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Justice and Managed Care.

Four Principles for the Just Allocation of Health Care Resources

The American health care system has long been criticized for its injustice. The absence of universal coverage and the reliance on employer-based health insurance and patient ability to pay create financial barriers that limit access and produce high levels of under- and uninsured. Further, the diffuseness of decisionmaking within the American health care system precludes a coherent process for allocating health care resources.[1] The growing dominance of managed care organizations raises both expectation and apprehension about improving the justice of the American health care system. How can we evaluate the justice of a managed care organization's allocation of resources? What set of criteria can we use to determine when managed care's denial of benefits is just or unjust?

Two Dimensions of Justice in Health Care

Issues related to justice in health care can be divided along two dimensions: access and allocation.[2] Access refers to whether people who are--or should be--entitled to health care services receive them. Allocation refers to determining what resources should be devoted to health care, at three distinct levels.[3] At the social level, allocation refers to the proportion of Gross National Product, the government budget, or a company's revenues that should be devoted to health care. At the service level, allocation refers to what health services people should be guaranteed as part of a basic benefits package, or which services should receive the highest funding priority. At the patient care level, allocation refers to which specific patients should obtain naturally or socially scarce services, such as organ transplantation or in-patient psychiatric care for depression. Managed care organizations are involved in allocation at both the service and patient care level.

Access and allocation are related. One of the main allocating decisions is whether to use resources to increase the number of people entitled to specific services or to expand the range of services provided. For instance, the Oregon Medicaid reform plan opts "to assure everyone basic health care rather than to offer a larger but unevaluated collection of benefits to some of the poor while excluding others from anything but emergency services."[4] Nevertheless, access and allocation are conceptually distinct: After we decide that people should have access to health services, it is always a further question to delineate precisely what services they will be guaranteed.

While some managed care organizations have accepted some responsibility to ensure access for the uninsured,[5] whether managed care organizations--and those who fund them--have such an obligation and how far such an obligation extends are complex and unresolved issues. Conversely, the fair allocation of resources at the service level is an obligation all parties, including managed care organizations themselves, agree they have.[6] The very nature of managed care financing and delivery makes defining benefits inescapable; receiving a fixed budget to provide services for a defined population necessitates judgments about what services should be guaranteed and what should be left to members' discretion. Indeed, an advantage of managed care is that there finally is a natural locus in the American health care system for service level allocation decisions. What constitutes a just allocation of health care resources at the service level for managed care organizations?

Principles for the Just Allocation of Health Care Resources

There have been many different substantive methods proposed for the just allocation of health care resources, including cost-effectiveness, age-based rationing, the prudent insurer method, and the fair opportunity method.[7] Yet even their proponents acknowledge that these substantive methods have serious philosophical and practical problems that constrain their use for the just allocation of resources. For instance, cost-effectiveness is a method used to evaluate both the outcomes and costs of medical interventions, usually in the form of dollars per quality adjusted life years (QALYs), to define the comparative health benefits and costs of various medical interventions. While cost-effectiveness is strongly endorsed by many, the U.S. Public Health Service's Panel on Cost-Effectiveness in Health and Medicine enumerated several practical difficulties with cost effectiveness: the incommensurability of QALYs for different illnesses and interventions; the frequent exclusion of the value of time and opportunity costs; and the "shortage of data on intervention costs and effectiveness."[8] The failure to incorporate important values such as privacy and the fair distribution of benefits creates insuperable philosophical problems that, without the practical difficulties, limit the use of cost effectiveness analysis to "an aid to decision-making, not a complete procedure for making resource allocation decisions in health and medicine"(p.21).

In the absence of defensible substantive methods for the just allocation of health care resources, how can a managed care organization determine what services should be guaranteed as a matter of justice? How can members determine whether a managed care organization's benefit package is just? I propose four principles for the just allocation of health care resources that articulate widely held truisms about the American health care system. The principles do not describe the allocation of health care resources per se, but they bear on how allocation decisions are made. They are about the allocation of power over key resource decisions and thus integrally related to justice.

The principles should not seem radically novel, but obvious, almost platitudinous. Just because they seem obvious does not mean they are formal or vacuous, however. They are moral principles, expressed in moral terms with normative content. Nor should the apparent simplicity and uncontroversial nature of these principles be deceptive. Even in their most general form, these principles are helpful guidelines with substantive implications for the design of allocation policies and practices.

Improving Health Should Be the Primary Goal. The allocation of health care resources should aim at and be justified by the improvement in people's health.

