (or Reputable) Minority
Doctrine................................................................................................................................................................................................73

Jones v. Chidester..................................................................................................................................................................73

Part 5. Overriding the Professional or Industry Standard of Care..............................................................................................74

TJ Hooper...............................................................................................................................................................................74
Helling v. Carey.....................................................................................................................................................................74

Part 6. When Has a New Standard Emerged? The Best Judgment Rule and the Problem of New Knowledge and
Technologies........................................................................................................................................................................................75
Washington v. Washington Hospital Center..............................................................................................................................75
Part 7. Clinical Practice Guidelines and the Standard of Care.....................................................................................................75
Diaz v. New York Downtown Hospital.......................................................................................................................................75
Part 8. Challenging Professional and Industry Standards............................................................................................................76
The Equally Well-Informed Expert and Available and Proven Scientific Safeguards Doctrines................................76
United Blood Services v. Quintana..............................................................................................................................................76
Osborn v. Irwin Mem. Blood Bank.....................................................................................................................................76
Part 9. Should the Professional Standard of Care Be Adjusted to Account for Patients Economic Circumstances?..........76

Murray v. UNMC Physicians...............................................................................................................................................76

Greater Washington DC Area Council of Senior Citizens v. District of Columbia Government..............................77

Informed Consent...................................................................................................................................................................................78
Chapter 15. Informed Consent to Treatment..................................................................................................................................78
Part 1. Introduction............................................................................................................................................................................78
Part 2. The Ride of a Patient-Oriented Standard of Informed Consent......................................................................................78
Canterbury v. Spence.....................................................................................................................................................................78
Part 4. Conflicts of Interest and the Physicians Fiduciary Duty..................................................................................................79
Moore v. The Regents of the University of California...............................................................................................................79
Health Information Confidentiality and Health Information Privacy............................................................................................79
Chapter 16. The Confidentiality of Health Information and Information Privacy...................................................................79
Part 1. Introduction............................................................................................................................................................................79
MacDonald v. Clinger....................................................................................................................................................................79
Part 2. Health Information Privacy: The HIPAA Privacy Rule....................................................................................................80
Liability Reform......................................................................................................................................................................................81
Chapter 17. Medical Liability and the Politics of Legal Change..................................................................................................81
Part 2. What Is the Nature and Extent of the Medical Liability Problem?.................................................................................81
Part 3. Fixing the Medical Liability Crisis...................................................................................................................................82
Part 5. Enterprise Liability.................................................................................................................................................................82
Definition.........................................................................................................................................................................................82
Proposals for Systematic Enterprise Liability in Health Care.................................................................................................82

Hospitals and Health Care Quality......................................................................................................................................................83

Chapter 18. Hospitals and Health Care Quality............................................................................................................................83
Part 2. The Role of Law in the Age of Expanding Hospital Authority.......................................................................................83
Charitable Immunity Doctrine.....................................................................................................................................................83
Part 4. The Rise of Respondeat Superior.........................................................................................................................................84

Truhitte v. French Hospital..................................................................................................................................................84

Part 5. Non-Employee Physicians and the Expanding Concepts of Agency Nondelegable Duty..........................................84
Nondelegable Duties for Hospitals.............................................................................................................................................84
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Jackson v. Power....................................................................................................................................................................84
Part 6. The Rise of Hospital Corporate Liability............................................................................................................................85
The Structure of Hospital Governance........................................................................................................................................85
The Scope of Corporate Liability.................................................................................................................................................85
The Hospitals Duty to Monitor Treatment Done by Staff with Privileges............................................................................86
Darling v. Charleston Community Memorial Hospital............................................................................................................86
Corporate Interference with Appropriate Medical Care..........................................................................................................86
Hospitals have a duty not to implement policies that interfere with the medical judgment of the physicians they
employ. If the hospital breaches that duty, it will be liable for any damages caused by the policy...................................87
Muse v. Charter Health Care........................................................................................................................................................87
Part 7. The Charitable Immunity Doctrine and Contractual Releases....................................................................................87
Tunkl v. Regents of University of California..............................................................................................................................87
Part 8. Structuring the Hospital Peer Review Process: State-Law Immunity, Privilege, and Regulation..............................87
Peer Review.....................................................................................................................................................................................87
Bryan v. James E. Holmes Regional Medical Center.................................................................................................................88
Part 9. Substantive Grounds for Adverse Hospital Action...........................................................................................................88
Payers and Health Care Quality...........................................................................................................................................................88
Chapter 20. Payers and Health Care Quality: Awakening the Sleeping Giant..........................................................................89
Part 1. Introduction: Old Concerns, Old Techniques and the Rise of Value-Based Purchasing.........................................89
Utilization Review (UR) of providers for them to participate.................................................................................................90
Professional Standards Review Organizations (PSROs)...........................................................................................................90
Peer Review Organizations (PROs).............................................................................................................................................90
Quality Improvement Organizations (QIOs).............................................................................................................................90
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Doyle v. Secretary of Health and Human Services...........................................................................................................91
Part 2. Legal Issues in Value-Based Purchasing.............................................................................................................................91
Liability of Payers for Medical Negligence and ERISA Preemption................................................................................................92
Chapter 21. Liability for Medical Negligence: Special Issues that Arise in Situations Involving Insurers and Health Plan
Administrators....................................................................................................................................................................................92
Part 2. Insurer Negligence in Connection with Coverage Determinations................................................................................92

Wickline v. State of California.............................................................................................................................................92

McEvoy v. Group Health Cooperative of Eau Claire.......................................................................................................93

Part 3. Liability for Medical Injuries Arising From Health Care Negligence............................................................................93
Vicarious Liability and Agency....................................................................................................................................................93

Boyd v. Albert Einstein Medical Center.............................................................................................................................94

Chase v. IPA, Inc....................................................................................................................................................................94

Petrovich v Share Health Plan of Illinois...........................................................................................................................94


Williams v Good Health Plus, Inc.......................................................................................................................................94
Corporate Liability.........................................................................................................................................................................94

McClellan v. HMO................................................................................................................................................................95

Shannon v. McNulty.............................................................................................................................................................95

Jones v. Chicago HMO..........................................................................................................................................................95

Part 4. When Does ERISA Preempt the Medical Liability of Insurers and Plan Administrators?..........................................95
Corcoran v. United Healthcare.....................................................................................................................................................95
Dukes v. U.S. Healthcare...............................................................................................................................................................96
Pegram v. Herdrich........................................................................................................................................................................97
Aetna Health v. Davila..................................................................................................................................................................97
SUMMARY..........................................................................................................................................................................................98
PART FOUR: REGULATION OF HEALTH CARE TRANSACTIONS............................................................................................99
Tax Exemption in the Modern Health Care System...........................................................................................................................99
Chapter 23. Tax Exemption in the Modern Health Care System.................................................................................................99
Part 1. The Nature of Community Benefit......................................................................................................................................99
Part 2. The Integral Part Doctrine.....................................................................................................................................................99
Part 3. Joint Ventures with Nonexempt Entities.............................................................................................................................99
Health Care Fraud and Abuse..............................................................................................................................................................99
Chapter 24. Health Care Fraud and Abuse.....................................................................................................................................99
Part 1. False Claims Act.....................................................................................................................................................................99
Part 3. The Anti-Kickback Statute (AKS) and Stark.......................................................................................................................99
Antitrust and Health Care.....................................................................................................................................................................99
Chapter 25. The Application of Antitrust to Health Care............................................................................................................99
Part 1. Market Power..........................................................................................................................................................................99

United States v. Long Island Jewish Medical Center.......................................................................................................99

Part 2. Exclusionary Conduct or Lawfulness................................................................................................................................100

Part 3. Special Problems Raised by Horizontal Collaborations.................................................................................................100

PART ONE: ACCESS TO HEALTH CARE

Chapter 1. Barriers to Access and the Right to Health Care

Part 1. Health Insurance and the Uninsured
(Today in the United States, 18% of Americans do not have health
care coverage.)
Causes of un-insurance
Wary of government interference into free market
Federalism / divided government
Medicaid does not cover all low income persons
Fractured health care system
Cost of insurance rises faster than underlying cost of
care/wages; High cost due to:
o aging population
o spread of advanced technologies
o relatively poor health
o rising prices
o Administrative costs
o people insulated from cost of insurance
o reliance on markets
Employment-based Health Insurance - Voluntary employersponsored health insurance
A majority of Americans receive their health care
insurance from employers (55.8% of nonelderly persons in 2011, 75% at its apex)
o The system arose during the great depression while other countries began establishing systems of
universal coverage
Employer-coverage has been disintegrating over the last 25 years, due to
o the labor market has moving away from high paying jobs with benefits, towards lower paying jobs w/o
benefits
o Increasing numbers of single parents who are less likely to earn benefits for their households
Children are at particular risk under the current system. They are more likely to live in families
without employer insurance, and therefore rely heavily on public insurance.
Medicaid and Children's Health Insurance Program
o Exponential increases in the cost of health care/insurance causing many small employers to cease offering
benefits
o Even the economic boom from 2000-2006 saw an increase in uninsured Americans
The employer mandate in the ACA, establishes very narrow circumstances in which businesses are required to
provide health insurance
o Unlikely to make any significant changes to the current system
Underinsured Populations
A growing and significant problem that will hopefully be remedies by the ACA
Causes
o Low income in relation to the value of coverage (premiums take up too much of earnings)
o Exceptionally high medical bills that exhaust coverage limits
o *BC-ACA, annual/lifetime coverage limits are prohibited

o Rising health care costs - trimming of coverage

o Higher premiums, deductibles, coinsurance and copayments
"Freedom" to remain uninsured
Historically health insurance has been a voluntary for both employers and individuals.
However, the vast majority of uninsured Americans were unable to afford health insurance. It is therefore,
misleading to suggest there is a long tradition of Americans choosing not to pay for coverage.
o Americans who do decide to not purchase available insurance, overwhelmingly cite cost as their reason as
the most important factor.
These truths have not stopped opponents of the ACA from arguing that many Americans will be losing their
liberty due to the individual mandate
Individual Insurance Market - Too expensive and too exclusive
Besides being prohibitively expensive, individual insurance is traditionally ruled by medical underwriting
o BC-ACA, most individuals were denied coverage or given a policy with many exclusions and limitations
Not a viable option for most Americans
Part 2. The Consequences of Being Uninsured
Uninsured people are poorer and sicker than the general population
o Almost half of poor people are uninsured
o Poor non-elderly adults have far high rates of physical & mental illness
Health insurance (public or private) is associated with greater access to all types of health care.
o Preventative services and advanced care for chronic conditions
Effects of high percentage of uninsured
On communities
o Fewer hospital beds
o Fewer specialized services for vulnerable populations
o Less likely to have advanced emergency services and burn and shock/trauma systems
Rural hospitals lack intensive care and inpatient psychiatric services
o More susceptible to economic downturns
o Budgetary shortfalls for public health systems
Adverse effects on public health disease surveillance and emergency preparedness
On the nation
o Diminished health and premature mortality
o Financial stress for families
o Reduced workforce productivity
o Greater financial stresses on government programs
o Financial consequences
Nation spends a lot to treat uninsured
Loss of "health capital"
annual aggregated cost of not financing health care for the population as a whole ranges
from $65 to $135 billion
Part 3. A Right to Health Care
Despite long standing belief in the United States that all persons should receive health care in emergency
situations, there remains a serious debate over the right to health care coverage.
In most countries, health care is considered a universal good and an individual right.
The World Health Organization defines enjoyment of "the highest attainable standard of health" to be a
fundamental right.
However, the US continues to fight against establishing a right to health care
o Opponents consider universal health care to be unfair and unattainably expensive

The Right to Health Care

Chapter 2. The Common Law: From No Duty of Care to Limited Social Responsibility
Part 1. A Brief Overview of American Common Law
The American common law of contracts and torts developed at the same time as medical care began taking its modern
shape. As a result, the no duty principle was highly affected by common law. Here are four important aspects of common
law to keep in mind:
1. Charitable Tradition
There was a strong tradition of charity where donors were vested with broad discretion over when and what
to give.
This personal choice was directly at odds with the developing understanding of legal obligation
Though many medical providers did help some people who could not pay, it was considered charity and
optional
Hospitals that were built to help the poor were strictly voluntary for doctors
No patient had a "right" to treatment
2. Lochner Era
The court was exceptionally committed to protecting unregulated markets and individual liberty
3. Rise of the medical profession
This time period saw a significant rise in the status/social authority of doctors, as well as expanding scientific
knowledge and efficacy
4. Racism & Nativism
During this time Jim Crow laws were beginning, much of the south was just as bad as it had been before with
slavery. Even in the north people were creating restrictive covenants.
This was an era of huge immigration in which many people of many nationalities were coming to the states.
Lots of people recoiled from the new comers and held prejudiced ideas
As a result, the courts were unlikely to force people to contract with immigrants or African Americans
because it was considered an intrusion of personal liberty.
Part 2. The Basis of the No Duty Principle
Hurley Principle - Medical providers retain the liberty to contract, and therefore have no duty to provide care.
Hurley v. Eddingfield (1901)
FACTS
o A woman went into labor and called for her doctor who had previously taken care of her.
o The doctor did not come, even after he was called upon multiple times, paid, and told that there were no
other doctors available.
o The woman and the child died during childbirth. The woman's husband sued the doctor.
HELD
o Found for the doctor.
o The relationship between a doctor and a patient is a contract of employment.
o Under contract law, a party has no duty to accept an offer to contract (even though this doctor had
delivered her previous children)
o Since there was no acceptance of the offer, there was no contract and hence no duty to the plaintiff
o The licensing process in the state only permits doctor's to practice medicine, but doesnt require a doctor
to provide care. Doctor still has the freedom to refuse offers.
o analogies to innkeepers, common carriers and the like who do have a common law duty to accept
reasonable offers are beside the mark;
o Therefore there was no wrongful act by the defendant, even if all the facts alleged by the plaintiff are
assumed to be true.
NOTES

The woman's husband made the argument in court the public accommodation theory should be extended
to physicians because they are now licensed and regulated. The court rejected the argument and said that
public accommodation regulation has no place in medical practice
The courts reasoning relied on prioritizing individual liberty versus public duty

Part 3. Termination and Formation of the Doctor-Patient Relationship: Undertaking and

Abandonment
Undertaking and Abandonment
A physician who has undertaken to care for a patient may terminate that relationship only by cessation of the
necessity which gave rise to the relationship or by discharge by the physician after giving the patient reasonable
notice so as to enable the patient to secure other medical attention.
Economic abandonment
Once a doctor starts treating a person, he may not abandon a patient for economic reasons including the failure
or refusal to pay for services
o He can give the patient notice of the termination of the relationship that permits the patient to find other
care.
Ricks v. Budge (1937)
FACTS
o A man goes to the hospital because he has an infection in his hand. He stays in the hospital for 4 days for
treatment then he leaves against medical advice.
o When he left, the doctors instructed him to continue to treat the hand and contact them if it got worst.
o The man's hand got worse and he went to the doctor's who told him that he needed surgery. But the
doctor would not perform the procedure until the man settled his balance for previous treatment. The
man left, sought care elsewhere, and eventually lost his hand.
HELD
o For the man.
o Once a doctor has undertaken a patient and agreed to give care, he is not permitted to stop before the
problematic condition is resolved.
o The majority held that there was no cessation in care.
o The dissent held that the patient ended the relationship when he left the hospital against medical advice.
o This man probably suffered as a result of the delay in his care cause by his doctor's refusal to act.
Hospitals are also barred from ceasing care for economic reasons.
Muse v Charter Hospital of Winston Salem (1995)
Hospital breached duty by discharging patients based on end of coverage rather than based on medical
facts/judgment.
Part 4. Medical Ethics as the Basis of a Duty to Care
Medical ethics vs. legal ethics
American Medical Association Principles of Medical Ethics
o Gives physicians discretion to decide who to treat with the exception of emergencies. Reasoning makes
sense because
Some physicians may lack technical competency
The standard of care is higher when doctors choose who to care for
This theory has begun to give way
o But also says that should support access to medical care for all people

AMAs principles of medical ethics:

VI. A physician shall, in the provision of appropriate care, except in emergencies, be free to choose
whom to serve, with whom to associate, and the environment in which to provide medical care.
VII. A physician shall recognize a responsibility to participate in activities contributing to the
improvement of the community and the betterment of public health.
VIII. A physician shall, while caring for a patient, regard responsibility to the patient as paramount.
IX. A physician shall support access to medical care for all people.
Part 5. The Evolution of the No Duty of Care Principle under the Common Law
No Duty to Rescue at common law
Tort law historically draws a sharp distinction between action and inaction
One can be liable if their action causes harm, but does not require one to affirmatively act to help others in distress
Exceptions of No Duty to Rescue:
Detrimental reliance
o A provider cannot refuse a person who is relying on potential service if refusal of care may worsen the
condition of the injured.
o Wilmington Gen. Hosp. v. Manlove (1961)
o FACTS
A young couple went to an emergency room with a very sick infant. Their personal doctor
was unavailable. The ER refused to admit the child because the family was not referred by a
staff doctor at the hospital. A few hours after being refused admission, the child died of
meningitis. The couple sued for wrongful death.
o HELD
The court held that the emergency room of a private hospital owes the public duty to accept
any patient who is significantly injured.
ER's must treat people in emergency situation
Undertaking
o A physician who has undertaken to care for a patient may terminate that relationship only by cessation of
the necessity which gave rise to the relationship or by discharge by the physician after giving the patient
reasonable notice so as to enable the patient to secure other medical attention.
o Problems
o Difficult to know when exactly an undertaking begins - upon arrival to office, at check-in, at payment
o Duty of on-call physicians:
Courts divided as to whether on-call doctors have duty to treat in hospital
Childs v. Weis (1969): on call physician had no duty to come to hospital to see a
woman who had come after delivering baby on highway
Hiser v. Randolph (1980): a doctor who agrees to be on call owes a duty to patients
who seek emergency aid
Dillon v. Silver (1987): hospital bylaws, that required doctors to be on call for certain
periods and to accept patients during that time, were the basis for patient's claim,
when the on-call doctor refused to treat her after conditions worsened
Payton v Weaver (1982): court held that a doctor could cease to treat patient who
insisted on self-destructive behaviors, but only after giving patient notice and time to
find alternative treatment.
Public Function and Public Accommodations
o General tort law prohibits certain actors from denying certain services; duty not absolute or independent of
patients duty
o Was developed because public accommodations are vital services that create reliance
o Transportation, inns, restaurants

o Applies to hospitals, usually in context of emergency care

o Does NOT apply to private physicians
Emergency Care (Pre-EMTALA)
o Definition of Emergency Care: immediately and reasonably necessary for the preservation of life, limb or
health
o New Biloxi Hospital v. Frazier (1962)
o FACTS
A black man came to a hospital bleeding profusely. He was checked by a nurse and placed on
an ER table. Despite the clear medical emergency, the man was transferred to another
hospital. He arrived at the second hospital and was pronounced dead.
o HELD
Hospital had duty of care to treat Frazier because they began treatment and this was an
emergency medical case.
Hospital was a negligent because they undertook his care then failed to finish his treatment:
o Campbell v. Mincey (1976)
o FACTS
In 1975, a young black woman arrived at a public Mississippi hospital in labor. The admitting
nurse refused to admit her because she was black. The woman returned to the parking lot,
where she gave birth in the front seat of her neighbors care. After she gave birth, the nurse
once again refused to admit her and the baby. The nurse did give the woman a sheet to wrap
the baby in.
o HELD
hospital had no duty to render care to woman who gave birth in parking lot
No common law duty exists to admit and treat every patient seeking assistance
This was not a departure from hospital custom or procedure
o treat only patients of on-staff doctors
Court refused to see discrimination or violation of equal protection
o she had been treated before (not race/indigency)
o patients without on-staff doctors not protected class
No evidence that actual emergency cases not admitted - court didn't see labor as an
emergency
o Distinctions between Campbell and New Biloxi
o Factual differences Ms. Campbell was never touched, did not get inside ER, no chart started
o Legal differences Campbell did not argue gross negligence (basis of New Biloxi)
BUT nurse called doctor and he rendered opinion, could have been considered diagnosis
Should have argued gross negligence in provision of care, in addition to undertaking
Court in Campbell relies on common law principles, to determine whether the patient was
treated in the same way as other patients
only patients of doctors with admitting privileges were treated, hospital custom to
deny care
Court could not find detrimental reliance
EMTALA

Chapter 3. Federal Legislative Reform of the No Duty Principle: The Emergency Medical
Treatment and Labor Act (EMTALA)
Part 1. Introduction
General information about emergency departments

The majority of the people who come to the ER have insurance, either public or private, and are at the ER because
of an acute condition for which they cannot get seen elsewhere.
o Frequently referred their by primary care physicians
o Many people consider the insanely busy ERs to be a result of the massive flaws in the US healthcare
system

Part 2. The EMTALA Statute

Emergency Medical Treatment and Labor Act Imposes certain basic obligations on all Medicare participating hospitals
with emergency departments
o A hospital does not need a formal ER to qualify, even without a formal department a hospital that treats a certain
number of emergent people must still follow EMTALA
o Part of the Medicare statute
o Not a condition of participation, only applies to Medicare hospitals with emergency departments
o The purpose of EMTALA was enacted to address the distinct and narrow problem of hospitals dumping the
uninsured, underinsured or indigent patients by hospitals who did not want to treat them. Summers v. Baptist
Medical Center Arkadelphia
42 USC 1395dd - Examination and treatment for emergency medical conditions and women in labor
(a) Medical screening requirement
In the case of a hospital that has a hospital emergency department, if any individual (whether or not eligible for
benefits under this subchapter) comes to the emergency department and a request is made on the individuals
behalf for examination or treatment for a medical condition, the hospital must provide for an appropriate medical
screening examination within the capability of the hospitals emergency department, including ancillary services
routinely available to the emergency department, to determine whether or not an emergency medical condition
(within the meaning of subsection (e)(1) of this section) exists.
(b) Necessary stabilizing treatment for emergency medical conditions and labor
(1) In general
If any individual (whether or not eligible for benefits under this subchapter) comes to a hospital and the
hospital determines that the individual has an emergency medical condition, the hospital must provide
either
(A) within the staff and facilities available at the hospital, for such further medical examination
and such treatment as may be required to stabilize the medical condition, or
(B) for transfer of the individual to another medical facility in accordance with subsection (c) of
this section.
(2) Refusal to consent to treatment
A hospital is deemed to meet the requirement of paragraph (1)(A) with respect to an individual if the
hospital offers the individual the further medical examination and treatment described in that paragraph
and informs the individual (or a person acting on the individuals behalf) of the risks and benefits to the
individual of such examination and treatment, but the individual (or a person acting on the individuals
behalf) refuses to consent to the examination and treatment. The hospital shall take all reasonable steps to
secure the individuals (or persons) written informed consent to refuse such examination and treatment.
(3) Refusal to consent to transfer
A hospital is deemed to meet the requirement of paragraph (1) with respect to an individual if the hospital
offers to transfer the individual to another medical facility in accordance with subsection (c) of this section
and informs the individual (or a person acting on the individuals behalf) of the risks and benefits to the
individual of such transfer, but the individual (or a person acting on the individuals behalf) refuses to
consent to the transfer. The hospital shall take all reasonable steps to secure the individuals (or persons)

written informed consent to refuse such transfer.

(c) Restricting transfers until individual stabilized
(1) Rule
If an individual at a hospital has an emergency medical condition which has not been stabilized (within
the meaning of subsection (e)(3)(B) of this section), the hospital may not transfer the individual unless
(A)
(i) the individual (or a legally responsible person acting on the individuals behalf) after
being informed of the hospitals obligations under this section and of the risk of transfer,
in writing requests transfer to another medical facility,
(ii) a physician (within the meaning of section 1395x (r)(1) of this title) has signed a
certification that based upon the information available at the time of transfer, the medical
benefits reasonably expected from the provision of appropriate medical treatment at
another medical facility outweigh the increased risks to the individual and, in the case of
labor, to the unborn child from effecting the transfer, or
(iii) if a physician is not physically present in the emergency department at the time an
individual is transferred, a qualified medical person (as defined by the Secretary in
regulations) has signed a certification described in clause (ii) after a physician (as defined
in section 1395x (r)(1) of this title), in consultation with the person, has made the
determination described in such clause, and subsequently countersigns the certification;
and
(B) the transfer is an appropriate transfer (within the meaning of paragraph (2)) to that facility.
A certification described in clause (ii) or (iii) of subparagraph (A) shall include a summary of the risks and
benefits upon which the certification is based.
(2) Appropriate transfer
An appropriate transfer to a medical facility is a transfer
(A) in which the transferring hospital provides the medical treatment within its capacity which minimizes
the risks to the individuals health and, in the case of a woman in labor, the health of the unborn child;
(B) in which the receiving facility
(i) has available space and qualified personnel for the treatment of the individual, and
(ii) has agreed to accept transfer of the individual and to provide appropriate medical treatment;
(C) in which the transferring hospital sends to the receiving facility all medical records (or copies thereof),
related to the emergency condition for which the individual has presented, available at the time of the
transfer, including records related to the individuals emergency medical condition, observations of signs
or symptoms, preliminary diagnosis, treatment provided, results of any tests and the informed written
consent or certification (or copy thereof) provided under paragraph (1)(A), and the name and address of
any on-call physician (described in subsection (d)(1)(C) of this section) who has refused or failed to appear
within a reasonable time to provide necessary stabilizing treatment;
(D) in which the transfer is effected through qualified personnel and transportation equipment, as
required including the use of necessary and medically appropriate life support measures during the
transfer; and
(E) which meets such other requirements as the Secretary may find necessary in the interest of the health
and safety of individuals transferred.

Enforcement
By Health and Human Services (HHS):
o Hospitals in violation civil money penalties
o Physicians who sign certificates of transfer and misrepresent the persons physical condition are subject to
penalties (if gross/flagrant cant participate in Medicare/Medicaid)
o Hospital not subject to penalties if on-call physician fails to show
Civil Enforcement: EMTALA has express right of action
o injured individuals can recover damages
o hospital that incurs financial loss due to other hospitals non-compliance can get damages
o Barris v. County of Los Angeles (1999): California damage caps on malpractice apply to EMTALA claims
because EMTALA states individuals may obtain damages available for personal injury under the law of
the state in which the hospital is located court finds personal injury was meant to be inclusive, include
general and specific provisions re: malpractice damages
o Power v. Arlington Hospital Assn (2007) Not all malpractice claims are EMTALA and vice versa, finds
that any action for violation of EMTALAs duty of care provisions qualifies as an action based on
professional negligence subject to VAs damage caps (fact-specific)1
Historically cases largely decided in favor of P; today the majority of cases come out in favor of D
Part 3. The Duty to Provide an Appropriate Screening
What is an appropriate screening?
Appropriate screening is designed to identify conditions of symptomatic patients, must be applied uniformly.
Patients are entitled to be treated as similarly situated patients would be treated, within a hospitals capabilities.
But the hospital itself determines what an appropriate screening is for them.
o E.g. If the hospital does not have an MRI machine, then it will not be expected for an appropriate
screening.
EMTALA does not guarantee a patient appropriate treatment, just screening.
o Malpractice occurs after the screening; e.g. misdiagnosis and bad treatment
o EMTALA is NOT a federal malpractice statute.
In order to prove an EMTALA violation, a patient only needs to prove disparate treatment. Does NOT need to
show motive. Power v. Arlington Hospital Association
An EMTALA suit will survive summary judgment if the plaintiff can show a genuine dispute over a material fact
as to the hospitals negligent/intentional behavior. Lewellen v. Schneck Medical Center
Cases:
Power v. Arlington Hospital Association (1994)
FACTS
o Susan Powers goes to the emergency department at Arlington Hospital in severe pain. The doctors gave
her pain meds and a referral, but did no blood test and discharged her before her urine test came back.
Powers returned the next night nearly dead from sepsis. She was immediately admitted into the ICU and
1 uninsured patient went to a hospital emergency room complaining of pain. She was given a prescription and, before the results of her
urine test were back, she was discharged and told to return if the pain got worse. The patient returned the next day, and it was
determined that she had an infection from attempting to lance a boil on her face. The existence of the boil was not referenced on any
reports. Because of the lack of earlier treatment, her legs were partially amputated, and she lost sight in one eye. On appeal, the court
found that it was not necessary for the patient to prove an improper An motive for the hospital's treatment or discharge decision in
order to recover for a breach of EMTALA. The patient met her burden of showing that the screening she was provided deviated from
that given to other patients, who likely would have received a blood test. However, the state's limitation of damages was applicable, and
recovery should have been limited to one million dollars under Va. Code Ann. 8.01-581.15. In addition, the liability limit for the taxexempt hospital should have applied, under Va. Code Ann. 8.01-38, because the action was one for negligence or other tort.

o
o

put on life support. She eventually lost both of her legs, site in one eye, and suffered severe damage to her
lung.
Powers sued under EMPALA arguing that the hospital did not give her an appropriate screening because
her screening was less thorough than other patients usually receive.
Hospital argued that this was a malpractice suit not an EMPALA suit. They cited congress's express
intention not to preempt state malpractice law.

