¹ Uchitelle, Louis , Politicians May Be up in Arms About Govt. Deficits, but Economists Aren't, N.Y. Times, Jan. 8, 1996, at A13Google Scholar.

² Jones, Stan, Private Health Insurance and the Goals of Health Care Reform, in Critical Issues in U.S. Health Reform 265 (Ginzburg, Eli ed., 1994)CrossRefGoogle Scholar. Proposals by the Clinton Administration, the Conservative Democrat Forum, and the Senate Republican Task Force had in common a significant reliance on the health insurance industry. Ironically, the Health Insurance Association of America held serious negotiations with Clinton officials in Little Rock in hopes of finding a common mechanism. After concluding that its influence was negligible, it launched its television campaign featuring the fictitious couple “Harry and Louise" fretting over the future should the Clinton plan become law. Wilson, Graham K., Interest Groups in the Health Care Debate, in The Problem That Won't Go Away: Reforming U.S. Health Care Financing 118 (Aaron, Henry J. ed., 1996)Google Scholar [hereinafter The Problem That Won't Go Away].

³ Eckholm, Erik, While Congress Remains Silent, Health Care Reforms Itself, N.Y, Times, Dec. 18, 1994, at A1Google Scholar (showing that while health reform legislation was under consideration in Washing ton, managed care eclipsed traditional insurance plans, growing from 47% of privately insured Americans to 65%, between 1991 and 1994).

⁴ See infra part III.

⁵ Eckholm, supra note 3, at 1, 34. Dr. Arnold S. Relman, editor emeritus of the New England Journal of Medicine stated “[t]here’s never been a time in the history of American medicine when the independence and autonomy of medical practitioners was as uncertain as it is now. I think that in this process businessmen and their agents will begin to exercise unprecedented control over the allocation of medical resources.” Id. at 1, 34. Cast in different terms was the view expressed by Kenneth S. Abamowitz, a market analyst to investors in the health care industry: "It’s the corporatization of health care. Corporations produce hotel rooms and toothpaste and automobiles, and the country does fine. You still have to produce a service and monitor and improve it, for a finite price.” Id. at 34.

⁶ Terry, Ken, Forecast for Doctors: Stronger Winds of Change, 15 Med. Econ. 1 (1996)Google Scholar.

⁷ Committee on Utilization Management By Third-Parties, Division Of Health Care Service, Institute Of Medicine, Controlling Costs And Changing Patient Care? The Role of Utilization Management 14 (Gray, Branford H. & Field, Marilyn J. eds., 1989)Google Scholar (“Many decisions . . . once the exclusive province of the doctor and patient, now have to be examined in advance by an external reviewer, someone who is accountable to an employer, insurer,” or managed care firm.) [hereinafter Controlling Costs].

⁸ Gold, Marsha R. et al., A National Survey of the Arrangements Managed-Care Plans Make with Physicians, 333 New Eng J. Med. 1678, 1678-83 (1995)CrossRefGoogle ScholarPubMed. A survey of managed care plans found that 39% considered a physician’s pattern of utilization to have at least a moderate influence on whether he or she would be referred patients. Id. at 1680. About one half of HMOs responding adjusted payment based on cost or utilization patterns, along with patient complaints and quality of care. Id. at 1681.

⁹ Woodhandler, Steffie & Himmelstein, David U., Extreme Risk—The New Corporate Proposition for Physicians, 333 New Eng. J. Med. 1706, 1706 (1995)CrossRefGoogle Scholar.

¹⁰ See, e.g., Boyd v. Albert Einstein Med. Ctr., 547 A.2d 1229 (Pa. Super. Ct. 1988), and cases cited infra part IV.

¹¹ Henry J. Aaron, The Problem That Won't Go Away, in THE Problem That WON'T Go Away, supra note 2, at 7 (the population of uninsured Americans has climbed from 24 million in 1980 to 41 million in 1994; the percentage of Americans with private insurance has fallen from 83% in 1980 to 70% in 1991).

¹² Eckholm, supra note 3, at 34 (citing comments of Glenn A. Melnick, researcher with the Rand Corporation, Santa Monica, California).

¹³ Uchitelle, supra note 1, at A13. At its recent annual meeting in San Francisco, the American Economic Association members expressed grave concern at health care’s role in the federal deficit, even as they were assuaged by reductions in the deficit itself from five percent in 1992 to 2.2% in 1996. Id. Michael Boskin, economic advisor to Presidents Bush and Reagan, said, “[w]e talk a great deal about balancing the budget by 2002, but nary a peep about how to keep it in balance. We'll need a huge tax increase to pay for Medicare after 2002.” Id.

¹⁴ 29 U.S.C. §§ 1001-1461 (1994).

¹⁵ For example, in Corcoran v. United Healthcare, Inc., discussed infra notes 332-48 and ac companying text, the employer, Southern Bell, operated a self-funded health care plan providing medical benefits to eligible employees. 965 F.2d 1321, 1323 (5th Cir.), cert. denied, 506 U.S. 1033 (1992). The plan was administered by an insurance company, Blue Cross and Blue Shield of Alabama. Id. The employer hired a third party, United Healthcare, to perform cost-containment services under the rubric “utilization review.” Id.

¹⁶ See infra part V. In a recent congressional hearing, state legislative leaders testified in support of changes to ERISA which would give them room to take steps in health care reform. Representative Marge Roukema (R.-NJ) promised action: "With the inaction of Congress on health care legislation this year, the Federal pre-emption of state law under ERISA has reached center stage as the states try to move forward with their own health care, initiatives.” Pear, Robert, States Seek a Voice in Company Health Plans, N.Y. Times, Dec. 1, 1994, at A28Google Scholar. Employers’ groups also promised opposition. James A. Klein, the executive director of the Association of Private Pension and Welfare Plans, a trade association representing primarily Fortune 500 companies, stated: "We are unalterably opposed to changes in ERISA to allow greater state flexibility. ERISA plans are the model that should be emulated, not an obstacle to reforming the health care system.” Id.

¹⁷ Section 1001 of ERISA acknowledged that the “growth in size, scope, and numbers of employee benefit plans" had already deeply affected the “well-being and security of millions of employees and their dependents" and has come to have an impact on “the national public interest" thus effectively sparing the federal government from assuming this responsibility directly. 29 U.S.C. § 1001(a). ERISA was intended therefore to set only “minimum standards . . . improving the equitable character of such plans and their financial soundness.” Id. § 1001(c). Whether ERISA is sacrificing too much toward this end is one of the central questions this article addresses.

