Patients as consumers: courts, contracts, and the new medical marketplace.

The persistent riddle of health-care policy is how to control the costs while improving the quality of care. The riddle's once-promising answer--managed care--has been politically ravaged, and consumerist solutions are now winning favor. This Article examines the legal condition of the patient-as-consumer in today's health-care market, It finds that insurers bargain with some success for rates for the people they insure. The uninsured, however, must contract to pay whatever a provider charges and then are regularly charged prices that are several times insurers 'prices and providers' actual costs. Perhaps because they do not understand the healthcare market, courts generally enforce these contracts. This Article proposes legal solutions to the plight of the patient-as-consumer and asks what that plight tells us about market solutions to the health-care quandary.

 
TABLE OF CONTENTS 
 
INTRODUCTION: PATIENTS AS CONSUMERS IN A 
NEW MARKETPLACE 
  I. THE MISERABLE MARKET FOR MEDICAL FEES 
     A. Introduction to the Problem of the 
        Medical Marketplace 
     B. Insurers as Purchasers of Health Care 
     C. Shopping for Prices 
        1. The Effects of Illness on the Patient 
           as Consumer 
        2. Shopping for Treatments: Patients in the 
           Hands of Doctors 
        3. Shopping for Doctors 
     D. Doctors' Prices and Doctors' Power 
     E. Hospital Prices 
     F. Summary 
II. JUDICIAL PROTECTION OF THE PATIENT 
    A. Should Courts Protect Patients? 
    B. How Can Courts Protect Patients? The 
       Supervisory Doctrines 
       1. Incomplete Contracts 
       2. Unconscionability 
       3. Fiduciary Duty 
       4. A Larger View of the Supervisory Doctrines 
       5. Determining Reasonable Rates 
CONCLUSION 

[Professionals] may, as in the case of a successful doctor, grow rich; but the meaning of their profession, both for themselves and for the public, is not that they make money but that they make health, or safety, or knowledge, or good government or good law.... [Professions uphold] as the criterion of success the end for which the profession, whatever it may be, is carried on, and [subordinate] the inclination, appetites and ambition of individuals to the rules of an organization which has as its object to promote the performance of function.

--R. H. Tawney

The Acquisitive Society

INTRODUCTION: PATIENTS AS CONSUMERS IN A NEW MARKETPLACE

Patients have always been consumers. (1) Before health insurance was common, they shopped in a market for medical services just as they shopped in a market for toasters and tailors. The fifteen percent of us who lack health insurance still shop that way. Even insured patients shop: they make copayments and have coinsurance; they pay extra for doctors and hospitals outside the insurer's network and for drugs outside the insurer's formulary. (2)

Patients have always been consumers, but, today, America's battle to restrain rocketing costs of health care has transformed the world of patients as consumers: Crucially, two recent reforms have (1) pushed more patients into the medical market and (2) made that market a more parlous place.

In one of those reforms--managed care--insurers bargain with doctors and hospitals and give providers incentives to cabin costs. This helps plan members get care less expensively, which is its intent. Unintentionally, how ever, managed care relegates uninsured patients to a new marketplace, a marketplace of uncommon harshness dominated by doctors, hospitals, and insurers. Briefly, insurers aggressively negotiate rates for plan members; uninsured patients must "bargain" individually with providers who are determined to recoup what they bargained away to insurers.

Managed care, then, has momentously changed the market for patients who must be consumers. The latest reform--consumer-directed health care--drives more insured patients into that market. (3) Assisted by a new tax shelter for "health savings accounts," employers and individuals are buying insurance with high deductibles that require patients to pay most medical costs out of pocket. (4) To qualify for the tax shelter, deductibles may range from $1,100 for individuals to $11,000 for families. (5) This is supposed to induce patients to shop like consumers for good care at low prices. (6)

