5.2 Transparency Legislation

“[H]ealth care price transparency initiatives are all the rage.”Footnote ⁷ While the Affordable Care Act and subsequent federal legislation have taken significant steps to promote transparency, states have been at the forefront of the effort. Three initiatives have received significant commentary.

The first are laws that promote APCDs – databases containing information that providers send to insurance companies for reimbursement.Footnote ⁸ Many state laws require health insurance companies to submit this data to a state agency.Footnote ⁹ APCDs serve a dual purpose: first, giving states information to address public health crises like COVID-19 and opioid misuse, and, second, cross-checking health data accuracy, calculating reimbursement rates, and the like. The databases also promote price transparency as they supply information to consumers and health care providers.

Next, starting in 2016, numerous states have passed bills requiring pharmacy benefits managers (PBMs) to report pricing methodology to state insurance commissioners and, often, to the pharmacies with which they contract. Information includes “increases in list prices, … aggregated dollar amount of rebates, [and] fees or price concessions provided by manufacturers.”Footnote ¹⁰

A third category in which states have shown a pattern of promoting health transparency is in the context of surprise billing by out-of-network providers. Several states have enacted regulations requiring plans and providers to disclose information about network participation so that patients are not surprised by the higher costs incurred from going to out-of-network providers.Footnote ¹¹ As of 2022, federal legislation also provides out-of-network coverage protection,Footnote ¹² but some state laws go further.Footnote ¹³

5.3 ERISA Preemption Cases

ERISA preempts state laws that “relate to” employee benefit plans.Footnote ¹⁴ The inquiry has two prongs. First, a state law that makes “reference” to a plan is preempted. Next, laws that have a “connection to” ERISA plans are also invalid.Footnote ¹⁵ This chapter will not analyze this test in detail. Suffice it to say that a series of cases have invalidated state transparency laws under this test.

In Gobeille v. Liberty Mutual, the Supreme Court invalidated data collection mandates for self-insured employers in APCDs under the “connection to” prong of the preemption test. According to the Court, the APCD reporting law would “govern, or interfere with the uniformity of, plan administration and so ha[s] an impermissible connection with ERISA plans.”Footnote ¹⁶ As a result of the ruling, 60 percent of all employers can ignore information mandates in their states.Footnote ¹⁷

A year after Gobeille, in Pharmaceutical Care Management Association v. Gerhart, the Eighth Circuit targeted the second category of transparency regulation—PBM reporting, under both prongs of the preemption test. Gerhart held first that, because the state PBM statute explicitly exempted certain ERISA plans from compliance, the statute therefore made explicit "reference” to the plans.Footnote ¹⁸ Then, for good measure, the court also relied on Gobeille to hold that the law failed under the “connection to” prong. PBMs act as third-party administrators of pharmacy benefits for ERISA plans, reasoned the court. Referencing Gobeille’s language that I quote above, the court held that a law that “compels PBMs as third-party administrators to report to the commissioner and to network pharmacies their [reimbursement] methodology” therefore “intrudes upon a matter central to plan administration and interferes with nationally uniform plan administration.”Footnote ¹⁹

Notwithstanding subsequent Supreme Court case law on PBM legislation, Gerhart remains – in part – good law. In 2020, the Supreme Court upheld a state law requiring PBMs to reimburse pharmacies at higher rates. The Court noted that the PBM regulation does not “refer” to an ERISA plan as it “does not act immediately and exclusively upon ERISA plans because it applies to PBMs whether or not they manage an ERISA plan.”Footnote ²⁰ Gerhart’s “reference to” analysis thus no longer survives. But Gerhart’s analysis under the “connection with” prong remains intact.Footnote ²¹

5.4 The Freedom of Contract Backdrop

The cases above purport to rely on formalistic analysis, and scholars treat Gobeille in particular as a straightforward example of ERISA preemption.Footnote ²² But ERISA doctrinal analysis is indeterminate.Footnote ²³ As a practical matter, courts invoke policy considerations such as uniformity of administration or burdens on administrators, and scholars have commented on these policy claims. But one policy justification that has received no attention is that concerning freedom of contract.

As I argue elsewhere, there was more to Gobeille than met the eye. The employer’s ERISA plan argued in its briefing that preemption of state law was required because the state regulation displaced contracts between beneficiaries and the insurance company, which, it claimed, required keeping data confidential.Footnote ²⁴ Significant text was devoted to this argument by the United States Solicitor General’s Office before the ERISA plan even filed its brief.Footnote ²⁵ This debate over the importance of respecting contracts was strange: While the Supreme Court in the nineteenth and early twentieth centuries was sympathetic to plaintiffs who challenged state laws that, they claimed, undermined freedom of contract under the Contract Clause, since the New Deal, this approach to the Contract Clause has been repudiated. State law has generally been understood to govern contract terms.Footnote ²⁶

Despite the demise of freedom of contract arguments in constitutional doctrine, they retained a strange afterlife in ERISA cases. The earliest ERISA preemption cases in the 1970s concerned pension benefits,Footnote ²⁷ with plaintiffs complaining that ERISA undermined freedom of contract in pension arrangements. Courts replied that that was exactly what ERISA was meant to do. As an Alabama district court wrote in 1979, with ERISA, “freedom of contract was largely eliminated from the world of pension agreements.”Footnote ²⁸ That line of thinking filtered its way into courts of appeals.Footnote ²⁹

While freedom of contract arguments failed in the 1970s pension cases, in the 1980s, employers brought a new set of preemption cases, claiming that state laws regarding health plans were preempted. By this time academic, and then, judicial, attitudes to freedom of contract had changed, and courts took a different tack.Footnote ³⁰ A decade after one Alabama district court opinion repudiated freedom of contract principles in pension plans, another Alabama district court held that those principles remained alive and well in welfare benefit plans: “Congress included welfare benefit plans within the scheme of ERISA, but did not provide an extensive array of mandatory provisions as it did for pension plans. The implication here is that parties retain a greater degree of freedom to contract between themselves as to what benefits will be provided under welfare plans.”Footnote ³¹ This language became boilerplate in judicial opinions that emphasized the importance of freedom of contract in welfare benefit plans.Footnote ³²

While there were some asides in opinions that recognized the limitations of freedom of contract doctrine,Footnote ³³ in a small but steady diet of cases since the 1980s through today, courts have infused the policy analysis that characteristically underlies ERISA preemption cases with freedom of contract claims. One district court linked the “‘vital public interest’ in health care cost containment … with the traditional freedom to contract as one pleases.”Footnote ³⁴ Another emphasized that “the public has an interest in protecting the freedom to contract by enforcing contractual rights and obligations.”Footnote ³⁵ And in 2017, a court held that “[r]equiring … compl[iance] with … plan[] procedures not only respects freedom of contract, but will also serve important purposes,” relating to the ERISA dispute resolution process.Footnote ³⁶ Every court to invoke freedom of contract has found that ERISA preempts the state statute. Even though freedom of contract is never the centerpiece of the holdings, its appearance is notable.

ERISA preemption cases involving transparency statutes also endorse contract principles (albeit not as explicitly as the ERISA preemption cases I describe above). The Gobeille Court began its application of ERISA doctrine by observing that “ERISA does not guarantee substantive benefits. The statute, instead, seeks to make the benefits promised by an employer more secure by mandating certain oversight systems and other standard procedures.”Footnote ³⁷ Similarly, the offense in Gerhart is described as “dictating the manner by which PBMs contract with pharmacies regarding … pricing.”Footnote ³⁸

5.5 Rebutting Freedom of Contract – The AWP Cases

How might one address the freedom of contract anxiety that courts evince in striking down transparency statutes? One answer might lie in a line of cases that successfully defeated these arguments – those concerning AWP statutes.

