To: public_affairs@calpers.ca.gov
From: James McRitchie <jm@corpgov.net>
Subject: Health Benefits Committee
Cc: Kayla_Gillan@CalPERS.CA.GOV
Date: Sat, 28 Feb 1998 16:58:02 -0800
Please forward to all members of the Health Benefits Committee.
Dear Mr. Shimada,
In 1993, CalPERS approved a standard benefit design for all contracting HMO health plans. This step simplified plan selection for members, provided a more comprehensive, uniform scope of benefits, and improved CalPERS' ability to negotiate affordable premiums. I'd like CalPERS to take another revolutionary step; establish "enterprise liability" as a condition of contracts with HMOs.
The HMO system was superimposed on a liability system which evolved under a different paradigm when health care was dominated by physicians. Today, this bifurcated system, where a patient must seek damages from a physician selected by their HMO, no longer provides adequate incentives for quality care. Although CalPERS has begun to utilize customer surveys and other mechanisms to determine quality of care, there is no substitute for liability to create an incentive for HMOs to monitor.
The landmark 1965 decision of Darling v. Charleston Community Memorial Hospital held that hospitals could be found negligent for failing to supervise the work of professional independent contractors. In subsequent cases hospitals were held to have an independent duty to select physicians, monitor performance and withdraw privileges where problems were revealed. HMOs could eventually assume liability as case law evolves. However, CalPERS could "move the herd" by imposing enterprise liability as a condition of its contracts. This would ensure that members of the System have the best care in the country.
In his article, "Making Health Plans Accountable for the Quality of Care," (Georgia Law Review, vol. 31:511, p. 587-647) Clark C. Havinghurst of Duke University (see http://www.law.duke.edu/fac/havighurst/ ) called establishing enterprise liability for HMOs the most important single step in ensuring that care is managed with appropriate attention to its quality. Havinghurst notes, "Without legal accountability for quality, they may go less far than efficiency would dictate in integrating the delivery of care with its financing, leaving the health care revolution incomplete." HMOs typically profit from cost control but deny legal responsibility for quality.
In short, enterprise liability would avoid costly multidefendant litigation, encourage HMOs to screen physician and other providers with greater care, and encourage responsible monitoring. Only when the patient is presented with a point of service option or when they personally select a nonparticipating or nonpreferred provider, should they be required to look beyond their HMO for compensation in the event of negligently caused
injury.
In the words of Havinghurst, "Now that financing entities are aggressively addressing the problem of moral hazard, are taking an active interest in how their money is spent, and are managing care to ensure that physicians share that interest, it is time for them to become the primary bearers of legal responsibility when avoidable bad outcomes occur."
Please let me know if you would like additional information concerning this suggestion.
Concerned Member,
Jim McRitchie
CalPERS Responds (sort of).
From: "Gillan, Kayla" <Kayla_Gillan@CalPERS.CA.GOV
To: "'Jm@corpgov.net'" <Jm@corpgov.net>
Cc: Public Affairs <Public_Affairs@CalPERS.CA.GOV>
Subject: e-mail to Health Benefits Committee
Date: Tue, 3 Mar 1998 13:22:42 -0800
MIME-Version: 1.0
I have been asked to respond to your request that CalPERS staff forward to members of the Health Benefits Committee your Feb. 28, 1998 e-mail concerning establishing "enterprise liability" as a term within CalPERS' HMO contracts. Unfortunately, not all of CalPERS' Board members have Internet access, and thus CalPERS is currently not equipped to route e-mail messages such as this to all committee members. If you would like staff to deliver a hard copy of your letter to committee members, you should provide us with individually addressed copies and we will insert them in other business mail being sent to committee members. These copies should be delivered to Margaret Stanley, Assistant Executive Officer (P.O. Box 942701, Sacramento, CA 94229-2701, or 400 PStreet, 5th Floor). Alternatively, you may wish to mail the copies directly yourself; a listing of the Board members' mailing addresses is available from the Board's secretary, Dana Bromby (326-3828).
Comment: $140 billion and the Board doesn't have e-mail or adequate support to photocopy a letter and distribute it to members of the Health Benefits Committee. Once the Committee did get the suggestion, they did not respond.
Contact: 
jm@perswatch.net