As Canada approaches the end of its first decade of government-run health care with universal coverage and controlled costs, the majority in the United States Congress has proposed repealing the federal guarantee of health coverage to poor and disabled persons embodied in Medicaid. This somber turn in the history of American health care comes only a few years after an optimistic President Clinton resurrected the efforts of Presidents Truman and Nixon to establish universal coverage. Clinton’s own party quashed his Health Security Act prior to any formal debate. Characterizing the plan as Byzantine government that would limit choice, health insurance companies, the very industry President Clinton tried to accommodate by rejecting the Canadian model, opposed the plan. Ironically, the possibility of such legislation accelerated the movement by health care insurers and other large-scale payers to assume control of health care delivery through the establishment of “managed care” systems. While this movement has initially reduced costs, it has also restricted consumers’ choice and imposed new administrative procedures.

A large and growing number of physicians in today’s managed care market are paid for their services according to incentive schemes that offer financial rewards for the provision of less, and less expensive, medical care. Such schemes typically reward physicians for reducing their own costs of care and reward primary care physicians for reducing the number and cost of referrals for inpatient and specialty care. Consumers, fearful that such schemes will prompt physicians to deny them medically necessary care, have protested the implementation of such incentive plans. Various states are considering bills to ban or to limit physician incentive payments.

Federal policy with regard to incentive schemes has been confused and contradictory. On one hand, regulators concerned with controlling health care costs and limiting the provision of unnecessary care have encouraged such financial incentives. For example, federal Stark regulations, which ban referrals tied to physician compensation, include explicit exceptions for incentive schemes.

Throughout history, those in power have feared the consequences of unfettered discourse within their society. The empowered have restricted and directly manipulated discourse in the context of doctor-patient discussions with surprising frequency, resulting in disturbing curtailments of individual autonomy. During the Cultural Revolution, the Chinese government dispatched physicians to peasants’ homes to convince them to use contraception. In the 1930s, the Soviet government expedited the completion of the Siberian railroad by ordering physicians to deny workers’ requests for medical leave and to conceal this order from those workers. Recently, Nicolae Ceausescu sought to increase the Romanian birth rate by prohibiting physicians from advising patients about birth control and barring the dissemination of information about condom use to prevent HIV transmission.

Restraints on doctor-patient discussions have not been limited to socialist regimes. In 1988, the Bush Administration implemented a federal regulation prohibiting physicians from discussing abortion with patients in federally funded clinics.

In a field littered with analogies, health care in the mid-nineties is best characterized as an enterprise caught in the violent cross winds of a tropical storm known as managed care. Like a series of hurricanes, managed care has reshaped the landscape of health care delivery in drastic and unpredictable ways. While the forces of managed care have increasingly altered more health care markets, others are only beginning to feel the winds of change. As managed care overtakes fee-for-service (FFS) medicine, profound alterations in health delivery are occurring which affect every aspect of American health care.

Particularly noteworthy is the use of capitation as a primary method of reimbursement. The ramifications of capitated health care are broad and warrant exploration from several vantage points. One basic concern in capitated health plans and managed care is the effect of new payment incentives on physician evaluation for purposes of credentialing. This Article focuses on managed care credentialing—the process of appointing, reappointing, and delineating clinical privileges—from a legal perspective. While the Article centers on the link between capitation and credentialing, it has broader applicability in that the same physician evaluation mechanisms in capitated settings are found in discounted FFS arrangements as well. The piece provides a brief overview of capitation and credentialing, and a discussion of trends that have altered hospital medical staff credentialing processes.

Employer-provided health insurance is the backbone of the American healthcare system. Approximately four of five workers in the United States rely on health insurance provided in the workplace. Many commentators view access to health insurance as the doorway to the entire health care system. Thus, the benefits covered in employer-provided health insurance plans significantly impact millions of Americans.

While private health insurance usually covers abortion, it traditionally has not covered infertility services. Eventually, courts began interpreting insurance contracts to include infertility treatments, leading insurers to specifically exclude infertility treatments from coverage. In response, a few states have passed mandated benefit laws requiring coverage of some or all infertility services. Nonetheless, current insurance coverage of infertility services is “erratic” at best. These exclusions are significant because abortion and infertility services can be quite expensive for the millions of infertile couples seeking some sort of infertility treatment and the millions of women who have abortions each year.

