1.1 Introduction
It is commonplace for critics of the US health care system to observe that it is neither a system nor focused on health.Footnote 1 This fundamental confusion is a feature, not a bug. Because of cultural resistance to government control and the political power of physicians, the American health care system tends to utilize private actors to perform public functions with (lavish) public funding, supposedly under the ethical and scientific direction of the self-governing medical profession. Consequently, “private law” plays an outsized role in American health governance, often – if not necessarily – working against rather than for what in other countries are incontrovertibly “public law” goals.Footnote 2
US health care constitutes an extraordinarily large commitment of financial resources, currently exceeding US$5,000,000,000,000 annually (writing the word “trillion” does not do justice to an expenditure of this magnitude) and comprising over one-sixth of the national economy. Counting explicit exclusions from otherwise taxable funds as well as direct spending, more than half of the financing comes from public monies, representing as large a public per capita contribution as one would find in any other country – to which the United States adds a roughly equal private financial contribution. As a general matter, the same set of corporate organizations serving as intermediaries operate both the public (Medicare/Medicaid) and the private (employer-sponsored) health insurance systems, which process payment to the same private health professionals, health care facilities, and suppliers of medical products, which in turn meet standards set by the same professional self-regulatory entities.
Efforts at “systemness” are further challenged by the deference of nearly all health law to the personal and collective judgments of the American medical profession, which tend to emphasize discrete services by identifiable physicians to individual patients.Footnote 3 As cataloged in 1982 by sociologist Paul Starr and confirmed in subsequent years, medical interests have repeatedly managed to defeat efforts to bring full public accountability to health care while simultaneously keeping massive amounts of public money flowing.Footnote 4 Although organized medicine chafes at “corporatization” as well as “socialized medicine,” corporate lobbying power reinforces the system’s transactional bias because the most extensive legal frameworks in US health care center on the generation and payment of often-lucrative clinical claims.
In essence, American health care can be thought of as a giant system of lawful money laundering, the result of which is to conceal massive public financial obligations that serve indisputably public purposes by embedding them in what appear to be private commercial transactions that arise largely from decentralized patient care encounters.Footnote 5
Laundering public money through these private actors, many of whom are trusted physicians or nonprofit hospitals, results in more resources being made available than would be the case were health care deliberately designed for collective benefit and financed through explicit taxation and direct spending. Because of its reliance on medical professionalism, the laundered system also results in a lower degree of formal regulatory oversight and a less enforceable pledge of social solidarity or equity, substituting for those features the appearance if not often the reality of effective market competition.Footnote 6
The entities involved in the laundered system and the relationships among them tend to be governed by private law. This creates space for diverse parties to pursue advantage using diverse arguments in diverse forums that create, refine, interpret, and adjudicate legal interests – most of which at some level involve claims on resources that would not be available absent the aforementioned public commitments. As a result, health law can involve any combination of judicial decision-making, legislation, administrative regulation, medical professional self-regulation, and enforceable entitlements (i.e., payment guarantees).
Private law acts as a conservative – if not always an obstructionist – force in pursuing consensus goals regarding access to affordable medical care, which in turn makes it more difficult to promote collective health and well-being across the range of social sectors that must share public investment. Put bluntly, the cognitive dissonance between the private orientation we ascribe to US health care and the public funds that its specialized, very “medical” activities consume implies that (largely private) health law often acts at cross-purposes with (necessarily public) health policy.Footnote 7 This cognitive dissonance also implies that the laws most relevant to health, especially at the population level, involve fundamental social commitments to equity and opportunity that are not what we usually consider health law.Footnote 8
This chapter begins with the evolution of American medicine from a “sovereign” self-regulating profession focused on direct patient service to a large industry that serves the social sector but that, because of its professional heritage, receives extensive public subsidies without equivalent public accountability. Next, the chapter identifies regulatory dynamics in American health care governance that structurally discourage movement from the prevailing, if dissonant, private law framework to one explicitly grounded in public law. The chapter concludes by highlighting the challenges and opportunities inherent in a private law approach to what is intuitively a public law domain.
1.2 Health Law and the Journey from Self-Regulating Profession to Subsidized Industry
1.2.1 Medicare and Medicalization
Common retellings of American legal history situate a more fully formed sense of national identity across states in the post-Civil War period, the origins of the federal administrative state in Progressive Era responses to industrialization, and a centrally funded social safety net in New Deal and Great Society commitments. Medicare, enacted in 1965, was seen by many as the medical completion of Social Security’s promise of income support for workers reaching retirement age.Footnote 9
By channeling massive, permanent financial support to the American medical profession and those who supply its work, Medicare heralded a golden era of patient care. For achieving broader public goals of individual and population health, however, “Gilded Age” may better describe the Medicare half-century.Footnote 10 Medicare’s political settlement with organized medicine reconstructed US health care governance around a precarious balance of national industrial support and deference to professional judgment. Compromise was accomplished in part by replicating forms of private health insurance that were unthreatening to physicians – which amplified organized medicine’s longstanding fetishization of “choice” on both the doctor’s and the patient’s side of the therapeutic relationship and set in legislative stone a fragmented form of health care delivery inattentive to nonmedical drivers of health, especially those shared within communities and populations.Footnote 11
This pragmatic approach continued up to and beyond the Patient Protection and Affordable Care Act of 2010 (ACA or Obamacare). Aroused by both partisan and interest group politics, voters did not challenge the framing of health care as a private matter by the ACA’s opponents. Rationing through “death panels” and similarly false or exaggerated accusations of intended government incursion on private medical decisions became routine parts of public discourse. For fear of backlash, even the Obama administration never came closer to social solidarity than informed consumerism in its pro-ACA messaging.Footnote 12 As a result, the ACA’s sweeping ambitions of remaking health care delivery and improving underlying health in addition to expanding coverage for medical services remain unfulfilled.Footnote 13
Conceptually, the US health care system operates as an extrapolation to the population level of individual clinical encounters between skilled, ethical physicians and suffering, vulnerable patients. Roughly US$3 trillion in annual “health” expenditures derive from the services, orders, referrals, and recommendations of licensed medical professionals. From this perspective, large public investments in health are legitimate only insofar as they fit within the medical model, and there are strong incentives to “medicalize” social problems in order to let those who would help solve them cross into better-funded territory.Footnote 14 Law, particularly private law governing the organizational and financial relationships among private parties, is constitutive of this health policy orientation.
As a policy matter, the dense matrix of legal obligation in which US health care is embedded perpetuates inefficiency, trapping within medical practice organizations and the nonprofit sector massive economic value that could be redeployed both privately (as lower prices for consumers) and publicly (as explicit commitments to health beyond medical services).Footnote 15 An important question for policymakers today is whether the recent, large-scale engagement of “private equity” firms with the rapidly consolidating health care sector is mobilizing and appropriating these economic reserves, and whether – if that is the case – any of it can be reclaimed for public purposes.
1.2.2 Physician Primacy and the Paradox of Hospitals
Legal governance of the US health care system still relies heavily on a fiduciary model of professional service, applying self-regulatory standards to clinicians’ dedication and skill, often construing equity as a matter of ethics and charitable obligation, basing payment on properly coded point-of-service claims for disaggregated care processes, and requiring a multitude of complex contracts among individuals, nonprofit organizations, and business corporations to both enable performance and assure compliance.Footnote 16
Post-Medicare industrialization, technological innovation, and financial opportunism have added to legal complexity and potential conflict in multiple domains, often making physicians feel exploited or marginalized.Footnote 17 The nursing profession faces even greater risks of “burnout” as the COVID-19 pandemic recedes.Footnote 18 But the fundamental legal grounding of the health care system remains relational (i.e., private and professional), not regulatory (i.e., public and collective) – and therefore is subject primarily to private legal action and resolution.Footnote 19
American hospitals, which comprise trillions of dollars of asset value and generate hundreds of billions of dollars of annual income, are emblematic of the cognitive dissonance inherent in the US health care system. Acute care hospitals in the United States are redoubtable facilities replete with advanced technology and specialized, trained professionals who perform delicate procedures and administer sophisticated medication to patients with serious illnesses and injuries. If “private” were in fact an accurate descriptor, hospitals would be integrated enterprises within a market-based system that produce these complex clinical services and deliver them at competitive prices. Although some US hospital companies operate abroad more or less on this model, virtually none do so here at home.Footnote 20
Instead, US hospitals have served variously as fee-free workshops for loosely affiliated physicians, as community resources, or as hubs for education and technology-driven research. The most financially successful hospitals thrive on nonoperating income, including charitable donations that support ever larger and more lavish physical facilities. With respect to operating income, hospitals focus intently on generating revenues, which on the private side typically originate from pass-through organizations that administer claims for coverage sponsored by self-insured employers, rather than from hard-nosed buyers purchasing for their own accounts. Because government coverage (Medicare and Medicaid) applies “administered prices” that offer hospitals less money for clinical services than do private payers, a favorable or unfavorable “payer mix” rather than managing production costs or offering higher quality services typically makes the difference between success and financial failure.
The longstanding legal partition of most hospitals from the physicians who practice within their walls has further drained hospitals of both motivation and authority to manage the cost and quality of the care they offer. For decades, physicians kept hospitals under their control, aided by state case law and statutes prohibiting physician employment as the “corporate practice of medicine,” and by other laws declaring that patient care decisions, including the awarding of “privileges” to use hospital resources, be made by self-governing “medical staffs” legally independent of hospital executives. It is a major point of hypocrisy for physicians who routinely oppose “socialized medicine” that, for generations, they have paid nothing to utilize surgical suites, diagnostic services, and hospital facilities for patient care that generates lucrative professional fees.Footnote 21
At the same time, US hospitals have little systematic public accountability – even though public subsidy through grants, tax-favored charitable contribution, and tax-exempt bond financing has been primarily responsible for hospital construction and capital expansion, and even though clinical revenues from public payers support major chunks of their operating budgets. Outside of intermittent allegations of financial malfeasance involving government programs (“fraud and abuse”), emergency care access obligations under the Emergency Treatment and Labor Act (EMTALA), and rare instances of criminal prosecution involving patient care, hospitals are seldom charged with violating explicit public duties.