What happens when patients buy care in the new medical market? What happens when consumer-directed health care makes even insured patients negotiate prices with doctors and hospitals? The standard hope is that the market will provide, that the market will spread decent products at reasonable prices before consumers, who will choose the right goods at the fight rates. The key but unappreciated fact, however, is that the market for uninsured medical services is a calamity. Patients can rarely amass enough information about services and prices to make good decisions about hiring doctors and buying care. Patients are frequently committed to their doctors, and their doctors normally decide which hospitals to use. Doctors and hospitals commonly require patients to sign contracts obliging them to pay whatever bills the provider cares to present. Providers regularly present and aggressively collect staggering bills unrelated to their costs or to the prices they negotiate with insurers. This is a market few can negotiate wisely, but in which missteps can destroy patients economically. No surprise, then, that the costs of illness--particularly medical bills--contribute to more than half of the personal bankruptcies in the United States. (7)

What should the law do when patients become consumers in this harsh market? Most basically, should patients be treated like any other consumers, and providers like any other vendors? More specifically, how should the law superintend the negotiation of contracts to pay for medical services? Should the law limit those contracts substantively? Do courts have a repertoire of doctrines for ameliorating the market's failure or at least safeguarding patients in extreme cases? If not, can doctrines be developed to make the worlds of managed care and consumer-directed health care safer for patients?

Scholars have strangely neglected these questions. Lawmakers have not recognized their existence, dimensions, or urgency. This is understandable, for lawmakers must rely on scholars to keep up with the medical markets' rapid changes. But while medical markets have been well studied, scholars have virtually ignored the legal questions the new market presents. (8)

We do not imagine that courts can solve the problems of health-care finance. But we believe that courts can and should shield patients from the cruelest consequences of the new market. Sickness, fear, and ignorance make patients inherently vulnerable. When patients must be consumers, their vulnerability deepens as they find themselves trapped in a market that starves them of information, alternatives, and leverage, a market that precludes prudent choice. The law ordinarily safeguards vulnerable consumers in perilous markets, and it eagerly protects patients when they choose medical treatments. More specifically, the common law endows courts with several doctrines that speak to the problems of patients as consumers. The law should recruit and develop these doctrines to shelter patients in the market managed care has created and consumer-directed health care will depend on.

I. THE MISERABLE MARKET FOR MEDICAL FEES

A. Introduction to the Problem of the Medical Marketplace

Patients increasingly are consumers. Consumers buy from vendors with interests of their own. Consumers must make well-judged purchases in the market--must evaluate their needs, assess their alternatives, hunt for the best price, and pay the consequent bill. In their rapture for deploying patients to tame medical costs, proponents of consumer-directed health care have descanted on the virtues of markets. But even smart and energetic consumers can struggle, even in good markets. How well can patients manage in the medical market?

For consumers to evaluate prices, they must know them. Here the problems begin: "Medicine is the one capitalist enterprise to reveal its price tag only after the purchase or transaction is completed." (9) When patients approach a doctor or hospital, they almost never know and can rarely discover what things will cost. Few contracts with doctors and hospitals specify prices. Sometimes there is no contract; the obligation to pay is implied. Physicians' agreements usually refer delphically to "fees," "payments," "accounts," or "balances." (10) Likewise, hospital-admission forms obscurely commit patients to paying all "charges" not covered by insurance. (11) In short, doctors and hospitals insist that patients accept their standard charges, and patients learn what they bought and what it cost only on receiving a bill (if they are marvelously lucky and receive a bill they can understand).

Should courts enforce onerous bills contracted in this lamentable way? If the market otherwise functions decently, perhaps. (12) But the health-care market is neither fair nor efficient. Rather, it is littered with the dangers of which Professor Eisenberg warns:

 
   [A] market that involves a monopoly sets the stage for the 
   exploitation of distress; a market in which transactions are 
   complex and differentiated rather than simple and homogeneous sets 
   the stage for the exploitation of transactional incapacity; a 
   market in which actors do not simply take a price established by a 
   general market and are susceptible to transient economic 
   irrationality sets the stage for unfair persuasion; a market that 
   involves imperfect price-information sets the stage for the 
   exploitation of price-ignorance. (13) 

Lawmakers know little about the strange medical market and thus leave patients to flounder in it. In this Part, therefore, we will chart the market's operation and its consequences. In the next Part, we will ask how the law should succor patients tossed in such stormy seas.