HELD
o Power's claim was proper under EMPALA
o It was not necessary for her to prove motive of the hospital, its only necessary to show disparate
treatment.

Summers v. Baptist Medical Center Arkadelphia (1996)

FACTS
o An examination of a patient who had fallen from a tree was incomplete because the physician failed to
take a chest x-ray before discharging him.
o Two days later the patient went to another hospital and was diagnosed multiple rib and vertebrae
fractures.
HELD
o The hospital was negligent because the patient did not receive an appropriate screening for the situation.
o Failure to order a chest x-ray when a patient is complaining of popping in his chest is negligence.
NOTE
o This case was decided on summary judgment
Lewellen v. Schneck Medical Center (2007)
FACTS
o A drunk driver was brought to the ER by the police. The man was in severe pain and had multiple open
wounds. The hospital discharged him without properly screening or treating him. He refused to sign the
discharge papers and the police begged the hospital to continue to treat him.
o Lewellen sued under EMPALA
HELD
o The suit could survive summary judgment because Lewellen had enough evidence to show that there
was a genuine issue of material fact on whether the emergency room physical was deliberately indifferent
to Lewellen's serious medical needs
Part 4. What Does it Mean to Come to the Hospitals Emergency Department?
How can a patient come to an emergency department?
Present self at ED
Present self at hospital, or adjacent areas to a hospital
By ambulance
o Hospitals own ambulance
o City-owned ambulance if ambulance called in advance and hospital not on diversionary status
Case Law
Before Arrington, all that mattered was the ownership of the ambulance
In Arrington, the court held that the CMS regulation was satisfied when a call as made from the ambulance and
the hospital was not on diversionary status
Morales followed Arrington, applied Chevron to find that the CMSs interpretation of the statute was reasonable
o better to have crews call ahead rather than forcing them to show up unannounced to the person can
present at the ER
2003 amendments give a clearer understanding of the comes to standard:

Dedicated emergency department means any department or facility of the hospital, regardless of whether
it is located on or off the main hospital campus, that meets at least one of the following requirements:
(1) It is licensed by the State in which it is located under applicable State law as an emergency
room or emergency department;
(2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that
provides care for emergency medical conditions on an urgent basis without requiring a previously
scheduled appointment; or
(3) During the calendar year immediately preceding the calendar year in which a determination
under this section is being made, based on a representative sample of patient visits that occurred
during that calendar year, it provides at least one-third of all of its outpatient visits for the
treatment of emergency medical conditions on an urgent basis without requiring a previously
scheduled appointment.

Part 5. The Duty to Stabilize Persons with Emergency Medical Conditions

Necessary Stabilizing Treatment
Second half of EMTALA
If hospital determines there is emergency condition it MUST provide further examination and or treatment or
transfer in accordance with section (c)
o EMTALA is violated if a patient is discharged patient without knowledge of emergency condition and/or
without engaging in exam/treatment to assure that no material deterioration of the condition will occur
(trigger for stabilization requirement was transfer)
Requirements
o Stabilization requires such treatment of an emergency medical condition as may be necessary to assure,
within reasonable medical probability, that no material deterioration of the condition is likely to result
from of occur during the transfer of the individual from a facility.
Must provide exam/treatment as may be required to stabilize the medical condition to an
objective standard
o HOWEVER if a hospital does not have the facilities to stabilize a patient, s/he must be transferred to an
appropriate facility.
EMTALA doesnt specify how long a patient needs to remain stable before discharge, and the circuits are split:
o Bryan v. University of Virginia (1994) (4th Cir): only need to stabilize in immediate aftermath but allows
hospitals to admit patients that dont intend to treat and then dump them after what would be
considered immediate aftermath
o Moses v. Providence Hospital and Medical Centers (2009) (6th Cir.): stabilization requirement applies way
after admitted otherwise hospitals may circumvent EMTALA by admitting patients (although runs risk
of impeding state malpractice laws contrary to Congresss stated intent of EMTALA)
o Arrington v. Wong (2001) (9th Cir.) is in between EMTALA is ended when admitted as inpatient BUT if
patient demonstrates was admitted to avoid EMTALA, EMTALA liability may attach (most in-line with
statute)

Case Law
In the Matter of Baby K (1994)
FACTS
o Woman finds out during pregnancy that fetus has anencephaly (no brain above brain stem), decides not
to abort for religious reasons

o
o
o
o

when she gave birth, the baby stopped breathing, mother wanted respiratory support rather than just
comfort care
physicians put baby on respirator even though violated standard of care
baby stabilized, went to nursing home, but would stop breathing periodically and come back to ER
Hospital filed lawsuit for declaratory rule that not required providing respiratory support to Baby K
because violated standard of care.
Hospital claimed condition was anencephaly, that EMTALA merely requires that they provide a
uniform service and the mode of treating anencephaly is comfort care
problem is that uniformity applies to screening, not stabilization because the stabilization
requirement does not use appropriate
The word appropriate is what triggers the discriminatory analysis under the screening
requirement

HELD
o Court found it was respiratory distress; not relevant that the baby had anencephaly according to the court,
once comes to hospital w/ emergency condition has to stabilize
o Hospital argued that under VA law, doctors cant be compelled to provide treatment they believe to be
ethically or medically inappropriate
But EMTALA preempts state law
emergency condition is apnea, not anencephaly
also when baby born, put her on respirator, so have shown willingness to act outside standard of
care
NOTE
o The lower court denied hospital under EMTALA and baby doe law, which declares it to be a violation of
civil rights laws covering people with disabilities to withhold life-sustaining treatment from infants with
disabilities. This decision was very controversial. The fourth circuit upheld decision solely under
EMTALA.
Part 6. The Duty to Stabilize and Furnish A Medically Appropriate Transfer
Transfer:
Cant transfer a patient who is not stable unless:
o (1) Person consents to transfer (informed consent)
o (2) Physician finds medical benefits outweigh medical risks of transfer; or
o (3) A qualified medical person who has conferred w/ physician signs statement agreeing that transfer is
necessary
Transfer must be appropriate:
o Transferring hospital provides medical treatment with the capacity to minimize risks to individuals
health and sends all medical records relating to emergency condition
o Receiving facility
Has available space/qualified personnel
Has agreed to accept transfer and provide appropriate medical treatment
o Transfer effectuated through qualified personnel and transfer equipment
o Medically appropriate is highly fact-specific, must look at the medical condition and technological and
personnel capacity of both hospitals
Other facilities can seek damages from unlawful transfer
Part 7. The Duties of Transferee Hospitals
Original EMTALA statute required that any hospital with specialized capabilities accept all transfers of emergent patients
that they had the capacity to help.

(g) Nondiscrimination. A participating hospital that has specialized capabilities or facilities (such as burn
units, shock-trauma units, neonatal intensive care units, or (with respect to rural areas) regional referral
centers as identifies by the Secretary in regulation) shall not refuse to accept an appropriate transfer or an
individual who required such specialized capabilities or facilitates if the hospital has the capacity to treat
the individual.
BUT the 2008 Amendments changed this:
o Eliminated the requirement that all specialized hospitals have to accept transfers they have the ability to treat
o This is the biggest issue with EMTALA today - especially comes up with psych patients
A hospital admits a psych patient, two days later they realize that this patient needs more
supervision or resources than they have at the hospital. But when they ask a hospital with a more
intense psych department for a transfer, the other hospital frequently refuses
The result is that the patient stays in the hospital that can't handle and help them.
o As a result, many hospitals keep patients in the ER as long as possible to insure that the patient can be transferred
if necessary
Part 8. On-Call Specialists
2003 Rule No longer required hospitals to have on-call specialists, even when there are no transfer possibilities.
Would not be a violation of EMTALA if transfer unstably because no transfer possible, no on-call specialist
available
RULE:
Each hospital must maintain an on-call list of physicians on its medical staff in manner that best
meets the needs of the hospitals patients, who are receiving services required under this section, in
accordance with the resources available to the hospital, including the availability of on-call physicians.
The hospital must have written procedures in place
o to respond to situations in which a particular specialty is not available or the on-call
physician cannot respond because of circumstances beyond the physicians control;
o to provide that emergency services are available to meet the needs of patients with
emergency medical conditions if it elects to permit on-call physicians to schedule
elective surgery during the time that they are on call or to permit on-call physicians to
have simultaneous on-call duties
Example:
Dabney v. Fort Walton Beach Medical Center (2007)
FACTS
o Patient came in with neurological damage. The on-call neurosurgeon was sick, no other specialists
available and three other hospitals refused to accept a transfer of P.
o P sued hospital for failing to have a back-up system to insure patient safety.
HELD
o No violation of EMTALA because the statute does not require having a system in place guaranteeing
transfer
Part 9. How Does the EMTALA Stabilization Duty Apply to Inpatients?
Two types of emergencies as inpatient:
o Admitted from ER w/ emergency condition
o Emergency arises once admitted
Courts were all over the place
Lopez Soto v. Hawayek(1998)
FACTS

o
o

Baby born, developed complications, on-call specialist not available.

The hospital decided to transfer child to specialized care, which was not available and the baby
died.
Although the mother presented herself at ER to give birth, the emergency arose as an inpatient.

o
HELD
o The court found that the screening and stabilization requirements are disjunctive
reading together makes (b)s comes to hospital superfluous in light of (a)s comes to
language; comes to hospital reflects desire to cast wide net, no reference to ED
o Screening duty applies only to those who presents at ED
o BUT stabilization requirement applies to any individual in the hospital
Legislative history supports stabilization applies outside ED, Congress had broader
concerns re: antidumping than ED
o Transfer provisions apply regardless of how entered hospital
b and c are linked because (b)(1) ties need to stabilize to transfer provisions
Urban v. King (1994) (10th Cir): followed same disjunctive approach
Roberts v. Galen (1999) (SCOTUS):
FACTS
o The plaintiff Johnson was treated for severe injuries from a car accident at Humana Hospital.
o Some Humana personnel were aware that Johnson did not have insurance, and pushed for a
transfer, but her treating physicians both claimed to be unaware that she was uninsured.
o The question before the court was whether it was necessary for the hospital to be motivated by
financial considerations in order for Johnson to have an EMTALA claim.
HELD
o EMTALA does not require that a plaintiff prove improper motive as part of a stabilization claim
you have to stabilize people in hospital (does not mention linkage between screening and
stabilization)
Harry v. Marchant (2001) (11th Cir.)
found time between admittance through ED for emergency condition and transfer was long enough that
there was no duty to stabilize
(read stabilization and screening requirements together once admitted no longer covered by EMTALA,
if discharged unstably can sue for malpractice)
Bryant v. Adventist Health (2002) (9th Cir):
if you come through ED and are admitted, you lose EMTALA protections unless it is shown that you
were admitted as an inpatient to avoid EMTALA protections (subterfuge)
HEALTH & HUMAN SERVICES
Rule specifying applicability of EMTALA to inpatients (appears to codify Marchant, decreased scope of
stabilization requirement, EMTALA ceases to apply once admitted as inpatient):
Exception: Application to inpatients.
(i) if a hospital has screened an individual * * * and found the individual to have an emergency
medical condition and admits the individual as an inpatient in good faith in order to stabilize the
emergency medical condition, the hospital has satisfied its (EMTALA) responsibilities * * *
(ii) This section is not applicable to an inpatient who was admitted for elective (non-emergency)
diagnosis or treatment.

How to show good faith? Consider whether the hospital asked about the patients ability to pay, whether
really tried to stabilize as inpatient
But hospitals are still required to provide quality care because:
o Malpractice liability
o Requirement of participation in Medicare/Medicaid
o Some facts may lead to different result depending on whether malpractice/EMTALA applies

Doesnt seem to apply if admitted through other means does not seem to square with Lopez Soto)
How the Law Creates Access to Health Care

Chapter 4. Civil Rights and Access to Health Care

Federal Civil Rights Law:
o Prohibits discrimination on basis of:
Race
National Origin
Gender
Religion
Physical/mental impairments
Not poor (except Hill-Burton, is limited)
o Applies to:
Public Entities
Some private i.e. public accommodation (physicians successful in making selves not seen as public
accommodation)
Civil Rights are Important in Health Care due to Disparities
o Low income, health status, and health care are closely related (esp. w/ regards to preventable conditions)
Systemic causes: access, insurance coverage (lower offer/take up)
Attitudes of physicians play a role: prescribe more sophisticated/expensive treatment to whites
Smaller number of minorities in health profession educational funding not equal; until 1946
Congress voted for segregated facilities
Part 1. Prohibiting Discrimination on the Basis of Race and National Origin by Recipients of
Federal Financial Assistance under Title VI of the 1964 Civil Rights Act
Title VI of the 1964 Civil Rights Act
Reached entities that received federal assistance, enacted with healthcare in mind (designed to reach hospitals
receiving $ from Hill-Burton/NIH/State funds that started as federal grants that were still segregated; Medicare
and Medicaid had not been enacted).
o Simkins v. Gressette (4th Cir 1980):
FACTS
South Carolinas hospitals were discriminating for their failure to give admitting
privileges to black physicians enjoined part of Hill-Burton that allowed for state
facilities to be segregated
Supreme Court made clear in writ that would strike down Hill-Burton provision that allowed for
segregated hospitals, Congress refused
Blown away in 1965 by passage of Medicare/Medicaid (gave federal $ to doctors, so Title VI
applied)
Requirement not to discriminate to participate in Medicare Medicaid has huge impact on
health care system
o Title VI does not reach physicians because not paid directly by Medicare (part B not treated as type of
federal assistance) was an oral agreement between Johnson and Southern Bloc to ensure passage of Act
Treated as a K of insurance allows doctors to select patients regardless of race/gender/language
Does not exist if get paid by managed care or Medicaid
Even still, Johnson required every hospital to sign a Title VI assurance of non-discrimination to
participate in Medicare

Provisions
No discrimination in programs receiving federal assistance
Agencies that give out federal funds are in charge of enforcement
Regulations: detailed enforcement scheme, specific to health care
Recipients of federal assistance must sign assurance that will comply
Cant discriminate in selecting individuals to participate
Federal Assistance includes: loans, grants, Ks, Medicaid, cash welfare, grants to health care
institutions, payments to institutions participating in Medicare/Medicaid
Enforcement of Title VI
No express right of action title VI covers both:
De jure: intentional discrimination
De facto: facially neutral policy w/ disproportionate impact
o Was most prevalent way to get into court - i.e. change to Medicaid
disproportionately affected minorities (could not challenge on income
discrimination because not covered by federal civil rights law)
o 2000 no longer a right of action to enforce de facto discrimination (Alexander
v. Sandoval), still an action for de jure
o Now get around Sandoval by making demand to Attorney General to investigate
discriminatory practices rather than going to court
The reasoning in Sandoval threatens implied right of action in other federal civil rights laws
Subtly shifted burden of proof asks whether there was an intent to create a private
remedy
Claimed 602 was focused on agencies, not individuals
Medicaid has no specific private right of action re: denial of benefits
After Nixons election stripping of Civil Rights Authoritys power over Medicare/Medicaid
could only enforce by getting other agencies to adopt their standards

Part 3. Prohibition of Discrimination on the Basis of Disability: The Americans with Disabilities
Act and the Realization of Health Care as a Public Accommodations
o

Relevant Titles - ADA has 5 titles that were all worked on by separate committees then mashed together to pass
o Title II: public benefits;
o Title III: Public accommodations
includes doctors office
Break with common law; recognizes healthcare as a public accommodation
Up until this point, only emergency departments were considered public
accommodations
Meant to parallel the title VI of Civil Rights Act of 1964
Wanted to require private entities to provide public accommodations
In order for a patient to qualify, must have:
o (1) Mental/physical disability that substantially limits a major life function - Physical or mental
impairment that substantially limits 1+ major life function
(include, but are not limited to, caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping,
walking, standing, lifting, bending, speaking, breathing, learning, reading, concentrating, thinking,
communicating, and working)
Record of such impairment; or
Regarded as having such an impairment
Bragdon v. Abbott
FACTS
o Sydney Abbott was refused service from her dentist, Randon Bragdon, after
disclosing her status as asymptomatic HIV+

o
o
o

Bragdon agreed to fill the cavity, if it could be done in a hospital setting, but
Abbott would be required to pay the extra costs
Abbott sued for discrimination
She argued that reproduction should be considered "a major life function" and
her HIV interfered with that function

HELD
o Opinion of the court - J. Kennedy
Reproduction is a major life function under the ADA
Asymptomatic HIV qualifies one for protection under the act
Howe v. Hull
Doctor signing an invalid transfer order can be held liable under ADA if motivated by
discriminatory intent
o (2) Must be qualified (can do the job with reasonable accommodations) i.e. you are the person for
whom the public benefit was intended
o (3) Must be discrimination
Exceptions:
o Where the individual poses a direct threat
More than an insignificant risk
Objective: Determined based on medical information; would a reasonable doctor perceive a
direct threat (not whether this doctor did)
o Individual is offered a reasonable alternative really has to be reasonable

The Role of Civil Rights law in Access to Health Care

Chapter 5. Direct Public Provision of Medical Care
Part 1. Safety-Net Hospitals
A safety net hospital or health system provides a significant level of care to low-income, uninsured, and vulnerable
populations. Safety net hospitals are not necessarily distinguished from other providers by ownership some are publicly
owned and operated by local or state governments and some are non-profit. Rather, they are distinguished by their
commitment to provide access to care for people with limited or no access to health care due to their financial
circumstances, insurance status, or health condition.
Core safety net providers have two distinguishing characteristics
o 1. By legal mandate or explicitly adopted mission, they maintain an open door, offering patients access to
services regardless of their ability to pay
o 2. A substantial share of their patient mix is uninsured, Medicaid and other vulnerable patients.
Defining substantial share
It is necessary to define substantial share so that safety net hospitals are distinguished from the 64% of all hospitals
that receive Medicare disproportionate share hospital (DSH) payments.
o Possible means of measuring substantial share
o (1) A low-income utilization rate (LIUR) of 25% or more

LIUR is calculated by adding the ratio of Medicaid revenues divided by total revenues to the
ratio of inpatient charity charges divided by total charges
o (2) A Medicaid utilization rate more than one standard deviation above the mean Medicaid utilization
rate in the state
o (3) A low-income cost ratio criteria for designating a Medicare DSH hospital

Looks at the costs of all low-income patients, including Medicaid, poor Medicare patients,
patients financed by state or local indigent care programs, and uncompensated care
(4) Measuring uncompensated care as a percent of total cost.

Part 2. Community Health Centers

Community Health Centers (CHCs) in the U.S. are neighborhood health centers generally serving Medically Underserved
Areas (MUAs) including persons who are
o

Uninsured

Underinsured

low-income

living in areas where there is little access to primary health care available

CHCs are largely federally and locally funded.

Medically Underserved Areas/Populations are areas or populations designated by the Health Resources and Services
Administration, or HRSA as having: (1) too few primary care providers, (2) high infant mortality, (3) high poverty and/or
(4) high elderly population.
Health Professional Shortage Areas (HPSAs) are designated by HRSA as having shortages of (1) primary medical care, (2)
dental or (3) mental health providers and (a) may be geographic (a county or service area), (b) demographic (low income
population) or (c) institutional (comprehensive health center, federally qualified health center or other public facility).

PART TWO: HEALTH CARE FINANCING

The Rise and Evolution of Insurance

Chapter 6. The Rise and Evolution of Health Insurance

Brief Timeline of Health Insurance in the United States
Beginning of the 20th Century
Physicians - not licensed, many types of healers
Hospitals:
Grew exponentially in this period
Hospitals were for treatment of poor; middle and upper class treated at home
All hospitals were non-profits that were actually governed by doctors
Doctors were not employees of the hospital, but private practitioners that had admitting privileges
Brought patients to the hospital to use the facilities
Public hospitals organized similar to non-profits
1930s - Great Depression and the rise of employment-based health insurance
Blue Cross/Blue Shield (BCBS)
A non-profit organization that offered pre-paid health care (early health insurance)
Didnt have to pay insurance tax - in exchange for tax breaks BCBS promised that they would serve the
community
Anybody could enroll and they used community rating
BCBS dominated until 1950s;
After WWII people began to enter insurance market
Private insurance began to skim off healthy people
o As healthier people began to abandon BSBC had to abandon its original commitment to
the community rating - different prices for groups of people
o Insurance became unaffordable for the elderly (an easy to identify group with high health
care costs)
1965 - Enactment of Medicare and Medicaid
Democrats took control of both house and senate in white house - addressed growing problem uninsured
Americans couldn't get/afford health insurance. Passed:
Medicaid - coverage for poor families and children
Medicare - coverage for the elderly and qualifying disabled Americans
2010 - Passage of the Patient Protection and Affordable Care Act
2014 - Many ACA provisions take effect
Remaining provisions will be phased in by 2020
Part 1. Health Care Costs and the Search for Solutions
What is health care spending?
Health care spending is a function of quantity (how much care is used) and the price paid for that care
Americans currently spend more on healthcare than any other nation, but our outcomes are not better

High levels of US spending is the result of far higher out-of-pocket payments by individuals and
employers' contributions to workers' health insurance coverage

Causes of increased spending

o Quantity is increased by poor health
Americans are in poorer health than other nations when it comes to infant mortality and preventable
chronic illness
In the US obesity increases spending by 50%, but Americans are less likely than other nations to have
access to the type of care that can actually help with obesity.
o Lack of access to the right care in the right place at the right time is a significant factor in cost.
100 million Americans live in communities designated as medically underserved because of poor health
indicators and lack of access to primary care
o "Increased capability of medicine"
A philosophy about medicine that values the steady and rapid introduction into the health care economy
of high process technologies whose effectiveness and value are not well-analyzed before they become
available.
Problems - not necessarily more efficient or effective. Can increase cost without bettering
outcomes.
o Health care fragmentation
When different health care providers (doctors, therapists, hospitals, insurance companies) don't
coordinate or work together to increase quality and efficiency of care
The majority of the US health system is fragmented, cause problems with the continuity of care
Integrated care, health care systems in which hospitals and physician practices are combined into a single
enterprise that provides more complete integrated care, has proven to be significantly more effective and
efficient.
o Cost of health insurance
US relies on many small regional and national health insurance networks
Other nations risk across the entire country, which cuts down on administrative costs and allows
for collective bargaining
The many different companies attempting to look for the best risks while excluding the worst
The system results in a bad ombination of
risk selection
market instability
higher administrative costs
insurance tied to employment
the inability to control costs
unpredictable and uncontrollable flow of financing
Part 2. The Evolution of Heath Insurance and Health Insurance Law
State Regulation of the Insurance Industry
McCarran-Ferguson Act - left insurance regulation to the states by stipulating primacy of state law
o States were able to regulate insurers because they had to be licensed to sell product in state,
Areas that the states regulate
The relationship between pharmaceutical companies and health care providers
o Sorrell v. IMS Health Inc (2011) (SCOTUS)
FACTS
Vermont passed legislation making it illegal for pharmacies to sell the names of
prescribing doctors to pharmaceutical companies.
The goal was to stop drug companies from directly lobbying doctors and therefore, stop
them from persuading doctors to use higher-cost brand name drugs

The law did permit the sale of the information if doctors consented to it.
Drug companies argues that the law violated the first amendment because it did not
outlaw all uses of prescriber information, only use of the information to sell
pharmaceuticals
o

HELD
Found for the drug companies
Agreed that the law impermissibly violated the first amendment because it was a content
based regulation
Attempts to ensure solvency by regulating
o Licensure
Companies are frequently subject to oversight
o Capitalization
Companies must maintain adequate reserves to pay claims
o Operations and management
Including control of experience rating and medical underwriting practices
Consumer Protection Statutes
o Prohibiting overreaching, unfairness, fraud or deceptive practices.
High pressure sales tactics are outlawed
o Insurance sales agents are required to be registered and licensed
o There must be a certain level of fairness in processing claims
o Companies are frequently required to get state approval of the form of sales contracts and appeals
processes to ensure appropriate enforcement of contracts
o State insurance departments may have the power to impose penalties and issue cease and desist orders.
Access to insurance
o Defining who must be allowed access to individual and group policies
o When coverage may be restricted with the use of pre-existing conditions or waiting periods
o When companies can vary premiums in relation to certain characteristics of policyholders
Such as age, gender, health status, or prior claim experience
Content of insurance coverage
o What benefits must be covered
Such as coverage of treatment for mental illness, substance abuse, maternity care, or prescription
drugs

Problems with state regulation

Lack of resources: State insurance commissions often do not have the power or resources to regulate effectively or
enforce regulations
o To remedy this problem, commissioners formed the National Association of Insurance Commissioners
(NAIC), but the insurance industry is very powerful
Exit fear: States fear that strict regulation will cause large providers to leave the state
o This is remedied slightly by the ACA and the new national medical-loss ratios
Weakness: State standards are often weak and leave enormous discretion to the industry. Permitted some terrible
practices:
o Medical underwriting (Hailey: under CA law, there is a permissible scope of medical underwriting);
o Refusing to renew plans
o Rescinding coverage instead of paying for care
Hailey v. California Physicians' Service (2007)
FACTS
o Wife applied for health insurance and left out her husbands conditions. She
could have been insured under employer but then could not see family doctor.
Application did not ask for husbands health information and the broker didnt
have a very penetrating conversation with her. They were rated as one of the best

customers, but then her husband gets sick and they are sent to the investigation
unit.
CA statute prohibited post-claims underwriting, was defined as rescinding,
canceling, limiting K due to plans failure to do underwriting of information on
or provided in a K (with exception for willful misrepresentation);

HELD
o In order to avoid violating the statute, insurance companies need to make a
record of their investigation at the front end
o Insurers cannot rescind coverage after subscriber begins to rely on it
It would give companies incentive remain ignorant take subscriber's
premiums before rescinding the coverage when it's actually needed
Rescissions have now been outlawed by the ACA