In some sense, this principle needs no justification; it seems self-evident, almost a tautology. After all, what else are a health care system, physicians, hospitals, and specific medical services for except to improve people's health? If formal justification is attempted, however, it should appeal to the idea that health care is dedicated to a special set of aims or purposes and that it is the obligation of health care professionals to pursue these aims.[9] The special aim or purpose of health care is curing disease, relieving pain and suffering, promoting public health, pursuing research to improve health, and so on. What distinguishes the health care system from the educational or law enforcement or banking systems is pursuing this aim rather than improving reading ability or reducing crime or enhancing return on capital. Similarly, pursuing this aim as a primary interest also distinguishes the professional obligations and norms of clinicians from teachers, policemen, and bankers as well as the obligations of health care institutions from schools, jails, and banks. Any effects providing health services may have on reading abilities or crime or economic activity are incidental, either unintended or a means to the ultimate goal of improving people's health.

The principle of improving health restates this aim for the allocation of resources. While there may be disagreement about which allocation is better at improving people's health, this principle specifies and restricts the kinds of reasons that can be given to justify guaranteeing certain services rather than others.

Patients and Members Should Be Informed. Patients, members, and prospective members of managed care organizations should be informed about the allocation of health care resources and the underlying data and justification for the allocation.

The justification of this principle has many sources, but the strongest derives from the necessity of respecting individuals as rational and autonomous moral agents, a fundamental ideal of American society, as well as the related value of publicity. Individuals should be accorded the opportunity to devise, revise, and pursue their own life plans.[10] For these choices to be autonomous and based not merely on whim, they must be informed and they need to be made by free and rational individuals acting from values they affirm.[11]

To respect people as autonomous moral agents in the health care context requires (1) forging the conditions necessary for their making free and rational choices and (2) respecting their choices.[12] Providing patients information about their illness, options for diagnostic tests, and the risks and benefits of alternative treatments is necessary because such information permits "individuals to develop their own aims and interests and to make their values effective in the living of their lives" (p. 18). This reasoning has generated the standards of informed consent.[13] The same rationale also justifies providing people with other information relevant to health care, including information about the range of services a managed care organization makes available. This information is essential for individuals to organize their lives and make critical decisions regarding their life plans--even when individuals do not have a choice among health plans. Indeed, the new institutionalization of health care delivery requires reconceiving the notion of informed consent to include the information on institutional policies that have a high likelihood of affecting people's health and opportunities.[14]

The principle of information is also justified by the ideal of publicity. It has been argued that a necessary condition for an action to be moral is that it can be made public and justified to those who are affected by it.[15] If we cannot offer reasons for an action or policy that others can accept--or if we deliberately keep the reasons secret because others will not accept them--then the action or policy cannot be deemed moral. Publicity is a fundamental requirement of the democratic process because it lets people participate in deliberation and approving decisions,[16] but it does not apply only to political actions and governmental policies. Publicity is a necessary value generally for actions by private entities that affect critically important goods and that involve issues of justice. Thus for the allocation of health care resources to be fair, publicity requires that it be made public, whether the allocation is by a public or private entity.[17] Importantly, the standard benefits language stating that "medically necessary and appropriate" services are covered fails to meet publicity; it has too many interpretations, obscuring rather than accurately informing patients about what services are covered and why.[18]

Patients and Members Should Have the Opportunity to Consent. Patients, members, and prospective members of managed care organizations should be given the opportunity to consent to the allocation of health care resources that will affect them.

As with the principle of information, the justification for this principle of consent ultimately rests on respect for persons as autonomous moral agents; it also appeals to the closely related reason of democratic legitimacy.

As noted, respecting people as autonomous moral agents requires not only creating conditions necessary for them to make free and rational choices but also respecting their choices. With regard to allocating health care resources, treating people as autonomous agents requires not just disclosing the allocation enacted or listing covered services, but providing an opportunity for them to consent to the allocation. Therefore, justice requires that those who have to live with the consequences of the allocation be afforded the opportunity to affirm that the allocation reflects their values.

A related way of justifying the principle of consent is to appeal to democratic legitimacy. In a democracy, decisions by politicians about the distributions of social resources that affect the citizens' lives, and the quality of their lives, are legitimate only when they are based on consent, or only if they are justified by reasons citizens affirm. Importantly, citizens have a correlative obligation to obey decisions that are legitimate. This ideal of democratic legitimacy is not limited to government and narrowly defined political actions. As the history of overcoming racial discrimination attests, it extends to decisions of individuals and private organizations that affect justice and the fundamental social goods. Because the allocation of health care resources is a matter of justice and of fundamental importance to citizens, it must be viewed as legitimate even if it is most frequently handled by private organizations. And citizens will view such allocation decisions as legitimate only if they--or their representatives--can consent to them.

