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The Changing Face of Law and Medicine in the New Millennium – Foreword, as appeared in American Journal of Law & Medicine

It is my distinct honor and privilege to provide this Foreword to the American Journal of Law & Medicine Symposium Issue 2000, The Changing Face of Law and Medicine in the New Millennium. Indeed, healthcare law at the dawn of the new millennium is at the epicenter of the most critical underlying challenges to the ever evolving, complex, United States healthcare system. For over 200 years, our healthcare system has been, in effect, a mixed public and private system, essentially built on a private chassis with a great deal of public funding, regulating and prodding. It also has been a profoundly federalist system, generating fifty-one health regulatory schemes.

The Articles in the Symposium offer a broad-based and thought-provoking look by some of the best contemporary thinkers in health law at the issues confronting the healthcare system as it enters the new millennium. Each article offers a perspective, to varying and lesser degrees, on where we are today and where we may be heading. My comments in this Foreword focus on several of the key issues in health law in the year 2000 that, I think, underlie many of the themes presented in the Symposium Articles. It is my hope that these brief comments will provide a useful context by which to introduce the Symposium.


As we head into the new millennium, managed care is clearly at a crossroads. The optimism with which the challenge to control cost increases in healthcare was thrust upon the private sector in general, and health maintenance organizations (HMOs) in particular, in the early 1990s after the failure of the Clinton health plan was replaced by a severe pendulum swing to the other extreme of vilifying these same organizations,[1] notwithstanding the fact that they appear to have done what they were asked, at least for most of the decade.[2]

The current debate over HMO liability illustrates the old adage about throwing out the baby with the bath water. If the liability provisions of the House version of the managed care reform bill,[3] sponsored by representatives Charles Norwood (R. Ga.) and John D. Dingell (D. Mich.) are enacted, we would risk making cost-efficiency illegal in the name of patient protection.

Federally instituted Professional Review Organizations (PROS), which have operated since 1972 in the area of utilization management of healthcare services provided to Medicare beneficiaries, continue to do their work unchallenged. Their objective is to assure quality and cost-efficiency, and they continue a long history in the law of protecting peer reviewers from liability so that they can do their important and challenging work effectively.

Yet that same behavior by managed care companies is being questioned at a very fundamental level today on a variety of fronts. Indeed, Employee Retirement Income Security Act (ERISA) preemption was intended to give self-insured employers and their agents some of the same kinds of protection we give PROs. But one only has to look at the opinion of the U.S. Court of Appeals for the seventh Circuit in Herdrich v. Pegram,[4] to see where open season on managed care could lead. In effect, the Court of Appeals says that it is a breach of fiduciary duty under ERISA to implement cost-containinent mechanism.[5] Similarly, the theories espoused in the recent widely publicized class actions against HMOs also challenge fundamental managed care processes, without any link to alleged negative outcomes.

Therefore, it would be imprudent in this environment, to amend ERISA, as the Norwood-Dingell bill does, to allow unlimited damage actions under state tort law against HMOs, based on their medical management activities-with no constructive guidance on how to maintain and enhance appropriate cost-containment mechanisms and no restraint on the dismantling of current cost-efficient practices. The risk is too great that we will overcorrect in our desire to "let everyone have everything" in healthcare and that we will jeopardize some of the best practices to emerge from a twenty-five year effort to promote cost-efficient, preventive care.

Should HMOs be free from all liability and unaccountable for their actions? Of course not-nor are they today. States already regulate them extensively and are moving in the direction of creating additional avenues for consumers to bring lawsuits. Furthermore, for some years now, the trend in case law has been to find expanded health plan liability in malpractice cases.

The most constructive role for the federal government would be to focus on making Medicare work in a managed care environment. In a setting where the government is purchaser as well as regulator, it experiences the direct consequences of increased costs. Thus, the President's Plan to Strengthen and Modernize Medicare for the Twenty-First Century, published last July,[6]emphasizes the commitment "to adopt the best practices from the private sector to improve quality and constrain costs."[7]

Similarly, even as physician incentive payments are attacked in malpractice actions, these incentives are specifically allowed in Medicare managed care arrangements under federal law.[8] If Washington can bring about a next generation of more consumer-friendly managed care where it is footing the bill, it will make a tremendous contribution to the entire healthcare system. To do so will require the creation of incentives to cooperate and coordinate, not litigate. In addition, to deal with the daunting problem of the uninsured, we are going to have to continue to promote and support cost efficiency.