Federal regulation of the insurance industry

Employee Retirement Income Security Act (ERISA) (1974)
o Established a limited regulatory framework for group health benefit plans sponsored by private
employers
o Preempts much of state law
Despite the McCarran Ferguson Act's preservation of state regulatory power over insurance,
federal health insurance legislation has taken the authority back because of uneven and
dysfunctional state regulation
o Set standards for
Disclosure
Plan administration
The review of claims and benefits
o Coverage requirements
Mothers and newborns threatened with premature discharge from hospitals following birth
Women with breast cancer
Genetic non-discrimination
Continuation coverage
COBRA Amendment to ERISA
Continuation benefits for beneficiaries for 18-36 months following a qualifying event,
although you have to pay 102% of the premium; Entitled to same coverage under plan as
employees that are still covered
o Huge benefit to sick person because
Affordable coverage depends on being a member of a large insured
group; individual plans have higher rates even where = subsidized
Waiting periods/exclusions for preexisting conditions
o Employee must elect continuation of coverage within 60 days
Non-discrimination and portability requirements
Health Insurance Portability and Accountability Act (HIPAA) (1996)
o Federal law limits ability of insurers in group and individual markets to dictate their market and aims to
prevent job lock
o Structure/Scope: covers employer plans, individual/group coverage by commercial insurance, state/local
government employees; does NOT preempt state laws that are stricter
o Group Market Reforms:
Limits denial of coverage for pre-existing conditions
For employer plans insurance companies were not permitted to look back more than 6
months
Prohibits employer plans/group insurers from discriminating against individuals
Regulates insurance practices in small group availability and renewability

Portability Protections

A group health plan and health insurance issuer offering group health insurance coverage may,
with respect to a participant or beneficiary, impose a pre-existing condition exclusion only if: (1)
such exclusion relates to a condition (whether physical or mental) regardless of the cause of the
condition, for which medical advice, diagnosis, care or treatment was recommended or received
within the 6 month period ending on the enrollment date; (2) such exclusion extends for a period
of not more than 12 months (or 18 months in the case of a late enrollee) after the enrollment date;
and (3) the period of such preexisting condition exclusion is reduced by the aggregate of the
periods of creditable coverage applicable to the participant or beneficiary as of the enrollment
date
An individual with one years creditable coverage could not as a general rule be subject to
pre-existing condition exclusions
Plans cant use preexisting condition exclusions for greater than 12 months
Plans cant use: genetic information, pregnancy, conditions of newborn or adopted kid as
preexisting conditions
Caveats regarding use of preexisting condition:
Can use alternative method to calculate creditable coverage (i.e. without regard to
specific benefits or based on several classes or categories of benefits)
Differential can be based on different deductibles (i.e. difference of deductibles for mental
illness services preexisting exclusion for those services may be applied)
HMOs can impose affiliation period as opposed to preexisting condition exclusion
Four conditions to special enrollment periods
(1) The individual must have turned down enrollment initially because she has other
coverage at the time coverage was previously offered to the employee or dependent
(2) The individual must state in writing at the time that enrollment was offered that his or
her other coverage was the reason for declining new coverage
(3) The individuals other coverage must either have been exhausted or else terminated as
a result of the loss of eligibility for the coverage
(4) The individual must request enrollment within 30 days after the date of exhaustion or
termination
Anti-Discrimination - Plans cannot establish rules for eligibility of any individual to enroll based on:
Health status; Medical condition; Claims experience; Receipt of health care; Medical history; Genetic
information; Evidence of insuraibility; Disability
Also not allowed to use higher premiums based on health status or base waiting periods on
health condition
Discrimination provisions do not require benefits other than those covered to prevent them from
establishing limitations in benefits
It is OK for generally applicable terms of plan to have disparate impact, unless is directed at
individuals
Wellness programs dont violate HIPAA, but essentially precludes coverage for members with
health conditions by turning wellness incentives into penalties
Availability and Renewability
Guaranteed Issue:
Small Group Market: Any insurance issuer that offers insurance coverage in the small
group market in a state:
o (A) Must accept every small employerin that state that applies for such
coverage; and
o (B) must accept for enrollment under such coverage every eligible individual
who applies for enrollment during the period in which the individual first
becomes eligible to enroll under the terms of the group health plan and may not

place any restriction which are inconsistent with the anti-discrimination

provisions on eligible individual being a participant or beneficiary
o Note: can exclude them if employees dont live/work in network area; cant deny
access to employers for reasons other than non-payment, fraud, non-compliance,
or ceasing to serve area
Individual Insurance Market: Each health insurance issuer that offers health insurance
coveragein the individual market in a state may not, with respect to an eligible
individual,
o (A) decline to offer such coverage, or deny enrollment of such individual; or
o (B) impose any preexisting condition exclusionwith respect to such coverage
o Limitations on Guaranteed Coverage are substantial:
No need to offer in individual market
If does, insurer must offer to individuals who meet five complex
requirements
o Options regarding nature of coverage extended to individuals:
acceptable alternative mechanism in state, OR
> two forms of polices that are designed for, made generally available to,
and enroll both eligible and other individuals by the insurer
Need not offer same coverage available to other individuals
may choose separate policy for guarantee issue individuals
Although the two forms must: (1) have the largest and next
largest premium value; and (2) be representative of individual
health insurance coverage by the insurer
THERE IS NO LIMIT ON PREMIUMS
Can avoid enrolling people by not having a network where they
live

Part 3. Escalating Costs and New Models of Health Insurance

How the Government has dealt with the cost of care
First attempts
Introduction of peer review into Medicare
Exclusion of certain services as entirely unnecessary
Across the board wage/price controls (Nixon) too politically problem-ridden to be sustained
Repeal state power to increase Medicaid and other constraints on public financing
HMO Act (designed to increase vertically integrated industrial plans allowed intermediary to set prices)
1974 revised health planning to reduce supply (largely toothless)
Carter all-payer rate-setting techniques
Further federal efforts were limited to Medicare/Medicaid
1982 prospective pricing in Medicare
1984 physician fee payments
Eligibility restrictions in Medicaid
Reduce federal money to states
Redefine federally recognized services
Introduce new pay limitations/exclusions
Regulations requiring states to greatly increase share (will cause them to cut)
Enactment of fraud and abuse statutes to reduce spending (has had little effect in terms of costs)
New models of health insurance
Indemnity products
patient paid doctor, insurer paid them back (no legal relationship between doctor/insurer, although some
doctors accepted assignment

Balance bill
Insurers introduced fee schedules amount paid by insurer did not raise as the doctors/hospitals raised
their charges; if doctors accepted assignment the patient would owe the remainder
Networks
In-network doctors agree to accept a lower fee in exchange for a flow of patients; this model took off
quickly, also in public sector; but cost savings were temporary
Health Maintenance Organizations (HMO)
An organization that on a pre-paid basis provides managed care for health insurance and acts as a liaison
with health care providers. HMOs require that all health care is provided by in-network providers,
except emergency care.
Purpose
To integrate financing and health care into hybrid entities that, through greater clinical and
financial integration, could insure the population while managing care through greater emphasis
on prevention and efficiencies.
Utilization review
Retrospective: insurance companies would not pay after procedure was done because deemed medically
unnecessary; insurance companies did not fare well in court
Prospective: insurance companies required prior authorization of a certain treatment before would agree
to pay for it
Managed Care
Goal is to combine financing and care with a single enterprise in which coverage is conditioned in whole
or in part on the use of a network, while providers' access to insured patients depends on their
participation and acceptance of the insurer's control over access to coverage
Consumer-driven Care
High deductible health plans (HDHP) with HSAs
Problems
HDHP plans fail to distinguish between the unnecessary use of high cost services and the use of
large amounts of care to address significant health needs. Therefore people often forgo necessary
care.
These plans are primarily bought buy young people, leaving older people to buy traditional
plans. In turn traditional plans get more expensive.
Lower income people rarely receive employer contributions to their HSAs.

Part 4. The Patient Protection and Affordable Care Act

Supplement. Slogging Toward the New Normal: Implementation of the Affordable Care Act
Prelude to reform
Prior to the ACA, insurers used three types of risk-shielding techniques
o (1) Keeping bad risks out of the poor to begin with both through outright exclusion (either entirely or for
pre-existing conditions) and through rescissions (cancellations) as part of their practice of medically
underwriting individuals and groups.
o (2) Exorbitant pricing
o (3) Limiting coverage coupled with a lot of treatment exclusions and high cost-sharing in order to hold
down unanticipated coverage costs
Unsurprisingly, these techniques sucked for everyone not an insurer
ACA Structure and Elements
Guaranteed issue
o prohibits insurers from denying coverage to individuals due to pre-existing conditions, and a
partial community rating requires insurers to offer the same premium price to all applicants of the same

age and geographical location without regard to gender or most pre-existing conditions
(excluding tobacco use).
Minimum standards for health insurance policies are established.
Individual mandate
o requires all individuals not covered by an employer sponsored health plan, Medicaid, Medicare or other
public insurance programs to secure an approved private-insurance policy or pay a penalty, unless the
applicable individual has a financial hardship or is a member of a recognized religious sect exempted by
the Internal Revenue Service. The law includes subsidies to help people with low incomes comply with
the mandate.
Health insurance exchanges
o Each exchange will serve as an online marketplace where individuals and small businesses can compare
policies and buy insurance (with a government subsidy if eligible). In the first year of operation, open
enrollment on the exchanges runs from October 1, 2013 to March 31, 2014, and insurance plans purchased
by December 15, 2013 will begin coverage on January 1, 2014. In subsequent years, open enrollment will
start on October 15 and end on December 7.
Vouchers for the exchanges
o Low-income individuals and families whose incomes are between 100% and 400% of the federal poverty
level will receive federal subsidies on a sliding scale if they purchase insurance via an exchange. Those
from 133% to 150% of the poverty level will be subsidized such that their premium costs will be 3% to 4%
of income. In 2013, the subsidy would apply for incomes up to $45,960 for an individual or $94,200 for a
family of four; consumers can choose to receive their tax credits in advance, and the exchange will send
the money directly to the insurer every month. Small businesses will be eligible for subsidies.
Medicaid Expansion
o Eligibility expanded to include individuals and families with incomes up to 133% of the federal poverty
level, including adults without disabilities and without dependent children. The law also provides for a
5% "income disregard", making the effective income eligibility limit for Medicaid 138% of the poverty
level. Furthermore, the State Children's Health Insurance Program (CHIP) enrollment process is
simplified.
o However, in National Federation of Independent Business v. Sebelius (2012), the Supreme Court ruled
that states may opt out of the Medicaid expansion, and several have done so.
Reforms to the Medicare payment system
o Intended to promote greater efficiency in the healthcare delivery system by restructuring Medicare
reimbursements from fee-for-service to bundled payments. Under the new payment system, a single
payment is paid to a hospital and a physician group for a defined episode of care (such as a hip
replacement) rather than individual payments to individual service providers.
o In addition, it has been asserted that the Medicare Part D coverage gap will shrink incrementally, closing
completely by January 1, 2020.
Employer Mandate
o Businesses which employ 50 or more people but do not offer health insurance to their full-time employees
will pay a tax penalty if the government has subsidized a full-time employee's healthcare through tax
deductions or other means.
o In July 2013, however, this provision was unilaterally delayed for one year by President Obama.

Insurer Obligations and Remedies under State Law

Chapter 7: Defining Insurer Obligations and Remedies Under State Law

Part 1. Remedies for Bad Faith Breach of Contract in Denying Coverage
Remedies
Common law came to recognize a series of remedies against insurers; courts began to hand down remedies under already
existing theories of:
1.
Unfair and deceptive practices
2.
Bad faith breach of contract
3.
Bad faith (making of a contract)

Albert H. Wohlers & Co. v. Bartkis (1998)

FACTS
o Bartkis bought a health insurance policy from Wohlers that was later swapped for another policy.
Wohlers assured Bartkis that the new policy was essentially the same.
o Bartkis got cancer and got pre-approved for 24-hour hospital stay and surgery. However, the actual stay
took 27 hours in total.
o The insurance company billed Bartkis for everything other than the room and board, calling all medical
expenses ancillary charges. The ancillary charges, a new provision of the second policy, took into effect
because Bartkis was in the hospital for more than 24 hours and was therefore an inpatient.
o Bartkis sued for breach of contract and bad faith.
HELD
o The jury did not error in their finding of bad faith.
o An insurer's belief that the contract does not cover certain claims is not sufficient to preclude a finding of
bad faith.
o Allowing insurers to avoid punitive damages merely be including vague language would encourage
poorly written contracts that manipulate subscribers.
o Wohlers represented Bartkis's new policy as comprehensive and comparable to the old one, when it
actually was no better than a hotel voucher.
o This undeniable misrepresentation and absurd interpretation of "ancillary charges" are unreasonable.
o Bad faith generally requires: deliberate intent to mislead NOT negligent or sloppy language
o Contrapreferendum: construe a contract against the drafter because has control of the language

ERISA

Chapter 8. ERISA
Part 2. History and Statutory Structure
Why pass ERISA?
o Established by Congress to address the mismanagement of employee benefits
o Under-funded pension plans
o Mismanagement failings during periods of decline
o Create uniformity in 1974 states were the only entities that regulated health insurance therefore there
was a lot of variation between states.
State-to-state variation put a huge burden on national companies and unions
o When enacted, Congress was considering nationalized health care (either growing Medicare to cover all
Americans, or creating a new federally-administered health insurance system)
What did ERISA cover?
o ERISA addresses Employee Welfare Benefit Plans (EWBP) (1002) (Does NOT apply to benefits plans for employees of
religious organizations/government)
o Does not require that an employer provide insurance to its employees or retirees, but it regulated the
operation of a health benefit plan if an employer chooses to establish one.
o Requires that EWBPs
1. Have certain ascertainable eligibility and benefits;
2. Are offered in the context of private employment;
3. Involve some degree of ER administration
Can be either
Self-insured
Fully insured the product sold to the plan is NOT an EWBP
o Categories of legal analysis (they tend to run together
Establishment/design of employer-sponsored health plan
what classes of benefits are listed + items/procedures covered within each service/benefit class
benefit definitions
limitations
exclusions
the purpose of these limitations is to:
curb moral hazard
minimize risk
discriminate
Administration of terms of the plan
Do you qualify? i.e. is it medically necessary for you?
Liability for physical and other types of Harm
o Two doctrinal lenses:
o ERISA preemption
o ERISA plan administration and fiduciary duties haunted by tension between:
unregulated markets
egalitarian social contract
Part 3. Fiduciary Duty of Information and Disclosure

ERISA requires that insurance companies disclose some documents upon the written request of a subscriber who is
challenging a coverage decision.
Any document that administrators or agents use when making a coverage decision must be disclosed.
o Including proprietary practice guidelines that are not typically disclosed.
If the documents are not disclosed within 30 days of the written request, the subscriber might be entitled to
statutory penalties for the late production.
In a coverage dispute, a plaintiff should always ask for all documents used to make the decision
29 USCS 1024 (b)(4)
The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the
latest updated summary plan description,[,] and the latest annual report, any terminal report, the
bargaining agreement, trust agreement, contract, or other instruments under which the plan is
established or operated. The administrator may make a reasonable charge to cover the cost of
furnishing such complete copies. The Secretary may by regulation prescribe the maximum amount
which will constitute a reasonable charge under the preceding sentence.

Mondry v. American Family Mutual Insurance Company (2009)

FACTS
o When the employee sought reimbursement from her benefit plan for the speech therapy her son was
receiving, she was advised that the therapy was not covered by the plan.
o For the next 16 months, the employee repeatedly asked both the plan and claims administrators to supply
her with the plan documents on which the claims administrator had relied in denying her claim.
o When the documents were finally produced, it became clear that the claim had been inappropriately
denied for reimbursement and the employee prevailed.
o The employee then filed this ERISA suit alleging the plan administrator failed in its statutory obligation to
produce plan documents under 29 U.S.C.S. 1024(b)(4).
HELD
o The plan administrator did fail to disclose the documents upon request.
o Though the documents were internal files, an employee of the company admitted to using them to
interpret the employees plan. Therefore, they must be disclosed.
o Knowing where one stands with respect to an employee benefit plan includes having the information
necessary to determine one's eligibility for benefits under the plan to understand one's rights under the
plan.
o In the case of disclosure of plan documents, it is the plan administrator who bears both the duty and the
liability
Part 4. Full and Fair Review of Claims
ERISA entitles plan participants and beneficiaries to full and fair review of claims when coverage is denied. (However,
the process can be expedited if delays will risk the health of the beneficiary.)
The core requirements of a complete review are
Knowing what evidence the decision-maker relied on
Having an opportunity to address the accuracy and reliability of that evidence

Having the decision-maker consider the evidence presented by both parties prior to reaching a decision.
29 USCS 1133
In accordance with regulations of the Secretary, every employee benefit plan shall-(1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits
under the plan has been denied, setting forth the specific reasons for such denial, written in a manner
calculated to be understood by the participant, and
(2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full
and fair review by the appropriate named fiduciary of the decision denying the claim.

Shelby County Health Care Corp. v. Majestic Star Casino, LLC Group Health (2009)

FACTS
o
An employee of the plan administrator's subsidiary sustained injuries in a one-car accident.
o
It was inconclusive whether the employee was driving under the influence, though there was suggestive
evidence. However, in his report a contractor for the insurance company claimed the accident was a result of
intoxication.
o
The employee received treatment at one of the claimant's medical facilities and assigned his insurance
benefits to the claimant.
o
The plan's third-party administrator denied benefits, finding that the employee's medical expenses were
excluded from coverage under an illegal-act provision because he was driving without a license and driving
without insurance at the time of the accident.

HELD
o
The third-party administrator and the plan administrator erred in denying the claim for benefits because
there was an insufficient causal link between the employee's injuries and the act of driving without a license
or driving without insurance.
o
Although ERISA creates a cause of action for plan participants to challenge benefits determination, it does
not specify the standard of review. SCOTUS has established that a denial of benefits is to be reviewed de novo.

But if a plan grants the administrator discretion to determine eligibility for benefits or construe
the plan, then the district and appellate courts must review the denial of benefits under the highly
deferential arbitrary and capricious standard.
o
Instead of conducting a full and fair review of the employee's claim, the plan fiduciaries abdicated their
responsibilities by rubber-stamping its contractors' report.
o
As a result, the insurance company lost the deferential standard of review in reviewing the lower court's
decision.
Part 5. Health Benefit Plan Design and the ERISA Settlor Function
When an employee is acting as in the function of a settlor and making business decisions, those decisions are not subject
to ERISA's fiduciary rules. As fiduciaries carry much more liability for their decisions, insurance companies have a strong
incentive to classify all decisions as settlor functions.
The court has classified settlor functions as:
Choosing the type of plan, or options in the plan;
Amending a plan, including changing or eliminating plan options;
Requiring employee contributions or changing the level of employee contributions;
Terminating a plan, or part of a plan, including terminating or amending as part of a bankruptcy process.
Settlors have roughly unlimited discretion to design, amend and cancel their plans when and however they want (unless
there is a law on point). A corporate official who has dual roles is bound by ERISAs fiduciary roles only when managing
the plan; not when performing settlor functions.

McGann v. H&H Music (1991)

FACTS
o McGann, an HIV positive man, sued his employer when the company made the decision not to cover
AIDS treatment in its employee health plan.
o Plaintiff bore the burden to show that the coverage change was in retaliation for filing AIDS-related
claims and/or the companys intent was to interfere with McGanns rights to which he was entitled
o Company argued that the purpose of the change was to reduce cost, intent was not to discriminate against
the plaintiff, and the change affected all employees equally.
HELD
o Plaintiff failed to show that the coverage change was directed at him or that he was exceptionally affected.
o Termination of benefits not per se discrimination. ERISA 510, the discrimination provision, only related to
discrimination directed at individuals, not modifications of plan in general because they falls under
settlor powers:
Classes of benefits
Amount/duration/scope of benefits
definitions
Exclusions
o ERISA does not grant a right to a continued level of same benefits because costs are subject to fluctuations
Limiting ability to reduce benefits increases risk of reducing protection of future employees
Jones v. Kodak (1999)
FACTS
o The insurance company turned down Jones request to cover inpatient treatment for alcoholism on the
grounds that the treatment was not medically necessary.
HELD
o The criteria that the plan used to deny reimbursement for Jones stay at the rehab center were part of the
plan, the court cannot review them.
Once embedded in plan documents, the guidelines become a limiting factor in coverage design
and cannot be challenged, just as the clear exclusion of a treatment from the scope of coverage
can't be contested.
o It didnt matter what the medical necessity was; this is a circumscribed guideline that does not leave the
decision to a doctors discretion
Womens Health and Cancer Rights Act of 1998 (WHCRA)
In the late 80s and early 90s, many women with breast cancer were being denied coverage for post-masectimy care.
- Insurers were rejecting claims for reconstructive surgery or post-surgery under the justification that reconstructive
surgery was considered elective surgery.
These claims became so prevalent and caused so many legal cases over denied benefits, that congress stepped in to ensure
the rights of women in need of a mastectomy
- WHCRA established special rights for women whove had or expect to have a mastectomy, for medical reasons. It
requires that
o Group health plans cover mastectomies, reconstructive surgery and other post mastectomy benefits.
This required coverage includes all stages of reconstruction of the breast on which the
mastectomy was performed, surgery and reconstruction of the other breast to produce a
symmetrical appearance, prostheses and treatment of physical complications of the mastectomy,
including lymphedema.

Part 6. Judicial Review of Fiduciary Decisions (omit p. 349-358 (Note on When is Health Care Medically
Necessary?) and pick up again at 358.
Introduction

ERISA does address the standard of review for for judicial review of fiduciary decisions
Judicial review of a fiduciary decision frequently arises in the context of a decision to deny a claim for coverage brought
under ERISA 502(a)(1)(B)

When is healthcare a medical necessity?

Frequently the question before the court is whether the denied claim is medically necessary. The answer depends on
o The plans scope and extent of coverage
o How the coverage terms are defines
o The plans definition of medical necessity
o How the plan administrator applies the terms to individual facts
As health care costs have escalated , insurers have become more aggressive
o The terms of coverage have become more specific, defining actual classes of benefits to include or exclude
o Coverage exclusions have become more specific, indetifying treatments and services to exclude, as well as including
more definitions that narrow coverage.
o Drafters have incorporated practice guidelines directly into the plan in order to limit the discretion of claim
reviewers
Traditional Interpretation of Non-ERISA Plans
Historically, the challenge of a denial of a claim for benefits have been based on principles of contract law, and secondarily
on tort principles
States normally do not see themselves as review a plan, but as interpreting a contract.
o 2 state principles of contract interpretation that are usually applied to this interpretation are
Doctrine of contrapreferendum
These contracts are not usually negotiated with the policyholders, so they are treated as contracts
of adhesion.
Insurance companies are treated as and are liable for tort or expanded contractual damages of bad faith
breach of contract
The imbalance of power between insurance companies and their shareholders has caused many
(but not all) states to treat them as fiduciaries vis--vis their policyholders
Interpretation of ERISA Plans
Standard of Review
Federal courts imported the arbitrary and capricious standard from the Labor Management Relations Act (LMRA) (now
repealed).
o Much heavier standard for claimants challenging a denial.
o Required to show that the actions of the administrator of the plan where arbitrary or capricious.
SCOTUS developed a slightly different standard in Firestone
o Firestone Tire & Rubber v. Bruch (1989)

FACTS
The plaintiff challenged the denial of benefits under his ERISA plan
The Court of Appeals held that where the employer is itself the administrator and
fiduciary of an unfunded plan, deference is unwarranted given the lack of assurance of
impartiality on the employer's part.
In this situation, benefits denials should be subject to de novo judicial review (rather than
review under the arbitrary and capricious standard)
The Court of Appeals also held that the right to disclosure of plan information extends
both to people who are entitled to plan benefits and to those who claim to be, but are not,
so entitled.
HELD
A de novo standard of review applies when reviewing claims denials is the administrator
of the plan has the discretion to determine eligibility,
But parties can contract for a different standard
o Trust law created a deferential standard of review when a trustee exercises
discretionary standards because the trustee

 Is a committed to administer the trust

Has no conflicts of interest
Claims Denials Involving Uncovered and Out-of-Network Care
Health plans with tightly managed provider networks strictly limit non-emergency coverage to providers that are
not members of their networks.
o (They now have to cover out-of-network emergency care because of the prudent layperson standard in
the ACA)
For plans that cover some percentage of out-of-network care, claims are paid based on the usual and customary
rate (UCR), rather than the providers actual charges.
o If X procedure costs an insurer $100 if done in network, the insurer will only cover X for $100, even if the
actual bill for X was $1000
o UCR is a completely arbitrary and fictitious amount that is calculated by an insurer based on their specific
formula.
UCR rates are not explained to policyholders, who dont realize that when their policy says it covers 60% of outof-network, which actually means 60% of the UCR not the actual bill.
o Policy holders frequently end up with massive unanticipated bills
The unfairness of the UCR systems has caused multiple attorney generals to look into the possibility of mass
fraud against the American public in the form manipulating the out-of-network payment rates and concealing
them from subscribers.
o The AG specifically investigated the Ingenix database of the average cost of care. The database is made of
rates provided by insurers and is owned by UnitedHealth.
o The AG determined that
Health Insurers had conflicts of interest when it came to giving data to the database
UnitedHealth has a conflict of interest in owning and operating the Ingenix Database in
connection with determining reimbursement rates
other health insurers have financial incentive to manipulate the data they provide to the
Ingenix database so that pooled data will skew reimbursement
The data points used to calculate the prices are too few and incorrectly collected
o The AG concluded that insurers were underpaying for out-of-network care at a rate of 10% to 30%
Krauss v. Oxford Health Plans (2008)
FACTS
o Mrs. Krauss had cancer and needed a double mastectomy and reconstruction. She gets a certification to go
outside network she had paid extra money to buy a supplemental certificate of coverage go outside of
the network. The supplemental certificate of coverage allows her to see a physician of her choosing
provides that the coverage must be paid out of pocket, and then get paid back.
o Out of network she got: surgery, private duty nursing care based on doctors recommendation,
reconstructive surgery. They paid $50,500,
o Oxford sent a check for $30,000 based on Health Insurance Association of America (now Ingenix) rates,
which are set using huge computer programs that sort through insurance claims to see average prices
paid in your region.
o The Krausses sued the insurance company to recover the remaining $20,000
o Court found not abuse of discretion nor violation of Womens Health Cancer Rights Act to apply the
bilateral policy. This case addressed rate of reimbursement
HELD
o Standard of review for claims of unpaid benefits is arbitrary and capricious
because plan conferred discretionary authority on Oxford (ability to adopt reasonable policies
and resolve disputes, and to set UCR)
o Plan Design Claim: Even de novo, would deny coverage of private nursing care because clearly excluded
from plan
o WHCRA claim:

Questions of law, reviewed de novo

Krauss claims statutory language of WHCRA prohibits cost sharing arrangements other than
deductibles and co-insurance for reconstruction, but court finds those illustrative rather than
exclusive
Congress was concerned about coverage, not its precise terms
nursing care not necessary under WHCRA where other care would have sufficed
Breach of fiduciary duty:
503(a)(3) authorizes civil actions regarding breaches of fiduciary duty under ERISA
Krauss claimed there was a breach because
o did not disclose all fine print, i.e. bilateral surgery policy, and
o The pricing system was arbitrary and capricious
Court held
o Oxford disclosed private nursing was not covered
o they published that plan pricing was based on HIAA and other sources

Part 7. ERISA and Preemption of State Law

o
o

Preemption debate centers on Congressional intent When should state regulatory powers have to give way to a
federal regulatory vacuum??
Preemption is important because:

Remedies under ERISA are limited to breach of contract (no punitive damages)

ERISA does not have an effective regulatory body.

Unlike in states, the Department of Labor does not have staff, resources, tradition, or desire to
address thousands of complaints.

Statute: Employee Retirement Income Security Act (29 U.S.C. Ch. 18)
Parts of the statute applicable to preemption:
o
514 (29 U.S.C. 1144)

Preemption Clause

Displaces state laws that "relate to" an employee health or benefit plan

Savings Clause

State laws that "regulate insurance" are saved from preemption is they "relate to" ERISA plans.