Conflicts of Interest Should Be Minimized. People entrusted to allocate health care resources should not make allocating decisions under conditions that could reasonably be expected to be influenced by direct, personal financial benefits or penalties.

This principle is the application of conflict of interest standards to decisions about allocating health care resources. Conflicts of interest arise when decisions or actions "concerning a primary interest tend to be unduly influenced by a secondary interest."[19] These secondary interests are not inherently unethical--indeed, in the right context, many are virtues. The problem is that in the context of responsibility for the health and well-being of others, they can outweigh or appear to dominate what should be the decisionmaker's primary interest in improving health.

Conflict of interest rules are meant to minimize the influence of secondary interests on decisions and judgments, to ensure that the primary motivation of those who make decisions that affect the well-being of others is, in fact, the well-being of others. Since in most cases it is impossible to eliminate the role of secondary interests, these rules use a sliding scale, tailoring limits to the magnitude of the conflict and the potential harm that can result.[20] Rules regarding financial conflicts usually permit small financial gains but prohibit larger financial gains because of the increased probability of dominating primary interests. Stricter limits are used as the number of people affected by a decision increases or as the potential harms become more severe.

How does this apply to the allocation of health care resources? As the principle of improving health indicates, the primary interest of those making judgments about the allocation of health care resources should be improving people's health. Personal financial gain or other secondary interests should not influence the allocation decisions. Conflict of interest rules should minimize--or, in the ideal, eliminate--the possibility that the financial interests of those making allocating decisions unduly influence the task of improving people's health.

Differing Interpretations and Implementations of the Four Principles

Like laws and constitutional amendments, these principles provide a shared framework expressed in general phrases. Inevitably, reasonable people will offer differing interpretations of the principles and disagree about how they should be implemented. For instance, with regard to the principle of improving health there are at least two sources of potential controversy. "Improvement in people's health" could be interpreted in a strictly utilitarian manner, such as maximizing longevity or QALYs. Alternatively, improvements might require not maximization of health but more evenly distributed improvements so each person's average life span is improved.

Another source of controversy focuses on whose health is to be improved: the patients who are sitting before physicians, the members enrolled in the managed care plan, or the population, whether enrolled or not, in the managed care plan's market? Similarly, the principle of information requires that patients and members be informed, but there is great interpretive latitude in what constitutes "informing." Does disclosure by putting the benefits package on the Web constitute informing patients and members? Is a more proactive effort required--mailing information, holding public meetings, advertising, and the like?

The consent requirement is also controversial. The history of political theory contains a multitude of differing interpretations of consent.[21] While the principle of consent suggests the need for explicit consent, there is controversy over whether the consent should be ex ante or ex post, with full information or behind a veil of ignorance, and whether choice in the marketplace qualifies as consent.[22]

Different interpretations of each principle can lead to significantly different policies implementing them. Each managed care organization will have to offer its own coherent and defensible interpretations of these principles and develop policies that cohere with them. Fortunately, such interpretations are not immutable.[23] Like constitutional interpretation, interpreting and applying these principles should be viewed as an iterative process of elaboration and refinement of the interpretations based on new policy challenges and revisions of policies based upon refined interpretations of the principles. However, some interpretations of the principles are likely to be better, more justifiable, than others. For instance, a strict maximizing interpretation of the principle of improving health, while consistent with utilitarian theory, seems ethically unpersuasive. Indeed, Oregon abandoned a strict cost-effectiveness approach to ranking health services for its Medicaid program.[24]

Yet even without elaborating and justifying a particular interpretation of these principles, relying solely on their general phrasing, there are significant implications for the structure, practices, and allocation policies of managed care organizations. I identify six implications, some of which are familiar and commonly advocated in the current debate, while others have received significantly less attention.

Practical Implications of the Four Principles of Justice in Managed Care

First, the goal dictated by the principle of improving health provides a performance-driven standard for evaluating the allocation of health care resources. While for-profit managed care organizations are not inherently unethical, this principle establishes an ethical presumption to prohibit such entities insofar as their allocation of resources to investor profits inevitably diverts funds that could improve people's health. Both nonprofit and for-profit managed care organizations must allocate resources for the provision of health services, administrative expenses, and investments in the future such as quality improvement programs, capital expenditures for new equipment and facilities, and training of personnel. The difference is that for-profit organizations must also allocate resources for profit. Consequently, the justification for the allocation is not only improving people's health but also providing investors a financial return.