Hospitals respond mainly to reputational concerns and the commercial and legal risks associated with particular patients, physicians, payers, and business partners. As a result, hospitals have been drawn repeatedly into transactions and disputes governed by private law – usually as a by-product of their relationships with physicians. Hospitals are frequently defendants in antitrust lawsuits brought by physicians denied medical staff privileges or by other parties alleging anticompetitive activities. And hospitals expend extraordinary resources negotiating payment agreements with their own suppliers and with third-party payers for care they deliver (i.e., private health insurers), which takes account of physicians’ continuing professional authority without running afoul of intricate and ever-changing rules concerning potential fraud or abuse.
Malpractice claims against physicians often implicate hospitals because the riskiest, most technologically advanced, and most expensive care takes place in hospital settings. Disputes over insurance coverage of services that have been recommended to patients by physicians center on hospitals for similar reasons. Hospitals also must navigate legally and ethically complicated situations involving care at the beginning and end of life, few of which have been governed by public law.
Today, hospitals are on a steep learning curve with respect to their post-pandemic workforces. The very different management approaches and financial incentives that they historically have applied to physicians, nurses, and other staff are now converging on an employment model, with private law doing most of the work defining and adjusting that model.Footnote 22
1.3 Regulatory Dynamics as Structural Reinforcers of Private Health Law
Given the intimacy associated with medical need and the substitution of professional for familial caregivers at times of greatest personal vulnerability, a governance model drawn from private law that assigns primacy to physicians might be psychologically appealing whatever the government’s actual role. Still, identifiable regulatory dynamics tend to perpetuate confusion about how much public funding the health care system absorbs and what that sizeable investment should accomplish – which the country’s prevailing political polarization, including urban–rural divides within many states, exacerbates.
1.3.1 Federalism
In brokering a compromise on the constitutionality of the ACA’s “individual mandate” (and, in related language, its Medicaid expansion) in 2012, Chief Justice John Roberts offered a familiar conservative defense of American federalism as protecting individual freedom. “The Commerce Clause,” he stated, “is not a general license to regulate an individual from cradle to grave, simply because he will predictably engage in particular transactions. Any police power to regulate individuals as such, as opposed to their activities, remains vested in the States.”Footnote 23 Even as nationally important and expensive a project as health care could not constitutionally be declared a federal matter.
One cannot overstate the extent to which state law has centered the health care system on private therapeutic relationships. During the late nineteenth and early twentieth centuries, the traditional “police powers” of state government to regulate health and safety were applied increasingly through licensing of individuals and facilities, largely disconnecting medical care from public hygiene, and entrusting the former to professional self-regulation. State health law is therefore presumptively oriented toward private physicians and their patients, while relying on professionally controlled licensing boards to define misconduct and on state courts to enforce professionally based standards of care in specific cases of alleged harm.
The national role in health governance, by contrast, has primarily involved payment for services authorized to be prescribed or delivered under state law (with the Food and Drug Administration’s [FDA’s] national authority over the safety and effectiveness of drugs and medical devices the exception that proves the rule). Federal intervention is also almost entirely a product of the half-century since Medicare was enacted under professional pressure as a passive, blank-check form of “socialized medicine” – whereas state health law has a much longer and more intrusive history. Medicare regulation has grown substantially over the years, but much of it operates indirectly through state-based oversight processes and national self-regulatory entities such as the Joint Commission.
It is true that Medicare payment policy today sets the tone for payment under employer-based private coverage. It is equally true, however, that Medicare has generally stayed in the lane defined for it by the conventional health insurance model of physician-dictated, medically coded claims – again conceptualizing health care as an aggregation of private transactions rather than a public commitment in service of public goals. Medicare has almost never directly challenged state health laws to better serve its beneficiaries and the public – such as by liberalizing scope of practice or improving hospitals’ response to medical errors.Footnote 24
1.3.2 Fiscal Politics
Politicians who raise taxes or promote “big government” usually lose elections. Even legislators who vote for popular (and, to nearly all economists, necessary) aid packages during times of acknowledged economic crisis such as the Great Recession of the late 2000s or the COVID-19 pandemic risk the public turning against them when normalcy returns.
When Medicare was enacted in 1965, the federal Budget Control Act was nearly a decade in the future and the fiscal infrastructure of government policymaking was minimal. The votes that passed Medicare were motivated by the merits of Medicare. By the time the Clinton administration’s health reform proposal was defeated in 1994, however, extensive budget control requirements had been placed in both federal law and the procedural rules of Congress. Since then, legislation in essence has to secure passage twice – once on its substance, and again on its effects on federal financial obligations as “scored” by the Congressional Budget Office (CBO).Footnote 25
Politicians of both parties therefore have strong incentives to hide public spending on health care behind a curtain of ostensibly private conduct. One sees this not only in the US health care system’s reliance on tax-subsidized, employer-based coverage and private nonprofit hospitals but also in how budget-strapped public schools and health departments try to offload financial responsibility for care delivery onto premium dollars that flow through the health insurance sector. Similar considerations lead legislators to shift money in other off-budget ways, such as by changing rules regarding market exclusivity for intellectual property (e.g., prescription drugs). A side-effect of these strategies is to expand the importance of private law in determining how health insurers, health care providers, suppliers, and a host of intermediaries transact business.
President Clinton’s proposed Health Security Act never even reached a vote. It died on the day that the CBO concluded (reluctantly, as its rules were not intended for evaluating such major changes in national policy) that requiring private employers to transfer funds to private health plans through regional nonprofit “alliances” should be considered an exercise of sovereign power – immediately converting the dollar value of all existing private coverage into a massive, politically intolerable federal tax hike.Footnote 26 The ACA avoided a similar fate in CBO scoring through artful drafting and a bit of luck, but in return incurred a high degree of litigation risk because it placed greater obligations on private parties and politically diverse states. That tradeoff was responsible in large part for the ACA’s prolonged and repeated scrutiny in the US Supreme Court.Footnote 27
1.3.3 Interest Groups
Redistribution of public resources is part of nearly every major government decision and is greater in US health care than in any other context except overall tax policy. The Medicare program alone contributes approximately 24 percent of total national health care spending, with Medicaid adding another 19 percent. The vast majority of this spending supports private activities that (unlike, say, defense spending) are used by members of the public rather than by government itself, and very little is subject to competitive bidding.
The most pronounced, and clearly inflationary, transfers are from tax revenues (or equivalent borrowing) to medical special interest groups – what has sometimes been called the “medical-industrial complex.”Footnote 28 Because the recipients of government payments for medical goods and services are generally reputable private health care providers, suppliers, and insurance intermediaries, these transfers have a side benefit of increasing political support for what might otherwise be viewed as excessive or misguided charity. Moreover, the absence of a coherent national health insurance or care system in the United States means that there is no collective political interest in questioning aggregate expenditures or weighing the comparative benefit of spending on medical care versus other areas.
Medical interest groups expend enormous energy (and funds) to secure their slice of this very large pie and to resist efforts by others to wrest it away. Having one’s services covered by Medicare (and, therefore, also by private insurers), and having Medicare pay a generous price, is the sine qua non of success among private health care providers – and, to be fair, among patient groups seeking the best-trained specialists and most advanced technologies for diagnosis and treatment. Medicare “payment reform” is therefore an endless and often fruitless endeavor – as the enduring power of Medicare’s physician-dominated Relative-Value Update Committee (RUC) to “recommend” generous payment for specialty services using the American Medical Association’s (AMA’s) own copyrighted CPT codes amply attests.Footnote 29 In addition, Medicare’s interest-group politics tend to freeze in place state law because Medicare funding relies so heavily on the distinctions that state law makes among health care professionals and between those professionals and health care facilities.
The politics of drafting statutes and regulations in the United States gives these private parties and their lobbyists a very strong voice in forming ostensibly public law, which they deploy for their private advantage, and which carries over to their private agreements and disputes. Private jockeying for public financial support also co-opts much of the informational infrastructure of the US health care system. Information in the health care system is collected primarily to secure payment for codable claims, and only incidentally for safety, quality, cost management, or community/population health improvement. Health-related social services suffer particularly because they seldom fit a clinician-driven, professionally coded, claims-based model.
1.3.4 Constitutionalism
American constitutionalism tends to reinforce perceptions of US health care as private. A Constitution that emphasizes – both structurally and in the Bill of Rights – protection against restrictions imposed by government rather than receipt of assistance from government can seem (and may be) inhospitable to efforts that seek to formalize health care as a collective investment and health as a collective asset. This bias includes the state-federal divisions of authority that the Constitution imposes – which perpetuate deference to professional self-regulation at the state level and empower state courts of general jurisdiction to make what are effectively public policy decisions based on the facts and equities in private lawsuits.
The ACA survived constitutional review by the skin of its teeth, suffering significant if not irreparable harm to its core purposes of universalizing coverage, streamlining care, and improving population health. Moreover, the legal-political process of litigating the ACA on both constitutional and statutory grounds resulted in a substantial strengthening by a conservative Supreme Court majority of individual and states’ rights.Footnote 30 The backlash against public health mandates during the COVID-19 pandemic led to even stricter judicial limits on collective health strategies as exceeding federal administrative authority or as infringements of individual rights of speech and religion (though not of arguably parallel rights regarding reproductive freedom).Footnote 31
Private law governance sidesteps many, if not all, of these constitutional concerns. For example, private entities, including hospitals and universities, can attempt to address health care misinformation and disinformation in ways that government itself, including professional licensing boards, generally cannot.Footnote 32 In addition, private employers sponsoring insurance coverage are usually governed by the federal Employee Retirement Income Security Act (ERISA), potentially preempting conflicting state laws regarding controversial clinical services such as abortion or transgender care.Footnote 33
1.4 Conclusion
About fifteen years ago, I speculated that the US health care system might never shift from a relational to a regulatory footing absent a severe shock such as an economic collapse or a crisis of communicable disease.Footnote 34 We have had both events since then, with at least a partial public response. There probably would have been no ACA without the global recession that preceded it, nor would so many people retain health insurance coverage today absent the COVID-19 pandemic.