These statutes require insurers or PBMs to contract with any provider willing to abide by their terms to prevent insurers from limiting costs by artificially throttling the ability of individuals to access care.Footnote ³⁹ By 1986, eight states had passed these AWP statutes,Footnote ⁴⁰ leading to some of the earliest ERISA preemption litigation. But outcomes conflicted. Two circuits held that ERISA preempted these laws; two circuits held the opposite.Footnote ⁴¹

Those supporting the laws argued that even if these laws “relate[d] to” a plan, and therefore met ERISA’s preemption test, they survived under a preemption exception which allowed states to “regulate[] insurance.”Footnote ⁴² The Supreme Court, through Justice Scalia, sided with this view in Kentucky Association of Health Plans v. Miller.Footnote ⁴³

The doctrine surrounding the insurance savings clause, as the Court admits in Miller itself,Footnote ⁴⁴ is far from clear.Footnote ⁴⁵ Indeed, commentators have suggested that Miller was “self-contradictory” and probably unworkable.Footnote ⁴⁶ Just as courts rely on policy arguments to determine whether state laws “relate to” an ERISA plan in the first place because of the term’s indeterminacy, those parsing the insurance savings clause also invoke policy claims – including freedom of contract arguments.

The previous section notes that in ERISA health preemption cases, courts that mention freedom of contract arguments do so to hold that the state laws are invalid. The AWP cases are no exception. In CIGNA Healthplan of Louisiana v. Ieyoub, the first lawsuit that resulted in appellate invalidation of an AWP law,Footnote ⁴⁷ the plaintiffs sought freedom of contract as an independent ground of relief. They argued both that “the Any Willing Provider Statute is preempted by ERISA” and, “[a]s an alternative claim, … that the statute violates the Due Process Clause … because it interferes with the plaintiffs’ freedom to contract with health care providers of their choice.”Footnote ⁴⁸ In a ruling affirmed on appeal, the court held that ERISA preempted the AWP law. Similarly, in a lower court ruling in the Eighth Circuit (the other jurisdiction to invalidate AWP laws) the court explained that the effect of AWP laws “on ERISA plans is to eliminate their freedom to contract with HMOs.”Footnote ⁴⁹ In the other AWP cases as well, petitioners advanced arguments that sounded in freedom of contract – ultimately, and unsuccessfully – at the Supreme Court.Footnote ⁵⁰

But two circuits, and later, the Supreme Court, upheld these laws and rejected ERISA preemption. In these cases, freedom of contract was never mentioned. Rather, courts emphasized a different concept – freedom of choice. As proponents of AWP statutes emphasized, the laws allowed consumers to choose providers they wanted. For instance, in Stuart Circle v. Aetna, the court explained that the state legislature had given “priority to an insured’s freedom to choose doctors and hospitals over the possibility of reduced insurance premiums …. The wisdom of this decision is a concern of the legislature, not the judiciary.”Footnote ⁵¹

Five years later, faced with the challenge that would mature into Miller, the district court quoted extensively from Stuart Circle, and noted that “freedom to choose a treating physician is inextricable from the nature of the coverage provided.”Footnote ⁵² On appeal, the Sixth Circuit plugged the same refrain with even greater vigor. It noted that the law would “increase benefits to the insureds by giving them greater freedom to choose health care providers,”Footnote ⁵³ and noted that policyholders were concerned with “restriction on their freedom of choice in seeking medical treatment.”Footnote ⁵⁴ Indeed, the freedom of choice argument attracted the dissent’s ire. After questioning whether the AWP law actually promoted “freedom of choice,” the dissent curtly cautioned, “any concerns over freedom of choice are beside the point.”Footnote ⁵⁵ The Supreme Court affirmed the majority, though without mentioning freedom of choice.

The contrast is clear. Cases coming down in favor of ERISA preemption generally, and with respect to AWP laws in particular, raise freedom of contract as one of ERISA’s aims. In the AWP context, however, courts that decided against ERISA preemption invoked freedom of choice arguments instead.

Critics might suggest that I am reading too much into these cases. After all, prominent literature that defends freedom of contract uses the terms “contract” and “choice” interchangeably,Footnote ⁵⁶ as do widely cited judicial decisions,Footnote ⁵⁷ and one appellate ERISA preemption case.Footnote ⁵⁸ Yet, however the terms are used elsewhere, in the ERISA opinions I describe above, and in related party submissions, freedom of choice constitutes a term of art, referring to a certain subset of laws that allows patients to see providers that they prefer. And the courts in these cases, at least, do not use the term interchangeably but almost in contraposition to each other.

Indeed, we see even more explicit juxtaposition of freedom of contract and choice in other lines of cases. During the 1970s, when courts were least sympathetic to freedom of contract claims,Footnote ⁵⁹ the need to ensure true freedom of choice was widely relied on as a reason to ignore formalistic adherence to contract. In an influential and widely quoted passage,Footnote ⁶⁰ for example, the New Jersey Supreme Court in Kugler v. Romain defended unconscionability doctrine, by noting, “[t]he intent of the clause is not to erase the doctrine of freedom of contract, but to make realistic the assumption of the law that the agreement has resulted from real bargaining between parties who had freedom of choice and understanding and ability to negotiate in a meaningful fashion.”Footnote ⁶¹ Thus, held Kugler, “freedom to contract survives,” but is dependent on whether there is actual freedom of choice.Footnote ⁶²

At the same time, these courts reasoned, it is a mistake to paint freedom of choice as a completely separate concept from ‘true’ freedom of contract. Indeed, many courts that relied on freedom of choice to counter freedom of contract arguments ultimately concluded that freedom of choice as they saw it enabled true freedom of contract. As the Puerto Rico Supreme Court explained in another highly cited opinion that drew limits around noncompete agreements: excessively stringent contracts “not only … violate contractual good faith but also public policy, by excessively and unjustifiably restricting the employee’s freedom of contract and the general public’s freedom of choice.”Footnote ⁶³ As another court explained in the early years of freedom of contract’s decline, “[l]iberty of contract does not mean the right to make any kind of contract with any body but merely the right to make contracts with competent persons on a plane of relative parity or freedom of choice.”Footnote ⁶⁴ Thus, “freedom of choice” considerations may undermine freedom of contract as a formal matter but ultimately advance its true goals. Such an approach to freedom of contract – which relies on whether parties have freedom of choice – has implications for the ERISA transparency cases.

5.6 Transparency Laws Further Freedom of Choice

It is hard to assess the extent to which freedom of contract arguments play a role in ERISA preemption. Yet, it would appear that increasingly market-oriented courts see freedom of contract as an important value, and view ERISA preemption as a means to vindicate it. These courts might be unsympathetic to counterarguments that draw on public regulatory goals, such as price-setting. But advancing freedom of choice arguments – which, ultimately, can be reframed as helping achieve true freedom of contract, might prove more successful.

Transparency laws in general serve dual purposes as Section 5.2 explains. For example, APCD laws serve public regulatory goals such as price setting, but also private purposes, such as providing data transparency to allow consumers and other stakeholders to negotiate with insurers. This is true of other transparency initiatives including those involving PBMs. State litigants, however, have tended to emphasize the regulatory importance of these laws.

Consider the Gerhart litigation. The state’s brief did not raise concerns about inequitable bargaining power even once. It rather emphasized the public, regulatory goals of the PBM statute. The AWP law “regulates a PBM’s reimbursement of pharmacies. It regulates the pharmacy side of PBMs’ business.”Footnote ⁶⁵ Rather than explaining how the law helps pharmacies negotiate with PBMs, it emphasized how the law regulates the negotiation.

By contrast, amici heavily emphasized how the transparency laws promoted private bargaining between parties. They point to the bargaining inequity between parties: “independent pharmacies cannot simply refuse to do business with PBMs, much less insist upon fair contractual terms … as PBMs manage drug benefits for 95 percent of all Americans with prescription-drug benefits …. Thus, PBMs are able to impose take-it-or-leave-it contracts on pharmacies.” Notably, “even large pharmacies, like those managed by CVS, Walgreens, and Kmart, have struggled to secure fair treatment from PBMs.”Footnote ⁶⁶ The legislation addresses these concerns because – in part – it “requires PBMs to disclose how they calculate their reimbursement amounts in any contracts with Iowa pharmacies and gives contracting pharmacies a chance to contest the reimbursement amount.”Footnote ⁶⁷ In this way, their reasoning evoked the contract analysis of the courts in the AWP cases described above, who sought to promote freedom of choice.

