Even with legislation in these states, the costs of medical malpractice liability have increased, and, in some parts of the country, skyrocketed. Doctors in some areas claim that liability insurance is so high that they refuse to accept patients, move their practice to another state, or even retire early. Insurance companies that provide malpractice insurance claim that multi-million-dollar judgments in medical mal- practice cases, coupled with lawsuits deemed frivolous by the companies, have been the root cause of the increase in rates. Several states have considered and passed legislation under the pretext of major tort reform. California law provides a model that several states have fo ll owed. In 1975, the California legislature enacted the Medical Injury Compensation Re- form Act (MICRA), which c apped non-econom- ic damages—which include damages for pain and suffering, and even death—at $250,000. Many states that have followed California’sleadhave limited such damages to between $250,000 and $350,000. In 2001, President GEORGE W. BUSH called for major reform on a national level, requesting that Congr ess enact le gislation that could cr eate a national cap o f $250,000 on non- economic damages in all medical ma lpractice cases. These efforts failed. Other proposals include limiting the recovery of attorney’s fees in medical malpractice cases, restricting the liability of a doctor who provides emergency care, and limiting the recovery of attorneys in medical ma lpractice cases. These efforts are not without their critics. Skeptics point out that in some states, the cap on non-economic damages has not resulted in lower premiums on malpractice insurance, and that bad business practices of insurance compa- nies have been as or more responsible for the rise in liability insurance premiums as the multi-million-dollar judgments. Without major insurance reform, say these critics, the local and national tort reform efforts will not provide what they promise. Physician Malpractice Records In the past, it was very difficult for patients to discover malpractice information about their physicians. The federal government maintains the National Practitioners Data Bank, which lists doctors and malpractice claims in excess of $20,000, along with state disciplinary records. Its list is not made available to the public, but it is provided to state medical boards, hospitals, and other organizations that grant credentials. Because of the great demand by patie nts for this information, many states are enacting legisla- tion that makes it readily available. For example, the state of Washington provides access to physician information through several sources: insurance company claims records, which are required by law to be reported to the state; the National Practitioners Data Bank; and the state board of medicine, which administers physician licensing and discipline. Massachusetts created a similar system, called the Physician’s Profiles Project, and other states, including Florida, California, and New York, are considering the same kind of initiative. A Physician’s Duty to Provide Medical Treatment Medical malpractice dominates t he headlines, but a more basic legal question involving medical care is the affirmative duty, if any, to provide medical treatment. The historical rule is that a physician has no duty to accept a patient, regardless of the severity of the illness. Aphysician’srelationshipwithapatientwas understood to be a voluntary, contracted one. Once the relationship was established, the physician was under a legal obligation to provide medical treatment and was a fiduciary in this respect. (A fiduciary is a person with a duty to act primarily for the benefit of another.) Once the physician-patient relationship exists, the physician can be held liable for an intentional refusal of care or treatment, under the theory of aba ndonment. (Abandonment is an intentional act; negligent lack of care or treatment is medical malpractice.) When a treatment relationsh ip exists, the physician must provide all necessary treatment to a patient unless the relationship is ended by the patient or by the physician, provided that the physician gives the patient sufficient notice to seek another source of medical care. Most doctors and hospitals routinely ensure that alternative sources of treatment—other doctors or hospitals—are made available for patients whose care is being discontinued. The discontinuation of care involves signifi- cant economic issues. Reimbursement proce- dures often limit or cut off the funding for a particular patient’s care. Under the diagnosis- related group (DRG) system of MEDICARE, part A, 42 U.S.C. § 1395c, a hospital is paid a pre-set amount for the treatment of a particular GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION 238 HEALTH CARE LAW diagnosis, regardless of the actual cost of treatment. Patients who are covered by private insurance or HMOs may lose their coverage if they fail to pay premiums. Physicians and hospitals must act carefully when this happens, because the fiduciary nature of the relationship between provider and patient is not changed by a patient’s unexpected inability to pay. Health care providers must notify a patient and even must help to secure alternative care when funds are not reimbursed as expected. A Hospital’s Duty to Provide Medical Treatment The historical rule for hospitals is that they must act reasonably in their decisions to treat patients. Hospitals must acknowledge that a common practice of providing treatment to all emergency patients creates among members of a commu- nity an expectation that care will be provided whenever a person seeks care in an “unmistak- able emergency.” Seeking alternative care in a time-sensitive emergency