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Secondary Income From Recommended Treatment Should Fiduc~ inciples Constrain Physician Behavior? Frances H. Miller It is generally recognized that the parties to a physician-patient re- lationship are frequently on unequal footing. The potential for phy- sician dominance stems not only from the fact that illness places patients in a vulnerable, dependent posture but also from the superior knowledge, training, and clinical experience of the physician. Al- though it may be difD~cult~for the average patient to question the physician's judgment, patients must lay their innermost selves bare, both physically and emotionally, if their doctors are to understand the true nature and origin of their problems. Without trust, and therefore vulnerability, the candor necessary to the therapeutic relationship is impossible to achieve. The law redresses this kind of imbalance in certain relationships by requiring people who occupy positions of trust, such as physicians, to subordinate self-interest to the well-being of their charges. Such a relationship is called a fiduciary relationship. A fiduciary from the Latin fifes, meaning trust, fidelity, or confidence is a person who occupies a position of trust, fidelity, or confidence in relation to some- one else. The physician's conduct is not measured by that of, for ex- ample, the used-car salesman, because the principle of caveat emplor appropriate to arm's-length bargaining has no place in the doctor- patient relationship. 153
154 FRANCES H. MILLER As fiduciaries, doctors owe a duty of loyalty to their patient's in- terests that requires them to elevate their conduct above that of com- mercial actors. In the words of Mr. Justice Cardozo: Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A . . . fiduciary] is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.) The potential for conflict of interest, and therefore abuse of trust, is ordinarily what brings fiduciary principles into play, but conflict of interest in fact is not essential to fiduciary status. This paper describes the law's current approach to fiduciary aspects of physician-patient interaction. In tracing the development of the concept, issues have been analyzed for their potential impact on phy- sician involvement in profit-making medical enterprises. A broad per- spective was deemed useful to understand the subtle way in which fiduciary notions surround the physician-patient relationship with constraints on behavior not found in ordinary commercial transac- tions. Those constraints in turn are relevant to physician participation in what Dr. Arnold Relman has termed the medical-industrial com- plex,2 even though they may have arisen in an entirely different con- text. On the basis of an analysis of fiduciary theory, this paper concludes that a physician's receipt of secondary income from the treatment he or she advises for a patient raises the spectre of wrongful manipulation of the trust essential to the physician-patient relationship. The Physician-Patient Conflict of Interest Problem At a fundamental level a patient's best interests will not always co- incide with what seems to be the physician's most advantageous f~- nancial or professional position. Physicians are uniquely situated to persuade patients to purchase medical services, for patients rarely possess the sophisticated diagnostic skills that would prompt them to second guess physician advice. Moreover, when physicians are paid on a fee-for-service basis, their income increases the more services they provide, regardless of whether the patient actually needs them. If the physician works for a profit-sharing independent practice as- sociation (TPA) or health maintenance organization (HMO), the fewer services he or she provides the more money the physician makes at the end of the year, because patients pay by capitation. Similarly, the less time physicians on salary spend with patients, the more time they have for other professional pursuits. In these last two situations pa-
Secondary Income and Fiduciary Principles 155
156 FRANCES H. MILLER or dialysis facilities. Rather, they would not be allowed to send their own patients there. There are obvious disadvantages to such a solution because, for example, physicians might pay more attention to main- taining the standards of a nursing home if their patients resided there. There are also ways to circumvent it, because physicians could simply agree to send their patients to each other's profit-making facilities. However, other methods of enforcing standards and discouraging col- Jusive behavior exist, and a prohibition at least would do away with the direct incentive to prescribe inappropriate care. The real question is whether such a remedy is necessary or whether mere disclosure of the conflict of interest would sufficiently eliminate the potential for abuse. Is any "remedy" at all even appropriate? Al- ternatively, does physician involvement in for-profit medical care pose such a threat that more drastic responses are in order? The answers to these questions are unavoidably complex. They are also