The Gobeille briefing presented the same problem. Some – including government entities – did mention the importance of the data for private bargaining, though none of them foregrounded it as a purpose of the legislation. Thus, only after explaining how states used APCD data to address costs in their regulatory capacity did the brief of the AARP (formerly the American Association of Retired Persons) and others explain: “patients usually do not know the price of health care … [and] need information to make informed choices about … health care services, before they purchase these services – just as they would to make any other major purchase. They … need to know … whether they are getting the best value for their dollar.”Footnote ⁶⁸ The American Hospital Association with the American Association of Medical Colleges first emphasized the public health regulation that APCDs achieve at length, before, in a brief paragraph, noting that the “[p]atients – especially those who personally bear a significant share of their health care costs – need reliable sources of information for determining how to spend their health care dollars,” and noting that Colorado had a website to promote this goal.Footnote ⁶⁹ Other prominent briefs did the same, emphasizing a range of other significant public goals.Footnote ⁷⁰ Few of these briefs mentioned, much less explained, the powerlessness that patient–consumers experience. None of them used the language of freedom of choice, which figured so prominently in the AWP cases, to defend the laws.Footnote ⁷¹

And most of the briefs – including individual briefs filed by other states and by the American Medical AssociationFootnote ⁷² – did not even mention how data transparency furthered consumer choice. Most notably, the brief of the Petitioner, the state of Vermont, lists the uses of the data as follows: “improve the delivery of medical care to its citizens and guide health care regulation and policy.”Footnote ⁷³ Its Reply brief even mentions the federal uses to which the data is put.Footnote ⁷⁴ Consumer and market participant needs were not mentioned.

Yet, there is a strong argument that transparency laws support freedom of choice. Colorado, New Hampshire, and Maine have each “used its APCD data to create a public website that enables its residents to compare the cost of health care services across providers within the State,” while others intend to do so. Patients can “compare costs by selecting a particular kind of health care service [say, a hip replacement], a geographical area [say, within 25 miles from Denver], and the kind of insurance to be billed …. The website would then display the median price.” The Maine website gives consumers and providers transparent information on provider performance, cost, and reimbursement.Footnote ⁷⁵

Arguing that data transparency supports freedom of choice for those who would otherwise lack it may prove to be important in advancing data transparency claims in other contexts. To be sure, the Supreme Court is unlikely to revisit APCDs. But other important data transparency efforts remain ongoing, as Section 5.2 describes. Further, the Department of Labor has drafted policies that would require self-funded plans to report APCD data federally – but only on a voluntary basis, likely fearing opposition to the policies.Footnote ⁷⁶ Freedom of choice arguments might prove important in those policy contexts as well – while they are used in judicial decisions, they are policy arguments to begin with.

5.7 Conclusion

Freedom of choice is not the only, or arguably, even the most important, argument for data transparency. The public values – including those emphasized and foregrounded in the Gobeille briefing – are probably more vital than providing data to consumers to enable bargaining. Even with data, consumers will lack market power.Footnote ⁷⁷ Data can also prove hard to parse and analyze for consumers, especially those experiencing serious medical conditions.Footnote ⁷⁸ Yet, freedom of choice arguments allow promoters of transparency laws to meet those who promote freedom of contract on their own turf and can prove to be of strategic value in advancing the cause of data transparency before market-oriented courts. Rather than emphasizing public regulatory goals, then, state defendants and policymakers should create a record that emphasizes how these databases support contracting between private parties in order to withstand ERISA preemption challenges.

6.2 Roadblocks to Containing Health Care Costs

The United States spends about twice as much as other high-income countries on health care, while performing relatively poorly on population health outcomes.Footnote ³ These high costs are not driven by US patients using more services or the United States providing particularly high-quality care. Instead, they largely stem from the prices commercial insurers pay for hospital and physician services.Footnote ⁴

Commercial insurers and group health plans in the United States pay for the health care of about 177 million people, and they pay significantly more than public insurers like Medicare and Medicaid for the same services.Footnote ⁵ In response to rising health care prices, these payers have shifted more of the cost burden to plan enrollees through higher premiums and out-of-pocket costs.Footnote ⁶ Given their ability to shift costs and market pressures to maintain good relationships with health care providers, commercial insurers have little incentive to negotiate lower prices with providers, and may in fact have an incentive to inflate spending because their profits are tied to a percentage of premiums collected (in the fully insured markets, due to federal medical loss ratio requirements) or claims paid (in self-insured markets, where insurers are administering plans funded by employers and employees).Footnote ⁷

Insurers’ insufficient incentive to negotiate lower prices, combined with rapid provider market consolidation, has given health care providers outsized leverage when contracting with insurers, and made it unlikely for the existing commercial insurance market to achieve meaningful cost containment absent government intervention. In response, experts and policymakers have debated a range of regulatory strategies to try and contain costs in the commercial sector and have largely reached the same conclusion: “the only solution that may be effective in a concentrated provider market is regulation of health care prices.”Footnote ⁸ Yet few states currently regulate commercial health care prices and, with the exception of Maryland, efforts that have been made have generally been indirect (e.g., setting cost growth benchmarks) or narrowly focused (e.g., preventing “surprise” billing by out-of-network providers).Footnote ⁹ In the 1970s and 1980s, many more states directly regulated prices, but this fell out of favor for many interconnected reasons, including the general philosophical and political shift toward market-based mechanisms in the 1990s and the advent of managed care organizations promising to control costs via internal mechanisms.Footnote ¹⁰

Renewed efforts to meaningfully regulate health care costs have failed largely due to political barriers.Footnote ¹¹ The hospital industry holds significant political power and strongly opposes price regulation.Footnote ¹² Because the insurance industry also profits from higher health spending, their interests are aligned.Footnote ¹³ Many policymakers also prefer a lighter regulatory touch, pushing back against government actions that can be seen as unduly affecting market dynamics.Footnote ¹⁴ When implemented, even narrow regulatory reforms face legal challenges and obstruction from industry.Footnote ¹⁵

Given these obstacles, policymakers are turning to reforms that make use of government purchasing power and contracting tools, as more politically attractive and easier to implement. We explore three examples of states leveraging their contracting authority and purchasing power, rather than their regulatory authority, to lower health care costs in the private health insurance market. Although the reach of these reforms is narrower than traditional regulatory reforms, we explore the extent to which states can use them to effect incremental change while waiting for political winds to return in favor of price regulation.

6.3 Wielding a Lighter Touch: Can States Contract to Lower Health Care Prices?

6.4 State Contracting as a Stopgap: Holding the Line for Broader Reforms

Implementing effective cost-containment reforms is an immense challenge. Above, we have shared examples of how a handful of states have leveraged their role as private actors and contracting entities to advance this goal. While regulatory efforts to control prices largely remain politically infeasible, these examples offer a potential path forward. However, these state contractual approaches are not a panacea.

Despite working within a private law framework governed by market forces, state contractual and market-based approaches to cost containment can be seen as being closely intertwined with exercises of legislative and regulatory authority. Indeed, state actors frequently require legislative authorization to use their market power, and this opens the door to opposition. Even though these strategies mirror those private actors commonly use, proponents of “free market principles” or small government may reject these efforts as a proxy for government regulation or fail to adequately fund state agencies to effectively implement them. Perhaps even more detrimentally, these efforts face opposition from well-funded industry actors who no more wish to feel meaningful competitive or market pressure from the government than regulation.

Nonetheless, experience to date suggests contractual approaches carry a much lower risk of legal challenge and obstruction than direct price regulation, and SEHP reforms appear to have particular support from conservative policymakers.Footnote ³⁷

The more profound limitations on contractual approaches to cost containment is consolidation in US health care markets combined, perhaps ironically, with an intense desire to preserve consumer choice. Often the government does not have meaningful bargaining power because there are only one or two dominant insurers and/or health systems in the market. The consolidation in the health care market is resulting in a market failure, where prices and premiums keep increasing, and anticompetitive practices are rampant. Even when the market is not heavily consolidated, policymakers remain hesitant to leverage their negotiating power and exclude higher-cost options and thereby limit consumer choice. That a “faith in … consumer choice”Footnote ³⁸ can hijack cost containment efforts is only made more questionable by the fact that consumers, universally, struggle to make informed, rational health care decisions.

This conclusion brings us back to where many economists and policy experts started: If consumer choice and market power cannot achieve meaningful price controls, then comprehensive rate regulation may be in order. But if the opportunity arises, states may want to try the mechanisms discussed, here, while Congress debates broader federal reforms. US health care reform has tended to be a story of incrementalism, and experiences like selective contracting by the Massachusetts and California health insurance marketplaces, introduction of a market-based public health insurance option by Washington, and Montana’s experimentation with capping provider reimbursement can serve as precursors to more significant changes. Under the right circumstances, these policies benefit enrollees and can even have modest spillover effects. In acting now with the tools available, states can not only benefit themselves but lay the groundwork and show support for Congress to tackle health care costs nationally.