This is not to argue that the allocation decisions of nonprofit managed care organizations will always sustain the principle of improving health simply because those decisions are made by nonprofit organizations. Nonprofit managed care organizations might divert resources to ends other than improving members' health--for example, into amenities or disproportionately generous salaries and/or benefits for executive staff.[25] But nonprofit organizations do not have an obligation to return a profit on shareholders investment, and thus do not face the same constraint as for-profit organizations on how their resources may be allocated. Much of the antipathy toward for-profit managed care arises because profit seems inherently to divert resources away from the performance standard of improving people's health.

This means there is a prima facie presumption against for-profit managed care plans. According to their proponents, the claim that profits divert resources from health is deceptive, however. The amount of resources expended for a given improvement of health is not fixed. Through better coordination of care; redesign of information, laboratory, and other systems; lower supply costs; and providing care in more cost-effective settings, it is possible to improve people's health at lower cost. Profit, it is argued, is an essential incentive to achieve these efficiencies. Moreover, efficient for-profit managed care organizations force competing nonprofit organizations to re-examine and streamline their operations.

If allocating health care resources to profit truly creates a more efficient health care system that improves people's health, then it would overcome this prima facie presumption. Because it is a performance-driven standard, such a claim is not a matter of market or antimarket ideology; it can be assessed empirically. There are minimal data on this issue, and data comparing other for-profit and nonprofit health providers are contradictory and inconclusive.[26] The experiences of some for-profits are not encouraging in ensuring that the focus is improving health care. A CEO of a for-profit managed care organization explained his experience:
 The difficulty is that market pressures are extremely short term. Stock
 analysts who follow companies want them to perform to the calculated profit
 estimates every quarter.... [W]hen [Wellpoint Health Networks] became
 publicly held, and listed on the stock exchange, for the first time ever
 there were incredible pressures for achieving our goals for quarterly

If studies are needed to vindicate the allocation of health care resources to profit as justifiable and just, current for-profit managed care organizations are justified only if they are participating in these studies. Their future status depends on the results of the studies.

The principle of improving health also compels critical examination of the allocation of resources within managed care organizations according to whether they promote people's health. Some programs, such as persuasive advertising, high administrative costs, and plush hospital rooms, appear less justifiable than others. Billboards, newspaper ads, and commercials divert health resources from improving health to marketing and appear unjust. Again, this prohibition on allocating resources to advertisements is prima facie; advertising could be justified as an essential mechanism to the ultimate goal of improving people's health.

But the claim seems implausible. Advertisements do not seem to be an essential incentive to creating better information systems or to providing care in the most appropriate setting. At best, ads are a by-product of market competition as organizations try to retain or expand market share. To justify advertising would then require an intricate claim demonstrating that market competition is the best mechanism for improving people's health and that persuasive advertising is essential to market competition. Advertising that informed people about the allocation of resources and the reasons for including certain services and excluding others could be justified by the principle of information, which provides a useful standard for regulating appropriate advertising in health care. However, billboards that proclaim "We are your health plan, not your doctor" or "We hear you" do not seem justified either by the principle of improving health or the principle of information.

The principle of information offers a third implication: "gag rules" are unjust. "Gag rules" are intended to prevent physicians from informing patients about services that may be appropriate to their medical condition but are not offered or covered by their managed care organization. They prevent patients from knowing what services the managed care organization covers and, therefore, why it has not covered the specific service that may be appropriate to their disease. In some cases, there may be very good reasons for not allocating resources to cover particular services: there may be insufficient data proving the intervention is beneficial; if it is beneficial, it may be too costly or its comparative cost-effectiveness may be adverse; or, more controversially, priority may be given to preventive services rather than supportive services. But by withholding this information, patients are kept in the dark about the appropriateness of the service and why it is not being covered. Clearly, hiding essential information about the allocation of resources both fails to treat patients as autonomous moral agents and violates publicity. Protecting the managed care organization against patients' negative reactions is certainly not a valid justification for withholding information.

Consenting to Allocation Decisions

The principle of consent leads to a fourth implication: the creation of forums for patients to consent to the allocation of resources within managed care organizations. The implications of the principles of improving health and information are negative, since they lead to prohibitions of unethical practices; the implication of the principle of consent is positive, requiring the creation of practices. Consequently, it can generate more disagreement. Not only do reasonable people disagree about what constitutes valid consent, judgments about what policies and practices are appropriate to the unique circumstances of different managed care organizations will vary.

At best, four core organizational elements must be considered to operationalize consent: who, what, when, and how. The first element, "who," concerns the locus of consent--what forums, committees, or boards will consent to the allocation and how will patients be represented? At the most minimal, there could be open forums or hearings in which the organizations managers inform members and patients about the allocation of resources or a list of covered services and solicit responses from whomever attends. Conversely, there might be surveys of members about broad principles or specific allocation decisions. More comprehensively, policy committees or advisory boards responsible for decisions involving the allocation of resources, such as service coverage, could include member representatives. Some managed care organizations could--and do--have members and patients represented on their boards of directors that must ultimately approve all allocation decisions.

