Caveat Emptor? Or Primum Non Nocere?
In 2004 my wife and I bought a house. Shortly after moving in, we discovered that the furnace needed replacing. Who was responsible for the cost of the replacement? You might reason that it was our responsibility, that we should have done due diligence prior to the purchase. (In fact, we had hired a professional house inspector, but he’d failed to identify the furnace problem.) This is how real estate law in the U.S. historically functioned. Caveat emptor: let the buyer beware.
On the other hand, the seller had verbally reassured us that the furnace was in working order, and the need for replacement wasn’t listed on the seller disclosure. Both the seller’s statements and the written disclosure are forms of warranties. It turns out that real estate law in the U.S. has undergone a gradual shift over the years toward warranties, both explicit and implied. In other words, it’s shifted from caveat emptor toward caveat venditor, let the seller beware.
How did our furnace situation play out? The seller, who happened to be a relative, replaced it at his expense.
The balance between buyers’ and sellers’ responsibilities within a negotiation lies at the heart of both market theory and contract law. Sellers typically have more information about their product than buyers do. In the absence of agreed-upon mechanisms for how to handle the information imbalance, mistrust can become a major barrier to the functioning of a market. Information imbalance has a coercive effect, not unlike monopoly power, which can likewise distort or even break markets. Also keep in mind that we’re not just talking about physical defects here, such as a broken furnace. Purchase agreements also include payment terms, delivery terms, and other factors where information and power imbalances can lead to dissatisfaction and disputes.
Therefore, to make markets function properly, governments have over the centuries have created a large body of law to create balance between buyers and sellers. It answers questions such as,
- What constitutes fraud?
- When is there an implied warranty?
- What is a product so unsafe that the seller should be forced to issue a recall?
- Not to mention, How do you ensure that a consumer fully understands the implications of a contract that they’re signing?
These laws obviously protect consumers. They also protect markets, and by extension the entire system of free enterprise. Why? Because all markets run on trust, and you can’t have trust when sellers are able to take unfair advantage of buyers.
What kinds of consumer (patient) protections exist in healthcare markets?
One example is malpractice law. There’s an implied warranty that physician care will be consistent with professional standards. If there’s a bad outcome, and you can demonstrate in court that professional standards were violated, then you’re eligible for compensation. And there’s nothing that physicians can do to escape this. They can’t hang a sign on the clinic door saying that all care is delivered “as is”. They can’t ask you to sign an end-user license agreement (EULA) containing dozens of pages of fine print, as a software company might, releasing them from all warranties. Ok, I guess technically a doctor could do either of these things, but courts wouldn’t recognise the validity of those contracts.
Another example is HIPAA. While I’ve written and spoken elsewhere about HIPAA’s severe limitations, it’s still a concrete acknowledgement that some things in healthcare simply aren’t acceptable to exploit for profit.
But unfortunately there are many, many more examples in American healthcare where powerful entities exploit information and power imbalances in order to profit at patients’ expense. Such as nontransparent pricing and surprise billing, which would be treated as fraud in just about any other commercial domain, yet are somehow tolerated in healthcare.
The irony is that in healthcare, the need to compensate for information imbalances and other power imbalances is higher than in other kinds of markets. Not just because medical information and care processes are complicated, but also because illness and injury by themselves limit a patient’s ability to negotiate on equal terms. Which is one reason why doctors have a moral duty to place their patient’s interests above their own. (Similar duties exist outside of healthcare as well, such as an attorney’s legal obligation to act in a client’s best interest.) Healthcare corporations have the exact same moral duty to patients, even if existing laws allow them to ignore it.
So yes, this is an issue of morality and ethics. But it’s also an issue of markets and free trade. Markets only function properly (allocating resources efficiently, bringing prices down, and generally creating prosperity) when laws succeed at preserving fairness, so that participants can engage on equal, empowered terms. In healthcare, no amount of patient education can ever close this gap. Nor can de-regulation, such as allowing patients to self-prescribe. The only way to close it, and to enable healthcare markets to function properly, is to create a legal duty of care. If every insurance company, every hospital, every pharmaceutical company, every single healthcare corporation were legally required to place patients’ health and financial interests before their own, that’s the point at which a free market could begin.
- If an insurance company prevents a physician from delivering care according to professional standards, then it should be liable under malpractice law.
- If a patient can show that they couldn’t reasonably access or understand a hospital’s pricing prior to receiving treatment, then they shouldn’t have to pay anything.
- If a health system wants to cut back services, such as closing a maternity ward in a rural hospital, they should first be required to demonstrate that patients would not lose reasonable access to care (i.e., obtain a “certificate of non-need”).
In other words, replace Caveat Emptor with Primum Non Nocere: First, do no harm.