7.2 The Treatment Relationship

When does a physician or other care provider enter the realm of medical professional responsibility? According to tort law, this occurs when the provider forms a treatment relationship, that is, begins to undertake the care of a patient. Undertaking care is the critical point at which a provider leaves the zone of generic negligence law, which holds actors responsible only for risks they create judged by a general reasonableness standard and assumes the more affirmative responsibilities defined by professional standards.

A treatment relationship’s timeline – its beginning and ending – is defined largely by contractual principles. Sometimes overt agreements to start or end a treatment relationship can be identified, but often they cannot. A physician simply starts to engage with a patient and then stops engaging, or they engage in ways that can be ambiguous as to the nature and scope of the engagement. Thus, the Restatement of Medical Malpractice begins by addressing the foundational contours of a treatment relationship.Footnote ⁸

At the threshold, one visible indication of common law adaptation is the modernizing of the rules around formation of the treatment relationship. Historically, courts have tended to apply what might be called a “hair trigger” test for relationship formation, by finding that contractual elements are met with only a slight indication of potential intent by the provider to assume responsibility. Thus, in various circumstances, courts have found that a treatment relationship formed when a patient made an appointment, or when a provider discussed the patient’s situation and needs only briefly, or only with a colleague.

The quick trigger approach stands in sharp contrast to lawyers undertaking client representation. Lawyers commonly consult with a potential client before launching representation, and that launch rarely occurs without an explicit understanding about its basic scope and terms.

When patients are sick and in need of immediate attention, there are obvious reasons to dispense with formalities. Recognition, however, that greater complexities and subtleties can legitimately arise in the modern setting, coupled with the emergence of a more overtly “consumerist” ethos in medicine, led the Restatement to endorse a moderating stance. Based on limited, but sufficient, case law, the Restatement advises that, “in appropriate nonemergency circumstances, medical providers should have leeway, similar to that in legal representation, to first assess a patient’s condition and to discuss potential courses of treatment and costs before initiating a patient-care relationship.”Footnote ⁹ That passing sentence is a small but instructive example of common law adaptation.

The unhelpful aspect of inertia in the common law can be seen, however, in its episodic conception of treatment relationships. Following well-established case law, the Restatement declares that a treatment relationship ceases “once the particular condition or conditions that gave rise to treatment no longer need attention, unless the patient has reason to believe that the provider intends to continue the relationship.” As it notes, this “captures what is sometimes referred to as a ‘spell of illness’ demarcation of treatment relationships.”Footnote ¹⁰ The Comment acknowledges, however, that “patients as well as providers often think of themselves as having an established and ongoing relationship that bridges episodes of illness.”

Here, the Restatement urges courts to better adapt the law to modern practice. The Comment instructs that medical liability law should attempt “to shape itself to the actual contours of patient-provider interactions and understandings.” Further, it notes that “several modern developments support, in appropriate circumstances, embracing a more continuous rather than episodic conception of patient-care relationships.” An obvious example is chronic illness with episodic flare-ups. Another, which is more institutionally contingent, is the contemporary emergence of primary-care “medical home” arrangements, “in which a primary-care provider is paid to manage a patient’s needs on an ongoing basis across a range of providers and conditions.” The Comment prompts courts to recognize that these (or similar) arrangements “can form an ongoing patient-care relationship that transcends spells of illness.”Footnote ¹¹

This type of small-bore, stepwise evolution is a hallmark of the common law and thus is comfortably within the bounds of the Institute’s guidelines and practices for how Restatements justifiably may guide further legal development.Footnote ¹² The Restatement embraces a similarly less transactional and more relational view in its section on informed consent. There, it keys the informed consent duty to a “course of treatment” rather than to a specific intervention, recognizing (again without much explicit precedent) that “it is typical, and permissible, to obtain informed consent in a manner that bundles a variety of discrete items of treatment.”Footnote ¹³ In these several respects, we see a somewhat successful, but still limited, ability of common law to adapt to basic changes in treatment relationships.

7.3 Sharing Responsibility among Medical Professionals

Common law has been somewhat less successful, however, in adapting to changes in how medicine is practiced. Tort law has frequently had to determine the scope of an individual provider’s professional responsibility in the context of multiple professionals working together as part of a treatment team.Footnote ¹⁴ This first arose in the surgical operating arena. Cases a century ago asked whether a surgeon is responsible for errors that surgical assistants make, such as nurses charged with counting sponges to ensure none are left behind. As surgical techniques advanced, subsequent courts were asked to determine a lead surgeon’s responsibility for another physician’s error in, for instance, administering anesthesia.Footnote ¹⁵

Initially, courts adopted a strong version of vicarious liability known as the “captain of the ship” doctrine, which held the lead surgeon responsible as a matter of law for any negligence under their “command,” regardless of the surgeon’s actual control over the team member.Footnote ¹⁶ One rationale at the time for this small-scale form of enterprise liability was that, with respect to nurses, if the surgeon were not liable then there would be no adequately sized pocket from which to seek recovery, given that almost all hospitals at the time were immune from liability, either as charitable or governmental institutions.

In many cases, modern courts have appropriately backed away from this literal-absolutist application of the captain-of-the-ship metaphor, in favor of a more fact-based inquiry, now referred to as the borrowed “employee” doctrine.Footnote ¹⁷ This modern version appropriately adapted to changing circumstances in the profession and applies more conventional vicarious liability principles to inquire whether a surgeon, in a particular situation, controls, or has the right to control, “the manner and means” by which a colleague performs their work. Recognizing that in modern practice, the training and oversight of nurses is typically the hospital’s responsibility, this more nuanced doctrine nevertheless allows a finding based on the facts of a particular case that a surgeon assumed temporary control of a team member’s action.

But the story isn’t all a positive one. Variability remains in how these principles play out in recurring scenarios, including the original scenario of sponges, clamps, or other foreign objects accidentally left behind during surgery.Footnote ¹⁸ Some courts look to how providers themselves allocate responsibility, recognizing that “operating room personnel have specialized tasks to perform during surgery, … [and] that it [may] not [be] practical for [surgeons] to exercise control of the nurses in their sponge-counting task.”Footnote ¹⁹ Other courts, however, continue to hold surgeons responsible as a matter of law.Footnote ²⁰ They do so without resuscitating an explicit and free-ranging captain-of-the-ship notion; instead, they embrace the more limited common-sense notion that when a surgeon inserts a foreign object, the surgeon remains responsible for ensuring its proper removal. That line of thinking is more appropriately considered to be a straightforward recognition of a nondelegable duty.Footnote ²¹

These established strands of doctrine have not matured, however, into more general principles of shared professional liability when errors occur in team-based care settings. The Reporters’ Note to the Comment on borrowed employees explains that, “[a]lthough such team-care arrangements are increasingly common, courts continue to resist viewing them as a basis for vicarious liability among individual medical professionals, as long as none of the providers actively supervises or controls his or her counterpart. Instead, courts apply a highly compartmentalized view of shared physician responsibility.” The Note continues in an editorial vein to say:

These sentiments are those only of the Reporters, however, and do not speak for the Institute. The ALI’s official position is expressed in Comments recognizing that “much of this Restatement addresses a simple one-on-one relationship between provider and patient, even though much medical care, especially in hospital settings, is in fact provided by teams that share and assign responsibilities in complex ways,” and noting that the “Restatement only partially accounts for this complexity.”

Here, then, we see a glaring example of the limits of common law tort principles, rooted in an anachronistic framing of medical care delivery. Despite dramatic changes in how modern medicine structures care delivery, tort law can struggle to fully adapt to modern conditions.