The Medicare program, at age 35, offers great possibilities for leading healthcare into the new millennium. On the other hand, not handled well, the Medicare program could take us in problematic directions. The fundamental tension for the federal government, as the largest single purchaser of healthcare services, is its conflict of interest or at least duality of interest as both a purchaser and a regulator. The same is also true of individual state governments.

As purchaser, government is interested in balancing the complex issues of cost, quality choice and access. As regulator, it remains very focused on access, choice and quality, but much less so on cost. Thus, the same government that seeks to structure purchasing programs to create incentives to manage care effectively also is aggressively pursuing regulatory initiatives to find certain kinds of cost-savings incentives criminally illegal.

The Medicare+Choice program[9] offers many promising possibilities. The Quality Improvement System for Managed Care rules, Medicare's quality initiative, is full of thoughtful ideas.[10] Nevertheless, ultimately, the Medicare program will need to find a middle ground that allows for affordable plans in the private sector to function while still following a reasonable set of quality rules. The role of the private accreditation agencies in this regard is also critical.

In his 1999 Annual Meeting address, Jordan J. Cohen, M.D., President of the Association of American Medical Colleges, delivered a simple but profound message: to bring about a better healthcare system, there must be better collaboration among the individuals and groups within the academic medical center community.[11] He called upon leaders to help foster an environment that will emphasize seamless relationships "among doctors and patients, generalists and specialists, physicians and hospitals, doctors and other health professionals, and among participating health systems."[12] Unfortunately, the current regulatory enforcement climate in healthcare frequently discourages such necessary collaboration. For example, the government's pronouncement last summer on "gainsharing"[13] caused many healthcare leaders to ask whether collaborative efforts to eliminate waste and duplication are now illegal and should be stopped in the name of "patient protection."

While many important quality initiatives are underway, and federal and state legislatures are working to promote quality and choice, few, if any, legislators, regulators or commentators are arguing publicly in favor of less cost efficiency. The policy presumption is that cost efficiency in healthcare delivery must be continued and enhanced even as quality initiatives proceed. Many would argue that in fact cost" and "quality" are not in conflict but are complementary. True cost efficiency should result in higher quality care. Yet today a great deal of concern is being expressed by the regulators of healthcare, especially at the federal level by the Department of Justice and the Office of the Inspector General (OIG), about cost management activities that, in their view, may cause reductions in care.[14]

The challenge presented by the regulatory debate, then, is to figure out how to enforce the various anti-fraud and abuse, self-referral and patient protection statutes without outlawing cost efficiency. Presumably, the solution lies in effective clinical innovation and integration, involving cooperative efforts of physicians and hospitals, that can be shown not to result in inappropriate reduction of services to patients.

At a time when virtually all healthcare providers are struggling financially, or at least facing more difficult financial challenges than ever, it does not behoove society to let much time pass with those involved in the healthcare delivery system afraid to innovate clinically to achieve greater cost efficiency and higher quality in our healthcare system. Every signal from every purchaser of healthcare, including the biggest single purchaser, the federal government, says that this is so. Yet there is definitely a right-hand/left-hand dichotomy in the signals being sent by the enforcement side of government as compared to the purchasing side.

For most of the last twenty years, duplicative and unnecessary care has been rightly denounced as "waste."[15] That concern was a key factor in the original passage of the Stark law[16] and the anti-kickback[17] statutes. No one should oppose eliminating "waste," just as no one should oppose eliminating "fraud." While it is understandable that the OIG felt that it could not, in one specific ruling or opinion, "bless" all "gainsharing" programs through a single advisory opinion,[18] healthcare providers must nevertheless proceed with ongoing innovation and cost-efficiency initiatives. They are uniquely positioned to be leaders in this effort. Following Dr. Cohen's call for collaboration, physicians, hospitals and other providers should explore ways to find bold solutions that not only set new legal precedents, but more importantly, help move our healthcare system to new heights of quality, access and choice.