Note: adecision that the state law does not relate to ERISA is a far more powerful displacement of
ERISA preemption than a finding that this law is saved
(a) Supersedure; effective date. Except as provided in subsection (b) of this section, the provisions of this
subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan described in section 1003 (a) of this title and not exempt under section
1003 (b) of this title. This section shall take effect on January 1, 1975.
(b) Construction and application.
(Savings Clause) (2)(A) Except as provided in subparagraph (B), nothing in this subchapter shall be
construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or
securities.
(Deemer Clause) (2)(B) Neither an employee benefit plan described in section 1003 (a) of this title, which is
not exempt under section 1003 (b) of this title (other than a plan established primarily for the purpose of
providing death benefits), nor any trust established under such a plan, shall be deemed to be an insurance
company or other insurer, bank, trust company, or investment company or to be engaged in the business of
insurance or banking for purposes of any law of any State purporting to regulate insurance companies,
insurance contracts, banks, trust companies, or investment companies.

502 (29 U.S.C. 1132)

Private right of action for "claims arising under ERISA."

(a) Persons empowered to bring a civil action
A civil action may be brought
(1) by a participant or beneficiary
(A) for the relief provided for in subsection (c) of this section, or
(B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms
of the plan, or to clarify his rights to future benefits under the terms of the plan

Relates to 514 Preemption

o
Field Preemption was introduced into ERISA by Senate

anything that fell within the field is the exclusive purview of the federal government regardless of
whether the federal law had any standards at all

Entirely changed the legal landscape of health benefits and disability benefits (a rare occurance to have
such strong preemption in light of federalism)
o

Shaw v. Delta Airlines (9183)

FACTS

NY had a human rights statute that forbade discrimination based on pregnancy. The law required
that healthcare plans cover maternity care.

Delta offered ERISA plans and sued under the argument that the NY's anti-discrimination law is
preempted by ERISA.

HELD

Opinion of the Court - J. Blackmun

Struck down the statute

(although in intervening years, Congress had passed a federal version)

Looked up to Relates to in Black's law dictionary and found two definitions [textual
approach]:

Connection with OR

The court finds the law has a connection with employee benefit plans
because the law directly affected how companies could design their plan

Reference to

Does the law refer to the employee welfare benefits plan? No the law did
not specifically refer to employee benefit plans.

New York State Conference of Blue Cross & Blue Shield Plans v. Travelers (1995):

FACTS

A NY state statute charged surcharges (basically taxes) on bills of patients with commercial
insurance.

Commercial Insurers challenged the law based on the claim that ERISA preempted the statute
with regards to employer-based commercial insurance.

Argued that the state law "related to" the plans (514(a)) and was not saved (514(2)(a))
because it was a tax law, not an insurance law

The statute "related to" because it would affect commercial insurance, which sold
employer-based coverage

HELD

NY statute not preempted by ERISA

Court steps back from textual approach (use in Shaw) because everything relates to everything
else

The statute here dealt with the fundamental ability of states to raise revenue, which they
needed to cover the sick and uninsured that the commercial plans wouldnt cover

The court found the Congressional intent of ERISA was uniformity that would make it possible
for companies to decide benefits on national scale

Was not meant to supplant state law

Laws that have indirect economic effects, such as licensing laws and this surcharge law do NOT
relate to the plans

because the laws do not bind plans to any particular choice, nor preclude plans from
taking a uniform administrative approach

Uniformity apples only to benefit structure and administration

NOTE

Three reasons this case is important:

Departure from old approach

Focus on laws content look at if binds administrators

New test looks at Congressional intent; rejects textual approach

Although both tests = accepted unanimously by court at the time

California Division of Labor Standards Enforcement v. Dillingham Construction (1997):

FACTS

A California labor law regulated apprenticeship wages.

The law was challenged under ERISA preemption

(ERISA define employee benefit plans as both health care plans and
apprenticeship/training programs)

HELD

Opinion of the Court - J. Thomas

The wage statute did not relate to ERISA apprenticeship program, not preempted by
ERISA.

A law relates to a covered ERISA plan if:

Has a connection with; or

Look to objective of ERISA to see scope of law Congress expected to

survive; and

Nature and effect of state law on state plans

Reference to plan

Acts immediately and exclusively on ERISA plans

ERISA plans are essential to laws operation

Not met here b/c:

Affects apprenticeship programs other than ERISA ones

Does not reference ERISA plans

Wages regulated by law = long regulated by state

No mention by Congress of preempting apprenticeship plans

Does not bind plan to anything

De Buono v. NYSA-ILA Medical and Clinical Services Fund (1997):

Extended Travelers to Self-insured

Found Health Facility Assessment tax was not the sort of law Congress expected ERISA to supersede;

Every state law that increases the cost of providing benefits will have some effect on the
administration of ERISA plans, but it is not the case that each of these laws is preempted by the federal
statute

State laws that are generally applicability and only have an indirect effect on ERISA plans are
not preempted

Can apply in areas of the law that are not directly in conflict [IMPLIED PREEMPTION]

Boggs v. Boggs (1997): court found ERISAs non-alienation provisions conflicted with and therefore
preempted a Louisiana community property law

Breyer, dissent: disagreed that state law concerned something Congress wanted to keep out of
state reach, it involved family, property, and probate all traditionally state concerns

Foster v. Blue Cross and Blue Shield of Michigan (ED Mich, 1997): state law mandating Blues to offer
certain benefits did not relate to ERISA because it merely imposes an indirect economic influence plans are
still free to select another insurer

Egelhoff v. Egelhoff (1991): ERISA preempted Washington probate law because it conflicted with ERISA,
was not uniform with, and it had a connection with state ERISA plans

Savings Clause: only saves non-self-insured plans

o
Massachusetts v. Met Life (1985)

FACTS

A Massachusetts statute requires that specified minimum mental-health-care benefits be

provided to a Massachusetts resident who is insured under a general insurance policy, an accident or
sickness insurance policy or an employee health-care plan that covers hospital and surgical expenses.

Private insurance companies challenged the law on the grounds that it was preempted by ERISA.

HELD

Opinion of the Court - J. Blackmun

The Massachusetts benefits mandate is saved under the Savings Clause because it is a
state regulation of ERISA plans.

The law applies to the product, they have to comply under (b)(2)(A)

This would NOT benefit individuals in self-insured plans under (b)(2)(B)

o

Rush Prudential HMO v. Moran (2002):

FACTS

Illinois statute provided for external review of denial of coverage by an HMO, which functions as
a second opinion but doesn hot have the authority to order the HMO to cover the procedure.

HELD

Law is not preempted by ERISA because it's saved.

The law affects ERISA plans because it subjects them to another level of review and would be
preempted under 514(a), but is saved under (b)(2)(a) tests:

Common Sense Test:

HMO is an insurer as well as a health care provider

Spreads risk among participants

Assume risk of providing benefits offered

Congress defines HMO as organization that bears and manages risk

Before passing ERISA, Congress defined HMOs as insurers

States regulate HMOs largely through insurance laws

Statute aimed at insurance industry

Reinsurance does not take primary insurer out of insurance industry

Capitation contracts do not relieve HMOs of obligations to beneficiaries

Look to three factors of McCarran-Ferguson Act

not all three need to be met; here the 2nd and 3rd factors are clearly met

1st factor: have the effect of transferring or spreading the policyholder's risk

2nd factor: independent review clearly regulates an integral part of relationship

between insurer and insured

3rd factor: affects the policy relationship by putting the HMO agreement into
concrete terms

Kentucky Assn of Health Plans, Inc. v. Miller (2003):

FACTS

Kentucky enacted a law mandating that "a health insurer shall not discriminate against any
provider who is located within the geographic coverage area of the health benefit plan and who is
willing to meet the terms and conditions for participation established by the health insurer."

HELD

State law is saved and not preempted

New Test for (b)(2)(A): For a state law regulating insurance to be saved, it must satisfy two
requirements:

(1) the state law must be specifically directed towards entities engaged in insurance

This law regulates insurance by imposing conditions on the right to engage in the
insurance business

(2) the state law must substantially affect the risk pooling arrangements between the
insurer and the insured

This law does affect risk pooling because insurers can no longer seek insurance
from closed network for a lower premium, also may get providers in new areas, which
would increase use

These have actuarial implications

Would Moran meet these requirements?

Law is specifically directed at insurance industry because is insurance statute

Does it affect relationship of parties re: risk-pooling arrangement?

Makes it harder for insurer to determine how much they will have to pay

if insurer knows will deny at certain rate, can no longer do this because of external review
Particularly as insurance products become hybrid products harder to isolate laws directed at insurers

Private Right of Action: Remedial Portion 502 Complete Preemption

o
ERISA provides express right of action for policyholders of all ERISA plans, fully-insured or self-insured
o
Empowers an individual to take the administrator of a health plan to court to enforce his/her right to benefits
o

o
o

under the plan and the plan has to provide the benefits
But remedies are limited can only get those provided by federal law

502(a)(1)(b) right to go to court under ERISA, must first go through appeals process, exhaust
administrative remedies
Preemption under 502 trumps savings clause
Pilot Life Insurance Co. v. Dedeaux (1987):

FACTS

A commercial insurer was found liable under state law for "tortuous breach of contract" and
violating "the Mississippi law of bad faith" through an improper processing of a claim for benefits
under an insured employee benefit plan

Insurer appeals the lower courts decision on the principle that the state tort statutes were
preempted by ERISA

HELD

Opinion of the Court - J O'Connor

Statute is preempted because the claims relate to plan because this claim is accusing the
insurer of maliciously administering the plan

Savings Clause Test:

Prong 1: Not aimed at insurance company

This is state common law tort, more generally applicable

Fails prong 1, not exempted from preemption

Prong 2: The law is related to pooling of risk because it does not increase the cost
of premiums, you have to factor in the cost of litigation (once offset price of insurance, it
affects risk spreading)
ERISA provides the exclusive remedies for employee benefits plans, all you can get is
ERISA 502; express right of action in 1132

NOTE
This case was thunderous when it came down because people had not understood the exclusivity of
remedies under the preemption statute,
Presumed 514 would save state laws and if a law were targeted on insurance industry, then even
state law remedies would apply (did not consider effect of 502)
502 is a complete preemption statute for remedies
Congress made exclusive the permissible ERISA remedies, one of which does not include
damages

Rush Prudential v. Moran (2002):

The court found that the law was saved, but Rush argued that it was trumped by Congressional intent re:
remedies (502 trumps savings clause, therefore complete preemption)

HELD

Opinion of the Court - J. Souter

There is nothing in ERISA that provides for a uniformly lenient review

Souters test:

If the state law in question can be viewed as a remedy to be provided at the

ultimate step of plan enforcement or, similarly, as a form of ultimate relief in a judicial
forum that added to the judicial remedies provided by ERISA, it amounts to a law that
would significantly expand the potential scope of ultimate liability imposed upon
employers by the ERISA scheme.

The result was disliked by Rush because the insurer used to be able to entirely control the
record, now the independent reviewer can get stuff in there too

NOTE

State statutes have been stricken down in violation of ERISA if they go beyond adding to the
remedies provided under ERISA (i.e. state insurance administrator can enforce/construe terms of K)

Connecticut General Life v. Insurance Commissioner (MD. Ct. of Appeals, 2002):

FACTS

A MD statute for external review that allowed both external review and imposition of treatment
orders:

HELD

The statute was not preempted

Court disagreed that the statute frustrated the purpose of ERISA

ERISA simply requires plans to provide some mechanism for review, states are
allowed to set of review procedures as long as not in direct conflict

This law didn't conflict because it only required payment of benefits if claim was
within the terms of the insurance contract

The insurance commissioner may settle fate of benefit, but does not enlarge the claim
beyond benefits available under ERISA (does not implicate ERISAs enforcement scheme at all)

What was the policy behind limiting the remedies?

Encourage employers to offer benefits by insulating the plans from damages relief

If you follow the reasoning of the courts around the issue of ERISA plan decision-making, the concept of
an ERISA plan determination = that of a fiduciary [benefits review panel in self-insurer] acts as a trustee

You dont want huge damages penalties raiding a pension plan although the plan would realistically get
insurance to avoid this
The Interaction of Coverage and the Americans with Disabilities Act

Chapter 9. Private Health Insurance and Coverage Discrimination

Part 1. Introduction
Federal civil rights laws prohibit discrimination on the basis of numerous factors, including race, national origin,
disability, gender, and age. Discrimination in employment is understood to encompass not only hiring, promotions,
wages, and the like, but other conditions of employment, which includes health benefits.
A number of states have addressed discrimination based on sexual orientation through laws aimed at conferring spousal
rights on members of same-sex couples. These laws have implications for access to employer-sponsored benefits. The
question of whether ERISA would preempt a state law recognizing partnership rights in same sex couples for the purpose
of health and welfare benefit eligibility had not been addressed.
Part 2. The Americans with Disabilities Act

Safe Harbor
501(c) (safe harbor): insurers can underwrite risks based on ADA-covered disorders unless its subterfuge
o The Americans with Disabilities Act provides safe harbor for insurance companies
Allegedly the safe harbor is designed to ensure that exclusions are bona fide and consistent with
state law, but most courts refuse to apply it
Doe v. Mutual of Omaha Insurance Company (7th cir, Posner 1999)
o FACTS
Two HIV positive men, who were life partners, were insured by Mutual of Omaha.
The policy on their plans had a lifetime cap of $100,000, but treatment for HIV/AIDS was capped
at $25,000.
The men sued their insurance company under the ADA arguing that insurance is a public
accommodation and their behavior discrimination against HIV positive individuals.
o HELD
502(a) of ADA no individual shall be discriminated against on the basis of disability in the
full and equal enjoyment of goods, services, facilities, privileges, advantages, or accommodations
of any place of public accommodation by the owner, lessee, or operator of such a place.
An insurance policy cant refuse to sell to someone with AIDS
Caps dont make selling policies to AIDS patients illusory because the cap is only on
AIDS-related ailments AIDS cap would be meaningless if did not include opportunistic
diseases and rare disorders that affect AIDS patients; when AIDS patients are attacked by
a disorder, it is truly a different disease
Under 302(a), a business is not required to alter its inventory (i.e. provide individual shoes to
people with one leg or provide books in Braille) to accommodate disabled
It is hardly a judicial function to police the services offered
Doesnt change argument that asks for removal of limitation (as opposed to offering a
new product)
501(c) (safe harbor): insurers can underwrite risks based on ADA-covered disorders unless its
subterfuge

This provision is more helpful to the defendant, but the plaintiff uses it to show that ADA
regulates content because it is making an exception
But the right to enjoyment includes the right to buy on equal terms cant use caps to
prevent people from AIDS from buying at all
This is consistent with legislative history (does not defer to amicus by DOL because had
not created any regulations on that point)
McCarran-Ferguson Act: forbids federal statutes from being construed to impair any law enacted
by the state to regulate insurance
Ps interpretation would violate this act because federal courts can police for exclusion of
ADA conditions, but cant make sure actuarial decisions are sound or consistent with
state law.
What the act bars is an interpretation of 302(a) that interjects federal courts into the
regulation of the insurance industry
302(a) does relate to insurance in the sense that it cant bar sales of insurance to disabled
Of the arguments put forth in Doe, the more cogent argument focuses on ADA 501(c) ADA does not regulate
insurance conduct
o The nature of insurance companies is to discriminate its called fair discrimination or the classification
of risk
o If Congress really wanted federal courts to regulate the insurance industry, it would have said so bluntly
(would upend historic oversight of insurance industry)
After Doe revival of belief that ADA reaches content of coverage Supreme Court handed down Olmstead v.
OC has been cited for proposition that Posner was wrong, does reach content of insurance, but mostly Posners
case reigns

Medicare

Chapter 10. Medicare

History of Medicare
Enacted in 1965 to provide health and economic security to seniors age 65 and older
o At the time, half of all seniors lacked health insurance
Covers individuals and their spouses without regard to income or medical history Requires contribution of 40
quarters (10 years) to be entitled to Part A
Expanded in 1972 to cover younger beneficiaries with permanent disabilities Once individuals qualify and begin
receiving SSDI payments, and fulfill a 24-month waiting period, they become eligible for Medicare
Now covers 52 million beneficiaries (9 million under-65)
While some on Medicare enjoy good health and economic security, many have modest resources and
significant health needs
Statutory Structure
General
o Medicare is very detailed benefit entitlement statute, like having insurance plan in law (with certain
exceptions)
o Entitlements
Entitlement in beneficiaries
Entitlement in providers to get paid
Part A covers inpatient hospital care, skilled nursing facility care, hospice care, and some home health services.

entitlement, you have already paid in, comes out of payroll (is in jeopardy because there is a lower ratio of
workers to elderly now)
o Both parts A & B are outlawed in detail in the statutes all the benefits are pre-determined
Part B covers physician services, outpatient hospital care, preventive services, some home health, diagnostic
procedures, and durable medical equipment (DME; e.g., wheelchairs)
o you have to pay a premium (25%), the other 75% comes from general revenue (not limited by structure of
underlying tax system); there is a legal presumption that you are enrolled and you have to actually opt
out from deducting the payment from the Social Security check
Part C (Medicare Advantage) provides Medicare-covered benefits through private plans that contract with
Medicare, such as HMOs and PPOs.
o An alternative to traditional Medicare; beneficiaries can enroll in a private plan
Includes HMOs, PPOs, and private-fee-for-service (PFFS) plans
o Medicare pays private plans a fixed amount per enrollee
o Enrollees receive all Medicare-covered benefits (Parts A and B)
Can also include Part D benefits
Often includes extra benefits
Part D covers prescription drugs provided by private plans that contract with Medicare, including stand-alone
prescription drug plans and Medicare Advantage plans.
o Essentially a subsidy of government to buy private plans
Additional subsidies for low incomes Part D enrollees
o Plans can offer a standard benefit, but most offer an equivalent alternative design; benefits vary widely
Must provide
classes of drugs provided in US pharmacopeia (formulary created by advisory
committee) OR
actuarial equivalent of the formulary
o (can alter donut hole structure to benefit certain consumers)
o Benefit to the insurer of being able to alter the plan is that people will continue
using their maintenance drugs (people are price sensitive, if dont use those
drugs catastrophic costs)
o 90% of beneficiaries had drug coverage in 2011, up from 66% in 2004
o Donut hole closing by 2020
Currently: The standard benefit looks like
Deductable
Initial coverage limit
**Gap in coverage**
Catastrophic coverage
Coverage limit
Remedial provision expressly provides that either class of entitled beneficiaries to challenge a decision by the
Secretary
o Very formal structure jurisdictional provision is also the right of action
o 405(h): provides formal process that needs to be followed
o 405(g) lays out process of appeal:
Part A/D claims
Must exhaust administrative remedies to have judicial appeal
o Intermediary/carrier deny claim
o File first stage appeal desk review by carrier (done by letter, phone)
o Second stage before ALJ from HHS (there used to be a high win rate at this
point, no longer the case)
o Go before grant appeals board of HHS
o Federal court
This is a slow-moving process, especially with horrible backlog of cases
o

Part BECAUSE claims

First level is within company
Then second opinion by outside company
Then to ALJ
Then appeals board
Then federal court

Coverage Gaps
o Medicare provides basic benefits, but has no limit on out-of-pocket expenses, and does not cover many
high-cost services used by seniors and people with disabilities
Gaps in benefits include:
No limit on out-of-pocket expenses for A/B services
No long-term care benefit (covers limited skilled nursing facility and home health
services)
No dental care, or dentures
No hearing aids
No routine eye exams/ eyeglasses

ACA established new Independent Payment Advisory Board

o New board, 15 full-time members, to be appointed by President, confirmed by Senate
o Board required to submit proposals if growth rates exceed targets of the 5-year average based on inflation
(before 2018) and per capita nominal GDP+1 percent (beginning 2018)
Not triggered for 2014
o

Creates formula for required Medicare savings if spending exceeds target, the lesser of:
the amount projected Medicare per capita costs exceeds the spending target, or
0.5% of projected Medicare spending in 2015, rising to 1.5% in 2018 and future years

Secretary implements Boards proposals unless Congress enacts alternative with equivalent savings
Secretary submits proposal to implement savings if Board fails to do so
Board proposals cannot ration care, reduce benefits, increase cost-sharing, modify benefits, eligibility, or
premiums, raise taxes, or before 2020 reduce payments for certain providers.
As of today, no members have been nominated or confirmed by the Senate

o
o

Challenges/Problems
o Budget and financing
Medicare is 16% of the federal budget and rising
Medicare is rising as a share of the economy
Medicare faces long-term financing challenges, with fewer workers to support retirees, and
growing number of Medicare beneficiaries
o Beneficiaries
Beneficiaries incur relatively high out-of-pocket expenses as a share of income and household
budgets (no limit on spending, dental, or long-term care)
Medicares benefit structure is complex (traditional Medicare); unclear how well beneficiaries
navigate private marketplace, but have many choices
o Other challenges
Improving care management and targeting interventions to beneficiaries with the greatest needs
and highest costs
Setting fair payments to plans and providers (e.g. the SGR)

Options to sustain Medicare for the future

o Raise premium more for higher income Medicare beneficiaries
o Raise the age of Medicare eligibility

o
o
o
o
o
o
o
o
o

Premium support/defined contribution

Place cap on Medicare spending
Raise deductibles and/or cost-sharing for Medicare-covered services
Require Rx companies to provide rebate
Reduce payments for providers and plans
Accelerate delivery system reforms
Modify IPAB
Program integrity
Revenues

Part 3. Defining the Scope and Limits of the Medicare Entitlement

Heckler v. Ringer (1984)

FACTS
o Four plaintiffs wanted to undergo controversial/risky BCBR procedure to improve lung function; three
plaintiffs had already had the surgery; one could not afford it, was asking for prior authorization
o Secretary had told contractors not to pay for BCBR because it was a waste of resources, no evidentiary
basis that was proper way to handle emphysema
o The plaintiffs appealed before ALJ (HHS) presented that the doctor thought the surgery was necessary
(used to be able to get an 80% reversal of denials) ALJs were not bound by intermediary letters
o Secretary passed regulation that ALJs could not rule in favor of compensation for BCBR coverage
exclusion
o Ps who already had surgery
Claims arose before rule, they want ALJ amendments reinstated
Not much they could do because this is a design function, not judicially reviewable
Challenging whether Secretary exceeded administrative powers
o Mr. Ringer did not have claim of payment before the rule, sought prior authorization - change in
Medicare happened before he had a claim at all

HELD
o Opinion of the Court - C.J. Rehnquist

Ringer did not have claim at all

But he filed the wrong kind of case challenged power to exclude, had to have a claim
Court did not want to hold that there was no process for him and allow advisory opinion via 1331
because feared would bypass remedies that Congress put in place and deluge of advisory
opinions re: whether there was coverage

Errington v. Thompson (9th Cir. 2004)

Shalala v. Illinois Council on Long Term Care (2000)
Opinion of the Court - J. Breyer
Bowen v. Michigan Academy of Family Physicians (1986)
Opinion of the Court J. Stevens
Part 4. Appeals of Individual Medicare Claims Denials
Papciak v. Sebelius (2010)

Supplement. Note: The Final Demise of the Improvement Standard

Medicaid

Chapter 11. Medicaid

The Logic of Market Competition is relentless. Courts ignore equalities (how offers communicated, level of literacy, income) and hold
competent people to their market choices and their consequences. According to this theory, a lack of health insurance is caused by a
network of voluntary transactions and is consistent with justice. Medicare and Medicaid are a rejection of this principle, they stem
from the belief that people should not suffer unnecessary illness/death due to market choices of themselves or others.
Part 4. Medicaids History
Enactment
Enacted in 1965 in the same piece of legislature that established Medicare
o Not politically popular because it got its funding from state employment taxes
The goal of the statute was to desegregate healthcare and bring low income into medical mainstream an attempt
to overcome political and market barriers
o Embodies a charitable response to human suffering
o BUT structured to ensure that charitable benefits do not undermine the economic or market incentive to
work
o Has its roots in welfare same model as welfare enacted in 1935
Movement to Medicaid Managed Care: Medicaid as a Market Purchaser
For years was run as publicly administered benefit everyone got Medicaid card, ran as fee-for-service system,
state insurance plan paid bills
Problems with Medicaid:
o Low participation, short-term enrollment
o Lack of standards and oversight
o General disinterest in quality care for the poor
Transition to Managed Care
o Early experiences were disappointing few commercial health plans agreed to participate b/c
low payment rates
unwillingness to take on poor patients
Enrollment was voluntary and cumbersome for plans
No standards Substandard plans gross under-service
o In 1976, Congress passed standards incorporating qualification standards and minimum provider
participation requirements brought to halt private provider participation
Since 1980s, Medicaid has moved away from the government-as-insurer-model
Achievements
Single largest source of insurance, covers about 60 million people (> of people below federal poverty level)
Has huge impact on medical system
o Huge % of long term care payment
o 40% of public hospital financing
o 50% of nursing home revenues
o 1/3 of community health center funding
o Shock absorber that makes possible a lot of the practices that go on in the American health care system
o Has reduced utilization disparities

o Eliminated out of hospital births by African American women

ACA picks up the slack
o Medicaid has been amended to include other problems with insurance or to reduce federal spending
Sustained use of statutory demonstration powers (i.e. Medicaid waivers)

Challenges
Difficulty achieving equal health care access
o Causes according to MACPAC (Medicaid and CHIP Payment and Access Commission)
The unique characteristics of beneficiaries, which creates greater clinical challenges
Frequent fluctuations in coverage because of its strict eligibility limitations
The availability of providers
Inadequate numbers of community health centers, public hospitals and health systems
The rate of provider participation in the program
Factors effecting utilization - the geographic and cultural isolation of poor communities
Low provider payments
o Because the money comes from employment taxes (people who have health care), Medicaid pays its
providers less than anyone else, including Medicare
o The result is that already inadequate health care access has been exacerbated by low fees
States refusing to expand under the ACA
o SCOTUS held that it was unconstitutional for the federal government to threaten to withhold all Medicaid
funding if the states didnt expand the program and establish the health care markets required by the
ACA
o National Federation of Independent Business v. Sebelius (SCOTUS 2012)
FACTS
Several provisions of the Patient Protection and Affordable Care Act were challenged by
the states and people who will be required to by insurance coverage
HELD
Opinion of the Court - C.J. Roberts (However, no other justices signed his explanation of
why the Medicaid expansion was coercive to the states)
o The provision of the ACA that requires the states to accept the Medicaid
expansion or forego all federal funding for Medicaid violated the 10th
amendment
Medicaid constitutes such a large percentage of most states' budgets that
it was coercive to threaten to withhold that funding
The threat was a gun to head scenario for states
o BUT, while the mechanism was unconstitutional, the court only redacted the
penalty, so that states have a choice as to whether they want to create the
exchange without the threat of Medicaid funding being lost.
o As a result, many states have refused to expand Medicaid

How Medicaid works

Medicaid is a grant in aid from federal government to the states
o It is the single largest grant transfer from the federal government to the states, which gives the states
enormous incentive for states to participate
Each participating state is required to establish a uniform state-wide "medical assistance" program for certain
vulnerable populations
The states pay for the medical programs, and get reimbursed by the federal government
o For "medical assistance"
Coverage for each state is determined by a formula that considers each states per-capita income
Therefore, reimbursement varies
Poor states may receive 4 dollars for every dollar spent on care, while wealthy states only
receive 1
BUT costs associated with the Medicaid expansion in the ACA will be covered entirely through
2016, then at 90%)
o For administrative costs
Covered for every state at a nationally uniform rate
Requirements for State Medical Assistance Programs in order to Receive Federal Funds
o Two main requirements for the states
(1) Meet all of the statutory requirements
(2) Get the individual state plan approved by DHHS
Statutory Requirements for the States:

General Requirements
Must meet the requirements for comparable and uniform medical services across the state
Care must be provided with "reasonable promptness"
Eligibility standards and coverage rules must be reasonable
o States must comply with federal requirements related to the methods and standards for evaluating assets
Beneficiaries must have the right to seek services from the qualified provider of their choice
States must provide "fair hearings" for individuals whose claims were denied or not acted upon quickly enough
Payments to providers are sufficient to enlist enough providers to make care accessible
Rules for Assessing Eligibility
Medicaid Eligibility is a question of who will be excused from full market risk, is a function of a series of criteria:
o Category fit into mandatory/optional criteria?
o Financial evaluation method updated by the ACA
Now, states can NOT use asset tests to establish income, must use the "modified adjusted gross
income" methodology for calculating financial eligibility
Change was intended to result in more uniform eligibility for nonelderly, non-disabled,
non-pregnant adult
o State residency
o Citizenship/Legal Status ACA established a 5-year waiting period for people who are legally present by
not citizens
People Who MUST be Covered
Beneficiary Eligibility Requirements - 42 U.S.C. 1396a(a)(10)
o Original 1965 Requirements
Mandatory Coverage Groups
"Dependent" children and their caretaker relatives who receive assistance from Aid to
Families with Dependent Children (AFDC)
"Poverty level" children and pregnant women
Low-income Medicare beneficiaries
o "Optional" Coverage Groups
About four dozen additional suggested categories that are defined by their illness, their place of
residence, or other descriptors.
The goal was to distinguish the "deserving" from the "non-deserving" poor
o Additional ACA Requirements
Must cover all individuals with family incomes below 133% of the federal poverty level
Rules for what Medical Care MUST be Covered
The statutory definition of Medical Assistance (42 U.S.C. 1396d(a)) includes some required and some optional
benefits.
o The required benefits are not necessarily more medically necessary
The list is the result of history and past health policy
Ex. Prescription drug coverage is optional, rural health clinics are required
o Often the optional benefits are often the most important
Exs. Prescription drugs, institutional care for persons with mental retardation, home and
community care
In 2004, 30% of all state spending went to optional items and services
Special rules for children under the age of 21
o Medicaid Early Periodic Screening Diagnostic and Treatment (EPSDT)
All categories of benefits and services falling under the federal definition of "medical assistance"
MUST be furnished for persons under 21, even if not covered for adults
Miller v. Whitburn: Must cover EPSTD services even if not in state plan, i.e. transplants
Requires broad coverage of preventative services

Check-ups
Immunizations
Vision
Dental
Hearing
Eliminates state discretion to impose fixed limits on coverage unrelated to the medical necessity
of care for individual children

Acceptable State Coverage Limits

In general
o States can set specific terms of coverage in order to stay in budget (as long as them meet the federal
standards)
States always go over budget because they cant deny services (they are entitlements), states cant
run deficits
o Can reduce costs by making the program smaller or reducing the benefits offered
States can
o Set broad limits
Curtis v. Taylor (5th Cir 1980): FL restricted the number of non-emergent trips to the doctor to
three per month. The court upheld it because was not restricted to certain conditions, and was
shown not to have harmful effects for beneficiaries. Illustrates ability to impose an across-theboard limit on required services without running afoul of reasonableness test.
Cowan v. Meyers (Cal. App. 1986) CA limited Medicaid services necessary to protect life, to
prevent significant disability or illness, or to alleviate severe pain. State may place generic limit on
Medicaid services based on a judgment as to the degree of medical necessity of those services, so
long as it does not discriminate on the basis of a specific medical condition.
o Limit the coverage of experimental treatments
Miller v. Whitburn (7th Cir. 1993) courts can review definition of experimental to make sure it
reasonably comports with medical opinion
Dexter v. Kirschner (9th Cir. 1992) no need to cover allogenic bone marrow transplant because was
not covered by Medicaid plan, experimental
Unacceptable State Coverage Limits
States cannot:
o Single out certain conditions
Pinnecke (Cal. 1980) rejected attempt to single out transsexuals
Weaver v Reagan (8th Cir. 1989) violated Medicaid to only give AZT treatment to patients with a
diagnosis consistent with the FDA approval because FDA approval was not meant to interfere
with practice of medicine or physicians best judgment and the limitation does not comport with
the definition of experimental in the medical community.
But see Rush v. Parmahn (5th Cir. 1980) allowed states to restrict funding for experimental forms
of treatment, such as transsexual surgery
o Non-Discrimination Provision (only applies to mandatory benefits)
States can't act arbitrarily in placing limits on required benefits (i.e. Medicaid cant put cap on
HIV coverage like the plan in Doe v. Mutual of Omaha)
But states can still use treatment guidelines to make reasonable distinctions on length of
stay required for certain conditions
o must be based on review record and determination of medical necessity
Rules on Provider Participation and Compensation
States have broad discretion
o BUT, there are minimum standards for
Disproportionate share hospitals,

Federally qualified health centers, and

Rural health clinics
Recipients must be able to choose between "qualified providers," BUT states can restrict coverage to a managed
care entity that covers all care
o Most states buy managed care product for families with children (not so much for elderly and disabled)
is an administrative contract like self-insured plans
They buy a fixed network plan (only covered in-network); very few providers outside network
would accept Medicaid
All participating programs must cover emergency care (even out of network)
No Medicaid managed care plan can limit choices of providers for family planning
Allow low income people to avoid having lots of kids no parental consent rules for
minors
Some religious providers who don't want to provide contraception and sponsor local
HMOs get a compromise
They have to cover most services and the state provides others on fee-forservice basis to accommodate right to contract for these religious
organizations
o There is now a specialized managed care industry for Medicaid
It is hard to manage these patients very poor, very sick, hard to build
network, needs are different (i.e. must cover transportation)
In some cases it can be very lucrative; in others these companies may find
it hard to survive

Getting the Plan Approved

Each individual state plan must be approved by the DHHS
Federal government contributions are treated as a legal entitlement in each state
Therefore, the federal law has established a system of appeals and judicial review protections governing the
secretary of DHHS's determinations
o Though the judicial review takes place in the state
Medicaid Statutory Entitlement

States have explicit statutory rights to enforce their entitlement to federal payments
Entitlement of eligible individuals to a defined set of services
Entitlement of participating providers to payment for covered services they render

Private Enforcement of Federal Obligations

Note: Whenever the court is assessing an agency regulation, they apply the standard created in Chevron
Chevron U.S.A. Inc. v. Echazabal (2001)
FACTS
o Beginning in 1972, Mario Echazabal worked for independent contractors at an oil refinery owned by
Chevron U.S.A. Inc.
o When Echazabal applied for a job directly with Chevron, the company's physical examination revealed he
had a liver condition, the cause identified as Hepatitis C. Chevron's doctors said that the condition would
be exacerbated by continued exposure to toxins at the refinery.
o In response to Chevron's request that the refinery reassign Echazabal to a job without exposure to toxins
or remove him, the contractor employing him laid him off.
o Echazabal filed suit, claiming that Chevron's action violated the Americans with Disabilities Act of 1990
(ADA).

Under an Equal Employment Opportunity Commission (EEOC) regulation that permits the defense that a
worker's disability on the job would pose a direct threat to his health, Chevron defended its action.

HELD
o Opinion of the Court J. Souter (Unanimous)
The ADA did not preclude the EEOC's regulation; Chevron was permitted to use the harm-to- self
defense.
Test for Assessing Agency Regulations
Has Congress directly spoken on this issue?
o Is the statute clear?
If the Statute is ambiguous, was the agencys interpretation reasonable?
o Only reach #2 if the statute is unclear
In this case
Deference applies to the regulation because it made sense of the statutory defense for
qualification standards that are job-related and consistent with business necessity.
o The risk of violating the Occupational Safety and Health Act of 1970 (OSHA) was
enough to show that the regulation was permissible. "

Providers Rights when dealing with the Termination of Contract with the State
Goldberg v. Kelly: welfare is a benefit given on basis of brutal need, so the level of process required transcends
normal due process
o So while Medicare can terminate contract and give hearing, Medicaid cant
MEDCARE HMO v. Bradley: Court found MEDCARE was entitled to a pre-termination hearing before the state
terminated their Medicare contract; required full hearing on question of whether or not they were in compliance
with the contract. MEDCARE made a due process claim:
o Court had to first find whether had property interest:
o Court found MEDCARE had property interest in the contract because they have an entitlement to
payment for each covered life
Property interest = human beings)
o Then had to determine whether had been afforded due process:
o Looked at Matthews factors:
Private interest affected by governmental action
Risk of erroneous deprivation and the value of additional safeguards
The governmental interest, including the fiscal and financial burdens that additional or substitute
procedural requirements would entail
o Private interest: The court found that if the contract were terminated pending litigation would
dissolution of MEDCARE (totally reliant on revenues from Medicaid); beneficiaries would have no care;
o Public Interest: would not be a big deal for the state to have a pre-termination hearing;
o Risk of erroneous deprivation: there were no pre-deprivation procedural safeguards, led to risk of
erroneous deprivation Medicaid agency not aware of position of parties about the charges against
MEDCARE,
This case has been codified in the Medicaid statute now Medicaid agencies MUST give pre-termination hearings
Beneficiaries Rights when there is a Violation of the State Plan

Medicaid beneficiaries have a right to a fair hearing when they are adversely affected by agency conduct that
appears to be in violation of the state plan

Hearing is before a fair hearing officer who must interpret the state plan

BUT cant assess whether the state plan itself is in violation of state law
Beneficiaries and Providers Rights when the State Plan is in Violation of the Federal Medicaid Statute
o
There is no express right of action, the cause of action has changed over the years

Implied Right of Action/Supremacy Clause

o
When a federal laws inherent structure is to convey an interest to people, there is an implied right of action,

supremacy clause claim

Rosado v. Wyman (1970) Court found statutory right to entitlement to Medicaid

When a federal laws inherent structure is to convey an interest to people, there is an implied
right of action

This is essentially a supremacy clause claim (state plan violated terms of federal statute)
Recent cases have muddled the doctrine surrounding these types of claims

Douglas v. Independent Living Center of Southern California 132 S. Ct. 1204 (2012)
FACTS
California Legislature approved a series of cutbacks in the payments to physicians, hospitals and
pharmacies to address the state's budget deficit.
Multiple providers sued in federal court arguing that the cutbacks violated the Supremacy
Clause
Argued that if the cutbacks were approved, the state would not provide the level of care
required under the federal Medicaid statute.
The 9th Circuit found for the providers and blocked the cutbacks
SCOTUS granted cert to hear the states appeals
Initially intended to decide the issue of "whether Medicaid providers and recipients may
maintain a cause of action under the Supremacy Clause to enforce a federal Medicaid law"
HOWEVER, before the cases were heard, the Centers for Medicare & Medicaid Services
(CMS) approved the states budget changes
Therefore, the issue before the court changed
Question before the court
Whether - once the agency has approved the state plans - groups of Medicaid providers
and beneficiaries may still maintain a Supremacy Clause action asserting that the state
statutes are inconsistent with federal Medicaid law
HELD
Opinion of the Court - J. Breyer (joined by J. Kennedy, J. Ginsburg, J. Sotomayor and J. Kagan)
Vacated the 9th Circuit's judgments and remanded the cases - permitting the parties to
argue before the circuit again as a case of first impression
Cases are not moot
CMS's approval of the rate reductions does not make the providers/beneficiaries
cases moot, because
The challengers still believe the changes violate federal law
The federal-court injunctions remain in place, forbidding California to implement
the agency-approved rate reductions
BUT, cases are in a different posture
The respondents will likely have to seek review of the agency determination under
the APA
CMS has acted under a statutory grant of authority, and their decision carries
some weight - therefore it needs to be considered
The Administrative Procedure Act is designed to handle these types of disputes
Provides for judicial review of final agency decisions

Permits persons adversely affected or aggrieved by agency action

to obtain judicial review
Requires the reviewing court to set aside agency action found to be
"arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law"
No longer possible to have a Supremacy Clause action

Allowing the Supremacy Clause action to continue would threaten potential

inconsistency or confusion
possible to end up with several different interpretations of federal law by
different courts and the agency
At best, continuing the case under this cause of action would create redundancy
and inefficiency
The agency is not currently involved in the pending litigation that will
decide the question they have already decided
Dissent - C. J. Roberts (joined by J. Scalia, J. Thomas, and J. Alito)
The purpose of the Supremacy Clause is to ensure that congress has the last word.
Therefore, if congress did not intend to include a cause of action in a statute, it does not
make sense for the supremacy clause to provide one
Using the clause in that way would substantively change Medicaid
That is not the proper role for the Supremacy Clause
The Supremacy Clause should not be an end-run around the Court's implied right of action
or 42 USC 1983 jurisprudence
The court has held "where the test and structure of a statute provide no indication
that Congress intends to create anew individual rights, there is no basis for a private
suit, whether under section 1983 or under an implied right of action" (Gonzaga)
In summary - Ex Parte Young should be limited to situations in which a plaintiff, threatened
with enforcement of state law against him to which the federal law provides defense, seeks
federal injunction preemptively to stop the state official from enforcing an unconstitutional
law
NOTES
The impact of low provider payment rates
Deamonte Driver (1995 - 2007)
In February 2007, a 12-year-old Maryland child, Deamonte Driver, dies as the result
of an untreated tooth infection. Despite his being insured through Medicaid, the
boy's mother was unable to find a dentist to treat her son.
Before he died, Deamonte Driver cost the Maryland Medicaid program a quarter
million dollars in catastrophic inpatient care to treat the brain infection that killed
him.
This is an example of the inefficient and economically devastating effects of low payment
rates
A quarter million dollars could pay for the complete dental care of 5000 Medicaidenrolled children
On remand
The 9th Circuit, sitting en banc, permitted the California cuts to proceed on the grounds
that
The broad and ambiguous language of the Medicaid statute's equal access standard
called for the expertise of agency personnel to determine whether the state's
reductions and access plans would in face satisfy federal Medicaid requirements
They applied the deference standards from Chevron, and refused to substitute the
court's judgment for that of the agency and denied injunctive relief
BUT, that deference was short-lived
In California Association of Rural Pharmacies v. Douglas, decided just weeks later, the 9th
circuit refused to defer to HHS who had approved the elimination of certain optional
benefits from the state's medical plans
Wos v. E.M.A 133 S. Ct. 1391 (2013)
FACTS

Emily M. Armstrong, daughter of Sandra and William Earl Armstrong, was born on February 25,
2000. She was seriously injured during her delivery resulting in mental retardation, cerebral palsy
and several other medical conditions.
NC Medicaid has covered Emily since she was 2 months old - paying over $1.9 million in
medical expenses on Emilys behalf.
Emilys parents sued the physicians for malpractice and won $2.8 million.
NC DHHS placed a lien on Emilys settlement
NC's third-party liability statutes says
when a patient wins an award of medical expenses, DHHS has the right to recover
either the total amount spent on the patients health care, or one third of the patients
recovery payment, which ever is less.
Emilys parents brought suit against the DHHS
claiming that federal Medicaid law prevents the DHHS from taking her proceeds.
Federal law prohibits recovery from any payments not made for past medical
expenses.
Under North Carolina law a minor child is not allowed to recover for past
medical expenses,
Therefore, Emilys settlement could not include such expenses.
HELD
Opinion of the Court - J. Kennedy
The NC law is preempted by federal law to the extent that it would allow the state to
recover part of a Medicaid beneficiary's tort judgment or settlement not designated for
medical expenses.
Arbitrarily designating one-third of a judgment as recoverable medical expenses
lacks any limiting principle.
If upheld, nothing could stop a state from arbitrarily designating one-half or all
of a judgment as medical expenses.
Calculating the actual amount of medical expenses in each case may be more difficult
than the one-third rule, but similar allocation procedures are already used other
circumstances
Such as worker's compensation and separating compensatory and noncompensatory damages for tax purposes.
Dissent - C.J. Roberts
No regulation or prior case law requires a specific allocation of damages recovered for
medical expenses.
States should be allowed more leeway to come up with a workable regulation to
recoup Medicaid payments.
Preemption theory claims brought by individual claimants have no place in a Spending
Claude context
Resolution of a potential conflict between state law and federal law in the
administration of Medicaid lay in the hands of the Secretary of HHS
NOTES
In finding that the states recovery law violated Medicaids anti-lien provision, Justice Kennedy,
used the classic language of a preemption analysis without questioning the propriety of such a
claim.
In the view of the majority of the Court, a preemption analysis in the context of Spending
Clause statutes is alive and kicking, even though the Court had ducked that very
question in Douglas only a year before.
In summary

A 6 justice majority holds that Medicaid beneficiaries and providers can sue the state for violating federal
law under an implied right of action or the Supremacy Clause BEFORE HHS has ruled on the validity of the
state's policy in question
There is no clear ruling on the ability of beneficiaries and providers to sue AFTER HSS has permitted the
regulation
A 3 justice minority holds that beneficiaries and providers NEVER have any sort of private right of action
- can't use an implied right or the Supremacy Clause

General Federal Cause of Action Statute - 42 USC 1983

o
Plaintiffs can use 1983 to enforce their rights under federal law, statutes create a federally enforceable right in

court plus attorneys fees

Maine v. Thiboutot (1980) plaintiffs were alleging that Maine was reducing benefits and therefore
violating rights

Found that when statute is silent on matter of enforcement (even in the case of a constitutional
claim) there is no implied private right of action

BUT plaintiffs could use 42 USC 1983 to enforce their rights under federal law

Any federal statute, including those imposing conditions on federal funding, create a federally
enforceable right in court
Medicaid began to be assessed provision-by-provision.

Rules to be enforceable:

The provision of funds must be conditioned on compliance (Wilder)

The provision must be specific enough to be enforceable (Wilder)

The statute must have rights-creating language (Suter)

The underlying statute must have open-ended funding (Suter)

The statute must require the state to do something enforceable (Freestone)

Must be unequivocal proof of Congressional intent to create an enforceable right, much like
implied right of action (Gonzaga)

BUT the Court has been clamping down

fewer and fewer rights are enforceable,

Most courts DO still find enforceable a provision that requires states to make medical assistance
available to all beneficiaries
Cases

Wilder v. Virginia (Supreme Court 1990)

FACTS: Providers brought a suit against Virginia alleging that they were denied what entitled to
under the federal payment formula

It was good that the plaintiffs were providers because it made Medicare look less like
welfare.

HELD: Court found for hospitals, but focused on the hospital repayment section of the Medicaid
Act

They found the section created a binding obligation for states to adopt reasonable rates,
that the provision of funds is conditioned on compliance, and that it is enforceable because the
provision allows a court to look at the statutes specific factors re: reasonable rate to determine if
is really reasonable raises the provision to specific and enforceable and is therefore a right
under 1983

This set in motion a provision-by-provision analysis as to whether

Following Wilder, there were a trilogy of cases revisiting the theme w/ an increasingly conservative court

Suter v. Artist M. (1992)

FACTS: plaintiffs argued that there was not enough assistance from states to families to reunify
families, they pointed to statutory provision that required reasonable accommodations

HELD: Court found the statute did place a requirement on states, but there must be evidence of
rights creating language (the reasonable efforts language alone did not enforceable right because the
statute did not define it)

Distinguished Wilder because that statute actually required states to adopt reasonable
payments

This does seem like a triable issue there are guidelines, regulations, and can compare to
other states

BUT the child welfare statute does not have open-ended funding (cap on what federal
government sends states)

The analysis is similar to Wilder, but that the Court would find a requirement that the
states act in a certain way with limited funding is beyond the pale
Blessing v. Freestone (1997)
FACTS: the issue was whether there were legally enforceable rights under the federal child
support enforcement program to get better, more rapid payment of child support.
HELD: No federal right that state comply with statute because was not intended to benefit
individual women and children

Further clamped down on when 1983 is available to enforce private rights

Required not just that the statute provide a mandate, but a mandate that can be
effectively enforced, meaning that it require the state to do something specific

Found that 1983 is still available to enforce clearly defined statutory rights - even where
there are administrative mechanisms to protect Ps interests
Gonzaga v. Doe (2002)
FACTS: College student alleged violation by state university of FERPA rights (breach of privacy)
HELD: Court required that the plaintiff cite rights creating language (i.e. shall clear right of
action)

Reiterated need for unequivocal proof of Congressional intent to create enforceable right
the same burden applies for Ps regardless of whether claim is brought under 1983 or implied
right of action

Implied right of action requires evidence that Congress intended there to be a

private remedy

1983 has own remedy, must just show that the statute individual right
After Gonzaga, certain parts of Medicaid dont have rights-creating language
The theory of requiring rights to be specific is to avoid upsetting deals or delicate balances
established in the free administrative markets; but could it not be that Congress was silent as to
remedies because thought that courts were adequate remedies

Ex: plans must be consistent with efficiency, economy, and quality care and are sufficient
to enlist providers such that care is available to people consistent with that of people in the area
(access requirement)

In all circuits (except the 8th) this is unenforceable

i.e. 9th Circuit found that it was not enforceable because it is concerned with the
procedural administration of Medicaid

BUT one example of a provision that is still enforceable is the provision at the heart of
Medicaid requires states to make medical assistance available to all beneficiaries; courts are still
enforcing this
Not clear whether duty to provide medical assistance will be enforceable

Special Concerns: Americans with Disabilities Act

o
Physician/Insurers participating in Medicaid are bound by civil rights laws

Is considered federal financial assistance unlike Medicare (although Medicare does bind hospitals)

Doctors did not ask for exemption from Medicaid (assumed doctors would not take Medicaid)

The success of the claim depends on whether it is framed in terms of content (Rodriguez) or administration
(Olmstead)

Rodriguez: parallels Doe v. Mutual of Omaha, ADA does not reach content of insurance, not required to offer
benefits that did not offer just because disabled people want those benefits

Plaintiffs w/ mental disabilities wanted cuing services to help them attain independence

City paid for cuing services along with other care for people with physical disabilities, but not
alone so not available for people with mental disabilities

Not violation of Medicaid: Because the service was not required under Medicaid, state can
distinguish by diagnosis (non-discrimination provision not applicable)

Not violation of ADA: nothing in ADA requires state to change benefits covered (although could
argue that payment is part of administration rather than plan design you cant administer a benefit in a
discriminatory manner under Title II)

Olmstead: Court found not covering community care for qualified mentally ill was violation of ADA, court
ordered relief (community care coverage under Medicaid)

The holding was a qualified yes entitled to remedy where states treatment professionals have
determined community placement is appropriate, transfer to community care is not opposed by
individual, and the placement can reasonably be accommodated, taking into account states resources
and needs of others w/ mental disabilities

Here GA had a number of waivers for community care they had not filled found placement
could be reasonably accommodated on remand

After this decision, created incentive not to ask for waivers because would get killed if asked for
slots that did not fund/fill; if did not have slots would be fundamental alteration of plan if had to go
and get more coverage (like Doe)

Dissent: noted that the plaintiffs had not really shown discrimination on basis of condition, just
that the attorney general had defined institutionalization as discrimination

These cases show the importance of factual development in Medicaid cases, i.e. theories of the case in
Rodriguez

City: safety monitoring alone is not provided and P wanted it provided for mentally ill

Ps: city did off safety monitoring, and discriminated because they only granted it to physically,
but not mentally, disabled

Once court adopted citys version, was viewed as a law suit to expand citys care; if had accepted
Ps version, would have been re: administration of care

Plaintiffs only have a shot in ADA/Medicaid cases if they argue bias is in administration (can win
on a reasonable modification theory)

Cases also show states can unbundle broad optional service categories and carve out specific
procedural limits

Paying for Health Care

Chapter 12. Paying for Health Care: Conceptual and Structural Considerations
Introduction
The American health care paradox; we believe that
Health care is a special good. It needs to be available to all so that people don't needlessly suffer.
BUT, our system has NO legal duty of care, therefore millions of Americans are without health insurance.
Consequences of uncompensated care
Uninsured use healthcare much less often

o More likely to forgo preventative medicine

Has moral and ethical dimensions
Large number of uninsured can destabilize a communitys health care economic base
o delay in care may increase costs
o high costs of premiums due to cost shifting
Lax tax laws may allow non-profit hospitals to get away without providing uncompensated care; even if they do
provide uncompensated care, the tax subsidy provides a net gain for the providers
Public hospitals/community centers face falling subsidies, rise in need, and intense competition for paying
patients

The Result: Health care is increasingly being paid out of pocket

o It's a small percentage of total healthcare spending, but a huge burden on families
People without insurance can be charged highest prices of care
Because hospital charges rose while net revenues kept pace with costs

Regulation of Terms of Payment is Bi-Modal

Terms of payment in Medicare/Medicaid are heavily regulated
o MedPac created to advise Congress
o It is an administered payment program, the laws determine the benefits quintessential state action
government figures out down to the minutia what we will pay for and how
o Easier to explain because it is more transparent
o Physician rate increases must be voted on by Congress yearly there was a huge showdown in 2008,
when it was financed by a cut in MA
Payment for private health insurance is not heavily regulated
o This is really a free-for all, even though the terms of coverage are highly circumscribed by states
o There is certainly a difference in how different insurers pay
o Ks of private insurers are considered proprietary
Where can Universal Coverage Help?
o Cost-shifting payment
If some providers have to absorb costs of uncompensated care, they hike rates for others
This adds about $15 billion to the cost of health insurance
Some reason to believe that universal coverage will bring this down (although it is a small portion
of entire healthcare spending)
o Mandatory coverage
Would bring in the people outside the system, many of whom are healthy and well-off
Would reduce healthcare costs for everyone

Provider Payment
Terms of payment makes a significant difference in terms of access and use of care;
o i.e. very high deductibles, depending on what the exclusions are in the deductible, it may essentially
foreclose access to care
o the fact that someone is covered does not determine how much the provider will be paid
Insurers suck up revenues, in order to spend it within their budget, they must make a number of considerations:
What services to cover?
Benefit class: primary care, hospital, dental, vision, etc.
Procedures/services within class

Both private insurers and Medicaid may cover the same class, but recognize different procedures, i.e. they both
recognize well-child care, but only Medicaid pays for:
o Developmental assessment
o Exams for kids offered in schools
Each procedure is given a code (CPT/IDC) grouped by disease/injury if not given a code, it will not be
reimbursed
Can decide not to cover a never event or services that are per se unnecessary
Certain exclusions (i.e. intoxication exclusions) can result in people not getting the appropriate care i.e. hospitals
wont screen people for intoxication when they come into the ER after a car accident, even though that is the most
effective time for an intervention, because the hospital would essentially be forfeiting payment; some states have
enacted statutes that ban such exclusions based on this recognition and the desire to preserve revenues for ERs

Setting Payment Rate

Reflect the inputs that go into care:
o Labor: nurse, doctor, receptionist, office manager, janitor, accountant, secretary
o Supplies
o Real Estate
o Laboratory, other ancillary fees
o malpractice insurance
o licensing fees
o continuing medical education
o Certain facilities may incur costs that payers dont recognize
Indirect costs of residency
Costs associated with high volume of uncompensated care uncollectible bills
Costs associated low income patients tend to be more costly
So what the doctor charges and insurer pays are not the same
o Payment rates may signal social priorities in health care
o Medicare sets the rates each year via regulation (RBRVS)
o Insurance companies do this on their own (influenced by RBRVS), largely unregulated
some pay large bonuses, others dont
there are huge variations in rates
it is not the case that private insurers are always the worst payers
health care center payments are lower, have higher deductibles and co-pays
Medicaid is a terrible payer in some states + doctors cant balance-bill
o Resource Based Relative Value Scale was enacted by Medicare to increase primary care, but because it
does not insure price adjustments over time shortage of primary care
o Whatever rate is chosen constant battle
Selecting Payment Method
Fee for service incentive to furnish care
o Requires use of claim form
o lets insurers know that they are getting what they pay for
Case payment incentive to provide more efficient care
o Over the past 25 years, prospective payment has increased in sophistication
o Gets paid for each patient based on Diagnosis Related Group (DRG) (pairings of procedures) based on
characteristics of the patient
o the case rate increases as the problems that the patient has rise
o May be paid extra for add-ons, DSH, outliers
o Rewards hospitals that are more efficient
o Because there is no claim form, there is less of a paper trail to show that insurers are getting what they
pay for; although they do audit providers occasionally, generally have to take providers word for it, not
ideal considering that fewer than of Americans get the recommended care