Partly accounting for this doctrinal rigidity, however, is that medical professionals themselves hold on to a bounded view of their own responsibilities. Thus, when providers collaborate across disciplines or fulfill supervisory roles, they form explicit understandings about the nature of limits of their separate but dovetailing responsibilities.Footnote ²³ In honoring these understandings, tort law is not so much stubborn to change, as it is compliant with professional norms. Thus, the common law is more subject to the criticism of declining to push for overarching structures of responsibility, than of failing to recognize professional and institutional realities.Footnote ²⁴

7.4 Institutional Responsibility

Common law’s rigidity can be seen in the failure of institutional liability to fully adapt to modern circumstances. A few years before work began on the Third Restatement of Torts, the Institute commissioned a project, led by a group of eminent torts scholars, to restate institutional responsibility for personal injury. The group’s work proved too scholarly and lacked grounding in existing case law. The Institute therefore downgraded what was originally intended as a Restatement to simply a “Reporters’ Study,”Footnote ²⁵ meaning that it spoke only for the reporters and not the Institute.Footnote ²⁶ For similar reasons, this Restatement attempts no bold move toward sweeping enterprise liability for medical institutions.Footnote ²⁷ That move would require fairly dramatic legislation action. Short of that, however, this Restatement recognizes a number of doctrinal advancements that, potentially, form building blocks for more sweeping enterprise liability.

First, the Restatement’s institutional liability ambit is substantially broader than just hospitals and nursing homes. The institutions subject to some form of medical liability are “entities that arrange for or furnish medical care through the services of medical professionals,” including: “medical facilities that treat patients, such as hospitals, clinics, and nursing homes; entities, such as managed care insurance plans, that arrange medical care for their customers; and newly emerging arrangements such as ‘accountable care organizations.’”Footnote ²⁸ This Section is explicit, however, that all such institutions do not have the same set of duties. Instead, different duties apply according to whether the institution directly delivers care or instead merely helps to arrange for care.

Ample precedent exists to articulate the basic duties owed by institutions engaged in direct medical care. Precedent is limited, though, for other forms of institutions – those that merely arrange for or influence patient care rather than act as a provider. Managed care insurers are the primary example, but, owing to preemption by the Employee Retirement Income Security Act (ERISA), relevant precedents are scarce.

Despite this absence of precedent, the Section is able to state based on general principles that any such medical institution owes a “duty of reasonable care” to the extent that it “select[s] and retain[s] the medical professionals who furnish care under its auspices,” or that it “make[s] or actively review[s] medical decisions.”Footnote ²⁹ Comments explain that this structure and wording does not require institutions to engage in such activities unless they actually deliver care; if not, the Section tailors medical duties to the functions that particular institutions choose to undertake.Footnote ³⁰ These principles provide appropriate room for flexible development both of different types of medical institutions and different attendant duties, rather than embracing a “one size fits all” rule.

The Institute is especially careful to avoid insisting that medical institutions actively supervise medical professionals in a manner that requires institutions to regularly inject themselves directly into medical decision-making as it occurs (rather than reviewing decisions more retrospectively). If institutions choose to do so, naturally they assume a more exacting duty of care, but requiring institutions to take on this responsibility would contravene public policies that seek to minimize untoward institutional influence in professional judgment. In these ways, the Section aims to set a doctrinal stage for the ongoing development of a wide variety of different types and forms of medical institutions.

The Restatement also addresses institutional liability through vicarious liability doctrine. In particular, the Restatement discusses the substantial body of case law that has developed under the “apparent (or ostensible) agency” doctrine.Footnote ³¹ In developing and applying this and other aspects of vicarious liability, the Comments emphasize that courts are especially attentive to public policy consideration, such as:

Because these policies can point in different directions or can be given differing weights, there is notable variability in the extent to which different courts, sometimes from the same jurisdiction, assess whether an adequate manifestation of authority exists to invoke institutional vicarious liability.

Nevertheless, the Restatement is explicit that doctrinal articulation and application of vicarious liability should change in response to changes in health care delivery and finance. Thus, Comments note that the classic model – of independent physicians on a hospital medical staff having no other contractual relationship with the hospital – no longer predominates. Instead, physicians who treat hospital patients increasingly either work for the hospital or are part of a group that contracts, or is affiliated, with the hospital or a parent organization. Legal precedents from the pure independent-practice era may not necessarily be a good fit with these more complex “integrated delivery systems.”Footnote ³³

Institutional liability for hospital-based specialists that a hospital does not employ is the leading example of doctrinal evolution that reflects several of these public policy considerations. Conventionally, when a professional (or other actor) is not an actual employee or agent of an institution, the institution assumes no vicarious liability unless the injured party (here, a patient) detrimentally relies on the institution representing that the professional is acting on its behalf as its agent.Footnote ³⁴ Courts increasingly have relaxed these doctrinal demands of actual reliance and overt representation. They have held, for instance, that patients need not show reliance in the form that a different understanding about agency would have caused them to seek care elsewhere. Instead, patients need only show simply that they assumed the doctor was working for the hospital. Moreover, in many jurisdictions, patients need not point to a specific holding out or representation of agency; instead, it suffices that the patient’s assumption was reasonable in the circumstances.

The Restatement makes ample room for these doctrinal liberalizations but does not insist on their adoption, recognizing that doing so appropriately requires taking account of factual circumstances. Noting the variability that remains among decisions, as well as the fact-sensitivity of these standards, the relevant Comment sets an outer limit of apparent agency only at the point where “a patient establishes a relationship with an independent physician prior to hospital treatment.”Footnote ³⁵ Then, “the patient cannot convincingly claim that the independent physician is the hospital’s apparent agent, simply because the physician is on the hospital’s medical staff or is entitled to work on the hospital’s premises.” Otherwise, for hospital-based specialists, “various circumstances can give rise to a patient’s reasonable belief that the physician is acting and has authority to act on behalf of the hospital when, in fact, the physician is an independent contractor.”Footnote ³⁶

Beyond this expansion of apparent agency, tort law has not gone much further toward possible full-scale enterprise liability for hospitals or other medical institutions, nor does this Restatement encourage doing so, recognizing that Restatements are not an overt law-reform initiative.Footnote ³⁷ In this respect, basic institutional liability remains much as it was a half-century ago. It remains to be seen whether dramatic innovations such as artificial intelligence – allowing much more detailed real-time interaction with professional decision-making – will push institutional roles and legal doctrine to a tipping point of more encompassing liability.

In the meantime, this Restatement does contain limited doctrine that may become seeds for future development of more encompassing enterprise liability. It notes that, in emergency room settings, where public policy considerations loom especially large, more courts are willing to curtail or dispense with the factual issues that might complicate a finding of apparent institutional agency. These courts, for instance, tend to adopt a presumption of reasonable impression of agency status, and they decline for obvious reasons to honor disclaimers of agency contained in form paperwork presented to emergency patients.

The relevant Comment takes an important further step, pointing courts to the availability of a more straightforward, but still limited, embrace of nondelegability as a matter of law. Building from decisions that presume apparent agency, the Comment notes that, “for certain core hospital functions, such as nursing care, it may be unacceptable as a matter of law to permit a medical institution to disavow vicarious liability for the negligence of independent contractors – even if it furnishes patients clear and timely notice of the contractors’ independent (nonemployee) status.”Footnote ³⁸

The extent to which courts take up this invitation remains to be seen. But, even with some uptake, wholescale enterprise liability for independent physicians remains inconceivable in the short or medium term. More likely, continuing integration among facilities and professionals will diminish the practical importance of any major doctrinal reform regarding independent physicians.

7.5 Conclusion

This chapter presents several examples of tort law’s ability to thoughtfully adapt to changes in health care delivery at a measured pace – a pace that does not attempt to anticipate changes before they become widespread but also does not lag too terribly far behind important changes. The new Restatement of Medical Malpractice dutifully reflects where such changes have already taken hold and points to other changes that are primed to occur or to become more mature. Considering how rapidly health care delivery has changed, tort law appears by this assessment to be performing acceptably well on the adaptability score.

In some respects, however, this assessment highlights challenges to tort law governing and shaping modern health care delivery. Because the DNA of tort law adapts to practices, structures, and norms as they are, it is not well suited to leading or pushing for reform. Because a Restatement is, at its core, a synthesis of existing doctrine rather than a law-reform enterprise, Restatements have very limited ability to force tort law to improve or modernize. Nevertheless, embedded in the Restatement are a number of key passages that point in potentially constructive directions that future evolution of tort doctrine might take. Other points of doctrinal rigidity, however, might require more overt law-reform efforts to overcome.