Society has long associated acquired immune deficiency syndrome (AIDS) and human immunodeficiency virus (HIV) with homosexual men. One reason for this association is the statistics that establish a close connection between the homosexual lifestyle and HIV infection and AIDS. While there are an abundance of statistics and widespread perceptions that indicate a strong correlation between AIDS and HIV and homosexual males, there are statistical justifications that oppose the assertion. According to projections, the majority of gay and bisexual men will not develop AIDS. Reports show that in many foreign countries, AIDS is largely a heterosexual phenomenon. In addition, the percentage of AIDS cases resulting from transmission through heterosexual contact is rising dramatically. Furthermore, groups such as racial minorities and intravenous drug users also constitute a large proportion of AIDS cases.

Statistics also demonstrate the high costs associated with treating AIDS patients and people infected with HIV. As the AIDS epidemic unfolded, the health insurance industry developed fears concerning the financial crisis that would result due to an increase in the number of AIDS cases and the emergence of expensive treatments.

The health care market, the organizations that deliver health care, and health care payment mechanisms have all changed significantly in recent years and continue to change. In contrast, the so-called antikickback provision of the fraud and abuse statute remains much as it was in 1977, when it was amended into its current general form. By prohibiting financial incentives to induce referrals, the antikickback law counters abuses to the Medicare and Medicaid programs that are likely to proliferate in a cost-based, fee-forservice (FFS) health care market. In a FFS system, financial incentives stimulate increased use of services and often result in overutilization. The antikickback section has significantly less relevance to a capitated health care system in which the payment system itself inhibits overutilization and other costly practices. However, the antikickback section is broad and the regulatory safe harbors promulgated under it are narrow. As a result, practices such as capitation, which encourage cost-effective care and the formation of organizations to provide care on a capitated basis, are poorly insulated from the strictures of the statute.

In contrast to the few medical procedure patents granted in the three decades following the 1950s, patent attorneys now estimate that the Patent and Trademark Office (PTO) grants at least a dozen medical procedure patents each week. This growing trend heightened the medical community’s concerns that such patents may adversely affect the cost, quality, and patient accessibility of medical care. Additionally, attempts by physicians to enforce medical procedure patents against other physicians further increased these concerns. One of the more widely publicized patented medical procedure cases involves an infringement suit over a patent for a method of making self-sealing episcleral incisions during cataract operations. On July 6, 1993, Dr. Samuel Pallin filed a lawsuit against fellow opthalmologist Dr. Jack Singer, accusing Dr. Singer and his clinic of performing hundreds of cataract operations using the patented procedure. The medical community views this case as an illustration of the problems that may arise in patenting medical procedures because Dr. Pallin’s suit restricts Dr. Singer’s use of a procedure that benefits patients.

Tuberculosis (TB), “the world’s most neglected health crisis,” has returned after decades of decline, but has only gradually caught the attention of governments as a formidable threat to public health. By 1984, when TB cases hit an all-time low, federal and state governments stopped supporting the medical infrastructure that once served to contain the disease. State officials around the nation began dismantling laboratory research programs and closing TB clinics and sanitoria. Since 1985, however, TB rates have steadily increased to 26,673 reported cases in 1992, and some have estimated that by the year 2000, there could be a twenty percent increase. By 1993, Congress, realizing that TB could pose a major public health threat, allocated over $100 million to the Department of Health and Human Services for TB prevention and treatment programs. Those funds, however, were sorely needed years before and amounted to only a fraction of what public health officials believe necessary to control TB today.

The expansive biotechnology field includes many facets of medical research, from drug discovery and design, to gene therapy and the diagnosis of genetic diseases, to the use of deoxyribonucleic acid (DNA) evidence to identify individuals and genetic characteristics. The biotechnology industry requires a readily available supply of biological raw materials; much of current research is founded on cells, tissues, organs, fetal tissues and placentas, and other samples derived from human donors. However, this growing need for raw materials presents many economic, social, and ethical issues to society, researchers, and the existing legal regime. Furthermore, because courts and legislatures fail to provide a clear national rule regarding biological materials, the resulting legal uncertainties chill research and investment. Although very few cases address property rights in a person’s organs, tissues, and genetic material, the issues of autonomy and privacy involved evoke analogies to deep-seated issues such as slavery, the freezing of embryos, and abortion.