¹⁸ See Priest, George L., The Invention of Enterprise Liability: A Critical History of the Intellectual Foundations of Modern Tort Law, 14 J. Legal Studies 461 (1985)CrossRefGoogle Scholar (giving rich and exhaustive historical review of the birth and development of enterprise liability). Priest states that in his view, “the contours of modern tort law reflect a single coherent conception of the best method to control the sources of product-related injuries. This conception [is] called the theory of enterprise liability.” Id. at 463.

¹⁹ Kessler, Friedrich, Contracts of Adhesion—Some Thoughts About Freedom to Contract, 43 Colum. L. Rev. 629, 640 (1941)CrossRefGoogle Scholar.

²⁰ See id. at 640 (“Standard contracts in particular could thus become effective instruments in the hands of powerful industrial and commercial overlords enabling them to impose a new feudal order of their own making upon a vast host of vassals.”).

²¹ Priest, supra note 18, at 466 (Bohlen explains that where someone voluntarily assumes a position or relation from which they benefit from action of the victim that put the victim at risk, the person owes a “duty" or an affirmative obligation to secure the safety of others.).

²² Id. at 467.

²³ James, Fleming Jr., Accident Liability Reconsidered: The Impact of Liability Insurance, 57 Yale L.J. 549, 549-50 (1948)CrossRefGoogle Scholar (second emphasis added) [hereinafter James, Accident Liability].

²⁴ Richard Scott, CEO of Columbia-HCA Healthcare, the world’s largest hospital company conceded the obligation of even for-profit hospitals to serve the poor by agreeing as a condition of CoIumbia-HCA’s purchase of an 80% share of Tulane University Hospital in New Orleans that it would preserve current levels of financing for charitable services. See Freudenheim, Milt, Hospitals Are Tempted but Wary as For-Profit Chains Woo Them, N.Y. Times, Jan. 4, 1995, at A1Google Scholar.

²⁵ James, Accident Liability, supra note 23, at 550.

²⁶ See, e.g., Smith, Jeremiah, Sequel to Workmen’s Compensation Acts, 27 Harv. L. Rev. 235, 344 (1914)CrossRefGoogle Scholar, cited in Priest, supra note 18, at 466 n.14.

²⁷ James, Accident Liability, supra note 23, at 551-52 (emphasis in original).

²⁸ Id. at 559.

²⁹ Kessler, supra note 19, at 631.

³⁰ Id at 640.

³¹ Id. at 635.

³² Id.

³³ Id. at 640.

³⁴ MacPherson v. Buick Motor Co., 111 N.E. 1050, 1053 (N.Y. 1916).

³⁵ Prosser, William, The Assault upon the Citadel (Strict Liability to the Consumer), 69 Yale L.J. 1099, 1100 (1960)CrossRefGoogle Scholar.

³⁶ Priest, supra note 18, at 466, 468.

³⁷ Kessler, supra note 19, at 640.

³⁸ Id. at 641-42 (emphasis in original); see Priest, supra note 18, at 496. “[I]t was necessary to undermine the contractual basis for consumer recovery entirely before tort law could triumph in the field. That was the achievement of Kessler’s powerful narrative.” Id.

³⁹ See Priest, supra note 18, at 497-500. Much of James’s work concerned automobile negligence, which Priest argues, left scholars reluctant to totally abandon the fault system, even though they agreed with the risk distribution idea and could not dispute the studies he produced which showed the scant effect the fault system had on improving driver safety. Id. It was “Kessler’s depiction of the helpless consumer" that lead James to eventually cite “Kessler for the proposition that consumers suffer from a relative inequality of bargaining power,” thus providing the moral basis for the risk-distribution approach by the courts. Id. at 497, 500.

⁴⁰ James, Fleming Jr., General Products—Should Manufacturers Be Liable Without Negligence?, 24 Tenn. L. Rev. 923, 924 (1957)Google Scholar [hereinafter James, General Products].

⁴¹ Id. at 925 (citations omitted).

⁴² 161 A.2d 69 (N.J. 1960).

⁴³ Id. at 73, 75.

⁴⁴ Id. at 83 (citing Mazetti v. Armour & Co., 135 P. 633, 635 (Wash. 1913)).

⁴⁵ Id. at 84.

⁴⁶ Id.

⁴⁷ 377 P.2d 897 (Cal. 1962).

⁴⁸ Id. at 898.

⁴⁹ Id. at 901.

⁵¹ Priest, supra note 18, at 520.

⁵² See supra notes 42-50 and accompanying text.

⁵³ Restatement (Second) of Torts § 402A (1965). As reporter for the Restatement of Torts, Prosser articulated his views on the trend toward strict liability for defective and unreasonably dangerous goods with such force that the American Law Institute adopted it.

⁵⁴ See Priest, supra note 18, at 484-97.

⁵⁵ Id. at 470-83.

⁵⁶ Id. at 466-70.

⁵⁷ Id.

⁵⁸ See id. at 509 (discussing the New Jersey Supreme Court’s decision in Henningsen, where it acknowledged that the consumer “has the least power to avoid the presence of defects . . . [and] the least individual ability to bear their disastrous consequences.”).

⁵⁹ Id. at 520.

⁶⁰ Id.

⁶¹ Id.

⁶² Pereira, S.P. et al., Informed Consent for Upper Gastrointestinal Endoscopy, 37 GUT 151, 151-52 (1995)CrossRefGoogle ScholarPubMed. Physicians have been shown at times to misperceive the complaints that bring the patients to their offices or to inadequately explain the diagnosis and treatment. Simpson, Michael et al., Doctor-Patient Communication: The Toronto Consensus Statement, 303 Brit. Med. J. 1385, 1385 (1991)CrossRefGoogle ScholarPubMed.