8.2 The Pandemic Liability Dilemma: Individual Compensation versus Economic and Social Disruption

The COVID-19 pandemic harmed people around the world. In the United States alone, nearly 1.2 million people died because of the virus, and many more suffered serious, often permanent injuries.Footnote ⁴ The economic loss has been massive as well, with some estimates at US$14 trillion by the end of 2023.Footnote ⁵ Some of the spread of the disease was caused by individual negligence; some was caused by businesses, including health care businesses, such as nursing homes, that failed to take appropriate precautions to reduce the risks of spreading disease.

Although many victims of COVID-19 had health insurance or other forms of insurance to cover some of the financial costs of their injuries, many did not. Private insurance, as others have pointed out,Footnote ⁶ has proved inadequate to handle most business- and health-related losses. For those who became infected in the workplace, workers’ compensation was not available for the spread of disease in many jurisdictions. Many victims of negligently transmitted COVID-19 who were otherwise uncompensated needed immediate relief to pay for ongoing medical care, time off work, and other harms.

In theory, private tort law could provide that relief. Consider a hypothetical case of COVID-19 transmission vis-à-vis the elements of a conventional tort: (1) Injuries in the form of death, disability, treatment costs, and lost wages are all obvious consequences of COVID-19 transmission; (2) businesses owe duties to employees, customers, patients, and others to whom they could cause harm by failing to adopt reasonable precautions to prevent the spread of COVID-19; (3) businesses might breach these duties by failing to adopt such reasonable (even statutorily required) precautions; and (4) both actual and proximate cause could theoretically be established, such as where an employer knew or should have known that an employee was likely infected yet required her to come to work. Some combination of these circumstances could establish a case for damages.

In practice, however, COVID-19’s characteristics pose roadblocks to the prima facie case, particularly the element of causation. Contact with any person – while shopping, filling a car with gasoline, interacting with a neighbor, or even visiting outside – raises the possibility of exposure. Thus, unless the facts line up just so or reliable DNA sequencing is applied to trace transmission – both of which are unlikely – it is nearly impossible to establish causation by a preponderance of the evidence. Tort law thus proves an ineffective mechanism for compensating injured individuals in this context. And given the nature of infectious diseases more generally, this is likely to be true in the context of future pandemics as well.

One answer to address all this uncompensated suffering is to conceive of it as an accident and allow loss to “lie where it falls.”Footnote ⁷ But to the extent that such losses were caused by negligent behavior, it would seem unfair to leave victims without recourse for this but not other wrongs, particularly given the extent of the suffering. Moreover, there are strong policy reasons for extending coverage via tort replacement to those victims who are not eligible for other forms of relief. As we have seen through this and earlier pandemics, the more serious and sustained the human suffering, the greater the threat to our economy and social life. Indeed, we can recall in the early months of the COVID-19 pandemic the profoundly unsettling tableaux of empty streets, unattended funerals and religious gatherings, and the sudden paucity of normal human connection that accompanied the draconian steps to stop the spread of the virus.

Yet even if the causation problem could have been solved by better tracing, it is not obvious that widespread tort liability for negligent COVID-19 transmission would have been any more desirable than tort replacement during the pandemic or that it would be during the next pandemic. After all, even if plaintiffs could overcome these proof challenges (as well as other challenges such as liability shields and workers’ compensation restrictions), the enormous costs for businesses (especially small ones given what would be untenably high insurance costs), the economy, and the judicial system might not be worth the benefits to victims.

Similarly, the potential negative effects of tort on social life, such as more widespread quarantines and shutdowns, might be catastrophic. A public tort-replacement system may provide an answer.

8.3 Lessons from Prior Examples of Tort Replacement

Unlike COVID-19, the liability dilemma posed by the virus is not novel. In the past, legislatures have adopted administrative compensation schemes to (1) meet the needs of potential plaintiffs who face substantial obstacles to recovery under the conventional tort system and (2) avoid excessive costs to defendant businesses, industries, the economy, and social order that could result from reforming tort to allow mass recoveries.

8.4 A Brief Proposal and Policy Imperatives

Wrongs between private parties – whether in health care or outside – are typically adjudicated under private law. Yet, however coherent a system for deciding where the costs of accidents should fall generally, sometimes private law fails to realize either its own goals (e.g., compensation and aligning incentives) or important social goals. In such cases public law can supplement, or even supplant, private law to fill the needs left by private law.

Offering a full proposal is far beyond the scope of this short chapter. Instead, we have focused on two more modest aims. First, we suggest that tort replacement in the form of a social insurance-like compensation scheme might have solved some of the problems that private tort law failed to address during the pandemic and offers a policy solution for next time. Second, we offer multiple examples of effective use of tort replacement to solve compensation problems or, in the alternative, to forestall crushing litigation.

Importantly, we do not envision complete replacement but, instead, propose to supplement tort. For example, conventional tort should be available for cases involving any breach more culpable than negligent behavior, including grossly negligent, reckless, willful and wanton, and intentional behavior that causes harm. Moreover, we recognize the need to protect against the risk that tort replacement would effectively provide social insurance for all relevant harms, such as all COVID-19 transmission, and, thereby, lead to unsustainable costs. We, therefore, envision limiting the program in various ways, such as through subrogation rules that would only cover damages not otherwise covered through existing health insurance, unemployment coverage, business insurance, or other programs.

Tort replacement is worth considering in the pandemic or similar contexts for at least the following four overlapping policy reasons:

• First, it would provide compensation more quickly and efficiently than tort law can likely do during the time of a pandemic. COVID-19 victims, for example, have faced great obstacles in maintaining a successful tort suit. To wit, they are not likely to establish causation, and even if they could, many defendant tortfeasors (namely, small businesses) would be effectively judgment-proof. With a replacement regime, these would-be plaintiffs could promptly receive the compensation they need to take care of health and other pressing expenses.

• Second, equity and fairness favor tort replacement in these circumstances. More than in other mass tort settings, the facts often differ by case – the manner of exposure varies tremendously across and within industries. Consider the differences in congregate care settings, nursing homes, and college dorm rooms. With such different underlying facts, opportunities for class actions or other consolidated litigation are limited. Compensation schemes are likely to reach more potential plaintiffs and be more equitable across a range of plaintiffs and defendants than conventional tort law.

• Third, a sensible administrative mechanism would provide greater certainty and finality for potential plaintiffs. It would also lead to less business disruption because businesses could plan for the fees they would need to pay to benefit from a replacement system, and they would not need to adjust business to avoid a potential and uncertain spate of claims, which happened not to arrive during this pandemic. Of course, the cost of this system would be deterrence. We would address this in two ways. As discussed above, we would maintain the tort system for cases that involve breaches based on more culpable behavior than ordinary negligence. And we would rely on accompanying regulation that required compliance with safety standards for a business defendant to benefit from the replacement system. Other regulations, potentially at all levels of government, might penalize defendants who did not adhere to specific standards of behavior. Establishing workable criteria for business conduct consistent with current scientific expertise would be both more effective and less turbulent than the behavior required as revealed through aggregated tort judgments.

• Fourth, the vast majority of states immunized businesses from tort liability to encourage them to stay or reopen in the face of various uncertainties relating to insurance, liability, and other factors beyond their control. The impact on certain segments of the economy, such as restaurants and concert venues, has been massive, and it likely would have been worse without such immunity. However, the benefits of immunity in terms of maintaining and restoring commerce and social life came at a great cost. Tort replacement would have allowed victims to have some recourse. In terms of potential defendants, linking participation in a replacement system with adhering to safety standards, as some immunity statutes did, might have avoided some harm.

8.5 Potential Objections

A tort-replacement system raises a host of practical and theoretical considerations as well as federalism issues. We briefly consider some of the most salient objections to tort replacement in this context.

First, and perhaps the biggest objection, is that a compensation scheme might fail to motivate individuals and businesses to take adequate precautions to reduce risk. As we explained above, although no-fault might impede certain corrective actions, we believe a system can be developed to incentivize good behavior and deter bad behavior. Moreover, one should not overstate the deterrent effects of conventional tort law; since most claims predictably have little chance of success, they are unlikely to deter bad behavior.

