This part closes the volume with an exploration of private law within two very different sectors of health care: the pharmaceutical industry and the aging and end-of-life sector. At first glance, it may seem that these two components of the health care field have little in common.
But when the reader has a chance to dive into the four chapters of Part V commonalities emerge, especially in regard to the use and scope of private law. As one of the authors in this part, Barry Furrow, writes, “[p]rivate law can have a powerful role.” Three of the chapters in this part speak to opportunities to harness private law to address problematic incentives and profit seeking across the health care field. The last chapter serves as a warning, arguing that private law and organizational choices can undermine public policy and legislation if not properly harnessed. In summation, these chapters provide the reader with a sense of the value of private law in influencing health policy across the field, and the importance of using it well.
In the first chapter of Part V, “Private Equity Firms and Digital Clinical Trials: Tensions between Efficiency and Drug Evidence Access,” Chapter 19, Ximena Benavides considers the role of private actors in producing pharmaceutical research. Benavides traces the rise of decentralized clinical trials (DCT), especially during the COVID-19 pandemic. She argues that DCTs make investment in biomedical research particularly appealing to private equity firms. Benavides then argues that private equity firms’ profit incentives call into question their ability to support quality research. While Benavides does call for improved regulation, she also notes that private equity firms must accept greater moral responsibility than they have to date.
Rebecca E. Wolitz is likewise concerned with the impact that profit incentives can have on access to pharmaceuticals. She notes that many managers and directors of pharmaceutical companies feel that their investors expect profit maximization, which spurs business decisions that lead to unreasonably expensive prescription drugs. But she notes that for the past several decades shareholders have raised concerns about drug pricing through access to medication shareholder resolutions. Wolitz highlights that the resolutions are a private law tool that can be used to provide a unique perspective and work in tandem with regulatory and legislative efforts to address drug pricing.
The third chapter of Part V, “The Hollowed-Out American Nursing Home: Using Private Law to Police Poor Quality Care and Expand Owner Responsibilities,” Chapter 21, shifts the focus of Part V from pharmaceutical research to aging care and nursing homes. Barry R. Furrow, like Ximena Benavides, is concerned with the impact that private equity ownership will have, in this case on nursing homes. Furrow is concerned that the private equity focus on short-term, significant returns for its investors will lead to low-quality care for nursing home residents. He notes, however, that regulatory oversight has been particularly weak for nursing homes, meaning that public law tools may not be optimal for safeguarding nursing home residents. Instead, Furrow offers a model of robust fiduciary duty, using the private law doctrinal framework to better police private equity actors in this space.
The last chapter, “Health Care Organization Policies about the California End of Life Option Act: A Paper Victory of the Medical Aid in Dying Movement,” Chapter 22, by Megan S. Wright and Cindy L. Cain, illustrates how private choices can undermine public policy. Wright and Cain focus on the implementation of medical aid in dying (MAiD) in California, calling it a public policy “paper victory” because very few individuals are able to meet its requirements to qualify for MAiD. They flag that private law or organizational choices create a roadblock to meaningful access to MAiD. California allows health care organizations to opt out of providing MAiD, which many religiously affiliated hospitals have chosen to do. Other health care organizations opt into providing MAiD but use internal policies, such as choosing to not publicly post their MAiD policy or require additional appointments and assessments, to limit its use by their patients.
At first glance, Wright and Cain’s chapter creates somewhat of a contrast with the work of Benavides, Wolitz, and Furrow, all of whom are arguing for private law tools to address policy concerns. But upon further reflection, Wright and Cain’s chapter serves as a warning against ignoring the power of private law. In California, the MAiD legislation did not consider how the choices of private actors could create a “paper victory.” Had MAiD advocates understood the importance of private law tools in achieving meaningful access to services for all, they might have found inspiration in the other chapters of Part V, and in the rest of the volume, for ways to harness private law to support their goals.
19.1 Introduction
Over the past two decades, the use of digital technology in clinical trials has proliferated, a shift that has been argued to reach a more diverse and representative trial population more efficiently. Also known as decentralized clinical trials, digital clinical trials (DCTs) saw a vastly increased use amid the COVID-19 pandemic, when remote methods were employed to reach trial participants who could not reach trial sites in person. While improving clinical trial accessibility through decentralized approaches is important, it is also crucial who is leading these efforts in the generation of scientific evidence. This essay re-centers the relationship between private equity (PE) and clinical trials in the analysis of DCTs and the social value of access in the for-profit, private production of scientific evidence. In a highly fragmented biotechnology industry, where PE firms are increasingly acquiring small firms that provide outsourced clinical research services, DCTs and PE firm unions might bring about additional opportunities to increase drug data opacity, compromising the access to the greater production of scientific evidence driving digital technology.
Structured in three parts, the essay examines the current state of DCTs and questions whether PE firms’ investment in DCTs is convenient for data generation and access to quality medicine. The first section discusses the exponential growth of DCTs, particularly in the years following the pandemic, and their potential to address challenges of the traditional on-site clinical trial model. The second section examines PE firms’ increasing interest in DCTs from a business, law, and policy perspective. The final section discusses the risks of generating scientific evidence through profit-driven models, with a special focus on the issues of publicity in the wider political economy of PE-funded medical research.
19.2 From In-Person to Remote Clinical Trials
Clinical trials are essential for generating the scientific evidence that regulators require to permit and ensure only safe and effective health care innovations leave the laboratory bench and eventually reach the market. In the past decade, private actors, including PE firms, have invested and managed the evidence production endeavor, critical to innovation access. Meeting the appropriate trial enrollment levels has been an important dimension of generating relevant and sufficient trial data that can be used to evaluate the efficacy and safety of medical treatments, drugs, and devices.Footnote 1 Yet, finding and recruiting trial participants can often be an operationally limiting and expensive task.
Traditionally, patients had to attend medical research sites in order to participate in clinical trials. This presented a series of problems to researchers. Consider that more than 70 percent of the US population lives at least two hours away from an academic medical research center and that only 50 percent of the US population participates in clinical research.Footnote 2 Bringing patients to a facility reduces generalizabilityFootnote 3 and generally implies mobility constraints that could make trial participation expensive or impossible.Footnote 4 These difficulties, in addition to participants’ communication and the identification of operational constraints, tended to increase the participants’ burden, considerably extending trial timelines and inflating costs, particularly in trials involving a large number of participants.Footnote 5
Diversity in trial patient pools is another problem affecting clinical data generation. A recent study of sixty-four trials that led to fifty-nine FDA-approved cancer therapeutics between January 2012 and December 2017 showed an adequate representation of women (56 percent), older adults (24 percent), and racially and ethnically minoritized patients (16 percent).Footnote 6 If evidence for new medical interventions is “dominated by data from unrepresentative populations,” as independent researchers argue, different disease severities, comorbidities, age groups, geographies, and other profiling factors will be excluded and users harmed by disparate access to medical treatment.Footnote 7
The decentralization of trials has thus been presented as a way to deal with recruitment and demographic representation obstacles while significantly reducing associated costs and time. Trials conducted entirely virtually can reach a larger, diverse population and their participants no longer need to travel to medical research centers and might not even meet with their study teams.Footnote 8 Remote monitoring and real-time oversight of participants can alleviate investigators’ and participants’ workloads while increasing the opportunities for assessments over extended periods of time.Footnote 9 This is expected to accelerate scientific evidence generation, with higher and faster data accuracy and cost controls, and, potentially, contribute to catapulting more products to the market sooner. Technology adds to decentralization improved recruitment, oversight, and the retention of a larger and diverse trial participant pool, data collection and aggregation, and data analytics. Huge growing trial data volumes will progressively be subject to sophisticated analytics and data-driven algorithms, with Artificial Intelligence and Machine Learning in clinical research reshaping drug development.Footnote 10
Although running medical research studies remotely with the assistance of technology has been an ongoing practice for years now,Footnote 11 and even captured the attention of the government,Footnote 12 it was only by the end of the past decade, with the COVID-19 pandemic, that their decentralization and the use of research digital tools gained popularity. As a result of isolation-based public health measures for the risks of contracting the virus and clinical networks’ priorities shifting from research to the treatment of COVID-19 patients, trial enrollment decreased by more than two-thirds across all therapeutic areas.Footnote 13 Remote trials proliferated and the Food and Drug Administration (FDA) required research sites to adjust their safety procedures or switch to digital, waiving Institutional Review Boards (IRB) or FDA approval but still subjecting them to reporting.Footnote 14 Remote trials during the pandemic helped to assess the strengths and weaknesses of virtual trials – for example, that studying patients remotely can be safe as long as participants do not have a serious medical condition (e.g., infectious disease or progressive cancer)Footnote 15 – and became a regular practice.Footnote 16 Since 2021, DCTs have become a “major part of [the industry’s] portfolios.”Footnote 17 Several clinical research organizations (CROs)Footnote 18 and academic research and related public–private initiativesFootnote 19 have developed products across the decentralized trial spectrum.