⁶³ See Griner, David D., Paying the Piper: Third-Party Payor Liability for Medical Treatment Decisions, 25 Ga. L. Rev. 861, 864-65 (1991)Google Scholar. By this point, allopathic medicine had become the dominant health care model with the solo practitioner as the entry point into the health care system. Id. The American Medical Association (AMA) had, since its founding in 1847, established demanding standards of training and practice for the profession. Id. at 865. At the same time, it fought to promote physicians’ control over hospitals. Id. at 866; Starr, Paul, The Social Transformation of American Medicine 165 (1982)Google Scholar (“[P]roprietary hospitals were one of the main ways of resisting corporate domination and establishing professional control.”); see also id. at 168 (“In 1934, the AMA tried to institutionalize its control over hospital appointments by requiring all hospitals accredited for internship training to appoint no one to their staff except members of the local medical society.”). For example, a number of large industries had begun hiring physicians to treat employees following the Civil War, to the point that by the 1930s, over a million railroad, mining, and lumber workers were being served through a managed care system. Griner, supra, at 865-66. Other contract medicine companies soon formed to provide similar services. Id. at 866. The AMA passed resolutions calling such supervised practices unethical because they imposed constraints on the treating physicians. Id. It succeeded in securing passage of state medical practice acts restricting corporate practice arrangements. Id. at 866-67.

⁶⁴ See Starr, supra note 63, at 63.

⁶⁵ See id. at 236 (These “simple arrangements" between patient and physician broke down with the “changing organization of economic life .... After the 1920s, the rising individual risks of high medical costs created difficulties even for middle-class families and generated a new basis of interest in health insurance.”).

⁶⁶ See id. at 294-98.

⁶⁷ See id. at 294 (Even Metropolitan Life Insurance Company considered a disability plan for its own workers “experimental" for fear of “simulation and malingering.”).

⁶⁸ Id. at 298 (citing Mcintyre, Duncan M., Voluntary Health Insurance and Rate Making (1962)Google Scholar) (“'Insurance theory,’ writes Duncan McIntyre, ‘says that the hazard insured against should be definite and measurable. In some respects service contracts were like blank checks . . . ; they were open-ended and did not limit the plans’ dollar liabilities.'”).

⁶⁹ See Starr, supra note 63, at 270 (describing the impact of the Depression on physician and hospital income). For an account of the AMA in opposing national health care efforts in the Roosevelt Administration, see id. at 275-79.

⁷⁰ Fein, Rashi, Medical Care, Medical Costs 11-20 (1986)Google Scholar.

⁷¹ Starr, supra note 63, at 307; Griner, supra note 63, at 877. The particular drive behind Blue Shield was to head off governmental attempts to legislate health insurance, with the concomitant risk of regulating medical practice. Starr, supra note 63, at 308; Griner, supra note 63, at 877- 80. Blue Shield provided payments to doctors to subsidize the cost of care to lower income patients, while preserving the practice of charging wealthier patients more. Starr, supra note 63, at 308; Griner, supra note 63, at 877. The sliding scale used was eventually replaced by coverage of customary and reasonable allowances. Starr, supra note 63, at 308; Griner, supra note 63, at 877-80.

⁷² Davis, Karen et al., Health Care Cost Containment 11 (1990)CrossRefGoogle Scholar.

⁷³ Starr, supra note 63, at 311.

⁷⁵ Davis, supra note 72, at 12.

⁷⁶ Starr, supra note 63, at 327.

⁷⁷ Id. (noting that 29% of Americans were covered by private carriers, 27% by Blue Cross, and 7% were independently covered).

⁷⁸ Id. at 373 (noting that as middle-income families approached levels of coverage similar to high-income families, the poor remained vulnerable).

⁷⁹ See Davis, supra note 72, at 12.

⁸⁰ See id.

⁸¹ See id. at 13 (Medicare spending rose over its first twenty years from $4.5 billion in 1967 to $78 billion in 1986).

⁸² Id.

⁸³ Id. at 14-15.

⁸⁴ 42 U.S.C. § 1395 (1994). The AMA had prior experience in resisting the loss of control inherent in the shift of payment to new third parties. Griner, supra note 63, at 864-68. They ferociously attacked corporate pre-paid health programs early in this century where company-hired physicians treated employees with managed care practices similar to those being popularized now. This led to many state laws which forbade the corporate practice of medicine. See supra note 63.

More importantly, in the 1930s, the AMA resisted any form of health insurance but indemnity, where patients pay physicians and are reimbursed by the insurer, thus insulating physicians from any direct control by the carrier. Griner, supra note 63, at 876. The AMA initially opposed the service-benefit plan, where the insurer pays all of a beneficiary’s expenses after having negotiated with providers a schedule of fees which would constitute payment in full. Id. at 877. The AMA also opposed direct-service plans, in which the insurer also provided care directly, much in the fashion of an HMO. Id. at 878.

⁸⁵ See Davis, supra note 72, at 14-15.

⁸⁶ Id. at 15.

⁸⁷ Id.

⁸⁸ Id. at 15-16.

⁸⁹ See Controlling Costs, supra note 7, at 37-38.

⁹⁰ Id.

⁹¹ Id.

⁹² Davis, supra note 72, at 16 (noting that between 1967 and 1970, when the overall inflation rate was 5.2%, Medicare hospital expenditures grew at an average annual rate of 18.1%).

⁹³ See id.

⁹⁴ See id.

⁹⁵ Id. at 17 (studies varied between showing zero to two or three percent decreases).

⁹⁶ See id.

⁹⁷ Pub. L. No. 92-603, § 223, 86 Stat. 1393 (1972) (codified as amended at 42 U.S.C. § 1395x(v)(I)(A) (1994)). The 1972 amendments modified the definition of reasonable costs as follows:

Id. (emphasis added).

⁹⁸ Davis, supra note 72, at 17.

⁹⁹ Id. at 18; see also Controlling Costs, supra note 7, at 39. Subsequent refinements to § 223 regulations included development of a wage index for determining labor costs, use of an econometric model to project rates of cost increase, and definition of a hospital market basket of inputs hospitals purchase to better gauge inflationary effects. See U.S.C. § 1395x(v) (1994).

¹⁰⁰ Controlling Costs, supra note 7, at 38-39.

¹⁰¹ See id. at 39; DAVIS, supra note 72, at 22.

¹⁰² Pub. L. No. 97-248, 96 Stat. 381-395 (1982) (codified as amended at 42 U.S.C. §§ 1301- 1396(1994)).

