Establishing New Legal Doctrine in Managed Care: A Model of Judicial Response to Industrial Change

Courts are struggling with how to develop legal doctrine in challenges to the new managed care environment. In this Article, we examine how courts have responded in the past to new industries or radical transformations of existing industries. We analyze two historical antecedents, the emergence of railroads in the nineteenth century and mass production in the twentieth century, to explore how courts might react to the current transformation of the health care industry.

In doing so, we offer a model of how courts confront issues of developing legal doctrine, especially regarding liability, associated with nascent or dramatically transformed industries. Our model of doctrinal change includes five steps. The first step is the emergence of a nascent or transformed industry. In the second step, courts attempt to apply old doctrine to the nascent industry, resulting in a doctrinal mismatch with the realities of the new industry. When faced with this dilemma, the third step is that courts tend-implicitly or explicitly-to establish new legal doctrine that favors the industry. Then, in the fourth step, a backlash against the industry sets in while courts reassess rules favoring the industry. The last step is the emergence of a new doctrinal method of holding the nascent industry more fully accountable for its operations.

After setting forth the model and its limitations, we discuss the implications for how courts have responded to the advent of managed care. Our historical analysis suggests that courts are reluctant to interfere with emerging market arrangements, such as managed care’s cost containment practices. Eventually, courts tend to find new ways to achieve greater accountability, largely arising from tort law concepts.