19.3 Private Equity’s Interest in DCTs
The US health care industry has been increasingly attractive to PE firms for some time now.Footnote 20 Distinctively, the United States reports an average of 2.3 PE health care transactions daily.Footnote 21 From hospital and nursing home buyouts in the 2000s, to medical practice acquisitions such as radiology and outpatient care, including urgent care and ambulatory surgery centers and neonatal and trauma units in the 2010s, PE health care investments have increased twenty times their value in the past two decades.Footnote 22 PE has also been active in nonhospital-based dermatology, dental, orthopedics, and behavioral health specialties,Footnote 23 and medical debt collecting.Footnote 24
Clinical trials, particularly those remote and digital, represent a new business opportunity for PE firms: If a drug can reach the market sooner and at a lower cost, manufacturers will make more profit. By outsourcing the performance of trials to CROs, manufacturers can reduce investment risks and separate the operational costs of running a trial; in turn, CROs can make revenues despite trials failing or if a drug is not approved.Footnote 25 The way in which PE firms operate, raising capital and investing it into various privately held companies, often grants them ownership or enough of a stake to gain operational control of their portfolio’s companies, appoint company directors, and dictate every aspect of the companies’ business and affairs.Footnote 26 The decentralization and digitization of trials require infrastructure outside of a research institution and technology tools that are often proprietary. This provides CROs – and the PE firms that finance and manage them – with more opportunity to grow, continue penetrating the space of trials, and build the infrastructure and technology required. Studies found substantial value in employing DCT methods in phase II and phase III of clinical trials, with high returns on investments.Footnote 27 Decentralization would be particularly more amenable for “general population drugs,” which serve a category of patients with less hospital-based resourcing needs;Footnote 28 yet, the industry has expressed interest in the decentralization of trials for rare diseases, too.Footnote 29
Financial stability would make trials a reliable investment for PE portfolios. Business strategies vary somewhat by type of private equity investment, but prioritizing short-term, high profits stays as a primary goal.Footnote 30 Unlike other technology-based industries, trial demand is resilient to inflation and economic declines. Research and development (R&D) of new health technologies can largely be government-backed, which secures low debt levels once entering clinical trial phases. Although these are signs of stable cash flow, some high volatility suggests clinical trials to be risky investments, with already cautionary tales of valuation fluctuation and labor struggles.Footnote 31 Science 37, one of the first DCT startups, showed continued and massive share price drops after an oversubscribed offering in 2020 and a major public listing in 2021.Footnote 32 Nevertheless, overall, DCTs make financial sense to PE firms that tolerate volatility and can make huge returns provided timely, good planning.Footnote 33 The clinical trial space is attractive for businesses; valued at US$16 billion, with an estimated 6.8 percent compound annual growth rate through 2025.Footnote 34 Since January 2021, ten PE-backed trial platforms have been acquired or created,Footnote 35 yet mostly interested in late-stage trials.Footnote 36 No drug studied via remote trials (whether PE funded or not) has been approved yet to date.
From a legal and policy perspective, the outsourcing of pharmaceutical services has not spurred enough regulatory oversight. Generally, PE firms’ transactions are not subject to rigorous scrutiny even though they can have large effects on competition.Footnote 37 About 90 percent of PE transactions – either buyouts or investments – are exempt from the federal mandatory antitrust reporting threshold,Footnote 38 with the exception of a few states, such as Oregon and Massachusetts, that monitor health care antitrust activity.Footnote 39
Fragmentation also makes clinical trials a prime target for PE firms. The medical research market includes stand-alone clinics and physician practices performing studies on a part-time basis, commercial sponsors, and CROs. As fragmented as trial activities thus become, it is harder for policies to address trial challenges with specificity, which creates the risk of ignoring the secondary effects of a given policy choice and moving toward contradictory policy goals – like expanding DCTs through PE firms.Footnote 40 For PE firms, fragmentation also represents the opportunity to consolidate markets and reduce operational costs, which PE firms do to maximize profits.Footnote 41 Vertical integration of CROs’ service offerings (e.g., recruitment, data collection) allows PE firms to gain operational control over trials.Footnote 42 As PE firms acquire independent sites, they become part of larger networks to be sold off once they are rolled up into a business.Footnote 43 Following a merger, acquirers tend to prioritize services that are operationally cost-efficient. Recruitment might be one of them. Additionally, former CEOs of pharmaceutical companies are occupying influential seats at PE firms,Footnote 44 suggesting new combinations of small and big pharmaceutical industry dominance that will demand new private law tools to ensure that consolidations receive increased scrutiny.
19.4 Greater Scientific Evidence at the Risk of More Opacity
Allegedly, PE firms have targeted DCTs as a blooming business opportunity.Footnote 45 At least 65 percent of the total clinical research transactions reported until February of 2023 have involved PE firms.Footnote 46 Eleven of the twenty-five PE firms identified by PitchBook as health care sector top investors have bought stakes in CROs.Footnote 47 Is it beneficial for scientific evidence production that PE firms finance and manage clinical trials, their decentralization, and digitization?
This essay frames this question not as one of ownership but of governance, motivated by concerns around access to scientific evidence produced by private sector actors. PE firms’ interest in DCTs is in tension with the original sponsor role of the industry. The FDA first coined the term drug “sponsor” in the 1960s to differentiate research tasks from development, when the labor of clinical investigations was conceived divorced from the industry. The role of drug manufacturers was to promote the merits of a novel product to the regulatory agency until it reached approval for commercialization.Footnote 48 The Bayh-Dole Act of 198049 opened the door for financialized actors to venture into drug development.Footnote 49 In the 1980s and 1990s, pharmaceutical firms underwent a corporate strategy transformation under the rise of the idea of shareholder value maximization (SVM), which distorted the way in which larger, publicly traded pharmaceutical companies generate growth for their shareholders – not on their current profitability but on their potential to deliver future earnings.Footnote 50 Although the expansion of financial actors, like venture capital, in the US health care systemFootnote 51 and biotechnology particularly is not new,Footnote 52 as PE firms get more involved in the decentralization and digitization of research, the industry’s original sponsor role reaches – yet again – new extremes. It also reinforces the supply-driven approach that has shaped biopharmaceutical innovation, which aligns biopharmaceutical innovation priorities with market demand over the social value of science, leaving the end goal of access to scientific evidence and resulting medicine at the periphery.Footnote 53
Scholars have raised concerns about PE firms’ investment in health care based on negative outcomes in the delivery of medical care: decline in safety and efficacyFootnote 54 and higher prices.Footnote 55 Clinical trials bring forth their own set of risks, too. Two areas of concern are the ethics of trial participants’ engagement (including data privacy protections, inclusivity, and participants’ rights and safety)Footnote 56 and the opportunities to skew or produce faulty data in uncontrolled environments.Footnote 57 In these cases, private law tools like torts are available to enforce data privacy obligations. But having new financialized actors like PE firms, private by nature, directly involved in a considerable and rising number of trials that generate critical scientific evidence that supports the release of new health technologies into the market, might affect all and everyone as potential science users, beyond trial participants, and subject to less transparency regulations.
Crucially, DCTs are expected to generate greater data volume and data diversity. As PE firms engage in ambitious DCTs, they will gain access to a larger number of patient data sources, leverage data management tactics with sophisticated digital tools, and be able to obtain more critical clinical data. For instance, a 2021 Tuft CSDD report evidenced that phase III clinical trials already generated an average of 3.6 million data points, three times the data collected by late-stage trials ten years ago.Footnote 58 These numbers are expected to continue to grow as trials are digitized. Now, more data has not always led to better scientific evidence for quality drugs. The clinical evidence that the industry currently produces and delivers to the FDA in order to assess the safety and efficacy of drugs is either incomplete or not as transparent and accessible as needed. There is no indication that PE firms’ involvement in the generation of scientific evidence will fix the information problem clinical trials face – to the contrary, the risk of opacity may even increase under PE leadership due to their opportunistic business model.
PE firms generate scientific evidence that is essential for regulators to exercise oversight over drug development, improve treatment guidelines, incentivize better innovation, and shed light on and correct bad industry practices. Data publicity is also important to bioethicists, who aim to reduce risks to trial participants and drug users; to health economists, to better direct health care spending to safe and effective treatments; and to independent researchers, advocates, and citizens at large for data reevaluation and accountability.Footnote 59 The FDA, which “houses the largest known repository of clinical data” in the world,Footnote 60 plays a gatekeeping role, with a primary function of information generation and validation.Footnote 61 This function is essentially frustrated when all information about drugs obtained in clinical trials is not made available or a part of it remains secret. All information includes both the positive and the negative data generated at trials. The burden to provide evidence of any negative effects is on firms.Footnote 62 However, drug developers have insufficient incentives to generate and share negative information as they want drugs to be approved, affecting validation.Footnote 63 A free rider problem leads to an information production and data publicity problem that PE firms could hardly overcome due to their appetite for maximizing profits in line with their fiduciary duty to create value for their investors in return for their entrusted money. This transactional PE–investor relationship silences other stakeholders’ interests (e.g., developing science for the benefit of the community) and makes more socially oriented goals, such as making complete drug evidence accessible, be perceived with disbelief.Footnote 64
Different trials produce different types of data. Metadata is essential for interpreting clinical trial results.Footnote 65 They include the study protocols that set forth investigators’ statistical analysis plans and the endpoints a clinical study will evaluate. The FDA requires metadata for drug assessment and approval;Footnote 66 independent researchers use them to run a reanalysis of studies and identify probable misleading studies generating flattering results.Footnote 67 Summary data include clinical trial summaries, prepared by manufacturers and submitted to the FDA, that highlight key trial results. Although not routinely disclosed by the FDA, summary data can jeopardize medicines’ permanence in markets.Footnote 68 Another set of valuable data for reanalysis is individual patient-level data. On a voluntary basis, raw and granular data collected per trial participant is made available in analyzable form and used to identify discrepancies, for example, in summary data.Footnote 69 A drug is safe only if its known therapeutic benefits outweigh its known risks;Footnote 70 thus, because “safety can only be understood in relation to efficacy and vice versa,”Footnote 71 and the safety and efficacy of drugs must be determined together, it is absolutely necessary that all trial data – metadata, summary data, individual patient-level data, and others – are not omitted, but disclosed and shared. The hidden data and existing opacity practices over privately produced evidence have already translated into grave examples of unsafe medicine. Vioxx led to tens of thousands of cardiac deaths,Footnote 72 whereas Paroxetine (Paxil) caused suicidal thoughts in a substantial portion of young patients who used the antidepressant during pediatric treatment, despite studies showing their risks clearly.Footnote 73
PE firms’ profit incentive schemes continue to put the prioritization of safety maximization at risk. The absence of PE-backed trials and approved drugs to date makes it hard to run a comparative analysis between trials with and without PE support. During the pandemic, the New York-based private equity firm Headlands Research established in 2018, which provided outsourced COVID-19 vaccine decentralized trials to pharmaceutical firms (such as Pfizer, Moderna, AstraZeneca, and Johnson & Johnson), grew by buying established trial sites and opening new ones in the United States and Canada under the promise of boosting underrepresented racial and ethnic minority trial representation.Footnote 74 Many of their acquired locations promptly closed, and it remains unclear whether the enrollment targets set for COVID-19 vaccine trials were ever met. The drug company sponsor was the only entity that had access to the multisite aggregated clinical data.Footnote 75
Considering the growing risks of clinical data opacity, PE firms should voluntarily commit to not only advocate for-profit maximization but simultaneously pursue the social value of generating scientific data. Different mechanisms to pursue social value may include targeting socially conscious executive compensation and multiple stakeholder board representation.Footnote 76
19.5 Conclusion
PE investment in remote, digitized clinical trials promises to improve operational, technological, and financial trial inefficiencies. Securing trial participant safety can be ensured by demanding PE firms have higher standards of care, enforced by private law tools. Yet, leaving the production of substantial scientific evidence to PE-backed trials deserves greater scrutiny. It is access to evidence that allows safe and effective health technologies to reach the market. The publicity concerns present today in drug development already indicate a free rider problem and low incentives to generate and disclose all and necessary privately generated evidence. As PE firms with financial opportunistic interests encroach upon DCTs, the tension between profit maximization and evidence and drug safety and efficacy maximization will only become greater. Resolving this tension requires greater moral responsibility from the industry and closer monitoring and critical analysis of PE activity from regulators.