The future of both managed care and Medicare is also wrapped up in the debate regarding medical errors. The report, To Err Is Human,[19] published by the Institute of Medicine (IOM) in late 1999, did not contain new information but highlighted an ongoing issue. It is also elicited a significant public and private response.[20] The fact that there are so many medical errors, long known, but now publicly highlighted, has triggered a national discussion regarding the safety of the U.S. healthcare system.[21 ]Indeed, statistics show that receiving healthcare services is much less safe than, for example, flying in an airplane and many other endeavors.[22 ]The medical errors question dovetails with the general challenge of balancing cost, choice, quality and access; the debate over the proper extent of patient's rights to sue health plans; and the appropriate degree of regulation of and criminal enforcement against healthcare activities. Health plans, for example, have seized the IOM report to counter some of the criticism being leveled at organized systems of care.[23]

The principal thrust of the IOM report is to call for new systems of mandatory and voluntary reporting of medical errors.[24] This, of course, raises the issue of expanded liability for all participants in the healthcare system, but particularly physicians, hospitals and other healthcare providers. A major health law issue facing our federalist regulatory system is to develop a rational system of reporting that will work to achieve the goal of creating a more open culture to allow for the study of errors in an effort to find ways of reducing them. If such error reduction is to be achieved, a balance must be struck between the benefits of such increased reporting and the potential consequences of both increased liability for those reporting as well as the privacy concerns of those reporting and the patients whose experiences are contained in such reports.

At a minimum, most experts today think that stronger and more uniform confidentiality protection laws are necessary in this regard, perhaps through a new comprehensive federal statute. In addition, there are suggestions that health systems borrow some of the ideas that appear to be working in the aviation system regarding early reporting of de-identified information that would allow an analysis of fact patterns without the specific identification of patients, doctors or hospitals involved. The goal is not just to count up errors but to create positive change. The role of health law and health lawyers in helping this happen, if it is to happen, will be critical.


The revolution in electronic information in healthcare poses a huge challenge to the ongoing effort to balance the roles of the public and private sectors in the healthcare arena. What degree of private sector entrepreneurism should be mixed with what degree of federal and/or state oversight? As we saw with managed care in the 1990s, expectations in this regard can change rapidly and there can be quick pendulum swings. With government today responsible for purchasing almost fifty percent of healthcare services, how will government balance cost savings initiatives with quality and privacy regulations as more and more healthcare services and information are provided electronically?

The healthcare "dot com" companies, especially those that survive these early days and settle in for the long haul, will be facing a complex web of legal and regulatory issues, most of which are just now emerging or have not yet even emerged. Indeed, the real revolution will take place when the current, mostly separate worlds of traditional healthcare service providers — i.e., physicians, hospitals and health plans and healthcare "dot com" companies collided through contractual arrangements, joint ventures, mergers and acquisitions or simply moving into each others' lines of business. That reality — delivering, financing and managing care electronically — is not far away and will trigger a true legislative and regulatory explosion. But the question is, will the regulators or the regulated be ready? There seems to be a widespread consensus at the dawn of the millennium that the electronic information age offers tremendous opportunities for doing "good" for consumers of healthcare services. The challenge is for each of us involved in healthcare to do his or her job effectively to allow the good to happen without creating unnecessary obstacles.

At a conference held on March 28, 2000, in Washington on the subject of the healthcare internet and e-commerce, six federal agencies (Heath Care Financing Administration (HCFA), Federal Trade Commission, Food and Drug Administration, Federal Bureau of Investigation, OIG and Department of Justice), as well as a representative of a state Attorney General's office and a representative from the Federation of State Medical Boards, presented their cases for regulating healthcare internet and e-commerce activities.[25] All have active programs to intercede in this arena, including protecting against false advertising, prosecuting fraud and abuse, regulating online distribution of pharmaceuticals, regulating the provision of direct patient advice electronically and many other related areas.