The second is that replacing tort might undermine a morally centered conception of tort law and liability recovery. To over-simplify, scholars have argued that tort is fundamentally about addressing a wrong committed by a particular party against a particular party, and so it is important that the tortfeasor, not an anonymous fund, compensate the victim. Under the contrary view – where tort consists of a simple economic calculation based only on deterrence and compensation – it doesn’t matter that a victim is compensated by the responsible tortfeasor, as long as potential tortfeasors are deterred by the threat of penalty and victims are compensated.Footnote ³⁹

Although this objection is theoretically important, the practical counterfactual matters. The moral case for tort law assumes that businesses’ misconduct will be redressed through litigation between parties. But as we’ve discussed, litigation in this context has been stymied. Moreover, insofar as it is very difficult to identify misconduct in the infectious disease context, unless we make the untenable assumption that the very fact of operating a business and not knowing the health status of customers or employees is negligent behavior requiring redress, these pandemic cases are not viewed well through the lens of morally condemnable action.

The third objection is that this short chapter has not grappled with important practical questions, perhaps chiefly funding needs, which could be very large. Importantly, we are not suggesting the establishment of a new entitlement but only a supplement to existing insurance systems. Applying subrogation rules and the like, we propose tort replacement only for individuals and small businesses that do not have adequate means through insurance or other resources to deal with the serious harms that COVID-19 or some future pandemic disease may cause. In evaluating schemes, and especially in doing the cost/benefit analysis integral to making sound regulatory choices, policymakers should consider the economic (and other) effects of not dealing effectively with the matter of damage and compensation.Footnote ⁴⁰ So viewed, it is by no means clear that a scheme of the sort we describe is much more costly than doing nothing of the sort.

Finally, this chapter cannot adequately analyze the enormous and enduring issues of federalism and comparative institutional competence that tort replacement raises. On the one hand, as tort is traditionally state law, it may make good sense to pursue compensation reform at the state level. On the other hand, the characteristics of COVID-19-related injuries, beginning with the ineluctability of borders in controlling transmission and the national impact on public health and the economy, suggest that an effective compensation scheme might require national action. In any event, our suggestion to consider tort replacement does not depend on whether a scheme is enacted by Congress or the states, and any constitutional problems can and should be addressed in the structure of proposed legislation.

8.6 Conclusion

Rather than reforming private tort law to address the great needs caused by pandemics such as COVID-19, we have considered replacing it with a public system. Precedents for such replacement were motivated by issues we saw in this latest pandemic, namely (1) the unmet needs of potential plaintiffs and (2) the significant harms to social life and the economy that would result from reforming tort by relaxing the requirement to connect the injury with the commission of a wrong. These programs have been generally successful at addressing both issues and serve as models for the type of compensation scheme legislatures should consider adopting in the COVID-19 context and in the face of pandemics to come.

9.2 Human Body Commons Entangled: Unraveling Genealogies and Typologies

The terms “commons” or “communing” elicit different meanings and are used differently by different bodies of literature and disciplines.Footnote ⁵ While the terminology may be similar, the normative foundations and objectives behind these strands of scholarship differ significantly. This difference has led to considerable confusion and misunderstanding of the concept of the commons. A clear disambiguation is therefore essential to understand the potential application of this concept to health data, HBM, and scientific knowledge.

This chapter focuses on two distinct, but intertwined, bodies of literature that have developed clear theories on the commons: (1) theories on open commons (OC) and the public domain;Footnote ⁶ and (2) the works on the Institutional Analysis and Development (IAD) framework for the governance of common pool resources (CPR),Footnote ⁷ as proposed by Elinor Ostrom and further developed and adapted to account for different types of commons and institutions for collective action.Footnote ⁸

The OC envisions an open commons with a symmetric freedom to operate. Nobody from an unidentified class of users can rely on the power of the State to restrict access to the resource (usually non-rival or partially congestible). In this sense, OC is conceptually located outside the property regime.Footnote ⁹ Common pool resources are bottom-up arrangements with clear rules of membership and access to a resource (characterized by high rivalry and low excludability).Footnote ¹⁰ From this perspective, CPR are commons inside, but property outside, as members can rely on the power of the State to prevent nonmembers from accessing the resources.

Despite their differences, both types of commons (OC and CPR) share the underlying assumption that state or market solutions for the governance of resources are not always sufficient, nor necessary.Footnote ¹¹ Nonetheless, these two theories on the commons can offer a compelling normative underpinning for the de-privatized governance of science and knowledge.

Two related problems at the intersection of both types of commons make the case: (1) the problem of sharing and circulating the managed resources and (2) the problem of freeriding, reseeding the commons, and distributing its benefits.

These problems are particularly complex for the governance of the different resources within the human body commons. First, individual rights on informed consent, privacy, and data protection tend to limit the circulation and the repurposing (secondary uses) of data and HBM. This makes personal data and HBM highly excludable (i.e., the use of these resources by others without consent is very limited).Footnote ¹² Second, HBM, (health) data, and scientific knowledge are different types of resources: While scientific knowledge and data are, in principle, non-rival intangible resources (i.e., many can use the same resource at the same time) provisioned in market, public, or social processes, HBM are naturally provisioned tangible rival resources (i.e., the use of HBM prevents simultaneous consumption by others).

Third, the material dimension of HBM makes them perishable, consumable, and prone to contamination. Human biological samples are often consumed after they have been analyzed and, if not, it is difficult to guarantee that the samples have not been altered after the first analysis, which would make them unsuitable for research. Fourth, these resources are circularly connected – HBM are necessary for the extraction of data, which in turn, together with other types of health and medical data, are the raw materials for the creation of scientific knowledge. The latter is an input for further innovation and a source of positive societal spillovers. The obvious consequence of this interdependence is that the enclosure and privatization of one of these resources negatively affects the existence of the other two, while opening them contributes to the growth of the value of the others.Footnote ¹³

Against this backdrop, the question is: How can OC and CPR be applied to the governance of the human body commons? Several specific theories have been put forward to make use of these overarching frameworks to govern the resources included under the umbrella term “human body commons”: knowledge, data, and HBM. These theories include medical knowledge commons,Footnote ¹⁴ genome or genomic commons,Footnote ¹⁵ and medical information commons.Footnote ¹⁶

Although these theories reach different conclusions,Footnote ¹⁷ their importance lies in their theorization of knowledge (and data) as a resource: (1) The fact that knowledge is cumulative makes sharing and creation inextricably related processes; (2) the intellectual products of the past are inputs for future products; (3) the non-rivalry and non-excludability of knowledge in abstracto lead its boundaries to be either artificially built (e.g., through patents) or derived from the embodiment of the knowledge resource (e.g., HBM containing data); and (4) the creation of knowledge depends on rivalrous inputs (e.g., time and money).

Through the analysis of commons-based initiatives of different scales and purposes, the next section examines how private law, by accounting for the aforementioned characteristics, can contribute to the further construction of the human body commons.

9.3 Private Law and Human Body Commons: Between Open Commons and CPR

Commons may be the result of a top-down regulatory approach or, on the contrary, may arise as a response to a legal system establishing a proprietary regime for the governance of a given resource. In the latter case, the commons are carved out of the background law, by using or subverting the legal tools disposed by that very same legal regime.

Contract law and contracts constitute a relevant legal tool for the construction of human body commons. Jerome Reichman and Paul Uhlir were perhaps the first ones to explore the idea of a contractually reconstructed scientific commons.Footnote ¹⁸ Their advancement constitutes, yet again, a response to the phenomenon of privatization of science and data taking place in the last two decades of the twentieth century in the United States. Precisely because of the cumulative and circular nature of knowledge, their analysis focused primarily on the deposit of data in publicly accessible databases. However, it did not include the sharing of HBM.

But building on their work, a combination of theory and practice may show how contracts can contribute to the construction of commons on HBM. Material transfer agreements, the Structural Genomics Consortium Open Trust Agreement, and data cooperatives serve as examples.

A material transfer agreement (MTA)Footnote ¹⁹ is a contract in which a provider and a recipient agree to the transfer of tangible research materials, including HBM, for the recipient’s use.Footnote ²⁰ Beyond their importance in determining the intellectual property rights for provider and recipient, MTAs are also central to one of the core institutions in the collection, processing, and sharing of HBM: the biobank. Despite the many differences in types and purposes, from population to disease-specific, a biobank is essentially an organized collection of human biological samples and associated data for the purposes of present and future research.Footnote ²¹ Biobanks may rely on tailor-made MTAs or can adopt a standardized MTA to share the samples in their collection to researchers and institutions. However, depending on the type of MTA, the recipient of the materials may not be allowed to further share original or derived materials.