A patient of mine, Mrs. Lopez, suffered a lower back injury while lifting heavy equipment. She sustained the injury while working in the housekeeping department at a local college. I telephoned her supervisor and asked him about Mrs. Lopez’s injury. He assured me that he had forwarded an accident report to the benefits department. He said he was unaware of any employer policies or training programs governing heavy lifting. The college did not have an employee health service, but instead relied on a local law firm to handle the administration of its workers’ compensation. When I informed the supervisor that I thought Mrs. Lopez might be able to return to a restricted duty job soon, he said that he did not want Mrs. Lopez to return until “she was 100%.” I told him that this employee would benefit medically from returning to a restricted duty job as soon as it was reasonable rather than waiting until she could perform heavy lifting again. However, the supervisor replied “Don't you worry about returning her to work so soon. Workers’ compensation will pay for it.”

When a provider accepts capitation from a health plan for a pool of patients, it assumes risk from the plan. The risk is that the cost of furnishing health care needed by the patients may exceed the funds paid to the provider by the health plan. There are several levels of risk. The first level is capitation arrangements for services rendered by the provider. The next level is capitation arrangements where the provider assumes risk not only for its own services, but also the services of other providers. As the number of services of other providers for which risk is assumed increases, the risk-taking provider comes closer and closer to assuming risk for the entire benefits package. At some point, it makes sense for the risk-taking provider to become a licensed health plan. As providers become more capable in managing large amounts of risk, they become more interested in organizing health plans.

George Eastman may not have been a father, but to the residents of Rochester, New York, the principal founder of Eastman Kodak was a doting uncle. In addition to donating millions of dollars to Rochester-area schools and hospitals, Eastman reportedly paid to remove the tonsils of every child in town. Even after his death in 1932, his company looked after of its employees and retirees. For example, Kodak refused to use its size to negotiate for cheaper medical care for its Rochester employees. If it had, most small businesses in the area would have likely faced higher insurance rates and the prospect of eliminating health benefits for their employees entirely. Only about seven percent of Rochester residents do not have health insurance today, compared with fifteen percent nationally.

That may change, however. Faced with growing foreign competition and demands for higher returns, last summer Kodak threatened to desert its long-standing approach to buying insurance and encouraged its 44,000 retirees to join a health plan that excluded two high-priced hospitals.

In the American health care system, payers are rapidly moving toward the use of capitation as the preferred method for paying for health care services for sponsored patients. n capitation, the payer pays a provider organization a set rate per patient to care for a group of patients. The provider organization assumes the risk of the actual costs of caring for these covered lives. The theory of capitation is that providers, by assuming risk, will have incentives to contain their costs.

The provider entity that provides the care can take many corporate forms. A capitated provider can be a small group of physicians with admitting privileges at a single hospital or a complex integrated delivery network comprised of hospitals, physicians, and other health care professionals and institutions with integrated case management and data systems. Currently such integrated delivery networks assume a variety of organizational forms, ranging from traditional staff model health maintenance organizations (HMOs) in which physicians are employees of the health plan to physician hospital organizations (PHOs) in which physicians and hospitals join together for purposes of contracting with payers. Hospitals and physicians belonging to their medical staffs are motivated to form integrated delivery networks or other consolidated business organizations in order to contract with payers that seek providers willing to accept financial risk for the care of sponsored patients. Providers join such arrangements out of fear of losing patients if they do not.

Health care is being capitated throughout the United States, and much of the spread of capitation is attributable to the efforts of insurers to contain costs. The present lack of comprehensive studies evaluating the impact of capitation on overall health care quality leaves vast room for speculation.

Capitation does, however, carry a very fundamental certainty with broad implications. Whether the arrangement calls for a fixed sum for treating a particular ailment, a set fee for meeting all of an individual patient’s health care needs, or a standard charge for supplying all the medication for a specific condition, capitation sets limits. Because the health care costs for any given patient or condition are in reality zero-sum rather than fixed, capitation is about pooling patients and rationing. It involves denying services to some patients despite a general contractual commitment to coverage, presumably so that more patients can be covered or receive better care. The implications of capitation are even more significant when set fully in the context of the overall health care reform now underway. Simultaneously and comprehensively, health care is being managed, made for-profit, and consolidated.