Question #1 can make a huge difference on the case rate, i.e. if mental health services are/or not covered,
makes a difference for rate of someone with mental illness
Capitation
o Per member per month blended rate for all members
o Physicians become mini-insurers particularly risky for small providers
o

Pay for Performance

Related to the issue of transparency, information
o Although too much information can be bad, result in price fixing by insurers
o FTC has been adamant not to require information that consumers cant use
Goals are to eliminate:
o Misuse i.e. off-label use of drugs
o Over-use i.e. too many tests
o Under-use screening to avoid expensive care later
The government pays for of healthcare; has started pilot programs around pay for performance, i.e. not paying
for never events or defective medical products
Private insurance uses money, tiering as an incentive for quality
o Bonuses, i.e. if give appropriate care to diabetics
o Penalties
o Put at higher tier
Reduce co-pays for doctors in certain tiers
Doctors in lower tiers are unhappy
Could be argued that it helps them by providing them with an incentive to do a better job
An incentive to rely on the concept of evidence-based medicine
AG of NY argued that these plans are anti-consumer, but could be argued that it is pro-consumer
because it gives the consumer more information
How can you make pay for performance fairer?
o Involve doctors in how you set the rates, what are the criteria they will be judged on
o Also, give them a due process to challenge decisions

Special Issues for Medicare and Medicaid

Disproportionate Share (DSH) Payments
Medicare and Medicaid recognize the cost of uninsured in the system
Medicare DSH: to cover costly, poor elderly
o Certain hospitals are designated as disproportionate share hospitals because they treat a disproportionate
share of low-income Medicare patients
o Adena Regional Medical Center v. Leavitt (2007)
FACTS: Medical center appealed it's denial of Medicare DSH payments by CMS for inpatients
receiving care under Ohio mandatory charity care program
In Ohio, DSH payments for Medicaid are based on: (Total Medicaid + Low Income) /
(Total Served) Ps used this to argue they could count low income for Medicare DSH, too
HELD: The court looked at CMSs denial of the payments under Chevron (deferential)
(1) Has Congress directly spoken on this issue?
o Yes Medicaid is clear, can only extend Medicaid to certain eligible groups
o The low income people in the Ohio program were in that program because they
could not qualify for Medicaid, therefore were not eligible for medical
assistance under Medicare

The purpose of the Ohio law is not to convert those people to Medicaid
beneficiaries, but to attach a payment to them
o The hospitals argue that Ohio had the Medicaid plan approved, which gives DSH
payments to these low income people, but this is a weak argument, the plan does
not consider these people to be recipients of Medicaid; Medicaid allows plans to
adjust rates to account for uncompensated care
(2) If ambiguous, was CMSs interpretation reasonable?
o Didnt really have to get to this question
o If they had, the court would defer unless the Secretarys decision was arbitrary
Medicaid has its own DSH: to cover cost of uninsured
o

Bad Debt
Medicare also recognizes bad debts as a cost of healthcare
This is due to strong lobbying
o Hospitals argued that they did not want to make aggressive collection efforts against the poor elderly
Medicare has high deductibles and co-pays, not met by people in the middle because:
o Very little income
o Too rich to qualify for Medicaid
o Too poor to be able to afford Medigap
Represents a deal struck with hospitals
o Medicare will pay these costs, but only after reasonable collection efforts
o Battle Creek v. Leavett (2007)
FACTS: Hospitals wanted Medicare to pay for bad debts even while they were still pending at the
collection agency.
Medicare Act requires four elements for bad debt payments:
o Must be from covered benefits
o The health care provider must make reasonable collection efforts
o DHHS must deem the debt uncollectible
According to Secretary of DHHS, there was a presumption of
uncollectibility after 120 days
Hospitals wanted to collect from Medicare because 120 days had passed - even though
they had not made sufficient efforts to collect
o Said they would pay back Medicare if they received money from the collection
agency
HELD: It was reasonable for secretary to conclude that as long as they have debts in collection,
providers can't recover because it would not be sound business judgment otherwise;
120 day presumption does not relieve provider from having to fulfill reasonable collection
requirement
Medicare is not a cash cow that advances money to hospitals
o NOTES
This case illustrates the difference between manuals and regulations the latter gets more
deference
It might have come out differently if the hospitals had a differential collection policy
Try to collect loner for private individuals
Cut off after a while for elderly because the purpose of the program is to avoid harassing
these people
But here the hospital tried to have it both ways, and they lost
Medical Necessity
To qualify for Medicare payments, a provider must show that products/services were medically necessary
o Medicare pays the provider
o If later founds out that it was not covered, will reassess and recoup funds

They are required to submit Certificates of Medical Necessity (CMN)

o Not a complete document, can only include certain information
o The Secretary can look beyond the certificate to find that it was not necessary (Maximum Comfort) based
o
o

on the language of the statute (Chevron step 1)

Although suppliers can be excused from liability if they had no reason to know that it would not be
covered (42 USC 1395pp(a)(2))
But providers are deemed to have constructive notice of a directive that they were required to provide
more documentation than just the CMN

Special Issue for Private Insurance

Provider Access to Health Insurance Markets: Selection and De-selection
Being a member of a network has invaluable benefits
o Potentially higher in-network payment rate
o Eligibility for bonuses and incentives
o Referrals from other network providers
o Protection against having to collect very high out-of-pocket cost-sharing amounts owed by patients who
must absorb out of network financial penalties
Contracts with network are at will
Health Benefits Service Companies want broad discretion to determine who is in the network
o Providers have fought back with any willing provider laws
o Potvin: CA Supreme Court barred the use of no-termination clauses in managed care provider network
Ks
Fair Procedure Doctrine Applies to Exclusion
Standard: as pertains to doctor lists, insurer must have market power so substantial that exclusion impairs the
doctors ability to practice
Palm Medical Group v. State Compensation Ins. Fund (2008)
o FACTS: Palm was excluded by the largest workers compensation insurance provider in the geographic
market.
o HELD: Found Fair procedure doctrine applied because:
Insurer had a very large percent of the market
P was also unable to contract with employers that were not in the network because:
D steered non-PPN plans to use network doctors, and
Non-D plans did not want to K with P because he was not on the list
Although the # of employees treated by P grew, it was due to unsustainable price cuts and
aggressive marketing
Therefore had sufficient market power to influence ability of P to practice in the market
Did not comply with fair procedure
Fair procedure can be violated if:
o No notice with opportunity to respond; OR
o Arbitrary and capricious
Court looked at the second found the D had only arbitrary reasons, or reasons that were
unsupported by evidence
Any Willing Provider Laws
Typical Any Willing Provider (AWP) law requires all health insurers to be ready and willing at all times to enter
into service contracts with all health care providers who are qualified under state law, who practice within the
general geographic area served by the insurance company, and who are willing to meet the terms and conditions
set forth by the insurer

Roughly of states have these laws

o Largely for pharmacies
o Increasingly extended to health care providers
Pros: without law threat to physicians ability to practice
Cons: undermines cost control mechanism
Even without these laws, there may be fair process requirements in selection/de-selection
o Concern is that doctors might be excluded that have sicker/poorer patients
o Minority physicians allege discriminatory treatment because are less efficient

ERISA Preemption and Provider Payment

Davila 2 part test regarding preemption; a claim is within the scope of ERISA if:
o individual is entitled to such coverage only because of the terms of the ERISA-regulated employee benefit
plan; and
where no legal duty independent of ERISA or the plan is violated
ERISA 502 exclusive remedies if found to be within scope of ERISA
o Usually a provider steps into the shoes of a beneficiary,
Cant sue plans for payment unless there is a valid assignment
where there is no assignment, can sue insurer (and patient) under state law for payment
(cant get more than what the plan would have paid under 502)
If there is an assignment, is limited by ERISA remedies
this is the case where you are trying to get a prompt payment
even where the provider has assignment, if there is a misrepresentation that a certain
thing is covered but is not, you are not an assignee for that covered benefit, can sue under
state law (i.e. negligent misrepresentation) there are a lot of these cases, providers keep
winning (even though beneficiaries have no remedy)
o Franciscan Skemp v. Central States (2008)
FACTS: claim of misrepresentation that arose when the plan told the doctor that the procedure
was covered but not that the patient had stopped paying COBRA payments and was therefore not
covered.
HELD: Not preempted because:
The doctor is not bringing it as the patients designee (did not accept assignment)
She was not a member of the plan
The claim is based on a conversation with an insurer, not the plan itself
The misrepresentation claim is defined by WI state law, not ERISA
Also, once a provider leaves network, can sue plan directly, i.e. when plan continues to pay in-network discounted
prices
There is not preemption if the claim really arose under the subscriber agreement, not the plan:
o Passock Valley: Where the dispute concerns the subscriber agreement, not the plan, the claims are not
preempted.
o Anesthesia Care: No complete preemption even though medical providers received assignments from
beneficiaries of ERISA plans because the claims really arose
The dispute is not over the right to payment, but the amount depends on terms of provider
agreement to which ERISA beneficiaries are not party
o

PART THREE: HEALTH CARE QUALITY

Medical Malpractice

Chapter 14. Medical Malpractice and Health Care Quality

Part 1. What Does Medical Malpractice Tell Is About Health Care Quality?
What is Quality?
o Health care quality takes into account more than just the technical outcomes of care
o Efforts to define quality occur across:
o Inputs/Structure
The resources and organizational arrangements in place to deliver care
Are there quality health care facilities? Where are they? Do people have easy access to the
facilities? Are the facilities easy to use for providers?
Researchers have not clearly shown that quality inputs quality care
o Process; and
The activities of physicians and other health professionals engaged in providing medical care
Not much research exists about the consensus in the process of care
o Outcomes
Outcomes are important but:
Requires assessing inputs
Requires defining standards by which are measured
Outcomes research that does not consider inputs is dangerous because, while all doctors should
be held to same standard of care, the results will not be the same for rich and poor patients
o Institute of Medicine (IOM) defines health care as doing the right thing for the right person at the right time and
getting the right results
o Sub-concepts of quality measurement:
o Appropriately trained and equipped enterprise
o Standards for appropriate care (based on science, impartial, rigorous)
o Patients needs care must be viewed in light of patients goals
Sometimes the most medically effective treatment may reduce quality of life
If patient is not encouraged to use their own goals/values in selecting care, has he or she received
quality care?
o Outcomes of Care
How should health care quality be protected?
o Used to be protected only by malpractice and licensing
o 1870 1960: autonomy of physicians, sovereign profession
o 1950 60s: emergence of egalitarian social K, development of a standard of care
o 1970s+: market competition perspective, industrial techniques for quality measurement
o Today health care quality is increasingly measured due to:
o Increased consumerism
o Rise of IT/HIPAA can access medical record
o Focus on patients rights
o Raises new legal questions:

o
o
o

What remedies should there be for lousy care?

Should payers be able to cut off funding for low-quality care?
Role of Health IT?
Many believe that quality can be improved though health IT (Riesman) bring together health
information, provide doctors with relevant, up-to-date scientific information re: appropriate
treatment, avoid prescribing drugs with contraindications (creates issues of privacy).
Concerns about IT in health care:
Ease or difficulty of information access and transparency
Protection for individual privacy
Question of what to do about proprietary rights of large market interests to control
information re: revenues

In the United States, our health care is not high quality

o People in U.S. receive roughly of recommended care
o US performs worse than most other developed nations
o Has made relatively little gains in preventable deaths
o Market-oriented system threatens to insulate health care payers responsible for poor quality care
o Extraordinary regional variation in procedures, costs, etc. with no good explanation
o Because of these variations, it is clear that there is more at play than just the style of any one particular
doctor
o Evidence Based Medicine is based on cost/bias rather than science
o Many Americans receive unnecessary care
o 90,000 people die in hospitals every year due to errors
o Lack of communication
o Physicians are failing to translate the complex world of medicine and as a result, patients do not
understand their care
o This is particularly problematic for people of lower socioeconomic status hierarchy of communication
based on SES
Relationship
Committed Sponsorship

SES
Highest Income

Casual sponsorship

Next Highest Income

Semi-Committee Sponsorship

Next Highest Income

Level of Communication
Doctor committed to patient beyond
disease
More involvement of house staff, still
large participation by doctor
Physician nominally responsible for
patients prognosis and treatment, but
staff is largely in control

Types of health care errors:

o Technical: slop of knife, leaving sponge in someone
o Must be noticed, reported, treated
o Dont frequently re-occur with the same physician
o Judgmental: ordering surgery that might not be necessary profession built on ability to exercise sound
judgment
o Failing to operate when necessary
o Overly heroic treatment
o May or may not be due to insufficiently of clinical information
o Normative: doing something for own benefit, not for benefit or patient (i.e. administer risky treatment to get to
golf game); or physician who is addicted outside behavior we expect from physicians
o In eyes of other physicians, the physician has failed to discharge obligation of professional role
o *The serious problem is that many of these errors are avoidable and preventable*

Medical errors are handled internally by the profession

o Not normally revealed to patient
o Doctors not able to deal with errors in psychologically healthy fashion; trained not to be able to deal with
mistakes:
Not encouraged to talk about mistakes or emotional response
Society has even less tolerance for medical mistakes
May be no opportunity for restitution
Makes no room for confession, apology
o Most common consequence of physician error = wasting of money

Part 2. From Physician Authority to Egalitarian Social Contract and Market Competition:
Medical Malpractice Law and Transformation of the Professional Standard of Care
Grounded in state tort law
o Whether performance fell below professional standard of care
Advances in medicine have raised peoples expectations of what a doctor can achieve
o Primary purpose is to deter injury-producing behavior
Elements:
o Duty
o Breach this is where the standard of care comes in, you have to show that the standard exists and that it
was breached; even where a standard really doesnt exist and doctors must resort to trial-and-error (such
as mental illness in children), there is still a standard
o Causation
o Damages
Does little to improve quality of care
Only a few injured patients bring suit, only those cases that will bring high contingency fees
Malpractice does little to increase quality of care
People who are not injured by medical malpractice may in fact be compensated
Part 3. From Local Medical Customer Practices to a National Standard of Acceptable Care
History of Medical Malpractice
Social authority and social organization of medical profession changed dramatically from 1870 1960:
o Entry to profession governed by medical boards
o Medical education controlled by accreditation process
Locality Rule
Requires a doctor to have the reasonable caliber of skill and knowledge that is generally possessed by surgeons
and physicians in the locality where he or she practices
Originally developed because medical knowledge did not disperse,
o Protected rural doctors from testimony by city doctors
o Was relaxed by most courts to same or similar locality
Exception:
reliance on customary practice is not adequate where doctor knew/has reason to know
that customary practice is problematic
Problems with the standard:
o Required local doctors to testify against other doctors in the area (bias, or hard to find expert);
o Permitted local practitioners to set authoritative local standard
Today
o Most jurisdictions have done away with locality rule, although North Dakota still adheres to the same or
similar locality rule
National Standard

Requires a doctor to use the degree of skill and care of a reasonably competent practitioner in his field under same
or similar circumstances
Adopted in most jurisdictions; tends to raise standards
o Knowledge and skill defined by national standard
o Resources and equipment are defined by local standard
o Even where the locality rule applies, a national standard applies to specialists, hospitals
Shilkret v. Annapolis Emergency Hospital Association (1975):
o that degree of care and skill which is expected of a reasonably competent practitioner in the same class
to which he belongs, acting in the same of similar circumstances. Under this standard, advances in the
profession, availability of facilities, specialization or general practice, proximity of specialists and special
facilities, together with all other relevant considerations, are taken into account.
Hall v. Hilbun (Miss. 1985)
o FACTS: Plaintiff sued his wifes surgeon for medical malpractice/wrongful death.
At trial, P sought to introduce the testimony of one Dr. Hoerr, a retired Cleveland physician. The
trial court excluded much of Hoerr's testimony on the grounds that he was unfamiliar with local
standards.
o HELD: A physicians duty of care to a patient is to be judged by national, not local, standards.
Exception: when a locality lacks the necessary resources to meet national standards
Medical practice has become increasingly "nationalized" in scope.
Medical school admissions standards are largely the same across the country. Physicians
are much more mobile than before.
Medical education and literature are available nationwide.
The needs of a patient are largely the same for any particular medical condition, no
matter where the patient is geographically located.

Part 4. The Problem of Competing Standards: The Two Schools of Thought or Respectable
(or Reputable) Minority Doctrine
One of the problems in medicine is that there are often multiple ways to deal with the same problem. Courts have
developed special doctrine in order to deal with conflicting expert testimony over the proper treatment or standard of care
The Two Schools of Thought or Respectable (or Reputable) Minority Doctrine
o The doctrine shields physicians who have followed a prescribed treatment or procedure that has been
accepted by medical experts even though other medical experts advocate an alternative approach.
The goal is to relieve physicians who follow a course of reputable treatment from litigation and
the loss of their professional standing.
Jones v. Chidester (S.Ct. Pa. 1992)
o FACTS
A patient sued his orthopedic surgeon who caused serious nerve injury for medical malpractice.
At the trial, both sides presented testimony by medical experts. The experts disagreed on whether
the surgeons techniques were medically acceptable.
Before deliberation, the judge gave the jury an instruction on the two schools doctrine
A doctor cannot be held liable for exercising her judgment in applying a court of
treatment supported by a reputable and respected body of medical experts.
Jury found for the surgeon and the patient appealed.
o HELD
A practitioner has an absolute defense to a claim of malpractice when it is determined that the
prescribers treatment or procedure has been approved by a considerable number of medical
experts
Even if there is an alternate school of thought that recommends another approach, or
It is agreed among experts that alternative treatments and practices are acceptable.

A school of thought should be adopted not only by reputable and respected physicians in order
to insure quality but also by a considerable number of medical practitioners
It is insufficient to show that a small minority of physicians agree with a questionable
practice.
But there is no concrete number for considerable number
Burden is on the physician to show that the school of thought exists
Levine v. Rosen (1992)
o The jury should not decide which standard is right, just whether there are two schools of thought, juries
should not review medical standard on its merits.
Henderson v Heyer-Schulte Corp (1992)
o Court asked whether physician undertook a form of treatment which a reasonable person of the medical
community would not undertake under the circumstances
This assessment ignored the role of shifting standards over time and the role of the jury.
State Board of Medical Examiners v McCrosky (1992)
o Held that the Colorado licensure board could set standards of care

Part 5. Overriding the Professional or Industry Standard of Care

Occasionally Courts have overridden professional standards or industry custom on the basis of general criteria of
reasonable prudence.
TJ Hooper (2d Cir 1932, Learned Hand)
o FACTS: Eastern Transportation Co., the owner of two tugs, unsuccessfully appealed the refusal of the
trial court to limit their liability toward the owners of barges for their cargoes which were lost in a storm
which the tugs could have avoided had they been equipped with radio receivers.
o HELD: Regardless of the custom of an industry or trade, at the end of the day, courts must set whats
required.
(The Radios) are precautions so imperative that even universal disregard will not excuse their
omission.
Cited for proposition that when cost < benefit gained by precaution can override professional
standard that neglects the precaution
Note about new technology
o In Hooper, the new technology of radios transformed the natural risk of operating a tugboat and
therefore, increased their legal liability
o For medical providers, new technology can mean that what was once unavoidable death or injury is now
avoidable.
o Liability can come from an individual defendants (or an entire industrys) failure to adopt the
technology.
o In this version, the function of tort liability is to assure fast diffusion of new technology, and to override
the mistaken cost-benefit calculations of individual defendants of occasionally entire professions or
industries.
Helling v. Carey (Wash. 1974) - most famous recent case involving overruling medical standards;
o FACTS: Plaintiff had serious loss of her vision due to the disease of glaucoma.
P got her eyes checked form D, an ophthalmologist, on regular basis.
P sued D for his negligence to not give her a pressure test in time to discover and cure this
disease.
D argued that professional custom was to only test patients over 40, because under 40 the chances
of the disease are 1 in 25,000
o HELD: Regardless of the professional custom, D was negligent for failing to give the quick, safe and
inexpensive test
The precaution of giving the easy test was so imperative that the court could not rely on
physicians standard

While the US law defers to physicians in many ways, it does not let them set the standard of care by their own
culture
o Considerations to set national standard:
Cost/benefits
Degree of diffusion
Level of knowledge

Part 6. When Has a New Standard Emerged? The Best Judgment Rule and the Problem of
New Knowledge and Technologies

As scrutiny increased over the variations in geographic treatment options, it became more important for medical
providers to determine at what point a doctor should be required to use her best judgment.
The court had noted that requiring a doctor to use best judgment and deviate from customary practice increased
their risk.
In order to mitigate that risk, doctors began to inform their patients of the competing perspectives on potential
treatments. This practice was intended to enable the patient to exercise a truly informed choice.

Washington v. Washington Hospital Center (D.C. Ct. App. 1990)

FACTS
o During a patients 1986 abortion and tubal ligation at Washington Hospital Center, the anesthesiologist
improperly inserted an endotracheal tube. By the time the error was notices, the patient had suffered
brain injuries that caused a permanent vegetative state.
o The patients husband sued WHC alleging negligence for failing to use an end-tidal carbon monoxide
monitor, which would have shown that the patient wasnt getting enough oxygen to her brain during the
surgery.
o Ps expert presented evident that the monitors were an emerging practice. Many publications had
recommended their use, and many hospitals were in the process of installing them.
HELD
o A reasonably prudent tertiary care hospital would have provided the monitor at the time of the injury
even though it was NOT required under The Joint Commission (TJC) standards, because the court relies
on the standard of what a reasonably prudent hospital would do.
To show that the monitors were part of national standard, looked at:
The fact that the hospital had ordered them
The American Anesthesiology Association recommendations and the Harvard study that
it was an emerging technology
Also did a cost benefit analysis of the new technology
The monitors had low cost and huge benefits.
Part 7. Clinical Practice Guidelines and the Standard of Care

The courts are split as to the use of Clinical Practice Guidelines (CPGs) to establish standard of care.
o CPGs are based on the examination of current evidence within the paradigm of evidence-based medicine.
Modern clinical guidelines identify, summarize and evaluate the highest quality evidence and
most current data about prevention, diagnosis, prognosis, therapy including dosage of
medications, risk/benefit and cost-effectiveness.
Then they define the most important questions related to clinical practice and identify all
possible decision options and their outcomes.
In order for a CPG to be used in court, an attorney must formally offer it as substantive evidence in order to give
opposing counsel fair opportunity to object.
o It is not sufficient for an expert witness to claim that the guidelines simply represent the standard of care.

Diaz v. New York Downtown Hospital (N.Y. 2002)

FACTS
o Plaintiff was sexually assaulted by a male technician while undergoing a transvaginal sonogram at
defendant New York Downtown Hospital. At the time of the incident, P and the assailant were alone in
the examination room.
o P sued the hospital alleging that it negligently hired, trained, supervised and retained the technician.
o Hospital moved for summary judgment asserting it had no prior knowledge of the technician committing
similar acts
o P responded with as affirmation from a board certified radiologist who said that the hospital deviated
from the standard of care from performing transvaginal ultrasounds by failing to require a female staff
member be present during the procedure.
o The court dismissed all claims except the last.
HELD
o All claims were dismissed
o The plaintiffs expert affirmation, offered as the sole evidence did not create a triable issue with respect to
an accepted industry practice or standard.
The guidelines of two professional organizations merely recommend the presence of a female
staff member.
o Expert failed to provide any factual basis for her conclusion that the guidelines are generally accepted
Part 8. Challenging Professional and Industry Standards
The Equally Well-Informed Expert and Available and Proven Scientific Safeguards Doctrines
Aware that a profession can be split over the proper cost-benefit analysis regarding precautions, some courts have
opened a modest door for preconceiving of professional standards.
o If the patient can put on testimony by an experts as well-informed as someone engaged in the industry,
to the effect that the dominant view is unreasonable deficient in not incorporating available safeguards,
then a jury can, on the basis of that experts testimony, decide the case on the basis of what is in effect a
revised, more risk-averse professional standard.
United Blood Services v. Quintana (Colo. 1992)
FACTS
o Alleging that she was infected with AIDS after being given contaminated plasma supplied to a hospital
by United Blood Services (a division of Blood Systems, Inc.), Plaintiff patient and her husband filed a
negligence action against Defendant blood bank.
HELD
o The blood bank was a member of a national community and, as such, was subject to a national
professional standard applicable to the blood banking community.
o A blood bank is liable in negligence, therefore, when it fails to make use of, or makes unreasonable use
of, available and proven scientific safeguards in the course of acquiring, preparing, or transferring human
blood or its components for use in medical treatment
Blood transfusions and the standard of care
Osborn v. Irwin Mem. Blood Bank (1992) held that: professional prudence is defined by actual or accepted
practice within a profession, rather than theories about what should have been done. It follows that Irwin cannot
be found negligent for failing to perform tests that no other blood bank in the nation was using
Advincula v. United Blood Services (1996) went with a due care standard
Quintana, Osborn, Advincula illustrate the three models of health law
o Osborn holds that compliance with professional standard is a complete defense professional autonomy
and market competition
o Quintana and Advincula more socially protective

Part 9. Should the Professional Standard of Care Be Adjusted to Account for Patients
Economic Circumstances?
Should the cost of care be an intrinsic factor in setting the standard of care?
1/6 of Americans are uninsured and 1/5 of Americans are on public insurance that doctors wont accept due to
limited reimbursement
Murray v. UNMC Physicians (Neb. 2011)
o FACTS
Mary Murray died from complications caused by pulmonary arterial hypertension. Robert
Murray alleged that UNMC caused the death of Mary by failing to administer Flolan therapy to
treat her condition.
Shortly before Marys death, UNMC was preparing Mary for said therapy, but was waiting on
approval by her insurance company.
UNMC argued that waiting for insurance approval was standard practice
o Most patients are not able to pay for the drug without insurance and it could be
more dangerous if treatment was started and then stopped.
A jury found in favor of UNMC
BUT the district court concluded that expert testimony by UNMC physicians was
inconsistent with the proper standard of care
o As a matter of law, a medical standard of care cannot be tied to or controlled by
an insurance company or the need for payment.
The court then granted Robert a new trial. UNMC appealed the courts decision.
o HELD
The provider did not violate the standard of care
Determined that UNMCs decision was out of concern for the patients well-being.
Physicians were weighing the risk to Marys health of delaying treatment against the risk
to Marys health of potentially interrupted treatment.
Rejected the trial courts decision that UNMC made its decision to delay Flolan therapy based on
economic reasons
Overruled the district courts decision to grant Robert a new trial.
o NOTE
The Court did NOT decide whether the standard of care for physicians should incorporate
considerations such as cost control or allocation of limited resources
Additionally, public hospitals and community health standards are notably substandard and malpractice has done little to
correct this.
Greater Washington DC Area Council of Senior Citizens v. District of Columbia Government (1975) (finding DC
government had a duty to use resources effectively)
o The overwhelming and, indeed, the uncontroverted evidence compels the conclusion that in the several
areas where testimony and evidence have been submitted, the treatment and care of patients and the
facilities at D.C. General fall well below any acceptable level of quality and efficiency and that the
defendants have failed to provide adequate medical care and service to patients in accordance with
recognized standards of medical practice in this community.
Unitary standard
Under principles of ethics, once a doctor has agreed to care for the patient, owes the same duty of care and fidelity
regardless of income.
Critique - Wealth, Equity, and the Unitary Medical Malpractice Standard by John Siliciano
o Argues that the unitary standard disincentivizes physicians from caring for the under-resourced poor
further impairing their access to appropriate treatments
o Instead, physicians should be allowed to recognize explicitly the economic standard of their patients in
determining the level of treatment to furnish and should be held to a liability standard only in relation to
the level of care chosen