The second element is the domain of consent: what substantive allocation decisions are patients supposed to consent to? There is interpretive latitude here. Consent might be to the broad principles or values that guide the allocation of resources; or to the ranking of broad categories of coverage, such as preventive services or rehabilitative services; or to the coverage of paradigmatic or salient services, such as mammograms for women under fifty, or chiropractors. Alternatively, consent could be to the weighting of outcomes to be used in cost-effectiveness analyses, or even more comprehensively, the ranking of intervention-condition pairs such as were used in Oregon.

The third element broaches the matter of timing: when in the process of allocating resources is patients' consent solicited? Members and patients could be asked to consent early in the process, when broad principles or the general benefits language are designed. Alternatively, they could be consulted at the end to endorse allocation decisions or assess particularly controversial coverage decisions.

"How" refers to the pervasiveness of consent: how systematic is patient involvement in the process of allocating resources? Patient consent could be a one-time event in which members and patients comment on the organization's list of covered services, covering or disallowing controversial services, or endorsing broad allocation principles that affect specific coverage decisions made by others. At the other end of the spectrum, consent could be integrally woven into an organization's culture. Members and patients could participate in all phases of the allocation process, from the articulation of broad principles and decisions about paradigmatic services to surveys about the ranking of services, to the establishment of research priorities and the specification of a comprehensive list of intervention-condition pairs.

Consent and the Market

There are many different ways of combining these four elements, creating a spectrum of consent processes that range from the minimal to the comprehensive. One appealing way to implement consent is through the market: people could consent to the allocation of resources by choosing in the market among competing managed care organizations that offer different benefits packages, embodying different schemes of allocating resources. Market consent provides people, as individual consumers, with a choice over a benefits package that they can "take or leave" but not modify. And this may be part of its great appeal. It is simple--it requires no changes in the internal structure of most managed care organizations; familiar--it uses the existing mechanism of annual enrollment; and not demanding--it permits members and patients to determine how much effort they will invest in consenting to the allocation of resources.

Market consent in health care has two weaknesses. Philosophically, annual choice among competing alternatives is, at best, a very minimal version of consent. It emphasizes individualistic choices and precludes--or does not encourage--collective deliberation and weighing of options. Further, it does not permit changing or modifying the options offered. In addition, for complex issues, such as allocating health care resources, consent is rarely thought of as a single event. In politics, for example, periodic elections for office do not alone constitute consent. Choice among alternative candidates for office occurs within an elaborate system that permits citizens multiple other opportunities to voice their opinions and advocate and lobby on particular issues.

Even more problematic are the practical problems of implementing market consent in the American health care system. Choice in the market can qualify as consent only (1) if consumers actually have choices and (2) if the range of options from which people can choose is reasonably diverse. Neither of these criteria currently is--or is likely to be--fulfilled in the American health care market. The majority of workers have no choice of health plan; their employers decide from whom they will receive health care. With no choice of managed care organization, consent to allocation is not even a theoretical possibility. Furthermore, through mergers and consolidation, the system is evolving toward a few large managed care organizations offering fairly similar benefit options competing in each market.[28] Even if people were offered the opportunity, choosing among two or three similar alternatives would hardly qualify as consent to the allocation decisions represented by the individual plans.

Importantly, overcoming these limitations of the market model of consent requires systematic reform of how employers offer health insurance and the diversity of options in the market; managed care organizations cannot resolve the problems if each is acting alone. Such systematic reform seems improbable, and in its absence managed care organizations aspiring to make their allocation of resources just cannot sincerely claim that choice in the market is effective consent; they must incorporate into their internal procedures these four elements of consent. The problems and difficulties of doing so are significant, ranging from skepticism, lack of knowledge, and lack of participation on the part of members to inefficiency and capture by extremists. Further, while some managed care organizations and other health care institutions have experience with eliciting member participation and consent, the experience and knowledge about the "best practices" that effectively realize consent in different circumstances is limited; what we know frequently comes from cases that may not be generalizable.[29] Consequently, establishing and institutionalizing consent is likely to be an iterative process requiring a sustained commitment by managed care organizations.