20.1 Introduction
The unaffordability of prescription medications remains an issue of moral and practical importance. To address this issue, scholars, politicians, and activists dominantly focus on “external” regulation – that is, the public law tools of legislative and regulatory reform, such as the Inflation Reduction Act’s (IRA) Medicare provisions.Footnote 1 “Internal” governance dynamics of drug manufacturers and associated opportunities for private ordering, however, are underexamined aspects of access to medications (A2M) discussions.Footnote 2
A standard narrative blames high drug prices on shareholders and corporate fiduciary obligations to “maximize profits.”Footnote 3 Yet, for nearly half a century, shareholders of large drug manufacturers have put forward shareholder resolutions, or proposals, raising concerns about drug manufacturers’ pricing practices. Resolutions are submitted in accordance with regulations under the Securities Exchange ActFootnote 4 and are a tool uniquely available to shareholders. Resolutions have demanded pricing restraint, transparency and reporting about how drug prices are set, and justifications for a range of activities.
These shareholder efforts may not unseat the standard narrative but do add complexity. Not all shareholders accept the serious externalities imposed by drug manufacturers’ pricing practices. Moreover, shareholder proposals raise existential questions about corporate purpose and faithful agency. Discordance may exist between what drug manufacturers say and what they do when it comes to being patient centric. Further, drug manufacturers often seek to exclude resolutions or issue statements in opposition.
This chapter asks: can shareholder efforts achieve public-spirited reform? What are shareholder resolutions’ relative strengths and weaknesses as compared with public law efforts? Are shareholder proposals uniquely well-suited to certain aspects of A2M problems?
Ultimately, shareholder proposals can be an important part of a multi-prong approach that complements “external” legislative efforts. They may also have purchase for overlapping governance matters perhaps better suited to private ordering. Yet, as this chapter shows, shareholder resolutions confront several limitations, and the pursuit of A2M resolutions may be more an opportunity of necessity than choice.Footnote 5
This essay proceeds as follows. Section 20.2 provides background on shareholder resolutions and applicable law. Section 20.3 turns to drug-pricing and A2M proposals, tracing their evolution and then focusing on three kinds of proposals: executive compensation, mission misalignment with political spending, and patenting practices. Section 20.4 reflects on and analyzes themes from these shareholder efforts to address the main questions identified above. Section 20.5 concludes.
20.2 Shareholder Resolutions in a Nutshell
A corporation’s board is endowed with the power to manage the corporation’s business and affairs.Footnote 6 Historically, with the separation of ownership and control, shareholders though nominal owners have enjoyed limited control rights.Footnote 7 Shareholder voting is one important vehicle for participation in corporate governance. Under state law, shareholders typically have rights to vote on director elections and major transactions. They can also make “proposals on a variety of issues, including general corporate governance and social interest matters.”Footnote 8 Shareholder proposals have been analogized to state constitutional ballot initiatives.Footnote 9 Shareholder proposals, however, are typically advisory. They are opportunities for shareholders to communicate their preferences.Footnote 10
For public companies, shareholder proposals are subject to federal securities law, which regulates their default inclusion on the corporation’s proxy materials at the corporation’s expense.Footnote 11 As one might imagine, however, not every shareholder proposal must be included. The U.S. Securities and Exchange Commission (SEC) makes case-by-case exclusion determinations,Footnote 12 and proposals must clear multiple hurdles. For instance, among other eligibility and procedural requirements, proposals have a word limit and only shareholders holding securities for specified continuous lengths of time and value can submit a proposal.Footnote 13
Regulations further permit a company to exclude a proposal if it qualifies under one of the enumerated substantive exclusions. The ordinary business exclusion – exclusion based on a proposal “deal[ing] with a matter relating to the company’s ordinary business operations”Footnote 14 – is among the most popular and contentious. This exclusion’s rationale is to embed and be deferential to “the bedrock state corporate law principle” that a firm’s ordinary business operations is the proper purview of directors and officers and not shareholders.Footnote 15
Drug manufacturers are consistently resistant to drug-pricing proposals,Footnote 16 and the ordinary business exclusion is a commonly sought refuge.Footnote 17 That said, though some proposals have been ensnared by this exclusion, the SEC has determined that many drug-pricing and A2M proposals cannot be excluded from proxy materials on this basis because they transcend such matters.Footnote 18 This is an important exception to an otherwise excludable proposal: Even if a proposal relates to a company’s ordinary business, the proposal may not be excluded if it focuses on “sufficiently significant social policy issues.”Footnote 19 Proposals that raise such issues “transcend the day-to-day business matters” and are “appropriate for a shareholder vote.”Footnote 20
The ordinary business exclusion is highly relevant to drug-pricing proposals, but it is one among many exclusions comprising an intricate system. Thus, there are two big-picture points to highlight among these preliminaries. First, as a practical matter, when it comes to A2M proposals, as with any proposal, proponents must navigate these regulations with skill and strategy. Misjudgment of support or missteps in one proxy season can impact not just an individual proposal but the inclusion of future proposals as well.Footnote 21
Second, federal proxy rules have empowered shareholders to take a more active role in overseeing corporate conduct through “shareholder democracy.”Footnote 22 Contested shareholder proposals involve different factions of the corporate ecosystem vying for power with a federal agency inserting itself as arbiter over whether a proposal is sufficiently meritorious to be put to a shareholder vote.Footnote 23 However, so long as an investor meets regulatory criteria, investors of all kinds – from the individual “gadfly” to large institutional investors – have the opportunity for their voices to be heard.Footnote 24
20.3 Drug-Pricing and A2M Proposals
Since at least the 1970s, shareholders have sought proxy access to raise concerns regarding drug-pricing and A2M. Over the years, shareholders have run the gamut from small retail investors to large institutional shareholders.Footnote 25 Proponents have included individuals,Footnote 26 health systems,Footnote 27 asset managers,Footnote 28 social justice organizations,Footnote 29 and pension plans.Footnote 30 During the 2023 proxy season, for example, lead filers have included Friends Fiduciary Corporation, Mercy Investment Services, Trinity Health, Oxfam, the Service Employees International Union, and the Boston Common ESG Impact US Equity Fund.Footnote 31
A2M resolutions commonly express twin themes of concern. First, proposals register concern for how a drug manufacturer’s pricing and related decisions impact shareholders’ investments, given their invitation for regulatory response.Footnote 32 Second, they note concern for potential negative externalities imposed upon patients and society.Footnote 33
Historically, resolutions have sought price-setting information and requested pricing “restraint.”Footnote 34 A pre-Hatch-Waxman Act 1976 proposal, for instance, expressed concerns over disparities between US and foreign pricing and generics access. This proposal requested that shareholders receive “[a] breakdown of prices of and corporate profits from antibiotics sold in five representative countries …”Footnote 35 It also sought information about the corporation’s anti-substitution law lobbying.Footnote 36
Likewise, in the early 1990s, citing an environment with “little market pressure on manufacturers to set fair and reasonable prices,” the imposition upon patients of “cruel choice[s],” and skepticism of management’s claims that research costs were causing increasing prices, shareholders of Eli Lilly and Company requested that the Board “seek input on pricing policy from consumer groups, and adopt a policy of price restraint …”Footnote 37 According to shareholders, Eli Lilly’s excessive pricing was “bringing us to the brink of federal action to control drug prices.”Footnote 38 Other proposals sought price-setting transparency through a report on “overall pricing policy.”Footnote 39 Shareholders articulated that Eli Lilly should act with “the highest standards of responsibility and fairness to the consumers who rely on our products.”Footnote 40 Given enduring opacity, proposals from the 2010s continued to seek transparency about numerous price-setting factors.Footnote 41 Recently, with COVID-19 vaccines, shareholders have inquired about the role of federal funding.Footnote 42
Recent proxy seasons include a multitude of proposals pursuing new directions. Some raise questions about management’s incentives. Others, arguably, raise existential questions about drug manufacturers’ underlying corporate purpose and guiding norms. Three approaches are briefly discussed below. These proposals regard (1) the links between drug-pricing and executive compensation incentives; (2) the potential misalignment between corporate mission, values, and political spending; and (3) reporting on patenting procedures.