But fundamental change has proved elusive – in part because those who profit from existing arrangements cloak themselves in the undoubted virtue of skilled physicians and nurses while younger generations of those professionals have yet to convey a sense of ethical urgency to the public.Footnote 35 The COVID-19 pandemic revealed many unfortunate truths about the US health care system’s dependence on private pathways to serve public purposes, but even that tragedy has failed to generate much productive policy debate.Footnote 36 The cognitive dissonance remains, along with the flaws it perpetuates.
I therefore end on a sober note. Private law in the current health care environment is not necessarily forward-looking and offers no assurances of solidarity, of justice, or even of progress in the vital project of maintaining America’s health in the face of population aging, climate change, and political or economic instability. Even the pronounced trend since the Great Recession, in both scholarship and practice, to make explicit the public responsibilities of the corporate sector now faces a backlash.Footnote 37 On the other hand, as many authors in this volume explain, private law presents a variety of opportunities for decentralized improvements (which, after all, is the central premise of the “Triple/Quadruple Aim”) as well as creating some possibilities for systematic effect.Footnote 38 We should make the most of them.
2.1 Introduction
Twenty years ago, Lester Salamon noted “the extent to which actual public problem solving has come to embrace the collaborative actions of government … and private organizations – both for-profit and nonprofit.”Footnote 1 He traced these “alternative instruments of public action,” which engage private actors in the work of governance, back “at least two decades,”Footnote 2 corresponding to about 1980. At that time, there was growing disenchantment with top-down governmental command-and-control rule-setting amid energy shortages, environmental degradation, and concern that regulated industries sometimes capture their regulators.Footnote 3 Research overseen by the US Public Health Service had, by the early 1970s, produced shocking revelations about the Tuskegee Syphilis Study, undermining people’s faith that the government is any better at protecting individual rights than private-sector Institutional Review Boards (IRBs) would be.Footnote 4 An expansion of social programs in the mid-twentieth century stretched the role of the state far beyond its traditional governmental functions,Footnote 5 making it plausible that lessons from the private sector might be relevant to public governance.
All these factors fueled the rise of private ordering, which Steven Schwarcz defines as a “broad spectrum” of alternatives to having “rules of law originated and put into force by sovereign governments.”Footnote 6 Health care, as a heavily regulated industry, offers fertile soil for privately ordered alternatives to governmental regulation, and William Sage observes that “‘private law’ in its many forms plays an outsized role in American health governance.”Footnote 7 This raises a question: Why? Does private ordering in US health care simply mirror a trend that swept many economic sectors after 1980, or is the trend uniquely amplified in health care? Does it reflect, as Professor Sage suggests, a “cognitive dissonance” between health care’s lusty appetite for public financing and its deep distaste for public control?Footnote 8 Is it a charade that helps politicians conceal vast “public spending on health care behind a curtain of ostensibly private conduct”?Footnote 9 Is it, perhaps, required by constitutional constraints on what government actors can do?
This chapter explores this last possibility but discounts the role federalism plays in forcing private ordering. Courts have generally proved unreceptive to arguments that the federal government lacks power to regulate the practice of medicine.Footnote 10 Even if courts were receptive to such arguments, federalism merely divides responsibilities between federal public ordering and state public ordering; it is agnostic on whether private ordering is superior to both those alternatives. Federalism thus cannot explain the outsized role private ordering plays in health care. This chapter focuses instead on constitutional speech protections, which bind the federal and state governments alike and which leave room for private actors to oversee medical speech and information flows in ways public agencies cannot do.
2.2 The Prevalence and Variety of Private Ordering Solutions in Health Care
Health care displays a striking diversity of private ordering solutions that engage private actors in the work of governance. Some of the variants seen in health care predate the post-1980 rise of private ordering, making health care one of the early proving grounds for private ordering models. This section samples health care’s breathtaking array of private ordering solutions as a prelude to Section 2.3, which explores sector-specific considerations that favor private ordering.
It is useful to state what private ordering is not. As conceived in this chapter, private ordering is not the same thing as decisional privacy, which connotes “a realm of personal liberty which the government may not enter,”Footnote 11 wherein individuals are free to make decisions in line with their own consciences and without governmental interference. Decisional privacy is a regime without externally imposed rules, leaving individuals to make whatever decisions they prefer (e.g., to consent or not to consent to share their data, to pierce or not to pierce their navels, or to seek or not to seek an abortion) in a cherished realm of private disorder. Private ordering, in contrast, is a framework for creating binding rules that at times may constrain individual choice. It differs from traditional governmental rule-setting by enlisting private actors to help set those rules. Once established, privately made rules sometimes call on individuals to do things they would prefer not to do, or demand that they refrain from actions they view as desirable – as also happens with government-set rules. Private ordering gives private actors a voice in setting the rules but does not leave them free to do whatever they please.
A well-known instance of private ordering is the role private accreditation bodies play in determining whether health care facilities qualify to receive payments under the Medicare and Medicaid programs.Footnote 12 The Centers for Medicare and Medicaid Services (CMS), which administers these programs, allows hospitals and other health care facilities to establish eligibility to participate in them by undergoing accreditation by private bodies that CMS approves.Footnote 13 Accredited health care facilities do not need to undergo formal governmental regulatory inspections.Footnote 14 When challenged in court, this arrangement was held not to be an improper delegation of governmental authority to private actors, because the Secretary of the US Department of Human and Health Services (HHS) retains ultimate authority over decisions to certify or decertify participation in the Medicare and Medicaid programs.Footnote 15 In practice, however, the Secretary rarely, if ever, asserts this theoretical authority to override private accreditors’ decisions. Timothy Stoltzfus Jost traces this reliance on private accreditation bodies back to the early years of the Medicare program, when heavy resistance from health care providers threatened to derail the program.Footnote 16 Private accreditation, as a form of industry self-regulation, seemed less intrusive than direct federal control of Medicare-eligible facilities and elicited their buy-in. It was, in Professor Sage’s phrase, a “political settlement.”Footnote 17
CMS also administers the Clinical Laboratory Improvement Amendments of 1988 (CLIA)Footnote 18 regulations,Footnote 19 which govern clinical laboratories that perform diagnostic tests used in clinical health care. CLIA is intriguing because it lets regulated entities choose how much public or private ordering they prefer. NonexemptFootnote 20 laboratories conducting moderate- and high-complexity tests can, at their discretion, elect to pursue either a certificate of compliance or a certificate of accreditation.Footnote 21 Those choosing a certificate of compliance follow government-set standards and undergo periodic inspections by state agencies to which CMS delegates local inspection responsibilities.Footnote 22 Those choosing a certificate of accreditation follow standards set by various CMS-approved private accreditors, which carry out inspections to ensure compliance.Footnote 23
It is wrong to assume private regulation is laxer than its governmental counterpart. At times, private ordering is more stringent. For example, CLIA’s concept of high-complexity testing arguably understates the true complexity of genetic and genomic tests. In 1997, a federal advisory body urged the Clinical Laboratory Improvement Advisory Committee (CLIAC), which advises CMS on CLIA matters, to consider creating specialty requirements for genetic testing,Footnote 24 and CMS received citizens’ petitions supporting this idea.Footnote 25 CMS rejected these calls, leaving this superlatively complex type of testing under the same general rules that govern other high-complexity tests. Private accreditation bodies such as the College of American Pathologists have worked to fill this gap in public regulation by developing private standards specifically addressing genetic and genomic testing.Footnote 26 Unfortunately, some laboratories conduct genomic tests under a CLIA certificate of compliance and are governed by less rigorous public standards.Footnote 27
Private ordering spans a spectrum of approaches. At the more formal end of the spectrum are examples, including those just given, that Steven Schwarcz describes as rules “put into force by private actors pursuant to governmental delegation.”Footnote 28 Professor Schwarcz recognizes a second, somewhat less formal type of private ordering where the rules are “originated by private actors but put into force by sovereign governments.”Footnote 29 Health care offers many examples. For example, hospitals and vendors negotiate private contracts but look to courts (public bodies) to enforce them. Courts look to medical experts (private actors) to establish the standard of care that courts (public bodies) enforce in medical malpractice actions.
An instructive example is the US Food and Drug Administration’s (FDA) reliance on independent advisory committees, created by statute or at the discretion of the Secretary of HHS and staffed with individual experts, to prepare recommendations on scientific, technical, and policy matters.Footnote 30 These committees allow the agency to tap a breadth of sector-specific expertise that may not exist among civil servants. While their advice is not binding on the agency, a recent study of prescription drug decisions found that the agency follows advisory committee votes 88 percent of the time.Footnote 31 The 88 percent of advisory committee recommendations that the FDA chooses to implement become privately ordered rules “originated by private actors and put into force by”Footnote 32 the FDA, but the agency retains discretion to reject recommendations and does so 12 percent of the time. Not all private recommendations become rules in this private ordering scheme.
In the same way, not all private contracts are enforceable in health care – for example, you cannot sell your newborn or your kidney, even if you are a willing seller and find a willing buyer. Private contracts play a major role in governance of health care just as they do in all industries, but health care exhibits a constant tug-of-war between freedom of contract and welfare-enhancing public constraints on that freedom. Thus, the states limit physicians’ freedom to ask patients to waive their right to bring malpractice suits, either through restrictions that state medical practice acts impose on the use of medical liability waivers or through judicial determinations that waivers are coercive and void as against public policy.Footnote 33 The Health Insurance Portability and Accountability ActFootnote 34 (HIPAA) Privacy RuleFootnote 35 requires health care providers to sign Business Associate Agreements and Data Use Agreements providing contractual privacy protections for data they share with certain data users, but it leaves the specific terms of those agreements largely open to private negotiations between the provider and the data recipient.Footnote 36 Federal laws addressing Medicare fraud limit health care providers’ ability to enter various contractual arrangements (such as agreeing to give and receive discounts on services provided) that would be perfectly normal and uncontroversial in other business settings.Footnote 37 Health care’s ambivalence about contractual ordering reflects the reality that individuals operating in the health care sector, however autonomous they may be, are engaged in activities that may leave some of the parties vulnerable or implicate broader public interests (such as keeping Medicare expenditures within reasonable bounds).