However, such efforts at consent should not be immediately dismissed as inherently impractical. First, there may be practical benefits from establishing consent procedures: greater acceptance of and adherence to restrictions of services, less litigation,[30] and an improvement in the sense of community essential to the most cost-effective delivery of health services.[31] Second, procedures for consent to the allocation of health care resources are necessary for the allocation to be ethically defensible and broadly endorsed. Third, in their drive for efficiency, managed care organizations have demonstrated the ability to undertake long-term commitments in areas fraught with problems and barriers that defied prior efforts, such as developing, implementing, and reporting outcomes and quality measures. Redirecting such experience could be quite useful in developing procedures for consent.

Consent and Appeals

The principle of consent further suggests a fifth practical implication: establishing appeals processes to review patient grievances about the denial of services. On this view, grievance procedures should be viewed less as giving patients what they want and more as a supplementary consent process. Even in a well-designed consent process integrated into the culture of a managed care organization, both that process and substantive allocation decisions may be imperfect. Some patients may not have participated; subtle barriers, such as language, may inhibit the participation of others; and even conscientious representatives to boards and committees may not necessarily represent all viewpoints. Further, substantive decisions may be wrong because of the unfairness of the principles used to guide the allocation, the inadequacy of the information used, or the inappropriateness of the application of the principles to particular services. An appeals process is a safety check on both procedural and substantive errors. It allows those excluded from the consent process to express their views and a reassessment of actual allocations in light of their implications in particular cases. If the original allocation is sustained, the legitimacy of the allocation decision and its justification are strengthened; if the original allocation is overturned, the allocation principles and decisions are revised to reflect more accurately the values of the managed care organization's members. Indeed, the paucity of cases in an open, easy to use, and fair appeals process is a prima facie indication of members' consent to the allocation of resources.

Conflicts of Interest

Finally, the principle of minimizing conflicts of interest provides the sixth practical implication: financial incentives for physicians and managers linked to the reduced use of resources or profitability should be minimized or, ideally, eliminated. Many managed care organizations use financial incentives that are linked to withholding tests, interventions, and specialist referrals.[32] Those with authority for a managed care organization's allocation of resources may have financial incentives that are linked to profits, low medical-loss ratios, or reduced use of services. These incentives attempt--or appear--to make the physicians' and managers' personal financial interests rather than improvements in people's health guide allocating decisions.

It may be impossible completely to disconnect financial incentives from the allocation of resources and profitability.[33] Even salaried physicians who receive no bonus recognize that the level of their salary next year, the number of patients they must see, and even the existence of their managed care organizations may be linked to financial performance and, therefore, the allocation of resources. Nevertheless, it is possible to prohibit the financial incentives that create the most flagrant conflicts of interest, namely those directly linking--or appearing to link--payment with the withholding of services. These links create conditions that increase the likelihood of personal gain. By developing rules that attenuate the link between financial reward and allocation decisions, it may be possible to minimize the likelihood that other financial arrangements is threaten patients' health.

The principle of minimizing conflict of interest does not prohibit many other financial incentives, including some forms of capitation. Financial incentives linked to improvements in health-related outcomes, such as reductions in morbidity or mortality or improvements in satisfaction, are ethical.[34] Capitation is a funding mechanism that requires the allocation of resources to meet the health needs of the specified population. Ethical concerns arise not because of the funding mechanism but because of the processes that are used to allocate the capitated and limited resources. The ethical problem with capitation is that the reasons behind the allocation appear not to be people's health but physicians' financial benefit. If capitated payments were allocated in accord with these principles of improving health, information, consent, and minimizing conflict of interest, capitation would be just.

These illustrations are not meant to be an exhaustive list of the practical consequences of these principles. Specific interpretations of these four principles in particular contexts will suggest additional policies and procedures that would characterize the just allocation of resources within a managed care organization.

Beyond Managed Care

While I have delineated principles of improving health, information, consent, and minimizing conflict of interest in reference to managed care organizations, these principles apply to all organizations that have significant responsibility for the allocation of health care resources, including hospitals, physician groups, employers, and governments. For instance, employers increasingly have control over the allocation of health care resources by determining how much will be spent for employees' health care and further by specifying health benefit packages.[35] The principles of information and of consent would require that employees be informed about the coverage decisions and how those decisions are justified by the employer, and that there be a process for the employees to consent to their employer's health coverage decisions. Similarly, the decisions of hospitals that are expanding or eliminating facilities--that is, that are making decisions about the allocation of critical health care resources--should adhere to these four principles.