situation could result in avoidable permanent injury or death, so it is not surprising that hospitals are held to a more flexible “reasonable duty” standard in their admission of patients for treatment. Owing to the high cost of emergency room care, many private hospitals in the early 1980s began refusing to admit indigent patients and instead had them transferred to emergency rooms at municipal or county hospitals. This practice, known as “patient dumping,” has since been prohibited by various state statutes, and also by Cong ress as part of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) (Public Law No. 99-272), in a section titled Emergency Medical Treatment and Active Labor Act (EMTALA) (§ 9121(b), codified at 42 U.S.C.A. § 1395dd). Under EMTALA, hospitals that receive federal assistance, maintain charita- ble nonprofit tax status, or participate in Medicare are prevented from denying emergen- cy treatment based solely on an individual’s inability to pay. EMTALA allowed private enforcement actions (i.e., lawsuits by indivi- duals) and civil penalties (i.e., fines) for hospitals that violate its provisions. Patients who must receive medical treatment include people whose health is in “serious jeopardy” and pregnant women in active labor. The EMTALA duty to provide treatment may be relieved only if a patient is stabilized to the point where a transfer to another hospital will result in “no material deterioration of [his or her] condition.” The U.S. Supreme Court ruled in Roberts v. Galen of Virginia, Inc., 525 U.S. 249, 119 S. Ct. 685, 142 L. Ed. 2d 648 (1999), that patients who have an emergency medical condition who are transferred from a hospital before being stabi- lized may sue the hospital under the EMTALA. The Court interpreted EMTALA to allow any patient to sue under the stabilization require- ment, even those who are not emergency room victims of patient dumpin g. Under the decision, a patient may recover if a hospital transfers the patient without stabilizing his or her condition, regardless of whether the doctor who signed the transfer order did so because the patient lacked HEALTH INSURANCE, or for any other improper purpose. Lower federal courts have conflicted over other aspects of the EMTALA, including whether the plaintiff must prove an improper motive when a hospital fails to screen an emergency patient. The High Court has not resolved all of these conflicts. Similar federal statutes require that hospitals treat all patients who have the ability to pay. Federal law prohibits discrimination on the basis of race, color, or national origin, by any program that receives federal financial assistance (42 U.S.C.A. § 2000d). Almost all hospitals receive this kind of funding, and many derive half or more of their revenue from Medicare or MEDICAID. Section 504 of the Rehabilitation Act of 1973 (29 U.S.C.A. § 794) prohibits federally funded programs and activities (including hospitals that receive federal funds) from excluding any “otherwise handicapped indivi- dual solely by reason of his handicap.” The broad definition of “handicap” is “physical or mental impairment that substantial- ly limits one or more of a person’s major life activities.” This has been construed to include ACQUIRED IMMUNE DEFICIENCY SYNDROME (AIDS) and asymptomatic HIV. Thus, hospitals that receive federal aid may not deny treatment to patients who are HIV-positive or who have AIDS. At the state level, similar legislation protects access to all state-licensed health care facilities and to the services of treating physicians. Antitrust and Monopoly The s ame antitrust and monopoly laws that govern businesses and corporations apply to physicians, hospitals, and health c are o rganizations. GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION HEALTH CARE LAW 239 Sherman Act The SHERMAN ANTI-TRUST ACT of 1890 (15 U.S.C.A. § 1) prohibits conspiracies in RESTRAINT OF TRADE that affect interstate com- merce. Often, physicians who are denied admittance to, or who are expelled from, the medical staff of a hospital file a lawsuit in federal court, against the medical staff and the hospital, claiming violation of the Sherman Act. To understand why this kind of federal action applies in this situation, one must first understand the unique relation of doctors to hospitals. Doctors generally do not work for a particular hospital, but instead enjoy staff, or “admitting,” privileges at several hospitals. They are accepted for membership on a medical staff by the staff itself, pursuant to its bylaws. The process of selecting and periodically re-evaluating medical staff members (called “credentialing” or “peer review”) can result in a denial of admit- tance to, or expulsion from, the medical staff. Physicians who are denied admittance to, or expelled from, a hospital’s medical staff and file a claim of Sherman Act violation in federal court are essentially claiming that they are being illegally restrained from their trade (i.e., prac- ticing medicine). It is the unique relation between doctors and hospitals, described earli- er, that satisfies the first element of a Sherman Act violation, which is that a conspiracy must exist. Normally, a single business cannot conspire with itself to restrain trade—a con- spiracy requires a concerted, or joint, effort between or among two or more entities. Because physicians, as independent contractors, constitute individual economic entities, when they vote as a medical staff to admit or expel a physician, they are acting in the concerted, or joint, fashion described by the statu te. The second element of a Sherman Act violation is that a restraint of trade must occur. One rule states that any restraint of trade, especially in the commercial arena, may be viewed as per se (i.e., inherently) illegal. How- ever, courts often have resorted to comparative analysis to balance the pro-competitive versus anticompetitive effects of a medical staff’sdeci- sion. For example, if a physician has a history of incompetent or unethical behavior, then a denial of medical staff privileges can be independently justified. However, if there is only one hospital in a small town , and the p hysician in question meets all qualifications for ethics and competence, a denial of medical staff privileges may well constitute illegal restraint of trade. The final element of a Sherman Act viola- tion, that the action must substantially affect interstate commerce, is a jurisdictional require- ment, which means that if it is not satisfied, the federal court has no jurisdiction to hear the dispute, and the Sherman Act does not apply. Courts are split as to whether a medical staff’s decision to grant or deny medical staff privileges satisfies this element. Some courts view the practice of a single physician to have a minimal, rather than the required substantial, effect on interstate commerce, and hold that the jurisdic- tional element is not met. Other courts focus on the activity of the entire hospital (e.g., receipt of federal funds, purchase of equipment from other states, and reimbursement from national insurance companies) and find that the jurisdic- tional element is met. Challenged medical staffs and hospitals often raise the “state-action” exemption, which exempts from federal antitrust law activities required by state law or regulations. Many states mandate the peer-review process, even at private hospitals, but in order for an exemption based on this mandate to negate a finding of a Sherman Act violation, the state must supervise the process closely. Clayton Act Section 7 of the Clayton Anti- Trust Act of 1914 (15 U.S.C.A. § 18) prohibits mergers if they “lessen competition or tend to create a monopoly.” To be valid, a merger must not give a few large firms total control of a particular market, because of the risks of PRICE- FIXING and other forms of illegal COLLUSION. Market-share statistics control merger analysis, and they are based on a “relevant market.” The CLAYTON ACT can prohibit a national hospital- management company from purchasing several hospitals in one town, and it can even prohibit joint ventures between hospitals and ph ysicians or between formerly competing groups of practicing physicians. Several exceptions apply to these prohibi- tions. If a hospital is on the verge of BANKRUPTCY and certain closure, but for the merger, then the merger will be allowed. Nonprofit hospitals long enjoyed complete exemption from Section 7 of the Clayton Act, but now federal district courts are split as to whether the act applies to nonprofit hospitals. In any case, a careful market analysis that shows that particular relevant GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION 240 HEALTH CARE LAW markets do not overlap—and hence do not lessen competition or create a monopoly— canbeusedasevidencetoupholdamerger decision between two or more health care entities. Health Care Insurance A trend toward “managed care” and away from “fee-for-service ” medicine has been sparked by significant changes in the healt h insurance industry. Health care insurance originated in the 1930s with Blue Cross (hospitalization coverage) and Blue Shield (physician services coverage). It traditionally has stayed out of the provision of health care services and has served as a third-party indemnitor for health care expenses; that is, in exchange for the payment of a monthly premium, a health care insurance company agrees to indemnify, or be responsible for, its insured’s health care costs pursuant to the specific provisions in the health insurance policy purchased. Skyrocketing costs in health care spurred public and private reform. The federal Medicare Program introduced diagnosis-related-groups (DRGs) in 1983, which for the first time set predetermined limits on the amounts that Medicare would pay to hospitals for patients with a particular diagnosis. Employers seeking lower health care costs for employees have increasingly chosen managed care options like HMOs and preferred provider organizations (PPOs), both of wh ich us e co operation and jo int efforts among patients, health care providers, and payers to manage health care delivery so as to reduce costs by eliminating administrative ineffi- ciency as well as unnecessary medical treatment. Health care law will continue to be affected by the country’s move toward managed care as the predominant health care delivery model. For example, HMOs’ potential liability for medical malprac tice could increase because many HMOs operate on a “staff model” whereby physicians are explicitly hired as “employees,” thus making it easier to demon- strate respondeat superior liability for the negli- gent acts of their physicians. In addition, many HMOs exercise greater control over the discre- tion of individual physicians with regard not only to primary care but also to specialist referrals and the prescribing of certain drugs. The historical bright line forbidding the corpo- rate practice of medicine is thus blurred even further by managed care. HMOs operate on a prepaid basis, making monthly capitation (i.e., per patient) payments to participating physicians and physician groups. PPOs operate on a reduced-fee sched- ule, offering lower fees for patients who seek care from a “preferred provider,” who functions both as a primary care doctor and as a gatekeeper for such tasks as specialist referrals. Both use “networks” of physicians and health care providers. The standard duty to provide medical care applies to physicians in these networks, but new issues arise