At the least formal extreme of private ordering, Professor Schwarcz recognizes rules that are “adopted by private actors without governmental sanction or enforcement.”Footnote 38 These call to mind Robert Ellickson’s work on sources of control, other than governments, that can create rules and incentives to comply with them.Footnote 39 Professor Ellickson’s “controllers” include (1) ethical principles that foster internal self-control (e.g., voluntary codes, such as the American Medical Association’s Code of Medical Ethics,Footnote 40 to which members of a professional community bind themselves); (2) contractual rules formed through interpersonal negotiations (e.g., a Data Use Agreement requiring special privacy protections and restricting how a researcher can use health data supplied by a hospital),Footnote 41 (3) norms that emerge from social forces (e.g., standard practices, customs, and professional etiquette in clinical care settings); and (4) organizational rules (e.g., institutional policies that hospitals voluntarily adopt to protect patients and research participants in ways that go beyond what law requires).Footnote 42 All of these sources of nongovernmental control are at work in health care.
Depending on the type of private ordering scheme, compliance may be more or less of a problem. When, as in Professor Schwarcz’s first two private ordering schemes, the private rules are “put into force by” governments or “made pursuant to” a formal governmental delegation,Footnote 43 the state’s “monopoly on official use of force”Footnote 44 lurks in the background to help ensure compliance with the privately made rules. However, when private rules are made “without governmental sanction or enforcement,”Footnote 45 there is a crucial institutional challenge to craft private decision-making structures with sufficient authority and legitimacy to induce compliance with norms that at times may go against individual preferences. Despite this, private rules that arise spontaneously without any governmental involvement often work better than one would expect, possibly because such rules tend to be welfare-enhancing (otherwise, people would not have spontaneously embraced them in the first place).Footnote 46 This is not always the case, however.
One final example hints that private ordering schemes struggle for legitimacy in situations where competing interests force private decision-makers to make difficult trade-offs. The HIPAA Privacy Rule regulates permissible flows of clinical health data and sets rules governing when personal data can be shared for various purposes. It respects decisional privacy, but in an asymmetric manner: Individuals can authorize the sharing of their data however they wish,Footnote 47 but they cannot refuse to share their data for certain uses that serve broader public interests.Footnote 48 The regulation identifies twenty-three “national priority”Footnote 49 data uses that offer sufficient benefit to society that access to personal data may be justified even without individual authorization – for example, to track epidemics, regulate medical product safety, detect domestic violence, acquit accused suspects whose defense turns on medical evidence, and promote health care quality and equity.Footnote 50
For each of these twenty-three data uses, the regulation specifies who, precisely, is empowered to authorize unconsented data sharing in a particular instance. For example, legislatures, by enacting laws, can decide that your data can be accessed, even against your wishes, for various public health uses (public ordering).Footnote 51 Courts and administrative law judges can decide that your data can be shared without consent for judicial and regulatory uses (another type of public ordering).Footnote 52 Licensed medical professionals can decide to share your data with other licensed professionals to inform the treatment of patients with similar illnessesFootnote 53 or if they believe, in good faith and consistent with medical ethical standards, that data sharing will avert serious threats to the public or to other individuals – the so-called Tarasoff exception (private ordering).Footnote 54 Institutional Review Boards or HIPAA Privacy Boards (together, “IRBs”) can authorize unconsented research use of your data by approving a waiver (again, private ordering).Footnote 55
Certain things can be inferred from the way the HIPAA Privacy Rule allocates authority to approve each type of unconsented data use. When a data use is especially important to society (such as tracking epidemics or ensuring accurate administration of justice), HIPAA generally favors public ordering and lets legislatures and courts decide whether an unconsented data use serves the public’s interests. Individuals “consent” to the rules these bodies set in a Blackstonian sense, by consenting to be governed by the rule of law.Footnote 56 Unfortunately, public ordering is not very nimble and cannot accommodate the thousands (millions?) of granular, day-to-day decisions about specific data uses in a modern health care system. Codifying fixed legal rules to resolve all possible trade-offs in all possible circumstances is probably impossible. This reality creates a need to delegate some day-to-day decisions to local – and often private – actors such as IRBs and licensed medical professionals. The HIPAA Privacy Rule constrains the private decision-making power it grants, either by setting its own standards (such as the criteria IRBs must follow when authorizing research pursuant to a waiver)Footnote 57 or by reference to external standards (such as state laws and ethical standards that place physicians under strong fiduciary duties to handle patients’ data carefully).Footnote 58
The drafters of the HIPAA Privacy Rule undoubtedly worked hard to strike an appropriate balance between public and private ordering of these fraught data access decisions. Even so, the HIPAA Privacy Rule is the poster child for the perils of private ordering in situations where governance requires tough trade-offs between individual rights and public interests. Privacy advocates abhor the power IRBs and other private actors wield to approve unconsented data access,Footnote 59 while there are ongoing complaints that IRBs block important research and public health data uses that would benefit society.Footnote 60 There may be strong pragmatic reasons to rely on private ordering, but there is ongoing discomfort with it. Why, in spite of this discomfort, is private ordering so prevalent in health care?
2.3 The Roots of Private Ordering in Health Care
The sheer variety of private ordering schemes in health care thwarts easy generalizations about why they are so prevalent. Each instance of private ordering is a response to different concerns about regulatory efficiency, buy-in from regulated entities, or the benefits of private-sector expertise to help with specific tasks. No single principle explains them all. Some instances, no doubt, reflect political compromises or follow the post-1980s fad of private ordering in all regulated industries. However, others are responses to a special problem that confronts all health care regulators, state and federal: Regulating health care easily crosses the line into regulating scientific and medical speech.
Centuries before the term “informational medicine” entered the modern lexicon, the practice of medicine has always been mainly an informational service. It involves a few activities that constitute conduct – notably, surgery, inserting catheters, and so forth – but most of the practice of medicine consists of communication: gathering and curating information relevant to a patient’s case, rendering a diagnosis, recommending a treatment plan, writing prescriptions, counseling patients and their families. The practice of medicine, at its core, is a physician analyzing relevant parts of the general medical knowledge base (all the knowledge and experience gained through centuries of clinical health care and biomedical research) along with patient-specific medical information and knowledge about a patient’s “predicaments, rights, and preferences”Footnote 61 to develop tailored communications customized for each particular patient.
As the Supreme Court confirmed in the 2018 case, National Institute of Family and Life Advocates, dba NIFLA v. Becerra,Footnote 62 the First Amendment affords strong protection to physicians’ professional speech – the recommendations and advice licensed medical professionals utter to patients during clinical treatment encounters. The case did not resolve how strong – strict versus intermediate scrutiny – because the court felt the challenged regulation failed under either standard.Footnote 63
Private ordering circumvents impermissible speech regulation by state actors. Moreover, it upholds a 175-year-old cultural tradition dating back to the 1847 Code of Ethics of the American Medical Association (AMA).Footnote 64 The 1847 Code conceived medicine as a knowledge-based profession, distinct from the ill-trained quacks holding themselves out as doctors in that day.Footnote 65 Claudia Haupt defines a profession as a self-governing “knowledge community” sharing “common knowledge and experience as a result of training and practice,” with “shared notions of validity and a common way of knowing and reasoning.”Footnote 66 From 1850 through the end of the Progressive Era, the AMA entered an uneasy collaboration with legislatures and supported state regulation of medical practice as a necessary tool to oust ill-trained healers.Footnote 67 The resulting state regulatory scheme “is commonly described as a system of self-regulation because the entities, often called ‘boards,’ which implement the applicable statutes are generally dominated by members of the licensed profession and often rely on customary practice of the profession for standards.”Footnote 68 Since the 1850s, a self-governing medical staff has remained a central principle of US health law, featured in numerous state and federal statutes.Footnote 69 This is not just a cultural tradition or a political compromise, however. It is at times a constitutional necessity, because medical professionals can regulate medical speech, information flows, and evidentiary standards in ways government agencies cannot do.Footnote 70
First Amendment concerns also shaped modern biomedical research oversight. In 1944, President Roosevelt sought to extend wartime research funding into ongoing federal financing of medical and other scientific research.Footnote 71 To allay concerns that federal funding would undermine constitutionally protected freedom of scientific inquiry, the National Institutes of Health embraced its privately ordered scheme of peer-review “study sections” to select projects for funding.Footnote 72 When the Tuskegee Syphilis Study came to light in 1973, it sparked calls for greater research regulation amid concerns that regulators might infringe scientific freedom.Footnote 73 In 1974, Congress empowered a National Commission to design the research regulations now known as the Common Rule,Footnote 74 and its 1978 report recommended a significant oversight role for private IRBs.Footnote 75 While courts had not previously found a “First Amendment ‘right to research,’” the Commission felt that the freedom of scientific inquiry would be likely to receive constitutional protection “if a case arose.”Footnote 76 The Commission noted that “an institution may empower the IRB to apply both content and manner restrictions” on its employees as a condition of employment or receipt of research funds, “whether or not such a system would be constitutional if directly imposed by the state on nonfunded research.”Footnote 77
In the medical products area, the FDA has repeatedly faced First Amendment constraints on its power to protect patients from unsafe medical products.Footnote 78 While manufacturers cannot actively promote off-label uses of their products, FDA allows them to respond to unsolicited queries from health care professionals by sending peer-reviewed literature about off-label uses.Footnote 79 This policy appoints private actors (medical journals and their peer reviewers) to police the boundaries of acceptable speech. In the US legal system, private actors can do things that governments are not allowed to do – and these are, at times, important things that need to be done by someone in order to ensure a well-functioning health care system. When public regulation hits constitutional limits, private ordering helps fill regulatory gaps.