B. Insurers' as Purchasers of Health Care

In one large part, the health-care market works plausibly enough. Insurers (public and private) negotiate prices for much of the care many patients receive. Insurers bargain from strength and can sell more insurance if they offer the low rates that come with low fees. (14) And while patients pay what insurers don't reimburse, insurers usually secure for the insured the same discounts they negotiate for themselves. (15) Insurers thus eliminate real controversy (16) over whether negotiated prices are reasonable in contract or common-law terms (17): although insurance markets are hardly perfect (and so perhaps should be regulated), they discourage nastily excessive fees in prototypical situations. (18)

Nevertheless, no insurance covers everything, so even insured patients can be vulnerable when medical care is not covered by insurance or when care is sought outside a provider network. Insurance usually excludes treatment that is experimental, cosmetic, custodial, or otherwise not "medically necessary," and it often excludes or restricts other kinds of care, like treatment for pre-existing conditions or for mental illness and treatment using "alternative" therapies. (19) Insurers' negotiated prices do not apply to these. And insurers' discounts are not assured where the policy's coverage limits are exceeded, even for necessary care. (20)

C. Shopping for Prices

Nobody knows how often patients pay nondiscounted fees, (21) but such fees account for virtually all the caselaw we have surveyed over patients' bills. (22) To resolve these disputes intelligently, courts must understand how uninsured services are priced. Patients, doctors, hospitals, illnesses, and treatments vary so enormously that generalizing about medical pricing is a fools' game. But play it we must. Our generalization: the patient's illness, the patient's relationship with the physician, and the patient's disadvantages in selecting physicians combine to make it miserably difficult for patients to shop skillfully for fair prices.

1. The Effects of Illness on the Patient as Consumer

Being a consumer is harder than it looks, especially when buying unfamiliar things in unfamiliar situations. Consumers chronically inform themselves laxly, understand their preferences hazily, and analyze their choices carelessly. An extensive and expanding law of consumer protection responds to these frailties with a varied array of doctrines. (23) For example, that law forbids unduly dangerous and even unduly disadvantageous sales--as usury laws do. It relieves people of some improvident contracts, if only through a locus poenitentiae. It requires warnings about many products--truth-in-lending laws being a prime example (of this popular if bootless technique). It provides remedies for harms done by defective products.

What, then, of the patient as consumer? All the consumer's frailties and frustrations afflict the patient. But in addition, illness can cripple the patient as consumer. How?

Illness disables. Sick bodies rebel, and the ill are defeated.

Illness pains. The faltering body hurts. Sometimes intensely; sometimes perpetually. Even "a little loss of animal toughness, a little irritable weakness and descent of the pain-threshold, will bring the worm at the core of all our usual springs of delight into full view, and turn us into melancholy metaphysicians." (24)

Illness exhausts. The sick lose the physical strength and emotional fortitude to keep houses clean, families cared for, friendships alive, and employers satisfied. They struggle even to rise from bed, brush their teeth, or make breakfast.

Illness erodes control. One doctor explains that the most destructive part of illness is "the loss of control. Maintaining control over oneself is so vital to all of us that one might see all the other phenomena of illness as doing harm ... doubly ... as they reinforce the sick person's perception that he is no longer in control." (25) Control is always an illusion; call no man happy until he dies. But control especially eludes the ill.

Illness enforces dependence. Everyone is dependent, but illness reduces the sick to uncustomary and even plenary reliance on others. Arthur Frank learned from his cancer that "[d]ependence is the primary fact of illness." (26)

Illness disorients. Sickness alters lives, often globally, often incomprehensibly: "The merest schoolgirl, when she falls in love, has Shakespeare or Keats to speak her mind for her; but let a sufferer try to describe a pain in his head to a doctor and language at once runs dry." (27) So the sick suffer a disturbing, exhausting strangeness.