¹⁰³ See Jost, Timothy Stolzfus, Administrative Law Issues Involving the Medicare Utilization and Quality Control Peer Review Organization (PRO) Program: Analysis and Recommendations, 50 Ohio St. L.J. 1, 5-6 (1989)Google Scholar.

¹⁰⁴ Davis, supra note 72, at 22. The PSROs served “to monitor the quality of federally funded care and to ensure its delivery in the most efficient and economical manner.” Id. at 20-21.

¹⁰⁵ See id. at 20-22. The PSROs suffered from the reluctance of physicians to challenge the competence of one another, rendering the review process more lax than planned. Moreover, emphasis on local medical practice made it virtually impossible to eliminate regional variations in admission and length of stay. Id. at 22.

¹⁰⁶ Id. at 25-30.

¹⁰⁷ Id. at 27-28.

¹⁰⁸ Id. at 30.

¹⁰⁹ Id. at 30-31; see also id. at 172 fig. 8.4 (while a 7.6% average annual rate of increase in real community hospital expenses was recorded between 1981 and 1993, the rate was only 1.0 during the Voluntary Effort years of 1978 to 1980).

¹¹⁰ Id. at 54.

¹¹¹ Id.

¹¹² Id. at 54-55.

¹¹³ Id. at 55.

¹¹⁴ Id.

¹¹⁵ Pub. L. No. 97-248, 96 Stat. 324 (1982) (codified as amended in scattered sections of U.S.C.).

¹¹⁶ Davis, supra note 72, at 34.

¹¹⁷ Id. at 35.

¹¹⁸ Davis, supra note 72, at 31-32, 35. As early as 1977, secretary of what was then Health, Education and Welfare (DHEW), Joseph Califano, publicly anticipated introduction of a prospective system and began to undertake construction of a database and methodology necessary to carry this out. Id. at 31-32. Numerous provisions in the ill-fated 1979 bill were directed toward this end. Moreover, DHEW was already supporting New Jersey’s budding methodologies in building its own PPS program, which was to serve as the model for the federal effort. Id.

¹¹⁹ Id. at 35.

¹²⁰ Id. at 35-36, 39.

¹²¹ Id. at 36.

¹²² Id. at 35, 36.

¹²³ Id. at 36.

¹²⁴ Id.

¹²⁵ Id.

¹²⁶ Id. at 40.

¹²⁷ Id. at 39-42.

¹²⁸ See Jost, supra note 103, at 5.

¹²⁹ Id. at 6.

¹³⁰ Id. at 2; see 42 U.S.C. § 1320c-3(a)(2) (1994).

¹³¹ Jost, supra note 103, at 5.

¹³² Id. at 5-6.

¹³³ Id. at 5.

¹³⁴ Id at 7-8.

¹³⁵ Id. at 7.

¹³⁶ Id. at 8.

¹³⁷ 42 U.S.C. § 1395pp (1994); 42 C.F.R. § 466.86(a)(4) (1995); see also Jost, supra note 103, at 64-65.

¹³⁸ 42 U.S.C. § 1395pp(d); 42 C.F.R. § 473.12(b)(2).

¹³⁹ Jost, supra note 103, at 66 (citing 42 U.S.C. § 1395pp(d) (1994)) (“A provider or physician denied payment, however, has no recourse beyond the reconsideration, except the right to appeal unfavorable waiver of liability determinations.”).

¹⁴⁰ 42 U.S.C. §§ 1320c; 42 C.F.R. §§ 412.42(c); see also Jost, supra note 103, at 60-62 (describing complaints from beneficiary representatives that the “Important Message from Medicare" outlining the above rights was initially inaccurate and in any event unintelligible to or simply unnoticed by many elderly patients when they are distracted by more immediate concerns in the admission process).

¹⁴¹ Starr, supra note 63, at 335.

¹⁴² See id. at 334.

¹⁴³ Id. at 328-29.

¹⁴⁴ Controlling Costs, supra note 7, at 34.

¹⁴⁵ Id. at 46.

¹⁴⁶ Id. at 145 (Studies on appropriateness of medical treatment collectively suggest that “one- quarter to one-third of medical services may be of little or no benefit to patients.”).

¹⁴⁷ Id. at 146.

¹⁴⁸ See Jost, supra note 103, at 34-37, 53-55 (describing the sanction and payment denial process undertaken by the PROs for medical services that fail to meet the quality assurance standards).

¹⁴⁹ Controlling Costs, supra note 7, at 59.

¹⁵⁰ Id.

¹⁵¹ Id.

¹⁵² Id. at 60-61.

¹⁵³ Id. at 69. The patient may face a penalty for failing to do so. Id. For a schematic overview of the review process, see id. at 67.

¹⁵⁴ Id. at 69-70.

¹⁵⁵ Id. at 70.

¹⁵⁶ Id. at 79.

¹⁵⁷ Id.

¹⁵⁸ Id. According to one set of criteria, a patient may be allowed surgery on an inpatient basis due to his poor respiratory status only if the physician has documented “[s]ignificanty abnormal pulmonary function measurements,” such as a functional vital capacity (FVC) of less than 1.0 liters, a forced expiratory volume in the first second of less than 50% of FVC, among others. Id. at 81 tbl. 3-2. Physicians are told: "Do not use ‘suspected’ diagnoses.” Id.

¹⁵⁹ Id. at 80. These criteria are derived from a number of sources and encompass a mix of written policy and practice. Id. at 79. Many use the appropriateness evaluation protocol which were developed originally for retrospective research on the extent of inappropriateness of hospital admissions and which are now in the public domain. Id. at 80. Another set of criteria, called the intensity of service, severity of illness, discharge, and appropriateness screens were developed by InterQual, Inc. Id. Both are widely used by PROs, and many private UR services use them with their own modifications. Id.

More recently, the set of guidelines that have become a dominant force are those developed by Milliman & Robertson, a Seattle-based consulting firm. Myerson, Allen R., Helping Health Insurers Say No: Having a Caesarean? You Get 2 Days in the Hospital, N.Y. Times, Mar. 20, 1995, at D1Google Scholar. They are now in use by the health plans of more than 50 million Americans and until recently were actively opposed by the AMA, which is now considering them as the basis of its own efforts to offer treatment guidelines. Id. Criticized as “cookbook medicine,” they are now the subject of a formal study by the Harvard Community Health Plan to determine whether they improve health care while lowering costs. Id.