2.4 Conclusion
Private ordering has been baked into the fabric of US health laws dating back to their origins in the nineteenth century. This is not an aberration but a central fact of US health care oversight. Constitutional constraints on the government’s power to regulate some aspects of health care make private ordering a practical necessity in certain contexts. This reality does not alter our sense of unease that health care is a vitally important economic sector posing delicate trade-offs between individual rights and competing interests. Private ordering will always make us a little uncomfortable, even if we acknowledge that it can be effective, efficient, and – at times – legally necessary. This book aims to clarify the opportunities and concerns that accompany private ordering in its many manifestations in the modern health care system.
3.1 Introduction
Justice Cardozo wrote that when serving as a fiduciary, “thought of self [is] to be renounced, however hard the abnegation.”Footnote 1
The American health care system’s reliance on fiduciary principles accelerated with the passage of the Employee Retirement Income Security Act of 1974 (ERISA).Footnote 2 After the failure of many employer pension plans in the 1950s and 1960s, Congress passed ERISA to protect workers.Footnote 3 ERISA did not require employers to offer employee benefits. Instead, ERISA incentivized the private sector to provide these benefits. However, the statute left employers with control over not only whether and how to provide benefits but also how any such benefits plans were to be administered. Through ERISA, legislators attempted to constrain employer power with statutory fiduciary duties by, for example, requiring plan fiduciaries (employed directly or contractually by the employer) to act “solely in the interest of the participants and beneficiaries” and with “the exclusive purpose of (i) providing benefits … and (ii) defraying reasonable expenses of administering the plan.”Footnote 4
In the following years, however, the Supreme Court effectively gutted any restraints that existed by providing employers and their affiliates serving as fiduciaries with a highly deferential standard of review when participants (i.e., employees) challenged their decisions.Footnote 5 Sections 502 and 514 of ERISA have allowed employee benefit plans (which provide more than half of Americans with health insurance) to opt in to that deferential standard of review when they deny benefit claims.Footnote 6 ERISA preemption spread the illusion that fiduciary duties could protect workers – but it went beyond their finances to their health.Footnote 7 However, fiduciary protections over health are a mirage. Employers pretend they can act in the best interests of employees when maintaining health plans – even though they pay (directly or indirectly) for claims.
Physicians and other providers are also considered fiduciaries.Footnote 8 They are obligated to act in the best interests of patients, regardless of financial incentives to reduce their standard of care. Though providers have always had an incentive to see more patients, the consolidation of health care has increased the risk of systemic conflicts because of reduced competition. Physicians pretend they can act in the best interests of patients – even when hospitals and group practices pressure them to see more patients and spend less time with them, and even though physicians and their employers are incentivized to order expensive tests and procedures. Cardozo’s fiduciary ideal has become even more strained because of corporate consolidation in health care and the pressure of skyrocketing health insurance costs.
But what if, instead of ignoring these conflicts of interest, the American health care system abandoned the fiduciary fallacy? Building on recent scholarship showing that targeted legislation, regulation, and self-policing by stakeholders – rather than reliance on broad fiduciary duties – better manage these conflicts, this chapter uses game theory to analyze different behavioral scenarios involving the actors responsible for financing and providing care.
In Section 3.2, I review the literature addressing the role of fiduciary duties in health care and how game theory has been used to study strategic behavior and legal constraints. In Section 3.3, I explain the “game” as it currently exists, recognizing that the game I present is a substantially simplified version of reality – though one that highlights why fiduciary duties do not adequately constrain providers and payors. Finally, in Section 3.4, I show how abandoning fiduciary duties in this context is paradoxically more likely to result in providers and payors behaving in the best interests of patients using the same, simple game.
My goal is to advance scholarship arguing that fiduciary duties are inadequate to address conflicts in health care, while also proposing paths forward. Proposals to better resolve conflicts in health care should incorporate how rational actors are likely to behave and react to different restrictions designed to constrain their behavior. Laws restricting specific financial conflicts, in combination with financial incentives based on patient outcomes, advance the goal.
3.2 Literature Review
3.2.1 Abandoning Fiduciary Duties
Recent work by Sam Halabi argues against “fiduciary utopianism,” or the idea that fiduciary law is the best way to regulate relationships of trust.Footnote 9 Recently, fiduciary protections have expanded beyond private relationships that impact “public or quasi-public interests – e.g., attorneys and clients, directors and shareholders, guardians and wards” to juries, taxpayers, and friends. Scholars have argued that fiduciary protections can “benefit [] those locked out or marginalized by prevailing economic and political structures.”Footnote 10 However, the fiduciary framework may be largely aspirational because fiduciaries in health care are hopelessly conflicted.
Moving beyond critiques seeking to limit the application of fiduciary duties in specific cases,Footnote 11 Halabi “argues that the application of fiduciary duties to more legal relationships distracts from lawmaking and law-enforcement processes that lead to more effective solutions to the problems that fiduciary duties are asserted to solve.”Footnote 12 In other words, fiduciary duties are the wrong tool in many relationships. In lawsuits not subject to ERISA preemption, common law tort and contract claims are preferred over fiduciary claims for their clarity and judicial conservatism (e.g., compensatory damages in a malpractice action over disgorgement for a fiduciary breach).Footnote 13
Moreover, fiduciary duties do not deter bad behavior. In fact, instead of acting as a deterrent, fiduciary duties “may instead encourage [misbehavior] by weakening executives’ internal moral constraints.”Footnote 14 Fiduciary duties change the calculation of human decision-making because (1) otherwise immoral acts move within the range of justifiable action if not prohibited by fiduciary duties (including due to lack of enforcement), and (2) people engage in self-interested behavior by (roughly) weighing costs and benefits when choosing an action within that range.Footnote 15 As courts allow more self-interested behavior in spite of statutory or common law fiduciary duties through deference to fiduciaries, the range of actions that can be justified expands and more fiduciaries choose self-interested behavior.Footnote 16
Fiduciary duties may be counter to broader policies or social goals. In the corporate world, fiduciary duties are “designed to align an officer’s interests with those of the shareholders [instead of with society’s].…If the alignment is deep, it encourages executives to follow shareholder interests across ethical thresholds in pursuit of profit.”Footnote 17 Similarly, the rules governing employer-sponsored insurance are designed to align the interests of providers and administrators with the employers’ and insurers’ – not with participants’ and beneficiaries’ interests.
3.2.2 How to Play the Game
Game theory is “a powerful tool to model and understand complex interactions.”Footnote 18 In 1994, Douglas Baird, Robert Gertner, and Randal Picker published Game Theory and the Law.Footnote 19 Despite making a significant impact on other areas of the law, the application of game theory to health law has been limited.Footnote 20
In game theory, a “player” employs a “strategy” each time she acts.Footnote 21 Assumptions about the player’s motivations or the context in which the decisions are made must be clearly explained when discussing the game.
Games can be either “cooperative” or “noncooperative,” with further subclassifications within each category. Cooperative games model behavior by a group of decision-makers, while noncooperative games model behavior of individual decision-makers who cannot consult each other.Footnote 22 The Prisoner’s Dilemma is an example of a noncooperative game since the players are in different rooms and cannot cooperate. Much of game theory focuses on information asymmetries, signaling, and verification because a player’s best strategy might differ depending on whether she knows the other player’s best or likely strategy and whether she has complete or incomplete information.Footnote 23
A payoff is defined as “[t]he utility a player derives under a particular combination of strategies.…What matters is not the amount of a payoff a player receives, but the amount of that payoff relative to what the player would receive from choosing other strategies.”Footnote 24
Games can be “represented” in normal form (bimatrix), extensive form (decision tree), or beyond normal extensive form. For simplicity, I focus on normal-form games (without repeated interactions).Footnote 25
Solution concepts predict how the game will be played by focusing on which strategy a rational player will use, given their goals.Footnote 26 A dominant strategy is “a best choice for a player for every possible choice by the other player.”Footnote 27 Where a player has a dominant strategy, she will always use that strategy, and cooperation with the other player would not make a difference.
Game theory offers promise for health law because of its ability to move away from “basic assumptions: people act rationally, perfect information, zero transaction costs.”Footnote 28 While extensive-form games allow opportunities to model repeated interactions with signaling or the development of reputations and information sharing, normal-form games still illustrate discrete points about how providers and payors work in health care. These discrete games are part of a larger game in which people are repeat players and make deals over time.Footnote 29
3.3 Playing the Game without Fiduciaries
3.3.1 The Set Up
3.3.1.1 Providers
Parties in the health care game face a problem. If there is a maximum for what can be charged for health care at a given time, then any additional profits earned by one player must decrease the profits earned by another player.
Assuming that this is a zero-sum game for individual health care providers (“Providers”) and insurance companies and administrators (“Payors”) is not fully accurate, however. Health care expenses increase at a rate much faster than inflation, and employers and participants tolerate it for reasons including a lack of political will to develop a strong public option for working Americans. Pressure by employers and patients/health plan participants (“Patients”) also constrains the rate of annual increases.
This game does not rely on the assumption that Providers and Payors behave solely in their self-interest by attempting to maximize profits, which is the opposite of what is required by their fiduciary duties. Assuming Providers and Payors have some nonzero quantity of altruism, they will want to provide appropriate care for Patients and for Patients to pay less.Footnote 30 Given a range of options that meet the standard of care for Patients, however, they will prefer the choice that increases profits.Footnote 31 Assuming fiduciary duties constrain Providers at all, they should also be forced to select the strategy that prioritizes a higher payoff for Patients over a lower one – even if it lowers their own payoff. Providers need not care about the profits or costs to Payors and employers, to whom they owe no fiduciary duty or altruism, unless they are likely to be moved to an out-of-network position and lose Patients and money.
With this background, Providers should maximize their compensation by increasing reimbursement rates for patient care and keeping their costs down. Yet they know that Payors servicing health plans want to minimize, or at least reduce, Provider compensation to keep profits high, regardless of whether they pass along the savings through lower premiums.