Illness baffles. Patients yearn to know their prognosis but rarely understand the origin, mechanism, or trajectory of a disease. Worse, medicine "is engulfed and infiltrated by uncertainty." (28)

Illness terrifies. "I break out in a hot sweat, become dizzy with the secret but powerful secretion of adrenaline, my mind boils with disparate thoughts as the world transforms itself into an elaborate disaster." (29) And "mere explanations of course provide no relief, because all I now know is that I am deeply and irrevocably out of my mind." (30) The sick fear all the harms we have catalogued, and not least the lesser ones. When Arthur Frank talks "to people about to begin chemotherapy, a common reaction is for fears of immediate side-effects, particularly hair loss, to be more of a topic than fears of the treatment not working." (31) But the ill fear much beyond these homely horrors: And I looked, and behold a pale horse: and his name that sat on him was Death.

Illness isolates. The pain, debility, uncertainty, and fear that those around him do not know, their sufferer cannot fully share. Illness is "always a place where there's no company, where nobody can follow." (32)

Who, so beset, can muster the energy and acuity to buy a telephone sensibly, much less medical care? How can patients be the consumer a market needs?

 
   Someone who is ill and seeking help--unlike someone who is 
   purchasing a pair of socks or a pound of sausages--is often 
   vulnerable, certainly worried, sometimes uncomfortable, and 
   frequently frightened. [The term c]ustomer, like the other obvious 
   choices--clients, consumers, and users--erases something that lies 
   at the heart of medicine: compassion and a relationship of trust. 
   (33) 

2. Shopping for Treatments: Patients in the Hands of Doctors

Not only can illness cripple the patient as seeker of information and maker of decisions, but the sick must engage with doctors in ways that unfit them for the market. Patients rely so much on their doctors that their purchasing choices are severly constricted, so constricted that it is hardly too much to say that doctors wield something like monopoly power over patients. We just described what illness can do to patients. In their weakness, in their vulnerability, in their fear, patients crave the solace of doctors, confide themselves to doctors, trust doctors. (34) Patients want a therapeutic relationship with their doctors, a relationship which produces and prospers on reliance, attachment, and mutual confidence. This generates what economists call "monopolistic competition." (35) It generates a system that is "inherently monopolistic." (36) Patients rarely abandon doctors, reject doctors' recommendations, or demand second opinions. (37) So, as one court recognized,

 
   [t]he doctor dictates what brand [of drugs] the patient is to buy 
   ... [and] orders the amount of drugs and prescribes the quantity to 
   be consumed. In other words, the patient is a captive consumer. 
   There is no other profession or business where a member thereof can 
   dictate to a consumer what brand he must buy, what amount he must 
   buy, and how fast he must consume it and how much he must pay with 
   the further condition to the consumer that any failure to fully 
   comply must be at the risk of his own health.... [T]he patient then 
   becomes a totally captive consumer and the doctor has a complete 
   monopoly. (38) 

Why? The patient's bond with the doctor is not easily created nor lightly sacrificed. Doctor and patient develop information about and confidence in each other, information and confidence that must laboriously be re-created when the patient changes doctors. This is not unique to medicine, (39) but illness inspires especially "thick" and vital personal relationships that patients hate to disturb. In short, there "is a very powerful and special bond between doctor and patient," so even "when a transaction does not directly involve a physician financially," the doctor still plays "a dominant role." (40) Doctors' "monopoly" power is intensified by patients' almost irredeemable ignorance about almost all of almost every transaction.

 
   Unlike a person shopping for a car, a suit or a haircut, the 
   medical patient does not know what it is they [sic] need, what it 
   should cost, or even, once paid for, how much good the treatment 
   really did. Instead of a clear specification of what is to be 
   expected from both parties, the patient must trust the doctor to do 
   what is right and to bill fairly for the necessary care.... (41) 

Patients have even less choice about hospital services. Doctors usually choose hospitals for patients and dictate most hospital expenditures. (42) Yet doctors' decisions are shaped by factors patients would not consult. Because doctors are typically not hospital employees, hospitals must attract doctors to attract patients. (43) Because physicians prefer hospitals with the best equipment, staff, and professional amenities, competition among hospitals drives patients' costs up, not down. (44)

In short, doctors are not monopolists in the starkest, strictest sense. But the market's structure, the patient's situation, and the patient's ties to the physician effectively make patients hardly more than buyers without choice.