20.3.1 Executive Compensation
The size and setting of executive compensation is a contentious topic that has not escaped Congressional notice or the public’s attention. Moderna, for instance, generated headlines when its CEO made US$398 million in 2022.Footnote 43
Large salaries juxtaposed with A2M challenges generate a slew of questions, and generally, accross sectors, there has been “growing demand for executive compensation metrics linked to stakeholder welfare.”Footnote 44 Linking executive compensation in this manner is thought to benefit various non-shareholder stakeholders (such as patients) and address the critique of stakeholderism that managers lack incentives to act in the interests of these non-shareholder groups.Footnote 45
Recent drug-pricing proposals reflect these broader trends. Some proposals express concern about A2M and how these issues intersect with executive compensation.Footnote 46 Consequently, proposals have sought greater information about how drug-pricing strategies (and associated risks) figure into the pay incentives for senior executives to be provided through a shareholder report. A proposal submitted to Pfizer, Inc., is illustrative:
RESOLVED, that shareholders of Pfizer, Inc. (“Pfizer”) urge the Compensation Committee … to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into Pfizer’s incentive compensation policies, plans and programs (“arrangements”) for senior executives. The report should include, but need not be limited to, discussion of whether (i) incentive compensation arrangements reward, or not penalize, senior executives for adopting pricing strategies, or making and honoring commitments about pricing, that incorporate public concern regarding prescription drug prices; and (ii) such concern is considered when setting financial targets for incentive compensation arrangements.Footnote 47
The supporting statement identified concerns about the association between drug-pricing practices such as chronic price increases (a “key risk”) and short-term financial performance as undermining long-term value creation.Footnote 48 Shareholders noted that the Trump administration singled out Pfizer for these increases, writing “[i]n our view, excessive dependence on drug price increases is a risky and unsustainable strategy, especially when price hikes appear to drive large senior executive payouts.”Footnote 49 The disclosures sought would permit shareholders to “better assess the extent to which compensation arrangements encourage senior executives to responsibly manage risks relating to drug-pricing and contribute to long-term value creation.”Footnote 50
Pfizer sought to omit this proposal from its proxy materials under the ordinary business exclusion but was unsuccessful.Footnote 51 According to the SEC, disclosure of how drug-pricing risks “are integrated into senior executive compensation decisions[] transcends ordinary business matters” as drug-pricing strategy is a significant issue, and the proposal further failed to micromanage the company.Footnote 52 Though this proposal garnered a significant response (40.2 percent approved), it did not pass.Footnote 53
20.3.2 Purpose and Politics
Another area of recent focus is the congruency of political spending with purported corporate purpose. Drug manufacturers often have lofty, public-spirited, patient-centric mission statements.Footnote 54 AbbVie’s website, for instance, says: “our life’s work is to improve lives.”Footnote 55 Likewise, Pfizer states: “[o]ur purpose ensures that patients remain at the center of all we do.”Footnote 56
However, in 2022, pharmaceutical and health products companies spent a record US$372 million on federal lobbying, with most aimed at undermining the IRA’s efforts to lower drug prices.Footnote 57 After PhRMA (a trade association), which spent US$29.2 million, Pfizer was the second-largest individual spender at US$14.9 million.Footnote 58 Pfizer’s spending exceeded previous years and occurred when the COVID-19 vaccine maker planned to quadruple the vaccine’s price.Footnote 59
Thus, reconciling what drug manufacturers say and how they act has been the subject of a series of proposals. A proposal filed with Gilead, for instance, provided:
RESOLVED: Shareholders request that the Board of Directors commission and publish a third party review within the next year … of whether Gilead Sciences, Inc. lobbying activities (direct and through trade associations) align with its Vision statement, “To create a healthier world for all people” and in particular its Policy Position Statement that “the price of medicines should never be a barrier to access, and we work domestically and globally to ensure that patients who need our products are able to obtain them.” The Board of Directors should report on how it addresses the risks presented by any misaligned lobbying and the company’s plans, if any, to mitigate these risks.Footnote 60
The supporting statement noted Gilead’s contributions to PhRMA, and that its CEO sat on PhRMA’s board.Footnote 61 According to these shareholders, however, PhRMA has “systematically opposed” any attempt to improve A2M through drug-pricing reforms.Footnote 62 In a similar proposal filed with Eli Lilly,Footnote 63 shareholders observed that given the company’s “extensive direct and indirect lobbying against measures that would make drugs more affordable, investors need to better understand the balance Lilly is striking between its commitments to innovation, on the one hand, and access and affordability, on the other.”Footnote 64 The proposals at Gilead and Eli Lilly each failed to pass but received 49.8 percent and 22.4 percent of votes, respectively.Footnote 65
20.3.3 Patenting Practices
A2M resolutions periodically raise questions about intellectual property policies. Recent proposals have focused on intellectual property and the related issue of anticompetitive conduct.Footnote 66 While proposals regarding tech transfer in the context of COVID-19 vaccines are noted later, this section highlights proposals focusing on secondary and tertiary patenting.
Secondary patents – those patents pertaining to a product other than its original active ingredient – and tertiary patents – those pertaining to drug delivery devices – have increasingly caught the attention of academics and policymakers.Footnote 67 Not only do these patents extend a drug manufacturer’s market power by delaying generic competition, but such patents can also be weaker, meaning they are more frequently invalidated.Footnote 68 Concerns about drug manufacturers’ utilization of these practices to stymie competition motivated President Biden to direct the U.S. Food and Drug Administration and the Patent and Trademark Office to collaborate on addressing these issues.Footnote 69
Concurrent to these regulatory efforts, shareholders requested that drug manufacturers report on their patenting practices and how concern for A2M is incorporated. A proposal filed with AbbVie is illustrative:
RESOLVED, that shareholders of AbbVie Inc. (“AbbVie”) ask the Board of Directors to establish and report on a process by which the impact of extended patent exclusivities on product access would be considered in deciding whether to apply for secondary and tertiary patents The report on the process should be prepared at reasonable cost, omitting confidential and proprietary information, and published on AbbVie’s website.Footnote 70
The resolution’s supporting statement noted that one of AbbVie’s products, Humira, had undergone 27 price increases and is protected by 130 patents.Footnote 71 The requested report, in the proponents’ view, “would ensure that AbbVie considers not only whether it can apply for” these patents “but also whether it should,” given the perception of “abusive patenting practices.”Footnote 72 A significant minority – 28.9 percent – of AbbVie shareholders supported this proposal.Footnote 73
20.4 Reflecting on These Efforts
Submission of shareholder proposals has increased over time, as has the weight they hold among management and boards.Footnote 74 Shareholder proposals today are considered a “powerful tool” for influencing corporate governance and conduct.Footnote 75 Yet, what makes a shareholder proposal “successful”? For A2M advocates, what are its relative strengths and weaknesses as a reform tool? Are there aspects of these issues that shareholders are uniquely positioned to address through proposals?
20.4.1 What Counts as Success?
If “success” means getting onto the proxy and getting a majority vote, then drug-pricing and A2M shareholder proposals appear a fruitless exercise. No such proposals put to a vote at the 2023 annual meetings, for instance, appear to have passed.Footnote 76 A majority vote, however, is a sufficient but not necessary condition for success.
Shareholder proposals are attractive for their ability to facilitate direct corporate engagement. Indeed, the filing of resolutions often occurs when initial dialogues break down.Footnote 77 Withdrawn proposals and proposals that secure a significant, albeit non-majority vote can also signal success as shareholder proposals offer important leverage with management and the board.Footnote 78 The value of shareholder resolutions thus may most reside not in any “‘short-term voting results,’” but in their “long-term ability” to foster dialogue that generates reassessment and reform.Footnote 79
Regarding withdrawn proposals, parties negotiate after resolution filing. Through these negotiations, shareholders might be able to procure satisfactory concessions. As one shareholder explains, resolution withdrawal “typically means” dialogue “about moving the company into a better position; the company has agreed to further discussions; or the company has made changes in response to the shareholder request.”Footnote 80
Likewise, if a proposal attracts significant minority support, corporations often view this as an important signal.Footnote 81 With “say-on-pay” votes, for example, if 20 to 30 percent of shareholders object, companies will “reconsider and revise their compensation packages.”Footnote 82 Many drug-pricing and A2M proposals have attracted substantial minority votes, including those discussed in this essay. For these reasons, drug-pricing resolutions appear to enjoy some degree of success.
20.4.2 Strengths and Weaknesses
As a tool for improving A2M, shareholder proposals have comparative and intrinsic strengths and weaknesses. Comparatively, legislation is often the reform tool of choice. Yet, legislative reform frequently proceeds at a glacial pace, stymied by gridlock and special interests.Footnote 83
Shareholder proposals, by contrast, may be nimbler, permitting relatively fast and direct engagement with drug manufacturers. Corporations pay attention to their shareholders, and so long as a proposal does not qualify for an exclusion, the issue must go on the proxy. Following an annual cadence, shareholder proposals are generally filed in the fall.Footnote 84 If there is friction with the company, SEC no-action letters are sought in winter.Footnote 85 The season concludes with voting on proposals at annual general meetings in the spring.Footnote 86 Rather than waiting decades for legislative reform, change could occur within a year.
Legislative reform and shareholder proposals can be complementary strategies. Shareholder proposals can, for instance, mirror legislative agendas. Consider California’s passage of SB 17 in 2017. State legislative agendas at the time included drug price transparency laws, and SB 17 mandates notice and the collection of information pertaining to certain prescription drug price increases.Footnote 87 Concurrent to this legislative activity, shareholder resolutions were advanced at numerous drug manufacturers seeking corporate reporting on “product price increases, their rationale, and associated risks.”Footnote 88 As another example, shareholder proposals focusing on potential anticompetitive activity and corporate patenting practices reflect similar themes of present interest to legislators and regulators.
Further, shareholder proposals – even when they mirror topics of external regulatory interest – are not merely redundant. They are symbolically important as the messenger’s identity matters. An intrinsic strength of A2M shareholder proposals is that their critique of drug manufacturers’ conduct is bound up with corporate self-determination. It matters that at least some shareholders are concerned about these corporations’ conduct. Even if the public-minded end goal is the same as would-be legislation, the questions posed by shareholders versus non-shareholders concerned about A2M have an inherently different orientation. Shareholders can ask themselves and those who serve the corporation: who do we want to be as a company? What norms, values, and codes of conduct ought we to comply with? Even if, for instance, the law permits secondary patenting, should we participate? These questions are distinct from those of the regulator charged with determining which constraints best serve the public.
Consequently, shareholder proposals may be uniquely positioned to address those aspects of A2M challenges overlapping more squarely with internal governance questions.Footnote 89 Some view shareholder proposals as an economic accountability mechanism and agency-cost corrective.Footnote 90 Similar accountability issues, however, arguably could be at play for nonfinancial (or, not purely financial) considerations as well. If shareholder proposals are conceived as a tool to discipline the relationship between principals and agents, then they would appear to be particularly well targeted to those places where A2M challenges intersect with matters seemingly more appropriate for private ordering. There may be no “pure” such examples. Executive compensation proposals, however, might serve as candidates for further consideration. Given firm specificity, providing individualized incentives to executives to improve A2M may be more appropriately the dominion of shareholders for some degree of oversight rather than regulators.Footnote 91
The distinct orientation of these considerations intersects with three weaknesses of shareholder proposals as a mechanism for drug-pricing reform.Footnote 92 First, to be included in the proxy, shareholder resolutions must navigate a complex regulatory scheme sensitive to the division of labor between boards and shareholders. Thus, proposals frequently take the form of requesting increased transparency through a report. While increased transparency and information gathering are crucial, those seeking immediate bold reforms might view such constraints as tepid, rendering this tool substantively weaker. Second, in contrast to external regulation, this vehicle is only available to shareholders and reform takes place company by company. While there appear to be coordinated efforts, shareholder proposals are not an efficient tool for systemic, industry-wide regulation. There are differences in how corporations react to such proposals and distinct shareholder voting patterns on nearly identical proposals.Footnote 93 On proposals for reporting on political spending, for example, the proposal at Gilead received 49.8 percent of votes and Eli Lilly received 22.4 percent. Regarding individualized responses, with secondary patenting proposals filed with AbbVie and Amgen, both companies initially sought SEC no-action letters. The AbbVie resolution went to a vote, but the Amgen resolution was “[w]ithdrawn due to agreement with company.”Footnote 94
The third weakness of shareholder proposals as a reform tool is that to the extent the goal is societal drug price reform in the public interest, shareholder proposals offer an awkward fit. Although pragmatists might think, “well, whatever gets the job done,” there are significant underlying questions of allegiance, authority, and expertise. Shareholders of drug companies are generally private actors with divided interests; they are not elected officials charged with protecting and promoting the public good. That the lives, health, and fate of so many should depend upon a shareholder vote is unsettling, if not inappropriate.