beyond the scope of this paper, because the true magnitude of abuse is difficult to gauge on the basis of available information. A discussion of how the law treats the fiduciary aspects of the physician-patient relation- ship, however, might throw some light on the issues. Background of Fiduciary Law Determining when a fiduciary relationship exists and exactly what standard of conduct applies is no easy task. The term fiduciary has been called "one of the most ill-defined, if not altogether misleading terms in . . . law."7 Courts have deliberately refrained from precisely defining the nature of fiduciary duty, on the theory that they need flexibility to deal with the innumerable permutations of relationships and behavior spawned by changing economic and social conditions. Fiduciary remedies originally sprang from courts of equity rather than courts of law, because the law provided no redress for breaches of trusty The label "fiduciary" need not necessarily be reserved for situations in which equitable rather than legal relief is requested, but the standard of care governing recovery in certain kinds of common law actions, such as for medical malpractice, may be heavily influ- enced by professional ethics with an "equity" origin. Fiduciary ter- minology thus appears in cases that allege violation of ordinary legal duty as well as less well defined fiduciary obligation. Courts also tend to use fiduciary terminology loosely to bolster a "correct" policy result when the factual circumstances support recovery for the plaintiff with- out the added moral weight of separate fiduciary concepts. Generally speaking, the law seems to affix the fiduciary label to specific factual situations, rather than to be guided by a well-structured theory of
Secondary Income and Fiduciary Principles 157 fiduciary obligation against which particular behavior can be tested. Analysis of the fiduciary aspects of physician-patient relationships thus is hindered by the lack of a precise analytical framework within which to examine the issue. Fiduciary Theory in Medical Litigation There are certain basic principles that help place the physician-as- fiduciary problem in perspective. Fiduciary relationships usually fall into one of three general categorieswith the fiduciary seen as (~) guardian of property, (2) advisor, or (3) agent.9 The law may impose fiduciary responsibilities on physicians stemming frown more than one of these categories. The following sections discuss cases in the context of these categories and speculate on the way they might apply to physicians' receipt of secondary income as a result of their treatment recommendations. Physician as Guardian of Patient Property The first category of fiduciary relationships applies to persons en- trusted with other people's property. They are required to deal with the property so as to enhance the interests of their beneficiaries, even if that comes at the expense of their own interests. A trustee, for example, may not self-deal with respect to trust assets. If a trustee does, no matter how objectively reasonable the transaction may ap- pear, any benefit to the trustee will inure to the trust and any loss must be made up from the trustee's own pocket. Although physicians ordinarily have no direct control over their patients' property, they do have enormous power over the medical costs their patients incur. To the extent that financial self-interest- particularly in the secondary income sense has the tendency to skew their medical advice, physicians may be considered fiduciaries with respect to their patients' financial resources. Kickback Cases Courts have not hesitated to condemn practices whereby physicians accept kickbacks for breach of fiduciary obligation to their patients. Thus, when a physician agreed with a lawyer to refer personal injury claimants in return for a kickback equal to the difference between the medical bill and one half of the combined med- ical and legal fees, the Massachusetts Supreme Judicial Court was characteristically acerbic in finding that the state licensing board had jurisdiction to revoke his license. Noting the physician's "high moral duty" to serve patients before he served himself, the court commented
158 FRANCES H. MILLER that "very few . . . patients would be pleased to know that . . . Etheir doctor] had received in addition to his medical bill a further sum out of the patient's money for no service rendered to the patient."~° Similarly, a federal Court of Appeals strongly condemned the prac- tice whereby optical companies kicked back one-third of the retail price of eyeglasses to referring eye specialists. Labeling the arrange- ments as "unconscionable and reprehensible contracts for secret kick- backs to a doctor," the court specifically found that they corrupted the fiduciary relationship between physician and patient. Not only do kickbacks distort a physician's incentive for referral from its proper focus the best interests of the patient but they also inflate the cost of the referred product or service. To the extent that the second pro- vider builds the cost of the kickback into the cost of the referred item, its price goes up unnecessarily. Recent allegations of corrupt sales practices in the cardiac pacemaker industry provide a dramatic illus- tration of the inflationary impact of kickbacks. These cases bear as strongly on patient financial well-being as they do on patient physical health.