¹⁶⁰ Controlling Costs, supra note 7, at 81-82.

¹⁶¹ Id. at 66.

¹⁶² Id.

¹⁶³ Id. at 71-72.

¹⁶⁴ Id. Several organizations studied report that nurse reviewers complete anywhere from 10 to 20 certifications a day, handling 40 to 50 calls in the process. Id. Other responsibilities may include management of high-cost cases and answering inquiries of beneficiaries. Id.

¹⁶⁵ Id. at 66.

¹⁶⁶ Id.

¹⁶⁷ Id. at 73.

¹⁶⁸ Id. at 74.

¹⁶⁹ Id.

¹⁷⁰ Id. at 77-78.

Id. at 77.

¹⁷¹ Id. at 74.

¹⁷² Id.

¹⁷³ Id. at 75.

¹⁷⁴ Id.

¹⁷⁵ Burgess, Cathy L., Preferred Provider Organizations: Balancing Quality Assurance and Utilization Review, 4 J. Contemp. Health L. & Pol'y 275, 276 (1988)Google ScholarPubMed.

¹⁷⁶ Davis, supra note 72, at 131.

¹⁷⁷ Id. at 131-34; see also Oakley, David J. & Kelley, Eileen M., HMO Liability/or Malpractice of Member Physicians: The Case of IPA Model HMOs, 23 Tort & Ins. L.J. 624, 625 (1988)Google Scholar.

¹⁷⁸ Gold et al., supra note 8, at 1680-81.

¹⁷⁹ Davis, supra note 72, at 131.

¹⁸⁰ Pub. L. No. 93-222, 87 Stat. 914 (1973) (codified at scattered sections of 42 U.S.C.).

¹⁸¹ Davis, supra note 72, at 135. Qualification is pursuant to Title XIII of the Public Health Service Act, 42 U.S.C. § 300(e) (1994); Enthoven, Alain C., The History and Principles of Managed Competition, Health Aff., Supp. 1993, at 24, 27CrossRefGoogle Scholar; see DAVIS, supra note 72, at 135.

¹⁸² See Weiner, Earlene P., Managed Health Care: HMO Corporate Liability, Independent Contractors, and the Ostensible Agency Doctrine, 15 J. Corp. L. 535, 542-44 (1990)Google Scholar.

¹⁸³ DAVIS, supra note 72, at 135.

¹⁸⁴ Weiner, supra note 182, at 540.

Id.

¹⁸⁵ Gold et al., supra note 8, at 1678, 1680-81.

¹⁸⁶ Id. at 1681.

¹⁸⁷ Id.

¹⁸⁸ Id.

¹⁸⁹ Rubin, Haya R. et al., Patients’ Ratings of Outpatient Visits in Different Practice Settings, 270 JAMA 835, 837 (1993)CrossRefGoogle ScholarPubMed.

¹⁹⁰ Davis, supra note 72, at 213-16.

¹⁹¹ Id. Reviews of patients diagnosed with colorectal cancer showed no difference in definitive surgery, chemotherapy or radiation therapy, length of stay, or follow-up visits, and reviews of patients with rheumatoid arthritis showed no difference in admission rates, lengths of hospital stay, or rates of surgery between HMO and FFS patients. Id.

¹⁹² Eckholm, supra note 3, at A1.

¹⁹³ Id.

¹⁹⁴ Id. at 34.

¹⁹⁵ Freudenheim, supra note 24, at A1.

¹⁹⁶ For instance, Duke University Medical Center has cut its workforce of 6,500 by 1,500, while adding a procedure which asks patients to fill out a satisfaction card indicating how they felt about the services provided. Freudenheim, Milt, Hospitals’ New Creed: Less is Best, N.Y. Times, Nov. 29, 1994, at D1Google Scholar.

¹⁹⁷ Rosenthal, Elisabeth, Elite Hospitals of New York in Financial Bind, N.Y. Times, Feb. 13, 1995, at A1, B4Google Scholar.

¹⁹⁸ Eckholm, supra note 3, at A1. The process has been actively resisted by physicians as, for instance, in the angry opposition of the AMA to President Nixon’s HMO legislation. Starr, supra note 63, at 407.

¹⁹⁹ Weiner, supra note 182, at 538 (“Many corporations are forming their own HMOs to gain more control over the delivery and costs of health care rendered to their employees.”).

²⁰⁰ Quint, Michael, Health Plans Are Forcing Change in the Method for Paying Doctors, N.Y. Times, Feb. 9, 1995, at A1Google Scholar. Some physicians now purchase insurance to guard against the loss of caring for patients with catastrophic needs. Id. at D5.

²⁰¹ E.g., Scholendorff v. Society of N.Y. Hosp., 105 N.E. 92 (N.Y. 1914).

²⁰² 140 N.E. 694 (N.Y. 1923).

²⁰³ 143 N.E.2d 3 (N.Y. 1957).

²⁰⁴ Id. at 9.

²⁰⁵ Id. at 8.

²⁰⁶ Id.

²⁰⁷ 516 N.E.2d 1104 (Ind. Ct. App. 1987).

²⁰⁸ Id. at 1108-09.

²⁰⁹ Id. at 1108; see also Gugino v. Harvard Community Health Plan, 403 N.E.2d 1166, 1168 (Mass. 1980).

²¹⁰ 781 S.W.2d 58 (Mo. 1989).

²¹¹ Texas has enacted similar legislation. See Williams v. Good Health Plus, Inc., 743 S.W.2d 373, 375 (Tex. Ct. App. 1988) (citing the Texas Health Maintenance Organization Act, Tex. Ins. Code Ann. §§ 20A.26, 20A.29 (West 1981)).

²¹² 876 F.2d 174 (D.C. Cir. 1989).

²¹³ Id. at 178.

²¹⁴ Id.

²¹⁵ Id.

²¹⁶ Id. at 176.

²¹⁷ Id.

²¹⁸ Id.

²¹⁹ Id.

²²⁰ Id.

²²¹ Id.

²²² Id. at 177.

²²³ Id (citing LeGrand v. Ins. Co., 241 A.2d 734, 735 (D.C. 1968)).

