In the year 2000, the Institute of Medicine (IOM) released a report, To Err Is Human: Building a Safer Health System (hereinafter IOM Report), which has generated an extensive national dialogue on the lethality of preventable medical error in America's hospitals, clinics, and other medical and non-medical settings.1 According to the IOM Report, 44,000 to 98,000 people die in hospitals annually as a result of medical error.2 This statistic represents a death toll of 270 people each day of the 365-day calendar year.3
The IOM Report suggests that medical error results from a breakdown in the "system" of health care delivery.4 According to the IOM Report, a "system" is composed of the myriad of relationships among individual caregivers and the equipment they use in the treatment of patients.5 Harm occurs when the interaction "between pieces of equipment, among people and between people and equipment" fails to result in an intended outcome.6 Reduction of error in such a complex and dynamic network of interrelationships requires extensive study of system failures and implementation and evaluation of proposed solutions.7 Consequently, improving the quality of health care will require a unified commitment among the many players in the health care system.8
As "the primary brokers of health care delivery in this country,"9 managed care organizations (MCOs) are in a position to exert significant influence over the quality of health care delivery.10 These business entities are a "hybrid of insurance, cost control mechanisms, and medical delivery,"11 and are distinct from traditional indemnity insurance plans, also known as fee-for-service plans, in which patients and physicians control the health care decision making process.12 The term "MCO" includes many distinct types of health care plans, including the traditional staff model health maintenance organization (HMO) and preferred provider programs (PPO), but the common goal amongst the many types of plans is to control health care costs.13
Managed care organizations, because they focus primarily on cost containment, impose substantial pressure on physicians to decrease costs and minimize care to meet their financial and contractual agreements.14 Even though MCOs exercise significant control over the provision of health care, they do not carry an appropriately corresponding level of legal responsibility for the risk of medical error.15 Under the current tort system, liability for patient injury falls predominantly on the individual health care provider. As a result, MCOs do not have a strong incentive to assist the national effort to reduce medical error. This is detrimental to the initiative to reduce medical error because MCOs' "lack of interest in quality improvement will make individual providers reluctant to participate independently in innovative efforts to minimize patient injury."16 Therefore, it is paramount to the national initiative to reduce medical error that MCOs have an incentive to encourage their individual physicians to explore and experiment with new ways to reduce error and improve the quality of care, even if efficiency is adversely affected.17
This Note argues that MCOs can be a unifying force in the effort to reduce medical error if the industry has an incentive to improve the quality of health care. Part II of the Note introduces MCOs and their role in the health care system. Part II then discusses general MCO characteristics and distinguishes the various types of MCOs. Finally, Part II discusses MCO liability for medical error under the current legal regime.
Part III of this Note highlights the magnitude of the medical error problem with a discussion of the IOM Report, a study revealing that a significant number of deaths are caused by preventable medical error. In addition, Part III analyzes the proposed Health Care Assurance Act of 2001(18) and discusses how this legislation or similar future legislation would be more effective if MCOs had an incentive to reduce the incidents of harm caused by providers (i. …