The example of COVID-19 vaccine equity highlights this point. Given that many throughout the world have lacked access to COVID-19 vaccines, Oxfam submitted proposals to Moderna and Pfizer requesting feasibility studies of transferring pertinent intellectual property.Footnote 95 Such knowledge transfers would ideally expand worldwide manufacturing capacity and save lives.Footnote 96 In an “unprecedented” move, the WHO Director-General even backed the Moderna resolution and spoke on its behalf at the annual meeting.Footnote 97 Though a significant contingency (24 percent and 27 percent of shareholders at Moderna and Pfizer, respectively) supported the proposals, the resolutions failed.Footnote 98
Though these losses seemed like a public health failure, they put pressure on the tool itself.Footnote 99 As Els Torreele notes, despite there being well-meaning investors, “the key issue is that pharmaceutical companies and their investors should not … hav[e] the power to decide about public health issues … It painfully shows, once again, how financial interests pursued by private companies, investors, asset managers, and speculators eclipse decision-making informed by public health experts, even during the biggest global health crisis of our lifetime.”Footnote 100 In other words, relying on shareholder proposals to pursue A2M reform emerges from a context of failed public institutions and failed framing. If public institutions charged with protecting and promoting the interests of each of us to equitable A2M were successful, there would be no need for private actor intervention. Patients would not look toward the private “largess” of some shareholders to be drug-pricing reformers and rely on their talents to convince the majority of shareholders who are not.
20.5 Conclusion
Matters of important public policy should not be vulnerable to the whims of shareholders. While this background critique looms large, the foregrounded question is what shareholder resolutions offer by way of drug-pricing and A2M reform. Despite indications of some general shareholder population ambivalence about A2M, given voting outcomes and the limitations discussed above, shareholder proposals have many comparative and intrinsic strengths. They add important voices seeking improved A2M and may be particularly well suited to address certain corners of these issues. At the very least, these shareholder efforts complement external reforms, and the existence of such proposals signals a more complicated narrative of shareholders’ relationship to drug-pricing challenges.
21.1 Introduction
The United States has more than 26,000 nursing homes, caring for more than 1.4 million residents.Footnote 1 About 70 percent of nursing homes are now operated by for-profit corporations, 24 percent are not-for-profit, and 7 percent are government-owned, while 58 percent are operated by corporate chains.Footnote 2 Private equity firms own about 11 percent of nursing facilities nationwide. By 2050, up to 30 million people in the Americas will require long-term care services. Most of these nursing home residents are or will become exceptionally vulnerable, but the quality of their daily lives may well be shortchanged by their nursing home owners – particularly private equity (PE) owners. Nursing home care is an industry built on “market” solutions to end-of-life care for the elderly.Footnote 3 The advent of Medicare and Medicaid was not based on a model of nonprofit nursing homes. As Leslie King writes: “[l]awmakers instead allowed the growth of a system of large, for-profit, chain nursing homes.”Footnote 4 Early advocates of such privatization argued that a private ownership system could be more efficient – providing quality services at a lower cost.Footnote 5 For-profit corporate entities would strive to maximize their bottom-line goals for shareholders, but the great engine of the “market” in an industrial economy would also deliver benefits for consumers.
The market, however, fails when PE ownership exists: PE owners are a special class of financial entity driven toward intense opportunistic behavior in order to hit high rates of return promised to investors within a short time frame.Footnote 6 PE firms – blessed with captive residents, guaranteed federal reimbursement, and poor regulation – pillage nursing homes with impunity.
Flaws and externalities in for-profit businesses can normally be counteracted by regulation, shifts in consumer shopping, and private litigation. The nursing home industry, however, is poorly regulated for several reasons. First, annual surveys of nursing homes are backlogged, leaving too many homes uninspected and sanctioned.Footnote 7 Second, serious problems are underreported because state inspectors fail to identify quality problems or rate them as less severe than they are.Footnote 8 Third, states fail to act to force institutions to correct violations, rarely imposing financial penalties. And even if corrections are mandated, there is rarely follow-up by state surveyors.Footnote 9
The NAS 2022 report is striking: “[d]espite significant measures to improve the quality of nursing home care in OBRA ‘87, the current system often fails to provide high-quality care and underappreciates and underprepares nursing home staff for their critical responsibilities.”Footnote 10 Government enforcement needs a partner – private law litigation – to force transparency of ownership, improve remedies for families of injured residents, and formalize a fiduciary standard of ownership that uses equitable tools to claw back excess profits and constrain bad nursing home management.
My argument is in three steps. First, I examine the unique financial incentives baked into the PE model of profit-maximizing ownership. Second, I examine the development of the corporate negligence doctrine. Third, I develop a model of a robust fiduciary duty, coupled with equitable remedies. My goal is to build a private law doctrinal framework to better police the waste, fraud, and pillaging of assets by PE owners of nursing home systems.
21.2 Private Equity as Opportunistic Fiduciary: Pirates with MBAsFootnote 11
Private equity investment involves acquisition of a total or partial ownership interest in an entity that is not publicly traded.Footnote 12 The playbook of PE is actively antithetical to the operation of a quality nursing facility.Footnote 13 The profits are intended to satisfy investors first, not to provide quality resident care.Footnote 14 I will show that the financial playbook of PE risks poor quality for nursing home residentsFootnote 15 – as well as draining the Medicare and Medicaid budgets through strategies of revenue inflation.Footnote 16 Patients suffer from neglect caused by a cost-cutting PE ownership mode of finance.Footnote 17 The PE strategies are cumulative and opportunistic, striving to capture and extract excess profits from every aspect of a nursing home system.Footnote 18 Consider the playbook of PE firms that acquire nursing homes:
21.2.1 High Rates of Return in a Short Time Horizon: Fast Bloodletting
PE demands a rate of return in three to five years of around 20–30 percent, and typically a firm moves on at that point, selling the new consolidated firm after having extracted value from the firm and often leaving it in poor condition.Footnote 19
21.2.2 Debt as a Profit Tool: Starving the Nursing Home
PE loads up acquired firms with high levels of debt and then leverages this debt on the firms acquired in order to pay themselves and other shareholders dividends – in the order of magnitude of billions of dollars.Footnote 20 The acquired company must then manage these high levels of debt.Footnote 21 The result often is a high number of bankruptcies;Footnote 22 one study found that nearly 20 percent of PE-owned companies have filed for bankruptcy, ten times the rate of public companies.Footnote 23 Nursing homes end up reducing worker wages and cutting other resources, further increasing the risk of bankruptcy.Footnote 24 Nursing homes end up with little money for resident care improvementsFootnote 25 and the long-term health of the nursing home suffers.Footnote 26
21.2.3 High Rates of Churn in Ownership: Instability as Byproduct
Frequent shifts in nursing home ownership destabilize both residents and staff.Footnote 27
21.2.4 Staff Reduction Programs: Blood from a Turnip
Cost-cutting is a central PE tool, used aggressively to allow firms to hit their rate-of-return metrics. Cutting billing, legal, and human resource departments reduces “wasteful” overhead. The PE ownership toolkit in particular drains nursing home assets and reduces needed spending on nurses and aides.Footnote 28 For-profit nursing homes routinely determine staffing levels based on census and reimbursement as opposed to resident acuity – for-profit facilities have 16 percent fewer staff than nonprofits after accounting for differences in residents’ needs.Footnote 29
21.2.5 “Related Party Transactions”: Skimming the Till
For-profit nursing facility executives develop new financial streams by creating complex ownership and management structures – this creates tax advantages and allows companies to move capital from one entity to another. Nursing home chain owners often outsource goods and services to multiple entities in which they also have ownership, and these entities then allow ancillary clinical services to be fragmented and spun off under the corporate umbrella.Footnote 30 Such services may include laboratory, radiology, pharmacy, and specialty medical services.Footnote 31 PE nursing homes may also make referrals to PE-owned home health care, hospice, mental health, emergency room staff services, and specialty clinics.Footnote 32
These ownership structures are not a search for market efficiencies and cost-savings: to the contrary, “… the owners can establish highly favorable contracts in which their nursing homes pay more than they might in a competitive market. These profits are then siphoned off, not recorded in nursing home accounts, and hidden in affiliated companies.”Footnote 33
21.2.6 Multilevel Corporate Structures: Deceiving and Dodging
Complex layers of entities also shield the enterprise from liability by making it difficult for plaintiff lawyers to pursue a defendant with assets. Such strategies often involve deception in financial statements to conceal real income and assets among a myriad of subsidiaries.Footnote 34 Without data and visibility, plaintiff lawyers and regulators are all blinded.Footnote 35
The cumulative effect of the PE playbook is poor quality care and high mortality rates – PE ownership increases 90-day mortality by 2.4 percentage points, or 15 percent of baseline mortality among Medicare residents, adding up to approximately 20,150 deaths over the course of 12 years according to a recent study.Footnote 36 Costs to the federal and state governments of paying for Medicaid and Medicare services are also inflated with no benefit accruing to residents.