²²⁴ Id. at 177-78 (citing Mehlman v. Powell, 378 A.2d 1121 (Md. 1977)). The court relied on Mehlman, in which a employer-employee relationship was found between a hospital and physicians with whom it contracted to provide services in the emergency room and who were regarded by patients as hospital employees. This factor of the patient’s perception of an agency relationship, cited with approval by the Schleier court, will be discussed below.

See also Mduba v. Benedictine Hospital, 384 N.Y.S.2d 527, 529-30 (App. Div. 1976), where an appellate court in New York reached the same result regarding emergency room physicians, but on different grounds. In addition to the control asserted by the hospital, the court noted that the emergency room physicians were paid in regular installments under a contract and not on a FFS basis. Id. at 529. This payment arrangement was typical of an employment contract and not of one between two independent parties. See Oakley & Kelley, supra note 177, at 627-28. This payment scheme resembles the capitation form of payment between HMOs and individual physicians under an IPA model far more than it docs the traditional FFS. Id.

²²⁵ 595 N.E.2d 153 (Ill. App. Ct. 1992).

²²⁶ Id. at 158.

²²⁷ Restatement (Second) of Agency §§ 8, 159 (1958).

²²⁸ 384 N.Y.S.2d 527, 528 (App. Div. 1976); see also Quintal v. Laurel Grove Hosp., 397 P.2d 161, 169-70 (Cal. 1964) (en banc) (finding an agency relationship between the hospital and a group of anesthesiologists).

²²⁹ 384 N.Y.S.2d at 529.

²³⁰ Id.

²³¹ 547 A.2d 1229 (Pa. Super. Ct. 1988).

²³² Id. at 1229.

²³³ Id.

²³⁴ Id. at 1230.

²³⁵ Id.

²³⁶ ld.

²³⁷ Id.

²³⁸ Id.

²³⁹ Id.

²⁴⁰ Id.

²⁴¹ Id.

²⁴² Id.

²⁴³ Id. at 1231, 1235.

²⁴⁴ Id. at 1232-33.

²⁴⁵ Id. at l234.

²⁴⁶ Id. at 1234-35; see also Dunn v. Praiss, 606 A.2d 862, 868-69 (N.J. Super. Ct. App. Div. 1992) (holding HMO responsible for urologist’s action on theory of respondeat superior or agency).

²⁴⁷ 583 N.E.2d 251 (Mass. App. Ct. 1991).

²⁴⁸ Id. at 251, 254-55.

²⁴⁹ Id. at 252-53.

²⁵⁰ Id. at 254.

²⁵¹ Id. at 255.

²⁵² E.g., Sarchett v. Blue Shield of Cal., 729 P.2d 267 (Cal. 1987); see, e.g., Haggard v. Blue Cross-Blue Shield of Ala., 401 So. 2d 781 (Ala. Civ. App. 1980), aff'd, 401 So. 2d 783 (Ala. 1981); Arkansas Blue Cross-Blue Shield, Inc. v. Tompkins, 507 S.W.2d 509 (Ark. 1974).

²⁵³ 228 Cal. Rptr. 661 (Ct. App. 1986).

²⁵⁴ Id. at 663-64.

²⁵⁵ Id. at 664.

²⁵⁶ Id.

²⁵⁷ Id.

²⁵⁸ Id. at 665.

²⁵⁹ Id. at 667.

²⁶⁰ Id.

²⁶¹ Id. at 666.

²⁶² Id. at 667.

²⁶³ Id. at 668.

²⁶⁴ Id. at 662.

²⁶⁵ Id.

²⁶⁶ Id. at 667.

²⁶⁷ Id. at 670-71 (emphasis added).

²⁶⁸ Id. at 671.

²⁶⁹ 271 Cal. Rptr. 876 (Ct. App. 1990).

²⁷⁰ Id. at 881.

²⁷¹ Id. at 880-81.

²⁷² Id. at 880.

²⁷³ Id. at 882.

²⁷⁴ Id.

²⁷⁵ Id. at 878.

²⁷⁶ Id. at 883.

²⁷⁷ Id. at 883-84.

²⁷⁸ Id. at 883 (citing Restatement (Second) of Torts § 431 (1965)).

²⁷⁹ Id.

²⁸⁰ See generally Routh, Paul J. & Kladder, Ronald A., Welfare Benefits Guide § 1:01 (1995)Google Scholar.

²⁸¹ 29 U.S.C. § 1001(b) (1994). An employee benefit plan can include a pension plan and an “employee welfare benefit plan" set up and maintained by an employer “for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise" such services as “medical, surgical, or hospital care or benefits.” Id. § 1002(1).

²⁸² Id. § 1003(a).

²⁸³ Id. §§ 1051-1086.

²⁸⁴ Id. § 1132(a)(1)(B).

²⁸⁵ See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45-47 (1987). This was reaffirmed in congressional hearings shortly after the Republican election victories in 1994. State officials complained that ERISA prevents their experimentation with health care reform in the wake of the collapse of federal legislation. While Republicans like Rep. Harris W. Falwell of Illinois agreed that ERISA may need “some repairs,” he stated that states should not hamstring business by setting different standards for employee health benefits. Pear, supra note 16, at A28.

²⁸⁶ 29 U.S.C. § 1144(a)-(b).

²⁸⁷ Id. § 1144(b)(2)(B).

²⁸⁸ States lose this option because of ERISA’s “preemption clause.” See supra note 286 and accompanying text.

²⁸⁹ ERISA’s “insurance saving clause" provides states with this option. See supra note 286 and accompanying text.

²⁹⁰ This is guided by ERISA’s “deemer clause.” See supra note 287 and accompanying text.

²⁹¹ 471 U.S. 724(1985).

²⁹² 15 U.S.C. §§ 1011-1014 (1994).

²⁹³ Metropolitan Life Ins. Co., 471 U.S. at 734; see U.S.C. § 1012(a) (“The business of insurance, and every person engaged therein, shall be subject to the laws of the several states, which relate to the regulation or taxation of such business.”).

²⁹⁴ 471 U.S. at 743 (quoting Union Labor Ins. Co. v. Pireno, 458 US 119, 129 (1982)) (emphasis in original).

²⁹⁵ Id.

²⁹⁶ Id.

²⁹⁷ Id. at 747.

Id.