In addition, at this same conference, HCFA reviewed its proposed regulations on protecting patient privacy in connection with electronic medical record information. These proposed regulations, required by the Health Insurance Portability and Accountability Act of 1996 (HIPAA),[26] are extensive and have triggered some 55,000 comments to date from all segments of the industry and society.[27] This issue of privacy and electronic data is just beginning to be addressed seriously. Some pundits are claiming that HIPAA compliance will dwarf Y2K compliance. On the other hand, many companies are racing to provide new services stemming from the connectivity between patients and health plans mandated by HIPAA. Balancing privacy with the many perceived benefits of greater data access and exchange will require a major investment of legal talent and thinking.


The notion that Americans have a fundamental "right to healthcare" continues to be an important element in the ongoing debate over the U.S. healthcare system. At the same time, equally strong support exists for controlling costs, for keeping government activities and spending in healthcare in check, and for rejecting the idea that "everything must be available to everyone." Hard choices about allocation of healthcare services will continue to be necessary. This dual-edged and contradictory focus in healthcare policy contributes its share to an already fragmented system.

The reasons for the pluralism of the healthcare "system" are not hard to pinpoint. Historically, professional practice and organized forms of service developed from many separate and largely private beginnings that were not perceived for many years as interdependent or requiring coordination. Health professional groupings have always fought and continue to fight for autonomy and self determination. Moreover, the government generally has entered gingerly into their territory. Public decisionmakers have consistently respected the role of private organizations in healthcare delivery, and governmental activity has largely been directed toward supplementing and filling out these private efforts. Thus, while the governmental role in healthcare has necessarily expanded in response to social conditions and public demands, it has generally grown with restraint, contrary to the contemporary views of many critics.

The key policy questions of the coming years are likely to focus on the limitations of decentralized federal intervention, and there will be strong pressures for increased regulation to better coordinate the healthcare system. Most everyone agrees that the mixed public/private system that has evolved is problematic. But it evolved as a result of constant compromise between competing values and those same competing values remain present. Among those calling for change are two distinct groups. One set of commentators and policymakers would prefer to limit the federal role in both financing and controls by renewed attention to market incentives and to state and local governments. The other set favors a dramatic increase in federal involvement through regulation and centralized planning. Each side covets a purer system and many analysts on both sides argue that a more homogenous system, either public or private, would be preferable to what currently exists. The debate over national health insurance often reflects this perceived choice between "markets" and "regulation."

The fact is that the system is mixed for powerful historical reasons and will remain mixed. There appears to be no coalition forming on the horizon capable of bringing about drastic change one way or the other. The key questions, therefore, concern the appropriate degree of centralization or decentralization in both market and regulatory approaches and the proper mix between the two approaches. The trend remains toward gradual, partial, but steady increases in the role of the federal government in both allocating benefits and controlling costs.

Nevertheless, as we have seen in recent years, legislative debate in healthcare remains contentious and, at key times on key issues can produce deadlock. Public sector leaders frequently call for private sector leaders to step forward to lead by example to help reduce the demand on and need for legislators to legislate and regulators to regulate. Visionary leadership in both the public and private sectors will no doubt be necessary to chart a course that allows for simultaneous improvements in cost efficiency, quality, choice and access.

The authors of the Articles in the Symposium all offer important insights on this need as they explore various legal and policy questions facing the U.S. healthcare system. "The Changing Face of Law and Medicine" is certainly an apt title as we face the onslaught of the "Age Wave" while operating a system that currently includes forty-five million uninsured, commits too many errors, and is built around a core set of providers and payers who, for the most part, are experiencing financial difficulties.

Health law and health lawyers can play an important role in helping to implement the changes necessary in the years ahead-whether writing laws and regulations, advising clients on those laws and regulations, conducting transactions or teaching health law classes. As Mario Cuomo said in a speech to the American Health Lawyers Association on June 29, 1998:

We, the lawyers who are familiar with healthcare and its problems, should be making the case for change right now.... Nothing is more important to the nation than people's health.... If not the lawyers, then who? If not now, then when?[28]

Governor Cuomo's speech offered a powerful challenge to health lawyers to recognize their responsibility to the healthcare system as a whole, as well as to clients and employers. Let us hope we are up to the challenge.