Two part allocation decision would be within doctors discretion

Amount to allocate to poor remains medical judgment because each condition can be
treated in a variety of ways
Once resource allocation is made, the modified tort standard applies
Its a more complex system, but the tort system can handle it
The tort system already adjusts for the price paid for the product/service
However, this alternate standard may not be necessary
o The unitary standard already accounts for resources in a number of jurisdictions
Explicit in EMTALA (only have duty to stabilize)
FL emergency room legislation (different tort standard)
Judicial opinions re: public hospitals\

Informed Consent

Chapter 15. Informed Consent to Treatment

Part 1. Introduction
History
Historically patients were told as little as possible about their condition and treatment
The concepts of the basic human rights of self-determination and dignity have helped to change the medical
culture around informed consent.
o Often denied to vulnerable populations such as African American, immigrant populations, and prisoners
o The Tuskegee Study, in which for 40 years doctors working for the federal governments Public Health
Service withheld treatment for syphilis from 400 unknowing African American men, provided an
indication of the abuses of human experimentation; was a factor in finding the duty of informed consent
o Strengthened by Nuremburg Code
Precursor to informed consent was assault/battery
o Patient autonomous
o physician committed assault without consent
Principal of informed consent
The health care provider must always convey the information in a way that an average person could understand.
o Topics that need to be covered
Potential hazards
Alternatives
Likely results without treatment
Exceptions (when informed consent is not necessary)
o Not feasible: Patient is unconscious and needs treatment ASAP
o Medically contraindicated: Risk-disclosure poses a threat to patient
o But these exceptions must be circumscribed as to not swallow the rule
Requisites for liability:
o Failure to warn
o Harm befalls patient
o Causal relationship between harm and failure to warn (i.e. if had disclosed risks, a reasonably prudent
person in Ps position would not have undergone the treatment the patients testimony about what they
would have done is relevant, not determinative)

This is contrary to the standard in other countries, such as France, where the standard is to withhold information
about the severity of that persons condition, the US has moved in this direction due to the rise of consumerism,
which has created an expectation that patients are self-empowering

Part 2. The Ride of a Patient-Oriented Standard of Informed Consent

Professional or patient based standard?
Where assault or battery remains the legal theory applicable to situations where no patient consent at all has been
given, most states now treat the issue of the adequacy of the consent and of the disclosures preceding it as an
issue of negligence
In 50% of the states, informed consent is evaluated under the reasonable person standard what would the
reasonable person expect to hear?
Canterbury v. Spence (DC Cir 1972)
Court found that the failure to inform the patient about the risk of paralysis was a prima facie case of violation of
duty to disclose.
There is a duty to disclose: It is not necessary for the duty to disclose to be part of the professional custom; it is
necessary for patients self-determination even if physicians dont impose it on themselves
Scope of Duty: duty only met if the patient has enough information to intelligently decide for themselves
(objective standard)
This case is powerful because it holds that doctors are negligent if they dont talk to patients reasonable person
standard, or what a reasonable person would expect to hear
Part 4. Conflicts of Interest and the Physicians Fiduciary Duty
Moore v. The Regents of the University of California (California Supreme Court 1990):
FACTS
o Patient treated for hairy cell leukemia had spleen removed and samples drawn. Defendant doctors did
not tell the patient that his cells were susceptible to research, or that they would gain financially from the
cell line created from his cells.
HELD
o Court found physician who is seeking a patients consent for a medical procedure must, in order to satisfy
his fiduciary duty and to obtain the patients informed consent, disclose personal interests unrelated to
the patients health, whether research or economic, that may affect his medical judgment.
o The failure to disclose such interests may give rise to a cause of action for performing medical procedures
without informed consent or breach of fiduciary duty the injury was a betrayal of trust, the relationship
between a physician and patient is based on fiduciary duty created by the imbalance in the relationship
o The courts holding was based on three main principals:
Competent adult person has the right to determine whether or not to submit to lawful medical
treatment
Patients consent must be informed to be effective

In soliciting the patients consent, the doctor has fiduciary duty to disclose all information
material to the patients decision, which includes the physicians financial interests

Learned Intermediary/Duty to Warn

When a physician prescribes treatments, drugs, and devices, he or she has a duty to warn about its uses
the fact that the device may carry dangers of its own is less immediate to the patient because the drug or device
can only be acquired through learned intermediary
Over the counter drugs, on the other hand, must warn patient directly

Health Information Confidentiality and Health Information Privacy

Chapter 16. The Confidentiality of Health Information and Information Privacy

Part 1. Introduction
In the United States, there is a long social and legal tradition of protecting health information.
Privacy is a critical precept of Americas core beliefs, goes back to 4th amendment
Privacy of health information is paramount
Historically states had privacy laws, due to the rise of HIT, Congress took action
MacDonald v. Clinger (N.Y. 1982)
FACTS
o Plaintiff is suing his psychiatrist for disclosing personal information that he shared in treatment.
o The defendant divulged the details of their therapy sessions to the plaintiffs wife without consent or
justification.
HELD
o The relationship of the parties was one of trust out of which sprang a duty not to disclose. The
defendants breach was a violation of a fiduciary responsibility to plaintiff.
o When a doctor and patient enter into a simple contract for care, there is an implied condition that any
confidential information gained through the relationship will not be released without the patients
permission.
Included in that contract is fiduciary duty of the health care provider to the patient
Implicit in and essential to the doctor-patient relation.
BUT, the duty is not absolute. Under certain exceptional circumstances countervailing
public interest may require disclosure.
o If the implied covenant of privacy is breached, it is actionable.
But it wont be an action for breach of contract; it will be an action in tort for breach of duty of
confidentiality and trust.
A long recognized tort in N.Y.
o Standards should be more stringent when dealing with psychiatric information.
Part 2. Health Information Privacy: The HIPAA Privacy Rule

HHS enacted HIPAA in 1996 because Congress failed to act within three years
o deals with health privacy
o also designed to begin process of electronic information age that we are now in
HIPAA does NOT supersede stricter state laws, it is the federal floor of privacy protection
o It does preempt state law that is contrary to it
o Does NOT preempt mandatory state reporting laws (child abuse, infectious disease, etc.)
o Does not shield health data for purposes of litigation
o Does NOT address individual health records i.e. Google Health right now they are too rarely used to
be regulated in a meaningful way; although it DOES provide that you have a right to view/copy your
medical records (even if not allowed under state law)
o Does not bar doctors from talking to patients or others that they pull into their zone of privacy
So, despite common perception, HIPAA does NOT create a total shield, deals with privacy NOT
confidentiality
HIPAAs privacy rule is the result of two balancing tests:
o Personal privacy vs. Flow of information (particularly pronounced due to HIT)
o Need for uniformity vs. Custom and practice of state law

Its privacy rule applies to covered entities that transmit health information in electronic form really a standard
of conduct for providers than a right for information privacy for patients
o these entities to create and post operating procedures re: information privacy, in particular the
transmission of health information to other people (certain things are outright prohibited, such as selling
patient lists to marketers)
o Allows transmission of health information w/out the individuals consent for purposes of:
Treatment doctor can transfer information if patient is referred to specialist
Payment insurance company can demand health information in determining claims for
payment
Healthcare operations - health benefit plan can get the information to change coverage design,
think about premiums, use by actuaries
Also allows the information to be transmitted to the individual, family members and
others involved in care as long as the individual is given the opportunity to object, when
is secondary to a permitted disclosure, for national priority purposes (health care
oversight, public health, research, law enforcement, when required by another law.
Note that research is not included, even when it is really health services research (must get
authorization to use)
o A unitary standard applies regardless of the type of health information involved
Where authorization is required, it must include:
o Specific and meaningful description of the information to be disclosed
o Name or specific identification of the person authorized to disclose the info
o Name or specific identification of the persons to whom the info can be disclosed
o A description of each purpose of the requested use or disclosure
o An expiration date or event
o The signature of the individual and date
o Required statements to place the individual on notice of his/her rights
There are no private remedies under HIPAA
o HHS is in charge of enforcement
o The fact that the conduct violated HIPAA may be evidence that it violated the standard of care in a state
cause of action

Liability Reform

Chapter 17. Medical Liability and the Politics of Legal Change

Part 2. What Is the Nature and Extent of the Medical Liability Problem?
Five Myths About Medical Malpractice
1. There are too many medical malpractice claims.
o In reality, there is a vast gap between the incidences of negligence-caused injury and medical liability
claims. Only about 2% of injuries result in a suit.
o There are significant numbers of invalid or fraudulent claims, but the number of such claims is dwarfed
by the number of unfiled valid claims.
2. Only good doctors are sued.
o Contrary to assertions from the medical profession, being a cutting-edge and technological innovator
does not expose physicians to greater liability.
o The best indicator of future malpractice suits, is past suits.
3. Dispute resolution in medical malpractice is a lottery.

There is an imperfect relationship between independent assessment of liability/injury costs and the
outcomes of legal disputes.
Medical malpractice claimants are overcompensated for their losses.
o Evidence shows that medical claimants tend to be under- rather than overcompensated.
Medical care is costly because of medical malpractice.
o DHHS has estimated the amount of money that would be saved if a national non-economic damages cap
was placed at $250,000. Over 10 years, the cap would save the county 50 billion dollars. Compare that to
the 10 trillion dollars that the federal government alone will spend on health care in the next 10 years.
o

4.
5.

Problems with Medical Liability in the US

Weak mechanisms for correcting medical error
o Regulatory: weak
o Industry doesnt police itself well (i.e. GW physician who committed gross malpractice but was allowed
to continue to practice)
o Licensing: weak
o Payors: likely stronger
People maintain faith in system only because can sue but the actual rate of recovery is actually really small
In 1970s, doctors requested an investigation of the malpractice crisis, GAO found there was no such crisis, that
in fact victims of malpractice were not being compensated
Doctors still got states to take their sides because malpractice premiums were going up and insurance carriers
were leaving that market state laws limit malpractice largely shield doctors:
o Procedural and cost barriers to recovery
o Damage caps on non-economic damages or all damages
Most controversial and most effective way to reduce premiums
Seems unfair to impose disproportionate share on those who have been injured
Makes it harder to seek and recover damages for medical injuries
Extends unwarranted protection to medical industry
Removes the only effective deterrent to negligent medical care
AMA argues that the damages imposed by juries are untrustworthy
At least 6 states have found the caps unconstitutional
Has been argued that the caps have not achieved stated purpose:
Has not reduced costs (malpractice is only small part of cost)
Keeps premiums down, but is artificial because they are supplemented with the state
fund
o Use of funds to pay part of damages (i.e. Indiana)
o Reform of insurance markets
o Reduce standard of care (i.e. Florida)
Now it is clear that there is a crisis
o Physicians and hospitals are major targets of malpractice
o Impacts of malpractice:
Premiums rise
Defensive medicine,
Physicians protective of information for fear of liability, which prevents full discussion of error to
improve patient safety
o Proportion of victims that recover is small
Part 3. Fixing the Medical Liability Crisis
Possible reforms:
No fault (i.e. Sweden): errors are reported and compensated; not politically feasible in US

No fault compensation model (i.e. vaccine injury): reduces damage awards in return for faster, more
comprehensive coverage
Shielding health care providers from the risk of medical liability: done largely to protect the provider, i.e. raise
standard of care to gross negligence, shorten SOL, cap damages, exhaust administrative remedies
Federal Incursions into medical liability reform: ACA state liability reform demonstrations are limited in
scope and focus on the development by states of alternative dispute resolution systems

Part 5. Enterprise Liability

Definition
Enterprise liability is a legal doctrine under which individual entities can be held jointly liable for some action on
the basis of being part of a shared enterprise.
It is a form of secondary liability in which an entire organization may be held responsible for the obligations
and/or offences of its constituent units.
Proposals for Systematic Enterprise Liability in Health Care
In the early 1990s, two proposals were made to establish a model for enterprise liability that would replace suits against
individual physicians:
(1) A system of hospital-based liability
(proposed in 1992 by law professors Paul Weiler and Kenneth Abraham,14)
o The goal of the proposal was to consolidate the defense of medical malpractice claims
o Hospitals were chosen to assume the lead in defense because the majority and most serious medical
malpractice cases arise from hospital care
Wanted to place liability on the institution with the clearest involvement in health care delivery
o Problems
A broad shift toward ambulatory and home-based care has resulted in a greater percentage of
malpractice cases with no hospital affiliation
Most physicians dont work directly for hospitals
(2) A system of health plan-based liability
o considered in 1993 by President Clintons Task Force on National Health Care
o The proposal was to give liability for medical malpractice to the newly formed health plans were to be
created in the 1993 health care reform
Health care plans were to be integrated organizations that combined health care financing with
the provision of services.
o Theoretically, it was a good suggestion
In an environment where health care is planned, managed, and provided by a system instead
of being rendered by unaffiliated, individual practitioners, holding health plans primarily
accountable for instances of medical malpractice is appealing for three reasons.
Health plans already would be primarily responsible for cost containment.
Legal liability for negligent health outcomes should make health plans reluctant
to cut costs by reducing quality
Medical malpractice arises between parties who have a pre-existing relationship, which
health plans could formalize and extend.
The relationship between health plans and beneficiaries could form the basis for
quality improvement activities, communication of grievances, and efficient
dispute resolution.
Health could be subjected to significant direct regulation and oversight.
Health plans were required to comply with national standards on the
accessibility and impartiality of grievance procedures; to collect, process, and

publish comprehensive information on clinical performance; and to work closely

with purchasing alliances as well as with state and federal authorities to ensure
access to and quality of care
Hospitals and Health Care Quality

Chapter 18. Hospitals and Health Care Quality

Part 2. The Role of Law in the Age of Expanding Hospital Authority
Charitable Immunity Doctrine
For most of 19th Century, hospitals were protected from malpractice by charitable immunity an immunity from
civil liability, particularly in regards to negligent torts, that is sometimes granted to charitable or nonprofit
organizations
o Hospitals relied on the charitable contributions of the community to stay open
They were viewed as frail institutions, their assets had to be protected to do these good works
No vicarious Liability
o Hospitals were not found vicariously liable for doctors/nurses because did not control their actions,
even though the hospital paid them.
Schloendorff v. Society of New York Hospital (J. Cardozo, 1914).
Plaintiff was operated on without giving consent. She sued the hospital where it
occurred.
HELD: The operation to which the plaintiff did not consent constituted battery, and the
doctor was liable
o However, as a non-profit the hospital was protected by charitable immunity and
could not be held liable for the actions of its employees.
o This created the image of the hospital as a workshop that lends its facilities and equipment to
independent medical care providers
Other doctrines that protected hospitals - by attaching liability somewhere where it was presumed that hospitals
had no status:
o Captain of the ship: only the surgeon was liable for negligence of the nurses acting under him
o Borrowed servant: the hospital not responsible for incompetence of nurse staff because the nurses are
borrowed servants of the hospital staff
Part 4. The Rise of Respondeat Superior
In the early 20th century, the law surrounding hospital liability started to change.
The American College of Surgeons (ACS) promulgated uniform hospital standards judgment in 1919, and they
were adopted by many hospitals on a voluntary basis
Hill-Burton Act was passed in (1946)
o required states to pass licensing standards (were largely based on ACS standards); there was little money
for enforcement
In 1951, the ACS was superseded by The Joint Commission, a private regulatory agency.
o New standards were written and they were followed voluntarily by many hospitals
o They created staff privileges to prevent unsupervised hospital practice. Included the following levels:
Active - the most experienced doctors that regularly practiced in the hospital; had staff privileges
Associate - more junior doctors
Courtesy - doctors only allowed to treat their private patients in the hospital

Other than anesthesiologists, radiologists, pathologists and ER doctors, most hospital doctors get bulk of
patients from private practice; are not considered employees of hospital
From 1930s 1940s, it became clearer that hospitals were responsible for quality of care:
o Emergence of hospital industry
o AHA and TJC stated hospitals provided quality care
o Courts abandoned charitable immunity and captain of the ship
Truhitte v. French Hospital (Cal. 1982): rejected captain of the ship theory because the hospital
also had a duty acting through its nurses, should be liable if it doesnt create procedures to
control activities of nurses
There were four main pieces that accounted for the shift in doctrine toward hospital liability:
o Increase in technology: hospitals were viewed as capable of complicated and advanced treatment
o Privatization of hospitals: over time the role of hospitals in medical training became such that they
stopped being doctors workshops and became institutions in their own right (are largely non-profit)
o Hospitals became accredited: led to the understanding that hospitals themselves saw themselves as
entities whose conduct should be held up to examination by suit
o Hospitals became rich: with insurance, people were able to pay
o

Part 5. Non-Employee Physicians and the Expanding Concepts of Agency Nondelegable Duty
Nondelegable Duties for Hospitals
Definition of a Non-Delegable Duty
o An obligation that cannot be outsourced to a third party according to the terms of the contract. In the
event that it is delegated, the second party reserves the right to reject the performance of the obligation.
Hospitals have a non-delagable duty to run the hospital without negligence.
o Non-delegable duty applies when the responsibility is so important to the community that it cannot be transferred
to another. The court found this standard was met because the hospital industry was so heavily regulated
by state law, bylaws, and licensing standards. Holding a hospital license is lucrative, so they should be
held to those standards.
o Jackson v. Power (Supreme Court of AK 1987): hospital put up a sign that the doctors were supplied by
another corporation. The court finds that the hospital had a non-delegable duty to run hospital nonnegligently.
Non-delegable duty applies when the responsibility is so important to the community that it cannot be
transferred to another.
The court found this standard was met because the hospital industry was so heavily
regulated by state law, bylaws, and licensing standards.
Holding a hospital license is lucrative, so they should be held to those standards.
This is a means to hold the hospital responsible for actions of independent contractors.
Under state law, hospital had a duty to have an on-duty physician
TJC standards required:
o ER to be directed by a physician member of the hospital staff;
o ER to be integrated with other units/departments of the hospital
o Emergency care to be guided by written policies and procedures
o Quality of care to be continually reviewed, evaluated, and assured through
establishment of quality control standards
Hospitals bylaws also required ER committee to supervise clinical work of ER
Unique situation in hospital context, you are really relying on the hospital to provide you
with a doctor (can this be extended to anesthesiologists, pathologists, radiologists?)
o The interesting thing about this theory is that it is not necessary to have a negligent doctor because the
hospital itself is liable

Part 6. The Rise of Hospital Corporate Liability

The Structure of Hospital Governance
Hospitals are arranged in triad
o governing body
o administration and management
o self-governing medical staff
As a result of this structure, hospitals have important and significant responsibilities as institutions for the quality
of care that is delivered under their auspices
o Medical staff wield an enormous amount of power over the hospital:
Set rules re: privileges, practice obligations, circumstances under which privileges can be
terminated
Through these decisions they end up driving a lot of decisions in hospital administration
o Administration deals with a lot of the other aspects of hospitals:
Keeping it in legal compliance
Budget
Financing
Hire staff
Set operating standards
Monitoring
Safe environment
individual performance
general needs update equipment
look for errors
Reporting under accrediting standards
The Scope of Corporate Liability
Corporate liability applies to the hospitals own acts and omissions, such as by board of directors, senior
physicians, employees and staff
o Examples of possible liability for hospitals
Failure to screen out incompetent physicians
Failing to respond to apparent serious error by physicians
Failing to monitor certain physicians, fire those with bad track record
Duty to provide adequate equipment, policies, training, and supervision to employees
Defense attorneys see these as grounds for strict liability, particularly the never events, but
most courts find that the hospital standards are inadmissibility to show standard of care and
some of these events are so egregious that the standard is not necessary to find liability
But where this has been implemented, it has reduced mishaps (Harvard)
The Hospitals Duty to Monitor Treatment Done by Staff with Privileges
Hospitals have a duty to monitor the treatment provided by any physician with staff privileges. If the hospital breaches
that duty, it will be held liable for the any negligence done by hospital employees.
Darling v. Charleston Community Memorial Hospital (Supreme Court of IL 1965)
FACTS:
o Patient sued the hospital that treated his broken leg because the nurses failed to follow hospital procedure
and he lost his leg.
HELD
o The hospital was liable for failing to supervise the actions of its nurses, who failed to recognize the
symptoms of gangrene resulting from the plaintiffs overly tight cast.

Dismissed the hospitals argument that its only duty was to avoid being negligent in selection of doctors.
Found that the bylaws, regulations, and standards introduced by the plaintiff provided evidence of
custom
The medical profession expects hospitals to assume a certain level of responsibility for the patient
hospitals are supposed to hire staff, train staff, monitor performance, and rectify errors - did not
do these things
NOTES:
o Important case because it rejected the argument that hospitals duties are confined solely by custom of
similarly situated hospitals
o A breakthrough in liability - first time a court found that a hospital was a provider in its own right
o
o

States have different standards

o Ohio: no duty to supervise actions of physicians
o Pennsylvania: creates a stricter standard for corporate liability
Must show that the hospital itself is breaching the duty
Hospital negligence is measured by reasonable hospital under similar circumstances
Requires a finding of systemic negligence (not just one incident)
o North Carolina: standard for a hospital is that of an ordinary, reasonably prudent hospital
Under this theory it is not necessary to have a negligent doctor b/c the hospital itself is liable
Note: Is it reasonable to think that hospital administrators will override physicians?
o Doctors resist direction from administration, governing board
o administration may not be told of the problem and often leave it to the medical staff
If this is applied to hospitals will large consolidation of hospitals
o Smaller hospitals are not well-equipped to bear the liability
o Although hospitals are able to purchase insurance to avoid this and the cost of insurance is then built into
hospital fees
Other entities area also good candidates for enterprise liability
o Utilization decisions are often made by financing enterprises
o currently these enterprises bear only the burden of over-utilization incentive to under-prescribe
o Enterprise Medical liability

Corporate Interference with Appropriate Medical Care

Hospitals have a duty not to implement policies that interfere with the medical judgment of the physicians they employ. If
the hospital breaches that duty, it will be liable for any damages caused by the policy.
Muse v. Charter Health Care (Supreme Court of NC 1995)
FACTS
o A teenager committed suicide after being discharged from a hospital where he was receiving treatment
for depression. His parents sued the hospital for wrongful death because of their policy of discharging
patients when their insurance expired directly overriding the medical judgment of treating physicians.
HELD
o The hospital was negligent in maintaining policies that interfered with the medical judgment of the
doctors.
The duty not to implement policies that interfere with medical judgment is due to:
Duty to obey instruction of doctor
Duty to make reasonable effort to oversee treatment
The court found that the Ps own suicide could not be a superseding factor that cut off their
liability because his suicidal tendencies were the reason that he sought treatment from the
hospital to begin with.

This standard likely applies to modern health benefits services corporation also interferes with medical practice
all the time by denying coverage

Part 7. The Charitable Immunity Doctrine and Contractual Releases

Tunkl v. Regents of University of California (Cal. 1963)
FACTS
o The decedent brought this action to recover damages for personal injuries alleged to have resulted from
the negligence of two physicians in the employ of the University of California Los Angeles Medical
Center, a hospital operated and maintained by the Regents as a nonprofit charitable institution. The jury
returned a verdict in favor of the Regents based on the decedent's execution of an agreement releasing the
medical center from liability for services provided to him.
HELD
o That the exculpatory provision in the agreement was invalid under Cal. Civ. Code 1668 because it
affected the public interest.
o The agreement exhibited all of the characteristics set forth by the courts of the type of transaction in
which exculpatory provisions would be held invalid, including the following:
the agreement involved an institution subject to public regulation;
the hospital's services to those who needed the particular skill of its staff and facilities constituted
a practical and crucial necessity; and
the hospital held itself out as willing to perform its services for those qualified members of the
public.
Part 8. Structuring the Hospital Peer Review Process: State-Law Immunity, Privilege, and
Regulation
Peer Review
Hospitals have a duty to weed out doctors who are performing poorly. One means of doing that was to take staff
privileges after a process of peer review.
Losing staff privileges under peer review is serious
o The physician can no longer practice in the hospital and he will appear in a databank of doctors who have
lost staff privileges.
In response to this practice, doctors brought claims under:
o Antitrust
o Defamation
o Malicious interference with K
o Discrimination (if doctor is woman, minority, disabled, old)
The Health Care Quality Improvement Act was passed by congress in 1986 in response to these claims
(in particular Burgett, discussed under Antitrust section)
o The statute shielded peer review from liability - four elements must be met to avoid liability
There is a rebuttable presumption that the hospital followed those procedures, plaintiff has to
show by preponderance of the evidence that the procedures were not followed that did not act
upon reasonable belief or with reasonable effort
There is no requirement that the reviewers act in good faith
This statute gives plaintiffs very little right to challenge peer review decisions
This is a public health and safety statute, a statement by Congress that it wants the profession to
police itself, the assumptions are:
(1) only professionals can really judge other professionals,
(2) cant be micromanaged because safety of patients is on the line
Flip side of this assumption is that in reality the peer review process is rare, not a substitute for malpractice

o
o

An alternative way to protect the public is an active licensing board, in that case, if you had your license
revoked, you could not practice anywhere
Currently the licensing boards do a miserable job maintaining quality oversight
The best known example of this is the Libby Zion story where the daughter of a New York Times
reporter got sick on Thanksgiving and was taken to the hospital. There was no one on duty other
than residents who had been awake for 130+ hours. No one attended to her, just strapped her to
gurney and she died. There was a huge investigation, which resulted in NY licensing board
passing a standard that residents can only work for 80 hours/week.