21.3 Health Care as an Enterprise: Corporate Negligence
The origins of corporate negligence in health care settings began with hospitals.Footnote 37 Courts began to notice that hospitals were big businesses – running aggressive marketing campaigns, managing their medical staff and other professionals, and generally acting like the central provider of health care.Footnote 38
21.3.1 Corporate Negligence: Responsibility of the “Enterprise”
The doctrine of corporate negligence starting in the 1960s noted that the modern hospital as an enterprise is no longer just a shell for physicians to use.Footnote 39 Hospitals have gone from small not-for-profit religious systems to large systems run on corporate principles of revenue maximization.Footnote 40 More than half of American jurisdictions have now adopted the corporate negligence doctrine in some form.Footnote 41
Corporate negligence, in the Pennsylvania case of Thompson v. Nason Hospital,Footnote 42 requires a hospital to uphold a standard of care to “ensure the patient’s safety and well-being while at the hospital.” Thompson’s corporate negligence doctrine mandates four distinct duties for institutional providers: (1) reasonable care in the maintenance of safe and adequate facilities and equipment; (2) selection and retention of competent physicians; (3) oversight of all persons who practice medicine within its walls as to patient care; and (4) formulation, adoption, and enforcement of adequate rules and policies to ensure quality care for patients. These duties are nondelegable.
Corporate negligence views the modern hospital as a complex corporate management structure with responsibilities to its patients, measured by its own internal practices as well as those of other similar hospitals.Footnote 43 Hospitals can in fact be just as opportunistic as any business, susceptible to the temptation to engage in self-interested behavior when their financial interests conflict with those of the populations they serve.Footnote 44 The evolution of the corporate negligence doctrine reflects judicial awareness that health care institutions owe enhanced duties to their beneficiary patients.Footnote 45 Corporate negligence has been a large step toward a vigorous fiduciary obligation to care for patients.
21.3.2 The Corporate Negligence Model Expands
Thompson, decided in 1991, was at first applied only to hospitals. Next, in Shannon v. McNulty,Footnote 46 Health Maintenance Organizations (HMOs), acting as the primary decision-makers with respect to their subscribers’ care, were subject to corporate liability. In Hyrcza v. West Penn Allegheny Health,Footnote 47 medical professional corporations were added, on the basis that such entities, if they take responsibility for their patients’ total health care like hospitals, are liable for failing to fulfill institutional duties.Footnote 48 Finally, in 2012, the Pennsylvania Supreme Court applied corporate negligence to nursing homes in Scampone v. Highland Park Care Center.Footnote 49 The court held that nursing home facilities and their parent corporations were subject to corporate negligence liability for patient harms. This new duty intensifies nursing home incentives to improve the quality of their care to avoid liability.Footnote 50
21.4 Creating a Presumptive Fiduciary Duty for Nursing Home Owners
A second source of private law is fiduciary law. Courts can use fiduciary duties plus equitable powers to constrain nursing home opportunism, creating a presumptive fiduciary duty that eliminates the need for plaintiffs to make a particularized factfinding in each case.Footnote 51
This nursing home fiduciary duty is built on three foundations.
21.4.1 Medicaid as a Fiduciary
Medicaid is the primary federal payer of nursing home expenses. Sara Rosenbaum and her coauthors have argued that Medicaid has a fiduciary duty standard, based on statutory state plan requirements for medical assistance requiring “… such safeguards as may be necessary to assure that eligibility for care and services under the plan will be determined and such care and services will be provided in a manner consistent with simplicity of administration and the ‘best interests of the recipients.’ [Italics mine.]”Footnote 52 This “best interests of the recipients” standard is analogous to ERISA’s fiduciary duty standard.Footnote 53 Since state programs certify and regulate all owners of nursing home chains, whether nonprofit or for-profit, this “best interests” standard of fiduciary duty obligates states and their nursing home managers and owners.
21.4.2 The Resident as “Vulnerable”
Fiduciary law establishes a norm of special obligations, creating higher expectations than we normally allocate to others in contractual relationships.Footnote 54 As Rothman writes, “the fiduciary concept brings law closer to the human condition by anticipating potential problems that exist in certain forms of interaction characterized by power imbalances and vulnerability and prohibiting their development through the entrenchment of strict principles on fiduciaries.”Footnote 55 This concept of fiduciary law fits the nursing home relationship between owners/managers and residents perfectly.Footnote 56 The court in Schenk v. Living Centers-East emphasized the unique vulnerability of residents in nursing homes:
Residents are in the care and custody of the home on a 24–hour basis, with all their needs necessarily supplied by the facility. Residents are almost invariably in poor physical and/or mental health; they are frequently incompetent and unable to comprehend much less protest any mistreatment or neglect; their families likewise are not in a position to readily know whether injuries are caused by genuine accidents or whether they result from neglect or abuse. [] These various factors make such residents particularly vulnerable to neglect and a variety of possible abuses with detection arguably difficult … unlike the situation where a presumably competent person seeks a consultation with a physician for a particular problem or even requires hospitalization for a particular malady.Footnote 57
The Schenck court then builds a conceptional foundation for the fiduciary duty count in the plaintiff’s complaint:
[M]any if not most nursing home residents are in a vulnerable physical and/or mental state. Placing a loved one in such a facility necessarily entails trust on the part of the family as well as the resident. Since the residents reside in the home, the family has comparatively limited access and opportunity to learn if the resident is neglected or otherwise mistreated. If entrusting one’s money to a receiver or conservator created a business relationship, one would hope at least in principle that entrusting a valued family member to the care of a business entity such as a nursing home would carry similar responsibilities. [Italics mine.]Footnote 58
The Schenk court acknowledges the realities of nursing home care: Most residents are vulnerable physically, lack the cognitive skills in many cases to protect themselves, did not “choose” their home, and need a heightened level of personal attention and care.Footnote 59 The Petre court observed that no relationship better fits “the description of the fiduciary capacity than the relationship between a nursing home and its residents.”Footnote 60
21.4.3 Anti-Opportunism: Fiduciary Controls over “Self-Interest Seeking with Guile”
The third leg of nursing home fiduciary duty is built on the extreme opportunism of PE ownership in health care, as shown in Section 21.4.1. The generally accepted definition of opportunist behavior in fiduciary law is that of Williamson. His definition is as follows:
By opportunism I mean self-interest seeking with guile. This includes but is scarcely limited to more blunt forms, such as lying, stealing and cheating. Opportunism more often involves subtle forms of deceit … More generally, opportunism refers to the incomplete or distorted disclosure of information, especially to calculated efforts to mislead, distort obfuscate, or otherwise confuse.Footnote 61
Fiduciary law strives to control such opportunistic behavior: Smith defines “opportunism” as “behavior that is undesirable but that cannot be cost-effectively captured – defined, detected, and deterred – by explicit ex ante rulemaking … It often consists of behavior that is technically legal but is done with a view to securing unintended benefits from the system, and these benefits are usually smaller than the costs they impose on others.”Footnote 62
Private equity acts knowingly and opportunistically through its financial playbook – deliberate pillaging of nursing home, residents, and government payers. Actions by PE owners of nursing homes are “intentional” – the core strategies discussed in Section 21.4.1 are intended to load nursing homes with debt, build structures to inflate charges to Medicaid and Medicare, and cut staffing and other costs with the predictable results of poor care and fraud on Medicaid.
21.5 Equitable Powers to Constrain Private Equity Ownership
Fiduciary law, coupled with a court’s equitable tools, provides a far more muscular approach to nursing home bad actors than does either tort or contract law limited to damage remedies.Footnote 63 Fiduciary law offers future-looking equitable tools to change the PE calculus for those who invest in and run nursing homes.Footnote 64 It identifies opportunistic power used against the vulnerable. It allows vulnerable beneficiaries and their families to demand honesty and selflessness of their fiduciaries.Footnote 65
21.5.1 Coupling Fiduciary Duties and Equitable Remedies
Imposing a fiduciary duty on an organization raises the baseline for conduct and the measurement of failure and breach of duty. Fiduciary doctrine can create a presumption of wrongdoing for this class of relationships.Footnote 66 Fiduciary law creates legal rights grounded in equity for those who need protection, allowing tolling of statutes of limitation and easing a plaintiff’s burden of proof. And fiduciary law can draw on a range of equitable remedies. Equity imposes harsh sanctions against fiduciaries for failing to conform to the fiduciary concept’s high standards: These may include inter alia the disgorgement of profits or amounts equal to losses avoided, equitable compensation, a constructive trust, an injunction, or an accounting of profits.Footnote 67
21.5.2 Examples of Fiduciary PowersFootnote 68
21.5.2.1 Disgorgement
In Rohlfing v. Manor Care, Inc.,Footnote 69 the executor of a nursing home resident’s estate sued Manor Care, the nursing home operator, its parent, and the related pharmaceutical company for antitrust violations, fraud, and breach of fiduciary duty. His goal was to recover excessive fees the resident was forced to pay because of the nursing home’s pharmaceutical policies, as well as attorney fees. The court allowed class certification for antitrust and Racketeer Influenced and Corrupt Organizations Act (RICO) claims, the Illinois Consumer Fraud Act (ICFA), and the breach of fiduciary duty.
Manor Care owned a network of 179 facilities in 28 states, offering a spectrum of services to residents – from “high acuity” (intensive) nursing care to custodial care and assisted living arrangements. Manor Care owned an 82.3 percent interest in eighteen of the facilities, which were required to get their pharmaceutical services from Vitalink Pharmacy Services, Inc. (Vitalink). Vitalink also provided consulting services for Manor Care residents, such as monitoring potential drug interaction problems and reviewing patients’ drug administration records.
The court expanded on the nature of fiduciary duty: “A fiduciary duty exists in relationships where ‘there is confidence reposed on one side and a resulting superiority and influence on the other.’ [citations omitted] … It is certainly true that ‘many, if not most nursing home residents are in a vulnerable physical and/or mental state,’[Schenk], which could place their caregivers in a position of confidence and influence.”Footnote 70
The court in Rohlfing held that the plaintiff, Rohlfing, had alleged a proper claim for breach of fiduciary duty.Footnote 71 The plaintiff in Rohlfing alleged that Manor Care charged him excessive prices for pharmaceuticals, thus breaching their fiduciary duties. The court found that Rohlfing had alleged a claim for breach of fiduciary duty, quoting Quist v. Dorn: “Courts of Equity will scrutinize with jealous vigilance the transactions between parties occupying fiduciary relations toward each other …”Footnote 72
Manor Care is an example of the abuse of related-party transactions, specifically use of a pharmacy service owned by the nursing home system to extract high prices for drugs and drug services. If such a case goes to trial, a plaintiff can seek disgorgement of excess gains – to be returned to nursing home residents.
