Due to society's need to control health care costs and to the failure of legislated health care reform, managed care is expanding at a rapid rate and will soon be the predominate form of health care delivery. Plans by Congress to bring Medicare and Medicaid under managed care will further consolidate this trend. Barring some legislative fiat, managed care is here to stay.

The term managed care describes a diverse set of organizational forms. Wide variations in approach, financing, physician involvement, and philosophy exist among the different types of managed care organizations (MCOs). While many articles on the ethics of managed care acknowledge this variety, most analyses focus on the for-profit entities, paying less attention to the ethical distinctions among the different forms of managed care. This paper discusses the key distinctions among MCO types, in particular the difference between for-profit and non-profit plans; the relationship of the physician to the MCO; the incentives used to control costs; the incentives that improve patient care; and the organizational features that nurture the principled practice of medicine.

For a health lawyer in private practice, the substance of any discussion of managed care turns on the developments in the health care marketplace. Without a doubt, the industry is rapidly moving from one frame of reference to a radically different one. It is no surprise then, that, in consulting me, my clients want to know what is and what will be, not what should be. They want at least to survive, if not be successful, in the whirlwind of restructuring that offers no clear choices, no clear outcomes, and significant legal liabilities if they do not perform effectively.

What I want to address in this article is how the consolidation of medical practices and the integration of delivery structures has outpaced the legal system's ability to regulate or guide the emerging health care market. This gap leaves physicians without proper legal guidance on how to balance their duties to their patients and their contractual obligations to managed care organizations (MCOs). A brief review of the case law to date highlights some of the legal and ethical issues that arise for physicians who practice in this environment.

The increased competition for a share of the market of insured patients, which arose in the wake of failed comprehensive health care reform, has provoked questions about what, if any, standards will govern new “competitive” health care organizations. Managed care arrangements, which typically shift to providers and patients some or all of the financial risk for patient care, are of special concern because they can create incentives to withhold beneficial care from patients. Of course, fee-for-service (FFS) medical practice creates incentives to provide unnecessary services, and managed care can avoid that type of harm. Still, as Edmund Pellegrino has noted, “managed care, by its nature, places the good of the patient into conflict with … (1) the good of all the other patients served by the plan; (2) the good of the plan and the organization, themselves…; and (3) the self-interest of the physician.

Several prominent cases have recently highlighted tension between the interests of individuals and those of the broader population in gaining access to health care resources. The care of Helga Wanglie, an elderly woman whose family insisted on continuing life support long after she had lapsed into a persistent vegetative state (PVS), cost approximately $750,000, the majority of which was paid by a Medi-gap policy purchased from a health maintenance organization (HMO). Similarly, Baby K was an anencephalic infant whose mother, believing that all life is precious regardless of its quality, insisted that the hospital where her daughter was born provide mechanical ventilation, including intensive care, whenever respiratory distress threatened her life. Over the hospital's objections, courts ruled that aggressive care must be provided. Much of Baby K's care was covered by her mother's HMO policy. In the 1993 case of Fox v. HealthNet, a jury awarded $89 million to the family of a woman whose HMO had refused, as experimental, coverage for autologous bone marrow transplant in treating her advanced breast cancer.

Analysis in bioethics has relied primarily on the identification and application of general principles and on the examination of particular paradigmatic cases. Principalism and casuistry depend on an assumption of generalizability; that is, that learning and insights gained from an understanding of the principles or the case may be effectively applied to other similar situations. For the most part, the particular characteristics of the institutional setting have not played a central role in these approaches. It would appear, then, that what has been learned in the context of one health care setting is transferable, with some few adjustments, to another.

The institutional context does make both a practical and a substantive difference, however, and shifting ethical analyses from one context to another has sometimes proven difficult. This has been so, for example, in the context of nursing home care.

Authority is an uneasy, political notion. Heard with modern ears, it calls forth images of oppression and power. In institutional settings, authority is everywhere present, and its use poses problems for the exercise both of individual autonomy and of responsibility. In medical ethics, the exercise of authority (along with power) has been located on the side of the physician or the health care institution, and it has usually been opposed by appeal to patient autonomy and rights. So, it is not surprising, though still ironic, that ethics consultation, which develops from this patient rights-dominated ethic, should itself bring forth questions of authority. Nonetheless, it does.

Insofar as authority has been discussed in ethics consultations, it has been understandably approached from the broad perspective of legitimation and power, which are common themes in social and political treatments of authority. These treatments have dominated twentieth-century discussions of authority, which primarily view authority as legitimate power.

We first heard about this case from nurses in one of our intensive care units (ICUs) while we were conducting an inservice. When the session was over, we discussed it between ourselves, and decided that it must have been misrepresented. The case had been presented as one of a teenager who was brain dead, had been so for six months, yet had been brought into the ICU for treatment. We have run into this before, we thought: medical professionals confusing brain death with persistent vegetative state (PVS). But, of course, we reasoned, no one can be brain dead for six months. To us, as it would to many, the case sounded like a clinical and ethical impossibility.