[1] See Geoffrey Cowley & Bill Turgque, Critical Condition, NEWSWEEK, Nov. 8, 1999, at 58.

[2] See Randall R. Bovbjerg & Robert H. Miller, Managed Care and Medical Injury: Lei's Not Throw Out the Baby with the Backlash, 24 J. HEALTH POL., POL'Y & LAW II 45, 1145 (1999).

[3] See Quality Care for the Uninsured Act of 1999, H.R. 2990, 106th Cong. (1999).

[4] 154 F.3d 362 (7th Cir. 1998), rehg en banc denied, 170 F.3d 683 (7th Cir. 1999), cert. granted, 120 S. Ct. 10 (U.S. Sept. 28, 1999) (No. 98-1949).

[5] See Herdrich, 154 F.3d at 384.

[6] The President's Plan to Modernize and Strengthen Medicare for the 21st Century (last visited May 31, 2000)

[7] Id.

[8] See Medicare+Choice Program, 42 C.F.R. §§ 422.208, 422.210 (1999).

[9] Social Security Act §§ 1851-1859 (codified at 42 U.S.C. § 1395w-21 through§1395w-28 1997).

[10] See Health Care Financing Administration, Quality Improvement System for Managed Care (Q1SMC) (last modified Dec. 22, 1999).

[11] See Jordan J. Cohen, Closing the Gaps by Working Together, Presented at the Association of American Medical Colleges Annual Meeting (Oct. 24, 1999).

[12] Id.

[13]Publication of the OIG Gainsharing Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries, 64 Fed. Reg. 37985 (1999).

[14] See id.

[15] See M.K. Gaedeke Roland, Comment, Looking for a Prince Among the Frogs: Solutions to ERISA's Preemptive Effect on Improving Health Care, 47 BUFF. L. REV. 1487, 1526-27.

[16] Social Security Act § 1877 (codified at 42 U.S.C. § 1395nn).

[17] Social Security Act § 1128B(b) (codified at 42 U.S.C. § 1320a-7b(b)).

[18] 64 Fed. Reg. 37985. "Notwithstanding the statutory prohibition, the OIG has given extensive consideration to whether it would be appropriate to protect individual gainsharing arrangements from OIG administrative sanctions through the issuance of favorable advisory opinions. Based on our review of a number of requests, we have concluded that they contain common elements that preclude our issuance of any favorable opinion." Id.

[19] See Institute of Medicine, Committee on Quality Of Health Cape in America, To Err is Human: Building a Safer Health System (L.T. Kohn et al. eds., 2000) [hereinafter To ERR IS HUMAN).

[20] See, e.g., Joseph P. Shapiro, Doctoring a Sickly System: Deadly Medical Mistakes are Rampant, U.S. NEWS & WORLD REPORT, Dec. 13,1999.

[21] See To ERR is HUMAN, supra note 19, at 1.

[22] See D.M. Berwick, Reducing Errors in Medicine (last modified Aug. 2, 1999) .

[23] See To ERR is HUMAN, supra note 19, at 9.

[24] See id.

[25] See Symposium on Healthcare Internet and E-Commerce: Legal, Regulatory and Ethical Issues (visited May 30, 2000)

[26] The Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-191, 110 Stat. 1936 (codified in scattered sections of 42 U.S.C.).

[27] See Office of the Assistant Secretary for Planning and Education, Administrative Simplification (last modified May 5, 2000)

[28] Annual Meeting Special Section, Health Lawyers News, Aug. 1998, at 12, 15.

Please feel free to contact Douglas Hastings at 202/861-0900 in the firm's Washington, D.C. office if you have any questions or comments. Mr. Hastings' e-mail address is [email protected].

This publication is provided by Epstein Becker & Green, P.C. for general information purposes; it is not and should not be used as a substitute for legal advice.