regarding the payment or reimbursement of expenses. Some managed-care plans offer limited “out-of-net- work” benefits, and some offer none at all. Should an employer change health plans, an employee with an established physician-patient relationship might find that the treating physi- cian is not part of the new provider’s network. If the patient cannot or will not cover subsequent medical costs independently, who has the responsibility to secure alternative treatment for the patient? Who should pay for that treatment? These questions have not yet been resolved. Many patients in this situation start over again with a new physician, out of economic necessity, and many are not happy about that involuntary termination of the physician-patient relationship. Another potential issue for physician net- works and “integrated delivery systems” (which include primary care physicians, specialists, and hospitals) is price-fixing, which has traditionally been held to be per se illegal under the Sherman Act. PPOs are under particular scrutiny in this regard, as a PPO is a group of health care providers who agree to discounted fees in exchange for bulk business (e.g., medical care for all of a particular company’s employees). These providers are individual economic entities, and as such they must exercise great care in the concerted, joint effort of setting prices and fees, in order to avoid accusations of conspiracy to restrain trade through illegal price-fixing. Like- wise, integrated delivery systems must be ever mindful of Clayton Act prohibitions against monopolies, and they must carefully tailor their joint ventures and other agreements to minimize their anticompetitive effects on relevant markets. Forty-five states have passed so-called Patients’ Bill of Rights—legislation to improve patients’ rights under private health insurance plans. However, efforts to enact a federal BILL OF RIGHTS have proven unsuccessful. In 2003 the GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION HEALTH CARE LAW 241 U.S. Supreme Court, in Kentucky Association of Health Plans v. Miller, 538 U.S. 329, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003), reviewed a provision of Kentucky’s Health Care Reform Act that sought to regulate HMOs. The HMO in the case claimed that Kentucky’s law was pre- empted by the EMPLOYEE RETIREMENT INCOME SECURITY ACT of 1974 (ERISA). The Court disagreed, holding that the Kentucky law regulated insurance, rather than an employee retirement plan, and thus that the ERISA pre- emption does not apply. FURTHER READINGS Jonas, Stephen. Ed. 2007. An Introduction to the U.S. Health Care System. 6th ed. New York: Springer. Pozgar, George. 2006. Legal Aspects of Health Care Administration. 10th ed. New York: Jones and Bartlett. Sultz, Harry & Young, Kristina. 2008. & Health Care USA: Understanding Its Organization and Delivery. 6th ed. New York: Jones and Bartlett. CROSS REFERENCES Abortion; Animal Rights; Death and Dying; Drugs and Narcotics; Fetal Rights; Fetal Tissue Research; Food and Drug Administration; Physicians and Surgeons. HEALTH INSURANCE Health insurance originated in the Blue Cross system that was developed between hospitals and schoolteachers in Dallas in 1929. Blue Cross covered a pre-set amount of hospitalization costs for a flat monthly premium and set its rates according to a “community rating” system: Single people paid one flat rate, families another flat rate, and the economic risk of high hospitalization bills was spread throughout the whole employee group. The only requirement for participation by an employer was that all employees, whether sick or healthy, had to join, again spreading the risk over the whole group. Blue Shield was developed following the same plan to cover ambulatory (i.e., non-hospital) medical care. The Blue Cross/Blue Shield plans were developed to complement the traditional meth- od of paying for health care, often called “fee- for-service.” Under this method, a physician charges a patient directly for services rendered, and the patient is legally responsible for payment. The Blue Cross/Blue Shield plans are called “indemnity plans,” meaning they reim- burse the patient for medical expenses incurred. Indemnity insurers are not responsible directly to physicians for payment, although physicians typically submit claims information to the insurers as a convenience for their patients. For insured patients in the fee-for-service system, two contracts are created: one between the doctor and the patient, and one between the patient and the insurance company. Traditional property and casualty insurance companies did not offer health insurance because with traditional rate structures, the risks were great, and the returns uncertain. After the Blue Cross/Blue Shield plans were developed, however, the traditional insurers noted the community rating practices and realized that they could enter the market and attract the healthier community members with lower rates than the community rates. By introducing health screening to identify the healthier individuals, and offering lower rates to younger individuals, these companies were able to lure lower-risk populations to their health plans. This left the Blue Cross/Blue Shield plans with the highest- risk and costliest population to insure. Eventu- ally, the Blue Cross/Blue Shield plans also began using risk-segregation policies and charged higher-risk groups higher premiums. During the 1960s Congress enacted the MEDICARE program to cover health care costs of older patients, and MEDICAID to cover health care costs of indigent patients (Pub. L. No. 81-97). The federal government administers the Medi- care Program and its components: Part A, which covers hospitalization, and Part B, w hich covers physician