~3 The courts' opinions focus on the way the doctors' breaches of fiduciary duty impaired their patients' prop- erty interests by forcing them to pay unnecessary costs. If one applies this logic to the situation of physician involvement in for-profit med- icine, the parallels at first seem close. In fact, physician involvement in profit-making medical enterprises looks even worse because the "kickbacks," or secondary income, actually come from the physicians themselves in their corporate persona. On closer examination, how- ever, the factor that artificially inflates costs in the kickback cases- the fee for merely "referring" is absent. Costs may be just as arti- ficially inflated if the care is unnecessary, but this will not be the case universally. (The same concerns arise when the kickback is more sophisticated and less visible in the nonprofit context, as when phy- sicians with high volumes of hospital admissions are rewarded with nominal or nonexistent rental charges for office space in hospital- owned buildings.) The kickback opinions suggest that disclosure of the conflict of interest might obviate the breach of fiduciary duty, and disclosure of the receipt of secondary income from recommended treat- ment options might go a long way toward alleviating the potential for abuse associated with physician ownership of the business entities to which he or she makes referrals. Reimbursement Cases There is another sense, however, in which physicians may be considered fiduciaries with respect to their patients' property. it is sometimes argued that a physician has a fiduciary obligation to the patient's pocketbook when it comes to prescribing
Secondary Income and Fiduciary Principles 159 medical care.~4 The practice of hospitalizing patients for treatments that could be provided less expensively on an outpatient basis but that are covered by insurance only if done on inpatients is consistent with that thesis. The Robin Hood method of pricing widely practiced by physicians prior to the advent of Medicare and Medicaid subsi- dizing medical care for the poor by surcharging the rich is a variation on the same theme. The physician's fiduciary role in both of these situations involves the patient's finances in addition to his or her health. Whether the law imposes such a fiduciary responsibility on physicians, however, is virtually untested in the courts. Occasionally a patient will seek to recover from the physician the cost of hospitalization that was determined to be unnecessary, and therefore unreimbursable, by a third-party payor's retrospective uti- lization review procedure. Those few cases may mention fiduciary principles in passing, but the theory for allowing the patient to recover hospital costs from the physician is usually breach of an implied con- tract not to prescribe unnecessary care. The potential for expansion of fiduciary liability in this area exists, however. Physicians clearly know better than patients when care is medically unnecessary and therefore vulnerable to an insurer's claims rejection process. in ad- dition, they usually have a fairly clear idea about what kinds of care are likely to be reimbursable. A medically unsophisticated patient, on the other hand, ordinarily is reluctant to question a physician's opinion that he or she be hospitalized or undergo certain fo'rms of therapy. Notwithstanding the rhetoric about informed consent, pa- tients are conditioned to defer to physicians on matters of medical judgment. The analogy to trust law, although not perfect, is thus apt. The physician could be viewed as a trustee of the patient's financial resources, including insurance, with a fiduciary obligation to consider both health and finances in using them in the patient's best interests. If physicians are considered such cte facto trustees, when they derive secondary income from the treatment prescribed for their patients, they are in effect self-dealing. As previously noted, however, the law protects trust beneficiaries by prohibiting a trustee from benefiting by self-dealing. The temptations for abuse are considered so over- whelming that courts have responded by effectively eliminating any opportunity for gain on the part of the trustee. If one were to accept the trust analogy as appropriately applied to physician ownership of health care organizations, one would have to insulate physicians from any secondary income generated by their medical advice. Gift and Contract Cases Gift and contract cases involving physi- cians and patients fit neatly into the lay understanding of fiduciary
