Don't shoot the messenger: Independent physicians and joint payment contracting using the messenger model

University of Memphis Law Review, The, Summer 2002 by Clemons, Miriam L

I. INTRODUCTION

In recent years, the health insurance market has become dominated by managed care plans (Plans),1 developed to slow the rising costs of health care, which threatened the viability and profitability of health insurance companies.2 These Plans take on many forms but have a single, defining characteristic. Generally, a managed care Plan includes:

[A]ny health coverage arrangement in which, for a pre-set fee (i.e., the premium), a company sells a defined package of benefits to a purchaser, with services furnished to enrolled members through a network of participating providers who operate under written contractual or employment agreements, and whose selection and authority to furnish covered benefits is controlled by the managed care company.3

Typically, this involves an employer contracting with a large insurer to provide health insurance coverage to its employees. The insurer then recruits providers to participate in the Plan, subject to the rules and regulations of the managed care contract.

employees and their dependents who are enrolled in the Plan.4 The physician's role as the central player in the provision of the health care services has declined dramatically under managed care. No longer does the physician alone make a decision on what treatment the patient will receive, where and when they receive it, and how much the charge will be. That autonomy has been removed from its traditional place within the privileged relationship of physician and patient. Now, the insurer has been interjected as a dominant player and decision-maker. As a result, physicians have lost control over several key areas of the practice of medicine: patient care management, risk management, and financial planning and cost controls.5

makes fair contracting difficult. Part II analyzes the current federal regulatory environment, which limits the independent physician's involvement in joint negotiations of payment terms. Part III highlights the most promising method currently available for shifting the balance of power over managed care fee structures back to the independent physicians-the messenger model for joint physician contracting. The analysis includes considerations important to forming a new messenger model, pitfalls for the unwary intermediary, and a discussion of how various existing and proposed models have been treated by regulatory agencies and the courts. The Note then turns to a state-sanctioned option to the messenger model, which is ultimately shown to be inefficient.

II. THE MANAGED CARE CONTRACT

A. Power and Choice in the Contracting Process

The contract proposed by the MCO to the provider is an adhesion contract.12 Adhesion contracts are defined as "standardized contracts, imposed and drafted by the party with superior bargaining power, offered to the adhering party on a takeit-or-leave-it basis, and offered under such conditions that the [adhering party] cannot obtain the desired product or services except by acquiescing to the form contract."13 The Plan (and the patients it covers) is the "product," the MCO is the "offeror," and the health care provider is the "adhering party."14 Even though the MCO sells its product through an intermediary, usually an employer buying coverage for its employees, the MCO directly controls the flow of large numbers of patients to the provider.15 The provider has no meaningful alternative to this Plan that will allow him to retain his existing patient relationships or build and expand his patient base.16

region, and patients would be ill-served by having to sever longstanding personal health care relationships.19

Independent physicians have regularly challenged the takeit-or-leave-it basis under which they are presented with a managed care contract as an unfair wielding of power by the MCO that leaves no opportunity for meaningful bargaining. While adhesion contracts such as these are not unconscionable per se, the greater the imbalance in the bargaining process the more suspect the contract will be to a claim of unconscionability.20 MCO's defend the use of standardized contracts, arguing that it would be economically inefficient to negotiate every term with every provider, and thus, these form contracts are necessary to limit transaction and negotiation costs.21 Since MCO's are primarily forprofit corporations whose main goal is to maximize shareholder return, their overriding focus is on the control of health care expenditures.22 In fact, "[h]ealth plans state that as they merge and control a larger volume of patients, they gain greater leverage over physicians and other providers and subject them to a higher degree of control."23 Physician behavior is considered to be the greatest factor impacting health care costs;24 therefore it is entirely in the interests of the MCO to control costs by controlling the physician.

MCO's strongly oppose allowing individual providers to join together in any meaningful way to exert greater control on the bargaining process. They contend that it would be bad for the consumer to allow this to happen, since it would represent a return to the "bad old days."25