I. INTRODUCTION AND SUMMARY
Managed health care has recently generated a great deal of distrust, even anger, in the public mind. To be sure, much of this public reaction is based on anecdotal evidence and one-dimensional thinking.1 But many unbiased experts observing managed care today are themselves unhappy with the health care industry's performance. While these observers find little justification for the current political backlash against managed care, they are also disappointed that today's health plans have not made a more positive difference.2 Indeed, informed observers commonly regret that the new arrangements for the financing and delivery of care have done so little to get physicians to adopt truly efficient practices, achieving not only cost reductions but also substantial improvements in health status and patient outcomes--that is, in the quality of care. Although managed care has not demonstrably harmed the overall quality of health care in the United States, it has done little to improve it.3
In the view of many, therefore, the managed care revolution that began in earnest in the early 1980s remains a half baked affair today. Simply giving managed care more "baking time" does not seem to be the answer, however, because something about the recipe itself is apparently leaving many consumers and most knowledgeable critics unsatisfied. Moreover, the health care industry may be unable to produce more savory versions of managed care at reasonable cost if the recipe continues to be dictated by law and regulation4 or if government imposes new liability risks on plans that take aggressive measures to control costs.5 There are, of course, other things that policymakers might do to inspire health plans to create more appetizing products. For example, many experts hope that new methods of measuring quality and reporting provider performance will soon make quality differences more salient and enable consumers and their agents to demand improvements. It is not clear, however, that information alone, or any other strategy under active consideration, can create enough new pressures on health plans or providers to trigger radical managerial reforms of the kind that may be necessary to raise the quality of care appreciably. Public policy has not yet hit upon an approach that will cause health plans and their subcontractors to concern themselves with quality in health care as much as they do currently, and controversially, concerned about its cost.
This Article suggests a legal reform that would more clearly establish the ultimate responsibility of health plans for the quality of the health services their enrollees receive. Specifically, it recommends legislation establishing as a so-called "default rule" (that is, a legal rule that operates in the absence of a different contractual arrangement) the principle that a health plan is vicariously, and exclusively, liable for medical malpractice and other torts committed by health care providers whom it procures to treat its enrollees. Put simply, the argument is that health plans, and not individual doctors, should be legally accountable in the first instance for the quality of care delivered to patients just as they are currently accountable to employers and consumers for the cost of care. Not only is it logical to have responsibility for cost and quality initially assigned to the same entity, but factual circumstances relevant under the common law of agency also point in this direction. Thus, today's health plans routinely select providers or provider organizations to treat their enrollees with low cost as the dominant criterion. Even more ominously, they compensate these subcontractors in ways that may induce them to neglect or undertreat individual patients. For these reasons and also because health plans are in an excellent position to control provider performance directly (as necessary) or to induce downstream actors with whom they do business to make quality improvements, a common law court or a legislature could easily conclude that health plans should bear presumptive responsibility whenever their providers breach a legal duty to an enrollee. …