Secondary Income and Fiduciary Principles 161 profit-making entity, such as a nursing.home, for ancillary health care services, the law should scrutinize the contract very closely for evidence that the patient was not improperly persuaded to agree to its terms. Perhaps a presumption of undue influence might be appro- priate under those circumstances, requiring the physician to prove that the patient entered freely into the contract. Certainly, when the terms of the contract appear unduly advantageous to the physician, courts ought to be particularly alert to possible breach of fiduciary duty. Physician as Advisor The second general category of fiduciaries concerns people who act as advisors and who are therefore in a position to exercise undue influ- ence over what their charges do. The lawyer counseling a client is the strongest example, but the physician-patient relationship is strikingly similar. Both of these professionals often function in a dual capacity. They not only advise with respect to their patients' or clients' options but they themselves also often provide the very professional services they counsel their advisees to accept or reject. At the outset, therefore, they may be faced with a conflict between their advisers' best interests and their own financial well-being. That conflict is intensified when, for example, physicians stand to profit additionally from the ancillary services they advise their patients to consume because of their equity interest in the organization providing the services. This aspect of the physician's fiduciary obligation is seen in several types of cases. Conficlentiality Cases The Hippocratic oath states "whatever, in connection with my professional practice .. . ~ may see or hear . .. which ought not to be spoken abroad ~ will not divulge...." For more than 2,000 years physicians have taken that oath, pledging them- seIves to secrecy with respect to confidential medical information. This self-assumed duty has fiduciary quality, for patients have no choice but to trust their medical advisors when they reveal the intimate details of their lives. Complete openness is often essential to elective treatment, but such one-sided honesty diminishes the patient's ability to deal with the physician on a basis of equality. The duty of confi- dentiality, springing originally from ethical principles, is designed to reinforce the relationship of trust between physician and patient in the interest of getting to the root ofthe patient's medical and emotional problems. In discussing breaches of medical confidentiality, some courts ana-
162 FRANCES H. MILLER lyze the physician's duty as an implied provision of the physician- patient contract. That may well be true, but the force of the duty goes beyond mere contractual analysis. Physician-patient interaction does not necessarily involve contractual principles, yet no one would claim that lack of a contract gives a political candidate's physician license to broadcast that the patient is suffering from, for example, a terminal or even a social disease. Recovery for breach of the duty of confidentiality is sometimes granted squarely on fiduciary grounds, the contract aside, because of the broader range of available remedies. Contract recovery generally is limited to economic loss occasioned by the breach, whereas equity encompasses a broader range of remedies. For example, equity can redress the mental distress and damage to a marital relationship that often ac- company unauthorized disclosure of medical information, whereas damages for breach of contract would not.~7 Moreover, when physi- cians seek to disclose confidential medical information, courts can enjoin their behavior by citing fiduciary principles. Thus, when a psychiatrist published a book based on a thinly disguised account of a particular patient's therapy, a New York Supreme Court had no trouble enjoining its further distribution, as well as awarding dam- ages, on the basis of a breach of fiduciary obligation. The confidentiality cases reinforce the concept of physicians as the guardians of their patients' total welfare. Although they are not al- ways directly relevant to the issue of physician involvement in for- profit medical care, they demonstrate that injury to the patient's fi- nancial status can sometimes be as much the physician's responsibility as is the patient's medical condition or emotional state. Furthermore, when there is any suggestion that physicians are improperly using confidential medical information for personal gain, courts are quick to grant whatever redress is necessary to mitigate the damage caused by breach of the fiduciary relationship. Statute of Limitations Cases Another situation that raises the is- sue of the physician as fiduciary pertains to the applicable statute of limitations in medical malpractice cases. The law requires that at some point in time a patient's right to sue a doctor for malpractice must expire. Because memories fade, evidence is lost, and circum- stances change with the passage of years, legislatures have passed statutes of limitation to govern the time period within which lawsuits must be brought. In some jurisdictions the date of the allegedly neg- ligent act starts the limitations period running, although in others the discovery rule prevails (i.e., the statutory period begins with dis-