Although employers may put pressure on Payors to reduce costs, they face issues of lack of transparency associated with increased costs and prices that are uniformly high across service providers. Employers can also pass the increased costs along to Patients through reduced wages or higher employee contributions. Finally, Patients want to reduce Provider reimbursement rates as long as they impact their cost-sharing obligations.
In this health care game, I assume the players must choose from the range of options within the standard of care. As such, there will be only two strategies: Self-Interest and Fiduciary. For Providers, this assumes that their desire to maximize profits and their desire to act in the best interests of Patients are mutually exclusive. In reality, of course, all Providers act in their own self-interest at times and put the best interests of Patients first at other times.
Nonetheless, for each decision, Providers must choose to act primarily in their own self-interest or in the best interests of a patient. The game examines that one choice and draws conclusions for the health care system.
Providers have a choice to earn higher compensation through some combination of:
increasing their reimbursement rates,
spending less time with Patients, and
ordering more visits, medications, tests, and procedures.Footnote 32
Payors and Patients have imperfect information about the necessity of each of these options that make up the Self-Interest strategy.
The second strategy for Providers is to provide higher quality care and ensure Patients pay less but results in lower Provider compensation. Providers can achieve these goals through some combination of:
decreasing their reimbursement rates,
spending more time with Patients, and
eliminating any unnecessary or questionable visits, medications, tests, and procedures.
This is the Fiduciary strategy, which models the type of behavior broad fiduciary duties are supposed to incentivize.
3.3.1.2 Payors
Like Providers, Payors have fiduciary duties, too. Therefore, even though they want to keep reimbursements to Providers low, they are obligated to prioritize the best interests of Patients. Given their imperfect information about what is medically necessary, Payors constrained by fiduciary duties should defer to Providers when they think Providers will play the Fiduciary strategy but defect (i.e., betray them and refuse to cooperate to share profits or work together in the best interests of Patients) when they think Providers will play the Self-Interest strategy. Otherwise, costs will increase for Payors with no resulting benefit for Patients.
In game theory, a player typically does not know which strategy another player will use during a particular interaction without signaling or cooperation. Instead, each player has to try to divine which strategy the other will play when making her own choice (e.g., by looking at the other player’s optimal strategy).
Payors have a choice to earn higher profits through some combination of:
decreasing their reimbursement rates to Providers;
denying approval for visits, medications, tests, and procedures;
incentivizing cheaper solutions (e.g., generic drugs); and
promoting preventive care that reduces future expenses.
The first two options put them in direct conflict with Providers and test their compliance with their fiduciary duties, and these situations are the focus of this chapter and this game.
Interestingly, the Self-Interest strategy allows Payors to claim that they are acting in the best interests of Patients because it eliminates at least some unnecessary care to Patients.
However, a Payor acting as a fiduciary would defer to the judgment of a Provider absent some sort of signal that the care requested would be harmful to a patient.
The second option for Payors is keeping their reimbursement rates high(er) so Patients receive all the care they need. They can achieve this goal through some combination of:
updating standards relating to reimbursable medications, test, and procedures when technology changes and
deferring to the judgment of Providers when it seems beneficial (the benefits outweigh the costs) to Patients.
This is the Fiduciary strategy, which models the type of behavior broad fiduciary duties are supposed to incentivize.
3.3.1.3 Patients
While Patients are the beneficiaries of the game (and all of the other parties owe them fiduciary duties), they are not actually playing the game. Although they pay an increasing share of their health care and insurance costs, the only strategies they have are to seek care or not to seek care.Footnote 33 Because of the information asymmetry between Patients and Providers, Patients cannot usually evaluate whether Providers are acting in their best interests and providing the best care (although they can seek a second opinion and play another round).
3.3.2 The Game
The game can then be represented as follows:
| Payor | |||
| Self-Interest | Fiduciary | ||
| Provider | Self-Interest | 2, 2 | 5, −5 |
| Fiduciary | −5, 5 | 0, 0 | |
The payoffs are listed in the order of the row player first and then the column player. As a reminder, the absolute value of the payoffs listed does not matter. Instead, what affects the game is the value of each payoff relative to the value of another potential payoff.Footnote 34 Here:
Each player’s payoff is the highest (5) when she plays the Self-Interest strategy and the other player plays the Fiduciary strategy because she maximizes her compensation while the other player does not try to take more of the limited health care dollars because she is focused on the best interests of the Patient.
Conversely, each player’s payoff is the lowest (−5) when she plays the Fiduciary strategy and the other player plays the Self-Interest strategy because she is not focused on maximizing compensation and the other player takes more of the pie. I use a negative payoff to reflect the fact that the Provider can lose money by expending time seeing a patient that is later not reimbursed.
When both players play the Fiduciary strategy, neither experiences a maximum or minimum payoff, but payoffs are minimal (0) because the Patient gets less care than will maximize Provider’s compensation as Provider minimizes questionable treatments and spends more time with Patient, but more care than will maximize Payor’s compensation as she defers to Provider.
When both players play the Self-Interest strategy, neither experiences a maximum or minimum payoff, but payoffs are higher than when they both play the Fiduciary Strategy (2) because Patient gets more care as Provider tries to maximize her compensation with questionable treatments and by spending less time with Patient, but less care as Payor tries to maximize her compensation by deferring less to Provider.
If Provider plays the Self-Interest strategy, then Payor’s best response is Self-Interest because it will result in a payoff of 2 instead of −5. If Provider plays the Fiduciary strategy, then Payor’s best response is still Self-Interest because it will result in a payoff of 5 instead of 0.
Without enforcement of fiduciary duties – a financial or criminal sanction for deviating – Payor will never play that strategy (absent altruism that outweighs self-interest). Because the payoffs are symmetric, the same is true for Provider; she will always play the Self-Interest strategy.
If there is coordination (i.e., interaction between the players where they agree to adopt a particular strategy), then Provider and Payor will still both play the Self-Interest strategy to minimize the risk of the worst possible payoff. Coordination then changes no one’s strategy.
Assuming no penalty from playing the Self-Interest strategy (as our system currently provides, assuming care is within a broad range of acceptable behavior), no rational actor would play the Fiduciary strategy.
3.4 Proposals
The physician–patient relationship has long been described as constrained by fiduciary duties. However, state and federal legislation has been far more important in constraining self-interested behavior by physicians than judicial enforcement of fiduciary law.Footnote 35 Among the interventions discussed by Halabi are the following federal statutes (and their state analogues): the Anti-Kickback Statute, which penalizes payments made to incentivize or reward referrals in health care paid for by federal programs; the Stark Law, which limits a physician’s ability to recommend services to a patient provided by a company that the physician has a financial interest in; and the Physician Payments Sunshine Act, which requires producers of drugs and medical devices covered by Medicare, Medicaid, or Children’s Health Insurance Program (CHIP) to report payments and other incentives to physicians and teaching hospitals.Footnote 36 The framework provided by this legislation has been more detailed and easier to enforce than fiduciary duties.
What all of these laws have in common, in terms of the game, is that they penalize self-interest by Providers and Payors to prevent the worst outcomes for Patients. In effect, they force Providers and Payors to use the Fiduciary strategy.
3.4.1 Statutes Limiting Financial Conflicts
To illustrate, I will first examine how laws that prevent Providers from referring Patients to service providers they have a financial interest in and laws that prohibit kickbacks for recommending particular services, drugs, or devices change the game. For example, the federal Anti-Kickback Statute could be applied to private health insurance instead of only federal health care programs.Footnote 37 The statute would provide that “[w]hoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind … in return for the furnishing … of any item or service [payable under a private health insurance plan] … or … in return for purchasing, leasing, ordering … any good, facility, service, or item [payable under the plan] … shall be guilty of a felony,” imprisoned for up to ten years, and/or fined up to US$100,000.Footnote 38
The original game can now be represented as follows, with the modified payoffs in bold:
| Payor | |||
| Self-Interest | Fiduciary | ||
| Provider | Self-Interest | 1, 3 | 3, −4 |
| Fiduciary | −5, 5 | 0, 0 | |
The payoffs in bold have changed because the law constrains Provider, preventing her from maximizing her compensation in situations where it may harm Patient and is prohibited by statute. As a result, when Provider plays the Self-Interest strategy, her payoff goes from 2 to 1 where Payor also plays the Self-Interest strategy and from 5 to 3 when Payor plays the Fiduciary strategy. The payoffs for Payor also change, increasing from 2 to 3 when she plays the Self-Interest strategy and from −5 to −4 when she plays the Fiduciary strategy. This assumes that Payor keeps her prices the same when her costs from Provider decrease – increasing her profits.
The best strategy is still for Provider to play the Self-Interest strategy (and for Payor to play Self-Interest), but now the payoff has been reduced for Provider from 2 to 1 and increased for Payor from 2 to 3 because Provider cannot profit as much from acting in her own self-interest. Payor will take advantage to keep the profits that Provider would usually have gotten from her financial conflicts (assuming the market will bear it).
Coordination again changes no one’s strategy because Self-Interest is still the best strategy for each regardless of what the other player does. Even enacting similar statutory provisions to restrict financial conflicts for Payor would merely reduce her payout for playing Self-Interest but not change her optimal strategy.
3.4.2 Paying for Improved Outcomes
Increasing payoffs for Providers who achieve better patient outcomes and for Payors whose insureds achieve better outcomes at lower costs is a systemic change that could move both players from the Self-Interest strategy to the Fiduciary strategy (because the payoffs would increase). This concept is behind value-based reforms,Footnote 39 which attempted to improve the value and quality of care under Medicare when enacted through the Patient Protection and Affordable Care Act (ACA).Footnote 40 However, the consensus has been that these reforms have largely failed to achieve their goals.Footnote 41
Looking at the original game again with the new changes in bold shows why short-term value-based reforms have not been as successful as hoped.
| Payor | |||
| Self-Interest | Fiduciary | ||
| Provider | Self-Interest | 2, 2 | 5, −5 |
| Fiduciary | −5, 5 | 2, 2 | |
To get Provider and Payor to shift strategy, the incentives awarded for improved patient outcomes must be equal to the financial incentives received when Provider and Payor previously acted instead in their own self-interest. Assuming any sense of altruism or fiduciary responsibility, they may then coordinate and play the Fiduciary strategy; if there is no altruism or fiduciary responsibility, then incentives for improved outcomes will need to be greater than those previously received for acting in their own self-interest.