and outpatient services. The federal government helps the states fund the Medicaid Program, and the states administer it. Medicare Part A initially covered 100 percent of hospitalization costs, and Medicare Part B covered 80 percent of the usual, customary, and reasonable costs of physician and outpa- tient care. Under both the fee-for-service system of health care delivery, where private indemnity insurers charge premiums and pay the bills, and the Medicare-Medicaid system, where taxes fund the programs, and the government pays the bills, the relationship between the patient and the doctor remains distinct. Neither the doctor nor the patient is concerned about the cost of various medical procedures involved, and fees for services are paid without significant oversight by the payers. In fact, if more services are performed by a physician under a fee-for- service system, the result is greater total fees. GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION 242 HEALTH INSURANCE Health Care Coverage for Persons Under 65, in 2006 PercentPercent Under 18 18–44 Age Race and Hispanic origin 45–64 White, non-Hispanic Black, non-Hispanic Hispanic, all races Not covered a Medicaid Private insurance a Includes persons not covered by private insurance, Medicaid, Medicare, or military plans. SOURCE: U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Health Statistics, Health, United States, 2008. 0 10 20 30 40 50 60 70 80 90 100 6.3% 75.2% 13.2% 8.6% 24.6% 65.0% 29.9% 9.5% 59.4% 0 10 20 30 40 50 60 70 80 90 100 23.1% 40.0% 35.0% 26.6% 18.1% 51.3% 11.8% 16.7% 69.1% ILLUSTRATION BY GGS CREATIVE RESOURCES. REPRODUCED BY PERMISSION OF GALE, A PART OF CENGAGE LEARNING. GALE ENCYCLOPEDIA OF AMERICAN LAW, 3 RD E DITION HEALTH INSURANCE 243 From 1960 to 1990, per capita medical costs in the United States rose 1,000 percent, which was four times the rate of inflation. As a consequence, a different way of paying for health care rose to prominence. “Managed care,” which had been in existence as long as indemnity health insurance plans, became the health plan of choice among U.S. employers who sought to reduce the premiums paid for their employees’ health insurance. Managed care essentially creates a triangular relationship among the physician, patient (or member), and payer. Managed care refers primarily to a prepaid health-services plan where physicians (or physician groups or other entities) are paid a flat per-member, per-month (PMPM) fee for basic health care services, regardless of whether the patient seeks those services. The risk that a patient is going to require significant treatment shifts from the insurance company to the physicians under this model. Managed care is a hig hly regulated industry. It is regulated at the federal level by the Health Maintenance Organization Act of 1973 (Pub. L. No. 93-222) and by the states in which it operates. The health maintenance organization (HMO) is the primary provider of managed care, and it functions according to four basic models: 1. T he staff-model HMO employs physicians and providers directly, and they provide services in facilities owned or controlled by the HMO. Physicians u nder this model are paid a salary (not fees for service) and share equipment and facilities with other physi- cian-employees. 2. T he group-model HMO contracts with an organized g roup of physicians who are not direct employees of the H MO, but who agree to provide basic health care services to the HMO’s membe rs in exchange for capitation (i.e., PMPM) payments. The capitation payments must be spread among the physicians under a pre-determined arrangement, and medical records and equipment must be shared. 3. The individual-practice-association (IPA) model HMO is based around an association of individual practitioners who organize to contractwithanHMO,andasaresulttreat the HMO’s patients on a discounted fee- for-service basis. Although there is n o periodic limit on the amount of payments from the HMO, the physicians in an IPA must have an explicit agreement that determines the distribution of HMO receipts and sets forth the services to be performed. 4. The direct-service contract/network HMO model is the most basic model. Under this variation, an HMO contracts directly with individual providers to provide service to the HMO’s patients, on either a capitated or discounted fee-for-service basis. All four of these models share one very important feature of HMOs: The health care providers may not bill patients directly for services rendered, and they must seek any and all reimbursement from the HMO. Another form of managed care is the preferred provider organization (PPO). A PPO does not take the place of the traditional fee-for- service provider (as does a staff model HMO) and does not rely on capitated payments to providers. Instead, a PPO contracts with individual providers and groups to create a network of providers. Members of a PPO may choose any physician they wish for medical care, but if they choose a provider in the PPO network, their co-payments—predetermined, fixed amounts paid per visit, regardless of treatment received—are significantly reduced, thus providing the incentive to stay in the network. No federal statutes govern PPOs, but many states regulate their operations. There are three basic PPO models: 1. Inagatekeeperplan,apatientmustchoose a primary-care provider from the PPO network. This provider tends to most of the p atient’s health care needs and must authorize any referrals to specialists or other providers. If the patient “self-refers” without authorization, the cost savings of the PPO will not apply. 2. The open-panel plan, on the other hand, allows a patient to see different primary-care physicians and to self-refer within the PPO network. The financial penalties for seeking medical care out of the PPO network are much greater in this less-structured model than in the gatekeeper model. 