Secondary Income and Fiduciary Principles 163 covery of the injury). However, under a theory known as the contin- uous treatment doctrine, the cause of action will not accrue until the physician-patient relationship ends.~9 The continuous treatment doctrine is based squarely on fiduciary considerations. It contemplates that patients can justifiably rely on their physician's good faith and professional ability during the course of the relationship. They are under no obligation to question the phy- sician's techniques or to second guess opinions because they have a right to depend on the physician's fiduciary obligation to act solely in accordance with their best interests. Because physicians can cover up their mistakes during the continuation of treatment, they are not permitted to take advantage of a shorter limitations period during which they might have lulled the patient into a false sense of security or compromised the patient's ability to gain information about the true nature of his or her condition. Here again the advisory role of the physician is the key to fiduciary responsibilities. The physician's dominance in the relationship is counterbalanced by special advantages granted to the patient by the law. Although the cases may not seem directly related to physician involvement in for-profit medicine, they highlight the fact that when a physician's self-interest conflicts with the patient's welfare, the law uses fiduciary theory to balance the scales in favor of the weaker party to the relationship. Informed Consent Cases Fiduciary aspects of the physician-patient relationship can also be seen in informed consent cases. The early informed consent opinions granted recovery to plaintiffs for unau- thorized medical treatment on a battery rationale. If the patients had not consented to whatever procedures were performed, their physi- cians quite literally had trespassed upon their bodies. Over time, courts realized that such a simplistic analysis was not helpful in situations where patients had technically agreed to treatment but had not un- derstood what their consent really meant. Informed consent cases thus came to be brought on the grounds of negligence rather than battery, on the theory that a physician's duty of care includes providing a certain level of information to the patient before proceeding with or abandoning treatment. The physician's special position of trust re- quires him or her to serve the patient's best interests, including the right to personal autonomy, above all else. Thus, the patient's consent will protect the physician only to the extent that the physician has not taken advantage of the fiduciary position to procure it. The theory of recovery for failure to secure informed consent is
164 FRANCES H. MILLER grounded on the idea that, in the words of Mr. Justice Cardozo: "Every human being of adult years and sound mind has a right to determine what shall be done with his own body...."20 In other words, the de- cision maker is the patient not the physician. Unfortunately for this rationale, the physician usually understands the implications of med- ical information much better than the average patient. This inequality of knowledge, however, is precisely what triggers the fiduciary aspect of the transaction. The physician has tremendous power over patients because the physician possesses the technical information and understands its implications. The physician also con- trols access to two things that may be critical to the patient's health: hospital admission and availability of prescription drugs. Moreover, the physician has great influence with respect to channeling sick people to appropriate specialists. The comparatively impotent patient approaches the physician for advice, with little choice but to trust that it will be given with the patient's best interests in mind. The additional conflict of interest raised when physicians derive secondary income from the care they advise their patients to accept can only impair that trust. It may not be necessary to eliminate such conflict altogether, but disclosure would at least counter the suspicion that secrecy is symptomatic of unethical behavior. If disclosure raises patients' doubts about recommended care because they know it would generate sec- ondary income for their doctors, patients could seek second opinions on its necessity or seek care from a physician who does not have such conflict of interest. Physician as Agent The third category of fiduciaries deals with agents, i.e., persons who act for others in a representative capacity. As fiduciaries, agents are not permitted to take personal advantage of business opportunities that come their way in the course of service to their principals. For example, an agent cannot purchase property for him or herself that is offered for sale at an advantageous price to a principal whom the agent represents. By analogy, when physicians make certain decisions for their patients, perhaps they should only do so untainted by the conflict of interest that the receipt of secondary profits from their decisions would entail. Cases involving the physician's so-called ther- apeutic privilege to withhold information from patients in their own interest provide good examples of this aspect of physician as fiduciary. So long as a patient is competent the major exception to the principle of patient self-determination with respect to medical treatment con-