21.5.2.2 Fiduciary Duties of Corporate Owners
In Isby Brandon v. Beverly Enterprises, Inc.,Footnote 73 defendants were the corporate owners of the nursing home – the administrator was not a defendant. The District Court considered whether a fiduciary breach could be claimed against nondiverse defendants, the corporate owners of the nursing home. The court stated the elements of a fiduciary duty. A contractual relationship may give rise to a fiduciary duty when: “(1) the activities of the parties go beyond their operating on their own behalf, and the activities for the benefit of both; (2) where the parties have a common interest and profit from the activities of the other; (3) where the parties repose trust in one another; and (4) where one party has dominion or control over the other.”Footnote 74
The Isby Brandon court held that patients could prove a fiduciary duty at trial as a matter of Mississippi law. It recognized the resident status as “vulnerability” in a nursing home, by analogy to the “ward” of a fiduciary. The patient, says the court, is “usually permanently invalid and subject to the nursing home.” The court continued: “[T]he parties obviously repose trust in one another and has been said above, the nursing home as fiduciary has dominion and control over the nursing home patient.”Footnote 75
This case, drawing on fiduciary law analysis, opens a judicial path to plaintiff’s pursuit of owners who are not the onsite managers but rather the corporate owners of the nursing homes. It offers state courts the power to unravel complex ownership structures created by PE firms, imposing a fiduciary duty through the mechanism of private law.
21.5.2.3 Accounting for Profits
An accounting orders an inquiry into the defendant’s handling of money or property, usually to ascertain the defendant’s gains so they may be paid to the plaintiff. Such an accounting is typically given against a fiduciary. One recent example: New York’s Attorney General has asked a state court to force the owners of a Syracuse nursing home to answer questions about “pocketing” US$37.6 million in Medicaid funding from related-party transactions.Footnote 76 A private litigant can make the same demand for an accounting if the state court invokes the equitable powers available to someone victimized by a fiduciary.
21.5.2.4 Unwinding Remedies
One of the specialties of equity is unwinding and undoing. “Equity, one might say, delights in erasing and not by halves.”Footnote 77 Judicial orders may include cancellation of documents, avoidance of contracts, reformation, and equitable rescission.Footnote 78
21.5.2.5 Injunctions
As fiduciary scholars write, fiduciary law offers robust remedies that “… must be more severe than against garden variety actors. One method of conforming to this requirement is to employ injunctions against suspected opportunists, and also to withhold injunctive relief from opportunists.”Footnote 79
21.6 Conclusion
Vulnerable nursing home patients can benefit from the use of private law tools to move the regulatory focus back to the nursing resident as the beneficiary of a fiduciary owner.
Fiduciary duties coupled with corporate negligence duties harness private law to force PE owners toward more demanding fiduciary duties toward their nursing home residents. Private law can have a powerful role in expanding the duties owned by PE firms to vulnerable nursing home patients.
22.1 Introduction
Law and society research demonstrates that law in practice is often different than law on the books and that organizational policy matters for the construction of law. Laws are often vague, ambiguous, or silent on important matters, and so organizations subject to the laws may respond by creating policies that define terms, resolve ambiguities, or fill gaps.Footnote 1 Organizations that most directly shape health law include hospitals, health care systems, health insurance programs, pharmacies, and professional associations. When constructing policies, organizations mediate the impact of law and may even create the law if courts or legislatures later rely on the organization’s policies to decide legal questions, a process known as legal endogeneity.Footnote 2
This process has not been studied in the context of health care organizational policy about medical aid in dying (MAiD) laws in the United States. Since the mid-1990s, eleven US jurisdictions have legalized MAiD.Footnote 3 In the United States, MAiD is an end-of-life option wherein a competent adult patient with a terminal illness may voluntarily request a prescription medication that, when self-administered, will end their lives.Footnote 4 Although more Americans live in jurisdictions that have legalized this end-of-life option,Footnote 5 very few terminally ill individuals use MAiD.Footnote 6 Those individuals who choose MAiD tend to be white and highly educated.Footnote 7 Low use of MAiD could reflect preferences, but low use may also reflect lack of access, despite legalization.Footnote 8
Lack of access could be due, in part, to health care organizations’ responses to MAiD laws, where existing statutes may not adequately address eligibility and procedural questions about this end-of-life option and where hospitals and health systems may address ambiguity through policies that ultimately restrict access to MAiD. Restrictive policies can reflect organizational “opt out” of MAiD participation on behalf of the institution and affiliated health care providers. But even organizations that “opt in” can adopt policies that require providers to follow specific processes beyond what the law mandates, which may result in reduced access to MAiD. Hospitals and health systems can enforce compliance with organizational policy through employment contracts or medical staff privileges and medical staff bylaws, and thus private law choices and agreements mediate public laws.
This chapter builds on an ongoing study of health care organizations’ policies adopted in response to the legalization of MAiD in California in 2015 and highlights how despite the seeming success of “right to die” social movements in convincing voters and legislatures that MAiD should be legal, legalization of MAiD in the United States is mostly a “paper victory.” By this we mean that the “law appears to advance [an] agenda but in reality it does no such thing.”Footnote 9 In this case, the law on the books should result in individuals who meet statutory requirements being able to choose MAiD, but in practice, MAiD is often not an option at all.
This chapter proceeds as follows. First, we will briefly describe the data and methods of the parent study from which this chapter draws. Second, we will show how the text of the California MAiD statute ensures that few individuals will qualify for MAiD. Third, we will show how the implementation of the law also ensures that even fewer individuals qualify. In this section, we will focus on two health care organizations’ policies and demonstrate how they restrict access to MAiD for otherwise eligible individuals. We will conclude by discussing how MAiD in the United States is not a true victory for the “right to die” movement but is instead a “paper right.”
22.2 Data and Methods of Larger Study
The California legislature passed the End of Life Option Act (EOLOA) in 2015, effective 2016.Footnote 10 The EOLOA, like most other US MAiD laws, includes a provision that health care professionals and health care organizations can choose not to participate. Additionally, because the law is silent on several implementation questions, health care organizations can write their own policies on MAiD practices. Policymakers and scholars in California began researching how the law was implemented and after two years, recommended that health care organizations be more transparent about their policies.Footnote 11 In 2021, the legislature amended the Act, effective January 1, 2022, to require “health care entit[ies]” to “post on the entity’s public internet website the entity’s current policy governing medical aid in dying.”Footnote 12 This public regulation does not mandate a particular organizational policy, which preserves organizational autonomy and private ordering, but instead attempts to promote patient autonomy by mandating that patients have access to information that may be important to their medical and end-of-life decision-making. Adopting a requirement that health care entities be transparent about their EOLOA policy also makes it possible for researchers to collect and analyze the policies.
In March 2023, we obtained a list of all licensed health care entities in the state of California from the California Department of Health Care Access and Information.Footnote 13 We limited our focus to general acute care hospitals. We then went to each hospital’s website and searched for the hospital’s EOLOA policy. As we report elsewhere,Footnote 14 very few hospitals are compliant with the legal mandate to publicly post their EOLOA policies on their public-facing institutional website, but there is no enforcement mechanism for this EOLOA provision included in the statute. We analyzed available policies for whether organizations choose to participate in MAiD and whether organizations add restrictions to or conditions of participation for health care providers or patients that are not contained in the text of the law.
We report on an analysis of these policies elsewhere but will briefly summarize our main findings here.Footnote 15 We found that (1) organizational policies vary in how they restrict patient and provider participation in MAiD, including adopting no policy, using the text of the law as policy, restricting provider participation only, restricting patient participation only, or adding conditions to participation for both providers and patients; (2) the predominance of religiously affiliated hospitals means that many hospitals “opt out” because MAiD is inconsistent with religious doctrine; and (3) organizations that “opt in” may burden patients seeking MAiD with onerous requirements and organizations that “opt out” may not actually preclude access to MAiD, although neither physicians nor patients may recognize this.Footnote 16
For the purposes of this chapter, we use a subset of organizational policies to illustrate reasons why MAiD is only a paper right. First, however, we focus on how eligibility and procedural requirements in the law, ignorance of the law, and functional eligibility requirements such as financial resources, limit access to MAiD. We then illustrate how private organizational policies, even for organizations that opt in, can make MAiD a “paper option” for many individuals who otherwise may desire MAiD.
22.3 Legal Requirements Limit Access to MAiD
As others have reported elsewhere,Footnote 17 the strict eligibility requirements in MAiD laws prevent many individuals from using MAiD. Only residents of states where MAiD is legal can avail themselves of this option.Footnote 18 Further, only adults with decisional capacity can access MAiD,Footnote 19 which excludes terminally ill individuals with cognitive impairments such as moderate dementia.Footnote 20 The terminal illness requirement excludes from using MAiD those who are suffering from serious and incurable illnesses but who do not meet the terminal illness definition,Footnote 21 and the self-administration requirement may exclude individuals with disabilities that make it impossible to self-administer the medication.Footnote 22 And waiting periods imposed by law can also mean someone dies or becomes incapacitated between the first and second requests,Footnote 23 thus losing the opportunity to die with MAiD.
Aside from these eligibility requirements, the law also imposes significant paperwork burdens on physicians and patients. Physicians have to make referrals to other health care providers and complete legally required forms and submit them to the state.Footnote 24 And patients have to complete a written form that is witnessed by two people, neither of whom can be their current health care providers and one of whom cannot be a family member.Footnote 25 Individuals at the end of life, especially if institutionalized, may not be able to satisfy these requirements. These burdens are especially significant, given that people seeking MAiD are very ill and have limited life left.
In brief, existing public law requirements may result in very few people qualifying for MAiD, regardless of subsequent private policy choices of health care organizations, making this end-of-life option a paper right.
22.4 Ignorance of Law Limits Access to MAiD
Even assuming an individual satisfies the legal eligibility requirements for MAiD, many individuals may not know about MAiD. This is in part due to silence in many states’ MAiD laws about whether physicians can initiate a discussion about MAiD with their patients. In this statutory and regulatory silence, some private professional organizations have adopted recommendations suggesting that physicians not bring up MAiD with their patients to not unduly influence patients to hasten death.Footnote 26 Such recommendations from private organizations can be considered “soft [private] law,” which although not legally binding, may become very influential in practice. Following this guidance means that patients who are not well informed about end-of-life options may not know about MAiD.