3. The exclusive-provider plan shifts onto the patient all of the costs of seeking medical care from a non-network provider, and in this respect it is very similar to an HMO plan. GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION 244 HEALTH INSURANCE Other forms of health care delivery that encompass features of managed care include point-of-service (POS) plans and physician- hospital organizations (PHOs). A POS plan is a combination of an HMO and an indemnity insurance plan, allowing full coverage within the network of providers and partial coverage outside of it. A patient must choose one primary-care physician and might pay a higher monthly rate to the POS if the physician is not in the HMO network. Another version of the POS plan creates “tiers” of providers, which are rated by cost-effectiveness and quality of patient outcomes. A patient may choose a provider from any tier and then will owe a monthly premium payment set to the level of that tier. A PHO is very similar to an IPA in that it is an organization among various physicians (or physician groups) and a hospital, set up to contract as a unit with an HMO. Physician- hospital networks, within HMOs or through PHO contracts, further the managed-care mission of “vertical integration,” w hich is the coordination of health care (and payment for that care) from primary care through specialists to acute care and hospitalization. Managed care has affected Medicare as well as private health care. In 1983 Congress changed the payment system for Medicare, Part A, from a fee-for-service-paid-retroactively system to a prospective payment system, which fixes the amount that the federal government will pay based on a patient’s initial diagnosis, not on the costs actually expended (Pub. L. No. 98-369). Medical diagnoses are grouped ac- cording to the medical resources that are usually consumed to treat them, and from that grouping is determined a fixed amount that Medicare will pay for each diagnosis. Although this system is applicable only to the acute-care hospital setting, it is clearly an example of shifting the risk of the cost of health care from the payer (in this case, Medicare) to the provider, which is an important element of managed care. In addition, many HMOs now offer Medicare managed-care plans, and many older citizens opt for these plans because of their paperless claims and pre-set co-payments for physician visits and pharmaceuticals. The most recent development in the area of health insurance is the medical savings account (MSA), a pilot program that was created by the Health Insurance Portability and Accountability Act of 1996 (Pub. L. No. 104-191). The premise behind the MSA is to take the bulk of the financial risk, and premium payments, away from the managed-care and indemnity insurers; and to allow individuals to save money, tax free, in a savings account for use for medical expenses. Individuals or their employers pur- chase major-medical policies, medical insurance policies with no coverage for medical expenses until the amount paid by the patient exceeds a pre-determined maximum amount, such as $2,500 per year. These policies have extremely high deductibles and correspondingly low monthly premiums. The participants take the money that they would have spent on higher premiums and deposit it in an MSA. This money accrues through monthly deposits and also earns interest, and it can be spent only to pay for medical care. The major-medical policy applies if a certain amount equal to the high deductible is expended or if the account is depleted. MSAs do not incorporate any of the cost-controlling aspects of managed-care organizations, and instead depend on competition among providers for patients (who are generally more cost- conscious about spending their own money) to encourage efficient health-care delivery and to discourage unnecessary expense. Litigation has resulted from insurance companies seeking to place limits for certain conditions. The decision by the U.S. Court of Appeals for the Seventh Circuit in Doe and Smith v. Mutual of Omaha Insurance Co., 179 F.3d 557 (7th Cir. 1999), cert. denied, 120 S. Ct. 845 (2000), concerns AIDS caps insurance policies. At issue in the case was whether the Americans with Disabilities Act (ADA) covers the content of insurance policies. The plaintiffs, who sued under the pseudonyms John Doe and Richard Smith, argued that Mutual of Omaha Company had discriminated against them by selling them insurance policies with lifetime caps on AIDS-related expenditures. John Doe’s policy had a lifetime AIDS cap of $100,000, and Richard Smith’s policy had a cap of $25,000. Other health insurance policies sold by the company had lifetime caps for other diseases of $1 million. The Seventh Circuit found that AIDS caps do not violate the ADA. The court found that Doe and Smith had not been discriminated against, because the company had offered them an insurance policy. The ADA, the court determined, would only pro- hibit Mutual of Omaha from singling out GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION HEALTH INSURANCE 245 disabled people and refusing to sell them insurance. The court ruled that the ADA did not prohibit the company from offering dis- abled parties insurance policies with different terms and conditions from other people. The court held the plaintiffs were not denied a policy because they had AIDS but rather were denied coverage for certain AIDS treatments. Healthcare Reform H ealthcare reform has been a con- tentious political issue since the 1940s. Whereas most industrialized coun- tries have single-payer systems, where the