Secondary Income and Fiduciary Principles 165 corns the therapeutic privilege doctrines If a physician feels that a patient cannot deal psychologically with the truth about his or her medical condition or the treatment alternatives, therapeutic privilege permits the physician to adopt a paternalistic stance with regard to fact disclosure and decision making. In those relatively rare circum- stances the patient's family acts as surrogate decision maker or, if family members are unwilling or unable to occupy that role, the phy- sician may take on the decision-making function. A physician acts as a fiduciary more in the agency than the advisory sense when preempting the patient's right to self-determination and preventing the patient from making decisions. The parallel to agency theory is not exact, because a true agent remains subject to the prin- cipal's commands. To the extent that a physician purports to act for the patient, however, the physician should be held to an agent's fi- duciary standard of behavior. The physician can only justify depriving the patient of personal sovereignty if in the physician's professional opinion the patient's own best interests would otherwise be severely compromised. If the physician defends such drastic interference with the patient's fundamental right to self-determination on the grounds that the patient's best interests demand it, it should be obvious that any competing interests of the physician must be held to an irreducible minimum. If the exercise of therapeutic privilege were to be tainted by the physician's receipt of secondary income from treatment deci- sions the physician has made for the patient, a court might well find that this irreducible minimum has been exceeded. There are other common physician-patient situations where fidu- ciary principles come into play, such as the human experimentation, right to die, and children's rights cases, but most of these in fact involve issues of informed consent. In addition, the physician's "fi- duciary" duty toward society at large has been invoked in cases in- volving hospital staff privileges and the duty to warn third parties about potential harm from psychiatric patients. It may be difficult to characterize some of these latter situations as involving the potential for conflict of interest in anything but an attenuated sense, but the use of fiduciary terminology to support the results reinforces the notion that the special societal status accorded physicians is accompanied by special responsibilities imposed by the judiciary. Legislatures can also impose special responsibilities, and one of the purposes of this paper is to stimulate thinking about whether that might be an advisable method for dealing with the conflict of interest presented by physician involvement in for-profit medical en- terprises.
166 Conclusion FRANCES H. MILLER The foregoing discussion has traced development of the fiduciary prin- ciples applicable to physician-patient interaction, focusing on the way physicians have been considered fiduciaries in the property law sense, the advisory sense, and the agency sense. Although research has dis- closed no cases directly raising fiduciary issues about physician in- volvement in the medical-industrial complex, an intriguing potential for liability exists. A physician's receipt of secondary income from the services he or she recommends for a patient presents a potential conflict of interest with the patient's best interests. The conflict is intensified if we con- sider the physician a fiduciary on more than one basis when the phy- sician advises a patient about treatment. In the first place the physician has fiduciary obligations arising out of the trust inherent in the role of advisor. Additionally, the physician might be considered a fiduciary in the property law sense because of the responsibilities toward the financial resources available for a patient's care. It is this intertwining of the advisory role with derivative power over the purse that exac- erbates the potential for and seriousness of any abuse. The law applicable to conflicts of interest generated by physician involvement in the medical-industrial complex is ripe for develop- ment. As noted previously, both the opportunity and the incentive for wrongful manipulation of the trust inherent in the physician-patient relationship are present. The issues may be resolved differently, how- ever, depending on such factors as the percentage of the physician's ownership interest in a profit-making enterprise, the directness or indirectness of the secondary income benefit the physician receives, and the patient's ability to secure alternate forms of recommended treatment from other providers. The content of the law that develops in this area will be affected by fiduciary theory, and a rather ironic development in a closely re- lated area of the law probably will be influential as well. The Supreme Court has recently delivered several opinions facilitating antitrust litigation against the medical profession. By implication, these opin- ions damage the public perception of physicians as fiduciaries. Two decisions in particular, both rendered in the 1982 term, are especially relevant to the issue of physician involvement in for-profit medical care. In Arizona v. Maricopa County Medical Society22 the Supreme Court held that agreement among physicians on a schedule of maximum fees for health insurance reimbursement amounted to price fixing,