For this reason, several standardized MTA models have been developed to facilitate the transfer and sharing of biological materials beyond the first recipient. These models include the Uniform Biological MTA (hereafter UBMTA),Footnote ²² the Science Commons MTA,Footnote ²³ and the Open MTA.Footnote ²⁴

The first of these models, the UBMTA, was developed in the United States by the National Institutes of Health (NIH) in collaboration with other repositories.Footnote ²⁵ Although it facilitated sharing materials by eliminating the need for lengthy or impractical negotiations between institutions, it was also limited to academic or nonprofit institutions and precluded both commercial uses and the further distribution of materials and derivatives.Footnote ²⁶

To remedy this situation, the Science Commons MTA permitted, under certain circumstances, the commercial use of materials, but continued to prohibit their further distribution. To overcome this limitation, the Open MTA was designed. The Open MTA not only allows its use to for-profit and nonprofit entities alike but also permits the use for commercial purposes and the further distribution of materials and derivatives (including tissue samples). Its design was based on the principles of nondiscrimination, access, attribution, redistribution, and reuse.Footnote ²⁷ Despite their differences, these standardized MTAs constitute essential tools to guarantee and facilitate redistribution of biological materials.

Moreover, because standard MTAs can be easily adopted, they also enable biobanks to integrate in wider biobank networks,Footnote ²⁸ participating in that way as nods in an open and growing network of human body commons.Footnote ²⁹

Although the use of MTAs to facilitate the construction of human body commons is not completely new, their use has highlighted some of the advantages of using private law to facilitate the commons. But there are also disadvantages to consider. First, if MTAs do not include clauses on how research results would return to the commons (the problem of reseeding the commons described above), MTAs may in fact contribute to the privatization of research instead of advancing its opening. Second, the limits of MTAs stem from their contractual nature: as contracts are, as a general rule, not enforceable against third parties,Footnote ³⁰ it would be difficult for the original provider of the materials to start an action against a third party who received the materials from the recipient side of the MTA. In other words, MTAs are not very useful in enabling the circulation of materials and data under the same set of rules and limitations.

Perhaps because of this very reason, private law has also relied – beyond contract – on property law for the circulation of research materials and the promotion of open science. The case of the Structural Genomics Consortium (SGC) Open Science Trust Agreement (OSTA) provides an important example.

SGC is a charity registered in the United Kingdom, the mission of which is to accelerate research in new areas of human biology and drug discovery.Footnote ³¹ Unlike MTAs, in which a bilateral agreement is concluded between provider and recipient, the SGC OSTA is an agreement in which the recipient of the materials agrees to become a trustee of the research material.

According to the SGC’s website:

Some of the obligations of the trustee include (1) not seeking or enforcing intellectual property rights covering the material, which could deter or prevent others in the research community from using the material to further the public good, and (2) placing the research findings and data resulting from their work with the material into the public domain, which helps to accelerate discovery.

Furthermore, the trustee is permitted to disseminate “the material to other researchers who likewise agree to become trustees, thus expanding the community of researchers committed to open science for the public good.”Footnote ³³

According to the SGC, the rationale behind such an agreement, instead of an MTA, for example, is that treating the materials, not as a proprietary good, but as a public one to be shared broadly, accelerates discoveries stemming from the use of the material. Although initially mandated (i.e., the investigator requesting the materials must become a trustee), further transfers to new trustees must happen on a voluntary basis.

While the OSTA was not specifically designed to share HBM,Footnote ³⁴ one can envision ways to modify it and include the possibility of sharing materials of human origin.Footnote ³⁵ More specifically, it would be possible at the point of collection of the materials, for example, via broad consent mechanisms, to enable circulation of materials that otherwise could not circulate freely. An alternative to consent mechanisms for the circulation of materials of human origin would be to devise a specific set of principles for which research on HBM without consent would be legally and ethically permissible.

In addition to contracts and property law, other private law instruments allow for the creation of institutions of collective action for the construction of the human body commons. Cooperative-based initiatives for the governance of health data are particularly interesting.

Health data cooperatives are associations of individuals under a cooperative structure for the collective governance of their individual health data for mutual benefit.Footnote ³⁶

According to some cooperative models for the use of health data, when data are controlled by citizens themselves, potential value of data can be maximized, while at the same time guaranteeing the protection of the data subjects’ rights. Thus, one could think of models in which the storage and secure handling of data is overseen by a trusted entity: the cooperative (co-op). Users could purchase a membership certificate for an amount of money and use the co-op as a trusted repository.

Although the cooperative model was initially intended for genomic data, nothing prevents people from depositing all kinds of personal or health data, regardless of their origin (e.g., applications, wellness devices, and medical devices). In this way, the members of the cooperative would have the right to vote on decisions related to the benefits derived from the exploitation of their data by third parties.

Under this model, a pharmaceutical or medical technology company, for example, would pay a sum of money for the right to exploit the data that the members of the cooperative have decided to share, and could also, depending on the agreements adopted, deliver the results of the research to the accounts of the associates or to the cooperative. The economic benefits of the information that the cooperative obtains from the exploitation of the data could be reinvested in research programs or other types of projects of public interest.

Data cooperatives are a perfect example of a CPR that integrates different sorts of data and data sources for biomedical research.

MIDATA Genossenschaft (MIDATA), a Swiss health data cooperative, serves as a case in point. According to its articles of association,Footnote ³⁷ MIDATA operates a secure IT platform for the processing and sharing of personal data, and in particular, health data. The cooperative makes the platform available to natural persons so they can use it to store and share their data as self-determining agents with the aim of supporting research purposes.

MIDATA promotes the collective interests of account holders by enabling the shared use of their personal data. Individual account holders can consent to data analysis and secondary use by third parties in return for economic compensation.Footnote ³⁸

At this point, it becomes evident how data cooperatives, as a form of CPR, can successfully manage genomic and other types of health data, while at the same time reseeding the commons with the profits and research results arising from the use of pooled data.

MIDATA is also relevant from the point of view of managing privacy in the human body commons.Footnote ³⁹ Although in this case, explicit informed consent is necessary for the processing and sharing of health data, it is possible to find other legal pathways to govern health data sharing and access for secondary uses. Moreover, although data cooperatives have not yet proliferated, it is very likely that an increase in their number will follow their legal recognition by the EU Data Governance Act.

9.4 Conclusion

From the analysis of theories on the human body commons and private law examples from biomedical practices, several conclusions can be derived: (1) It is necessary to integrate different types and sources of data, facilitating interoperability and data sharing; (2) due to the circular nature of knowledge and data commons, to build a human body commons, it is necessary to strike an equilibrium between the positive societal data sharing spillovers and data protection and other individual human rights; (3) HBM, and not only knowledge and data, must be integrated in the analysis; and (4) it is paramount to establish clear rules for the reseeding of the human body commons in such a way that the intellectual products of the past become the input for future knowledge.

Furthermore, because human body commons integrate different types of resources (i.e., HBM, health data, and scientific knowledge), a combination of different types of commons is necessary for its further construction and development: top-down Open Commons and carved-out Common Pool Resources commons. By way of explanation, public ordering solutions open the scope of the public domain for the creation of open human body commons, while private ordering solution create common property regimes.

New theories on data, which facilitate the repurposing and reuse of health data, would change the status of personal health data from highly excludable to non-excludable. In this sense, a jump from a CPR to an OC can be envisioned with the help of regulatory instruments, which allow to bypass consent for the use of data for the “common good.”

For HBM, the embodied resource of the human body commons, it seems difficult to imagine a fully open commons. However, private law has proven useful for the circulation and sharing of materials and associated data. Here, commons on HBM can be organized as multiple nodes (e.g., biobanks) of CPR connected to a wider mixed network of health data OC and CPR.

For scientific knowledge, it is necessary to guarantee that the developments and innovation derived from the use of OC and CPR in HBM and health data, return and reseed the commons in the forms of knowledge, benefit sharing, and money. This could be enabled by top-down regulation or by forms of collective action and negotiation (e.g., health data cooperatives) with data users and industry.

This chapter demonstrated how contracts, property, and other private law mechanisms may be used as vehicles for the governance of health research resources and health policy.

Such policy must develop a framework to avoid freeriding from actors using the commons, as well as a normative framework well-grounded in the promotion and protections of human dignity and human rights,Footnote ⁴⁰ with specific reference to the right to health and the right to enjoy the benefits of science may be a good starting point.