Bryan v. James E. Holmes Regional Medical Center (11th Cir. 1994)

FACTS
o Dr. Bryan had temper, the peer review found him damaging to the hospital because others would not
work with him and people were afraid of him, so his staff privileges were revoked. The court found that
the plaintiff did not rebut the presumption that the peer review process was reasonable.
HELD
o Hospitals and physicians conducting a peer review of another physician enjoy statutory immunity
under HCQIA if their action "would promote quality health care," restrain "competent" behavior, and
"protect" patients.
The role of federal courts on review of [peer review] actions is not to substitute our judgment for
that of the hospital's governing board or to reweigh the evidence regarding the ... termination of
medical staff privileges."
and
"[T]the intent of [the HCQIA] was not to disturb, but to reinforce, the preexisting reluctance of
courts to substitute their judgment on the merits for that of health care professionals and of the
governing bodies of hospitals in an area within their expertise."
Part 9. Substantive Grounds for Adverse Hospital Action
Negative Categorical Exclusions: Race and Non-MD Providers
Functional Categorical Exclusions
Individual Performance: Medical Incompetence, Inability to Work with Others and Other Risk-Creating Grounds
Payers and Health Care Quality

Chapter 20. Payers and Health Care Quality: Awakening the Sleeping Giant
Part 1. Introduction: Old Concerns, Old Techniques and the Rise of Value-Based Purchasing
Payers have taken an increasingly large role in the regulation of health care quality
In the 1970s and before, there was privity between the individual and insurer, but nothing between the insurer
and provider sue insurer in contract, sue doctor for malpractice
Since the 1970s, there has arisen a situation in which there is a very clear relationship between the provider and
payer (i.e. the provider is in the payers network)
There are three models for payers to control healthcare quality:
Peer review: look at procedure after it has occurred
Prior authorization: approve or disapprove before the treatment occurs, i.e. formulary
Payment:
o Pay for Performance
Basis of P4P is that how one gets paid has an influence on what one does

this was tried with capitation and failed (led doctors to financial ruin or to under-serve
patients)
but economic models may still qualify
the goal is to increase quality while holding down costs
Reward either (1) explicit conduct, or (2) outcomes considered beneficial to society with payment
Types of incentives:
o Basis:
bonus on patient-by-patient basis
coordinate payments to individual physicians for achieving certain
performance measures
incentives at organizational level
o Type of incentive:
Money
Put doctor at higher tier
Penalties
Exclude doctors
o Metric:
Clinical process of care and outcomes
Structure of the practice
Mix of metrics
There was a four-fold increase in P4P in private plans from 2003-2004; has come to
Medicare/Medicaid2
Problems
o Lack of common concept of quality
o Investment costs
o Does not take into account type of patients served, may create an incentive not to
take high-risk patients
o Poses legal issues of disclosure/informed consent, and professional negligence
nad corporate liability
Physician Tiering
The long-standing use of networks shows that the idea of tying money to conduct is not new
Has increased with tiering, particularly in self-insured plans
Degree of incentivization/punishment varies by plan
criteria are considered proprietary
Patients can attack tiering just as they attacked other elements of provider networks
Moran: Wanted external review
Krauss: wanted condition covered even though was out of network provider because had
bought supplemental insurance coverage
Providers can attack tiering:
Defamation
Absence of Fair Process
Breach of K
Fraud

MedPac issued formal recommendations for P4P and Medicare/Medicaid already have demo projects, such as:
The DOQ-IT, which promotes Electronic Health Records to increase quality and safety.
- Medicare Care Management Performance Demonstration is a P4P pilot to promote adoption of Electronic Health
Records.
- Physician voluntary Reporting Program, which reports to CMS feedback to improve services.
Providers get a tax relief to participate in these demonstration projects.
2

The settlement in Washington Medical Association (Wash. 2007) case suggests types of
modifications that make the practice of tiering more acceptable:
Give physicians input before using new performance measure
Give physicians notice before publishing new scores
Post physicians scores and explanation of data, as well as a means to identify the types of
patients the doctor serves
Allow doctors to appeal determinations about scoring via independent review
Physician selection/de-selection
Guidelines often used in conjunction with payment incentives, the purpose is to get the providers
practicing in a way that appears to be in conformance with the evidence

o
o

Medicare: the first insurer to get involved in the quality of care. They established a number of different review
organizations that were designed to ensure a high quality of care.
Utilization Review (UR) of providers for them to participate
Would review necessity of extended stay
If disagreed, could terminate stay giving patients 4 more days of pay to make arrangements
Tool for cost-containment, but did not perform well in terms of quality
Professional Standards Review Organizations (PSROs)
Role was to establish standards for local in-hospital UR committees
Unable to achieve more than minor improvements
Peer Review Organizations (PROs)
performed same function of determining medical necessity, whether care met quality standards, whether
inpatient services could be more economical
Had a wider geographic scale than the PSROs
Did not require as much physician input weakened input of profession
Contracts between HHS and PROs contained highly specific and quantified objectives
In 1982, the PROs were converted into DRG police
Quality Improvement Organizations (QIOs)
New generation of PROs also serve to draft quality standards and are involved with local physicians
They perform medical review on quality in six clinical areas QIOs are expected to initiate local projects in these
areas
They review individual quality of care and EMTALA claims
o If QIO deems care substandard, the physician cant charge for it
o Can also deny care on basis of necessity, level of care, and quality grounds
o Has created never events for which a physician can never receive payment (i.e. hospital acquired
infections)
Providers can seek post-termination review.
o First, the doctor is entitled to a hearing before an Administrative Law Judge (ALJ).
o Then he may appeal an adverse ALJ decision to the Secretary's Appeals Council.
o Finally he can obtain judicial review of the final decision of the Secretary.
Biggest complaint of doctors is that there is no right to access administrative law judge until after
the Inspector General decides.
o Doyle v. Secretary of Health and Human Services (1st Cir 1988)
HELD: The doctor had not exhausted his administrative remedies because the Secretary had not
rendered a final decision. Therefore, could not bring claim in federal court.
Policy behind exhaustion:
o Allow agency to develop a factual record, apply expertise, exercise discretion,
correct mistakes
o Promotes accurate results
o encourages expeditious decision-making
Exception from exhaustion

when P attacks system-wide policy, would do little if had to exhaust because it is

clear what agency will find
But here the Ps claim is an issue where agency expertise is helpful and the agency is less
firmly rooted in its policies
The court finds that the process is constitutionally adequate because:
o Terms need not be more specific, were clear to medical profession
o Process balances interests of doctors and the interests of beneficiaries to be
warned about the doctor
Even though it was pretty clear that the review committee was biased against Doyle, the
evaluation was based on neutral/objective criteria
o

Part 2. Legal Issues in Value-Based Purchasing

Health Information Technology
Publishing Information About Price and Quality and Using Data to Tier Physician Networks and Sanction Hospitals for
Never Events, and Excessive Readmissions
Should Payers Face Liability for Injuries or Deaths Linked to Value-Based Purchasing?
Incentivizing Provider Performance Through Medicare Shared Savings
Accountable Care Organizations (ACO)
An accountable care organization (ACO) is a healthcare organization characterized by a payment and care
delivery model that seeks to tie provider reimbursements to quality metrics and reductions in the total cost of care
for an assigned population of patients.
o Structure
Provider-led organizations with a strong base of primary care that are collectively accountable for
quality and total per capita costs across the full continuum of care for a population of patients;
Payments linked to quality improvements that also reduce overall costs; and,
Reliable and progressively more sophisticated performance measurement, to support
improvement and provide confidence that savings are achieved through improvements in care.
Before the ACA, the law did not favor collaborations among independent competitors.
However, in Section 3022 of the ACA DHHS proposed the initial set of guidelines for establishment of ACOs
under the Medicare Shared Savings Program (MSSP)
o According to the ACA, MSSP "promotes accountability for a patient population and coordinates items
and services under part A and B, and encourages investment in infrastructure and redesigned care
processes for high quality and efficient service delivery.
o Incorporating DHHS final regulation adjustments on October 20, 2011, Section 3022 outlines the following
requirements for ACOs:
The ACO shall be willing to become accountable for the quality, cost, and overall care of the
Medicare fee-for-service beneficiaries assigned to it
The ACO shall enter into an agreement with the Secretary to participate in the program for not
less than a 3-year period
The ACO shall have a formal legal structure that would allow the organization to receive and
distribute payments for shared savings to participating providers of services and suppliers
The ACO shall include primary care ACO professionals that are sufficient for the number of
Medicare fee-for-service beneficiaries assigned to the ACO under subsection
At a minimum, the ACO shall have at least 5,000 such beneficiaries assigned to it in order to be
eligible to participate in the ACO program
The ACO shall provide the Secretary with such information regarding ACO professionals
participating in the ACO as the Secretary determines necessary to support the assignment of

Medicare fee-for-service beneficiaries to an ACO, the implementation of quality and other

reporting requirements under paragraph (3), and the determination of payments for shared
savings under subsection (d)(2)
The ACO shall have in place a leadership and management structure that includes clinical and
administrative systems
The ACO shall define processes to promote evidence-based medicine and patient engagement,
report on quality and cost measures, and coordinate care, such as through the use of telehealth,
remote patient monitoring, and other such enabling technologies
The ACO shall demonstrate to the Secretary that it meets patient-centeredness criteria specified
by the Secretary, such as the use of patient and caregiver assessments or the use of individualized
care plans
The ACO participant cannot participate in other Medicare shared savings programs
The ACO entity is responsible for distributing savings to participating entities
The ACO must have a process for evaluating the health needs of the population it serves

Liability of Payers for Medical Negligence and ERISA Preemption

Chapter 21. Liability for Medical Negligence: Special Issues that Arise in Situations Involving
Insurers and Health Plan Administrators
Managed care organizations are liable for corporate liability where they are "providing health care services rather than
merely providing money to pay for services."
Based on the theory that managed care organizations are hybrid organizations both providers and insurers
o They either pay for care or offer levels of care conditioned on use of network
o This combination raises complex questions when their conduct results in medical injury
Two legal frameworks to consider this question
o Medical Liability/Tort Law
focuses on professional medical conduct that falls below professional norms
o Insurance, K, trust law
focuses on resource allocation
Part 2. Insurer Negligence in Connection with Coverage Determinations
A third party payer of services can be held medically liable if the error is in the design and implementation of costcontainment measures, such as when decisions regarding the necessity of care ignore actual medical necessity
Wickline v. State of California (Cal. App. 1986)
o Third party payors of health care services can be held legally accountable when medically inappropriate
decisions result from defects in the design or implementation of cost-containment mechanisms.
For example, when appeals made on a patient's behalf for medical or hospital care are arbitrarily
ignored or unreasonably disregarded or overridden.
o However, the physician who complies without protest with the limitations imposed by a third party
payor, when his medical judgment dictates otherwise, cannot avoid his ultimate responsibility for his
patient's care.
He cannot point to the health care payor as the liability scapegoat when the consequences of his
own determinative medical decisions go sour.
o Patients harmed by withholding care should recover from all involved in deprivation, including third
party payers
McEvoy v. Group Health Cooperative of Eau Claire (Wis. 1997)
o FACTS

Pursuant to the contractual terms of the HMO's insurance policy with the subscribers, a mother
and her daughter, the HMO was to pay for out-of-network care up to the policy limits.
The HMO referred and approved the daughter for treatment for anorexia at an out-of-network
inpatient clinic.
Although four weeks of benefits remained under the subscribers' contract, the HMO
discontinued coverage based on cost concerns. The subscribers' brought an action against the
HMO for bad faith breach of their insurance policy.

HELD
HMOs that make out-of-network benefit decisions are insurers for the purpose of application of
the tort of bad faith.
Not all malpractice cases against HMO physicians may be pursued under the guise of the tort of
bad faith.
The tort of bad faith is not designed to apply to classic malpractice cases arising from
mistakes made by a health care provider in diagnosis or treatment.
Bad faith tort claims arise in out-of-network provider situations when the HMO unreasonably
refuses to provide a service or cover payments to outside providers for which it is contractually
obligated.
To prevail on a bad faith tort claim against an HMO, must show by clear and convincing evidence
(1) there was no reasonable basis for the HMO to deny the plaintiff's claim
(2) that the HMO either knew or recklessly failed to ascertain that the care should have
been covered.
o Including if the HMO bases its decision on cost-containment mechanisms,
despite a demonstrated medical need and a contractual obligation
HMO is liable for damages proximately related to the breach and for punitive damages
for bad faith, oppression, fraud, and malice
The tort of bad faith, sufficiently "relate to" employee benefits plans to fall under ERISA
preemption.
Only HMO subscribers of ERISA-exempt plans or who purchase their subscription plans
individually may use the tort
Long v. Great West Life & Annuity Ins. Co. (Wyo. 1998):
o A state law providing for administrative appeals regarding claims for medical services received by public
employees does not bar a bad faith breach of K action against insurer for unreasonably denied preauthorization of services when appeal procedure does not apply to pre-authorization or prospective
utilization review decisions
HMOs cant hide behind one of their dual functions to avoid liability they can be held liable as insurers or providers
MacAvoy and Wickline had contractual complaints
Boyd had a complaint about the care itself
The crucial thing is the CONDUCT you are looking at
o

Part 3. Liability for Medical Injuries Arising From Health Care Negligence
Vicarious Liability and Agency
Although a physician holds independent contractor status with respect to a hospital, he may nevertheless be an
agent of the hospital with respect to the patient.
o Where a hospital "holds out" the physician as its employee, there is an ostensible agency relationship
between the hospital and the physician.
o A holding out occurs when the hospital acts or omits to act in some way which leads the patient to a
reasonable belief he is being treated by the hospital or one of its employees.
Boyd v. Albert Einstein Medical Center (Pa. Superior Ct. 1988)
o FACTS

Appellant husband filed a wrongful death action against his HMO alleging vicariously liability
for the negligence their networked physicians.

HELD
This is a strict medical malpractice case and there was no basis for suit.
BUT, an HMO can be held liable for the actions of its physicians under the theory of
ostensible/apparent agency.
Doctors may be agents if:
o Patient looks to institution rather than individual for care
HMO agreed to furnish doctors
P selected doctor from list of HMOs doctor (how restrictive does this list
have to be to qualify?)
o HMO holds out physicians as employees
HMO screens doctors
Doctors must comply with HMO regulations
HMOs doctors are gatekeepers
o Patient submitted self to care of doctor due to HMOs invitation
Chase v. IPA, Inc. (Mass. 1991): The court failed to find ostensible agency because the plaintiff did not know about
the arrangements with the doctors employed by the office where her OB-GYN worked.
o Under this theory, liability requires reliance on IPAs representations that the doctor is its employee or
agent.
Petrovich v Share Health Plan of Illinois (Ill. 1999) The court found HMO liable under apparent authority
o Justifiable reliance is met where the patient relies on the HMO rather than a specific physician to provide
care
o In the master agreement between sponsor and HMO, HMO held self out to be selling healthcare,
underscored role of HMO in ensuring quality care
o Where a person has no choice but to enroll with a single HMO and does not rely on a single physician,
they are relying on the HMO to provide care, particularly where there is no prior relationship
o Accountability is necessary to counterbalance HMO goal of cost-containment (consistent with national
trend)
Williams v Good Health Plus, Inc. (Texas 1987): HMO could not hold self out as practicing medicine because
corporate practice of medicine doctrine, therefore could not be vicariously liable under apparent authority
o

Corporate Liability

Standard for doctrine of institutional liability for HMOs:

o the law imposes a duty on HMOs to conform to the legal standard of reasonable conduct in light of the
apparent risk.
To fulfill this duty, an HMO must act as would a reasonably prudent HMO under the
circumstances
The core of this duty is to provide a network of providers, must be an adequate, operating
network, especially for Medicaid b/c cant go out of network
To determine if a duty exists, the court looks to:
o Reasonable foreseeability of risk
o Likelihood of injury
o Magnitude of burden of guarding against the injury
o Consequences of placing the burden on the defendant
o Public Policy
Standard of care applicable to HMO may be proved through a number of evidentiary sources, expert testimony is
not necessarily required.
o P bears the burden of establishing the standard of care

McClellan v. HMO (Penn. 1995): HMOs have a non-delegable duty to select and train only competent primary
care physicians
Shannon v. McNulty (Penn. 1998): no reason why duties applicable to hospitals should not apply to HMOs when
performing similar functions as a hospital; when a benefits provider interjects self into rendering of medical
decisions, must do so in a reasonable manner.
Jones v. Chicago HMO (Ill. 2000):
o Court found HMO liable for institutional negligence because breached duty to enrollees by assigning an
excessive number of patients to Dr. J.
It is reasonably foreseeable that assigning an excessive number of patients to a primary care
physician could result in injury.
o The court found a theory for institutional negligence in the healthcare context under Darling,
To determine whether to extend it to Chicago HMO, look at:
Contracts
Charter
How operates
Functions: actuarial, network, payment
It applied to HMOs because:
It had doctors, hospitals
Its contract with the state of Illinois provided that it was organized for the purpose of
providing healthcare services and warrants that will do so according to prevailing
community standards

Part 4. When Does ERISA Preempt the Medical Liability of Insurers and Plan Administrators?
Corcoran v. United Healthcare (5th Cir. 1992)
FACTS
o Louisiana tort action asserted by the Corcorans for the wrongful death of their child allegedly resulting
from Uniteds medical decision not to preauthorize her hospitalization for her high risk pregnancy
(Utilization Review under Quality Care Program).
A medical malpractice claim against the insurance company
Argued that when United Healthcare denied coverage they were making medical
decisions about the childs care making them liable is liable for the death.
HELD
o ERISA preempts state law on the tort and contract actions in which a beneficiary seeks to recover damages
for improper processing of claim for benefits (Pilot Life)
o Although United made medical decisions, it did so in the context of benefits.
There is no way to untangle the business and medical decision making when making a
prospective coverage decision
A matter of cost-containment, not medical judgment
although we disagree with Uniteds position that no part of its actions involves medical
decisions, we cannot agree with the Corcorans that no part of Uniteds actions involves
benefits determinations. In our view, United makes medical decisions as part and parcel
of its mandate to decide what benefits are available under the Bell plan. As the QCP
(benefits reviewer) booklet concisely puts it, United decides what the medical plan will
pay for. When Uniteds actions are viewed from this perspective, it becomes apparent
that the Corcorans are attempting to recover for a tort committed in the course of
handling a benefits determination. The nature of benefits determinations is different
from the type of decision that was at issue in Pilot Life, but it is a benefit determination
nonetheless. The principle of Pilot Life that ERISA pre-empts state law claims alleging
improper handling of benefits claims is broad enough to cover the cause of action
asserted here.

Allowing Corcorans suit would undermine Congress goal that ERISA plans be subject to uniform body
of law
Liability laws may be applied differently, would increase cost of care
Congress can preempt state law that interferes with ERISA
The lack of another remedy does not affect the preemption analysis
No 502 claim
Patient didnt receive any benefits, so she cant make a 502 claim because the only remedy
for 502 is receiving the denied benefits
o (Here would have been the cost of the foregone hospitalization);
Alternatively patient can sue for a TRO right after benefits were denied
o (not realistic - requires a patient to know that she needs a lawyer and find an
attorney who specializes in ERISA.)
Emotional damages not available under contract/trust principles that guide ERISA interpretation
There is not really a doctor-patient relationship between United/Corcorans to support a
contract theory of recovery
Lack of K relationship between United and Corcorans also undermines theory under breach of
fiduciary duty

Most courts followed Corcoran, some even took it further:

Kuhl v. Lincoln Ins: Lincoln delayed payment authorization for heart surgery until Ps heart deteriorated so much
that it would be futile and then died while waiting for a transplant. The court agreed with the rationale from
Corcoran Ps state law claims all arose from administration of benefits, therefore were preempted by ERISA.
There was no evidence that the denial of payment made the plaintiffs surgery impossible.
Spain v Aetna: ERISA held to preempt state law claims of negligent administration of benefits claims
Other courts have even gone as far as to find state law claims of corporate liability on part of HMO/health plans
relates to plan administration or that claims of vicarious liability are preempted even though involved no
allegation of wrongdoing because relates to and requires reference to employee benefit plan (also wants to avoid
anomalous result that HMO liability would be inversely proportional to involvement with doctors)
Dukes v. U.S. Healthcare (3rd Cir. 1995)
FACTS
o Involved claims by two plaintiffs involving medical negligence, claims for vicarious liability.
o Patients arguing against the quality of the treatment and benefits
the failure to perform blood tests and to diagnose preeclampsia by plan doctors
o The lower court found that the claims had been improperly removed to federal court and that they were
not preempted.
HELD
o ERISA pre-empts
o Removal
Only removable if there is a federal question on face of well-pleaded complaint (not including
defenses) or if there is complete preemption under ERISAs civil enforcement mechanism (Met
Life)
To determine if the claim falls under 502(a)(1)(B), the court looks to whether claims properly
construed are to recover benefits due under the terms of the plan to enforce rights under the
terms of the plan, or to clarify rights to future benefits under the plan
Here removal was improper because did not contest whether deserved benefits under 502(a)(1)
(B), but as to the quality of the benefits
o Preemption
Nothing in the legislative history leads to the conclusion that Congress meant to create a remedy
for medical malpractice or to ensure quality of benefits (areas of state regulation)

502(a)(1)(B) is concerned only with whether benefits were received, rights under terms of plans
refers to contractual rights other than benefits
Courts are unlikely to remove a case to federal courts if
Here the question was NOT to clarify benefits under plan, rather the quality of those benefits
(might be different if there were K terms re: quality)
The court notes that Corcoran is correct but inapposite because complaints here dealt with
medical care rather than decisions by third party administrators

NOTE
o In summary
What Dukes does is draw a line between claims about the denial of benefits (preempted) and
quality of care (not preempted);
the problem is that this is hard to apply in practice;
Congress did not envision plans would make medical decisions when enacted ERISA

Pegram v. Herdrich (2000)

FACTS
o Patient presented at the clinic with symptoms of appendicitis, doctor chose to put off ultrasound for a
week, patients appendix bursts
o Patient challenged the year-end profit-sharing distribution to HMOs physician owners because it
provided an incentive to provide less care.
Sued for medical malpractice, vicarious liability.
Argues that when the plan signed the agreement, it obtained a fiduciary status
o Seventh Circuit found for patient.
HELD
o Opinion of the Court J. Souter
The Supreme Court found that mixed eligibility decisions by HMOs are not fiduciary decisions
under ERISA. Therefore, complaint fails to state an ERISA claim for breach of fiduciary duty.
ERISA Fiduciary Decisions
Fiduciary decisions are not liable for medical liability
Meant to deal with the business decisions that ERISA fiduciaries make (i.e. whether
someone is a plan member, coverage benefits)
o 2 types of arguably administrative acts (very difficult to distinguish):
Eligibility decisions
Part of ERISA fiduciary duty
Treatment decisions
Never been subject of ERISA, remains province of states
The only possible claim is Plaintiff claimed a limited eligibility decision is that Carle
determines which claims are covered under the plan and to what extent, but the rest of
the complaint is thoroughly mixed with medical decisions
o Case was interpreted to mean that, unlike pure eligibility decisions, which are clearly preempted by
ERISA, mixed eligibility decisions are not preempted by ERISA, although it was really in dicta that the
court said this. Plaintiffs lawyers rushed to the courts with these mixed eligibility decisions and won
all over the place

Aetna Health v. Davila (2003)

FACTS

o
o

Involved two types of claims under Texas liability statute that allowed an action to be brought against a
payer for defective medical judgment.
The claims were pretty weak:
Patient claimed that the formulary made him sick when another drug had to be substituted for
Vioxx, the other plaintiff was injured when dismissed prematurely consistent with the plans
practice guideline. Both were found to be removable and preempted.

HELD
o Opinion of the Court - J. Thomas (Unanimous)
Congress intended ERISA to provide a uniform system for regulating retirement schemes and
benefits
Any state-law cause of action that duplicates, supplements or supplants the ERISA civil
enforcement remedy conflicts with the clear congressional intent to make the ERISA
remedy exclusive and is therefore preempted."
Removal
Removable because are completely preempted.
o Congress established an extensive civil enforcement scheme is one of those
provisions with such extraordinary preemptive power that it converts an
ordinary state common law complaint into one stating a federal claim for
purposes of the well-pleaded complaint rule
Plaintiffs claim that the claims were independent of ERISA because they are about quality
of care under the Texas statute
o BUT duties imposed by that statute do not arise independently of ERISA (that
statute does not require the carrier to provide beneficiaries with services in the
plan)
ERISA can preempt even when the statute doesnt specify an exact remedy
o Congress policy choices to include some/exclude other remedies would be
undermined if beneficiaries could obtain remedies under state law rejected by
Congress
Preemption: Articulated that Dukes/Corcoran applied.
If claim is for quality of care/treatment, then it is not preempted (Dukes), can allege that
the company was vicariously negligent (Boyd v. Albert Einstein) or corporate negligence re:
quality (Jones v. Chicago HMO)
If the claim is claiming a benefit/coverage and exists as a result of ERISA plan, you
cannot enforce a state law for injuries caused by the conduct of the payer (Corcoran)
Under this holding, it does not matter if the plan is self-insured or not - it does not turn on 514
preemption, rather, it is a question of 502 preemption because it deals with remedies under
ERISA, blocks you from getting remedies that are not covered by 502 (Pilot Life)

SUMMARY
Back back where we began
o Ginsburgs concurrence in Davila indicates that the Court has concluded that ERISA 502(a) does not
include make-whole relief
the Courts decisions deny extra-K damages, equitable compensatory damages, personal liability
for K obligation to pay money
ERISAs preemption creates a regulatory vacuum
o After Davila, courts began dismissing mixed eligibility claims and claims re: coverage rather than health
care quality
essentially any case in which a state claim could be read as duplicating an ERISA claim and/or
adding a remedy, the federal courts can be expected to dismiss
Other theories on special liability standards for hybrid companies:

Bovbjerg: claims HMO health benefits may be considered not only, or even primarily, from the
perspective of individual patients, but from the perspective of the enrolled population as a group
Malpractice should not be able to interfere inappropriately with HMOs ability to cut costs in
deciding what care to provide
Courts case by case approach is not well suited to assess tradeoffs HMOs make to improve care
in certain areas; community of HMOs is not likely better off with a customary standard
although many courts defer to the managed care industry
Competition advocates believe a plan could agree to limit tort law rights of subscribers to reduce costs

PART FOUR: REGULATION OF HEALTH CARE TRANSACTIONS

Tax Exemption in the Modern Health Care System

Chapter 23. Tax Exemption in the Modern Health Care System

Part 1. The Nature of Community Benefit
Geisinger Health Plan v. Commissioner of IRS (Geisinger I)
Part 2. The Integral Part Doctrine
Geisinger Health Plan v. Commissioner of IRS (Geisinger III)
Part 3. Joint Ventures with Nonexempt Entities
Redlans Surgical Services v. Commissioner of IRS
St. Davids Health Care System v. United States
Health Care Fraud and Abuse

Chapter 24. Health Care Fraud and Abuse

Part 1. False Claims Act
Civil Monetary Penalties for False Claims
United States v. Krizek
United States ex re. Mikes v. Straus
Part 3. The Anti-Kickback Statute (AKS) and Stark
Civil Monetary Penalities for Kickbacks
United States v. Greber
Exceptions to the AKS
The AKA Safe Harbors
Space Rental Safe Harbor
AKS Advisory Opinions
Safe Harbor for Ambulatory Surgical Centers
Stark
Starks Proscribed Arrangements
Stark Exceptions

Antitrust and Health Care

Chapter 25. The Application of Antitrust to Health Care

Part 1. Market Power

Hospital markets exhibit product differentiation, meaning that consumers have clear preferences for some
competitors services over others.
o Antitrust law does not prohibit a single firm from gaining a monopoly by virtue of having a superior
product.
Therefore, a merger between hospitals representing consumers clear first and second choices could have serious
anticompetitive effects, even if the merged hospitals overall market share remained moderate.
United States v. Long Island Jewish Medical Center (N.Y. 1997)
o FACTS
The DOJ tried to stop the defendant hospitals from merging because they were sufficiently
prestigious to constitute must-haves for managed care networks.
o HELD
the government failed to meet its burden of proof that the merger would violate 7 of the
Clayton Act
rejected the governments anchor hospital theory
o in essence viewing all acute care hospitals as interchangeable.
There was significant competition from other hospitals in the area and the merged entity would
not have an undue share of the relevant product and geographic markets.
Managed care plans were driving the hospitals' decisions to affiliate or merge, decisions on what
services to offer, and decisions with regard to price.
There was no evidence that the merged hospital entity would not reduce costs or would result in
reduced service or treatment of patients.

Community services, not profit maximization, was the driving force of both hospitals.

Barriers to Entry
Ball Memorial Hospital v. Mutual Hospital Insurance
court held PPO by Blues was not a violation of section 2 of the Sherman Act. The court found that the relevant market
was health care financing, and that the blues had market share but not market power because:
Blues could not block entry to market
Their productive asset is money, which is easily produced and fungible
They face vigorous competition firms can easily enter into and out of this market
Total sales is not enough to show market power
The doctors felt that they were losing money if they joined or losing volume if they stay out; but the court found that a
primary injunction would be contrary to public interest because the PPOs kept premiums down
Part 2. Exclusionary Conduct or Lawfulness
United States v. Alcoa
Kartell v. Blue Shield of Massachusetts
Part 3. Special Problems Raised by Horizontal Collaborations
Arizona v. Maricopa County Medical Society