Nonetheless, applying these four principles to other organizations raises at least two difficulties. Unlike managed care organizations and employers, most hospitals not owned by a managed care organization lack a defined patient or member population: whose health is to be improved? Who should receive information or consent to allocation decisions? And unlike managed care organizations, employers and the government have primary interests in addition to promoting health. For instance, government must provide citizens many other services from defense to support for the arts and education. In addition to--and in some sense prior to--implementing these four principles for the just allocation of health care resources, employers and the government must confront questions about the just social allocation of resources, weighing health care versus other legitimate demands on resources. It may be desirable that the just allocation of health care resources is embedded in more general questions about justice in the workplace and distributive justice, since it makes choices between advancing social welfare by health care or by other services more explicit and rational.[36] But it also makes decisions and trade-offs much more complex and incommensurable. That said, however, appropriately modified, the principles of improving health, information, consent, and minimizing conflict of interest can apply to the social allocation of resources by employers and the government--a topic for another discussion at another time.

Managed care organizations have pursued cost reductions with tremendous zeal. They have developed strategic plans that require the complete restructuring of delivery systems, invested millions of dollars in information systems, purchased practices, and engaged in various other activities. Often, however, they have done these things without substantial data assuring the production of high quality health care at lower prices. While efficiency is a legitimate and important goal in the provision of health care, it is not the only goal. We also demand that the health care system be just. With the pursuit of efficiency well established, it is now appropriate for managed care organizations to give justice a high priority. No one can trivialize the difficulties that will accompany the implementation of these four principles for the just allocation of resources. As with all worthy endeavors, being just requires sustained effort and resources over time. If the market rewards cost-reductions but not justice, then--if we believe in the importance of ethics--maybe we need to create incentives and forces that also reward the sustained effort needed to realize justice.


I would like to thank Norman Daniels and Francis Kamm for critical discussions and Richard Bernstein, Linda Emanuel, Margaret Little, Steven Pearson, James Sabin, Dennis Thompson, and Bob Truog for their critical reviews of the manuscript.


[1.] N. Daniels, "Why Saying No to Patients in the United States Is So Hard," NEJM 314 (1986): 1381-83.

[2.] C.J. Dougherty, American Health Care: Realities, Rights, and Reforms (New York: Oxford University Press, 1988); T.L. Beauchamp and J.F. Childress, Principles of Biomedical Ethics, 4th ed. (New York: Oxford University Press, 1994), ch. 6.

[3.] E.J. Emanuel, The Ends of Human Life: Medical Ethics in a Liberal Polity (Cambridge, Mass.: Harvard University Press, 1991), chh. 4, 6.

[4.] M.J. Garland, "Justice, Politics and Community: Expanding Access and Rationing Health Services in Oregon," Law, Medicine & Health Care 20, nos. 1-2 (1992): 67-81.

[5.] J.K. Iglehart, "Changing Courses in Turbulent Times: An Interview with David Lawrence," Health Affairs 13, no. 5 (1994): 65-77; Holy Cross Health Care System, Community of Committed Persons: 1996 Annual Report.

[6.] See ref. 5, Iglehart, "Changing Courses in Turbulent Times."

[7.] M.R. Gold et al., Cost-Effectiveness in Health and Medicine (New York: Oxford University Press, 1996); D. Callahan, Setting Limits; Medical Goals in an Aging Society (New York: Simon and Schuster, 1987); R. Dworkin, "Will Clinton's Plan Be Fair?" New York Review of Books, 13 January 1994, pp. 20-25; N. Daniels, Just Health Care (New York: Cambridge University Press, 1984); D. Eddy, "What Care Is `Essential'? What Services Are `Basic'?" JAMA 265 (1991): 782-88.

[8.] See ref. 7, Gold et al., Cost-Effectiveness in Medicine, p. 21.

[9.] See ref. 2, Beauchamp and Childress, Priciples of Biomedical Ethics; see ref. 3, Emanuel, The Ends of Human Life; see ref. 7, Daniels, Just Health Care.

[10.] See ref. 2, Beauchamp and Childress, Principles of Biomedical Ethics; see ref. 7, Daniels, Just Health Care.

[11.] J. Rawls, A Theory of Justice (Cambridge, Mass.: Harvard University Press, 1971).

[12.] G. Dworkin, The Theory and Practice of Autonomy (New York: Cambridge University Press, 1988); see ref. 2, Beauchamp and Childress, Principles of Biomedical Ethics.

[13.] For discussion, see P.S. Appelbaum et al., Informed Consent: Legal Theory and Clinical Practice, (New York: Oxford University Press, 1987); see ref. 12, Dworkin, The Theory and Practice of Autonomy.

[14.] N. Daniels et al., Benchmarks of Fairness fbr Health Care Reform (New York: Oxford University Press, 1996),

[15.] J. Rawls, Political Liberalism (New York: Columbia University Press, 1993), lectures 2 and 6; A. Gutmann and D. Thompson, Democracy and Disagreement, (Cambridge, Mass.: Harvard University Press, 1996), ch. 3.