Secondary Income and Fiduciary Principles 167 illegal per se under the antitrust laws. The Court explicitly rejected the argument that the agreements should escape per se illegality categorization because they were entered into by medical professionals governed by ethical norms. On the facts of the case the Court refused to "distinguish the medical profession from any other provider of goods and services." In the other case, Federal Tracle Commission v. Amer- ican Meclicat Association,23 the Court let stand a lower court finding that the AMA was organized to carry on business for the profit of its members. These cases focus attention on the behavior of physicians as persons in commerce in apparent contradiction to their historic fiduciary im- age. The Supreme Court has expressly recognized that physicians can be influenced by the profit motive differentiated from pure profes- sional concern for their patients' interests. In other words, the more physicians behave like ordinary businessmen, fixing prices and lob- bying for financial interest through trade associations, the more the courts are going to treat them that way. On the other hand, the more they adhere to their disinterested fiduciary role, the less likely they are to run afoul of laws designed to govern arm's-length commercial transactions. Perhaps a more stringent application of fiduciary prin- ciples to physician behavior might be in the best interests of the medical profession. In the long run, physicians might prefer to forego secondary income from the ancillary services they order for their pa- tients if it reduces their overall exposure to liability. Their patients and society might benefit as well. References and Notes 1. Meinhard v. Salmon, 164 N.E. 545, 546, (N.Y. 1928). 2. Relman, Arnold S., "The New Medical-Industrial Complex." The New England Jour- nal of Medicine 303 (1980), p. 963. 3. The potential for indirect conflict of interest between physicians and patients exists when physicians are members of Blue Shield or other private health insurer governing boards, where they influence reimbursement policy and utilization review. When physicians have power to affect the fees they are paid or the procedures for which they are reimbursed from third parties, self-interest can collide with cost containment strategy. Whether driven by the technological imperative or by the desire to make more money, practicing physicians usually have little incentive to cut down on the amount of health care delivered or its cost. Physician dominance over hospital credentialling procedures presents another example of indirect conflict of interest. Physicians who control access to hospital privileges can protect their own incomes by preventing less expensive or more skilled physicians from competing for their patients. These indirect financial conflicts of interest are in some sense unavoidable. Insurers depend on medical professionals for information about appropriate utilization, although the same may not be true with respect to price, because they lack the expertise to evaluate it
168 FRANCES H. MILLER themselves. Likewise, hospitals have little choice but to turn to medical professionals for ongoing assessment of a physician's clinical capability. In the industrial and military medicine contexts, a physician's professional respon- sibility must be to the employee-patient unless the patient comes to the physician for an explicit evaluation of job fitness, even though the physician's salary is paid by a corporation or the government. The physician's relationship to his or her employer may present an indirect conflict of interest with the physician's duty to a patient by tempting the physician to pass on confidential medical information that could help the company but harm the patient's career. The law has a negative response to such breaches of the physician's fi- duciary duty of confidentiality, however. A company or military physician occupies a unique position of divided loyalty in the corporate hierarchy, but legal doctrine acknowledges the conflict and defines appropriate behavior toward patients by focusing on the reason for the physician-patient interaction. 4. This paper is not concerned with the indirect conflicts of interest discussed in note 3, supra, nor is it concerned with de minimus conflicts of interest between physician and patient. Physician ownership of stock in a publicly traded drug company, for example, presents such a de minimus conflict. Even though a physician might prescribe the company's product for a patient, any impact on secondary income would be exceedingly remote. 