Why do they need to coordinate? Each player’s best strategy to avoid the worst possible outcome of a −5 payoff is to play the Self-Interest strategy (which results in a payoff of either 2 or 5). Unless a player can ensure that the other side will play Fiduciary (and she will not suffer a −5 payoff), then she will always play the Self-Interest strategy.
Even if they both play Fiduciary here, though, this results in cost-savings for the system only if the legislative solutions previously discussed are first imposed to reduce the rewards for self-interested behavior by Provider and Payor. The new incentives awarded for improved outcomes do not need to be as high to motivate a shift in strategies because of these existing laws.
From a game strategy perspective, this means that state and federal legislatures should draft specific, targeted legislation designed to limit and disclose conflicts of interest held by health fiduciaries and then implement incentive payments based on patient outcomes. In this way, patient outcomes improve while health care spending decreases. Otherwise, the system will fail to achieve the desired savings, as seen after the ACA implementation.
3.5 Conclusion
There is no evidence that health fiduciary behavior is successfully constrained at a systematic level by fiduciary duties. Fiduciaries are already behaving in a rational way when they ignore their fiduciary duties in health. The time has come to engage in a rational response.
4.1 Introduction
Private law plays an important, if not always recognized, role in European health law. It governs relationships between patients, health care professionals, and medical institutions they rely on for their care. Private law creates lines of accountability between manufacturers of medical devices and the end user. However, the legal landscape, regulatory frameworks, and academic literature are primarily premised on notions of care being a public good that falls under public law.Footnote 1 Nevertheless, there are important distinctions between the United States (US) and Europe, which this chapter highlights. Grasping these distinctions requires taking a step back from the sharp end of the law to understand important structural differences between the health systems and the influence of private entities that exist but which might not be the obvious first port of call for research.
The sections that follow examine three aspects of private health in Europe. First, this chapter explores the structural distinction between the health systems in the US and Europe. Public health is the predominant form of care in Europe, but that headline ignores the complex reality of a shared structure between public and private entities and the diversity of how those arrangements manifest between different European countries. Second, the chapter examines the extent and role of private law as a mechanism for governing health care disputes in Europe. While tort law is a given for resolving disputes, this chapter queries the extent to which contract law is used, finding that empirical evidence is limited.
Third, there is an examination of the influence of health care lobbies and private interests and how they can permeate all levels of governmental decision-making concerning health care down to decisions about commissioning services on the ground. Public health has primacy in Europe, but that does not mean lobbyists do not constantly seek avenues to shape the policy and lawmaking environments to create new opportunities for funneling public funds toward their private services.
By highlighting these distinctions, this chapter provides a point of contrast to the US in other chapters of this volume, where private influences and private law are far more pervasive and a known part of the landscape. At the same time, the role of private influences and private law are less understood in Europe, and this chapter seeks to highlight their importance.
4.2 Europe Distinguished: The Structure of Health Services
There are four key distinctions between the US and Europe concerning the structure of health services that implicate the public and private distinction in health care.
First, the most pertinent distinction is that universal health care is a given in nearly every European country. In contrast, the US heavily relies on private health care to ensure that care is provided. In general, health care services in Europe are designated as public goods.Footnote 2 The form of public health coverage in Europe varies, but the underlying principles focusing on public universal health care are similar. For example, the United Kingdom (UK) has the National Health Service (NHS), Spain; the Sistema Nacional de Salud (SNS), and Italy; the Servizio Sanitario Nazionale (SSN), among others.Footnote 3 Of course, these are not absolutes. In the US, there are public hospitals, but these do not provide services for free, which precludes access to care for some. There are also elements of private care in Europe, but that does not preclude access to health.
Second, the role of government in providing health services and employing the health care workforce highlights another distinction. The UK is an extreme example because of its highly centralized nature, but it helps elucidate the government’s role compared to the US. In the UK, policy is determined by the Executive (specifically, the Treasury headed by the Chancellor of the Exchequer), which moves money downwards to the Department of Health and Social Care (DHSC) for capital projects such as investment in buildings and equipment, salaries, medicines, vaccinations, and other public health programs.Footnote 4 The remaining money is trickled down to NHS England (an executive non-departmental public body sponsored by the DHSC), which distributes that money further to various services and providers.Footnote 5
In this manner, the government controls the NHS and is, therefore, the main employer of the health workforce and main provider of health services, whereas the US Government is not primarily a provider of health care services.
Third, health insurance is another significant difference. In the US, Medicaid and Medicare are public programs limited to specific individuals (such as low-income individuals, retirees, and disabled individuals). However, the predominant basis for coverage is through expensive private health insurance. In Europe, coverage is mainly provided by the state and is governed by public law. In some cases, coverage is provided by mandatory health insurance, such as in Germany, and supplemental private insurance is common in other cases, such as Belgium, Holland, and Slovenia.Footnote 6 Public coverage generally ensures that most individuals pay no (or nominal fees) at the point of service.
Where private providers exist, the cost of their services is usually paid by the national health insurance system or regulated social insurance schemes that coordinate the purchasing of such services.Footnote 7 How this plays out depends on the country. For hospital care, four approaches are pertinent in Europe. In one group (Belgium, Netherlands, Germany, and Norway), private hospital bed numbers are similar to those in the public sector, and the difference in services between public and private hospitals is minimal, with consumers and social health insurance payers deeming both functionally equivalent.Footnote 8 In a second group (Austria, France, Italy, and Portugal), private entities have increasingly offered lower-risk outpatient services for profit, offering fewer beds than the public system.Footnote 9 In the third group (Czechia, Estonia, Finland, Hungary, Latvia, and Poland), private providers offer a narrower range of short-stay services in specialized areas.Footnote 10 In the final group (Iceland, Ireland, the UK, and Lithuania), private facilities are in the minority.Footnote 11 Areas where private care tends to dominate in Europe include dental care. In most countries, 80 to 100 percent of dentists are private practitioners.Footnote 12 Further, primary care tends to be provided in private settings,Footnote 13 and most pharmacies are privately owned and operated (although the state primarily pays for the medications).Footnote 14
Fourth, the final difference between the US and Europe is the legal framework and the types of disputes that arise. There are disputes concerning health insurance coverage in the US, which are rarer in Europe. Health care fraud and antitrust rules also feature more prominently in the US. Disputes in Europe center on administrative decisions, quality of care, and access to care.
These distinctions highlight that private entities and private care in Europe fall within a broader public care matrix. The next query is the extent to which private law plays a role in this matrix.
4.3 The Role of Private Law
While public law is of primary importance in Europe for regulating the relations between citizens and public authorities, private law can also regulate the medical field and ensure access to health.Footnote 15 One central area of law providing redress in Europe is tort law.Footnote 16 Similar underlying principles concerning duty, breach, and causation apply when compared to the US, but the application of those principles will likely differ between EU states. For contract law, contractual agreements can exist between medical institutions and doctors, between doctors and patients, and between insurance companies and hospitals.Footnote 17 It has been noted that the increased expansion and sophistication of regulations in Europe, such as consumer protections and anti-discrimination law in contractual relations, “amounts to an instrumentalisation of private law for political purposes.”Footnote 18 However, as a legislative matter, there is no “health care” law basis in legislation for managing relationships between doctors and patients (although they can be regulated “through different modes of market regulations”).Footnote 19
While European countries primarily deal with malpractice cases through tort or contract law,Footnote 20 the number of private contracts governing such relationships and any disputes arising from them is unclear. In the UK, at least from a patient perspective, there are no contracts between patients and the NHS, so breach of contract cannot be relied upon to sue health care institutions.Footnote 21 This is true not only for matters of care but also for the disclosure of confidential information. While the court may find an implied contract in such cases, it is thought to be unlikely.Footnote 22 A breach of contract claim may be more successful by the employer against their employee where the employee clinician divulges confidential patient information (thereby breaching the terms of the employment contract).Footnote 23 Linked to the legal pathway pursued is the concern about creating a compensation culture like in the US. A fear is that the slightest opportunity will be taken to make a “fast buck,” and the ability to sue for breach of contract could contribute to that culture.Footnote 24 However, it has been determined that this concern is a myth.Footnote 25 Overall, empirical evidence is needed to determine how prevalent contractual disputes between patients, doctors, and health care institutions are in other European countries.
Another area of note is private litigation concerning access to health for individuals in the EU on the grounds of free movement of persons.Footnote 26 With citizens moving across borders for work, demands arose for access to health in other member states.Footnote 27 The courts also addressed specific issues like abortion. In the early 1990s, the Court of Justice of the European Union (CJEU) determined that Irish citizens had the right to access abortion services in other member states, and they could not be prohibited from doing so.Footnote 28 A line of case law raised the issue of whether the EU operates as a free market for health, whereby citizens can travel from their country to another country to receive care and then be reimbursed by their home country. Those cases determined that citizens could travel and be reimbursed for their care (although the home state could impose restrictions on the extent of this).Footnote 29
Cohen has examined the intricacies of this paradigm, including the related case law, regulations, treaty provisions, and directives.Footnote 30 One major question has been whether patients are required to seek prior authorization from their home state for reimbursement of care in another EU member state. Case law has determined that prior authorization may constitute a restriction on the freedom to provide services, and that prior authorization requirements may not be justified for outpatient care.Footnote 31 Requirements for prior authorization may be justified where the patient has access to treatment without undue delay, otherwise the ability of the patient’s home country to “fund and organize its internal health care system” may become threatened.Footnote 32 If a patient is entitled to reimbursement, the level of reimbursement will depend on whether treaty or regulatory provisions apply. In some cases, where the level of reimbursement in their home country is lower than the cost of care they are seeking in another member state, the patient is entitled to be reimbursed for the additional costs they incur. In other cases, the patient will be required to make up the financial difference themselves.