²⁹⁸ Fox, Daniel M. & Schaffer, Daniel C., Semi-Preemption in ERISA: Legislative Process and Health Policy, 7 Am. J. Tax. Pol'y 47, 49 (1988)Google Scholar.

²⁹⁹ Id.

³⁰⁰ Id. at 51.

³⁰¹ Id.

³⁰² Id. at 50.

³⁰³ Id.

³⁰⁴ 481 U.S. 41 (1987).

³⁰⁵ Id. at 41,45.

³⁰⁶ Id. at 43-44.

³⁰⁷ Id. at 44.

³⁰⁸ Id. at 50.

³⁰⁹ Id. at 50-51.

³¹⁰ Id. at 54.

³¹¹ Id.

³¹² 498 U.S. 52(1990).

³¹³ 463 U.S. 85(1983).

³¹⁴ FMC Corp., 498 U.S. at 58.

³¹⁵ Id. (quoting Shaw, 463 U.S. at 96-97).

³¹⁶ Id. at 54.

³¹⁷ Id. at 54-56.

³¹⁸ Id. at 59.

³¹⁹ Id. at 60-61.

³²⁰ Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 747 (1985).

³²¹ FMC Corp., 498 U.S. at 63.

³²² 498 U.S. 133(1990).

³²³ Id. at 135-36.

³²⁴ McClendon v. Ingersoll-Rand Co., 779 S.W.2d 69, 71 n.3 (Tex. 1989) (emphasis in the original).

³²⁵ Ingersoll-Rand Co., 498 U.S. at 139 (quoting Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 747(1985)).

³²⁶ 486 U.S. 825, 841 (1988).

³²⁷ 482 U.S. 1,23(1987).

³²⁸ Ingersoll-Rand Co., 498 U.S. at 139.

³²⁹ Id. at 140 (emphasis in the original).

³³⁰ 29 U.S.C. § 1140(1994):

Id.

³³¹ Ingersoll-Rand Co., 498 U.S. at 143 (citing English v. General Electric Co., 496 U.S. 72, 87 (1990)).

³³² 965 F.2d 1321 (5th Cir.), cert. denied, 506 U.S. 1033 (1992).

³³³ Id. at 1322.

³³⁴ Id.

³³⁵ Id.

³³⁶ Id.

³³⁷ Id. at 1324.

³³⁸ Id.

³³⁹ Id. at 1325.

³⁴⁰ Id. at 1330.

³⁴¹ Id. at 1329-30.

³⁴² Id. at 1331.

³⁴³ Id. at 1332.

³⁴⁴ Id. at 1323.

³⁴⁵ Speiser, Stuart M. et al., 5 The American Law Of Torts § 18:2 (1988)Google Scholar.

³⁴⁶ Corcoran, 965 F.2d at 1333.

³⁴⁷ Id. (footnotes omitted).

³⁴⁸ Id. (citing Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983)).

³⁴⁹ Keeton, W. Page et al., Prosser & Keeton on the Law of Torts § 30, at 164-65 (5th ed. 1984)Google Scholar.

³⁵⁰ 11 F.3d 129 (9th Cir. 1993), cert denied, 114 S. Ct. 1612(1994).

³⁵¹ Id. at 131.

³⁵² Id.

³⁵³ Id.

³⁵⁴ 927 F.2d 505, 510 (10th Cir. 1991).

³⁵⁵ Spain, 11 F.3d at 132.

³⁵⁶ 999 F.2d 298 (8th Cir. 1993), cert. denied, 114 S. Ct. 694 (1994).

³⁵⁷ Id. at 300.

³⁵⁸ Id.

³⁵⁹ Id. at 302-03.

³⁶⁰ Id. at 303.

³⁶¹ Id.

³⁶² Wilson v. Blue Cross, 271 Cal. Rptr. 876, 883 (Ct. App. 1990) (citing Restatement(Second) of Torts § 431 (1965)).

³⁶³ Dukes v. U.S. Health Care Systems, 848 F. Supp. 39 (E.D. Pa. 1994), rev'd, 57 F.3d 350 (3d Cir.), cert. denied, 116 S. Ct. 564 (1995). In terms more straightforward than Kuhl, the court stated: "A medical malpractice claim asserts the services provided did not measure up to the benefit plan’s promised quality. The question is one of relating plan performance to plan-promise, and is therefore preempted by ERISA, . . . [regardless of] whether couched in direct or vicarious liability terms.” Id. at 42. The court rejected earlier decisions within the eastern district of Pennsylvania holding that malpractice claims against an HMO on the basis of ostensible agency were not preempted. Id.; see, e.g., Elsesser v. Hospital of Phila. College, 802 F. Supp. 1286 (E.D. Pa. 1992); Independence HMO, Inc. v. Smith, 733 F. Supp. 983 (E.D. Pa. 1990); see also Nealy v. U.S. Healthcare HMO, 844 F. Supp. 966, 973 (S.D.N.Y. 1994); Ricci v. Goobcrman, 840 F. Supp. 316 (D.N.J. 1993).

³⁶⁴ 848 F. Supp. 39 (E.D. Pa. 1994), rev'd, 57 F.3d 350 (3d Cir.), cert. denied, 116 S. Ct. 564 (1995).

³⁶⁵ Id. at 42.

³⁶⁶ 706 F. Supp. 733, 735-36 (CD. Cal. 1989).

³⁶⁷ Id. at 735 (emphasis added); see also Butler v. Wu, 853 F. Supp. 125, 129 (D.N.J. 1994) (concurring with courts concerned about the effect of liability on plans).

³⁶⁸ 852 F. Supp. 669 (N.D. III. 1994).

³⁶⁹ Id. at 671-72.

³⁷⁰ Id. at 672 (citing Pohl v. National Benefits Consultants, Inc., 956 F.2d 126, 128 (7th Cir. 1992)). The actual holding in Pohl was that an action based on misrepresentation against a plan administrator was preempted by ERISA, because it was the functional equivalent of a claim for benefits under the plan. Id. In dicta, the Seventh Circuit gave as a theoretical argument a claim for negligence from slipping on a banana peel in the administrator’s office which would not “relate to" the plan and thus not be preempted. Id. The actual facts in the district court case are far closer to the holding. Id. at 126.