Another way in which individuals may be ignorant of the law occurs when information about the law is not available in multiple languages. When we were researching California health care entities’ websites, it was not uncommon to find hospital policies and forms in both English and Spanish (e.g., advance directive forms), but never did we find an EOLOA policy posted in a language other than English.Footnote 27
Ignorance means that end-of-life decision-making rights are not exercised.
22.5 Hidden Health Care Organization Opt In Limits Access to MAiD
Another way access to MAiD is limited in states where it is legal occurs when health care organizations opt in but hide this information from their patients and the public. In our research, we found several instances in which organizations had an opt-in policy, but this was not easily found using the hospital website search function or that had a policy that could be found elsewhere online but not on the hospital’s webpage. Organizations that are not transparent about opting in make it less likely that their patients will use MAiD, but this hidden opt in may serve other organizational (i.e., private law) preferences, such as maintaining the status quo of low MAiD rates, resisting controversial change, reducing administrative burden on providers, and reducing risk of liability.
22.6 Functional Ineligibility Limits Access to MAiD
An individual may desire MAiD but not be able to afford this end-of-life option. Often the MAiD medication is not covered by health insurance.Footnote 28 This means that patients who choose MAiD must pay for the medication out of pocket. That cost is often from US$700 to over US$3,000 and has increased over time as more states legalize MAiD.Footnote 29 This may be cost-prohibitive for lower-income individuals, making them functionally ineligible for MAiD. Further, using MAiD is not an option through the Department of Veterans Affairs (VA),Footnote 30 and so veterans who receive health care through the VA will not have access to this end-of-life option, even in states where MAiD is legal.
It may also be the case that pharmacies do not have MAiD medications,Footnote 31 which means that patients will not be able to use this end-of-life option.
Lack of financial resources or lack of access to the aid-in-dying medication makes the right to die illusory for some otherwise eligible individuals.
22.7 Health Care Organization Opt Out Limits Access to MAiD
More significantly for limiting access to MAiD, however, is the law’s facilitation of individual health care provider and organizational opt out of participation. The law states that “[p]articipation under this part shall be voluntary. … A person or entity that elects, for reasons of conscience, morality, or ethics, not to participate is not required to participate.”Footnote 32
The law directs that “a health care entity may prohibit its employees, independent contractors, or other persons or entities, including health care providers, from participating under this part while on premises owned or under the management or direct control of that health care entity or while acting within the course and scope of any employment by, or contract with, the entity.”Footnote 33 Consequences for violating an organization’s policy can include “[l]oss of privileges, loss of membership, or other action authorized by the bylaws or rules and regulations of the medical staff”Footnote 34 and “[s]uspension, loss of employment, or other action authorized by the policies and practices of the health care entity”Footnote 35 among other potential penalties.Footnote 36 Health care entities are not permitted to prohibit health care provider or employee participation in the EOLOA when not acting within the “course and scope” of their employment or independent contracting duties with the entity and when not on the facility’s premises.Footnote 37
When a health care organization, such as a general acute care hospital, decides that its employees, and physicians on its medical staff, are not participating in MAiD, patients who receive their end-of-life care from the organization and affiliated personnel will likely struggle to access MAiD. In theory, patients could transfer their care to seek MAiD, but in practice, providers may not accept a new patient solely to facilitate the patient’s death through MAiD.Footnote 38 Additionally, patients may be physically unable to seek new care because they are actively dying or institutionalized, or the patient may not be able or want to leave their home to search for MAiD providers that may be geographically distant.
Religious hospitals constitute a significant share of private nonprofit hospitals,Footnote 39 and many religious hospitals have declined to participate in the California EOLOA.Footnote 40 Many of these hospitals are part of a large health system, which means that patients receiving care through the system will not have access to this end-of-life option. For this chapter, we use the case of one health system that has complied with the legal requirement to post its EOLOA policy publicly – Dignity Health – to demonstrate the effect of organizational opt out on access to MAiD.
Dignity Health system’s goal is “to create environments that meet each patient’s physical, mental, and spiritual needs,” and it is “made up of more than 60,000 caregivers and staff who deliver … care to … communities in 21 states. Headquartered in San Francisco, Dignity Health is the fifth largest health system in the nation and the largest hospital provider in California.”Footnote 41 Dignity Health started with one Catholic hospital and has since grown to include thirty-nine hospitals, of which twenty-four are Catholic.Footnote 42
Not surprising, given the Catholic church’s opposition to MAiD,Footnote 43 Dignity Health hospitals opted out of the EOLOA, and this opt out extends to other services such as hospice and home health.Footnote 44 Indeed, the system’s opposition to MAiD is explicit in its Statement of Common Values: “Death is a sacred part of life’s journey; we will intentionally neither hasten nor delay it. For this reason, physician-assisted suicide is not part of Dignity Health’s mission.”Footnote 45 This language is also copied in its official hospital policy, where it asserts that “[t]he mission, values, and philosophy of care of Dignity Health compel us to reject participation in physician aid in dying.”Footnote 46
Dignity Health’s EOLOA policy begins with a statement that the organization is committed to providing “excellent palliative care,” is opposed to MAiD, and wants to ensure that everyone is aware that Dignity Health is exercising its legal right to opt out of participating in MAiD.Footnote 47 Dignity Health then specifies the following with respect to MAiD:
B. It is the policy of Dignity Health that its facilities, programs, staff, and related operations shall not be involved in physician aid in dying, including:
1. Providing or securing an “informed decision” as defined by the Act.
2. Providing or completing the written and oral request as provided by the Act.
3. Providing any medication with the specific purpose of ending a human life as contemplated by the Act.
4. Being present at the time of administration of the medication by the patient.
C. Patients, families, nurses, physicians, and other providers are encouraged to fully explore and discuss care and treatment options for terminally ill patients. As part of that discussion, Dignity Health recognizes that requests for physician aid in dying will occur within the context of the physician-patient relationship. Dignity Health respects the rights of patients and physicians to discuss and explore all such treatment options, but fully expect that patients and physicians will respect and adhere to the Dignity Health’s position as set forth in this policy while undergoing and providing treatment in Dignity Health facilities, programs, and services.Footnote 48
Interestingly, Dignity Health’s website refers individuals with questions about the EOLOA to their primary care providers and the Coalition for Compassionate Care of California (CCCC), which is an organization that “promotes high-quality, compassionate care for everyone who is seriously ill or nearing the end of life”Footnote 49 and is officially neutral about the CA EOLOA. Although it is neutral, the CCCC website includes a wide range of information about all end-of-life decisions, including the EOLOA. The CCCC website also includes a link to the American Clinicians Academy for Medical Aid in Dying, which connects interested individuals to physicians willing to assist them in accessing MAiD.Footnote 50
Dignity Health has twenty-nine hospitals across California,Footnote 51 and thus its opt out significantly affects access to MAiD.
While this section focused on a religiously affiliated health system as a case of organizational opt-out of MAiD, other health systems in California have also opted out, despite no religious reason. Such opt outs also preclude patient access to MAiD, especially when the hospital is the only hospital in a rural region.
22.8 Health Care Organization Opt In with Additional Requirements Limits Access to MAiD
It may seem that when health care organizations decide to opt into the CA EOLOA, patients will have access to MAiD if they meet the legal requirements as outlined in the statute. However, many organizations that opt in create policies with additional requirements that may impede access to MAiD.Footnote 52 This section will focus on the CA EOLOA opt-in policy of the University of California San Francisco (UCSF) Medical Center to highlight organizational requirements that may restrict patient choice at the end of life.
One way that UCSF may make it more difficult for patients to obtain MAiD is by requiring that patients meet with two additional clinicians beyond the attending and consulting physicians required by law. The UCSF policy directs that patients inquiring about MAiD be referred to a social worker for information.Footnote 53 If the patient decides to move forward with the process, their attending physician to whom they make their initial request for MAiD must refer them to a mental health specialist for a capacity assessment and to ensure no mental illness is affecting their decision to pursue MAiD.Footnote 54 UCSF justifies their policy on the basis of protecting patients with impaired decisional capacity, including from mental illness.Footnote 55
With these requirements, UCSF’s policy is trying to ensure that patients’ decisions are truly informed and voluntary and thus autonomous.Footnote 56 However, requiring additional appointments and assessments slows the MAiD process, and because patients are terminally ill, they may die before the process is complete, frustrating their autonomy. Further, meeting with two additional providers, neither of whom the patient may have met before, can constitute a significant privacy burden and provides an opportunity for strangers to veto the patient’s decision, given that UCSF’s policy is not to prescribe aid-in-dying medication if health care team members have concerns about whether the patient is making a voluntary request.Footnote 57
Other parts of UCSF policy may also reduce patient access to MAiD. For example, aid-in-dying medication cannot be dispensed or ingested on the premises.Footnote 58 Patients who cannot be discharged from the hospital will not be able to use MAiD. Further, UCSF will not accept patients only for MAiD. UCSF will only facilitate MAiD for current patients.Footnote 59 Patients must also be able to communicate in the absence of familial support as UCSF policy requires that physicians discuss the EOLOA with their patients alone,Footnote 60 and this can negatively affect those who prefer to make decisions with family or who need decision-making assistance.Footnote 61 Moreover, there are additional requirements that physicians must meet in order to participate in MAiD at UCSF, such as obtaining UCSF Medical Staff EOLOA privilegeFootnote 62 and making reports to UCSF risk management,Footnote 63 which may decrease physician willingness to participate, given how many burdens are on their time in everyday medical practice and are added just through complying with the statutory EOLOA requirements.
In brief, even when organizations opt into MAiD, their policies do not guarantee that statutorily qualified individuals will be able to use this end-of-life option.
22.9 Discussion and Conclusion
Our research demonstrates that health care organizations, most of them private, mediate medical decision-making rights granted by the state. Employment contracts with health care professionals and medical staff bylaws and staff privileges for physicians constrain involvement in MAiD and affect the physician–patient relationship. Thus, the spread of MAiD across the United States may be only a symbolic victory for patients’ rights advocates because in practice, this option is not available to many patients due to health care organizations’ policies. Indeed, statistics reflect that only the most privileged patients are receiving MAiD. Organizational policies thus limit patient autonomy, which California’s EOLOA law was meant to increase, but such limits will primarily be experienced by rural patients, low-income patients, and patients with low health literacy.
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