government administers and finances healthcare, the U.S. system has been built on employer-paid healthcare insurance sold by private companies. Under single- payer plans, such as used in Canada, everyone is provided benefits and no one has to pay deductibles or co-payments. Single-payer plans reduce overhead expenses because the government pays the medical costs directly to the provider, eliminating the middle-person, which in the United States are HEALTH INSURANCE companies. Efforts to establish a single- payer system in the United States have been unsuccessful, as opponents warn of socialized medicine and the loss of free choice. Meanwhile, healthcare costs rise every year, putting financial strains on employers and their employees. More than 47 million people in the United States did not have health insurance in 2009. By the 2008 presidential election, healthcare reform was a hot political topic. The election of BARACK OBAMA as president meant that healthcare legislation would be on the congressional agenda in 2009. As the year unfolded, five committees in the House and Senate worked on reform plans. By the end of 2009, it appeared likely that a major reform will would be passed in early 2010. In the late 1940s, President HARRY TRUMAN proposed that the United States adopt a single-payer plan. His proposal went nowhere, and healthcare remained an issue left to state regulation and the marketplace. The passage of the MEDICARE Act in 1965 inserted the federal government into healthcare, paying for the healthcare of all citizens 65 and older. Medicare was opposed by Republicans, who believed it was a major step toward single-payer, socialized medicine. Medi- care proved, however, to be a popular program; though the program is govern- ment-run, senior citizens have the ability to choose healthcare providers. The healthcare debate rekindled with the election of BILL CLINTON as president in 1992. His wife, HILLARY RODHAM CLINTON, led a White House committee that drafted a reform initiative. The result was a complex proposal that sought to guarantee universal coverage by requiring employers to insure all full- time workers. The plan would have established a national health board and a government agency that would have set the maximum amount health insurers could increase premiums each year. Employers and insurance companies mounted an effective lobbying campaign that killed off the proposal. From the mid-1990s to the 2008 pre- sidential campaign, there was much talk about healthcare reform, but neither major party displayed interest in propos- ing comprehensive reform. They noted that Clinton’s failure to pass his proposal weakened him politically and contributed to the Republicans taking over the House of Representatives for the first time since the late 1940s. Congress did pass in 1997 the State Children’sHealth Insurance Program (SCHIP), which pro- vides matching funds to states to pay for health insurance for families with children. In 2009 the program was given a large infusion of money, so as to insure millions more. Nevertheless, more persons complained that they could not afford health insurance premiums or that they were denied coverage for a pre- existing medical condition. A significant number of individuals filed for BANKRUPT- CY due to medical bills for catastrophic illnesses. Reforms at the state level proved difficult to combat these problems. Republicans argued that the best way to reform healthcare was to open the market. As of late 2009, each state regulates insurers. Some states have stronger regulations than others, but the overall effect has been a lack of competition; insurers select the states that they find most beneficial and ignore the rest. Republicans, such as 2008 presidential nominee Senator JOHN MCCAIN , proposed that state regulation be relaxed so a person in Minnesota could have the choice of buying a healthcare policy from any insurer in the country. In addition, he proposed moving from the employer-based model to an expanded federal healthcare savings account system that would be combined with federal subsidies and tax breaks. However, there was movement to- ward some type of government solution that mandated universal coverage. The state of Massachusetts enacted healthcare reform in 2006. Under the plan, almost all residents are required to purchase healthcare coverage. If they fail to comply, residents must pay a penalty. By 2008, 439,000 previously uninsured residents had insurance. Employers with more than ten employees are required to make a “fair and reasonable contribu- tion” to the payment of health pre- miums. The costs of the program were higher than anticipated, but by 2009 GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION 246 HEALTH INSURANCE Federal health care reform has been a contentious issue since the early 1990s. The Clinton administration’s reform efforts failed, and the issue was not a major focus of either major political party until the 2008 presidential election. President BARACK OBAMA signed into law in February 2009 the Childr en’s Health Insur- ance Program Reauthorization Act of 2009, only 4.1 percent of Massachusetts resi- dents lacked health insurance, the lowest rate in the United States. President Obama put healthcare at the top of his agenda when he entered the White House. Though he sought a plan with universal coverage, cost controls, and tougher regulations of health insurance practices, he did not propose a specific plan but left it to Congress to determine the details. Seeking to avoid the Clinton debacle, Obama gambled that Congress could write a comprehensive plan with bipartisan support. As the year progressed and competing ideas surfaced, it became clear that virtually all Republicans would oppose legislation