3. Shopping for Doctors

Patients, then, depend too much on their doctors to be free and active consumers of medical treatments. Yet patients are hardly better consumers when they pick the doctors on whom so much turns. Consider prices. Physicians advertise little and advertise fees less. They post no prices. (45) All this used to be blamed on collusion among doctors, (46) since the AMA's Code of Ethics forbade advertising. However, when this ban was declared an antitrust violation in 1980, (47) little changed. (48) Nor do doctors discuss charges with patients. Only ten percent of Pittsburgh patients remembered being told what care would cost, (49) and in our casual survey of North Carolina physicians, only a plastic surgeon said he mentioned fees in advance. (50)

Doctors dislike discussing fees. (51) Hippocrates warned:

 
   Should you begin by discussing fees, you will suggest to the 
   patient either that you will go away and leave him if no agreement 
   be reached, or that you will neglect him and not prescribe any 
   immediate treatment.... I consider such a worry to be harmful to a 
   troubled patient, particularly if the disease be acute. (52) 

Even today, Professor Stein detects a "taboo in official American health culture: namely, a prohibition upon allowing the physician to appear concerned with financial matters." (53) Introducing money violates "the sacred by the profane." (54) Those "'selling' their services are loathe to affix a price tag to those services at the time of the transaction or as an official precondition to 'delivering' them. Somehow it would be immoral to do so." (55) Professor Stein thinks physicians "fear that to introduce monetary matters into an already unequal (i.e., parent-child) relationship would only widen the inequality, and would, moreover, demystify the parental, sacred, qualities that are necessary for an effective clinical relationship." (56) And perhaps physicians--who are generally far wealthier than their patients--are embarrassed to discuss fees patients may find inexplicably high and crushingly burdensome.

Because physicians do not volunteer prices, patients must ask. But do you want to begin treatment by haggling over prices? You're sick, anxious, and intimidated. So you let the doctor set the boundaries and tone of your relationship. In one study, only twelve percent of the people questioned had ever negotiated with a provider to get a lower price. (57) And in our pilot interviews in 2006 with a convenience sample of thirteen people, only a few patients (who knew their doctors well) were comfortable asking about costs. (58)

Consider the well-educated, self-reliant woman trained in economics who injured her foot and asked a physician to refer her to a radiology clinic. The X-ray having shown a fracture, she hobbled to a nearby podiatrist. Told the podiatrist didn't "take walk-ins" (which she thought ironic), she pleaded successfully to be seen. Since she had high-deductible insurance, the podiatrist prescribed a boot rather than a cast. Did this conscientious consumer ever ask about money?

A: No, because I figured I'm here, I'm not going to insult him by saying "how much do you charge?"... I could have gone to the other [medical office in the same building], but let's say the other one upstairs is higher, am I going to come back downstairs now that I've insulted him? So it's a little difficult to ask him his price....

Q: In general, you said it's insulting to ask the doctor. Is that generally true?

A: For me it is.... [I do ask my dentist about costs,] but with doctors somehow, there's a little more respect there ... in the sense that you don't want to get off on the wrong foot with the doctor, even the foot doctor [chuckle].

Q: Yeah, after all, you don't want your doctor thinking badly about you.

A: Yeah, getting revenge somehow, perhaps. (59)

If the circumstances and psychology of medical care deterred this strongly motivated, well-educated, cost-conscious, and self-confident patient from asking about prices, who would be braver?

If doctors can't discuss costs, could they communicate prices in some other way? Several generations ago, physicians did post fees. One influential guide advised nineteenth-century physicians to hang up a fee table "in a semi-prominent position in your office, that you may refer patients to it whenever occasion…