[16.] See ref. 15, Gutmann and Thompson, Democracy and Disagreement.

[17.] See ref. 14, Daniels et al., Benchmarks of Fairness; see ref. 15, Gutmann and Thompson, Democracy and Disagreement.

[18.] D. Eddy, "Benefit Language: Criteria That Will Improve Quality While Reducing Costs," JAMA 275 (1996): 650-57.

[19.] D.F. Thompson, "Understanding Financial Conflicts of Interest," NEJM 329 (1993): 573-76; S.D. Pearson et al., "Ethical Principles to Guide Physician Compensation Systems Based on Capitation," NEJM 339 (1998): 689-93; A. Relman, "Dealing with Conflicts of Interest," NEJM 313 (1985): 749-51; American Medical Association, Council on Ethical and Judicial Affairs, "Conflicts of Interest: Physician Ownership of Medical Facilities," JAMA 267 (1992): 2366-69.

[20.] See ref. 19, Thompson, "Understanding Financial Conflicts of Interest"; Pearson et al., "Ethical Principles"; American Medical Association, "Conflicts of Interest."

[21.] D. Herzog, Happy Slaves: A Critque of Consent Theory (Chicago: University of Chicago Press, 1989), chh. 5-7.

[22.] See ref. 15, Rawls, Political Liberalism, see ref. 21, Herzog, Happy Slaves.

[23.] See ref. 3, Emanuel, The Ends of Human Life; ref. 15, Gutmann and Thompson, Democracy and Disagreement.

[24.] See ref. 4, Garland, "Justice, Politics and Community."

[25.] D. W. Brock and A. E. Buchanan, "Ethical Issues in For-Profit Health Care," in For-Profit Enterprise in Health Care, ed. B. H. Gray (Washington, D. C.: National Academy Press, 1986), pp. 224-49.

[26.] S.M. Shortell and E.F.X. Hughes, "The Effects of Regulation, Competition, and Ownership on Mortality Rates among Hospital Inpatients," NEJM 318 (1988): 1100-1107; B.H. Gray, The Profit Motive and Patient Care (Cambridge, Mass.: Harvard University Press, 1991), ch. 5; "For Profit HMOs Push Service, But Nonprofits Get Higher Ratings from GTE," Managed Care Reporter 1996: 478; T.J. Menke, "The Effect of Chain Membership on Hospital Costs," Health Services Research 32 (1997): 177-96.

[27.] J. K. Ingelhart, "Inside California's HMO Market: A Conversation with Leonard D. Schaeffer," Health Affairs 14, no. 4 (1995); 131-42.

[28.] P. Kronick et al., "The Marketplace in Health Care Reform: The Demographic Limitations of Managed Competition," NEJM 328 (1993): 148-52.

[29.] E.J. Emanuel and L.L. Emanuel, "Preserving Community in Health Care," Journal of Health Politics, Policy and Law 22, no. 1 (1997): 147-84; J. Morone, The Democratic Wish: Popular Participation and the Limits of American Government (New York: Basic Books, 1990), ch. 7; J. Godbout, "Is Consumer Control Possible in Health Care Services? The Quebec Case," International Journal of Health Services 11 (1981): 151-67.

[30.] See ref. 14, Daniels et al., Benchmarks of Fairness.

[31.] S.M. Shortell et al., Remaking Health Care in America: Building Organized Delivery Systems (San Francisco: Jossey-Bass, 1996).

[32.] A.L. Hillman, "Financial Incentives for Physicians in HMOs: Is There a Conflict of Interest?" NEJM 317 (1987): 1743-48; M. Gold et al. Arrangements between Managed Care Plans and Physicians: Results from a 1994 Survey of Managed Care Plans (Washington, D.C.: Physician Payment Review Committee, 1995).

[33.] See ref. 19, Pearson et al., "Ethical Principles."

[34.] See ref. 5, Iglehart, "Changing Courses in Turbulent Times."

[35.] K. Titlow and E. J. Emanuel, "Employer Decisions and the Seeds of Backlash," Journal of Health Policy Politics & Law 24, no. 5 (1999): 941-47.

[36.] See ref. 14, Daniels et al., Benchmarks of Fairness.

Ezekiel J. Emanuel "Justice and Managed Care: Four Principles for the Just Allocation of Health Care Resources," Hastings Center Report 30, no. 3 (2000): 8-16.

Ezekiel J. Emanuel is the chair of the department of clinical bioethics at the National Institutes of Health. He is working on a project to find the best ethical strategies for managed care. His most recent book is The Ends of Human Life: Medical Ethics in a Liberal Polity (Harvard University Press, 1991).
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Date:May 1, 2000
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