Directive 2011/24Footnote 33 is also important in this area. It states that “decisions of refusal to grant prior authorisation, shall be restricted to what is necessary and proportionate to the objective to be achieved, and may not constitute a means of arbitrary discrimination or an unjustified obstacle to the free movement of patients.”Footnote 34 Matters falling under the “necessary and proportionate” criteria include the “financial balance of a social security system” and “planning requirements” for ensuring access to high-quality treatments.Footnote 35 A significant concern during the negotiations of the Directive involved the movement of expatriate pensioners. For example, Spain was concerned that expats living there would return home for medical care, which would be charged back to Spain. To combat this, several countries agreed that patients entitled to receive a pension from their country (even where they are no longer resident there) would pay for the treatment of those patients returning home for care, as opposed to the expat’s country of residence.Footnote 36 This would not apply to countries not on the list, or where the patient seeks treatment in a third country – in which case, the expat’s resident country would be required to pay.Footnote 37
Aside from medical tourism-type cases, there has also been a plethora of case law brought before the European Court of Human Rights (ECtHR) by individuals and groups concerning the right to “private or family life.”Footnote 38 The cases do not involve contract law issues but illustrate how individuals have brought a range of matters to the courts concerning their care.
These involve medically assisted procreation, surrogacy, abortion, prenatal testing, informed consent, and end-of-life situations. They also cover the health of detainees, health and immigration, health and the environment, health and the workplace, and the protection of medical data.Footnote 39
For example, in surrogacy cases, the courts have had to navigate a complex terrain between adhering to public law prohibitions on commercial surrogacy and permitting private contractual surrogacy arrangements. In the UK, the Surrogacy Arrangements Act 1985 was passed to discourage surrogacy following a case involving a British woman being employed as a surrogate mother for a Swedish couple via a US agency.Footnote 40 It is illegal to negotiate or arrange surrogacy on a commercial basis under the Act.Footnote 41 However, surrogacy is legally permitted when organized by an individual or non-commercial body, and there is no payment.Footnote 42 In one case in the UK Supreme Court in 2020, the court rejected an argument that surrogacy was contrary to public policy and noted that it was not unlawful to enter into commercial surrogacy abroad.Footnote 43 In most cases, the courts will promote the child’s welfare by determining what is in their best interests.
The particular arrangements and payments to the surrogate will not likely stand in the way of the courts giving a parental order because it will be in the child’s best interests. This was seen in one case where a British couple paid a Ukrainian surrogate 235 Euros per month and 25,000 Euros upon birth (which she used to pay the deposit on her flat). A parental order was still given, with the judge holding that:
The difficulty is that it is almost impossible to imagine a set of circumstances in which by the time the case comes to court, the welfare of any child (particularly a foreign child) would not be gravely compromised (at the very least) by a refusal to make an order.Footnote 44
Thus, despite the restrictions in public law, the reality is that commercial surrogacy exists, and the courts will likely only refuse a parental order in the clearest cases of fraud and bad faith because the best interests of the child will usually be served by granting the order.Footnote 45
Another area that intersects with private law is competition law. Increased competition may be seen as a solution to support the sustainability of public health care systems that are under strain. Yet, the applicability and scope of competition law is determined on a case-by-case basis, resulting in an inconsistent application of competition law to health care providers by the courts and the European Commission.Footnote 46 EU states do not favor introducing elements of competition law into the health care system because those systems are highly regulated, and it would increase the risk of conflicts between state interventions and EU law.Footnote 47 Exempting EU law from these realms could be an easier option in theory, but states cannot exempt health systems and the provision of care from competition law.Footnote 48 Consequently, there is limited scope for competition law to be adapted to enable more competition in health care in Europe.
Finally, it is worth noting developments concerning data. A survey by a European consumer organization finds that while Europeans are comfortable sharing their health data with doctors, they are not happy sharing that data with technology or insurance companies.Footnote 49 There is a particular reluctance to share health habits, genetic data, and sexual and reproductive data.Footnote 50 Some have called for protections for consumers to protect such data. The proposed European Health Data Space is a health-specific ecosystem designed to give individuals control over their health data while providing a consistent framework for using health data for research, innovation, policy, and regulatory activities.Footnote 51 There are already queries about how this space will intersect with contract law matters, such as whether data can be transmitted for research purposes based on contracts.Footnote 52
4.4 The Influence of Private Lobbies on Private Avenues of Care
The last area of examination pertains to lobbying. There has been a gradual creep of private health providers in Europe. The reason for this creep is multifaceted and complex, but much of it is enabled at the policy formulation level of government and even before that. The health care lobby is one of the most powerful in Europe.Footnote 53 Officially reported spending figures in the EU transparency register for pharmaceutical companies alone is 36 million Euros annually, but the figure is likely far higher owing to the voluntary nature of the EU’s transparency register.Footnote 54 Even from the reported figures, those companies far outspend civil society actors (at a rate of 15 to 1).Footnote 55 The aims of lobbyists are broad, but in general, they seek to influence the formulation of laws that are favorable to them, delay and eventually remove bills from the legislative agenda that may be harmful to their profits, and seek lucrative contracts for providing health services to the public health system. Despite these aims, the results of their efforts reveal a nuanced picture.
The UK provides an illustrative case study of how lobbyists operate in this space.Footnote 56 Various avenues exist for lobbyists and citizens to get involved in policy development.Footnote 57 The most obvious route is influencing decision-makers in Government (the Executive), Parliament, and political parties on health care bills, policies, or legislation.Footnote 58 For political parties, the aim is to influence their internal policies and their manifesto. While party members have some influence, the greatest power may lie with a few vested interests. Think tanks such as the Institute of Economic Affairs for the Conservatives and Demos for Labour have been quite influential in this manner.Footnote 59 In Parliament, Members of Parliament (MPs) will scrutinize Government bills, and extra scrutiny is undertaken for different aspects of NHS performance by parliamentary committees, including the Health and Social Care Committee, the Public Accounts Committee, and the Public Administration and Constitutional Affairs Committee. For example, in 2017, the Health Committee considered the potential impact of Brexit on health and social care in the UK.Footnote 60
For the Government, the DHSC is the ministerial department tasked with supporting and advising ministers, setting direction, and acting as “guardian” for the health and care framework.Footnote 61 It is chaired by the Secretary of State for Health and Social Care, whose responsibilities to Parliament are outlined under the National Health Service Act 2006. In practice, power is shared between ministers and civil servants, which will vary considerably depending on the personality and strength of the minister in charge.Footnote 62 The balance also depends on the quality of advice given by civil servants, the weight given to the departmental view on an issue, and the commitment of a minister to the relevant matter.Footnote 63 Numerous conflicts of interest have been detailed concerning relationships between decision-makers and the private health sector.
This can be seen with the Health and Social Care Act (HSCA) 2012, which was created to restructure the NHS and encourage more private-sector competition. One report argued that many people involved in policy formulation had personal interests in private health companies.Footnote 64 Individuals with links to private health companies and think tanks had previously held positions as health ministers, members of the Cabinet, or MPs who had voted for the Bill,Footnote 65 which led to accusations of large-scale conflicts of interest.Footnote 66 These concerns should be understood in the context of a historical revolving door problem of former ministers being employed by private health companies as advisers.Footnote 67
Another report revealed how McKinsey & Company (a management consulting firm that drew up many of the proposals for the Bill) had paid for the head of NHS regulator, Monitor, to attend an event with a banquet, five-star hotel, and first-class flights, which raised conflict of interest and undue influence concerns.Footnote 68 Finally, during the Bill stages, the Government “paused” the progression of the Bill to undertake a “listening exercise” after the proposals were subject to much criticism. During that period, the Government was accused of having private discussions with proponents of more privatization following a leaked document revealing that their purpose was to ensure that competition remained a core part of the Bill following the listening exercise.Footnote 69
Despite all these efforts, the ultimate results of these efforts by private lobbyists paint a nuanced picture. The King’s Fund (a health and social care charity) argued that the HSCA 2012 extended market-based principles and introduced more competition into the NHS, resulting in more contracts awarded to private providers.Footnote 70 However, the overall proportion of the budget spent on private providers did not increase. The King’s Fund also noted that the Health and Care Act 2022 removed the competition and market-based approaches introduced by the 2012 Act.Footnote 71 Other findings are far more critical. One study concluded that:
The privatisation of the NHS in England, through the outsourcing of services to for-profit companies, consistently increased in 2013–20. Private sector outsourcing corresponded with significantly increased rates of treatable mortality, potentially as a result of a decline in the quality of health-care services.Footnote 72
There was also criticism from the Deputy Chair of the British Medical Association (BMA), who argued that ministers were “throwing huge amounts of money at private firms rather than investing in rebuilding our health and care system.”Footnote 73 However, other findings argue that the ability of private firms to make profit in this paradigm is limited by a top-down squeeze on prices, and the state’s dominance of funding and provision.Footnote 74 Thus, while the result of private lobbying is contentious, the HSCA 2012 provides a useful case study for how private lobbyists can shape law and policy to encourage a shift toward greater marketization, creating more room for private entities to operate. Other European countries and the EU are not immune to the same influences.Footnote 75 Brussels is the world’s second capital for lobbyists, followed by Washington, DC.Footnote 76 Following COVID-19, commentators highlighted a “frenzy” of lobbying activity in the EU’s health policy space.Footnote 77 In the future, systematic research concerning the actual health policies influenced by private entities in the EU would help delineate the extent to which laws are being shaped to benefit those interests.
4.5 Conclusion
While public law is predominant as a matter of legal governance for health care matters, the reality is somewhat more complex in Europe. This chapter has explored the topic from three lenses to provide points of contrast with the US. First, by examining the structure of health care services, we can see how private care fits into the overarching system of health care services.
Second, while contract law mechanisms exist to resolve disputes, there is little empirical evidence to analyze their implications where they exist. As the data regulation ecosystem develops, more avenues for private law may arise. Finally, the influence of private lobbyists in Europe highlights how laws and policies can be shaped to create new avenues for those entities to provide services.
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