written by the Demo- cratic majorities in the House and Senate. However, moderate and conservative Democrats also raised concerns about the scope and cost of the proposals that were in five committees. By Marc h 2009 the committee chairs had reached consensus on what the legisla- tion should contain. Like Massach usetts, the p lan would require universal coverage and carry penalties f or those w ho do no t comply. The health insurance industry insisted on this element, as millions of healthy young adults who will not use healthcare much would pay for the in- creased costs th at would come w ith i nsur- ance reforms. Such reforms included pre- venting i nsurers from dropping sick policy holders, denying claims and coverage for pre-existing conditions, and removing yearly and life-time caps on benefits. Another major component of the emerging proposal was the creation of health insurance exchanges. The exchanges would introduce competition into the private health insurance market. An individual with no coverage, the self- employed, and small business owners would purchase coverage from one of the companies in an exchange. The exchange would have competing providers offering different plans with varying benefit levels and prices. Insurers would not be able to discriminate based on a person’s health history or future risk. Plans would have to be certified as meeting a minimum level of comprehensiveness. The hope was that competition would drive down healthcare costs because the exchanges, with thousands or millions of partici- pants, would leverage the same bargain- ing power as large employers. However, one c ontentious issue began to dominate the d ebate: the p ublic option. House D emocra ts proposed that the go v- ernment compete with private insurers f or the same pool of people in the health insurance exchange. Advocates believed t he only way t o ge nerate meaningfu l competi- tion and lower costs was for the govern- ment to enter the market. Economies of scale and ba rga ining power, coupled with thefactthatthegovernmentwouldnot have to earn a p rofit for shareholders, meantthatapublicoptionwouldbea serious competitor. Opposition to the public opt ion from the health-care indus- try, Republicans, and some D emocrats, especially in the Senate, put r eform in doubt as the summe r of 2009 progressed. Some influential Democratic sen ators a n- nounced that the public opt ion would n ot be in the final bill, whereas some House Democrats insisted they w ould not vote f or any r eform b ill that d id not contain it. On November 7, 2009, the House passed its healthcare bill on a vote of 220- 215, which i ndicated a number of conserva- tive Dem ocrat s o ppos ed it . To achieve passage, S peaker of the H ouse Nancy Pelosi agreed to several compromises to gain some conservative Demo crat v otes. Onerestricted ABORTION coverage in subs idized plans . Another change barred the public option plan from offering rates just above what Medicare pays; instead, it would have to negotiate rates as insurers do. The CONGRES- SIONAL BUDGET OFFICE (CBO) projected the plan would reduce the federal deficit over the next ten years by $109 b illion. The Senate d ebate began in late November and concluded with an early morning vote on December 24, 2009. Though the Democratic m ajority is 60 seats, several c onservative D emocrats objected to the public option a nd refused t o vote f or the bill if it contained s uch a provision. As an alternative, a g roup o f senators f loated the idea of people age s 55 to 64 “buying in” to Medicare. The opposition of Senator Joseph Lieberman killed that idea. Senator Ben Nelson became the last holdout, t he sixtieth vote. The conservative from Nebraska forced the removal of a provision that wouldhavestrippedtheinsuranceindustry of its antitrust exemption. He also forced the addition of language that gives states t he right t o block plans covering a bortion coverage from the ir health e xchanges. The final vote, 60 to 39, was a major victory for President Obama yet potential roadblocks lay ahead. Because the two bills differed, a conference committee was to meet in early January 2010 to reconcile differences. Commentators expected House Democrats to drop the public option and work towards a final bill that would satisfy conservative Senate Democrats. If the legislation were to be enacted, many of its key provisions would not begin until 2014. Even if enacted, 24 million people would remain uninsured in 2019, with about one-third of them illegal immigrants. In March 2010, President Obama signed health insurance reform legisla- tion (P.L. 111-148, the Patient Protection and Affordability Act of 2010). FURTHER READINGS Jonas, Stephen, ed. 2007. An Introduction to the U.S. Health Care System. 6th ed. New York: Springer. Pozgar, George. 2006. Legal Aspects of Health Care Administration. 10th ed. New York: Jones and Bartlett. Sultz, Harry, and Kristina Young. 2008. Health Care USA: Understanding Its Organization and Delivery. 6th ed. New York: Jones and Bartlett. GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION HEALTH INSURANCE 247 . (DRG) system of MEDICARE, part A, 42 U.S.C. § 1395c, a hospital is paid a pre-set amount for the treatment of a particular GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION 238 HEALTH CARE LAW diagnosis,. rganizations. GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION HEALTH CARE LAW 239 Sherman Act The SHERMAN ANTI-TRUST ACT of 1890 ( 15 U.S.C.A. § 1) prohibits conspiracies in RESTRAINT OF TRADE that. the GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION HEALTH CARE LAW 241 U.S. Supreme Court, in Kentucky Association of Health Plans v. Miller, 53 8 U.S. 329, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003),