³⁷¹ Wilson v. Blue Cross, 271 Cal. Rptr. 876, 883 (Ct. App. 1990).

³⁷² 115 S. Ct. 1671 (1995).

³⁷³ Id. at 1673 (citing N.Y. Pub. Health Law § 2807-c (McKinney 1993)).

³⁷⁴ Id. at 1676.

³⁷⁵ Id. at 1677.

³⁷⁶ Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97 (1983).

³⁷⁷ Travelers, 115 S. Ct. at 1672.

³⁷⁸ Id. at 1678-79.

³⁷⁹ Id. at 1679.

³⁸⁰ Id. at 1679-80 (citing District of Columbia v. Greater Washington Bd. of Trade, 506 U.S. 125, 130 n.l (1992)) (internal quotation marks and citations omitted).

³⁸¹ 57 F.3d 350(3rd Cir. 1995).

³⁸² 547 A.2d 1229, 1234-35 (Pa. Super. Ct. 1988).

³⁸³ Dukes, 57 F.3d at 351.

³⁸⁴ Id.

³⁸⁵ Id. at 353 (citing Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987)).

³⁸⁶ Id. (citing Gully v. First Nat'l Bank, 299 U.S. 109, 115-18(1936)).

³⁸⁷ Id. at 354 (citing Metropolitan Life, 481 U.S. at 63-64).

³⁸⁸ Id. at 355.

Id. (citations omitted).

³⁸⁹ Id. at 357 (emphasis added, citations omitted).

³⁹⁰ Id. at 361 (emphasis added, citations and footnotes omitted).

³⁹¹ 65 F.3d 637 (7th Cir. 1995).

³⁹² Id. at 645-46.

³⁹³ Id. at 642.

³⁹⁴ Id. at 644.

³⁹⁵ Id. at 645 (citations omitted); see Lupo v. Human Affairs Int'l, Inc., 28 F.3d 269, 272 (2d Cir. 1994) (where claims for professional malpractice and breach of fiduciary duty against a psycho therapist were remanded to state court because they “failed to bear any significant resemblance to those described in" § 502(a)(1)(B)).

³⁹⁶ Rice,65 F.3d at 645.

³⁹⁷ Id.

³⁹⁸ James, General Products, supra note 40, at 923.

³⁹⁹ Brennan, Troyen A. et al., Incidence of Adverse Events and Negligence in Hospitalized Patients, 324 New Eng. J. Med. 370 (1991)CrossRefGoogle ScholarPubMed. This echoed similar findings in California. See Danzon, Patricia, Medical Malpractice: Theory, Evidence & Public Policy 19-29 (1985)Google Scholar.

⁴⁰⁰ Localio, A. Russell et al., Relation Between Malpractice Claims and Adverse Events Due to Negligence, 325 New Eng. J. Med. 245, 247 (1991)CrossRefGoogle ScholarPubMed. The figure of over 27,000 patients injured in New York contrasts with the number of disciplinary actions taken by all state boards in 1987 against physicians of 2,700. Issues Relating to Medical Malpractice: Hearings Before the Subcomm. on Health of the House Comm. on Ways and Means, 101st Cong., 2d Sess. (Apr. 26, 1990) (testimony of Charles A. Bowsher, Comptroller General, U.S. General Accounting Office) [hereinafter Bowsher Testimony].

⁴⁰¹ Bowsher Testimony, supra note 400. In 1983 malpractice insurance premiums for physicians cost $1.7 billion, and in 1987, they went up to $5.9 billion. Id. In 1983, malpractice insurance for hospitals cost $800 million, and in 1985, it went up to $1.3 billion. Id.

⁴⁰² United States General Accounting Office, Medical Malpractice: A Framework for Action 2 (1987)Google Scholar.

⁴⁰³ Issues Relating to Medical Malpractice: Hearings Before the Subcomm. on Health of the House Comm. on Ways and Means, 101st Cong., 2d Sess. 30 (Apr. 26, 1990) (testimony of James Todd, M.D., acting executive vice president of the American Medical Association).

⁴⁰⁴ Kinney, Eleanor D. & Wilder, Marilyn M., Medical Standard Setting in the Current Mal practice Environment: Problems and Possibilities, 22 U.C. Davis L. Rev. 421, 427 (1989)Google Scholar. Much impetus was gained from provisions in the 1989 budget reconciliation legislation creating in the U.S. Public Health Service the Agency for Health Care Policy and Research. Its tasks included funding research measuring outcomes of specific treatment protocols. A separate office was also created, the Forum for Quality and Effectiveness in Health Care, with the specific mandate to preside over panels charged with the development of practice guidelines based on outcomes research. Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101-239, § 901, 103 Stat. 2189 (1989) (codified as amended at 42 U.S.C. §299(1994)).

⁴⁰⁵ United States General Accounting Office, Medical Malpractice: Characteristics of Claims Closed in 1984, at 24 (1987)Google Scholar.

⁴⁰⁶ The Joint Commission on the Accreditation of Healthcare Organizations now requires hospitals to have in place risk management programs as a condition of accreditation. See Joint Commission on the Accreditation of Healthcare Organizations, Accreditation Manual for Hospitals 84-85 (1989)Google Scholar.

⁴⁰⁷ Iglehart, John K., Medicaid and Managed Care, 332 New Eng. J. Med. 1727, 1728 (1995)CrossRefGoogle ScholarPubMed (Enrollment of Medicaid recipients reached 7.8 million in June 1994, double the level of the previous year.).

⁴⁰⁸ 42 U.S.C. § 300aa-10 (1994). For a discussion of the Act in the context of no-fault models of medical malpractice, see King, Josephine Y., No Fault Compensation for Medical Injuries, 8 J. Contemp. Health L. & Pol'y 227, 233 (1992)Google ScholarPubMed.

⁴⁰⁹ 42 U.S.C. §300aa-14.

⁴¹⁰ The Secretary must publish notice of the petition in the Federal Register to permit all interested persons an opportunity to submit evidence to the special master regarding any matter raised in the petition.

⁴¹¹ 42 U.S.C. §300aa-11(c).

⁴¹² Id. § 300aa-15.

⁴¹³ Id. § 300aa-2l.

⁴¹⁴ See Routh & Kladder, supra note 280, § 1:01; Eckholm, supra note 3, at 1, 34.