The Assault on Managed Care: Vicarious Liability, Class Actions and the Patient's Bill of Rights

Abstract

The current level of public dissatisfaction has engendered a long list of proposed reforms that seek to increase the overall level of public regulation of Managed Care Organizations (MCOs), by limiting the scope of preemption under ERISA, by expanding doctrines of vicarious liability and implied agency, by adopting a patient's bill of rights, and by exposing them to class actions by disappointed plan participants. In response, this paper argues that most of these reforms are ill-conceived, in the sense that they do not hold any realistic possibility of improving the performance of the health care system relative to the current set of tort and contract doctrines that are now in place. Direct actions against MCOs for example are likely to hamper their mission to contain costs. The usual conditions that make vicarious liability sensible, for example, are not likely to pertain here when physician groups have assets to meet anticipated claims against them. And the use of class actions runs the serious risk of introducing dubious claims for liability based on some broadside allegations of fraud when their proper function is restricted to allowing the amalgamation of individual claims that would otherwise be too costly to pursue on an individual basis. The real problem with MCOs is that in conditions of scarcity, the public is unable to reconcile its inconsistent demands for low premiums ex ante with comprehensive and deep coverage ex post.