5. Rettig, Richard A., "The Policy Debate on Patient Care Financing for Victims of End- Stage Renal Disease," Law and Contemporary Problems 40 (1976), p. 196. 6. Cf., Lowrie, Edmund G., and Hampers, C. L., "The Success of Medicare's End-Stage Renal-Disease Program," The New England Journal of Medicine 305 (1981) p. 434, which argues that freestanding, profit-making dialysis centers are more efficient and reduce costs. 7. Finn, P. D., Fiduciary Obligation (Sydney: The Law Book Co., 1977), p. 1. 8. Equity courts, as distinct from courts of law, extend jurisdiction where the remedy at law is inadequate or incomplete. Historically, the system of equity jurisprudence devel- oped partly in response to the unwillingness or inability of common law courts to grant relief in trust cases where the beneficiary's rights had been violated. Most courts today, however, exercise both law and equity jurisdiction simultaneously. Although there is some overlap, the body of equity jurisprudence is still considered a separate entity from legal doctrine. Equity jurisdiction is invoked to provide relief where the legal remedy of money damages is either inappropriate or does not adequately redress the petitioner's grievance. Equitable remedies are usually more flexible than legal ones and are different in the sense that they can force one to do or refrain from doing something, as opposed to simply com- pensating the plaintiff for an injury. 9. A fourth category of fiduciary relationships, with few unifying themes to tie the cases together, serves as a catchall for certain other situations in which a court determines that a duty of loyalty has been breached or undue influence has been exercised and equity demands relief. For example, controlling shareholders have often been considered corporate fiduciaries, and franchisers have sometimes discovered to their dismay that they owe special obligations to their franchisees. Other remedies might have been available to the parties to these transactions, but the flexibility of equitable relief can make fiduciary categorization particularly attractive. See, generally, Talbott, Malcolm D., "Restitution Remedies in Con- tract Cases: Finding a Fiduciary or Confidential Relationship to Gain Remedies," Ohio State law Journal 20 (1959), p. 320. This category is currently in the process of definition and expansion, as the law moves toward an unconscionable transaction theory of fiduciary obligation. See Shepherd, J. C., The Law of Fiduciaries, (Toronto: Carswell Co., 1981), p. 20. The trend has interesting implications for physician involvement in the medical-in- dustrial complex, for it does not necessarily require evidence of bad faith to trigger a remedy. 10. Forziati v. Board of Registration in Medicine, 128 N.E.2d 789, 791 (Mass. 1955). 11. Lilly v. Commissioner of Internal Revenue, 188 F.2d 269, 271 (4th Cir. 1951). The Supreme Court reversed the case at 343 U.S. 90 (1952), but since the question at issue was the optical company's ability to take the kickbacks as an income tax deduction, the tax result does not necessarily undermine the fiduciary point.
Secondary Income and Fiduciary Principles 169 12. "Pacemaker Investigations Charge Overuse and Corrupt Sales Practices." Medical World News (Sept. 1, 1982), p. 8. 13. But see, Pauly, Mark V., "The Ethics and Economics of Kickbacks and Fee Splitting," Bell Journal of Economics 10 (Spring 1979), p. 344, positing that fee splitting could in fact improve patient welfare. 14. Havighurst, Clark, "Controlling Health Care Costs: Strengthening the Private Sec- tor's Hand," Journal of Health Politics, Policy and Law 1 (1976-1977), p. 471. 15. See, generally, Winder, W. H. D., "Undue Influence and Fiduciary Relationship," The Conveyancer 4 (March 1940), p. 274. 16. There may be situations, however, where the duty of confidentiality must yield to a higher societal interest. If psychiatrists reasonably believe patients present a significant risk of harm to themselves or to others, the duty of confidentiality is replaced by a duty to warn the appropriate authorities. Tarasoff v. Regents of the University of California, 551 P.2d 334 (Cal. 1976). Similarly, if a physician has reason to believe that a patient is the victim of child abuse or the carrier of a communicable disease, both the common law and statute may require the physician to report that fact. These cases where societal interests override the patient's right to confidentiality are clearly distinguishable from the ordinary situation wherein the patient simply confides in the physician for medical advice. 17. MacDonald v. Clinger, 84 App. Div. 482 (N.Y. 1982). 18. Doe v. Roe, 400 N.Y. Supp.2d 668 (1977). 19. Stafford v. Shultz, 270 P.2d 1 (Cal. 1954). 20. Schloendorf v. Society of New York Hospital, 105 N.E. 92, 129 (N.Y. 1912). 21. Meisel, Alan, "The Exceptions to the Informed Consent Doctrine: Striking a Balance Between Competing Values in Medical Decisionmaking," Wisconsin Law Review (1979), p. 413. 22. 50 U.S.L.W. 4687 (1982). 23. 50 U.S.L.W. 4313 (1982). i