A week later, we were called by an attending physician from another ICU, at the urging of that unit's nursing staff. They had a patient who was brain dead, whose presence was causing distress among the staff. Ronald Chamberlain, a fifteen-year-old boy, had been a patient at a nearby longterm rehabilitation facility that is equipped to care for ventilator-dependent patients.

On March 30, 1995, the Supreme Court of Nevada, in Greco v. United States, determined that medical professionals who fail to make a timely diagnosis of gross and disabling fetal defects, thereby denying a pregnant woman her right to terminate a pregnancy, had acted negligently, and a malpractice claim could be brought against them. The court supported the plaintiff's claim of “wrongful birth,” but determined that the disabled child born to the plaintiff has no personal cause of action for “wrongful life.”

Sundi Greco, the plaintiff, alleged that her doctors at Nellis Air Force Base in Nevada failed to make a timely diagnosis of her son's physical defects and abnormalities before his birth. Their negligence denied her the opportunity to terminate her pregnancy, causing her damages attendant to the avoidable birth of a child with birth defects. On her child's behalf, Greco asserted that the physicians' negligence, and resultant denial of his mother's right to terminate the pregnancy, allowed him to be born into a “grossly abnormal life of pain and deprivation.”

On May 24, 1995, the American Medical Association (AMA) Council on Ethical and Judicial Affairs issued a rather controversial opinion that it is ethically permissible to use anencephalic infants as living organ donors. Approximately 1,000 to 2,000 infants are born each year in the United States with anencephaly, a congenital birth defect whereby the infant has no forebrain and cerebrum. Without higher brain functions, the infants can never experience consciousness, thoughts, emotions, or pain. Fewer than half survive more than a day, and more than 90 percent die within one week. However, by the time brain death occurs in anencephalic infants, their organs are no longer suitable for donor purposes because they have deteriorated beyond use.

In 1988, the AMA Council declared that it is ethical to use the infants as organ donors only after they have died. Now the Council has revised that opinion, and it proposes to allow removal of organs before death, as long as the parents consent and two doctors concur in the diagnosis of anencephaly.

The United States Court of Appeals for the Third Circuit has followed the prevailing view in the federal courts by holding that state Medicaid funds must cover the same kinds of abortions as provided for under the 1994 Hyde Amendment. On July 25, 1995, the court held that a Pennsylvania law was preempted to the extent that it restricted Medicaid funding for abortions beyond the limits set by federal law (Elizabeth Blackwell Health Center for Women v. Knoll, No. 94-1954 (3d Cir. July 25, 1995)) by imposing additional procedures not prescribed by the Hyde Amendment.

Particularly, the court held that the Pennsylvania Abortion Control Acts (18 Pa. Cons. Stat. Ann. §§ 3201-20 (1983 & Supp. 1994)), whch requires victims of rape and incest to report the crime to law enforcement officials before Medicaid abortion funding is made available, exceeded the reporting requirements set by the Hyde Amendment, which provides a waiver for patients who are physically or mentally unable to comply with the reporting requirement.

In Barrett v. Danbury Hospital (232 Conn. 242; 654 A.2d 748 (1995)), the Supreme Court of Connecticut held that the fear of contracting or transmitting HIV or any other blood-borne pathogens is not a compensable injury and does not give rise to a negligence or a medical malpractice claim. The court's decision affirmed the holding of a Connecticut trial court.

In June 1990, Allen Barrett was admitted to Danbury Hospital complaining of abdominal pain. He had a history of gall bladder trouble. Barrett was placed on a stretcher in the emergency room. The attending physician diagnosed Barrett's pain as a gallstone condition. During the course of his examination, the doctor noticed that Barrett was sitting in blood. The physician subsequently performed a rectal examination of Barrett to locate the source of the blood. The physician determined that the patient was not bleeding, but that the blood was in fact coming from two slits in the vinyl pad that covered the stretcher on which Barrett sat.

On October 31, 1994, it was announced that a confidential settlement had been reached in Doe v. Kohn, Nast & Graf, P.C., et al. (No. 93-4510 (E.D. Pa. filed Aug. 19, 1993), 862F. Supp. 1310 (E.D. Pa. 1994)). The settlement in ths widely publicized AIDS discrimination case came three weeks after the trial began in the District Court for the Eastern District of Pennsylvania (“Philadelphia Lawyer Settles AIDS Discrimination Claims Against Firm,” Daily Lab. Rep. (BNA), Nov. 2, 1994, at 10).

Plaintiff Doe, an associate employed at Kohn, Nast & Graf, a prominent law firm in Philadelphia, filed an AIDS discrimination case under the Americans with Disabilities Act (ADA) against his employer claiming that the firm fired him in March 1993 because he was HIV-positive. Doe's complaint also cited claims under ERISA and other Pennsylvania employment laws.